MONTREAL - Canada's spy agency has been forced to junk its approach to terrorist financing as clandestine groups both here and abroad learn to skirt the law-enforcement initiatives set up after Sept. 11, 2001.
Intelligence assessments obtained by The Canadian Press suggest Canadian authorities have been operating in the dark when it comes to tracking funds earmarked for terrorism.
"A generally accepted model for terrorist financing would provide a clear and common strategic understanding of how terrorist financing operates and a sound basis for deciding how to respond to it," reads a 2007 study from CSIS' Integrated Threat Assessment Centre.
"Currently, no such model exists."
The country's ability to trace money for terrorism was taken to task recently by the Financial Action Task Force, an international body that deals with criminal threats to financial systems.
In a February report, the group found "serious issues" with the effectiveness of the Financial Transactions and Reports Analysis Centre of Canada, or Fintrac, the federal body that traces illicit cash transfers.
"The feedback provided by some organizations that receive Fintrac disclosures was generally negative," the task force's report said.
"Until 2007, no conviction for ML (money laundering) or TF (terrorist financing) had directly resulted from a Fintrac disclosure."
Fintrac, which provides research to the RCMP and CSIS but has no enforcement powers itself, rejected the criticisms as unfounded and unreflective of the "legal reality" in Canada.
Last month, a 45-year-old Toronto man, Prapaharan Thambithurai, became the first Canadian to be charged with terrorist financing.
He allegedly used a humanitarian organization, the World Tamil Movement, as a front for raising money for the Tamil Tigers, an armed independence group fighting the Sri Lankan government.
RCMP officers sealed the movement's headquarters in Montreal and Toronto last week, although the group has repeatedly denied claims it is a front for the Tigers.
Charities are a particular area of concern for Canadian counter-terrorism investigators, who note that legitimately raised funds can often end up financing terrorist activities.
"Charities constitute, wittingly or not, a (censored word) source of financing," reads a 2006 intelligence assessment obtained through Access to Information laws.
While government officials disguised the scope of the problem, the Financial Action Task Force report said "charities and other non-profit organizations have figured in over one-third of Fintrac disclosures related to suspected terrorist activity financing."
The Canadian agency reported a total of 33 incidents last year linked to terrorist financing, worth around $200 million.
"Typically in Canada (funds for terrorism) are raised here and sent overseas," said Chris Mathers, a former undercover officer with the RCMP's proceeds of crime unit.
The CSIS intelligence assessments, which are marked "for official use only," indicate that problems tracking such funds may stem from the use of the money-laundering model to understand terrorist financing.
"Current techniques for the detection of money laundering, which is basically what is applied to terrorist financing in most cases, are essentially designed to track drug transactions," said Mathers, who now serves as a security consultant.
"But the problem is that the amounts of money used to finance terrorist activities are so small compared to drug trafficking proceeds that it doesn't really make sense to use the same techniques to catch both."
The assessments offer a new model for terrorist financing that takes into account the expanding variety of sources and uses for clandestine funds.
The model breaks financing into five stages: acquisition, aggregation, transmission to terrorist organization, transmission to operational cell, and expenditure.
Intelligence gathered since the 9-11 hijackings shows terrorist groups have avoided using conventional banking systems, largely because of the rigid regulatory environment.
"Deprived of safe access to conventional banking, terrorists have turned to harder-to-detect remittance methods, such as hawalas and couriers," says the 2006 assessment, referring to a traditional informal money transfer system.
Other open-source intelligence has noted recent trends towards Internet payment systems and value cards, which can store thousands of dollars with relative anonymity.
"The terrorist financing/resourcing "trail" is not like a piece of string one can follow from its beginning to its end," one 2007 assessment reads. "It is a process that involves many things from many sources to many recipients through many channels for many uses."
