Terrorist financing in plain sight??

WASHINGTON—Trade-based money laundering is an expanding method of financing terrorism, and the United States government is not doing enough to stop it, experts warned Congress on Wednesday.

The remarks came during a hearing in the House Task Force to Investigate Terrorism Financing, a sub-panel of the Financial Services Committee. Experts said U.S. authorities often focus on two methods of moving illicit funds into the global economy—financial institutions and physical smuggling—but often gloss over the explosive growth of trade-based money laundering.

“[Despite] the tremendous expenditure of resources to counter illicit finance, trade-based money laundering and value transfer are still not recognized as significant threats,” John Cassara, a former U.S. intelligence officer and Treasury Department special agent, said in prepared remarks. “It is remarkable that [it] has never been systematically examined by the U.S. government.”

Corrupt foreign actors often use trade-based money laundering to earn, move, and store proceeds from criminal enterprises. Many terror groups, including ISIS and al Qaeda, use various forms of trade-based money laundering to fund their activities.

Cassara cited a study that found in 2013 alone some $218 billion left the U.S. economy through under-valued exports (example: selling cattle for $20 a head) and over-valued imports (example: charging $972 for a plastic bucket). That same year, some $341 billion flowed into the U.S. using the same means.

In 2013, illicit financial flows out of developing and emerging economies totaled more than $1.1 trillion, according to Global Financial Integrity.

U.S. efforts to stop trade-based money laundering have traditionally focused on drug proceeds from Latin America. Many of those methods have proven ineffective to combat terrorism, Cassara told me after the hearing.

“They were trying to fit a square peg into a round hole. … It’s taken us far too long to say it doesn’t work,” he said.

Cassara and other experts discussed several possible solutions, including expanding Immigration and Customs Enforcement’s Trade Transparency Unit—which is currently 95 percent devoted to South America, not the Middle East—and sharing information between federal agencies and governments.

“[T]here are many stakeholders in this fight, from law enforcement and regulators to the transportation industry and the financial sector,” said Farley Mesko, CEO of Sayari Analytics. “Each of them holds some unique data, but nobody has the whole picture, and nobody is making full use of the range of data available to them in the public domain.”

Nikos Passas, a criminology and criminal justice professor at Northeastern University, urged lawmakers to turn on the light of trade transparency to keep authorities from “shooting in the dark.”

Witnesses advocated for a law to disclose the real persons behind corporations. Cassara, author of Trade-Based Money Laundering: The Next Frontier in International Money Laundering Enforcement, said foreign law enforcement contacts often tell him they follow their dirty money trails to a dead end in the U.S.

“It would be extremely helpful for law enforcement to have access to beneficial ownership information,” Cassara told the committee. “Without beneficial ownership information, it's very, very hard to follow those [terrorism financing] trails.”

On Wednesday, a bipartisan group of lawmakers introduced beneficial ownership laws in the House and Senate. Similar legislation has been filed in the past, but supporters are hoping to use recent publicity, including a 60 Minutes report on Sunday, to gather momentum.

The terrorism task force is authorized until June and will have several more hearings in the interim. After Wednesday’s proceeding, Rep. Michael Fitzpatrick, R-Pa., chairman of the task force, told me he expects the panel to produce bipartisan legislation addressing a range of issues.

“I’ve been studying this issue for about 20 years, and I can sense the momentum is starting to finally shift,” Cassara said. “I am very optimistic.”