Counterterrorism Blog

This is the third in a series of five articles. In order to disrupt terrorist financing, there must be a more comprehensive understanding of the multi-dimensional elements involved in the funding process. The first article in this series provided an overview of four components that must be included in training in order to establish a framework for understanding the complexity of terrorist financing. Each of the subsequent articles focuses on one of the four components, which include:

1. Types of terrorist groups
2. Funding capacity
3. Mechanisms for fundraising and operations
4. Individuals and cells.

This article focuses on funding capacity, which is the ability to raise, move and disburse funds. Terrorist financing is extremely challenging to identify and deal with. Understanding that varying organizations have unique operational considerations, requiring different financial infrastructures, sets the foundation for understanding and developing methodologies to counter these infrastructures and disrupt the flow of funds.

Terrorist groups require financial support in order to achieve their goals. They must have effective financial infrastructures. In order to succeed, a terrorist group must have the capacity to raise funds, the means to launder funds and the availability of funds to operate. Terrorist organizations have had many years to perfect their funding methodologies. This has placed anti-terrorist financing efforts in a greater reactive posture. As a result, more proactive and innovative detective measures must be devised and implemented. Strategies must be developed that enable investigators to track funds back to there point of origin and forward to terrorist strike teams. One means available to accomplish this is by identifying the means terrorists use to launder funds and then tracing the flow of funds back to the source or point of origin and forward through the dissemination process to the terrorist operation and ultimately to the strike team.

Terrorist fundraising is much different than the funding of terrorist operations. Raising funds from various sources differs greatly from the use of the available funds. As a result, detective and preventive strategies must be modified to specifically focus separately and collectively on the sources and application of funds. In addition, the manner in which funds are generated and used varies from organization to organization because of demographic and logistical considerations. In simplifying the terrorist financing process, we are dealing with three steps, as delineated above:

1. Sources of funds
2. The means to launder funds
3. The availability of funds

Begin with the means to launder funds. This requires the use of the formal banking system, the informal banking system or non-financial companies. There must be a conduit that filters the source or origination of funds through a bank, non-bank financial entity or non-financial entity making it available and accessible to the individual terrorist, cell or entity at the point of distribution or use. In the majority of instances, financial institutions serve as the conduit or middle ground between the source and distribution of terrorist funding. In this context, financial institutions must understand that they service two distinct dimensions of terrorist financing. Such specific understanding is essential. In most instances, terrorist financiers are extremely adept at compartmentalizing the fundraising and operational funding dimensions from each other. It is extremely important that financial institutions develop detective methodologies capable of identifying terrorist financing in the two distinct funding dimensions.

The first dimension is fundraising or the source of funds. This entails all fundraising mechanisms ranging from donations, charitable giving, legitimate and illegitimate business activity, to criminal activity. Larger amounts of money will be deposited or transferred in this financial dimension, consistent with the donor or business activity. The second dimension is the operational dimension which requires the availability and ultimate disposition of funds. In this dimension, terrorists will use smaller monetary amounts. In either funding stream, terrorists will take the necessary steps to avoid detection.

The unfortunate reality is that regardless of the level of vigilance and detection, terrorists will always have access to funds; however, the more robust the detective efforts, the greater the likelihood for disruption. Every disruptive success reduces the operational capability of terrorists. In this vein, one of the primary areas of vulnerability to terrorists is finance. It is critically important that financial and non-financial institutions understand this fact and the vital role they play in the process.

Two key areas where terrorists are vulnerable when dealing with financial institutions are with respect to Know Your Customer (KYC) practices and Suspicious Activity Reporting (SAR). Whether using their true names or false identities, terrorists are at risk of detection through KYC mechanisms. SARs have been instrumental to the FBI in identifying links between information reported in SARs and terrorism investigations through advanced data mining capabilities known as investigative data warehousing. Steps should be taken to ensure that KYC and SAR mechanisms are as strong and viable as possible. KYC procedures are particularly important in view of the proliferation of identity theft and fraud.

Financial Institutions should incorporate terrorist financing specific training into their AML training programs. It is essential to understand and simplify terrorist financing as much as possible. It is equally important for individuals in the financial and business sector to understand that they are on the front line of the economic war on terrorism and are capable of playing a vital role through risk recognition, AML monitoring and mechanisms to include KYC and SARs.