Counter terrorist financing, referred to as CTF, is a set of government regulations, laws, and practices whose objective is to limit access to financial services especially funding of individuals and groups whom the government classifies as terrorists. Tracking down the source of funding aimed at supporting terrorism activities enables law enforcement to prevent acts of terrorism.
How Counter Terrorist Financing (CTF) Works?
Terrorists use various methods to finance their activities. It is common for them to go to extreme lengths to conceal the sources of their funds so that law enforcement and financial regulators do not track their financial trail.
Funds can go through legal sources to support terrorist activities. Legitimate sources include funding from religious, cultural, and government organizations. Terrorist organizations also raise funds through illegal sources of terrorist financing, which include corruption in government, drug trafficking, arms trade, and kidnapping. Funds often originate from an illegal source but are made to look as if they came from a legal source. This is referred to as money laundering.
History Of CTF
In the 1980s, money laundering was evolving into a global challenge. International bodies such as the UN started raising concerns over money laundering. In 1989, the G-7 Summit convened in Paris and the Financial Action Task Force (FATF) on Money Laundering was established.
The President of the European Commission and the G-7 Heads of State of Government established the Task Force from the European Commission, the G-7 Member States, and eight other countries.
The responsibility of the task force was to examine the techniques and trends surrounding money laundering. FATF was also given the obligation of reviewing actions taken on a national and international level and to further propose measures that would be taken regarding counter terrorist financing.
The task force released its first report in April 1990 – nearly a year after its creation. The report titled Forty Recommendations presented a comprehensive action plan that would combat money laundering.
CTF Regulations And Policies
CTF regulations and policies are mainly based on the Forty Recommendations that were published in the Financial Action Task Force (FATF). The Financial Task Force (FATF) comprises of 37 countries and 2 regional organizations (the Gulf Co-operation Council and the European Commission) that work together to fight the financing of terrorism and money laundering using standardized processes. Their efforts aim to stop threats posed to the international financial system.
Many national governments, international financial institutions, and world organizations following the model of the FATF have initiated CTF initiatives and policies.
The Financial Action Task Force (FATF) also gathers and shares information related to trends in terrorism and money laundering. The FATF works with the World Bank, the International Monetary Fund (IMF), and the UN.
Counter Terrorist Financing frameworks and policies at the level of non-governmental organizations (NGOs) and international institutions seek to teach law enforcement investigative techniques, train prosecutors how to maneuver and win money laundering cases and train financial regulatory authorities’ methods of identifying suspicious activity. At the national level, the efforts of counter terrorist financing are anti-money laundering policies.
The primary mechanism of enforcing anti-money laundering laws and regulations is compelling individuals and businesses to disclose information about the identities of individuals or entities involved, ownership and organizational structures of the companies involved, and details of the financial transactions. Once this information comes forth, the suspicious financial activities may be directed to law enforcement for prosecution, and the assets may be either frozen or seized.
Financial institutions such as banks also play a crucial role when it comes to counter terrorist financing systems since these are the main avenues terrorist syndicates prefer to use to transfer funds. As a result, having measures in place that conduct due diligence on customers and that report any suspicious activity is essential in preventing terrorism.
There are great differences between countries that have Counter Terrorist Financing and anti-money laundering laws and those that don’t. Countries with no laws in place for CTF and anti-money laundering have greater privacy and financial freedom and as such, terrorist syndicates prefer these destinations for their money transfers.
Proponents of CTF should, therefore, pressure these countries to implement surveillance measures and set financial restrictions to track terrorist financing more easily. Having standardized procedures across various sectors including targeting certain professions and businesses, the criminal justice system, and the financial sector will make terrorist financing harder to conceal from law enforcement.
Benefits And Costs Of CFT
The primary goal of Counter Terrorist Financing is to disrupt and prevent the occurrence of terrorist activity. Another reason for CFT is that the use of the financial system by criminals engaged in money laundering and terrorist financing may jeopardize the financial system’s stability. If the financial system is unable to detect illegal activities, the public may lose faith in its integrity.
Counter Terrorist Financing also has significant societal costs. The most serious of these is that CFT policies frequently reduce or eliminate privacy and anonymity in financial and other transactions for all members of society.
CFT policies require everyone to compromise their financial privacy, whether or not they are involved in terrorism financing. To detect money laundering, information on all major transactions must be gathered. Because people value their privacy, this represents a huge loss to society, on top of the administrative burden of the disclosures themselves.
Counter Terrorist Financing is concerned with limiting the flow of funds to terrorist organizations. It may concentrate on a wide range of entities, including banks, charities, and businesses, as well as a range of activities, including regulation, supervision, and reporting. Most CFT policies aim to detect and prevent the movement and laundering of funds, which in some cases may be disguised as legitimate financial transactions and used to fund terrorist activities. The implementation of CFT policies has significant societal benefits (preventing terrorism) as well as costs (loss of privacy, mass surveillance, and a high risk of abuse).