Government Executive - Authors - John Cassara

Analysis: Losing the War on Drugs

John Cassara — Wed, 20 Feb 2013 13:33:33 -0500

National Drug Threat Assessment noted “the overall availability of illicit drugs in the United States is increasing.”

During the Nixon era, the importance of following the money became apparent in the drug war. The 1970 Bank Secrecy Act was designed to give criminal investigators better tools to identify proceeds from the sale of illicit narcotics. But while drug interdiction continues to receive recognition and scrutiny, the asymmetric financial battles receive surprisingly little attention.

Criminals traffic in narcotics as a means to an end -- money. The collective federal, state, local and international record on following dirty money, stopping illicit proceeds and punishing money launderers is abysmal.

Government data on illicit financial networks have been notoriously imprecise and lacking, but startling nonetheless. The United Nations Office on Drugs and Crime estimates that $1.6 trillion -- 2.7 percent of global gross domestic product -- was laundered in 2009. Financial flows related to drug trafficking and other related transnational organized crime have been pegged at $580 billion.

The Office of National Drug Control Policy estimates that Americans spend $65 billion per year on illegal drugs. Others believe the number is more than $100 billion. This insatiable appetite for narcotics coupled with a sizable economy makes the United States the most prolific money laundering country in the world.

National drug control officials estimate that law enforcement agencies seize $1 billion per year. That’s a success rate of only 1.5 percent. The United Nations office reports less than 1 percent of illicit global financial flows are being seized and frozen.

The Government Accountability Office estimates $39 billion in drug money is smuggled across the United States’ southern border each year. Of every $100 that goes south, U.S. law enforcement officers intercept only 25 cents. Particularly shocking is that smuggling illicit proceeds into another country or jurisdiction is arguably the simplest laundering methodology.

This failure of enforcement has consequences. In addition to the human and societal devastation caused by drugs, the tens of billions of dollars smuggled fuels international drug cartels.

Conviction rates are spotty and difficult to obtain, but the interagency National Money Laundering Strategy, released in 2007, reported only 1,575 money laundering convictions at the federal level in fiscal 2004. This encompasses prosecutions related to all serious crimes, not just drug trafficking. Analysts also have reported that the risk of conviction for money launderers in the United States is less than 5 percent.

Some believe eye-catching actions against major banks can force change. In a recent case, HSBC, one of the world’s largest financial institutions, was fined $1.9 billion for failing to pursue anti-money laundering within its branches. But actions such as these are regulatory. The $1.9 billion will be taken from HSBC shareholders, not from drug traffickers, and no one will be prosecuted.

Despite the disappointments, there are ready countermeasures. The National Money Laundering Strategy provides an excellent roadmap. Signed by the secretaries of the Homeland Security, Justice and Treasury departments, the document identifies threats and lays out comprehensive action plans.

Unfortunately, little progress has been made since the strategy was published. Congressional oversight committees should call hearings or send letters of inquiry to the agencies involved. Lawmakers should ask for an accounting of enforcement actions and insist on a renewed commitment to stamping out money laundering.

In November 2012, David Cohen, Treasury’s undersecretary for terrorism and financial intelligence, announced the Obama administration will conduct an assessment of anti-money laundering efforts and the effectiveness of regulations. The Senate Drug Caucus is similarly engaged.

There will never be enough criminal investigators in the fight against international money laundering, but better use of data and technology can be a modern day force multiplier. There have been tremendous advances in the amount and variety of data collected. Financial intelligence, travel and trade records are just a few examples of the big data available to law enforcement agencies. Data warehousing, predictive analytics, financial fraud frameworks and social network analytics are new capabilities that can help agencies derive meaningful operational intelligence.

It’s time for government to recognize the collective shortcomings in the war against drug-money laundering and rededicate its resources to enforcement.

John A. Cassara, a former intelligence officer and Treasury Department special agent, is author of several books on money laundering and terror finance and is an industry adviser to SAS Federal LLC.

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Follow The Money

John Cassara — Tue, 01 Nov 2011 00:00:00 -0400

Financial intelligence is one of the strongest weapons against terrorist and drug networks, but agencies must keep up with the changing threat.

This year is noteworthy for more than the 10th anniversary of the Sept. 11, 2001, terrorist attacks. Forty years ago, President Nixon declared a war on drugs. What do the two dates have in common? Arguably the most important countermeasure against both terrorism and narcotics trafficking-financial intelligence.

Most criminal activity is about greed, i.e. money. To help criminal investigators follow the money, Congress in 1970 passed a series of laws and regulations collectively known as the Bank Secrecy Act. "Secrecy" is a misnomer, however. A better term is "financial transparency" or "financial intelligence."

The data that emerged quickly proved its worth, helping combat money laundering related to narcotics and many other crimes. In 1990, Congress' confidence in financial intelligence was further evidenced by the creation of the Financial Crimes Enforcement Network, or FinCEN, at the Treasury Department. FinCEN's mandate was to collect, analyze and disseminate financial intelligence to more effectively support law enforcement.

Long before the idea of breaking down bureaucratic walls became popular, FinCEN was sharing financial intelligence with non-Treasury agents at the federal, state, local and, increasingly, international levels. FinCEN also is a network, a link among law enforcement, financial and regulatory organizations. Subsequently, Treasury gave the agency responsibility for enforcing the Bank Secrecy Act.

Approximately 16 million to 18 million pieces of financial intelligence are filed with FinCEN each year, many of which include names, addresses, account numbers and other identifiers used to root out criminal activity. Currency transaction reports filed with FinCEN for cash deposits or withdrawals of $10,000 or more have approximately 150 data fields. Similar reports are filed for cross-border transport of cash or assets and large business transactions at places such as car dealerships, real estate agencies, jewelers and precious metals dealers.

Particularly during the war on drugs, bankers were considered the first line of defense against money launderers.

Bankers are supposed to know their customers. If they sense a customer's activity is inappropriate, they file a suspicious activity report. In addition to identifying information, the reports often contain narratives that detail suspicious activity. FinCEN receives around 1 million SARs annually, about half of which are generated from banks and half from money service businesses.

Thinking Small

Most financial intelligence is used reactively. A criminal investigator or analyst assigned to solve a crime queries the financial databases seeking information that could prove useful, including information about a subject's assets. While financial intelligence by itself does not generally solve a crime, it often buttresses other investigative techniques, such as interviews, informants, surveillance and undercover operations.

But analysis of financial intelligence also can be proactive when crime has not yet occurred. In such cases, law enforcement officials examine data to identify anomalies, patterns and trends to intercept or prevent criminal activity.

Analytics add value to financial intelligence by combining it with other databases, including criminal records, immigration records, trade data, commercially available business information and social networks. Connections spotted between individuals, companies, bank accounts and other links, can uncover suspicious financial relationships and money flows, expanding the money trail.

Financial reporting was originally intended to detect large amounts of dirty money related to the war on drugs, and it has helped uncover terror activity in the United States and overseas. It is difficult to detect the small amounts of money used to finance terrorism. A plot in the Arabian Peninsula to send explosive devices to the United States in a printer, mobile phones and other air freight cost about $4,500. When the scheme was intercepted by authorities, al Qaeda in the Arabian Peninsula proclaimed, "It is such a good bargain for us to spread fear among the enemy and keep him on his toes in exchange for a few months' work and a few thousand dollars."

In another recent attempt, the Pakistani Taliban used an underground money transfer system-a crack in U.S. countermeasures-to finance an attempted bombing in New York's Times Square. That operation cost approximately $12,000.

The Way Forward

Criminal and terrorist methodologies have evolved during the past 40 years. Law enforcement and intelligence communities need to do a better job of recognizing new threats and developing innovative countermeasures.

FinCEN and other government entities must employ state-of-the art analytics to effectively exploit financial intelligence. Advanced analytics help identify anomalies, outliers, typical versus atypical behavior and patterns, and apply early-warning detection, predictive modeling, data integration, entity resolution, sentiment analysis and social media analytics. And industries must develop robust programs to comply with Treasury's financial reporting mandates. Adversaries, criminal methodologies and threats do not remain static. They shift and change, yet money will remain the essential ingredient in crime and terror. Successfully collecting, analyzing and disseminating financial intelligence will be their nemesis.

John A. Cassara spent more than 25 years as an intelligence officer and Treasury Department special agent and is author of several books on money laundering and terror finance. He also is an industry adviser to SAS Federal LLC.

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