Terrorism Financing (TF) and Counter-Terrorism Financing (CTF)

It was during the Cold War that terrorism financing first evolved when groups engaged in civil wars and insurgencies were funded by state-sponsored interests.  In the aftermath, civil wars were funded by money from criminal activity; such as armed robbery, extortion, human trafficking, and kidnapping for ransom.  However, the 9/11 terrorist incident brought to the fore the changes in terror operations that were more globally networked and funded than ever before. A question arose. How could ISIS build such a massive financial base? It was eventually learned that huge money was smuggled out of Iraq and Syria and invested in legitimate businesses – hotels, farms, and car dealerships – in the region. This enabled easier transfer of money globally, evading scrutiny of any financial regulators in other countries.

With the nature of crime and terror incidents undergoing a transformation and terror attacks emerging a common global threat, crime watchdogs concluded that checking to finance was the only way to control global terror.

This involved:

–   Identifying money laundering processes used to finance terror activities,
–   Following the money trail of terrorist organizations /suspicious individuals, and
–   Connecting terrorist attacks with money trails for countering such terror operations in future.

What is Terrorism Financing?

According to the FATF, Terrorist financing is the financing of terrorist acts, and terrorists and terrorist organisations. This involves the generation and movement of funds for the sole purpose of committing terror acts or sustaining a terrorist network or organisation.

Terrorism financing typically involves three stages:

1.   Raising of funds,through donations, self-funding, microloans or criminal activity.
2.   Transferring funds,to a terrorist, terror network, organisation or cell.
3.   Using the funds, for instance, to purchase weapons or bombs, to make payment to terrorists or insurgents, or funding expenses of terror networks.

Terrorism Financing

How is terror financing part of financial crime?

Terrorist organisations and even individual lone terrorists and insurgents require financial support. This money is generated by either lawful or unlawful means and usually transferred through illegal means like money laundering, which makes it another form of financial crime.

Funds are generally raised through the route of;

–   legitimate sources, such as the abuse of charities or legitimate businesses like shell firms and Cryptocurrency exchanges;
–   through microfinancing, remittances, trade-based laundering;
–   self-financing or donations from terror sympathizers who are sensitised to the cause;
–   criminal activity, like drugs, human trafficking, fraud, cybercrime, market abuse, credit card fraud, forgery, embezzlement, identity theft, Ponzi schemes, etc.;
–   state sponsorship;
–   dubious and criminal activities in safe havens and sanctioned

As the techniques used to move these funds between jurisdictions are becoming increasingly sophisticated, the FATF has devised a Terrorist Financing Risk Assessment Guidance and mentioned how Trusts, Company Service Providers, Accountants and Legal Professionals, are also being taken advantage of for activities of terrorism financing.

The importance of combating terrorist financing

Terrorists need money for their assets, like housing and weapons; as well as for training, logistics, travel and execution of their attacks. Monitoring of the transfer of funds through stringent laws, and disrupting of the flow of funds, are the most effective ways to combat terrorism. Not only can this help prevent terror attacks by interrupting the financial and material support, but the money trail and transactions can also help provide valuable information for investigations and surveillance.

Counter-Terrorism Financing (CTF)

The countering of terrorism financing is an essential part of the global fight against terror. As terrorists and terror outfits persist on raising money for terrorism, countries are developing policy responses to avert terror financing. It is a part of global consensus to work in cohesion to avert terror activities. Terror attacks and activities are a threat to every country, as the objective is to disturb peace and harmony in communities, as well as to disrupt the economy and growth trajectory.

Terrorists and terror organisations are increasingly using multiple and innovative methods to raise and launder their funds. The revenue streams and geographies are getting more diverse. This makes it critical for financial institutions, regulated individuals like lawyers, and businesses like money remittance services; to be vigilant. Detection and timely reporting of red flags can help avert terror attacks and combat terrorist financing.