A perceived shift in terrorism threats puts a spotlight on the AML systems of financial organisations in Asia, a practitioner argues.

Money laundering and transfer of funds for terrorism are major security as well as compliance issues. And Asia is increasingly in the firing line, sometimes literally, a practitioner in the field of screening dirty money warns.

For example, there is the case of the PHP79 million ($1.55 million) in cash and cheques recovered in the Marawi crisis in the Philippines earlier this year. In that saga, Malaysian Mahmud bin Ahmad, who died of his wounds, was said to be a prominent financier. With terrorist groups such as ISIS reportedly turning their gaze to Asia after being hit in the Middle East, the Asian region must be on its guard against terrorist finance.

Naturally enough, firms in the “regtech” space are keen to put themselves forward in helping banks and other organisations to keep clean of terrorist money. One such firm that focuses, it says, on helping small- and medium-sized enterprises such as insurance agencies, accountants and money changers is Ingenique Solutions. The firm, founded in 2014, has offices in Singapore and Malaysia. The fight against dirty money has spawned a growth industry in firms harnessing tech. to filter out dirty money or warn of potentially difficult clients, such as smartKYC and AxiomSL. Events have spawned various initiatives, such as UBS and the Wealth Management Institute creating the WMI Anti-Money Laundering (AML) Risk Management Programme. UBS is sponsoring it for three years. 

This publication recently spoke to Martin Lim, chief technology officer, and someone with a 15-year-plus track record in the IT business, at Ingenique Solutions. 

“I believe more can be done by businesses to weed out terrorism.  It is no longer just the responsibility of law enforcement or security agencies.  Everyone needs to play their part as the fight is now against your family,” he said. 

“The predominant terrorism threat today is the Islamic State of Iraq and Syria (ISIS).  At its peak, it controlled about 90,000 square kilometres of land in Iraq and Syria – roughly 50 times the size of London city.  However, in the past 15 months, due to its losses in major battles in Iraq and Syria, there is a shift in strategy.  Notably, it is capitalizing on foreign fighters returning to their homeland, and using them to open up `second fronts’ to create what they call Islamic Caliphates,” Lim continued.

“The Marawi crisis in May 2017 in the Philippines is a significant milestone for ISIS and pro-ISIS militants there have direct links to ISIS in Syria. In addition, there is a targeted campaign in the social media by the ISIS to radicalized in-place, in-country individuals to act on their own to launch small-scale attacks in their country,” he said. “Asia has the largest Muslim population in the world. The largest Muslim country is Indonesia. Hence, from a strategic perspective, it is imperative that ISIS has a foothold here in the region,” Lim continued. 

Tighter grip
In Singapore, of course, the Asia-city state, mindful of its status as a major financial hub for much of Southeast Asia and further afield, has tightened the anti-money laundering screws, ejecting banks implicated in handling alleged dirty money from Malaysia’s state-run fund, 1MDB. The jurisdiction’s Anti-Money Laundering and Countering the Financing of Terrorism Industry Partnership, for example, is designed to ramp up its ability to go after money launderers and terror financiers.

“Singapore, is especially vulnerable to the ISIS threat as its closest neighbours are Muslim countries. It is also a multi-racial society, and the social fabric can easily be exploited to create social unrest.  Furthermore, Singapore has a large population of migrant workers, and terrorism may be `imported' when terrorists or their sympathisers comingle with the migrant workers working here," he said.

Lim said that, in August last year, Australia’s financial intelligence agency (AUSTRAC) and its Indonesian counterpart financial intelligence unit, Pusat Pelaporan dan Analisis Transaksi Keuangan (PPATK), identified three main ways terrorists in SE Asia moves funds around: Physical movement of cash or value (e.g. precious metals) across borders; banking system, and alternative remittance and money services businesses. “In particular, the centuries old Hawala system, where agents and their counter-parties transact base on a honour system to receive and pay out monies across countries with little or no paper trails and without wire transfers, has been abused to move funds for terrorism activities,” he said.

Lim went to point out that PPATK further revealed that in 2014 and 2015, Indonesian migrant workers transferred a total of $763,000 from the Malaysia, Singapore and Middle Eastern countries to fund terrorism activities in Indonesia.

Another point, he said, is that terrorist organizations can also seek funding from donations, as seen in the 2017 arrests of four pro-ISIS Bangladeshi workers working in Singapore.  They were jailed for donating amount as little as about $200.

“From the evidences discovered, the topology of terrorism financing has significantly changed. They are using technology and social media to gain sympathisers, or radicalize individuals. Then small amounts are comingled with regular transactions (like remittance of salary) and moved back to home countries to fund terrorist activities.  These are very difficult to detect and prevent,” he said. 

The challenges of fighting illicit money are further driven by developments such as crypto-currencies such as bitcoin, the proliferation in use of mobile devices and apps, and cloud computing, which makes deployment of global software solutions must easier and quicker, Lim said. 

“If the Fintech solution can move digital cash across borders, money launderers will exploit and abuse the service.  Once the digital cash crosses the borders, the next hurdle will be for the money launderers to convert it into physical money,” Lim continued. 

Singapore tries to curb money laundering risks by encouraging fintech collaboration with regulators. For example, the Monetary Authority of Singapore has set up a “sandbox” for fintech companies to test ideas. Effectively, this allows MAS to be involved early in start-up developments.

Regulators are keeping an eye on “choke points” when it comes to transfers of physical cash, such as money remittance services, casinos and pawn brokers. Professionals like chartered accountants, lawyers, corporate services providers have regulatory obligations to detect and report suspicious transactions when they deal with their clients - the hope is that they do their job diligently. 

So, what does Ingenique Solutions do? Lim said his firm provides “simple and effective AML/CFT Screening System to professional firms like accountants, auditors, lawyers, real estate agents”. 

“Using our system, our clients can easily screen their clients against AML/CFT database provided by reputable data vendors like Dow Jones.  In addition, we automate their Customer Due Diligence process so that they do not have to spend too much time collecting and maintaining customers’ information for AML/CFT due diligence,” he said. 

“We are technically competent, self-funded, and we have built up more than 250 customers in Singapore. In the near term, we want to establish our presence in the region, and are in constant look out for talents. Of course, when the valuation is right, we are open to exit,” Lim said.

Among its services, the firm offers consultancy services to help clients develop and implement AML/CFT processes; it also works with professional firms by conducting public seminars so they can keep on top of AML/TL issues.

Ingenique Solutions charges an annual subscription, and in name bundles. Clients, based on their estimate of how many names they are likely to search each year, can select the different packages on offer, Lim added.