The nexus between transnational organized crime and terrorist financing is a contentious, ongoing debate. Though the degree of connection may be disputed, more obvious are the fundamental differences in ideology and motivation inherent in a terrorist versus organized criminal groups.
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Terrorists tend to challenge state authority and seek political change through violence, material destruction, or bloodshed. Organized criminals, on the other hand, appear more concerned with making a profit. While investigators and analysts notice isolated instances of the two intermingling, it is difficult to pinpoint the strength or permanence of any convergence.
It is largely accepted that both entities flourish where poverty, corruption, and repression exist. They weaken governments that are unable to combat them. As a result, fighting terrorist financing and organized crime is not only a moral imperative but also central to maintaining peace, security, and economic prosperity.
Is it easy to spot terrorist financing?
What characterizes terrorists are the political, or pseudo-political, nature of their motivations, a drive absent in “ordinary” violent people. Because of this intrinsic incentive, terrorists are unashamed of their actions, instead regarding them as an expression of cosmic heroism.
A distinct aspect of terrorist financing is that it occurs through both legitimate and illegitimate funds. Terrorist sponsors don’t necessarily generate revenue through illicit activities. Individuals and entities earning income legitimately may finance terrorists simply because they share belief in the same cause.
Additionally, some honest and law-abiding citizens make donations to seemingly genuine institutions or nonprofit organizations that are secretly involved with clandestine terrorist financing operations. These qualities make detecting terrorist financing extremely difficult.
How can financial institutions track terrorist financing?
Usually, financial institutions and banks position counter financing of terrorism (CFT) units in anti-money laundering (AML) departments. However, many organizations still fail to realize detecting terrorist financing requires an entirely different skill set to spotting money laundering.
The substantial difference is that in money laundering, the launderer conceals the illicit source of funds. In terrorist financing, the financer conceals the end-use of funds.
The launderer also requires complete control over the funds, while the terrorist financer releases control over the funds once they are handed over to beneficiaries.
Finally, launderers are always conscious of their illegal actions. Terrorist financers, in contrast, are sometimes innocent and unaware of what they are funding.
What can financial institutions do to detect terrorist financing?
A common hybrid model mixes CFT efforts with other control functions, ultimately undermining its efficacy to spot outliers.
To secure payments, the ongoing tech trend is strongly focused on data movements. Necessary are these and other sophisticated solutions like artificial intelligence; machine learning; and algorithms with an in-depth understanding of terrorist ideologies, psychologies, and typologies.
CFT teams in banks must dedicate themselves exclusively to this activity and keep it separate from other surveillance activities like fraud and AML. They need to operate in sterile environments with unfettered access to specialized third-party proprietary databases.
Moreover, CFT staff should be highly skilled in using open-source intelligence (OSINT) tools to carry out complex investigations. Used in an intelligence context, OSINT is a multifactor methodology for collecting, analyzing, and making decisions about data accessible from publicly available sources. Staff handling terrorist financing alerts need an unambiguous grasp of terrorist funding patterns, particularly geographies, where transactions occurred.
Further, CFT teams benefit from an expertise on Website and email analysis (such as tracing host locations).
How market intelligence helps in establishing CFT programs
Key to identifying terrorist financing transactions is knowledge of terrorist networks and their operators.
Consider this example: In Tunisia, intelligence agencies observed a specific trend of young female fighters travelling to Syria and Iraq, primarily through Libya and Turkey, to assist ISIS militant operations. Lacking market intelligence, banks were vulnerable to processing transactions related to this activity.
How could banks have spotted it? By having intelligent CFT teams segregate transactions carried out by its female client base, say between ages 15 and 30, near Syria’s entry points.
Once this group is isolated from the general population, the institution can narrow down the following specific outliers for the targeted group:
- Foreign spending on prepaid cards in Libya and Turkey;
- Foreign cash withdrawals at entry points just outside Syrian borders (Lebanon, Jordan);
- Cross-border funds transfer (Libya and Turkey);
- Funds credited from and to religious institutions or nonprofit groups; and
- Frequent funds transfers to and from travel agents.
The application of these filters on the complex, targeted client base is this scenario’s most critical factor. In this case, it’s female, within a particular age range, and within conflict zones and routes to Syria.
CFT going forward
The fight against the financing of terrorism is a niche area. It requires coordinated effort, including surveillance beyond the designing of algorithms and transaction thresholds.
To gain valuable insights, CFT staff in banks crucially must engage proactively with law enforcement authorities to stay abreast of the various modus operandi of terrorist networks. Banks and financial institutions should also foster public-private partnerships, bringing in the “human element” to give themselves a fighting chance to successfully combat the financing of terrorism.
The International Compliance Association is a sister company to Compliance Week. Both organizations are under the umbrella of Wilmington plc.
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