You will frequently hear the terms money laundering and terrorist financing used together. You might also see them being made subject together in the same discussion because of the similarities and differences between money laundering and terrorism financing.
The prevention of money laundering, called Anti-Money Laundering, or AML, and the prevention of terrorist financing, called Counter-Terrorism Financing, or CTF, is often brought together. Occasionally, you might even see that these terms or concepts are used synonymously for one another, which is not quite true.
Similarities And Differences Between Money Laundering And Terrorism Financing
In both cases, funds are withheld and purposefully hidden from authorities, and the techniques used in money laundering and terrorist financing are strikingly similar. Terrorist financing and money laundering are processes that overlap, and money that has been laundered may be used as terrorist funds.
But let’s look at the similarities between them, which might explain part of this potential misconception. Most countries have implemented measures to prevent 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 the global financial framework. They help mitigate the factors that facilitate financial abuse. Action to prevent and combat money laundering and terrorist financing thus responds to a moral imperative and an economic need.
There are additional similarities: Both exploit the same vulnerabilities in financial systems, allowing for an unacceptable level of anonymity and non-transparency in executing financial transactions. Terrorists use techniques like those of money launderers to evade authorities’ attention and protect the identity of their sponsors and the ultimate beneficiaries of the funds. 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.
This brings us to the differences. 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.
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. You have learned that money launderers’ objective is to put as many layers in between transactions as possible, making it complicated to trace back the funds’ source. Now for terrorist financing, it’s quite contrary.
It is the objective of terrorists to bundle many small funds to bigger ones, which ultimately ends up in a terrorist or terror organization’s reigns. 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 the formal banking system and 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. Terrorists also use probably the oldest asset-transfer method: The physical transportation of cash, gold, and other valuables through smuggling routes.
Targeting and Enforcement Of Ml and Tf
The Financial Action Task Force (FATF) is an inter-governmental organization that represents a diverse range of countries around the world. It is a watchdog that was established in 1989 to combat money laundering, and in 2001 it expanded its scope to include terrorist funding. The FATF’s primary goals are to implement global policies to target and combat money laundering.
Although they have many similarities, the law enforcement agencies that deal with them are not the same. In addition to the FATF, the Home Office collaborates with intelligence agencies to prevent terrorist financing.
So yes – on the one hand, it makes sense to fight them together. Still, on the other hand, it is important to understand where money laundering and terrorist financing differ, which makes fighting them more effective.
The source of the funds is an important distinction between money laundering and terrorist financing. The source of the funds in money laundering will be some sort of criminal activity. The source of the funds is largely irrelevant in terrorist financing; the greater concern is where the money goes and who it supports. Terrorist funds can come from a variety of sources, both illegal and legal.