But the due diligence requirements implied in the scienter element of many types of fraud actions and provided expressly as defenses under securities laws are only one component of the due diligence analysis pertinent to the question of civil and criminal liability for SCF. In the main, the effort to combat the global security risks associated with Islamic terror networks and the regimes which support those networks has incorporated many strategies, only some of which are appropriately suited to the task at hand. One approach is through trade sanctions and embargoes. These foreign policy initiatives are authorized by such laws as the Trading with the Enemy Act (“TWEA”) and the International Emergency Economic Powers Act (“IEEPA”), which authorize the Office of Foreign Assets Control (“OFAC”) of the Treasury Department to establish sanction regimes on states identified by the president as falling within the jurisdictional reach of either of the two laws.
The Halliburton affair described above, which began as a seemingly innocuous inquiry by the New York City Comptroller on behalf of some shareholders into disclosure requirements of an annual proxy statement soon spiraled out of control. After Halliburton was forced to report to its shareholders on the financial and reputational risks of doing business in a terror-sponsoring state, the Comptroller was still quite unsatisfied and considered the company’s disclosures inadequate. Soon thereafter, OFAC got involved and as the investigation progressed, OFAC referred the matter to the DOJ which initiated a grand jury investigation. Other companies doing business in terror-sponsoring states have also run into trouble. While the implications for financial institutions relying on Shariah authorities associated with or sympathetic to terrorists do not touch upon TWEA or IEEPA compliance per se, the duty of disclosure of material facts under the compliance regimes discussed above remains and the ramifications of yet other compliance issues as discussed below are significant.
(i) Reverse money laundering: revisited
Another approach to the global security risk of Islamic terrorism has been through the strengthening of anti-money laundering laws and regulations. The “heavy lifting” of this effort of late has been accomplished by the Patriot Act and its amendments to the Bank Secrecy Act (“BSA”) and the anti-money laundering statutes. But with all of the fanfare and political disputation surrounding this legislation by civil libertarians, civil rights activists, and various Muslim organizations, the latter of which have argued the government’s effort is unduly focused on Islamic terrorism, the legislation still fails to grapple effectively with the problem of money laundering in support of terrorism. Almost all of the BSA and the regulations promulgated thereunder and the anti-money laundering statutes come at the problem of terrorist financing in the traditional way, notwithstanding a dangerous new modus operandi. The BSA and anti-money laundering statutes are intensely focused on spotting and reporting suspicious money transfers, especially cash transfers, which have a criminal source.