Money Laundering and Terrorist Financing

Money Laundering And Terrorist Financing

There are similarities between the money laundering and terrorist financing, however the methods and objective differ with each other.

Money laundering varies slightly in each country where it is recognized in the criminal law, and it varies according to relevant organizations and standard-setting bodies while the financing of terrorism involves the provision of funds to individuals and groups for the purposes of committing terrorist acts.

Money Laundering And Terrorist Financing

Similarities and Differences Between Money Laundering and Terrorist Financing

Money laundering is the processing of criminal proceeds to disguise its illegal origin. Money laundering process enables the criminals to enjoy profits and funds without jeopardizing their source. When a criminal activity generates substantial profits, the individual or group involved must find a way to control the funds without attracting attention to the underlying activity or the persons involved.

Criminals do this by disguising the sources, changing the form, or moving the funds to a place where they are less likely to attract attention. Simply spoken, the term money laundering describes the activity of concealing or disguising the identity of illegally obtained proceeds. This activity has the goal of making the illegally obtained proceeds appear to have originated from legitimate sources.

The financing of terrorism involves the provision of funds to individuals and groups for the purposes of committing terrorist acts. Terrorism financing resembles money laundering in the sense that it often requires criminals to conceal the transfer of funds within the legitimate financial system.

Terrorists may use high-profile people of the country, to support them in the terrorist activities and for private gain. Terrorists may use public officials, who may abuse the authority of their public office for personal gain, which interferes with democracy and the rule of law. Corruption also may be committed by private individuals who abuse their positions for personal gain, which can hinder fair market operations and distort competition.

There is a song called “Money makes the world go around” and this is true also for terrorists and terror organizations. Money is the lifeblood of terrorism. Terrorist organizations require significant funding, both for the actual undertaking of terrorist acts, but also for other issues. In particular to maintain the functioning of the organization, provide for its basic technical necessities, as well as to cover costs related to the spreading of their ideologies.

In money laundering, when criminals derive funds from illegal activities, that money must be disguised before it can be introduced into the legitimate financial system. Money laundering is the illegal process of disguising the profits of financial crime, typically by using the services of banks and businesses. Criminals transfer their illegal funds from one place to another, through the use of a financial system of the country such as banking channels. Transfer of illegal money may be to support other criminals in various other jurisdictions or countries. 

In Terrorist financing, Terrorist financing is the provision or collection of funds with the intention that they should be used to carry out acts that support terrorists or terrorist organizations or to commit acts of terrorism. Terrorist financing includes the financing or aiding, abetting, and facilitating of terrorist acts, and of terrorists and terrorist organizations. It is a collection of funds, by any means, directly or indirectly, intending to be used, in full or in part, to carry out terrorist activities. 

The motivation behind terrorist financing is generally ideological as opposed to profit-seeking, which is generally the motivation for most crimes associated with ML. Terrorism may be financed through illegal activity or the use of legitimately derived and owned funds. The purpose of terrorist financing is not to hide illegal money but to suppress a population or state through violence and coercion and raise funds to finance criminal acts. 

Criminal Activities

Criminal activity is usually undertaken to generate revenue or provide a benefit to those undertaking the activity. Significant criminal activity is undertaken by organized groups and laundering is the process of disguising the illegal origins and ownership of the criminal property to enable the criminals to use and enjoy it without jeopardizing themselves or attracting unwelcome attention, such as from law enforcement. The main purpose of money laundering is to take advantage of criminal activities. Money laundering is the result of almost all profitable crimes. 

To give you a few examples of different definitions of money laundering, the German Criminal Code keeps it rather simple and describes money laundering as “concealing unlawfully acquired assets.”

  • Funds or assets that were obtained through criminal or illegal activities
  • Disguising the illegal origin of these funds are assets
  • For the first element, it is, therefore, necessary to conduct a crime first and to make money from it. These crimes that build the basis for money laundering are called predicate offenses.
  • Predicate offenses vary in each country and are usually codified in a country’s criminal code.
  • Exemplary predicate offenses may include crimes such as narcotrafficking, tax evasion, murder, grievous bodily harm, corruption, fraud, smuggling, human trafficking, illegal wildlife trafficking, and forgery.
  • If one conducts such a predicate offense, makes money from it, and tries to hide the illegal origin of the funds, this makes for money laundering.

Terrorist financing can be described quite simply as the financing of terrorist acts, terrorists, and terrorist organizations. But terrorist financing is more than just providing the money to them. Terrorist financing can also involve the facilitation of terrorist acts using other assets or stores of value such as oil and natural resources, property, legal documents, financial instruments, and others. 

Criminals may use the financial system or channels, to perform the terrorist financing activities, therefore, organizations are required to ensure that such activities are prohibited, through robust system of controls. Understanding the sources and methods of money laundering and terrorist financing in a jurisdiction is essential for competent authorities to develop and implement an effective anti-money laundering/counter-terrorist financing (AML/CFT) program. A national money laundering/terrorist financing (ML/TF) risk assessment should be considered the foundation for setting AML/CFT policy priorities and resource allocation.

Money Laundering And Terrorist Financing

Final Thoughts

The primary distinction between money laundering and terrorist financing is the source of the funds. On the one hand, financing terrorism entails raising funds to carry out terrorist activities. Money laundering, on the other hand, refers to the process by which a criminal conceals his illicit funds.