By John Cassara

In an area of the world that is hostile to our interests, much of the money that flows into terrorist coffers is generated by Afghanistan’s booming drug trade. According to the United Nations Office of Drug Control (UNODC) statistics, Afghanistan accounts for more than 90 percent of the world’s opium production.1 Much of the production comes from Taliban strongholds in the southern part of the country. For example, the UNODC reported that poppy cultivation in Helmand province -a Taliban stronghold -increased by over 160% in 2006 followed by another 48% increase in 2007. But Helmand is not alone. Despite some recent improvement in the drug cultivation rate, in 2009 only 18 out of Afghanistan’s 34 provinces were free of opium production.2 Afghanistan is also the world’s largest supplier of cannabis. In fact, Afghanistan produces more narcotics than Colombia, Peru and Bolivia combined.

Did You Know?

While the aggregate value of the international trade in Afghan opiates is approximately $40 billion, the total value of exports of opium to neighboring countries is approximately $3 billion. Afghan farmers receive approximately $600 million from opium poppy production and Afghan traffickers and terrorists are estimated to receive over $2 billion.

The increase in production overlaps with a sharp rise in Taliban attacks on coalition forces. Although there are reports that that the loosely unified Taliban receives large cash contributions from foreign donations4 and other diversified funding sources, according to open source information, a senior Afghan security official stated that captured Taliban have confessed that most of their funding comes from the drug trade.

While there seems to be international consensus on these staggering numbers, this is where the discussion normally ends. Many years since the United States and its coalition partners entered Afghanistan, it is essential to understand the money and value-transfer schemes if we wish to be successful in beating the Taliban.

During a 2006 trip to Kabul, one of the authors asked Afghan bankers, hawaladars and businessmen how our adversaries launder narcotics proceeds and finance terrorism. Without exception, they said that illicit money was not laundered via the licensed banks operating in Afghanistan. According to the Afghans, the value was laundered primarily through trade. While some value transfer schemes are complex and intertwined with regional hawala/hundi remittance system, it can also be as simple as a barter system whereby narcotics are exchanged for other commodities and services.

This should come as no surprise in a country where an estimated 80-90% of

economic activity is in the informal sector6 and where approximately 80% of the country’s population is illiterate.7 Trade is both a traditional way of doing business and a traditional way of transferring value.

Today’s U.S. and international anti-money laundering and counter-terrorist finance countermeasures were created over a generation ago to fight the War on Drugs. Countermeasures, primarily financial transparency reporting requirements, focus on large amounts of dirty money moving through western-style financial institutions.

There is still a vast amount to learn about trade-based value transfer systems found in the AF/PAK region. The issue becomes increasingly important as the administration reviews AF/PAK policy and United States Central  Command (CENTCOM) seeks creative means to challenge extremist funding.

The 1980s and 1990s must have been heady times for compliance officers learning their craft. I’m sure they recall the excitement, and perhaps trepidation, of whispered rumors and then the jolt of headlines in the morning newspapers about a major anti-money laundering investigation. High-level staff meetings would be convened hurriedly.  Everybody wanted to know where the chips were going to fall. What financial institutions and business practices could be impacted?  

As a criminal investigator/special agent in the Department of Treasury, I began my anti-money laundering career in that same era. If industry was excited about these cases, the feeling was even more intense for law enforcement professionals. The personnel directly involved with the operation, senior management, and prosecutors had to weigh myriad factors in deciding what would be the opportune moment to bring the long-term case to fruition. For the few insiders directly involved in shaping events, the professional stakes could be enormous. The investigations could be “career cases.”

Although perspectives and the level of involvement between industry and law enforcement differ, these complex, long-term, headline-grabbing, difference-making investigations are generally known as impact cases.

Besides the arrests and seizures, the cases make an impact because of the publicity they generate, both in the United States and around the world. News articles and television reporting are widespread. Congressional briefings and hearings are often held, and agency budgets can be increased.

Impact cases and their resulting publicity often deter or disrupt criminal behavior. After an impact money laundering case, law enforcement analysts and investigators generally observe a change in criminal behavior as these criminals search for new ways to place, layer and integrate illicit proceeds. Impact cases also sometimes result in new laws, rules and regulations that directly affect AML compliance standards. 

Once upon a time, AML impact cases occurred on a fairly regular basis. It felt like every few years a new impact investigation would burst onto the scene. Old-timers may recall such impact cases such as the Bank of Boston, the Pizza Connection, the Magharian Brothers, Operation Polar Cap, Isaac Kattan, Operation C-Chase, Bank of Credit and Commerce International, the Geographic Targeting Order, Operation Casa Blanca, the Bank of New York, among others.

A brief review of two of my favorite cases will demonstrate the nature of impact cases and what we are missing today. 

Measured by the amount of money laundered, Operation Polar Cap remains the largest and perhaps most complex money laundering investigation in history. The first phase of the multi-agency task force investigation into this criminal affair concluded in 1989.  Although there were many schemes uncovered in the original Polar Cap investigation and in the follow-up inquiries, they revolved primarily around the buying and selling of real and fictitious gold to mask the laundering of over $1.2 billion in currency generated by the sale of cocaine in the United States.   

The earliest phase of the operation involved bulk cash from cocaine sales being delivered to collaborating gold dealers and jewelry makers in New York City, Houston, and Los Angeles. Fake gold bars were shipped from Uruguay (even though Uruguay does not produce gold) to gold manufacturers in the United States. The shipments gave the appearance of a legitimate import business and the justification for money sent abroad.  In addition, drug money was packed in boxes purporting to contain gold, and was then shipped to cooperating jewelry retailers. The principal suspect jewelry retailer in Los Angeles was called Ropex.