FinCEN Warns of New Money Laundering Risks Tied To Middle Eastern Terror

In spite of the advanced precautions taken by the federal government, as well as an increase in awareness by both domestic financial institutions and the general public that have helped to better counter illicit financial activity as it relates to terrorism, recent developments have kept the terrorist threat to American interests significant. While a heavy increase in regulations aimed at protecting the U.S. financial system from exploitation and the influx of illegitimate funds tied to terror and other destabilizing activities since 9/11, financing exploits on behalf of international terrorist organizations have seen unprecedented levels of success over recent years. This trend has been directly correlated with the growing shift towards digitalization across the global financial sector. While the turn to tech has helped to harbor innovation and spurred new investment into emerging realms (such as the crypto space), this transition has also opened the door for a major uptick in white-collar crime capitalizing on the countless new avenues provided for exploitation in today’s day and age. With new threats emerging daily, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) is now warning of the effects that intensified terrorist activity in the Middle East could have regionally and across much of the developed world.

With military conflicts such as the October 7 attack by Hamas on Israel and the ongoing Houthi missile crisis expanding in the Red Sea, FinCEN issued an advisory to domestic financial service providers last week urging them to remain vigilant with respect to identifying potentially suspicious activity related to the financing of Iran-backed militias and terrorist organizations, most notably several U.S. Foreign Terrorist Groups (FTOs) and Specially Designated Global Terrorist organizations (SDGTs) such as Hamas, the Houthis, and Hizballah. FinCEN also warned of growing international fundraising efforts being made on behalf of various Iran-aligned military groups located in Iraq and Syria, some of which have been utilizing cryptocurrency platforms to avoid detection. As part of their notice, the agency is also seeking to inform and assist financial institutions in detecting illicit transactions with ties to Iran wherever possible in order for maximal efficacy to be had.

Analyzing a collection of data derived from FinCEN’s analysis of Bank Secrecy Act (BSA) data, open-source reporting, and information provided by law enforcement partners, the advisory highlights the ways that terror organizations can receive financial backing through Iran and provides red flags to look for to thwart these efforts. With heavy economic sanctions in place against them at the international level, Iran is constantly seeking alternative methods of funding to help provide resources to the Islamic terror organizations they back as a means of exerting their influence and making shows of force in the Middle East. Iran largely supports its terrorist partners and proxies through the Islamic Revolutionary Guard Corps (IRGC). The IRGC is responsible for conducting covert attacks and illegal international activity outside of Iran, including distributing funds, training, and weapons to Islamic terror groups. The primary source of their funding comes from Iran’s lucrative oil industry. Since Iran is able to sustain itself through its crude oil and petroleum products, they have been able to survive the heavy sanctions placed not them by the United States and its allies. Couple this with new fundraising efforts utilizing the crypto space and Iran is almost unaffected by these seemingly staunch sanctions.

However, moving money to its intended targets presents its own unique set of challenges. To move funds across international boarders, Iran and its terrorist partners will use various methods, one of them remaining old reliable – the traditional banking system. IRGC officials have been known to collect funds in various currencies from the Central Bank of Iran and keep them in accounts in neighboring countries, using them to transfer funds to terror organizations or back to Iran. BSA analysts have discovered that these third-party countries house “trading companies” or “general trading companies” – acting as a global shadow banking network. These exchange houses rely on legitimate financial institutions and accounts in the U.S. to process dollar-denominated transactions. Iranian banking customers may purposefully omit or falsify identifying details to disguise themselves or their transfers to Iran.² Financial institutions should also be aware that Iran often uses Islamic foundations as a religious front to mask the funneling of illicit funds. In 2020, the Treasury Department discovered that the religious organization called the Reconstruction Organization for the Holy Shrines in Iraq was ultimately acting as a front organization of the IRGC and funding terror organizations.²

Outside of more conventional warning signs for financial institutions, other red flags identified by FinCEN include:

• Entities receiving small crypto payments from IP addresses in high-risk locations¹
• Accounts receiving large payouts from social media fundraisers or crowdfunding platforms from high-risk IP addresses, particularly if the accounts are supportive of terrorist campaign¹
• Funds transfers purported to be on behalf of charitable organizations and/or non-profits
• Transactions that originate from front companies or general “trading companies” with an unclear business purpose or whose beneficial ownership information indicates they have a nexus to Iran¹
• Transactions with a money services business, crypto exchanges, or financial services with lax customer identification and verification processes, opaque ownership, or anti-money laundering or countering the finance of terrorism deficiencies¹

FinCEN has urged financial institutions to maintain a ledger of associated technical details such as IP addresses, time stamps and other unique identifiers from suspicious transactions in order to better assist future detection and tracking of those behind potentially-nefarious activity. Summing up the state of affairs and the advisory,  FinCEN Director Andrea Gacki stated, “Terrorist organizations and activity supported by and aligned with Iran should not benefit from access to the U.S. or international financial systems. As we witness continuing instability and violence in the Middle East, we are issuing this Advisory to help financial institutions protect the financial system from abuse by terrorists and to encourage financial institutions to stay vigilant in identifying and reporting related suspicious activity.”²

Citations

1. Dale, Jeff. “Fincen Warns Financial Institutions on Iran-Backed Terrorist Organizations.” Compliance Week, 8 May 2024.
2. “FinCEN Advisory to Financial Institutions to Counter the Financing of Iran-Backed Terrorist Organizations.” Financial Crimes Enforcement Network, U.S. Department of the Treasury, 8 May 2024.