Money Laundering Vs Terrorist Financing

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Money Laundering vs. Terrorist Financing; you will hear the terms money laundering and terrorist financing used together, or you will see them being subject together in the same discussion.

Fighting money laundering, called Anti-Money Laundering or AML, and fighting terrorist financing, called Counter Terrorism Financing or CTF, are often brought together.

Occasionally, you might even see that these terms or concepts are synonymous, which is not quite true. 

Similarities Between Money Laundering And Terrorist Financing

The similarities between the two of them, which might explain part of this potential misconception. Most countries have implemented measures to counter terrorism financing as part of their money laundering laws.

Money laundering and terrorist financing are both financial crimes and can have severe and disastrous economic effects. They can threaten the stability of a country’s financial sector or its external stability more generally. Effective anti-money laundering and combating the financing of terrorism regimes are essential to protect the integrity of markets and the global financial framework as they help mitigate the factors that facilitate financial abuse. Action to prevent and combat money laundering and terrorist financing thus responds not only to a moral imperative but also to an economic need.

There are even more similarities. Money laundering and terrorist financing often exploit the same vulnerabilities in financial systems that allow for an inappropriate level of anonymity and non-transparency in the execution of financial transactions. Terrorists use techniques like money launderers to evade authorities’ attention and to protect the identity of their sponsors and the funds’ ultimate beneficiaries. And money laundering and terrorist financing may be committed in connection with one another, for example, where funds provided to terrorist organizations are “laundered” funds.

Differences Between Money Laundering And Terrorist Financing

The most basic difference between terrorist financing and money laundering involves the origin of the funds. Terrorist financing uses funds for an illegal political purpose, but the money is not necessarily derived from illicit proceeds. On the other hand, money laundering always involves the proceeds of illegal activity. The purpose of laundering is to enable the money to be used legally.

Money Laundering Vs Terrorist Financing

While money laundering is a process in which the illicit source of assets obtained or generated by criminal activity is concealed to obscure the link between the funds and the original criminal activity, Terrorist Financing provides funds for terrorist activity.

It brings us to probably the biggest difference. We have learned that it is the objective of money launderers to put as many layers in between transactions as possible, making it complicated to trace back the source of the funds. Now for terrorist financing, it’s quite contrary. It is the objective of terrorists to bundle many small funds into bigger ones, ultimately ending up in the reigns of a terrorist or terror organization. One can even say that money laundering is essentially a circular effort: collecting, processing, and returning proceeds of crime “back” to the criminals. While terrorist financing activity is largely a linear progression from collecting, storing, and moving, and onward to using funds and assets, whether derived from legitimate or illegal sources.

Another difference is that to move their funds, terrorists use not only the formal banking system but also informal value-transfer systems like the Hawala financial systems or instruments like Hundees. Hundees are a medieval Indian financial instrument used as a remittance instrument to transfer money from place to place. Terrorists also use probably the oldest method of asset transfer: The physical transportation of cash, gold and other valuables through smuggling routes.

Final Thoughts

Because there are so many transaction options for criminals to commit an offense, financial institutions are extremely vulnerable to being used as a conduit for money laundering (ML) and terrorism financing (TF). Financial institutions, through various transaction options such as transfer transactions, become the entry point for assets that are the proceeds of crime or terrorism financing activities into the financial system, where they can be used to benefit criminal perpetrators. For example, ML perpetrators can withdraw proceeds of crime that appear legitimate while concealing the source of illegally obtained proceeds. TF perpetrators, on the other hand, use proceeds of crime to fund terrorist activities.

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