Surveillance to Combat Terrorist Financing in Europe: Whose Liberty, Whose Security?

Abstract

This article analyses recent developments in the campaign to combat terrorist financing in Europe and questions the utility of financial surveillance as a method to counter terrorism. A background presentation of surveillance in modern society is followed by an overview of earlier international initiatives to interdict money laundering. The measures used to combat terrorist finance are built upon this foundation of surveillance and criminal investigation. Applying these measures in the ‘war on terror’ has unintended consequences for the financial transactions of citizens and non-citizens alike. The article concludes by considering these problems and their impact on society within the context of a larger concern for the impact to individual liberty from these surveillance practices in pursuit of security in the early twenty-first century.

Acknowledgements

This research was conducted for the CHALLENGE project (The Changing Landscape of European Liberty and Security) with the financial support of the Sixth Framework Programme of the European Commission's Directorate-General for Research, for more information on the scope and dimensions of the project see <www.libertysecurity.org>. I am grateful for the financial support provided by the project, and the intellectual atmosphere provided by my colleagues. In revising this piece I have benefited from the recommendations, suggestions and probing questions of the editor and the referees, and my thanks to them. Any remaining fallacies of logic or belief are solely my responsibility.

Notes

1. What is just as interesting as these anecdotes in themselves is how they were offered with the implicit suggestion that the Greek citizens had misunderstood or misconstrued the purpose and capabilities of the security apparatus, and the simple fact that citizens had nothing to fear from it. Yet, given the Greek experience with military government and an antiterrorist security regime, their concerns and conclusions are understandable. More recent has been the controversy surrounding illegal phone taps during the 2004 Olympics and the suspicious death of a Vodafone manager. See Malcolm Brabant, Greek Scandal sees Vodafone Fined, BBC News, 15 December 2006, available at http://news.bbc.co.uk/1/hi/business/6182647.stm accessed 21 January 2007.

2. Stephen Gill, ‘American Transparency Capitalism and Human Security: A Contradiction in Terms?’, Global Change, Peace and Security 15/1 (February 2003), pp. 9–25.

3. Stephen Gill, ‘Globalisation, Market Civilisation, and Disciplinary Neoliberalism’, Millennium: Journal of International Studies 24/3 (1995), pp. 399–423.

4. As argued by Laura Donohue, a civil liberty consists of ‘the individual's right to articulate preferences or convictions and to act freely upon them in the private sphere without undue or intrusive interference by the government.’ Laura K. Donohue, ‘Security and Freedom on the Fulcrum’, Terrorism and Political Violence 17 (2005), p. 79.

5. A more extensive introduction to surveillance in society has recently been published on behalf of the UK Information Commissioner, see Surveillance Studies Network, A Report on the Surveillance Society (September 2006), available at http://news.bbc.co.uk/2/hi/uk_news/6108496.stm accessed 2 November 2006.

6. David Lyon, Surveillance after September 11 (Cambridge: Polity, 2003).

7. Michael Levi and David S. Wall, ‘Technologies, Security, and Privacy in the Post-9/11 European Information Society’, Journal of Law and Society 31/2 (June 2004), pp. 194–220; Lyon, Surveillance after September 11. A Ponzi scheme is a speculative investment vehicle promoting a far above average return on investment. Named after the perpetrator of a classic case in the US in the 1920s, initial investors may get the promised returns to demonstrate legitimacy.

8. National Commission on Terrorist Attacks upon the United States, The 9/11 Commission Report (Washington, DC: National Commission on Terrorist Attacks upon the United States, 2004).

9. Julie Clothier, Fighting Crime with Smart Firearm, CNN.com, 31 January 2005, available at http://edition.cnn.com/2005/TECH/01/31/spark.intelligent.firearm/index.html accessed 4 February 2005. RFID is the acronym for Radio Frequency IDentification—a technology that has become more prominent in recent years because of the increasingly small package size possible. See Robert Malone, Can RFID Invade Your Privacy?, Forbes, 7 December 2006, available at http://www.forbes.com/2006/12/05/privacy-rfid-tags-biz-logistics-cx_rm_1207rfid.html accessed 7 December 2006.

10. Nick Gillespie, ‘Editor's Note: Kiss Privacy Goodbye—and Good Riddance, Too’, Reason (June 2004), p. 2.

11. William J. Long and Mark Pang Quek, ‘Personal Data Privacy Protection in an Age of Globalization: The US–EU Safe Harbor Compromise’, Journal of European Public Policy 9/3 (2002), pp. 325–344; Peter P. Swire and Robert E. Litan, None of Your Business: World Data Flows, Electronic Commerce, and the European Privacy Directive (Washington, DC: Brookings Institution Press 1998).

12. Philippe Bonditti, ‘From Territorial Space to Networks: A Foucaldian Approach to the Implementation of Biometry’, Alternatives 29/4 (August–October 2004), pp. 465–482.

13. With regard to these automotive systems and in particular the ability to monitor the driving activities of one's teenage children, see for example Michelle Higgins, ‘Big Brother Now Rides With Teen Drivers’, Wall Street Journal Europe (Brussels), 24 February 2005.

14. Jude McCulloch and Sharon Pickering, ‘Suppressing the Financing of Terrorism: Proliferating State Crime, Eroding Censure and Extending Neo-colonialism’, British Journal of Criminology 45/4 (July 2005), pp. 470–486.

15. Miran Božovic (ed.), Jeremy Bentham: The Panopticon Writings (London: Verso 1995).

16. For a discussion of ‘tipping off’, see Peter Alldridge, Money Laundering Law: Forfeiture, Confiscation, Civil Recovery, Criminal Laundering and Taxation of the Proceeds of Crime (Oxford: Hart Publishing, 2003), p. 200ff.

17. Kevin D. Haggerty and Richard V. Ericson, ‘The Surveillant Assemblage’, British Journal of Sociology 51/4 (December 2000), pp. 605–622.

18. James Sturcke, ‘EU: US Access to Flight Data Unlawful’, The Guardian (London), 30 May 2006.

19. European Commission, ‘Agreement with the United States on the Continued Use of Passenger Name Record (PNR) Data’, Press release, 6 October 2006, available at http://www.euractiv.com/29/images/PNR%20expresso_tcm29-158547.doc accessed 20 January 2007.

20. Nicola Clark and Matthew L. Wald, ‘Hurdle for U.S. in Getting Data on Passengers’, New York Times, 31 May 2006.

21. This global financial network is the premier service for wire transfers, processing transfer instructions amongst some 7,800 member financial institutions on the order of 11 million transactions a day. See Eric Lichtblau and James Risen, ‘Bank Data Sifted in Secret by U.S. to Block Terror’, New York Times, 23 June 2006; Josh Meyer and Greg Miller, ‘Secret U.S. Program Tracks Global Bank Transfers’, Los Angles Times, 23 June 2006; Barton Gellman, Paul Blustein and Dafna Linzer, ‘Bank Records Secretly Tapped’, Washington Post, 23 June 2006; Stuart Levey, ‘Statement on the Terrorist Finance Tracking Program’ (JS-4334), Office of Public Affairs, 23 June 2006, available at http://www.treas.gov/press/releases/js4334.htm accessed 24 June 2006.

22. John W. Snow, ‘Letter to the Editors of The New York Times’ (JS-4339), Press release, Office of Public Affairs, 26 June 2006, available at http://www.treasury.gov/press/releases/4339.htm accessed 27 June 2006.

23. The Associated Press, ‘Report: Data Agency Broke Privacy Laws’, MSNBC.com, 27 November 2006, available at http://www.msnbc.msn.com/id/15916822/ accessed 20 January 2007. The full report of the EU Data Protection Directive Article 29 Working Party that was adopted on 22 November 2006 is available at http://ec.europa.eu/justice_home/fsj/privacy/workinggroup/wpdocs/2006_en.htm.

24. Council of Europe, Measures Against the Transfer and Safekeeping of Funds of Criminal Origin: Recommendation and Explanatory Memorandum (Rec(80)10E) (1980).

25. Mark Pieth, ‘Financing of Terrorism: Following the Money’, European Journal of Law Reform 4/2 (2002), pp. 365–376.

26. Alldridge, Money Laundering Law, p. 96.

27. United Nations, United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (Vienna Convention) (1988) pp. Article 3, paragraph 1(b) (i).

28. US Congress Office of Technology Assessment, Information Technologies for Control of Money Laundering (Washington, DC: US Government Printing Office, 1995), p. 113.

29. Financial Action Task Force, ‘FATF Welcomes China as an Observer’, 11 February 2005 available at http://www.fatf-gafi.org/dataoecd/51/2/34423127.pdf accessed 18 February 2005. The members of the FATF are: Argentina, Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, Kingdom of the Netherlands, New Zealand, Norway, Portugal, Russian Federation, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States. Since February 2005 China has been accorded observer status and the Republic of Korea was invited on 8 August 2006 to become an Observer, with effect from the October 2006 FATF plenary meeting. Changes to the membership structure of the FATF are forthcoming as it introduces the category of ‘associate member’ for the FATF-style regional bodies (for example, the Council of Europe's Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL) performs this function in Western Europe) Financial Action Task Force, Annual Report 2005–2006 (English), 23 June 2006, available at http://www.fatf-gafi.org/dataoecd/38/56/37041969.pdf accessed 18 July 2006, pp. 4–5; Financial Action Task Force, FATF invites the Republic of Korea to be an Observer, 8 August 2006, available at http://www.fatf-gafi.org/dataoecd/25/39/37260684.pdf accessed 23 September 2006.

30. Initially released in 1990, the Forty Recommendations document was revised in 1996 to account for the first six years of experience formally combating money laundering. There was then a major revision in 2003 to incorporate the measures recommended to combat the financing of terrorism.

31. Financial Action Task Force, ‘FATF invites the Republic of Korea to be an Observer’, 8 August 2006, available at http://www.fatf-gafi.org/dataoecd/25/39/37260684.pdf accessed 23 September 2006.

32. Pieth, ‘Financing of Terrorism’.

33. See the FATF website, http://www.fatf-gafi.org/.

34. European Parliament and Council of the European Union, Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the Prevention of the Use of the Financial System for the Purpose of Money Laundering and Terrorist Financing (Official Journal of the European Union L series 309) (2005).

35. Alldridge, Money Laundering Law, p. 97.

36. William C. Gilmore, Dirty Money: The Evolution of International Measures to Counter Money Laundering and the Financing of Terrorism (Strasbourg: Council of Europe Publishing, 2004), p. 195.

37. Gilmore, Dirty Money, p. 202.

38. Alldridge, Money Laundering Law, p. 100; Gilmore, Dirty Money, p. 202.

39. Alldridge, Money Laundering Law, p. 100.

40. Financial Action Task Force, Annual Report 2001–2002 (English), 21 June 2002, available at http://www.fatf-gafi.org/dataoecd/13/1/34328160.pdf accessed 1 July 2002, p. 1.

41. Financial Action Task Force, Report on Money Laundering Typologies, 2000–2001 (English), 2002 available at http://www.oecd.org/fatf/pdf/TY2001_en.pdf accessed 21 March 2002, p. 2.

42. See http://www.un.org/Docs/sc/committees/1373/.

43. Curtis A. Ward, ‘Building Capacity to Combat International Terrorism: The Role of the United Nations Security Council’, Journal of Conflict and Security Law 8/2 (2003), pp. 289–305.

44. Financial Action Task Force, The Forty Recommendations (English), n.d; available from http://www1.oecd.org/fatf/pdf/40Rec_en.pdf accessed 6 February 2002, p. 3.

45. Financial Action Task Force, The Forty Recommendations (2003) (English), 20 June 2003 available at http://www.fatf-gafi.org/dataoecd/38/47/34030579.PDF accessed 30 June 2003, p. 7; Financial Action Task Force, The Forty Recommendations (English), n.d. available at http://www1.oecd.org/fatf/pdf/40Rec_en.pdf accessed 6 February 2002.

46. From the obvious to the sublime in the methods used to finance terrorism. One of the men arrested in connection with the 11 March 2004 Madrid bombings was a dealer in counterfeit designer clothing. The conclusion reached as a result was that the global market for counterfeit luxury goods is financing terrorism. The secretary general of Interpol was quoted as saying in an address to the US Congress, ‘Intellectual property crime is becoming the preferred method of funding for a number of terrorist groups’. The National Criminal Intelligence Service (NCIS) in Britain did not agree with this position, replying to the information request of a journalist with the statement, ‘Claims that there are links between other sectors of serious crime and IPC [intellectual property crime] are not substantiated by available intelligence. Paramilitary groups active in Northern Ireland use IPC to support criminal terrorist activity but there is no intelligence to support other links between IPC in the UK and terrorist activity’. Charlotte Eagar, ‘Fake London’, Evening Standard (London), 11 February 2005.

47. European Parliament and Council of the European Union, Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the Prevention of the Use of the Financial System for the Purpose of Money Laundering and Terrorist Financing (Official Journal of the European Union L series 309) (2005), p. 15.

48. Official Journal of the European Union L series 345, 8 December 2006. Within the EU legal system a Directive is binding upon the member states, but first must be transposed into national law. EU regulations on the other hand are directly applicable as written. Jo Shaw, Law of the European Union (Basingstoke: Palgrave Macmillan, 2000), pp. 243–5.

49. OJ L 345, 8.12.2006, p. 1.

50. World Bank, Global Development Finance: The Development Potential of Surging Capital Flows (Washington, DC: IBRD/World Bank, 2006), p. 3.

51. Philip Robinson, ‘Anti-money Laundering Regulation—Next Generation Developments’, Text of speech to the City & Financial Conference, 21 April 2004 available at http://www.fsa.gov.uk/Pages/Library/Communication/Speeches/2004/SP180.shtml accessed 8 June 2005.

52. Financial Crime Sector, ID—Defusing the Issue: A Progress Report (Financial Services Authority, 2004). Available at http://www.fsa.govuk/pubs/other/id_report.pdf (accessed 8 June 2005).

53. Marieke de Goede, ‘Financial Regulation and the War on Terror’, in Libby Assassi, Anastasia Nesvetailova and Duncan Wigan (eds), Global Finance in the New Century: Beyond Deregulation (Basingstoke: Palgrave Macmillan, 2007), pp. 193–206. See also Louis De Koker, ‘Money Laundering Control and Suppression of Financing of Terrorism: Some Thoughts on the Impact of Customer Due Diligence Measures on Financial Exclusion’, Journal of Financial Crime 13/1 (2005), pp. 26–50.

54. Traditional informal value transfer systems in the Middle East and Asia are variously known as ‘hawala’, ‘hundi’, ‘fei ch'ien’, ‘phoe kuan’, ‘hui k'nan’, ‘ch'iao hui’, and ‘nging sing kek’. See Bala Shanmugam, ‘Hawala and Money Laundering: A Malaysian Perspective’, Journal of Money Laundering Control 8/1 (September 2004), pp. 37–47. One early analysis of informal value transfer systems and crime was conducted for the Netherlands’ Ministry of Justice in 1999, with a follow-up report in 2005. Nikos Passas also provided a similar report to the US Department of Justice in 2003. Nikos Passas, Informal Value Transfer Systems and Criminal Organizations; A Study into So-called Underground Banking Networks (The Hague: Dutch Ministry of Justice, 1999); Nikos Passas, Informal Value Transfer Systems, Terrorism and Money Laundering (Washington, DC: National Institute of Justice, 2003); Nikos Passas, Informal Value Transfer Systems and Criminal Activities (The Hague: Dutch Ministry of Justice, 2005).

55. Roger Ballard, ‘Coalitions of Reciprocity and the Maintenance of Financial Integrity within Informal Value Transmission Systems: The Operational Dynamics of Contemporary Hawala Networks’, Journal of Banking Regulation 6/4 (2005), pp. 319–352.

56. Bala Shanmugam, ‘Hawala and Money Laundering: A Malaysian Perspective’, Journal of Money Laundering Control 8/1 (September 2004), p. 43.

57. Ballard, ‘Coalitions of Reciprocity’, pp. 319–352.

58. Financial Action Task Force, Report on Money Laundering Typologies, 1998–1999 (English), 10 February 1999, available at http://www.fatf-gafi.org/dataoecd/29/38/34038177.pdf accessed 21 March 2002, p. 10.

59. Financial Action Task Force, Combating the Abuse of Alternative Remittance Systems: International Best Practices (English), 20 June 2003 available at http://www.fatf-gafi.org./pdf/SR6-BPP_en.pdf accessed 30 June 2003.

60. World Bank, Global Development Finance: The Development Potential of Surging Capital Flows (Washington, DC: IBRD/World Bank, 2006), p. 3. In the 2004 edition of Global Development Finance the Appendix on remittances was quite clear that the figures reported only those funds that passed through formal banking systems. While the increases in reported remittances from 2001 to 2003 may represent in part an increased use of formal banking (as a result of the increased regulation of informal transfer agents), nonetheless a large portion of total remittances continue to move via informal banking systems. ‘Officials in major fund-transfer agencies argue, based on the volume of funds flowing through their systems, that unrecorded remittances may be larger than recorded remittances.’ World Bank, Global Development Finance: Harnessing Cyclical Gains for Development (Washington, DC: IBRD/World Bank, 2004), p. 170.

61. Rosabel Guerrero, ‘Statistical Measurement of Overseas Filipino Workers’ Remittances: Present Practices and Future Direction’, Central Bank of the Philippines, 25 January 2005, available at http://www.worldbank.org/data/Remittances/4dGuerrero.ppt accessed 28 March 2005.

62. Central Bank of the Philippines, ‘Overseas Filipino Workers’ Remittances By Country and By Type of Worker’, 15 January 2007,); available at http://www.bsp.gov.ph/statistics/keystat/ofw.htm accessed 3 February 2007.

63. European Commission, EU Survey on Workers’ Remittances from the EU to Third Countries (Brussels: Directorate General, Economic and Financial Affairs, 2004), p. 6.

64. European Commission, EU Survey on Workers’ Remittances, p. 7. It is likely that this figure should be further qualified in that the closure of an ‘illegal financial service provider’ could encompass more than simply a money transfer agent. This term could also include, for example, an unlicensed money changer, cheque casher or financial advisor.

65. UK Money Transmitters Association, ‘Evidence to the Scrutiny on Private Sector Development in Relation to the Importance of Person to Person Remittances as an Important but still Under-recognised Source of Funds for Third World Development’, Submission to House of Commons International Development Select Committee (London, 2006), p. 1.

66. Donato Masciandaro, ‘Migration and Illegal Finance’, Journal of Money Laundering Control 7/3 (Winter 2004), pp. 264–271.

67. Eleni Tsingou, ‘Targeting Money Laundering: Global Approach or Diffusion of Authority?’, in Elke Krahmann (ed.), New Threats and New Actors in International Security (Houndmills, Basingstoke: Palgrave Macmillan, 2005), pp. 101–102, citing The Economist, 29 September 2001. Calomiris is the Henry Kaufman Professor of Financial Institutions at Columbia University.

68. Tsingou, ‘Targeting Money Laundering’, p. 101.

69. Faisal al Yafai, ‘Palestinian Aid Groups’ Accounts Closed’, The Guardian (London), 3 January 2005.

70. Financial Action Task Force, ‘Special Recommendations on Terrorist Financing’ (English), 31 October 2001, available at http://www1.oecd.org/fatf/pdf/SRecTF_en.pdf accessed 24 September 2002, p. 2; European Parliament and Council of the European Union, Regulation (EC) No. 1781/2006 of the European Parliament and of the Council of 15 November 2006 on Information on the Payer Accompanying Transfers of Funds (Official Journal of the European Union L series 345) (Strasbourg, 2006), p. 6.

71. United Nations Security Council Resolution 1267 (1999) established sanctions against the Taliban demanding that they extradite Osama bin Laden and his associates to appropriate authorities. The Security Council definition behind their frequent use of this phrase in the Resolutions that have established sanction regimes against terrorist financing since 2001 is provided in Security Council Resolution 1617 (2005).

72. Bob Davis, ‘Direct Deposits: Migrants’ Money is Imperfect Cure for Poor Nations’, The Wall Street Journal (New York), 1 November 2006.

73. For more information on the current situation, including documents addressing the determination of the adequacy of data protection in select third countries and Model Contracts for the transfer of personal data to third countries, see the Commission website, http://ec.europa.eu/justice_home/fsj/privacy/index_en.htm.

74. My thanks to Dominic Thorncroft, UK Money Transmitters Association, for bringing this point to my attention.

75. Bruce Schneier, Beyond Fear: Thinking Sensibly About Security in an Uncertain World (New York: Copernicus Books, 2003), p. 250.

76. Schneier, Beyond Fear, pp. 67–68.

77. The definition deployed by Schneier was ‘Terrorism is not a movement or ideology, but a military tactic. A terrorist is someone who employs physical or psychological violence against noncombatants in an attempt to coerce, control, or simply change a political situation by causing terror in the general populace’. Schneier, Beyond Fear, p. 69.

78. Didier Bigo, ‘Liberty, whose Liberty? The Hague Programme and the Conception of Freedom’, Challenge, 20 July 2005, available at http://libertysecurity.org/article339.html accessed 20 July 2005.

79. Jens Hainmuller and Jan Martin Lemnitzer, ‘Why do Europeans Fly Safer? The Politics of Airport Security in Europe and the US’, Terrorism and Political Violence 15/4 (Winter 2003), pp. 1–36.

80. David Lyon, Surveillance Society: Monitoring Everyday Life (Buckingham: Open University Press, 2001).

81. David Lyon, Surveillance after September 11 (Cambridge: Polity, 2003).

82. Jeremy Waldron, ‘Security and Liberty: The Image of Balance’, Journal of Political Philosophy 11/2 (2003), p. 210. (emphasis in original).

83. Brandon C. Welsh and David P. Farrington, ‘Surveillance for Crime Prevention in Public Space: Results and Policy Choices in Britain and America’, Criminology and Public Policy 3/3 (July 2004), pp. 497–526.

84. In fact, the subtitle of a special report in the Economist identified its argument, that ‘Hindering flows across international financial networks is costly and does not stop terrorists’ primary activity’. ‘Looking in the Wrong Places–Financing Terrorism’, Economist 377/8449, 22 October 2005, pp. 81–83.

85. Intelligence and Security Committee, Report into the London Terrorist Attacks on 7 July 2005 (London: Parliament of the United Kingdom, 2006), pp. 29–30.

86. Ian Austen and David Johnston, ‘17 Held in Plot to Bomb Sites in Ontario’, The New York Times, 4 June 2006; Richard B. Schmitt, ‘7 Arrested in Miami in Alleged Terrorist Plot’, Los Angeles Times, 23 June 2006.