International Respond to Terrorism Financing
This section begins by explaining the logic of disrupting terrorist financing and then describes how the international community has developed and applied international standards to combat the various sources, conduits and uses of terrorist financing. Finally, this section concludes with a discussion of the use of financial information to identify and combat terrorist financing and terrorism more broadly. In general, this section highlights the importance and relevance of certain international standards in combating terrorist financing and identifies vulnerabilities where the global response to particular aspects of terrorist financing may need to be strengthened.
The logic of disrupting terrorist finance
Disrupting and dismantling terrorist financing networks is essential to combat terrorism. Terrorist organisations' diverse requirement for financing creates a strong logic for seeking to disrupt terrorism by choking off funding flows to all terrorist-linked activities. Interdicting these flows can degrade the capability of terrorist groups over time, limiting their ability to launch attacks, increasing their operational costs and injecting risk and uncertainty into their operations, which can have tactical benefits, such as:
• Damaging morale, leadership and legitimacy within a network.
Forcing terrorist groups to shift activity into areas where they are more vulnerable, including areas that they would otherwise avoid.
The disruption of specific attacks through the interdiction of specific transactions appears highly challenging. Recent attacks demonstrate that they can be orchestrated at low cost using legitimate funds and often without suspicious financial behaviour.
Nevertheless, direct attack costs are only a fraction of terrorist organisations' demand for funds. Disrupting financial flows to terrorist organisations limits the resources available for propaganda, recruitment, facilitation, et cetera, in ways that frustrate terrorists' ability to promote and execute attacks over time.
In large measure, terrorists require funds to create an enabling environment necessary to sustain their activities – not simply to stage specific attacks. Disrupting terrorist-linked funds creates a hostile environment for terrorism. Even the best efforts of authorities may fail to prevent specific attacks. Nevertheless, when funds available to terrorists are constrained, their overall capabilities decline, limiting their reach and effect.
Preventing Terrorists from Raising, Moving, and Using Funds
Previous sections of this report explored the diversity of ways in which terrorist funds are raised, moved and used. Terrorists use legitimate and criminal methods to finance their organisational and operational activities. The international response addresses each of these methods in a focused manner.
Detecting terrorist involvement in otherwise legitimate financial activity requires financial institutions to implement the FATF standards through strong application of the “know your customer” principle and of customer due diligence (CDD) policies and procedures. These are also fundamental to the reporting of suspicious transactions which may indicate criminal activity supporting terrorism.
To assist financial institutions in combating terrorist financing, jurisdictions must adopt certain measures. These include implementing targeted financial sanctions programmes, protecting vulnerable sectors including the charitable sector and money-service businesses, and encouraging effective reporting of suspicious activity.
Targeted Financial Sanctions
FATF Special Recommendation III (SRIII) calls on countries to develop and implement targeted financial sanctions regimes that identify, freeze the assets of, and prohibit making funds available to designated terrorists and their support networks without delay. These requirements are necessary to deprive terrorists and terrorist networks of the means to conduct future terrorist activity and maintain their infrastructure and operations. The preventive intent of SRIII requires countries to designate the elements of terrorist support networks pursuant to an evidentiary standard of reasonableness.
Protecting Vulnerable Sectors
Formal Financial Sector
Jurisdictions have an obligation to protect their financial sectors from money laundering and terrorism finance. In particular, FATF Special Recommendation VII was developed with the objective of preventing terrorists and other criminals from having unchallenged access to wire transfers for moving their funds and for detecting such misuse when it occurs. Specifically, it aims to ensure that basic information on the originator of wire transfers is immediately available to: (1) appropriate law enforcement and/or prosecutorial authorities to assist them in detecting, investigating, prosecuting terrorists or other criminals and tracing the assets of terrorists or other criminals; (2) financial intelligence units for analysing suspicious or unusual activity and disseminating it as necessary; and (3) to beneficiary financial institutions to facilitate the identification and reporting of suspicious transactions.
FATF Special Recommendation VIII lays out a framework that aims to protect the non-profit organisation / charitable sector by ensuring it is not misused by terrorist organisations that: (1) pose as legitimate entities; (2) exploit legitimate entities as conduits for terrorist financing, including for the purpose of escaping asset freezing measures; or (3) conceal or obscure the clandestine diversion of funds intended for legitimate purposes but are diverted for terrorist purposes.
Toward this aim, FATF has developed an effective four-prong approach to identifying, preventing and combating terrorist misuse of charities that focuses on: (1) outreach to the charitable sector; (2) supervision or monitoring of the sector; (3) information gathering and investigation of terrorists and their networks that abuse the charitable sector; and (4) international engagement to protect the sector globally.27
FATF Special Recommendation IX was developed with the objective of ensuring that terrorists and other criminals cannot evade financial market controls through the physical cross-border transportation of currency and bearer negotiable instruments. Specifically, it aims to ensure that countries have measures to: (1) detect the physical cross-border transportation of currency and bearer negotiable instruments, (2) stop or restrain currency and bearer negotiable instruments that are suspected to be related to terrorist financing or money laundering, (3) stop or restrain currency or bearer negotiable instruments that are falsely declared or disclosed, (4) apply appropriate sanctions for making a false declaration or disclosure and (5) to enable confiscation of currency or bearer negotiable instruments that are related to terrorist financing or money laundering consistent with FATF Recommendation 3 and Special Recommendation III.
Suspicious Transaction Reporting
Financial information – including that gathered from suspicious transaction reporting (STR) 28 has a central role in identifying terrorist financing and the movement of terrorist funds through the financial system.
Efforts are ongoing to examine the operational experience of counter-terrorism agencies and establish general “alerts” or “indicators” that suggests a particular transaction presents a risk of terrorist finance. The diversity and multifaceted nature of terrorists’ financial activity makes this challenging.
Despite the challenge in developing generic indicators of terrorist financing activity, financial institutions may nevertheless identify unusual characteristics about a transaction that should prompt the filing of a suspicious transaction report. Although it may not be immediately apparent to financial institutions, reporting of large cash, electronic transfers, and cross-border currency transactions could provide law enforcement with information on terrorist activity.
National authorities can assist the financial sector in its efforts to identify and prevent terrorist financing by sharing intelligence. Financial information alone may not be sufficient to identify terrorist financing activity. However, when combined with counter-terrorist intelligence drawn from surveillance of the range of terrorist activities and networks, financial information can be leveraged to provide financial institutions with a concrete indication of possible terrorist activity, whether these use legitimate or criminal sources of funds. More widely, effective information exchange between the public and private sector has been identified by the FATF as one of the five high-level principles for creating a risk-based approach to money laundering and terrorist financing.
Modern financial standards require that financial institutions remain vigilant to the warning signs of financial abuse and report that suspicious activity to a financial intelligence unit. In turn, the FIU integrates the financial information gathered from financial institutions with law enforcement and intelligence inputs. It is therefore possible for an FIU to identify terrorist financing activity even though it is generally not possible for financial institutions themselves to draw the link between the suspicious activity and terrorism.
The analytic function of FIUs to identify terrorist financing activity has been strengthened by combining financial information with terrorist-related intelligence obtained from law enforcement and intelligence. In addition, FIUs have played a key role in disclosing financial information to intelligence organisations. Reports not linked to suspicious activity have therefore been useful in creating links when combined with other terrorist-related intelligence.
One FIU conducted a review of all STRs associated with its terrorist financing cases for a given year and found that, although the STRs may not have related specifically to suspicions of terrorist financing, the information they contained proved significant in identifying additional accounts and individuals that were linked to subjects of ongoing terrorist financing cases. The FIU was able to conduct further analysis of the transactions involving these additional accounts and in turn, provide law enforcement and intelligence agencies with an expanded network of individuals and accounts that the FIU suspected would be relevant to ongoing terrorist financing investigations.
The application of the FATF 40 Recommendations and 9 Special Recommendations provides a solid basis upon which to gather financial information. Leveraging this financial information with wider information on counterterrorism, including intelligence, at a national level may prove to be the most effective use of financial information in identifying terrorist activity.
Financial information has come to be one of the most powerful investigative and intelligence tools available. As money moves through the financial system, it leaves a verifiable trail that can in many cases indicate illicit activity, identify those responsible, and locate the proceeds of criminality that can then be recovered. Through the development of internationally recognised AML and CFT standards, financial institutions and other designated non-financial entities have taken steps to know their customers and keep records. The value of financial information in counter-terrorist investigations has increased dramatically in recent years.
Cases above show the investigative value of STRs submitted to FIUs – including those not initially linked to terrorist financing. Investigations draw on information about past transactions and from ongoing monitoring of suspect accounts. Other types of financial reports (including large cash transactions, wire transfers, and cross-border currency movements) can significantly increase the pool of financial information available to investigators.
Financial information is now used as part of the evidential case to hold criminals and terrorists to account. It also has a key intelligence role – for example by allowing law enforcement to:
• Look backwards, by piecing together how a criminal or terrorist conspiracy was developed and the timelines involved.
• Look sideways, by identifying or confirming associations between individuals and activities linked to conspiracies, even if overseas – often opening up new avenues for enquiry.
• Look forward, by identifying the warning signs of criminal or terrorist activity in preparation.
Financial information is particularly suited to these tasks in that it is relatively unambiguous, can be processed easily using technology, and easily accessed with little intrusion on the provider.
Looking Backward: Financial investigation following terrorist acts
Exploiting the ‘financial footprint’ left behind by terrorists often gives investigators details of how, when and where terrorist attacks were conceived, planned, and executed. Financial information has proved to be a reliable source of historical intelligence, available to investigators even when all the terrorists have died during the commission of their attacks.
Looking Sideways: The role of financial intelligence in counter-terrorism enquiries
Conventional investigative techniques have come to rely heavily on identifying telecommunications contacts to establish where there are links between individuals and groups. Following the money can produce similar information: Financial intelligence can be used to identify a terrorist's activity and be used directly to trace links with other individuals and groups, or indirectly to compare methods and approaches. Exploiting this additional intelligence can identify those who may otherwise go undetected. This reduces the chances of successful terrorist attacks.
Looking Forward: Identifying indicators of future attacks
It is challenging to identify a terrorist conspiracy in preparation solely from financial activity. Nevertheless, timely detection of financial factors can play a critical role in identifying indicators of future terrorist activity. The following case study highlights how financial intelligence has been essential in building the evidence suggesting a conspiracy was underway.