Wednesday, December 28, 2011

Saudi Arabia looks worldwide for nuclear collaborators

World Nuclear News - International News Services
By Paul Cochrane, in Beirut

Saudi Arabia’s failure to secure a wide-ranging atomic energy treaty with the USA, continues to push the oil-rich country into the arms of other nuclear suiters, experts on the kingdom have argued. The Saudi's plan is to invest USD112 billion over the next 20 years to build 16 nuclear power plants (NPPs) to offset rising domestic energy demand and retain its position as a leading hydrocarbons exporter.

A memorandum of understanding on nuclear energy was signed with the US in 2008, but the two countries have yet to sign Section 123 of the US Atomic Energy Act, essentially a prerequisite for nuclear cooperation between the US and other nations.

“(The lack of a 123 Agreement) could affect their plans, but Saudi Arabia could go for a European or Asian deal. However there is scope for American technology in many of these technology solutions and I'm not sure how far (French nuclear power company) Areva could go it alone,” said Samuel Ciszuk, senior Middle East and North Africa energy analyst at IHS Energy.

According to an industry source in the US, preliminary talks between the Saudi and US governments to discuss the 123 Agreement were slated to take place, “but even those preliminary talks didn’t happen and, as best we know, nothing further is scheduled at this time.”

Meanwhile, in February, Saudi Arabia signed a bilateral cooperation treaty with France to develop nuclear energy, including electricity production and water desalinisation. This was followed in April with Riyadh announcing it would seek a nuclear cooperation agreement with China.

Meanwhile, Saudi Arabia has been courting nuclear energy operators in Europe and Asia as well as the USA, announcing a joint initiative in mid-2010 with Japan’s Toshiba and American firms the Shaw Group and Exelon to build and operate two NPPs. Last year the kingdom also hired Finnish engineering consultancy Pöyry to study its nuclear energy options. Pöyry however declined to comment to World Nuclear News.

Saudi Arabia is looking into alternative energies, from solar to nuclear power, to wean power generation off oil, with the kingdom already using 320 million barrels of crude per year. This is to triple by 2032 when power capacity is expected to reach 121,000MW, according to Saudi Arabia’s Electricity and Co-Generation Regulatory Authority (ECRA). Some USD140.3 billion is to be spent on conventional electricity projects over the next decade, according to ECRA, to provide an extra 3,000MW of electricity generation per year. A fifth of power generation is expected to come from nuclear power and renewable energy by 2020.

Two NPPs are slated to come online over the next decade, and then two more NPPs are to be operational per year until 2030, according to a statement by Abdul Ghani bin Melaibari, coordinator of scientific collaboration at the recently established King Abdullah City for Atomic and Renewable Energy (KA-CARE).

“Saudi Arabia is still at an early stage, and they are looking at different technologies to be introduced to them and are signing cooperation agreements with as many countries as possible to exchange and gain access to information,” said Ciszuk. “They don't seem to have settled on any technology yet.”

Thursday, December 08, 2011

Banking on diplomacy

US Secretary of State Hillary Clinton talks with Lebanese PM Najib Mikati. Lebanon playing ball with the US and EU sanctions on Syria were at the top of Clinton's agenda.

Commentary - Executive magazine

It has been a difficult year for the Lebanese banking sector. While deposits are only marginally down on 2010, Arab uprisings have affected banks’ regional operations and the Lebanese economy is feeling the ongoing global financial crisis. But by and large, these are the sorts of issues Lebanese bankers are used to handling; risk management is a hardwired Lebanese specialty. What has presented unusual concern this year is the black cloud lingering over the sector following the listing in February of Lebanese Canadian Bank (LCB) by the United States Department of the Treasury as a “financial institution of prime money laundering concern.”

The designation left LCB’s reputation in tatters and, after a limited run on the bank, shareholders opted for LCB to merge with Société Générale de Banque au Liban (SGBL) rather than to appeal the charges. For the banking sector, the LCB designation was a well-aimed kick to the nether regions. Banks are still “paranoid” 10 months later, a senior member of Banque du Liban (BDL), Lebanon’s central bank, recently told me.

The concern is that other banks could find themselves in the US Treasury’s sights — a worry compounded by the apparent political motivation of Washington’s decision, as LCB was accused of laundering money on behalf of Hezbollah, the steward of the current Lebanese government and designated as a terrorist organization by the US. The US decision looked on the surface to be a warning to the banking sector — and Lebanon generally — to play ball. Not helping the sense of paranoia is the failure to release results of the investigation into any wrong-doing on the part of LCB by either Washington or BDL.

There was an upside from a regulatory point of view, however, to the taking down of LCB. Due diligence has suddenly taken on special importance, compliance officers’ voices are better heard in the board rooms and those in need of screening software to detect suspicious transactions have quickly placed orders. Rumors of further LCB-style designations have persisted, while additional pressure has been heaped on Lebanon following multiple rounds of US and European Union sanctions on Syria in response to Damascus’ crackdown on protestors. For the sanctions to have bite, Lebanon cannot be a financial conduit for the Syrian regime; Lebanon is not required to abide by US and EU sanctions — only United Nations resolutions are binding — but it has pledged to cooperate.

With around 60 percent of Lebanese banks’ deposits in American dollars, and the lira pegged to the greenback, Lebanon, as the BDL source put it, is effectively part of the US financial system -- Beirut must respect US decisions whether it likes them or not. Indeed, Beirut’s compliance on this matter is so crucial that it was the first item on the agenda in talks between Prime Minister Najib Mikati and US Secretary of State Hillary Clinton in September. In November, Daniel Glaser, the Treasury Department’s assistant secretary, visited Beirut to push the issue further. Yet while bilateral meetings were underway in late September, another black cloud loomed on the horizon. A second bank — which shall go unnamed — was suspected of money laundering, according to sources in the financial sector and within BDL, although officially BDL would neither confirm nor deny this.

Yet what seems to have happened behind the scenes is an arrangement whereby in exchange for Lebanese cooperation on Syria there would be “no more LCB surprises,” as the BDL source put it. Beirut is in a form of “partnership” with Washington, and BDL is under pressure to deliver by making sure no money laundering or terrorist financing (by American definitions at least) is occurring within the banking sector. If another bank is in the firing line, the US may point its finger, and BDL will investigate rather than merely getting a day’s warning from Washington — as happened with LCB.

Some may call it a Faustian pact, and it goes against the grain of supposed transparency in the financial sector that is being pushed worldwide, but as a diplomatic move it suits both Washington and Beirut nicely, for the time being at least. Lebanese banks are right to be paranoid and to keep in line with US regulations in order to avoid the devastating blow to the sector’s credibility that an LCB redux would mean.

PAUL COCHRANE is the Middle East correspondent for International News Services, and a regular contributor to Money Laundering Bulletin

Mixed Fortunes: Lebanon's automotive sector

Executive, year in review 2011

The industry’s players have been dealt differing hands in a year of duress

With the International Monetary Fund forecasting the Lebanese economy to grow by just 1.5 percent in 2011, it is no surprise that the automotive sector has not had a stellar year. As of October, sales were down by 5 percent, with 27,473 new cars sold, compared to 28,404 in the first 10 months of 2010, according to the Association of Car Importers in Lebanon.

The year started off badly, with consumer purchasing behavior negatively affected by political wrangling over the formation of a government and given a further hit by the Arab uprisings. The plunge in the number of tourists to the country also affected sales to rental car companies, down 49 percent to 1,646 units as of the end of September, compared to 3,238 units in the same period last year. As one car dealer remarked, it was the worst first quarter the industry had experienced in a decade.

“For us, the year was tough January to June due to the domestic political situation, and then we were impacted by the regional situation and the global economic crisis. Nothing helped us in fact,” said Farid Homsi, general manager of IMPEX, distributor for GM, Chevrolet, Cadillac, Hummer and Isuzu. “But, as of July sales started to pick up.”

The lower sales are indicative of a financially squeezed middle class that in the past purchased vehicles in the $22,000 to $60,000 price bracket. That segment has dropped by 25 percent this year, often in favor of cars priced between $9,000 and $22,000.

“Increasingly in Lebanese society both parents are now working. It means there is need for a second car, especially in the absence of public transport, whether a new, used, big or small vehicle,” said Nabil Bazerji, managing director of GA Bazerji and Sons, dealer for Suzuki, Lancia and Maserati. “It is not fuel consumption that is the concern, as distances are short, so there is little difference between a 1.2 liter and 1.6 liter engine, but what makes the difference is the monthly installment to pay off the car.”

The primary beneficiaries of the economic slump have been Korean brands Kia and Hyundai, experiencing their third consecutive year of double-digit growth by offering affordable cars with monthly installments as low as $200. Korean brands’ market share has increased from 31.01 percent in 2010 to 42.26 percent this year.

“The surge in Korean cars is due to the fact that the Lebanese consumer is poorer and looking for a cheaper product; in both cases it means economic crisis. So it is not that the Korean brands are taking from others, just that [Lebanese] purchasing power is lower,” said Bazerji. “If Korean brands were not available with cheap cars, the market would have returned to 2007 levels when 20,000 units [were sold].”

On top of low purchasing power, foreign currency exchange rates have also played a role over the past few years, with a high yen and euro against the dollar impacting prices. Between 2010 and 2011, Japanese brands’ market share has dropped 8.5 percentage points, as the number of vehicles sold contracted from 11,148 units to 8,125.

European brands, typically the cars of choice for the middle and luxury segments, have seen their market share whittled down by 4 percentage points since 2008, from 25 percent to 21 percent in 2011.

Japanese car dealerships have also been hit by events this year in the Far East. The devastating tsunami and the disaster at the Fukushima nuclear power plant affected exports and then in October heavy flooding in Thailand, a major source of parts for the likes of Toyota and Honda, resulted in disruptions to production.

“After what happened in Japan this year we expected the yen to get weaker but instead it got stronger.” said Negib Debs, brand manager of Infiniti and Kawasaki motorbikes, part of the Rasamny Younis (Rymco) dealership. The yen has strengthened from ¥93 to the dollar at the beginning of 2010 to ¥76 in November 2011.

The downsizing trend

What has retained sales volumes in the market is the downsizing trend. “I feel the mini and compact segments are growing in size; they are the value makers today. In fact the compact, sub-compact and compact-plus are a big category all together,” said IMPEX’s Homsi. “I also think that while people have the means for a bigger car, they are moving downwards not only due to the fuel economy, but buying small due to traffic congestion. The real advantage is you can park anywhere.”

Indeed, the number of smaller vehicles on the roads is visually evident, while there are fewer of one of Beirut’s urban icons, the 1980s Mercedes “service” taxi, curb crawling in search of passengers. They are increasingly being replaced by more compact cars, with drivers trying to make the most out of a LL2,000 ($1.33) ride as fuel prices have risen, with 20 liters of 95-octane graded fuel selling for LL33,300 ($22.20).

“The fuel price, the price of the car itself, the yearly ‘mechanique’ vehicle test, plus better re-sale value, have led to a demand for smaller cars,” said Debs. “The upper luxury segment is down, and even then based on the smallest engines in the category. Sports Utility Vehicles (SUVs) are still selling but the trend is also down.”

Last year, SUVs accounted for 17 percent of the overall market at 4,898 units, dropping to 4,540 units or 16.53 percent of the market this year. The largest decrease was for American brands, dropping from 35.8 percent market share in 2010 to just 26.6 percent, while Japanese brands fell from 20.4 to 19.3 percent. However, SUV sales have picked up for certain brands, with European SUV sales up from 18.4 percent to 20.2 percent. Yet it was the Koreans again that saw the biggest boost, up 40 percent on last year. In 2010, 802 Korean SUVs were sold, 11.5 percent of the market, but that number has jumped to 1,332, or 20.5 percent market share so far this year.

With dealers’ margins tight and competitive prices ever more important, they are welcoming manufacturers’ moves toward smaller engines and models as a result of higher fuel prices and the economic crisis.

“I don’t see any strategies for boosting sales other than reducing prices and offers. I’m not a fan of doing so, but when the market is down you have to,” said Debs. “But I think Infiniti sales will catch up within two years because the creation of the Infiniti was for the American market, which is not into four-cylinder engines, whereas now the aim is to get into the European market, so Infiniti is developing four-cylinder engines.”

As for Cadillac, a compact model will be introduced late next year. “It gives us a lot of hope of competing with the BMW 3 Series and the Audi A4, which is important as the luxury market also wants compacts,” said Homsi.

For Rymco, dealership for Nissan, the second biggest brand in the country for the past two years, sales have been driven by compact models Tiida and Sunny and further bolstered by the launch of the b-segment vehicle, the Micra, last September. “We’ve had great success with the Micra, with the model quickly running out of stock due to high demand,” said Fayez Rasamny, vice chairman of Rymco. Seven new Nissan models are to be introduced next year.

Tactical maneuvers

In the face of cheaper models and Korean competition, European, American and Japanese car dealerships are keen to emphasize differentiators such as their heritage, technology and value-added options in an attempt to lure potential Kia or Hyundai buyers.

“Our strategy is to go niche. If you want value go for a Tiida or Kia, but if you want something unique go for a Mazda or BMW,” said Anthony Boukhater, deputy general manager of ANB Boukhater, dealer for Mazda and Piaggio motorbikes. “The brand value of Mazda is high, as is the image perception, and Mazda are produced in Japan while (Nissan’s) Micra is made in India, the Sunny in Korea and Tiida in Mexico.” Like other dealerships, Mazda is also banking on a new showroom and what Boukhater calls the “best service in town” to attract and retain clients.

T. Gargour & Fils, distributor of Mercedes, Smart, Chrysler, Jeep and Dodge, has restructured over the past year, building a new showroom and repositioning their sales tactics. “Our strategy for Mercedes was to reposition ourselves to be more sporty-looking while keeping the existing customer base of over-50-year-olds,” said manager Cesar Aoun. “This is mainly through price strategies, product packaging and options to target a wider segment. Our successful strategy led to market share going up, while we released four new models this year.”

The company has also revived the ‘Smart’ car to tap into the compact segment. “The Smart Fortwo is a compromise between a motorbike and a big car, as it is convenient for Beirut and you can drive 250 kilometers to 300 kilometers for 20 liters,” added Aoun.

For Chevrolet, which rose up a rank to fourth most-sold brand in 2011, the expanded model range has helped bolster sales, notably the compact Spark automatic. “With what is happening today you need to be tactical. Price talks but other segments want value and technology. People want a compact [car] but not to sacrifice on style, comfort, safety and good handling. Not too long ago, a compact was a bit boring, but not anymore,” said Homsi. “What we are focusing on is the heritage of Chevrolet, which is celebrating its 100th anniversary, so we plan to build on iconic models. With all due respect, Korean brands have not had a model winning Le Mans, like the Corvette, or the World Touring Car Championships.”

Korea’s rise

Like rival manufacturers, non-Korean dealerships are clearly rattled by the country’s global growth, with the Hyundai Kia Automotive Group ranking number four worldwide in sales volume this year. Indeed, in Europe, Kia aims to bolster sales of its three-door Picanto by 70 percent by 2013. Rival dealers are keen to suggest it is the smaller models that are selling the most, emphasizing the low price. But the Korean dealers give a different perspective.

“Many people think Korean cars are low cost. That is no longer the case for me,” said Assaad Dagher Hayek, general manager of Natco, dealer for Kia, Peugeot and Citroen. “Only one car is, (India’s $2,000) Tata Nano. A Kia Picanto is $9,000 to $12,000 — that is not low cost, you could get a Peugeot or a Citroen for the same price. And we don’t really have a single best-selling model, although number one is the Sportage (an SUV). Some think it is Picanto, but they’re wrong as they only see the old Picantos on the roads.”

The country’s best-selling brand, Kia, outpaced its closest rival, Nissan, by over 2,000 units this year, gaining a 25.8 percent market share. Hayek puts Kia’s success down to three factors. “Firstly, we’ve a full range of cars, from 1 liter to 3.8 liter engines. Second, the designer, Peter Schreyer, is ex-Audi. Third, and most importantly, we offer a five-year warranty and the quality is the best in the world. We could have sold more if I had more in stock.”

For a car manufacturer that had to be bailed out by the Korean government in 1997 and was later acquired by Hyundai, Kia has certainly made startling progress. Yet in terms of percentage growth Hyundai leaped ahead this year, although unlike Kia, sales are dominated by smaller models, with 45 to 50 percent the i10, and 20 percent the Accent.

“While the market went down by 5 percent, we managed to grow by 32 percent, the highest of any car company in Lebanon. Why? I attribute it to Hyundai launching four beautiful models in 2010 and 2011. Another factor is the brand image has really improved tremendously,” said Walid Rasamny, chairman and chief executive officer of Century Motors, dealership for Hyundai. “And why are we not number one in sales? The reason is simple; we have back orders of 2,500 units at present; all Hyundai dealers are facing a shortage of supply. Seoul is working on it but didn’t expect such success worldwide. We don’t have one Tucson or Elantra to sell.”

European and Japanese dealerships said they think that the Korean brands will lose their momentum and edge next year, although several dealers said the same thing to Executive in 2010’s end-of-year review of the automobile sector. Rasamny thinks this is not likely.

“I completely disagree [that we will lose momentum]. The Koreans are bursting with success, and it is not a fly-by-night operation anymore,” he said. “Many dealers, especially Japanese car dealers, blame the high yen. It is a small factor. Put a Hyundai next to a Japanese car and the shape is far better, the reliability and excellent re-sale value — you’ve got all the ingredients of a winner,” he added. Indeed, Hyundai have won numerous awards worldwide since 2007.

China, for its part, is forecast to manufacture 10.26 million cars this year, with this figure set to triple by 2015, with the annual output of China’s 30 major car makers expected to reach 31.2 million vehicles, according to the country’s National Development and Reform Commission. Yet the effect on Lebanon is yet to be noticeable. Chinese brands Brilliance, Chana, Chery, DFSK, Geely and JAC have cumulative sales of just 212 units so far this year (up by 4 units on 2010), compared to 1,746 American cars, 11,611 Korean, 8,125 Japanese and 5,779 European.

And while dealerships may complain of Korea’s rise, it is also having a negative effect on the used car market, which accounted for around 70 percent of cars bought in 2010.

“Used car sales are affected by us due to a new awakening of the Lebanese public that they are shooting in the dark buying a used car, and better off buying a new car from a reputable company with a warranty of a major manufacturer, as there is somebody to complain to if there is a problem,” said Century Motor’s Rasamny. Used cars sales dropped 29 percent this year, from 46,800 units as of September 2010, to 33,600. Sales also dropped due to restrictions imposed by the central bank and the US government on money transfers following the taking down of Lebanese Canadian Bank in February on accusations of money laundering, allegedly carried out in part via used car dealerships in the US.

“Another factor that brought sales down is that the government introduced new regulations in September that banned the import of cars under a person’s name,” said Aoun. “We’re happy about this, and the total imports of used Mercedes dropped by 25 percent versus 2010.”

The outlook

As the year draws to an end, dealers expect overall sales to be just under 2010’s, at around 32,000 units. As for 2012, it depends on the dealership, new models to be launched and the overall economic landscape. “I think the top three — Kia, Nissan and Hyundai — will remain the same, and market sales will be 28,000 to 32,000 units, but not down to 17,000 unless there is a war. The planned increase in value added tax (from 10) to 12 percent will have an effect,” said Natco’s Hayek.

“Next year will be similar to 2011,” said Debs of Rymco. “I don’t see the political situation improving in the region anytime soon. The whole region is practically stagnant, while currencies are all over the place.”

IMPEX’s Homsi is upbeat that next year will have similar results to 2011, but strikes a note of caution. “Unfortunately, today we have Lebanese issues, Syria, problems throughout the Middle East and the global crisis, in addition to production constraints of natural disasters like in Japan. The whole chain is affected so there are a lot of challenges; it looks like one big question mark.”

Bazerji expects a difficult year ahead. “I think 2012 will be harder than this year, as we are in a difficult neighborhood, which will affect us. For instance we haven’t profited from wealthy Syrians coming to Lebanon. But we’ll manage, as that is what we’re good at.”

Tuesday, December 06, 2011

I spy money – no you don’t!

Money Laundering Bulletin

Intelligence agencies are, by definition, secretive. So, too, are their budgets and how they finance covert activity, especially in foreign jurisdictions and where they carry out so-called ‘black ops’. If spies use techniques to quietly transfer funds that resemble the practices of organised crime or terrorist groups, there is one major difference, writes Paul Cochrane: the sometimes tacit cooperation between government agencies and the financial sector.

Espionage accounts

Of course, nailing down proof of such collaboration is not easy. In researching this piece, MLB was not, alas, granted access to the accounting books of the world’s intelligence agencies, so it is based on informed sources and research. Interestingly, of the anti-money laundering (AML), financial crime, compliance officers and other experts contacted, the vast majority were surprised by the topic itself and not able to comment. “Exotic”, the article was called by a few, while, in conversation with others, the words ‘Hollywood’ and ‘James Bond’ cropped up. Some, intrigued, speculated as to how spies could be financed but thought that money laundering was not involved. Others did not return requests for interviews despite initial interest. One reply was revealing, stating the article was “inappropriate”…

Telling though is the finding that the topic of spies and money laundering seems not to have been given much thought from a regulatory or risk perspective by AML professionals, perhaps unsurprisingly as they are primarily focused on regulations relating to organised crime, illicit transactions and terrorist financing - espionage funding does not, for example, feature in the Financial Action Task Force’s (FATFs) 40+9 Recommendations.

Furthermore, intelligence agencies, with the exception of those linked to ‘rogue’ states, are not deemed a risk for compliance and due diligence. After all, the secret services work closely with the finance industry to thwart money laundering and terrorist financing, as well as monitor for those on sanctions lists. There is also a degree of mutual understanding, with bankers, at least at senior levels, very aware of the diplomatic and national security ramifications if the funding methods of intelligence agencies were exposed.

No information then was available on whether and if so which illicit financing techniques are utilised by the intelligence services – except by venturing into conspiracy theory territory (the CIA, MI6 involved in drug trafficking and so on). But we do know that they have used illicit financing in the past and therefore, most probably, are still doing so.

The most famous case in recent history is the Luxembourg-registered Bank of Credit and Commerce International (BCCI), which was brought down in 1991 for laundering money for such a plethora of dictators and criminal enterprises that it was jokingly referred to as the ‘Bank of Crooks and Criminals International’. One customer was the CIA, which used the bank to finance foreign operations, including what became known as the Iran-Contra scandal, as well as to fund the Afghan Mujahideen to fight the Soviets in the 1980s. The CIA’s involvement with the bank was the subject of a 1992 US Congressional report by Senator John Kerry. The then incumbent head of the CIA, and recently retired US Secretary for Defense, Robert Gates, was also questioned.

The long game

While the Cold War is long gone, internecine struggles between western and Russian intelligence agencies continue. Last year, 10 Russian spies were arrested in the US following a seven-year investigation by the FBI. An eleventh member was the suspected paymaster. The sleeper cells had jobs, owned houses and ran front companies. “Money laundering happens but we don’t find it so much with the intelligence services,” according to Mark Birdsall, editor of Eye Spy, a magazine on international intelligence. “In some respects money laundering has been overtaken by the creation of legitimate companies,” he said, “Now rather than create spy networks, the Chinese, for instance, are setting up networks to create front companies in the US, and have managed to win defence contracts, a problem as, once inside the industry, they can access all sorts of secrets. The Chinese and Russians are very patient, and will wait years to enable an operation to happen. Usually it is hiding in plain sight.” Clandestine operations by the likes of the CIA also work in the same way, added Birdsall, spending years to establish a seemingly legitimate front company. “It is very similar to what organised crime is doing,” he said.

Indeed, Russian intelligence agencies have been linked to organised crime and money laundering. In a February 2010 leaked US embassy cable, Spanish national court Prosecutor José Grinda Gonzalez alleged that Russia’s Federal Security Service (FSB), the Foreign Intelligence Service (SVR) and military intelligence (GRU) “control organised crime in Russia” and launder money through front companies across Europe: the claim was made at the US-Spain Counter-Terrorism and Organised Crime Experts Working Group meeting in Madrid in January 2010.

The Russians, on the other hand, have accused Britain and the US several times in the past few years of using non-government organisations (NGOs) to provide cover for foreign espionage, going so far as to issue a new law in 2006 to require NGOs in the country to re-register and regulate the flow of money from external sources after 20 foreign agents and 65 people linked to spies were arrested in 2005. Moscow’s fear of NGOs has resulted in a new moniker for this phenomenon, GONGOs – ‘government-organised non-governmental organisations’.

Whatever the state of the Cold War hangover, it is, of course, the Middle East that is the key focus today of many intelligence operations. But how intelligence agents and informers in the region, if caught, are financed is invariably not revealed by the investigating authorities. In Lebanon for instance, 150 people were arrested and charged with spying for Israel in 2010 - Lebanon’s government authorities refused to comment on how the Lebanese accused were funded, but local media reports have alleged that agents made trips to Europe where they were met by a handler and paid by transfers into European bank accounts or simply in cash. GONGOs have also been flagged as possible revenue conduits.

“Someone is paying them. In a small country like Lebanon there is a huge growth in NGOs. You see their budgets and salaries, but when you visit their offices something is suspicious,” said Camille Barkho, manager of Amerab Business Solutions in Beirut, which sells AML software in the MENA (Middle East and North Africa) region.

Funding can also be very straightforward, with transfers to an informer or agent wired to an account under the US$10,000 threshold in order not to arouse any suspicion, said Barkho. Last year, according to United Arab Emirates (UAE) police reports, investigations into the assassination of a member of the Palestinian group Hamas in Dubai, carried out, say local authorities, by the Mossad, Israel’s secret service, revealed that the hit squad openly used credit cards to finance the operation.

Public funding

Of course, arguably, the major western intelligence agencies do not need to launder money or engage in illicit financing due to the immense budgets at their disposal. The 16 agencies within the US intelligence community, which includes the CIA and comes under the control of the Defense department, had a budget of US$80.1 billion in 2010, it was publicly announced. According to Gordon Thomas, an investigative journalist and author of ‘100 Years of M15 and M16’, funding for the two agencies and Britain’s GCHQ (Government Communications Headquarters) is decided upon by what is called the ‘Secret Service Vote’. “It is a figure not listed anywhere in government records. It is not voted on by anybody, or by Parliament. Only the prime minister sees it, and he is not told what it is for,” said Thomas. “The figure is decided by the heads of the intelligence services; if you need a billion you get a billion, and you don’t have to explain how it is used. The current figure I have for 2010, and the same this year, is UK£4.5 billion.”

Public-private partnership

For money to go from government accounts into the banking system and not be linked back to the state, high level contacts are used. “I know that MI5 and MI6 have former City, high-ranking people who joined them to run the finance end of things. They would then call the head of a bank to arrange for an account to be opened. It is all done at the highest levels as money is critical to make the intelligence world tick,” said Thomas.

Look the other way

Compliance officers would clearly not be aware of such accounts. AML professionals, said experts, would have to look out not for intelligence agency accounts connected to the country in which the bank is operating but for foreign agents operating in their jurisdiction who would pose a regulatory risk. That said, the Association of Former Intelligence Officers (AFIO) in the US believes the readers of MLB do not need to know how intelligence agencies are funded or if they use illicit means. “We do not see where public comments or articles on this topic serve the best interests of the US or intelligence community seeking to defend itself from terrorists or spies while having to deal with those who will secretly aid, accommodate, house, protect, and hide them from discovery or capture,” the AFIO stated in an unsigned email. “Funding the people or enterprises needed to effectively run intelligence operations is a crucial trade-craft technique in our national defense arsenal, and it does not belong in discussions in the public realm merely for readers to while away reading time with interesting, inappropriate articles against the self-interest of their country and themselves, whether they realise that or not.”