Terrorist financing

Terrorist financing came into limelight after the events of terrorism on 9/11. The US passed the USA PATRIOT Act to, among other reasons, attempt thwarting the financing of terrorism (CFT) and anti-money laundering (AML) making sure these were given some sort of adequate focus by US financial institutions. The act also had extraterritorial impact and non-US banks having correspondent banking accounts or doing business with US banks had to upgrade their AML/CFT processes.

Initially the focus of CFT efforts was on non-profit organisations, unregistered money services businesses(MSBs) (including so called underground banking or ‘Hawalas’) and the criminalisation of the act itself. The Financial Action Task Force on Money Laundering (FATF) made nine special recommendations for CFT (first eight then a year later added a ninth). These nine recommendations have become the global standard for CFT and their effectiveness is assessed almost always in conjunction with AML.

The FATF Blacklist (the NCCT list) mechanism was used to coerce countries to bring about change.

Suspicious activity

Operation Green Quest was the US multi-agency task force set up in October 2001 to combat terrorist financing and had developed a checklist of suspicious activities. The following patterns of activity indicate collection and movement of funds that could be associated with terrorist financing:

Account transactions that are inconsistent with past deposits or withdrawals such as cash, cheques, wire transfers, etc.

Transactions involving a high volume of incoming or outgoing wire transfers, with no logical or apparent purpose that come from, go to, or transit through locations of concern, that is sanctioned countries, non-cooperative nations and sympathizer nations.

Unexplainable clearing or negotiation of third party cheques and their deposits in foreign bank accounts.

Structuring at multiple branches or the same branch with multiple activities.

Corporate layering, transfers between bank accounts of related entities or charities for no apparent reasons.

Wire transfers by charitable organisations to companies located in countries known to be bank or tax havens.

Lack of apparent fund raising activity, for example a lack of small cheques or typical donations associated with charitable bank deposits.

Using multiple accounts to collect funds that are then transferred to the same foreign beneficiaries

Transactions with no logical economic purpose, that is, no link between the activity of the organization and other parties involved in the transaction.

Overlapping corporate officers, bank signatories, or other identifiable similarities associated with addresses, references and financial activities.

Cash debiting schemes in which deposits in the US correlate directly with ATM withdrawals in countries of concern. Reverse transactions of this nature are also suspicious.

Issuing cheques, money orders or other financial instruments, often numbered sequentially, to the same person or business, or to a person or business whose name is spelled similarly.

It would be difficult to determine by the activity alone whether the particular act was related to terrorism or to organized crime. For this reason, these activities must be examined in context with other factors in order to determine a terrorist financing connection. Simple transactions can be found to be suspect and money laundering derived from terrorism will typically involve instances in which simple operations had been performed (retail foreign exchange operations, international transfer of funds) revealing links with other countries including FATF blacklisted countries. Some of the customers may have police records, particularly for trafficking in narcotics and weapons and may be linked with foreign terrorist groups. The funds may have moved through a state sponsor of terrorism or a country where there is a terrorism problem. A link with a Politically Exposed Person (PEP) may ultimately link up to a terrorist financing transaction. A charity may be a link in the transaction. Accounts (especially student) that only receive periodic deposits withdrawn via ATM over two months and are dormant at other periods could indicate that they are becoming active to prepare for an attack.

The Operation Green Quest raids led to the convictions of two people, including Abdurahman Alamoudi, who worked for the SAAR Foundation. Alamoudi admitted that he plotted with Libya to assassinate the Saudi ruler and was sentenced to 23 years in jail.

Bank processes

In addition to normal AML controls, banks must focus on the CFT angle with renewed vigor and knowledge derived from the extensive databank of case studies now available. Banks must focus on not just name matching with sanctions databases but also with other know your customer (KYC) high-risk databases of good third party vendors. They must use technologies like link analysis to establish second and third level links that identify transactions as potentially suspicious from a CFT perspective. Focus on preventing identity theft is an integral part of any CFT program. Detection rules designed to capture the suspicious activity list given above, should be evaluated. Controls out of the transaction monitoring process, for example, account openings by groups of individuals, are also important to watch for. Any bank that is used for terrorist financing will suffer tremendous reputational damage and also a real business impact in terms of share price and expensive fines. To safeguard against this, financial institutions purchase anti-money laundering software from companies such as Lexis Nexis and C6 along with databases of high risk individuals and organizations developed by companies such as WorldCompliance and C6.

Germany

In July 2010, Germany has outlawed the Internationale Humanitäre Hilfsorganisation (IHH), saying it has used donations to support projects in Gaza that are related to Hamas, which is considered by the European Union to be a terrorist organization, while presenting their activities to donors as humanitarian help. German Interior Minister Thomas de Maiziere said, "Donations to so-called social welfare groups belonging to Hamas, such as the millions given by IHH, actually support the terror organization Hamas as a whole.