Terrorism expert urges banks to squeal

International terrorism expert Rohan Gunaratna stresses that in the fight against terrorist financing, banks must scrutinise not only the large transactions, but also small transactions of a suspicious nature.

Rohan Gunaratna, who has tracked terrorist activities around the world, comes down hard on the banking system, urging banks to be more proactive in identifying and reporting sources of terrorist funding, even going so far as to advocate the harshest of punishments for non-cooperating banks — closure.

At the closing keynote speech of The Asian Banker Summit 2004 in Hong Kong today, Gunaratna declared disclosure of terrorist-controlled funds as one of the fundamental challenges in banking, where the cost of failure is mortal.

Disclosure attacks the very nature of banks’ contracts with customers, but is of vital importance in protecting the lives of civilians, government officials, and property. “The life blood of a terrorist group is money,” Gunaratna declared.

“The difference between a large operation and a small operation is money," he said. “Terrorists are sharks, they will rapidly search for banks that don’t have as many rules or regulations.”

Gunaratna added that although terrorist organisations once dealt in illegal activities, or moved money through underground remittance networks, they now hide behind legitimate enterprises and transfer their money through established financial institutions. Banks have the ability to fight against terrorism by locking out their financing.

In a separate session dedicated to drawing out all the criticisms of Basel II, Sally Scutt, deputy CEO of the British Bankers Association, described the accord as “overly complex, overly prescriptive.” She added that 31 December 2006 would not be the end but rather “the beginning of the accord.”

Scutt will soon be leading a new risk management federation with counterparts in Europe and the US, to develop a more coordinated response to supervisory bodies for greater flexibility. Europe will ultimately want an accord that will ensure fair competition whereas the US would want to ensure regimes that provide for prompt, corrective actions.

Clarifying China’s position towards Basel II, Dr Zhongyang Chen, regional director for the Professional Risk Managers Association said that China supports Basel II “in spirit”. He said that the problem with China was one that pertained to rules of capital rather than capital adequacy. Therefore, “the first thing is to let banking capital play its role” as the country moves towards a market economy before “capital can be risk sensitive”.

Turning to the building of credit risk modelling within banks, Dr Michael Ong, professor of finance with Illinois Institute of Technology urged that “it is not too late, and it is not too early” for banks to start now and was definitely achievable for Asian banks. Ong Otbert de Jong, executive director, global head risk risk advisory services with ABN AMRO Asia Pacific, said that the model that Ong introduced helps banks to focus (their) minds to find where the value destroyers in the portfolio and in the bank are.

Banks in Asia have the advantage of having a smaller network around the globe, and infrastructure needs not being as large. In terms of scalability, banks can start with small portfolios and subsets. De Jong advised banks “not to be too hasty to do something too perfect” but “more important to be directionally correct.”