The methods to prevent terrorist financing. Financers of terrorism use formal financial institutions including new instruments such as Bitcoin and Ripple, traditional methods of transfer such as the Muslim “hawala” system, money laundering through existing trade networks, and even physical cash couriers to feed their violent agenda.
Methods To Prevent Terrorist Financing
To this end Anti-Money Laundering/Countering the Finance of Terrorism (AML/CTF) tools have been designed as the primary method to prevent terrorist financing. These tools are structured to do the following:
- Expose the structures, organizations, and networks used by the financiers of terrorism;
- Give the authorities a chain to the real financiers of terrorism, the so-called ‘originators’ of terrorist funds;
- Lead to the seizure and forfeiture of unlawfully acquired assets; and
- Create effective and broad-reaching deterrence mechanisms for preventing the financing of terror.
Prevention Of Terrorist Financing
The prevention of terrorist financing is not just a government affair. A public-private partnership is necessary to effectively combat this threat.
The first important step is identification. Governments and financial institutions should have systems in place to identify all users in financial transactions. In most states, formal institutions are relatively well monitored in this aspect. However, in the more informal systems like hawala, it is still possible for unidentified persons to transfer funds anonymously.
While governments and financial institutions have been grappling with the threat of financiers using informal money transfer systems, new technologies have offered avenues for illicit financial transfers. Cryptocurrency, like Bitcoin, for example, offers new levels of anonymity and the capacity to transfer billions of dollars around the world in minutes.
Justice Against Sponsors Of Terrorism Act
The United States has passed the Justice Against Sponsors of Terrorism Act to directly penalize financial institutions that transfer virtual forms of currency to terrorist organizations or persons anywhere in the world.
In tandem with identifying the users of financial systems, it’s also inherent that the systems in place allow the tracing of funds to their source once discovered. To prevent the long-term financing of corruption, it is fundamental that the originators of the funds are apprehended not only to prevent them from funding further terrorist acts but to act as a deterrent to other would-be terror financiers.
Interpol used these international tracing systems to trace an unnamed suspect and apprehend him across borders. Interpol was notified by a European member state of a transfer of EUR18,000, at which point they liaised with four countries from Africa, the Americas, and the Middle East where the funds had been transferred through. Through the cooperation of these countries and Interpol, both the originator and the terrorists were apprehended.
The seizure and forfeiture of funds financing terrorism is also a cornerstone of AML/CTF. This requires the cooperation of governments and financial institutions on an international scale. In practical terms, in order to combat terrorism, it should be possible to seize funds even across international borders with efficacy and ruthless speed. On August 13, 2020, the largest seizure of cryptocurrency terrorism funds in history was a CTF Compliance Program.
- The main focus of countering the financing of terrorism is to restrict the transfer of resources to terrorist organizations.
- CTF’s main focus is on banks, businesses, and charities, and its activities encompass supervision, regulation, and reporting.
- Most policies around CTF seek to identify and halt the transfer or laundering of funds (even when these funds are disguised as legitimate financial transactions) aimed at financing terrorism activities.
- The Financial Action Task Force (FATF) is the primary body that is tasked with countering terrorist financing, and it has a cooperative agreement among 37 countries. These countries work closely together to create policy and share vital information.
- Implementation of CTF policies comes along with substantial benefits such as the prevention of terrorism and substantial risks to society including loss of privacy, high risk of abuse, and mass surveillance.
Last but not least, terror financers should suffer swift and severe punishment. The punishments rendered on individuals and institutions should be radical enough to deter any potential financiers from even considering such an abhorrent act.
In the United States, for example, terrorist financing carries the highest possible penalty of life in prison under the Patriot Act and Suppression of the Financing of Terrorism Act.
Financial Intelligence Units (FIUs) play an important role in combating money laundering and terrorist financing. They are typically assigned to law enforcement or administrative bodies that report to Ministries of Finance in EU Member States.
FIUs are self-contained units that receive, request, analyze, and disseminate information to competent authorities about potential money laundering or terrorist financing activities.