As the Islamic State on Thursday claimed responsibility for the deadly attacks outside the British Parliament, it’s worth taking a closer look at how authorities could prevent such tragedies going forward. Already, authorities rely on actionable tips from citizens who are advised to “see something, say something” in public service announcements. Law enforcement agencies could become even more reliant on private entities, namely Wall Street banks: if you want to kill a terrorist, call a military operator. But if you want to find a terrorist, call an investment banker.
One of the best ways to find a bad guy is to follow the money trail. That’s because it takes capital to conduct a terrorist attack: from recruiting and training assailants to buying equipment and gear to carrying out an attack. Every time a terrorist spends money, he or she is emitting a signal that can possibly be tracked. As General Stanley McChrystal writes in his book, Team of Teams, “We saw one piece of [Al-Qaeda in Iraq] up close and daily, but we knew that they were part of a larger, global system of finance…” In its war against terrorism, the US military should forge partnerships with Wall Street banks to better understand the global financial system, and to detect terrorists, their supporters, and their networks.
ISIL, Al-Qaeda, and Taliban are bureaucratic organizations, which have revenue streams and manage expenses. In their audit of the Taliban, military researchers Brian Gordon and Edward Conway in the book, Counterterrorism and Threat Finance Analysis, discovered these income sources: (1) taxes on poppies, (2) taxes on electricity, (3) fees for safeguarding opium shipments. And these costs: (1) salaries, (2) payments to the families of suicide bombers, (3) bonuses for killing others. Gordon and Conway built an income statement to glean a broader understanding of the enemy. With this knowledge, for example, US military commanders may choose instead to interdict an opium shipment, which would disrupt an important revenue stream of the Taliban.
Military officials would be wise to recruit teams of bankers as reservists and deploy them to work up comprehensive financial assessments of terrorist groups. Bankers have the skillsets to compose, read, and interpret balance sheets, income statements, and cash flow statements. Working with military counterparts, they could spot the weak spots in the enemy’s financial and supply chains. Certainly these jobs would pay less than Wall Street, but I think mid-career bankers might welcome a change of scenery and opportunity to serve their country.
Find expertise in overlooked back-offices
Banks already employ experts who follow the money trail: often overlooked and habitually underpaid, compliance officers serve as thankless workers in the middle and back offices, helping their respective organizations stay out of trouble. Some of these employees specialize in anti-money laundering (AML) and are up-to-speed on the latest techniques, tactics, and procedures (TTPs) of how criminals and terrorists send and receive money. In fact, J.P. Morgan had 8,000 AML employees in 2014, more than the US Treasury.
Why not make money on the insights of these experts? Banks publish and sell research on fixed income and equities. But they may be sitting on another revenue stream: publish research written by compliance officers on the latest AML TTPs, and then sell these insights to other banks, institutions, and the US government. Banks could even give away these research reports for free, ingratiating themselves with regulators and agencies. Most importantly, banks could leverage their AML experts to help our law enforcement and military professionals detect and catch terrorists.
Squeeze correspondent banks
It’s not as if terrorists in the Middle East can deposit their money at a local Bank of America. Instead, terrorists in this region use banks in their home countries. And these banks might have correspondent banking relationships with firms in the US, which conduct business on their behalf. Restated, US banks are linked to all sorts of financial institutions throughout the world. In order to combat terrorism, US banks must squeeze their correspondent banks to refuse the deposits and transactions of illicit actors as identified by US military and law enforcement authorities. US banks should threaten to refuse all transactions with correspondent banks if there is even a whiff of money laundering or nefarious activities. The prospect of losing the relationship and business of a large US bank should make correspondent banks beef up their AML practices so that they are in line with American standards.
Kabir Sehgal is a New York Times bestselling author of several books, including Coined: The Rich Life of Money And How Its History Has Shaped Us. He is a US Navy veteran and was previously a vice president at JPMorgan. Follow him on @HiKabir