Terrorist Financing
Encyclopedia
Terrorist financing came into limelight after the events of terrorism on 9/11. The US passed the USA PATRIOT Act
to, among other reasons, attempt thwarting the financing of terrorism
(CFT) and anti-money laundering (AML) making sure these were given some sort of adequate focus by US financial institutions. The act also had extraterritorial
impact and non-US banks having correspondent banking accounts or doing business with US banks had to upgrade their AML/CFT processes.
Initially the focus of CFT efforts was on non-profit organisations, unregistered money services business
ess (MSBs) (including so called underground banking or ‘Hawala
s’) and the criminalisation of the act itself. The Financial Action Task Force on Money Laundering
(FATF) made nine special recommendations for CFT (first eight then a year later added a ninth). These nine recommendations have become the global standard for CFT and their effectiveness is assessed almost always in conjunction with AML.
The FATF Blacklist
(the NCCT list) mechanism was used to coerce countries to bring about change.
An in-depth study of the symbiotic relationship between organized crime and terrorist organizations detected within the United States of America and other areas of the world referre d to as crime-terror nexus points has been published in the forensic literature.
The Perri, Lichtenwald and MacKenzie article emphasizes the importance of multi-agency working groups and the tools that can be used to identify, infiltrate, and dismantle organizations operating along the crime-terror nexus points.
Terrorists use low value but high volume fraud activity to fund their operations. Paramilitary groups in Northern Ireland
are using legitimate businesses such as hotels, pubs and taxi operators to launder money and fund political activities. Even beyond Ireland, terrorists are buying out/controlling front-end businesses especially cash-intensive businesses including in some cases money services businesses to move monies. Bulk cash smuggling and placement through cash-intensive businesses is one typology. They are now also moving monies through the new online payment systems. They also use trade linked schemes to launder monies. Nonetheless, the older systems have not given way. Terrorists also continue to move monies through MSBs/Hawala
s, and through international ATM transactions. Charities also continue to be used in countries where controls are not so stringent.
was the US multi-agency task force set up in October 2001 to combat terrorist financing and had developed a checklist of suspicious activities. The following patterns of activity indicate collection and movement of funds that could be associated with terrorist financing:
It would be difficult to determine by the activity alone whether the particular act was related to terrorism or to organized crime
. For this reason, these activities must be examined in context with other factors in order to determine a terrorist financing connection. Simple transactions can be found to be suspect and money laundering derived from terrorism will typically involve instances in which simple operations had been performed (retail foreign exchange
operations, international transfer of funds) revealing links with other countries including FATF blacklisted countries. Some of the customers may have police records
, particularly for trafficking in narcotics and weapons and may be linked with foreign terrorist groups. The funds may have moved through a state sponsor of terrorism or a country where there is a terrorism problem. A link with a Politically Exposed Person (PEP) may ultimately link up to a terrorist financing transaction. A charity may be a link in the transaction. Accounts (especially student) that only receive periodic deposits withdrawn via ATM over two months and are dormant at other periods could indicate that they are becoming active to prepare for an attack.
The Operation Green Quest raids led to the convictions of two people, including Abdurahman Alamoudi, who worked for the SAAR Foundation. Alamoudi admitted that he plotted with Libya to assassinate the Saudi ruler and was sentenced to 23 years in jail.
(KYC) high-risk databases of good third party vendors. They must use technologies like link analysis to establish second and third level links that identify transactions as potentially suspicious from a CFT perspective. Focus on preventing identity theft
is an integral part of any CFT program. Detection rules designed to capture the suspicious activity list given above, should be evaluated. Controls out of the transaction monitoring process, for example, account openings by groups of individuals, are also important to watch for. Any bank that is used for terrorist financing will suffer tremendous reputational damage and also a real business impact in terms of share price
and expensive fines. To safeguard against this, financial institutions purchase anti-money laundering software from companies such as Lexis Nexis and C6 along with databases of high risk individuals and organizations developed by companies such as WorldCompliance
and C6.
has outlawed the Internationale Humanitäre Hilfsorganisation
(IHH), saying it has used donations to support projects in Gaza that are related to Hamas
, which is considered by the European Union to be a terrorist organization, while presenting their activities to donors as humanitarian help. German Interior Minister Thomas de Maiziere
said, "Donations to so-called social welfare groups belonging to Hamas, such as the millions given by IHH, actually support the terror organization Hamas as a whole."
USA PATRIOT Act
The USA PATRIOT Act is an Act of the U.S. Congress that was signed into law by President George W. Bush on October 26, 2001...
to, among other reasons, attempt thwarting the financing of terrorism
Terrorism
Terrorism is the systematic use of terror, especially as a means of coercion. In the international community, however, terrorism has no universally agreed, legally binding, criminal law definition...
(CFT) and anti-money laundering (AML) making sure these were given some sort of adequate focus by US financial institutions. The act also had extraterritorial
Extraterritoriality
Extraterritoriality is the state of being exempt from the jurisdiction of local law, usually as the result of diplomatic negotiations. Extraterritoriality can also be applied to physical places, such as military bases of foreign countries, or offices of the United Nations...
impact and non-US banks having correspondent banking accounts or doing business with US banks had to upgrade their AML/CFT processes.
Initially the focus of CFT efforts was on non-profit organisations, unregistered money services business
Money services business
A Money services business is a legal term used by financial regulators to describe businesses that transmit or convert money. The definition was created to encompass more than just Banks which normally provide these services to include non-bank financial institutions.An MSB has specific meanings...
ess (MSBs) (including so called underground banking or ‘Hawala
Hawala
Hawala is an informal value transfer system based on the performance and honor of a huge network of money brokers, which are primarily located in the Middle East, North Africa, the Horn of Africa, and South Asia...
s’) and the criminalisation of the act itself. The Financial Action Task Force on Money Laundering
Financial Action Task Force on Money Laundering
The Financial Action Task Force , also known by its French name, Groupe d'action financière , is an intergovernmental organization founded in 1989 on the initiative of the G7. The purpose of the FATF is to develop policies to combat money laundering and terrorist financing...
(FATF) made nine special recommendations for CFT (first eight then a year later added a ninth). These nine recommendations have become the global standard for CFT and their effectiveness is assessed almost always in conjunction with AML.
The FATF Blacklist
FATF Blacklist
The FATF blacklist was the common shorthand description for the Financial Action Task Force list of "Non-Cooperative Countries or Territories" ; that is, countries which it perceived to be non-cooperative in the global fight against money laundering and terrorist financing...
(the NCCT list) mechanism was used to coerce countries to bring about change.
Money laundering
Often linked in legislation and regulation, terrorist financing and money laundering are conceptual opposites. Money laundering is the process where cash raised from criminal activities is made to look legitimate for re-integration into the financial system, whereas terrorist financing cares little about the source of the funds, but it is what the funds are to be used for that defines its scope.An in-depth study of the symbiotic relationship between organized crime and terrorist organizations detected within the United States of America and other areas of the world referre d to as crime-terror nexus points has been published in the forensic literature.
The Perri, Lichtenwald and MacKenzie article emphasizes the importance of multi-agency working groups and the tools that can be used to identify, infiltrate, and dismantle organizations operating along the crime-terror nexus points.
Terrorists use low value but high volume fraud activity to fund their operations. Paramilitary groups in Northern Ireland
Northern Ireland
Northern Ireland is one of the four countries of the United Kingdom. Situated in the north-east of the island of Ireland, it shares a border with the Republic of Ireland to the south and west...
are using legitimate businesses such as hotels, pubs and taxi operators to launder money and fund political activities. Even beyond Ireland, terrorists are buying out/controlling front-end businesses especially cash-intensive businesses including in some cases money services businesses to move monies. Bulk cash smuggling and placement through cash-intensive businesses is one typology. They are now also moving monies through the new online payment systems. They also use trade linked schemes to launder monies. Nonetheless, the older systems have not given way. Terrorists also continue to move monies through MSBs/Hawala
Hawala
Hawala is an informal value transfer system based on the performance and honor of a huge network of money brokers, which are primarily located in the Middle East, North Africa, the Horn of Africa, and South Asia...
s, and through international ATM transactions. Charities also continue to be used in countries where controls are not so stringent.
Suspicious activity
Operation Green QuestOperation Green Quest
Operation Green Quest was a United States Customs Service-sponsored interagency investigative unit formed in October 2001 after the September 11 attacks, and concerned with the surveillance and interdiction of terrorist financing sources...
was the US multi-agency task force set up in October 2001 to combat terrorist financing and had developed a checklist of suspicious activities. The following patterns of activity indicate collection and movement of funds that could be associated with terrorist financing:
- Account transactions that are inconsistent with past deposits or withdrawals such as cash, cheques, wire transferWire transferWire transfer or credit transfer is a method of electronic funds transfer from one person or institution to another. A wire transfer can be made from one bank account to another bank account or through a transfer of cash at a cash office...
s, etc. - Transactions involving a high volume of incoming or outgoing wire transfers, with no logical or apparent purpose that come from, go to, or transit through locations of concern, that is sanctioned countries, non-cooperative nations and sympathizer nations.
- Unexplainable clearing or negotiation of third party cheques and their deposits in foreign bank accounts.
- Structuring at multiple branches or the same branch with multiple activities.
- Corporate layering, transfers between bank accounts of related entities or charities for no apparent reasons.
- Wire transfers by charitable organisations to companies located in countries known to be bank or tax havenTax havenA tax haven is a state or a country or territory where certain taxes are levied at a low rate or not at all while offering due process, good governance and a low corruption rate....
s. - Lack of apparent fund raisingFundraisingFundraising or fund raising is the process of soliciting and gathering voluntary contributions as money or other resources, by requesting donations from individuals, businesses, charitable foundations, or governmental agencies...
activity, for example a lack of small cheques or typical donations associated with charitable bank deposits. - Using multiple accounts to collect funds that are then transferred to the same foreign beneficiaries
- Transactions with no logical economic purpose, that is, no link between the activity of the organization and other parties involved in the transaction.
- Overlapping corporate officers, bank signatories, or other identifiable similarities associated with addresses, references and financial activities.
- Cash debiting schemes in which deposits in the US correlate directly with ATM withdrawals in countries of concern. Reverse transactions of this nature are also suspicious.
- Issuing cheques, money orders or other financial instrumentsFinancial instrumentsA financial instrument is a tradable asset of any kind, either cash; evidence of an ownership interest in an entity; or a contractual right to receive, or deliver, cash or another financial instrument....
, often numbered sequentially, to the same person or business, or to a person or business whose name is spelled similarly.
It would be difficult to determine by the activity alone whether the particular act was related to terrorism or to organized crime
Organized crime
Organized crime or criminal organizations are transnational, national, or local groupings of highly centralized enterprises run by criminals for the purpose of engaging in illegal activity, most commonly for monetary profit. Some criminal organizations, such as terrorist organizations, are...
. For this reason, these activities must be examined in context with other factors in order to determine a terrorist financing connection. Simple transactions can be found to be suspect and money laundering derived from terrorism will typically involve instances in which simple operations had been performed (retail foreign exchange
Foreign exchange market
The foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
operations, international transfer of funds) revealing links with other countries including FATF blacklisted countries. Some of the customers may have police records
Criminal record
A criminal record is a record of a person's criminal history, generally used by potential employers, lenders etc. to assess his or her trustworthiness. The information included in a criminal record varies between countries and even between jurisdictions within a country...
, particularly for trafficking in narcotics and weapons and may be linked with foreign terrorist groups. The funds may have moved through a state sponsor of terrorism or a country where there is a terrorism problem. A link with a Politically Exposed Person (PEP) may ultimately link up to a terrorist financing transaction. A charity may be a link in the transaction. Accounts (especially student) that only receive periodic deposits withdrawn via ATM over two months and are dormant at other periods could indicate that they are becoming active to prepare for an attack.
The Operation Green Quest raids led to the convictions of two people, including Abdurahman Alamoudi, who worked for the SAAR Foundation. Alamoudi admitted that he plotted with Libya to assassinate the Saudi ruler and was sentenced to 23 years in jail.
Bank processes
In addition to normal AML controls, banks must focus on the CFT angle with renewed vigor and knowledge derived from the extensive databank of case studies now available. Banks must focus on not just name matching with sanctions databases but also with other know your customerKnow your customer
Know Your Customer refers to both:* The activities of customer due diligence that financial institutions and other regulated companies must perform to identify their clients and ascertain relevant information pertinent to doing financial business with them* And the bank regulation which governs...
(KYC) high-risk databases of good third party vendors. They must use technologies like link analysis to establish second and third level links that identify transactions as potentially suspicious from a CFT perspective. Focus on preventing identity theft
Identity theft
Identity theft is a form of stealing another person's identity in which someone pretends to be someone else by assuming that person's identity, typically in order to access resources or obtain credit and other benefits in that person's name...
is an integral part of any CFT program. Detection rules designed to capture the suspicious activity list given above, should be evaluated. Controls out of the transaction monitoring process, for example, account openings by groups of individuals, are also important to watch for. Any bank that is used for terrorist financing will suffer tremendous reputational damage and also a real business impact in terms of share price
Share price
A share price is the price of a single share of a number of saleable stocks of a company. Once the stock is purchased, the owner becomes a shareholder of the company that issued the share.-Behavior of share prices:...
and expensive fines. To safeguard against this, financial institutions purchase anti-money laundering software from companies such as Lexis Nexis and C6 along with databases of high risk individuals and organizations developed by companies such as WorldCompliance
WorldCompliance
WorldCompliance is a private intelligence agency. Its headquarters is in Miami, Florida, home to the largest concentration of international banks in the United States...
and C6.
Germany
In July 2010, GermanyGermany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
has outlawed the Internationale Humanitäre Hilfsorganisation
Internationale Humanitäre Hilfsorganisation e.V.
The Turkish-German association Internationale Humanitäre Hilfsorganisation e.V. or IHH Germany, is an international aid association based in Frankfurt with branches in Belgium, Denmark, The Netherlands, and Austria.In July 2010, Germany has outlawed the Internationale Humanitaere Hilfsorganisation...
(IHH), saying it has used donations to support projects in Gaza that are related to Hamas
Hamas
Hamas is the Palestinian Sunni Islamic or Islamist political party that governs the Gaza Strip. Hamas also has a military wing, the Izz ad-Din al-Qassam Brigades...
, which is considered by the European Union to be a terrorist organization, while presenting their activities to donors as humanitarian help. German Interior Minister Thomas de Maiziere
Thomas de Maizière
Karl Ernst Thomas de Maizière is a German politician , currently serving as the Minister of Defence in the Second Cabinet of Chancellor Angela Merkel....
said, "Donations to so-called social welfare groups belonging to Hamas, such as the millions given by IHH, actually support the terror organization Hamas as a whole."
See also
- List of charities accused of ties to terrorism
- Alms for JihadAlms for JihadAlms for Jihad: Charity and Terrorism in the Islamic World is a 2006 book co-written by American authors J. Millard Burr, a former USAID relief coordinator in Sudan and Historian Robert O...
- Financial crime
- Funding EvilFunding EvilFunding Evil: How Terrorism is Financed and How to Stop It is a book written by counterterrorism researcher Dr. Rachel Ehrenfeld, director of the and the Economic Warfare Institute...
- Organized crimeOrganized crimeOrganized crime or criminal organizations are transnational, national, or local groupings of highly centralized enterprises run by criminals for the purpose of engaging in illegal activity, most commonly for monetary profit. Some criminal organizations, such as terrorist organizations, are...
- White-collar crimeWhite-collar crimeWithin the field of criminology, white-collar crime has been defined by Edwin Sutherland as "a crime committed by a person of respectability and high social status in the course of his occupation" . Sutherland was a proponent of Symbolic Interactionism, and believed that criminal behavior was...
External links
- US Department of State International Narcotics Control Strategy Report (INCSR), annual report issued in March every year. Essential reading for all compliance officers for evaluating country money laundering risk
- US FinCEN (the US FIU) - Periodic SAR Reviews
- UK SOCA (merges NCIS (the UK FIU) - the UK Threat Assessment
- Compliance Web Search - A Google-powered vertical search engine designed to facilitate and accelerate the account vetting process for financial institutions
- Financial Market Integrity Unit, The World Bank
- International Centre for Political Violence and Terrorism Research - Strategic Counter Terrorism - Financial Response
- The funding of international islamic terrorism ~ Strategic analysis profiles ~ Guardia di Finanza General Headquarters - 2nd Department – Analysis Unit
- The Terror Finance Blog - Blog on all aspects of terrorist financing written by a group of independent analysts
- The Financial Action Task Force website
KYC
- World-Check.com - The largest KYC database vendor.
- IntegrascreenOnline - Another key KYC database vendor