Fighting Terror Finance

UNIPATH STAFF

Militaries and security forces have an obvious stake in depriving terrorists of the financial means to conduct operations. Terrorists rely on money, both hard cash and virtual currencies, to carry out their destructive activities. Money permits terrorist leaders to buy and smuggle weapons, conduct global media operations, travel to conflict zones, and ensnare recruits with promises of financial reward.

The Financial Action Task Force (FATF), a global watchdog dedicated to preventing illegal money transfers, dedicates much of its work to countering terrorist financing. FATF promotes internationally recognized standards by which nations can suppress the financiers who sponsor terror.

FATF scrutinizes laws governing countries’ financial systems to determine how resistant they are to terrorist financing, money laundering and weapons proliferation. Financial examiners consider 40 guidelines in rating a country’s effectiveness.

Here are examples of the work FATF does, including its offshoot called the Middle East North Africa Financial Action Task Force:

• It assesses a country’s risk to terrorist financing (TF) based on geographical location, strength of governance and the liberality of finance laws.
• FATF urges nations to conduct audits of their nonprofit organizations (NPOs) to eliminate fake charities that harbor terrorist financiers behind a virtuous facade.
• It encourages agencies to unify efforts to pursue terrorists, removing bureaucratic hindrances that limit communication and coordination. That includes not just cooperation among governmental departments within one country, but also cooperation with counterterrorism officials from other countries.
• FATF also promotes a deeper examination of suspicious financial transfers —including the use of innovations such as virtual currencies — to sort legal from illegal activities. Greater transparency in financial transactions eliminates unnecessary secrecy that shields illegality from regulators’ eyes.
• It encourages countries to impose penalties, including confiscation of illicit assets, on those judged guilty of breaking counterterrorism laws.

“A country must demonstrate that, in the context of the risks it is exposed to, it has an effective framework to protect the financial system from abuse,” FATF noted in a 2020 update to its assessment criteria.

Though the guidelines have existed for more than a decade, FATF updates them continually in recognition of changing threats. For example, in light of the foreign fighter phenomenon, FATF revised criteria to criminalize the financing of travel that results in recruits going abroad to conduct terrorism or receive terrorist training.

Tracking money flows

In the Middle East and South and Central Asia, the geographical proximity of Daesh, al-Qaida, the Taliban and other terrorist organizations demands a greater focus on anti-terrorism financing legislation.

As a busy crossroads for trade — particularly in entrepots like the United Arab Emirates (UAE) — the region must work hard to distinguish illegal financial transactions from their legal counterparts.

The UAE designed its sophisticated financial system to ease transactions for merchants. Nevertheless, it presents unique risks. Its seven constituent emirates operate 27 free-trade zones and permit companies to register 39 different ways. The UAE’s economy remains cash intense and includes massive exchanges of precious metals and gems. Foreign expatriates make up a majority of its population, and remittances to their homelands account for much financial activity.

FATF has raised the issue of criminals who take advantage of the UAE’s relatively open economy to conceal ownership of illegal businesses, and the country responded in 2018 with updates to its money laundering and terrorist financing laws. A key part of the reforms was widening the role of a financial intelligence unit at the Central Bank of the UAE to investigate suspicious money transfers.

Highlighting some of the country’s successes, between 2013 and 2019, the country charged 92 suspects with terrorism financing and convicted 75 of them.

Scrutinizing charities

The use of charities as fundraising fronts for terrorists is a problem throughout the world, but one that Pakistan has made a focus of its efforts to counter terror financing. Pakistan reported that the “abuse of NPOs for TF purposes continues to pose a significant threat, both domestically and externally.”

Pakistan surveyed its NPO sector in 2019, delisted more than 48,000 nonprofits and identified 1,300 others as high risk, FATF reported. Islamabad also established charity commissions throughout the provinces to assist in separating legitimate charities from those fomenting violence.

Kyrgyzstan has embarked on a similar course. During the first half of 2019, the country formed a government working group to conduct an NPO sector risk assessment. Kyrgyzstan’s finance intelligence unit is enlisting civil society representatives to join the group to weed out bad actors.

Other countries are in the early stages of addressing the charities problem. Jordan has not yet conducted a risk assessment “related to the NPOs sector in terms of the nature of organizations, objectives, activities, possibility of being misused for TF purposes and adequacy of the legislation,” FATF noted.

Nevertheless, Jordan earns praise for the activities of its General Intelligence Directorate in addressing the financial implications of the counterterrorism cases it investigates. Successes include an arrest at a mosque of a terrorism financier using alms to buy Kalashnikov assault rifles and ammunition for Jordanian residents traveling abroad to fight with terrorist groups.

Rough neighborhoods

Terrorist risk varies by location. FATF notes that Jordan’s terrorist financing risk is related to the “turmoil in the region, the displacement of large numbers of refugees, mainly from Palestine, Iraq, Syria, Libya and Yemen, the expansion of radical ideologies spread by ISIS and Al-Qaida and the proliferation of arms in the region.”

Unauthorized money transfers — including cash smuggled across the borders with Syria and Iraq — dominated the terrorist financing threat in Jordan,
FATF says. In that, Jordan is not alone.

Encouraged by FATF, Lebanon conducted a national risk assessment in 2019 that studied the terrorist financing threat stemming in part from the presence of thousands of refugees from places such as Syria.

The Lebanese reviewed cases of suspicious money transactions and determined that cash transfers, often across borders, helped support terrorists at home and abroad. This thorough review included input not just from customs officials and border guards, but also police and Lebanese Armed Forces units operating in the border region.

Pakistan, too, identified threats originating not just domestically but from other countries. Complicating the investigations were the myriad ways assets are disguised and transferred, including through savings banks, traditional hawala exchanges, drug smuggling, real estate transactions and the post office.

Sanctioning bad actors

Egypt has earned praise for the way it has strengthened its laws against terrorist financing, enforced largely by the Egyptian Money Laundering and Terrorist Financing Combating Unit.

It has established a list of terrorists and terrorist entities subject to sanctions and asset seizures, a list adjusted as new intelligence emerges. A person placed on Egypt’s terrorist list faces expulsion from professional associations, boards of directors and other institutions.

In 2020, in accordance with FATF’s recommendation, Egypt’s Parliament widened the definition of who belongs on the list. It now includes Egyptians who supply terrorists with weapons, travel documents or any other direct or indirect financial support. Even property owners who allow terrorists to train on their land face punishment.

The amendments also addressed more directly the issue of “virtual assets” used by terrorists to avoid potential scrutiny from regulators within official financial institutions.

The Financial Transactions and Reports Analysis Center of Afghanistan was created in 2006 to root out money laundering and terrorist financing. It compiled a list of dozens of “prohibited entities” — including violent extremist groups, shady lending businesses, drug traffickers and illicit charities — that were excluded from holding deposits in the national bank.

Broader sanctions lists include entities, both domestic and foreign, that skirt the country’s financial regulations for nefarious purposes.  

Saudi Arabia, too, has spent years strengthening enforcement against terrorist financiers. It has co-chaired two organizations designed to deprive terrorists of money: the Defeat-ISIS Coalition’s Counter-ISIS Finance Group and the Riyadh-based Terrorist Financing Targeting Center.

After recent changes encouraged by FATF, Saudi Arabia prohibited citizens and residents from providing financial support to people and entities designated as terrorist risks. These obligations adhere not just to financial institutions but also designated nonfinancial businesses like real estate brokers, precious metal and gem dealers, lawyers and accountants.

Conclusion

Military operations against terrorists won’t completely succeed unless these extremists are deprived of money that allows them to recruit supporters, buy weapons, produce propaganda and travel to conflict zones.

FATF and other international organizations have labored to build a consensus on that point, encouraging nations to raise legal standards and strengthen enforcement to squeeze extremist groups financially.

It is one prong of the larger fight against violent groups that threaten peace and security in the region and the world.