Institutions must increase scrutiny of sanctions lists after Bin Laden's death

The death of Osama Bin Laden is likely to mean movement of terrorist assets, which means banks must be on their guard, says Logica director

The recent execution of Osama Bin Laden will likely present multiple challenges to financial institutions looking to maintain effective counter-terrorist-financing (CTF) capabilities.

The possibility both of retaliatory attacks and financial movements within al Qaeda means banks will have to make sure their surveillance and CTF systems are functioning at full capacity, says John Evans, director of financial crime solutions at Logica.

"Most industry analysts are thinking there is going to be some sort of transition within al Qaeda, and this could mean the flow of assets and cash, which of course the surveillance teams within the banks need to look at and have under their scrutiny," he says. "I think there is a reasonable chance Bin Laden's death could mean there is going to be movement of money, and the banks clearly have a role to identify and stop that."

Equally, although recent atrocities have been funded on small budgets, Evans stresses terrorist funds will be transferred and reporting on sanctions lists should not take into account the size or value of the transaction. "It is frequently commented that the financing of some of the terrorist atrocities that have happened over the past few years, individually, have not required a lot of money. Nevertheless, these organisations need to raise money, there is funding that needs to be created, even if it's quite small amounts," he says.

Given the subtlety with which such funds are moved through the financial system, some market observers have questioned the strategy that has lead to more than 500 references to "Bin Laden" on recent sanctions lists. But, says Evans, the reality is that funds are moved through accounts that are known to be watched.

"Banks do find hits. Given that this is in the public domain, you wouldn't think these people would seek to move money in accounts that are already known to be watched by banks. But they do, and the banks do get hits against those lists," he says.

Meanwhile, recent efforts to freeze assets belonging to Libyan leader Muammar Gaddafi have illustrated that transliteration from Arabic scripts into the Roman alphabet continues to pose issues.

Institutions must scrutinise names directly on the sanctions lists but are also asked to monitor for names that resemble them. How banks define ‘resemble', says Evans, is open, so institutions must constantly strive to strike a balance between effectiveness and efficiency. Gaddafi's surname alone can be spelt more than one hundred ways.

"If you did that on a consistent basis with all the different names, of which there are tens of thousands on the sanctions lists, it would then probably start appearing a bit unreasonable," he says.

The potential costs of non-compliance, however, are clearly high – fines from the US Office of Foreign Assets Control (Ofac) and the UK Financial Services Authority have been substantial. But there are also the costs of implementing change programmes as well as reputational damage. Evans says Ofac has "been stating this is the tip of the iceberg, and that it is investigating more and more financial institutions. It is not backing off any of this at all."