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. This article elaborates on ‘Terrorist Financing VS Money Laundering’.
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.
But let’s look at the similarities between money laundering and terrorist financing, 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 activities. 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.
Difference in objectives
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 the 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.
Difference in transferring funds
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.
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.
Although both Money Laundering and Terrorism Financing are illegal, and are always subject together in the same discussion, they have specific differences. This article elaborates on ‘Terrorist Financing VS Money Laundering’, going in depth about the differences and similarities between the two.