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 made subject together in the same discussion.

Especially the fighting of money laundering, which is called Anti-Money Laundering or AML, and the fighting of terrorist financing, which is called Counter Terrorism Financing or CTF, is often brought together.

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

Similarities Between Money Laundering And Terrorist Financing

But let’s look at 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.

Additionally, money laundering and terrorist financing are both financial crimes and they both 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 of 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.

And there are even more similarities: Both phenomena, 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. In fact, terrorists use techniques like those of money launderers to evade authorities’ attention and to protect the identity of their sponsors and of the ultimate beneficiaries of the funds. And money laundering and terrorist financing may actually 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.

This 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 terrorist to bundle many small funds to bigger ones, which ultimately ends 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 the collecting, storing and moving, and onward to the using of 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 form of remittance instrument to transfer money from place to place. Terrorist also use probably the oldest method of asset-transfer: The physical transportation of cash, gold and other valuables through smuggling routes.

Get More info at Financial Crime Academy.

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