Suspicious Activity Involving the Iraqi Dinar

Over the last year, the circumstances of the war in Iraq have created the phenomenon of businesses trading in new Iraqi dinars. Many of these businesses advertise or conduct business over the Internet, and suggest that the Iraqi dinar, much like the Kuwaiti dinar following Operation Desert Storm, will increase in value exponentially following United States military involvement in Iraq. Most investors purchase dinars from websites established particularly for selling dinars or from major auction websites.

FinCEN has been receiving inquiries regarding the legitimacy of websites offering Iraqi dinar sales. While it is not necessarily illegal to buy or sell Iraqi currency, there are a number of risks and compliance concerns for the financial community. For example, Iraqi officials state that it is illegal under Iraqi law to export dinars. Therefore, in addition to questions about the source of the currency, and the potential for investment or securities fraud, businesses offering to sell dinars may also pose the risk of being used to fund terrorism or as a vehicle for money laundering. FinCEN also has a particular interest in these businesses because they may be money services businesses required to comply with the Bank Secrecy Act.

Any United States entity that buys or sells currency, including Iraqi dinars, in amounts of more than $1,000 U.S. to any one person in one day may be a money services business under FinCEN?s regulations at 31 C.F.R. Section 103.11(uu). [Note: there have been questions about the old dinar with Hussein?s picture on it. That dinar ceased to be legal tender around January 15, 2004 and thus ceased to be currency for purposes of the Bank Secrecy Act.] Money services businesses include:

Money transmitters;
Currency Dealers or Exchangers (except those who do not exchange more than $1,000 in currency or monetary or other instruments for any person on any day in one or more transactions);
Check cashers (except those who do not cash checks in an amount greater than $1,000 in currency or monetary or other instruments for any person on any day in one or more transactions);
Issuers, sellers, or redeemers of traveler?s checks, money orders, or stored value (except those who do not issue, sell or redeem such instruments in an amount greater than $1,000 in currency or monetary or other instruments for or from any person on any day in one or more transactions);

Money services businesses generally are required to register with FinCEN, to establish anti-money laundering programs, and to comply with recordkeeping and reporting requirements under the Bank Secrecy Act. Dinar sales websites frequently claim that their businesses are registered with the Department of the Treasury. These assertions are not always accurate. Further, it may be diffi- cult to discern from the money services business registration list on FinCEN?s website (www.msb.gov) whether the business is in fact registered, particularly if the business is an affiliate of, or a ?doing business as? alias for, the business that is registered. Moreover, even if the business is registered with FinCEN, that registration does not guarantee that the business is in compliance with other Bank Secrecy Act requirements or with applicable state law. For these reasons, a financial institution that conducts business with entities selling Iraqi dinars should conduct appropriate due diligence to assure itself of the legitimacy of such entities. All financial institutions that do business with, and potential customers of, such money services businesses, are reminded that registration with FinCEN in no way authenticates either the legitimacy of a business, or the compliance of the business with any federal, state, or local laws.

An analysis of FinCEN?s Suspicious Activity Report database for filings referencing Iraqi dinars indicated suspicion of the use of Internet dealers of Iraqi dinars in terrorist financing, although not all of the corresponding narratives provided clear or complete justification about the terrorist financing nature of the activity reported. This serves as a potent illustration of the critical importance of a clear and complete narrative description when filing a Suspicious Activity Report. Particularly when terrorist financing is suspected, conclusory statements with no supporting facts or justification are of limited use to law enforcement in pursuing their investigations.

Further analysis of businesses engaged in dinar sales is ongoing. For instance, FinCEN analyzed Bank Secrecy Act data (including Suspicious Activity Reports, Currency Transaction Reports, and Reports of International Transportation of Currency or Monetary Instruments) involving the purchase of Iraqi dinars to support a law enforcement initiative that uncovered an elaborate network of structured money movement by and to persons suspected or convicted of substantial fraud or other illicit international activities.

Excerpted from SAR Activity Review Issue 8, page 41