Skip to main content

Even terrorists need to make financial plans. And, in 2015, they use all the new tools at their disposal.

Syed Rizwan Farook and Tashfeen Malik ruthlessly killed 14 colleagues at the Inland Regional Center in San Bernardino, Calif. last week, leaving many of the community's children without parents, but not before making arrangements for their own child's financial future. 

Before the shooting, the couple left their six-month-old daughter with Farook's mother, to whom they gave $15,000 in three $5,000 bank transfers and $10,000 in cash, according to Fox News. Where did the money come from? Farook used online peer-to-peer lender Prosper in November to obtain a $24,500 loan from Utah-based WebBank.

Nefarious behavior has been linked to new financial technologies that allow for the transfer of funds more easily and quietly. Bitcoin, the pseudo-anonymous crypto-currency, has borne the brunt of the criticism. It is much more challenging to trace the origin of a transaction; money can thus be exchanged for contraband without much risk of detection. Before it was shut down, the illicit online marketplace Silk Road hosted ads for drugs, weapons and even killing-for-hire, often with bitcoin as the only payment accepted.

While they are not as stealthy as bitcoin, commonly used fintech services, like payment start-up Venmo and peer-to-peer lending services like Prosper and Lending Club, can also be used for illegal purposes, even though consumers need to link the services to a U.S. bank account, meaning that they're can be tracked by law enforcement. Venmo, which allows users to freely exchange money electronically, has been used to pay for drugs and sex -- some of its customers barely try to hide it. And getting peer-to-peer loans as opposed to going through a traditional bank allows a shady criminal or a terrorist easier access to cash. 

Unfortunately, detecting malfeasance through the use of bitcoin or peer-to-peer loans, as in the San Bernardino scenario, is currently difficult.

"It would be great if all financial institutions never lent money to any terrorist, but I'm not sure this will ever be possible," said Sam Dogen, who runs and often lends through peer-to-peer platforms. "If family members and people in their own community who interacted with the terrorists daily didn't suspect the terrorists would do such a thing, it's going to be extremely difficult for a lending institution to detect derivative intention."

In this instance, the amount of money borrowed wouldn’t necessarily trigger suspicion. The lending limit for most fintech lenders is currently $30,000 per person; Farook’s loan was well within that limit. 

What’s more, when someone like Dogen lends on a peer-to-peer platform, he can only see a borrower’s generic profile, including the person’s credit rating, number of defaults and intent on the use of the funds. Prosper vets loan applicants by asking about the use of the funds. Farook likely did not provide a transparent answer as to his intentions: to use the funds as an estate planning strategy after a suicide mission.

“At the end of the day, the borrower can make themselves look better than they really are, take the money and run,” Dogen said.

In fact, from a credit profile perspective, Farook probably looked like a low-risk borrower to Prosper.

“Prosper verifies not just through the credit bureaus but through other income and employment verification and that can include W-2, bank statements, pay stubs or tax returns,” said Stu Lustman, a peer-to-peer lending expert in the Atlanta area who runs “Debt to income is one of the biggest determiners of approval and rate, so income needs to be verified somehow to get that ratio measured accurately.”

As a county employee with a regular paycheck and a credit history as a U.S. citizen, Farook would be eligible to borrow on Prosper as long as his credit was good enough and he agreed to the rates and fees.

Even though the loan came from Prosper, the fintech start-up shouldn’t receive the brunt of opprobrium, according to Marc Prosser, co-founder of FitBiz Loans, a fintech small business lender.

“My strong hunch is that Farook had credit cards from multiple well-known financial institutions in his wallet,” Prosser said. “Prosper lends to consumers with high 600 and above credit scores. Most people that have the strong credit scores required by Prosper, built those credit scores with credit cards. I feel that Prosper is unfairly being targeted here.”

In fact, in the future, fintech firms like Prosper could help U.S. government prevent another San Bernardino from happening. (Some may already be trying. Venmo has been known to be flag or freeze accounts when users type Middle Eastern names like Ahmed or use suspicious language in descriptions, even if in jest.)

Scroll to Continue

TheStreet Recommends

First, "Prosper and other peer-to-peer lenders can tighten lending standards by introducing new variables in their underwriting equation," Dogen said. 

While loan approval is based on assessing a borrower’s likelihood to default, it may be worth figuring out a way to try to monitor the likelihood a person is moving monies around in anticipation of malfeasance. These algorithms could be set up to send an alert to particularly suspicious behavior.

“If someone is on a suicide mission, then, unfortunately, the logical conclusion is to max out your credit cards, and borrow as much money as possible before the inevitable day," Dogen added. "Therefore, developing a detection system to do just that before being able to lend out more money might be one of the key signals to prevent money from going into nefarious hands.”

Prosper has not yet responded to a request for comment.

Can the Loaned Money be Recouped?

Now that it's clear that Farook probably didn't use the borrowed money the way he said he would and that he won't be paying it back, what's next for WebBank, the lender, and Prosper, the network that facilitated the lending?

In California, which is a community property state, debts would pass to the deceased's spouse, but in this case, both Farook and his wife, Malik, are dead. As a result, in terms of the law governing the disposition of the loan proceeds, the obligation dies with the borrower.

Prosper's lending partner WebBank cannot collect directly from a borrower who is not alive, but it is entitled to collect from the borrower's estate -- any kind of a pension or retirement plan that didn't have a named beneficiary, potentially, or assets like a car or house.

But if the obligation dies with the terrorist, then the lender has essentially compensated the evildoer's family; is there a way to snatch those funds and prevent them from aiding those associated with the perpetrators of such an atrocity? Should the baby be punished?

The moral question may be moot, because, plain and simple, getting the money back from the family would be quite difficult. 

Once a borrower has the money, he's free to do with it as he pleases, including transferring it to someone else, with repayment sought against the estate. However, in cases of larger sums, the lender can seek repayment from the transferee, by making any one of several arguments including:

-- That the transfer was a loan, not a gift, and therefore the bank "inherits" that right of repayment

-- That the transfer was an illicit way to attempt to avoid repayment and should be unwound 

-- If the cash was a gift but wasn't properly claimed in taxes, the ownership of the cash will not be considered transfered (as in, you can actually have the money in your account, but it's not legally your money). This argument would hold that Farook's mother would have been acting as an escrow. That said, in this case, enough time hasn't passed to involve matters of gift and estate taxes.

The bulk of Prosper's collection efforts would fall under the theory of unjust enrichment, basically that a third party has profited in some illicit, if not expressly illegal, fashion.

"Prosper could go after the estate and I think they might since it was clearly a fraudulent transaction to the degree that the shooter never intended to pay back and probably listed a purpose for his loan that was not the actual purpose," Lustman said.

Given the timing, it's quite possible a lawyer could convince a judge that this was a knowing attempt to avoid a debt and should therefore be unwound. Success would be mixed. It's like if a parent takes out a big loan to pay for a child's college tuition then commits suicide. Collection would be unlikely.

Of course, there is an easier way to mitigate the financial loss. Under normal non-fraudulent circumstances, the lenders would be notified of the death of the borrower in the same way they are notified of a bankruptcy by the borrower. The obligation would end there, although it could go into the estate like credit card debt does. Rather than trying to wrangle the money back, it may be better just to reduce one’s tax liability.

Essentially, Prosper's lending partner WebBank should just write it off.

“If I lent and saw a borrower had died, I'd just write it off as a loss and not expect to get anything back," Lustman said. "It is an unsecured loan after all."

Going forward, we may see lending standards tighten to prevent this type of debacle.

"In the current environment, it wouldn't surprise me to see some crackdown on lending in the future, and stricter underwriting requirements imposed on all lenders, whether traditional banks, finance companies or peer-to-peer platforms, especially in post-disbursement due-diligence that might offer additional verification that loan proceeds are used for their stated purpose," said Dan Blacharski, spokesperson for personal loan website

Additional reporting by Eric Reed.