Moving Terrorist Funds
There are three main methods by which terrorists move money or transfer value. The first is through the use of the financial system, the second involves the physical movement of money (for example, through the use of cash couriers) and the third is through the international trade system. Often, terrorist organisations will abuse alternative remittance systems (ARS) 15, charities, or other captive entities to disguise their use of these three methods to transfer value. Terrorist organisations use all three methods to maintain ongoing operation of the terrorist organisation and undertake specific terrorist activities. All of these methods are discussed in turn below.
The multiplicity of organisational structures employed by terror networks, the continuing evolution of techniques in response to international measures and the opportunistic nature of terrorist financing all make it difficult to identify a favoured or most common method of transmission. Regular funding to maintain a group's capacity is best facilitated via the conventional banking system – as money sent from one country to another can be disguised behind false name accounts, charities or businesses to disguise the ultimate recipient; but other ways to move money are used for specific purposes, or to disguise terrorist financial trails.
The literature on terrorist finance developed since 2001 has emphasised the great adaptability and opportunism16 that terrorists deploy in meeting their funding requirements. Indeed, the breadth of cases outlined below suggests that the answer to the question: “How do terrorists raise and move funds?” is:”Any way they can.”
Cases highlight how in many situations, the raising, moving and using of funds for terrorism can be especially challenging and almost indistinguishable from the financial activity associated with everyday life. The identification and the disruption of terrorist finance are naturally harder when authorities are confronted by “informal” support networks that do not operate as part of well structured organisations with clear roles and lines of accountability. In such circumstances, the links between financial activity and terrorist activity become more opaque and the targets for disruption harder to identify.
Indeed, experience suggests that all of the mechanisms that exist to move money around the globe are to some extent at risk. This is illustrated by the list of known and historical techniques provided below that are drawn from earlier research.17 A challenge common to them all is that the connections between funds and terrorism can be extremely difficult to determine in the country of origin, when the terrorist-related activity itself takes place elsewhere.
Formal financial sector
Financial institutions and other regulated financial service providers represent the formal financial sector and serve as the principal gateway through which retail and commercial transactions flow. Additionally, the services and products available through the formal financial sector serve as vehicles for moving funds that support terrorist organisations and fund acts of terrorism. The speed and ease with which funds can be moved within the international financial system allow terrorists to move funds efficiently and effectively and often without detection between and within jurisdictions provide terrorists with the cover they need to conduct transactions and launder proceeds of crime when such activity goes undetected.
Money and value transfer (MVT) mechanisms have proven to be particularly attractive to terrorists for funding their activities, as demonstrated by the cases below. MVT operations range from the large-scale and regulated funds transfer mechanisms available in the formal financial sector, to small-scale alternative remittance systems (discussed separately below). Funds transfers refer to any financial transaction carried out for a person through a financial institution by electronic means with a view to making an amount of money available to a person at another financial institution. It was this use of wire transfers that the FATF was addressing when it issued Special Recommendation VII in October 2001 which requires that full originator information accompany any such transfer.
Analysis of a number of terrorism cases has revealed that radical groups as well as persons related to terrorist organisations have used the network of the registered and world-wide operating money transfer companies to send or receive money. These transactions enabled authorities to develop a wider understanding of the main contacts of these people and the extent of their networks. By creating a public–private partnership with the money transfer organisations, it has been possible to gain a valuable source of financial intelligence on the operations of networks worldwide. Money transfer offices are obliged to register identity-data of the person who sends the money from Country A and the person who receives the money in Country B - in line with FATF Special Recommendation VII. These data have proved to be excellent input for network analysis in regard to terrorist financing.
Advances in payment system technology have had a twofold impact on the potential abuse by terrorist financiers and money launderers of such systems. Electronic payment systems allow law enforcement an increased ability to trace individual transactions through electronic records that may be automatically generated, maintained and/or transmitted with the transaction. However, these advances also create characteristics that may be attractive to a potential terrorist or money launderer. For instance, the increased rapidity and volume of funds transfers, in the absence of the consistent implementation of standards – such as SR VII – for recording key information on such transactions, maintaining records, and transmitting necessary information with the transactions, could serve as an obstacle to ensuring traceability by investigative authorities of individual transactions.
The international trade system is subject to a wide range of risks and vulnerabilities which provide terrorist organisations the opportunity to transfer value and goods through seemingly legitimate trade flows. In recent decades, international trade has grown significantly: global merchandise trade now exceeds USD 9 trillion a year and global trade in services accounts for a further USD 2 trillion.19 The specific methods and techniques used to launder money through the trade system were described in the 2006 FATF Typology Report on trade-based money laundering,20 although terrorist financing was not a focus of that work. Further examination of the specific methods and techniques used to exploit the trade system for terrorist financing purposes could assist in the development of measures to identify and combat such activity.
The physical movement of cash is one way terrorists can move funds without encountering the AML/CFT safeguards established in financial institutions. It has been suggested21 that some groups have converted cash into high-value and hard-to-trace commodities such as gold or precious stones in order to move assets outside of the financial system.
Counter-terrorist operations have shown that cash couriers have transferred funds to a number of countries within the Middle East and South Asia. Direct flight routings are used for simple transfers; however, indirect flight routings using multiple cash couriers and changes in currencies take place within more sophisticated schemes.
The movement of cash across borders is prevalent in countries where the electronic banking system remains embryonic or is little used by the populace. Large parts of Africa and the Middle East have predominantly cash-based societies, and this naturally lends itself to cash flows using alternative remittance systems or by courier. Analysis of a number of terrorism cases has shown that money couriers are active even within Europe and between countries with a well functioning financial system. In most cases couriers are involved in moving funds generated outside the financial system and kept out of the financial system to avoid detection.
Moving money using cash couriers may be expensive relative to wire transfers. As legitimate financial institutions tighten their due diligence practices, it has become an attractive method of transferring funds without leaving an audit trail. When cross border remittance of cash is interdicted, the origin and the end use of cash can be unclear. Cash raised and moved for terrorist purposes can be at very low levels – making detection and interdiction difficult.
Use of Alternative Remittance Systems (ARS)
Alternative remittance systems (ARS) are used by terrorist organisations for convenience and access. ARS have the additional attraction of weaker and/or less opaque record-keeping and in many locations may be subject to generally less stringent regulatory oversight. Although FATF standards call for significantly strengthened controls over such service providers, the level of anonymity and the rapidity that such systems offer have served to make them a favoured mechanism for terrorists. For some networks there are also cultural and pragmatic reasons for using these services: many have their origins or control structures in areas where the banking infrastructure is weak or practically non-existent. The role of ARS in terrorist financing may be primarily an “end-user” gateway; i.e. the means by which new or stored funds are passed to operational cells.
Use of Charities and Non-Profit Organisations
Charities are attractive to terrorist networks as a means to move funds. Many thousands of legitimate charitable organisations exist all over the world that serve the interests of all societies, and often transmit funds to and from highly distressed parts of the globe. Terrorist abuses of the charitable sector have included using legitimate transactions to disguise terrorist cash travelling to the same destination; and broad exploitation of the charitable sector by charities affiliated with terrorist organisations. The sheer volume of funds and other assets held by the charitable sector means that the diversion of even a very small percentage of these funds to support terrorism constitutes a grave problem.