New FATF Study Highlights Need For Closer Government - Financial Sector Cooperation to Combat Terrorism Financing

By Victor Comras

From time to time FATF, the Paris based Financial Action Task Force, publishes new guidance and “best practices” to re-enforce the anti-money laundering and counter-terrorism financing practices of its member countries and the international financial community in general. The latest addition to this series is a special Terrorism Financing study issued February 29th (and published on the FATF website March 14th) which assesses current terrorism financing methodology and recommends new actions to combat it. This study draws heavily on the writings of several Counterterrorism Blog experts, and observations and ideas often discussed on this site, as well as on other official and non official sources.

The study recognizes that the international community has had only limited success, so far, in detecting terrorism financing activities and, that to strengthen this process it must re-examine its understanding of terrorist financing and design new techniques to combat it. To that end, FATF set out to survey terrorism’s diverse funding activities and requirements. This extends well beyond funding for specific terrorist operations and includes also the much broader organisational costs of developing and maintaining a terrorist organization, ie indoctrination, recruitment, training, maintenance, propaganda and fund raising. Curtailing the funding for any of these activities would make it substantially more difficult for terrorist organizations to function.

Terrorist organizations use a wide variety of methods today to raise and move money, the report says. This includes raising funds from legitimate business sources, abusing charitable activities, smuggling, trafficking, and petty crime, and self-financing. Substantial funding is also regularly provided by state sponsors of terrorism as well as deep pocket sympathizers. Terrorist organizations have also mastered techniques of moving money undetected through the formal financial sector, as well as by using cash couriers, and the movement of goods through the trade system. Charities and alternative remittance systems have also been used to disguise terrorist movement of funds.

The FATF study examines each aspect of the terrorism financing challenge and concludes that new government and private sector initiatives are required. The first section of the study report examines the funding requirements of terrorist organizations, including direct operational support and broader organisational requirements. The second addresses the ways terrorist organisations raise funds and obtain support - from legitimate sources and from criminal activity. It also describes the challenge posed by failed states, safe havens and state sponsorship. The third section explores the ways that terrorist organisations move funds by using the formal financial system, alternative remittance services (ARS), cash couriers, trade, and charities or non-profit organisations (NPOs). And, the fourth section describes the global response to terrorist financing and the need to improve cooperation and the two way flow of information between financial institutions and intelligence gathering organizations. There must be a critical partnership, the study says, between financial institutions and governments, to develop any coherent response to international terrorism financing.

Disrupting terrorist financing, the study concludes, will ultimately require a significantly strengthened joint government -- financial institution effort to establish new systemic safeguards to protect the financial system from abuse, as well as greater use of targeted economic sanctions against those funding, soliciting funding, facilitating or transferring terrorism related funds. Typologies, such as those contained in this report will continue to be necessary, and should regularly be updated to keep government entities and financial institutions apprised of methodologies being employed by terrrorists to escape detection. Critical to this process will be enhanced cooperation between the government and the private sector to combine counter-terrorist intelligence and financial information. These are all themes long espoused and written about by me and my Counterterrorism Blog colleagues here and elsewhere. Its nice to know that we are being read and heard.

TrackBack