For more than a decade, terrorist financing has been a prevalent financial crime on which authorities are desperate to crack down. It became a major political issue after the September 11th terrorist attacks in the United States, and it has weighed heavily on the minds of those involved in the financial sector ever since. A multitude of laws and regulations have been enacted to reign in the financing of terrorist activity, and are collectively known as counter-terrorist financing policy (this may be abbreviated as CFT). Under these policies, most financial institutions are required to fulfill many strict requirements regarding monitoring customers’ transactions and behavior, conducting proper due diligence, and maintaining appropriate records.
What is Terrorist Financing?
Despite the high level of concern about terrorist financing, however, many people are still not entirely sure what it is and how it works. The basic definition of terrorist financing is exactly as one might expect: the illegal smuggling of cash to terrorist organizations. It is often closely linked with money laundering, and it is not uncommon for it to be completed across international borders. Many studies have verified that there is a direct link between organized crime and terrorist financing in the United States, and each issue is generally not analyzed without taking the other into consideration.
Many transactions that are completed in order to send money to terrorist organizations are small and innocuous. Terrorist financiers purposefully do not send large amounts of money at once, as they wish to avoid the attention of both governments and financial institutions.
Additionally, individuals who finance terrorism also use trade-based money laundering schemes in order to get their money across borders. This is becoming much more common, and it is a difficult problem to track down.
Terrorist financiers have also been known to use cash to fund terrorist activities, especially when the place of terrorist planning and terrorist activities occur in the same country. Naturally this leaves less of a paper trail.
Between these tactics and online money transfer systems, terrorist financiers are able to create vast and complicated networks of which the public sector is only starting to scratch the surface.
Raising funds for finance terrorist organizations occur in various ways:
Illegal Activities: Terrorist organizations mainly use the illicit drug trade to raise funds for their activities. The money gained from the drug trade may then be laundered, making the trace of the funds difficult to track.
The Revolutionary Armed Forces of Colombia (FARC), for example, are known to trade cocaine to raise funds for their operations.
Front Companies: Terrorist organizations may operate legitimate businesses to generate profit for terrorist activities and to launder money.
Osama bin Laden was reported to operate a retail honey business throughout the Middle East, which helped him raise funds and conceal shipments of money and weapons.
Many institutions and regulations are dedicated entirely to the fight against terrorist financing.
For instance, one of the primary reasons that the USA PATRIOT Act was enacted in the United States was to cut off funding to terrorist organizations. Additionally, the Financial Action Task Force, otherwise known as the FATF, was created to help fight financial crimes including terrorist financing.
One of the tactics used by the FATF to encourage other countries to strengthen their anti-money laundering regulations was creating a list of the states that were not properly enforcing their laws against financial crime.
This ‘naming and shaming’ technique motivated many different countries to take a stand against both money laundering and terrorist financing, while simultaneously drawing attention to the prevalence of these crimes in the international finance sector.
Now, many banks and institutions are required to thoroughly screen their clients and gather as much information as possible about them and their accounts. This helps to ensure that their customers are not involved with financial crimes such as terrorist financing and that they are not laundering money out of the country.