Fighters of the Islamic State stand guard at a checkpoint in the Northern Iraq City of Mosul
Fighters of the Islamic State of Iraq and the Levant (ISIL) stand guard at a checkpoint in the northern Iraq city of Mosul, June 11, 2014. Picture taken June 11, 2014. REUTERS/Robert Stringer

The financial intelligence agency AUSTRAC ordered on Wednesday the temporary suspension of the operations of the Bisotel Rieh remittance company on suspicions that it is being used to fund terrorism in the Middle East.

The Lakemba money transfer enterprise is owned by Damour Sharrouf and husband Ahmed Alwash. The 37-year-old Sharrouf is the elder sister of Khaled Sharrouf who had escaped to the Middle East using his brother's passport and had posted on social media photo of his young son holding a decapitated head.

Mohamad Mashluche, a barber who owns the haircut business next door, confirmed that he had seen Khaled before in the money shop which also housed the travel agency business of the Sharroufs.

The company has an office in Tripoli, northern Lebanon, the hub for Sunni extremism and route to finance extremist militant groups in Syria.

Bisotel Rieh is suspected of underreporting its transactions since reports said it handled a total of $12.3 million international fund transfers from January to August 2014, but an AUSTRAC source indicated it reached $21.3 million. Besides the inaccurate reports, the company often failed to reveal the recipient of the money which often are sent to areas considered as high terrorism financing risk, said John Schmidt, acting head of AUSTRAC.

Schmidt added that the company had admitted to smuggling currency from Turkey to Lebanon, but explained the act to its failure to open a bank account in Lebanon.

"When you add all these things up together, it creates significant concerns about the terrorism risk which might be involved ... As we now, there are people over there who want to use those funds for terrorism financing," The Sydney Morning Herald quoted Schmidt

However, he clarified, quoted by ABC, "We're not saying that it was going to terrorism - we're a regulator, we're required to make sure that they have in place appropriate systems so that they can deal with the risk of sending funds to those areas."

Likewise, Foreign Minister Julie Bishop said she could not state if Bisotel Rieh is sending money to Islamic State fighters, but she said the action taken by AUSTRAC is part of a multi-pronged approach to starve the IS of funds to curtail its terrorist activities.

AUSTRAC gave the Sydney-based remittance firm until Friday to explain or face the extension of its licence suspension to 40 more days.

It is not just small remittance companies that are suspected of being used to fund terrorism but even global banks like HSBC, according to this video report.

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