This book is a careful analysis of the vulnerability of global financial systems to international terrorism and other criminal activity. The study is delivered in a methodical and dispassionate tone by Martin Navias, a war studies academic and banking and finance lawyer specialising in anti-money laundering, counter-terrorist financing and financial sanctions compliance.
His focus is the range of threats posed by terrorists against the developed world, principally the US and Europe – and how “malevolent actors such as criminals, terrorists, corrupt individuals and proliferators may exploit the financial system for their ends, thus impugning its integrity and stability and that of the broader political system too.”
He thus sets about analysing the main characteristics of criminal money laundering and terrorist financing through a series of bracing case studies of Islamist terrorism and Mexican drug cartels, and reviews major multilateral and national regimes locked in battle to shore up the financial sector against constantly evolving security challenges.
Yet while the financial sector is vulnerable, Navias argues that it also offers instruments that can be employed to pursue foreign and security policy objectives. By assessing the key threats to financial systems, he aims to show how the public and private sectors are cooperating to contain them.
The shell game
One of the most useful tools of the money launderer is the shell company, often registered in offshore territories where beneficial ownership can be concealed. That makes them perfect vehicles for holding dubious assets, hidden from the prying eyes of intelligence agencies, law enforcement and the tax man.
The world got a glimpse of the murky world of offshore finance with the Panama Papers revelations by the International Consortium of Investigative Journalists (ICIJ) and global media organisations, which revealed more than 214,000 offshore entities connected to people in more than 200 countries.
They revealed that corrupt government officials across Africa employed shell companies in several offshore jurisdictions to hide profits from sales of natural resources. Such murky shell companies can also be used to stash the proceeds of terrorism financing efforts.
As a result, anti-money laundering plans have been a mainstay of anti-terrorist efforts as efforts to conceal terrorist financing have become even more elaborate and sophisticated.
Protecting the system
Navias argues that authorities are far from powerless, and have a number of weapons in their armoury to tackle the corrupt and dangerous. For many public and private organisations, those weapons are defensive, designed to shield financial institutions and the broader system from infiltration by terrorists and other malign actors. But governments can also get on the front foot, argues Navias.
“Finance can also be turned into an instrument designed to protect the system and to more forcefully and aggressively prosecute foreign policy and security goals,” he writes.
While the US government has led the way in deploying these offensive weapons, including sanctions, financial and diplomatic measures, regulatory pressure and prosecution, Navias argues that offensive weapons need not be violent. Rather, the creation and maintenance of effective coalitions involving the state and the private sector will be crucial to future efforts.
Until now, such efforts have not always been a “coalition of the willing” – “the first targets of state financial suasion were not criminals, terrorists or proliferators but rather banks, other financial and non-financial institutions, and various professionals such as lawyers, accountants and estate agents,” argues Navias.
While the private sector can be blamed when things go wrong, it is not always best placed to directly combat small-scale threats, argues Navias.
One of the book’s striking revelations concerns the cost of terrorist attacks. A table listing the estimated costs of terrorist operations reveals that they rarely cost more than tens of thousands of dollars and often much less. Navias quotes a 2015 Norwegian security report on small cell terrorism that estimates that “approximately 75% of 40 violent terrorist plans in Europe between 1994 and 2013 cost less than $10,000”.
As Navias posits: “The private sector is often forced into coalition efforts irrespective of their costs and successes… Clearly finance has a role to play in combating terrorist actions, but as terrorism morphs into lone wolf and small group forms, it is arguably the police and community bodies that are increasingly on the front line and more relevant than the banks.”
Given the changing nature of the threats that the financial system and wider society faces, it is essential for the state and private sector to work out a new understanding of how they can build workable coalitions.
“It should thus be in the interests of those working in the private sector to have some overview of the key political, legal, and financial factors that drive financial warfare strategy at the national and multinational levels,” says Navias.
“Moreover, it may be useful for those active at the state policy level to gain greater awareness of the difficulties and costs encountered by those tasked with conducting policies in front-line private institutions.”
Finance and Security: Global Vulnerabilities, Threats and Responses by Martin Navias is published by Hurst ISBN: 978-1787381360
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