“This case demonstrates how terrorists exploit modern technology to inculcate sympathizers and build hidden networks, but federal agents and prosecutors are working tirelessly and using every available lawful tool to disrupt their evil schemes.” ~ U.S. Attorney Rod J. Rosenstein
If you were planning to strategically fund terrorist operations in the United States (U.S.), how would you do it?
Some people may say the possibility of creating such a scheme is difficult and likely unsuccessful due to stringent U.S. government regulations and security systems. Others may entertain the possibility of a scheme through use of certain conventional modalities such as charitable organizations, ATM transactions and hawala systems.
So, what is the reality?
According to recent federal investigations, not only may it be possible to successfully funnel money through the U.S. to support terrorist activities, but also, such funneling may not need to be done using outdated systems at all.
While traditional financial methods are not yet extinct, they are certainly becoming archaic. As we continue to evolve into a society that heavily depends on electronic platforms for transacting business and making payments, conventional money-moving methods are slowly becoming outdated, leaving terrorist organizations and supporters with only one option if they want to avoid being behind the curve—get creative—and they are doing just that. By moving monies through new online payment systems using low value but high-volume fraud activity, terrorist organizations are now able to easily transfer funds across U.S. borders to support their operations.
The exploitation of online payment systems by terrorist organizations is not just a theoretical reality, it is actually happening to some of the largest U.S. eCommerce businesses today.
In fact, according to The Wall Street Journal, a recent unsealed Federal Bureau of Investigation (FBI) affidavit unveils an extensive investigation into fraudulent eBay transactions used to funnel money to an alleged terrorist operative in the U.S.
Regulatory Background:
As stated in the FBI affidavit, on October 15, 2004, the United States Secretary of State designated Iraq-based al-Qa’ida (AQI) as a Foreign Terrorist Organization (FTO) and a Specially Designated Global Terrorist. Then on May 15, 2014, the designation was amended to include the alias Islamic State of Iraq and the Leviant (ISIL) as its primary name, which also has aliases such as the Islamic State of Iraq and al-Sham or the Islamic State of Iraq and Syria (ISIS).
On or about June 29, 2014, a public recording was released that announced a formal change of the ISIL name to simply the Islamic State (IS).
The Case of eBay & PayPal:
The report from The Wall Street Journal and the FBI affidavit explain that on December 11, 2015, FBI Special Agent David A. Rodski, submitted an affidavit to the United States District Court for the District of Maryland in support of a criminal complaint and arrest warrant for Mohamed Elshinawy. The criminal complaint charged Elshinawy with attempting to provide material support or resources to a designated foreign terrorist organization, making false statements and falsifying or concealing material facts. The affidavit was submitted in response to the FBI learning of a suspicious transfer of $1,000 by an individual located in Egypt through the Western Union to a payee identified as Elshinawy on June 28, 2015.
On July 17, 2015, during an interview with the FBI, Elshinawy claimed that this $1,000 transfer he received came from his mother who resides in Egypt. However, after being reminded that making false statements to law enforcement is a criminal offense and could result in imprisonment, Elshinawy modified his statement and confessed that the payment was provided by a childhood friend of his who was arrested for terrorism-related offenses in Egypt. According to Elshinawy, his friend fled to Syria after being released from custody in Egypt, and reached out to Elshinawy through social media claiming that he could connect Elshinawy with a member of ISIL. Believing he could receive money from ISIL himself, Elshinawy responded to his friend and began facilitating communications with an unnamed ISIL operative who subsequently sent Elshinawy a total of $4,000 over two payments.
The first payment of $3,000 was sent by a foreign company on May 14, 2015 via eBay through the use of PayPal, an online payment platform. Elshinawy was instructed by the ISIL operative to use the money for “operational purposes,” which he interpreted as acts of destruction or activities for executing a terrorist attack in the U.S. Elshinawy was told that if he ever suspected that he was under surveillance by law enforcement, he must stop any activities in connection with executing an attack. Elshinawy later stated that he never intended to conduct an attack, but rather, just saw an opportunity to take money from “thieves.” Moreover, Elshinawy claimed he felt he should be rewarded for his actions and offered a job to work with the FBI to help identify ISIL’s money laundering network.
The second payment was not revealed until July 20, 2015 when Elshinawy confessed that he received another $1,200 from the same unidentified ISIL operative through PayPal. Elshinawy told the FBI how he pretended to sell printers on eBay in order to retrieve and attempt to conceal the payment using the PayPal platform. After reviewing Elshinawy’s bank account and PayPal records, investigators discovered that he used a portion of the funds from the second payment to purchase credits on his social media chat application to enable anonymous chat communications with his friend from Syria who initially contacted Elshinawy to coordinate receipt of the terrorist payments. The FBI also discovered that Elshinawy received additional funds from ISIL operatives, which totaled at least $8,700 including the three payments previously mentioned.
In the review of Elshinawy’s bank records for the dates surrounding his receipt of the monies from the foreign company, the investigators discovered that approximately $1,350 was spent on communication devices such as phones, calling cards, a laptop, hotspot for internet access and a private VPN network all of which appeared to have been used in connection with ISIL-related activities. Moreover, investigators found at least $3,000 that was converted to cash via ATM withdrawals, which unfortunately are untraceable. Further analysis of Elshinawy’s laptop, email and social media accounts revealed evidence that Elshinawy was not only communicating with his childhood friend, but was also attempting to conceal his communications in Arabic. Such concealed communications included a statement Elshinawy made on February 17, 2015 where he pledged his allegiance to ISIL and asked his friend to deliver the message of loyalty to his ISIL contacts, including Elshinawy’s allegiance to commit violent jihad.
Based on the evidence provided in the unsealed affidavit, Elshinawy was arrested on Friday, December 11, 2015 and indicted on January 13, 2016. Elshinawy plead not guilty to federal charges, and is awaiting trial. He faces up to 15 years of imprisonment for attempting to provide material support to a designated foreign terrorist organization, an additional 20 years imprisonment for facilitating terrorist financing, and another 8 years each for obstruction of agency proceedings and for making material false statements.
Lessons Learned:
Despite attempts by the U.S. and other countries in the years following the 9/11 attack to keep a watchful eye on formal international banking systems that terrorists might use to launder money to fund their operations, identification of gaps and opportunities for terrorism funding through other financial channels such as social-media fundraising, student-loan withdrawals and online lending has clearly been overlooked. In fact, a former Treasury official equated policing terror funding in the burgeoning financial marketplace to “looking for a needle in a massive haystack.”
A spokesman for eBay Inc. told The Wall Street Journal that their company “has zero tolerance for criminal activities taking place on [their] marketplace” and said that they are working with law enforcement on the case. A spokeswoman from PayPal said that the company “invests significant time and resources in working to prevent terrorist activity on [PayPal’s] platform” and that they “proactively report suspicious activities and respond quickly to lawful requests to support law enforcement agencies in their investigations.”
As alluded to in the beginning of this article, the case of terrorist financing via online payment platforms, such as PayPal, underscores how easily criminal and terrorist organizations can exploit the weaknesses in our vast world of online financial transactions in order to support terrorist initiatives from overseas. It also serves as a reality check to businesses who rely on online payment systems in their day-to-day operations, highlighting the criticality of developing and implementing robust COMPLIANCE procedures to mitigate and flag suspicious conduct, especially in an industry where eCommerce acts as a core business operation.
By developing an effective and practical COMPLIANCE strategy that combats potential money laundering activity and terrorist financing, companies can track unusual or suspicious sources on the onset, avoiding situations such as those experienced by eBay and PayPal. Enhancing such internal COMPLIANCE procedures can not only result in avoiding legal violations and potential penalties, but can also provide significant cost savings and a meaningful competitive advantage.
Establishing an internal, risk-based AML/KYC COMPLIANCE PROGRAM is no longer optional for U.S. businesses. Procedures outlining how companies identify the individuals who are transacting business within their platforms and understanding whether any “red flags” are present is just as, if not more, trendy than the concept of using such platforms for funding terrorist activities in the first place.