The 4 Stages Of Terrorist Financing

Posted in Anti-Money Laundering (AML) on May 29, 2024

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Just like for money laundering, the process of terrorist financing can be explained in different stages. Simply put, the process of stages of terrorist financing follows a four-stage approach.

These four stages are Collecting, Storing, Moving, and Using.

Stage 1 – Collecting

The first stage, the collecting stage, refers to the generation of the funds intended for a terrorist or terror organisation. The funds can originate from a variety of sources. Typical sources of financial support for terrorist financing include direct donations by individuals and organizations; the use of charities and non-profit organizations; and from something that might already be obvious to you, which is criminal activity. But terrorist can also generate funds from legal business operations.

Stage 2 – Storing

The second stage is the storing stage. To understand this, put yourself in the shoes of a fundraiser of a terrorist organisation for a moment. You have received some money from direct donations in amounts large and small, given by individuals, legal entities, non-profit organizations, or businesses, and, in some cases, foreign countries. What do you do with this? You bundle it to make it easier to handle and you store it somewhere.

The storing of funds can be accomplished through means such as: Bank and other accounts, Pre-paid cards, high value commodities such as oil, art and antiquities, agricultural products, and precious metals and gems, and even used vehicles. Terrorist organizations even store the funds in the form of Cryptocurrencies and simply keep it in cash. They are storing the funds until they have determined and planned for their use.

Stage 3 – Moving

The third stage is moving the funds. When the terror group has as much funds as required and an operational need, they move to funds from the store to somewhere else. The choice of movement mechanism naturally relates to the store. Well-known mechanisms for moving values include the traditional banking and financial sector, money services businesses, the Hawala financial system, they smuggle it in the form of cash, gold or other, or if they have it in cryptocurrencies, they transfer them to another wallet. It’s like in other crimes, moving the body has the highest risk profile and so it is during the moving stage that terrorist are most vulnerable, especially to with regards to international economic sanctions.

Stage 4 – Using

The last stage of terrorist financing is using the funds. There are countless examples of what for terrorist can use their funds. Some more examples of the use of funds in terrorism include using it for the terrorist organization itself to pay for weapons, material, equipment, overheads, media and messaging, training, and salaries. The funds can also be used to pay for foreign fighters and organize travel services or to cover passport and visa costs. Some of the forms of usage are also day-to-day expenses which are difficult to identify as terrorism related.