Counter-terrorist Financing Research Articles

EFFECTIVENESS OF THE REGULATORY ENFORCEMENT FOR AML IN UKRAINE: IS IT ALL QUIET ON THE FINANCIAL FRONT?

The relevance of studying the effectiveness of the existing financial monitoring system, particularly the adequacy of its regulatory framework, is driven by the intensification of processes related to the legalization of criminal proceeds involving financial institutions. This includes the entrenchment of shadow schemes in payment transactions, expansion of money laundering channels, and terrorism financing. Regulatory gaps have also emerged in overseeing the cryptocurrency market and digital financial services. This study aims to systematize the legal and regulatory framework and evaluate the effectiveness of the financial monitoring system, outlining prospects for further research. The research methodology involves balanced summarization, specification, systematization, generalization, and statistical analysis. Macroeconomic prerequisites for enhancing financial monitoring include socio-economic, political, and moral-ethical factors. The study notes that the effectiveness of anti-money laundering and counter-terrorist financing efforts is not always clear-cut, such as the unclear relationship between the intensity of measures and their effectiveness in preventing regulatory violations and the lack of accurate information about potential offences before disclosure. An objective understanding of financial monitoring effectiveness can be achieved through integral assessments. A methodology for calculating an integral indicator of effectiveness is proposed, which identifies weaknesses in the existing system. The need for new measures to strengthen the coordination of the financial monitoring system, especially under martial law, is emphasized. Based on the research results, recommendations for improving the effectiveness of the financial monitoring mechanism are formulated, including the introduction of artificial intelligence technologies for identifying financial transactions; the use of machine learning technologies; enhancement of monitoring in the cryptocurrency market; strengthening the oversight of transactions related to international terrorism; and developing an effective mechanism to combat financial crimes. These proposals may be useful for financial monitoring and economic security agencies in Ukraine.

Adapting director liability to modern AML/CTF compliance: risks and regulatory implications in Australia

ABSTRACT In Australia, breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act) have traditionally placed liability on corporations. Recent shifts in regulatory practice, however, have introduced the ‘extended stepping stones’ approach, which holds directors and officers personally accountable for failing to manage AML/CTF risks effectively. Although the AML/CTF Act does not explicitly impose personal liability on directors and officers, the Australian Securities and Investments Commission (ASIC) is leveraging section 180 of the Corporations Act 2001 (Cth) to pursue such a claim, as demonstrated in the high-profile case against Star Entertainment Group directors and executives. This article examines the implications of this approach, exploring the potential impact on legal, economic, and social dimensions and underscoring the delicate balance between enhancing director and officer liability and ensuring effective regulatory compliance.

Enhancing Fintech Security and Countering Terrorist Financing: A Case Study of Kenya's Fintech Landscape

This research aims to investigate the intersection of fintech security and the War on Terror within the context of Kenya's burgeoning fintech landscape. With the rapid growth of fintech solutions in Kenya, there arises a pressing need to assess the security challenges and vulnerabilities that accompany this growth, particularly in light of the country's ongoing efforts to combat terrorism. The research will delve into the present challenges and prospects of fintech security, with a specific focus on strategies for managing complex threats and risks associated with terrorist financing, both locally and globally. By examining the unique socio-economic and geopolitical dynamics of Kenya, this study will shed light on the critical role of fintech in national security efforts, including the detection and prevention of illicit financial activities linked to terrorism.

Defiance as an image restoration strategy: refining the reputation risk management framework

PurposeThis study aims to develop an understanding of strategies used by two major banks in Australia to manage reputation risk after court proceedings were initiated by the government for serious breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.Design/methodology/approachThe study is grounded in the corporate social responsibility (CSR) and image restoration literature. Thematic analysis of court proceedings, banks’ annual report suites (which include sustainability reports) and media reports was undertaken using the conceptual framework of reputation risk management (RRM).FindingsA major new strategy of image restoration – defiance – emerged. It is contended that the existing RRM framework needs to be refined. Similarly, in the reducing effectiveness strategy, two new sub-strategies need to be included: refusal to acknowledge an incident as reputational damage and acceptance of the statutory penalty without legally challenging it. The banks also used traditional strategies of the RRM framework, such as reducing effectiveness by minimisation, bolstering, corrective action and mortification.Originality/valueTrustworthiness and confidence are at the core of modern banking. Banks use CSR disclosures as the principal means for image restoration. The present paper explores the link between extant CSR literature and RRM.

Legal Support of Artificial Intelligence in Countering Anti-Money Laundering and Terrorism Financing Regimes in the BRICS Plus Countries

The increasing integration of artificial intelligence technologies into the financial structures of the BRICS Plus countries (comprising the original member countries of Brazil, Russia, India, China, and South Africa as well as the four new member countries of Egypt, Ethiopia, Iran, and the United Arab Emirates) presents both opportunities and challenges in combating economic crimes, which include money laundering and terrorism financing. This article explores the complex regulatory landscape that governs the application of artificial intelligence in these efforts. It examines how artificial intelligence can enhance the performance of anti-money laundering and counter-terrorism financing frameworks by enabling the evaluation of massive datasets, the identification of anomalous transaction patterns, and the automation of compliance procedures. Simultaneously, the article addresses the highly challenging situations that arise when using artificial intelligence. For instance, these technologies can make it difficult to understand the fluctuation of illicit price ranges, thereby complicating efforts to determine their origins and destinations. Through a comparative analysis of the frameworks throughout the BRICS Plus countries, this research highlights the varying levels of regulatory readiness of these frameworks and proposes pathways for harmonizing artificial intelligence-driven economic security measures. The overarching goal of an artificial intelligence model is to enhance both the effectiveness and the integrity of the financial sectors in the BRICS Plus consortium, necessitating a collaborative approach to combating financial crimes in an increasing number of digital economies across the world.

Evaluation of financial monitoring systems effectiveness in its relationship to the country's security indicators

Motivation: The motivation for this research work is its potential to identify critical issues with far-reaching implications for economic security, governance and development, and to contribute to more informed decision-making in the area of countering the financing of terrorism. Aim: The purpose of this research paper is to analyse the impact of the FATF (Financial Action Task Force) standards on crime and anti-corruption efforts and the effective implementation of the legal framework in countries. Results: The article examines the relationship between crime, corruption, terrorism and FATF standards in 54 countries. Based on the regression analysis, the influence of crime, terrorism and perception of corruption on the effectiveness and compliance with FATF standards is investigated. The specific coefficients show that the perception of terrorism and corruption have a statistically significant negative and positive impact on the dependent variable, respectively, while the impact of the crime index is not statistically significant. By examining the impact of crime rates and anti-corruption efforts on FATF standards and the effective implementation of legal frameworks in countries, the study aims to provide information that can inform decision-making. Understanding how these factors interact can help to improve anti-money laundering and counter-terrorist financing strategies at both the national and international levels, including the improvement of financial monitoring systems. Understanding the relationship between crime, corruption and terrorism can have practical implications for various stakeholders, including law enforcement, government officials and international organisations. The findings are important for the implementation of effective measures to combat money laundering and terrorist financing, improve governance, security and overall socio-economic stability.

How Botswana and Mauritius Exited the EU High-Risk Third Country List by Adapting Their Approaches to Beneficial Ownership and Residence

On 22 February 2022, the Mauritian Ministry of Financial Services and Good Governance issued a communique reporting the country’s removal from the European Union (‘EU’) List of High-Risk Third Countries. This list is also called the Anti-money Laundering and Countering Terrorist Financing List (‘AML/CTF’); or, less affectionately, the Blacklist. Mauritius issued this report a month after the European Union released its Commission Delegated Regulation (EU) 2022/229, removing Botswana and Mauritius from the AML/CTF. The EU placed Mauritius and Botswana on the Blacklist in May 2020 after adopting updated criteria for assessing high-risk third countries and publishing its revised methodology for identifying these high-risk jurisdictions. These updated criteria and procedures relegated the tax regimes of Mauritius and Botswana as strategically ‘[deficient] on anti-money laundering and counter-terrorist financing…,’ such that they ‘pose significant threats to the financial system of the Union.’ Placement on the Blacklist encumbers States with increased monitoring, regulatory requirements, and global trade restrictions that can result in a heavy economic toll. Moreover, to exit the list, countries must remediate deficiencies in cooperation with the EU and Financial Action Task Force (‘FATF’), each of which must be satisfied with the improvements made. Mauritius and Botswana passed a bevy of substantial laws in just over a year to satisfy the EU and FATF, earning an exit from the Blacklist. Among the many changes, enhancements to each country’s transparency measures were central. Adopting new approaches to beneficial ownership and residence in each country is at the core of this transparency. This work will explore how Mauritius and Botswana leveraged new approaches to beneficial ownership and residence to meet EU standards for tax regime transparency, resulting in each country’s removal from the EU Blacklist. This analysis will begin with an economic overview of Mauritius and Botswana. What follows will be an introduction to the EU AML/CTF list, followed by how and why the EU placed Mauritius and Botswana on the list. Finally, this work will look at how Mauritius and Botswana exited the list, and what that exit means for each country and other countries like them.

Financial center expertise, investors’ expectations and the new European anti-money laundering authority

The decision to establish the European authority for anti-money laundering and counter-terrorism financing (AMLA) in Frankfurt sets the stage for a natural experiment, offering insight into how the decision for the AMLA headquarter location and the future proximity to regulatory oversight influence the market value of financial institutions. Our results show that, while the introduction of a regulatory institution in Europe appears to have a significant positive impact on European markets, this effect, however, appears to be mitigated in countries directly affected by the decision of the geographical location of the new founded authority.

Trustworthy E-KYC Systems Using Blockchain

In today’s world, Leveraging technological advancements, such as digital identity verification and biometric authentication, has streamlined and modernized KYC processes. These innovations not only enhance efficiency but also contribute to a more user-friendly experience for customers. In this contemporary landscape, staying informed about evolving regulations and industry-specific practices is indispensable for effective KYC implementation. Financial institutions must continuously adapt to the changing regulatory environment and leverage technological solutions to maintain the integrity of their KYC processes. This proactive approach is crucial not only for compliance but also for building trust between customers and stakeholders in an era where financial security and transparency are paramount. KYC procedures have been simplified and brought up to date by utilizing technology innovations like biometric authentication and digital identity verification. These advancements contribute to a more user-friendly experience for customers in addition to increasing efficiency. Keeping up with changing laws and sector-specific procedures is essential for implementing KYC successfully in the modern world. It is imperative for financial institutions to consistently adjust to the dynamic regulatory landscape and utilize technological advancements to uphold the integrity of their KYC procedures. This proactive strategy is essential for both compliance and fostering stakeholder and customer trust in a time when financial stability and openness are critical. Index Terms – KYC - know your customer, AML - anti-money laundering, CTF - counter-terrorism financing Keywords – KYC, blockchain, etherium, encryption, compression

Drivers of cryptocurrency regulation: cross-country empirical evidence from US congress data

ABSTRACT This article undertakes a cross-country empirical analysis of the cryptocurrency regulations from around the world based on a data set drawn from the November 2021 Update of the United States Law Library of Congress report on the regulation of cryptocurrencies around the world. Based on the cross-country information provided in the report, a binary variable was constructed to reflect cryptocurrency regulations in the form of an application of tax legislation and/or anti-money laundering and counter-terrorist financing (AML/CFT) laws at the jurisdiction level. Results of cross-country logit regressions show that cryptocurrency regulation is significantly and positively associated with perceptions of corruption and bribery and significantly and negatively associated with AML/CFT framework and price stability policy.

Leveraging the Legal Entity Identifier to mitigate the risk of financial crime and enhance fraud prevention in cross-border payments

While today’s global digital economy promises a new era of commerce, its sheer complexity also presents opportunities for malicious actors to perpetrate money laundering, terrorism financing, and other forms of financial crime. Despite the escalating compliance costs faced by financial institutions needing to meet increasingly rigorous anti-money laundering (AML), counter-terrorist financing (CTF) and sanction screening obligations, the lack of harmonisation within cross-border data flows inhibits the identification of suspicious actors and exposure of criminal networks. This contributes to a cross-border payments ecosystem that can be broadly characterised by limited trust, high costs, low speed and insufficient transparency. This is leading to increasing industry recognition of the need to promote unified, data-driven approaches to combating financial crime globally. In view of this growing consensus, the Legal Entity Identifier (LEI) is emerging as a key enabler. This paper examines the drivers of this consensus by: (1) detailing findings from key industry organisations, such as the Bank for International Settlements (BIS) and Financial Action Task Force (FATF), outlining the need to increase data quality and standardisation of the data identifiers used within cross-border payment messages to counter complex global criminal enterprises; (2) outlining regulatory and industry momentum to leverage the unique benefits of the LEI within cross-border payment messages, to include an analysis of the implications and opportunities of ongoing initiatives to enhance payment market infrastructures; and (3) demonstrating how, by addressing inconsistencies in how legal entities are identified, connecting a greater range of datasets, and capturing entity relationships and ownership structures, the LEI mitigates AML–CFT risks, enhances fraud prevention, and supports more efficient sanction screening in cross-border payments. This is supported by examples of real-world industry initiatives.

Russia and Türkiye are on the path to progress in national anti-money laundering and counter-terrorism financing systems.

In 2022-2023, a number of international organizations of the global anti-money laundering and terrorist financing network, as well as financial intelligence units of the Western bloc countries, refused to cooperate with Russia. In these circumstances, it is necessary to expand international cooperation with friendly countries, including Turkey, a key foreign policy and trade partner of modern Russia. The article examines the national anti-money laundering and terrorist financing systems of Russia and Turkey. A comparative analysis of their technical compliance with the Recommendations of the Financial Action Task Force on Money Laundering (FATF) is carried out. The assessments of the effectiveness of the systems received by the countries within the framework of the 4th round of mutual assessments in 2019, as well as key countermeasures, are compared. General scientific research methods were used. The information was based on mutual assessment reports and progress reports from Russia and Turkey, as well as national laws on combating money laundering and terrorist financing. The comparative analysis was carried out for 2019-2023, during which countries made efforts to improve their national systems. As a result of the study, it was concluded that both countries have achieved significant progress in the development of national anti-money laundering and terrorist financing systems. Estimated 2023-2024 they comply or significantly comply with all FATF recommendations. At the same time, according to a number of recommendations, countries are superior or inferior to each other, which allows for the exchange of experience for further progress in this area. Thus, Russia is interested in Turkey's experience in establishing deterrent liability measures, identifying public officials and monitoring their operations, and interacting with third parties.

Reforming anti-money laundering and counter-terrorism financing supervision: Response to HM Treasury consultation 2023

Reforming anti-money laundering and counter-terrorism financing supervision: Response to HM Treasury consultation 2023

Ensuring Financial System Sustainability: Combating Hybrid Threats through Anti-Money Laundering and Counter-Terrorist Financing Measures

This paper deals with ensuring the sustainability of the financial system and combating hybrid threats in relation to anti-money laundering and counter-terrorist financing (AML/CTF) measures. International cooperation in the field of combating hybrid threats is only at the beginning, and in many ways, the experience of international cooperation in the fight against money laundering and terrorist financing, which is based on many years of experience in the institutional and legislative fields, could be used. Hybrid threats are constantly changing and evolving, which means our response to them must also constantly evolve and adapt. The aim of the presented study is the analysis of the problem of the legalization of income from criminal activity and the financing of terrorism and their possible relationship with the fight against hybrid threats and maintaining the stability of the financial system.

Barcoding banknotes: Moving towards a system addressing cash anonymity in money laundering and terrorist financing operations

The anonymity in cash transactions present a significant hurdle in financial crime prevention. The central issue in addressing illicit cashflows lies in the difficulty to distinguish between licit and illicit cashflows amongst countless daily cash transactions. Addressing the issue poses the challenge of identifying a balance between an extreme of total surveillance, which can impinge on freedoms and disrupt cash-dependant economies, and total inaction, which allows illicit flows to persist. Between these two extremes lie various middle paths, some more effective than others in striking the required balance. Through an examination of the historical landscape of money laundering, the evolution of countermeasures, and the exploitation of gaps by criminals, a technologically advanced solution is proposed. In this regard, the implementation of traceable barcodes on banknotes aims to enhance transparency and traceability in financial dealings. A barcoded system is an innovative strategy to tackle money laundering and terrorist financing. This article assesses the viability, potential impacts and challenges of this system in policy formulation and economic frameworks, contributing to the discourse on enhancing anti-money laundering and counter-terrorist financing measures.

Indonesia’s Laws and Policies in Combatting Terrorism Financing

This article discusses Indonesia's latest developments, challenges, and remedies for Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) laws. Data were collected by analyzing the challenges of implementing international regulations, such as the United Nations Security Council Resolution (UNSCR) and FATF recommendation. Indonesia is expected to improve their regulations and set high supervision towards the risk of AML/CFT to combat terrorism financing. No studies have been conducted to discuss the latest 2019 UNSCR, a relevant regulation to be implemented by countries to tackle terrorist financing. Therefore, this study aims to examine the significant contribution of the UNSCR and suggest proper implementation in Indonesia.

How counter extremism could improve financial institutions' counter terrorist financing controls

This paper aims to provide insights into counter-extremism measures and how these may be applied by financial institutions as part of their counterterrorist financing controls. The paper suggests that extremism ‘red flags' could be used as a pre-emptive measure against terrorist financing.

Money Laundering Prevention through Regulatory Technology and Internal Audit Function in Indonesia Banking Sector

Money laundering poses a significant challenge globally, involving using cash to conceal the origins of funds. With the rise of digitalisation and the adoption of financial technology (FinTech), the financial sector has been compelled to adapt to these changes. The COVID-19 pandemic has further accelerated the use of FinTech services, including digital banking, to address social distancing concerns and enhance customer convenience. Despite having an index of risk considered moderate for money laundering, Indonesia continues to be a destination for these types of illegal activities. Anti-money laundering (AML) and counter-terrorism financing (CFT) programs must be implemented, especially in all financial service providers that Bank Indonesia oversees.Additionally, the internal audit function is crucial in identifying money-laundering activities within banks. However, there needs to be more research regarding integrating RegTech and evaluating internal audit functions in preventing money laundering in Indonesian banks. This paper aims to address this gap by examining the benefits of RegTech solutions and the role of internal audit functions in preventing money laundering. The findings can be used to enhance regulations and implement effective measurement to combat money laundering and illicit activitivities. Furthermore, the study highlights the importance of Indonesia's membership in the Financial Action Task Force (FATF) to strengthen the country's AML framework and contribute to global policies on AML and countering the financing of terrorism.

Adapting confiscation and anti-money laundering laws to the digital economy: exploring the Australian interplay between proceeds and technology

PurposeThe rise of cryptocurrencies and other digital assets has triggered concerns about regulation and security. Governments and regulatory bodies are challenged to create frameworks that protect consumers, combat money laundering and address risks linked to digital assets. Conventional approaches to confiscation and anti-money laundering are deemed insufficient in this evolving landscape. The absence of a central authority and the use of encryption hinder the identification of asset owners and the tracking of illicit activities. Moreover, the international and cross-border nature of digital assets complicates matters, demanding global coordination. The purpose of this study is to highlight that the effective combat of money laundering, legislative action, innovative investigative techniques and public–private partnerships are crucial.Design/methodology/approachThe focal point of this paper is Australia’s approach to law enforcement in the realm of digital assets. It underscores the pivotal role of robust confiscation mechanisms in disrupting criminal networks operating through digital means. The paper firmly asserts that staying ahead of the curve and maintaining an agile stance is paramount. Criminals are quick to embrace emerging technologies, necessitating proactive measures from policymakers and law enforcement agencies.FindingsIt is argued that an agile and comprehensive approach is vital in countering money laundering, as criminals adapt to new technologies. Policymakers and law enforcement agencies must remain proactively ahead of these developments to efficiently identify, trace and seize digital assets involved in illicit activities, thereby safeguarding the integrity of the global financial system.Originality/valueThis paper provides a distinctive perspective by examining Australia’s legal anti-money laundering and counterterrorism financing framework, along with its law enforcement strategies within the realm of the digital asset landscape. While there is a plethora of literature on both asset confiscation and digital assets, there is a noticeable absence of exploration into their interplay, especially within the Australian context.

From later to sooner: exploring compliance with the global regime of anti-money laundering and counter-terrorist financing in the legal profession

PurposeThe legal profession is vulnerable to abuse for the purposes of money laundering and terrorist financing. According to the Financial Action Task Force (FATF), that vulnerability justified updated global recommendations that urge countries to require lawyers, notaries and other independent legal professionals – including sole practitioners, partners and employed professionals within law firms – to identify, assess and manage the money laundering and terrorist financing risks associated with their services and to ensure that they have appropriate mechanisms in place to provide risk assessment information to competent authorities. Those recommendations proved contentious, with concerns raised by both legal academics and legal professional bodies about the implications of certain aspects of the requirements for the principle of lawyer–client confidentiality. Despite those concerns, many countries have introduced or amended regulatory regimes to extend their application to the legal sector to comply with the FATF’s standards. The purpose of this paper is to contribute to the debate surrounding the extension of AML/CTF obligations to the legal profession.Design/methodology/approachThis paper considers three jurisdictions – the UK, Israel and Australia – at different stages in their journey towards compliance with the FATF’s anti-money laundering (AML) and counter-terrorist financing (CTF) standards for the legal profession. While the UK has a long-established and well-embedded AML regulatory framework for legal professionals, Australia remains non-compliant with the FATF standards. Israel occupies a position between these two ends of the spectrum: following criticism of the omission of lawyers from its AML/CTF regime, Israel implemented due diligence rules for the profession. In 2018, Israel was found to be partially compliant with the relevant FATF recommendations.FindingsIt argues that although there are challenges involved, there are also important benefits. Therefore, Australia should act to implement its proposed changes sooner rather than later. Its persistent failure to appropriately address globally recognised areas of vulnerability leaves Australia open to integrity abuse. In addition, if the government delays addressing this issue until pressure from the FATF (such as deadlines for compliance and, if necessary, a finding of non-compliance) forces it to comply, this may tarnish Australia’s reputation, threaten its access to international financial markets and adversely affect the legitimacy and effectiveness of its AML/CTF regime.Originality/valueOriginality in this context refers to the distinctiveness and uniqueness of a paper’s content and approach. In this case, the originality lies in the fact that there is no other existing paper that addresses the topic of three common-law jurisdictions at various stages of their progression towards aligning with the FATF AML/CTF standards, specifically within the context of the legal profession. Furthermore, the timeliness of this paper is underscored by the fact that multiple jurisdictions are currently deliberating their positions on the focus of this paper. This adds to its originality and relevance, as it addresses a gap in the literature while also contributing to the ongoing discourse surrounding compliance with FATF’s standards.