CIA keeps an eye on stock markets: ‘War against terror’

Masood Haider

The Central Intelligence Agency (CIA) is regularly briefing the US Securities and Exchange Commission (which oversees American stock and other capital markets) about activities of terrorists and other criminals in the global stock markets, powerful financial publication Barron’s discloses in its latest edition.

In the wake of financial scandals in the world capital markets and the insider trading cases have spurred the US authorities to look into the manipulation of volatile stock markets by the savvy terrorists networks to make money.

Barron’s says that SEC Chairman Christopher Cox and the four other commissioners were informed that activities of terrorists and other criminals were increasing in the global capital markets.

In an interview with Barron’s last week, Mr Cox said that intelligence reports offer the SEC a “somewhat sharper focus” to an “underworld of murky, illegal dealings that threaten the world capital markets”.

“The US government’s focus on money laundering and terrorist financing and other criminal activities in the capital markets has laid bare a good deal of activity of that sort,” Mr Cox added. He declined to elaborate.

The Barron’s said in a “James Bond scenario” in which terrorists bought millions of dollars of put options and blew up buildings or aeroplanes to increase the puts’ value was deemed unlikely by intelligence authorities. Yet less developed securities markets have reported stock trading by terrorists to raise money. In February, India’s national security adviser M.K. Narayanan said at a security-policy conference in Munich that India had evidence of “isolated incidents of terrorist outfits manipulating the stock markets to raise funds for their operations.” Mr Cox would not say if terrorists were active, or present, in US markets. But he was clear about the reason for this increased illegal activity in global markets.

“This phenomenon is born of the arrival on the scene of so many different, and substantial, liquidity pools,” Mr Cox said. “It used to be that significant capital had to be raised in the United States,” but that is no longer true.

And therein lies SEC’s great regulatory challenge. While insider trading in Dow Jones, TXU and Reebok securities linked to Hong Kong, Pakistani and Croatian residents may capture public attention, more significant market threats are harder to detect.

Criminals now purposefully disperse operations into different countries to avoid detection and prosecution. For example, residents of Hong Kong, Malaysia, Estonia and Latvia have hacked into US online brokerage accounts and used the money to bid up the price of their own stocks. In one “account intrusion” case, criminals made more than $732,000 trading 15 Nasdaq-listed stocks.

The SEC’s jurisdiction ends, of course, at the US border, and extends into foreign countries through agreements with foreign regulators. This is how the commission freezes bank and brokerage accounts in foreign countries.

“We’re not into real time international enforcement,” Mr Cox said. “We now have templates for sharing information in many cases on a prudential basis in advance of problems cropping up.”

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