What is terrorist financing?

Terrorist financing, as a concept, is concerned with the provision of funding or resources to proscribed terrorist organisations.  The devil, however, is in the detail, e.g.:

  • There is no internationally agreed upon definition of terrorism with different jurisdictions disagreeing with which organisations are deemed to be terrorist in nature.
  • Terrorist financing does not just refer to money.  Resources such as equipment, shelter or identification documents can also be captured within the terrorist financing umbrella.
  • The funding or resources do not have to be allocated to a specific act or terrorism e.g. the organisation could use them to provide health care for dependents of terrorist fighters.

As with other types of financial crime, terrorist financing continues to evolve.  Once described as ‘money laundering’ in reverse with a staged process (generation, aggregation, transfer, end use) ascribed to it; as with money laundering, terrorist financing is not that simplistic.

To complicate matters further, terrorist financing can often look and smell like money laundering as financiers use many of the same methods and mechanisms to move value and hide its origin or ultimate destination (such as shell companies, complex structure, nominees or proxies) or, conversely, terrorist financing, and specifically resourcing, might not be detectable at all.

Raising funds

Funds can be raised from legitimate or criminal enterprise.  Historically, funds have been raised via charitable donations – either overtly from donations made by the donor who knows that the funding is going to support terrorist activity or covertly where the trust and generosity of donors is abused, and funds are funnelled away from legitimate charity work.

Increasingly, terrorist groups have been identified as engaging in criminal enterprises such as the sale of weapons or narcotics to provide a steady source of illicit income, alongside looting, extortion, kidnap for ransom and the sale of stolen artefacts or commandeered commodities.

Lone actors, also known as ‘lone wolfs’, and smaller groups and cells of disaffected individuals have also been known to raise funds by taking out loans or credit cards or by fraudulently claiming state social benefits.

When it comes to raising funds, terrorist organisations, or lone actors representing them, are limited only by their imagination in what is an ever-evolving digital world. This new age of technology and social connectivity has provided a new pool of funding from methods that include crowd funding and simple appeals to sympathisers to pay using prepaid cards, international payment systems and more recently using cryptocurrencies.

The challenge for compliance practitioners and front office staff is to learn more about these typologies and keep abreast of new and as yet unreported newer sources of finance.

Value Transfer

A key concept to consider when addressing the question of ‘what is terrorist financing’ is that ‘value’ can be made available to using financial and non-financial means.  There are many mechanisms by which ‘money’ can be collected and sent, e.g.:

  • Wire transfers
  • Prepaid cards
  • Physical cash
  • Cryptocurrencies

Equally however, value can be provided in the form of goods and services which can be sold to generate funding. Some of this value can be transferred through the unregulated sector, sometimes referred to as the ‘Hawaladars’, whilst there is increasing evidence to prove that value is also moving across international borders through the abuse of international trade and documentary trade finance.

Case examples include designated terrorist groups ‘taxing’ exports of charcoal from Somalia, or through the importation of goods in to West Africa. Of course, the most simple and effective way of moving value to a terrorist is to purchase commodities in one jurisdiction and send these in a container for sale in another jurisdiction, with no invoice being submitted by the exporter to the importer. No paperwork, no payments between banks and limited scrutiny by any third parties!

The challenge

Often the poor partner and subject of training behind money laundering, there is an opportunity for compliance practitioners and relevant front office staff to enhance their personal performance and contribution to detecting and disrupting terrorist financing by:

  1. Taking steps to understand more about what we mean by terrorist financing and terrorist resourcing (https://www.liverpoolecho.co.uk/news/liverpool-news/mersey-man-prosecuted-sending-trainers-9220647)
  2. Developing personal skills and awareness of the risk indicators that may indicate terrorist financing and resourcing,
  3. Analysing terrorist financing in a more modern way, recognising that the sources include many different criminal and non-criminal sources, and challenging pre-conceived ideas
  4. Including commodities, international trade and goods that have a dual-use ad purpose in the risk assessment of what terrorists require to commit their crimes and atrocities.

Summary

What is generically referred to as ‘terrorist financing’ is not simply money laundering in reverse and it does not occur in nice, neat stages of a set process. There are subtleties and nuances related to this area of financial crime that require lateral thinking.  

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