Counter-terrorist Financing Research Articles

Fundraising for Right-Wing Extremist Movements

In this article, Tom Keatinge, Florence Keen and Kayla Izenman look at how right-wing terrorist and extremist movements raise funds, and how this should be reflected in counter-extremism and counterterrorism financing strategies. They highlight the importance of acknowledging the growing threat posed by right-wing terrorism and extremism, and thus the need to develop: an increased understanding of related fundraising strategies (including the relevance of significant numbers); the articulation of a more robust legal definition of extremism and greater willingness of the UK government to engage – at a strategic and political level – with the threats posed by right-wing extremism; and finally, greater collaboration between public and private sectors to enable the identification and disruption of related, enabling funding.

Follow the Money, If You Can - Possible Solutions for Enhanced FIU Cooperation Under Improved Data Protection Rules

Financial information can play a key role in tackling Money Laundering (ML), Terrorist Financing (TF) and combatting serious crime more generally. Preventing and fighting ML and the financing of terrorism were top priorities of the European Agenda on Security, which might explain the fast developments regarding the regulation of Anti-Money Laundering (AML) and Counter Terrorism Financing (CTF). During the past years, the European Commission (Commission) proposed several legal texts to reform the current AML framework and to facilitate timely law enforcement (LE) access to financial data for the prevention, detection, investigation and prosecution of serious crime. The line between administrative sanctions and criminal law measures seems to become increasingly blurred, as the latest proposals are no longer based on an internal market provision, but on police and judicial cooperation legal bases. Financial Intelligence Units (FIUs) play a crucial role in analysing and exchanging information concerning suspicious transactions, serving as intermediaries between the private sector and Law Enforcement Authorities (LEAs). Because of the international nature of financial crime, cooperation between FIUs is of paramount importance. Yet, due to different organizational settings in the EU Member States, FIUs are not always able to exchange data effectively, which leads to information gaps. One of the reasons why the data exchange between FIUs is impeded are data protection rules that apply differently depending on the organizational structure of the FIUs in the 28 Member States. Whereas some FIUs must adhere to the stricter data protection rules under the General Data Protection Regulation (GDPR), others may exchange data more flexibly within the scope of the data protection Directive for police and criminal justice authorities (LED). Therefore, the counter-argument to granting broader LE-access rights to financial data by LEAs could be to enable a more effective exchange of data between FIUs. This article argues that FIUs should be able to process personal data within the scope of the LED, in order to have more flexibility to receive, analyse and exchange data: On the one hand, the LED provides sufficiently high data protection standards and adequate safeguards for data subjects while allowing FIUs to carry out their tasks effectively under harmonized rules. On the other hand, this would be an argument to strengthening the role of FIUs as neutral intermediaries instead of granting additional access to personal data by LEAs.

Local intelligence – the missing link in CTF regulation in the banking sector

PurposeThis paper aims to examine the current challenges that banking counter-terrorism financing (CTF) regulation faces in the fight against global terrorism. The paper examines the potential impact on the banking sector of the current civil cases that have been taken against several of the leading global banks by victims and their families.Design/methodology/approachThe paper reviews current academic thinking on CTF regulation and analyses these in context of several legal challenges that have been made against some of the larger global banks, including, HSBC, the Arab Bank and NatWest.FindingsThe paper finds that current approaches towards CTF compliance are no longer a viable option for banks, as court cases have found that additional factors need to be included in risk assessment frameworks. The main finding is that risk-based approaches need to find ways to incorporate local intelligence into their risk systems and that banks can no longer rely on basic tick box compliance measures.Research limitations/implicationsThere are implications for the banking and regulatory sectors developing anti-money laundering /CTF policies. There are also legal implications for the banking sector who may be seeking to defend accusations of supporting terrorism.Originality/valueThe paper’s originality is that this level of analysis of CTF regulation using legal case studies has not been followed before.

Anti-money laundering and counter-terrorist financing threats posed by mobile money

PurposeThe purpose of this paper is to explore the various characteristics of mobile money transactions and the threats they present to anti-money laundering (AML) and counter terrorist financing regimes.Design/methodology/approachA thorough literature review was conducted on mobile money transactions and the associated money-laundering and terrorist financing threats. Four key themes were identified in relations to the three stages of money laundering and effective law enforcement.FindingsThe findings indicate that as money laundering and terrorist financing transactions continue to gravitate towards the weaknesses in the financial system, mobile money provides yet another avenue for criminals to exploit. Risk factors associated with anonymity, elusiveness, rapidity and lack of oversights were all integral considerations in building an effective AML regime. The use of cash is considered a higher threat than mobile money prior to implementation of systems and controls.Practical implicationsThis rapidly changing environment of how individuals manage their money during transactions is set to further explode globally, which poses new problems for regulators and governments alike. Unless there is a unified concentration to heighten global awareness, the imposing threat of mobile money is set to increase at a rapid rate if appropriate actions are not taken.Originality/valueThe findings from this study can be used to gain greater insights on mobile money transactions and raise further awareness of the ever-increasing threat to global financial integrity.

De-Risking or Re-Contracting the Way around Money Laundering Risks

Recent research and market effects within the European Union show a rising concern towards the derisking of certain sectors/actors due to the increased anti-money laundering regulation. Because of the enhanced due diligence and monitoring costs related to anti-money laundering and counter-terrorist financing regulation by the AMLD4, several financial institutions now turn to de-risking their corporate client base in order to minimize not only costs from monitoring and onboarding but also the risks of sanctions and reputation. The purpose of this paper is to analyze the incentives behind de-risking as well as the relevant solution models to the de-risking “crisis”. Overall, to find, to what extend de-risking is efficient and when it is not and how to mitigate the concept. The paper applies a functional approach to law and economics with the aim of reaching a higher level of efficiency in combatting money laundering through analyzing present regulatory and economic conditions. It is found that de-risking within the European Union opposes the aim of the present regulatory scheme regarding anti-money laundering. The paper finds that it is needed to divide the analysis of de-risking to a national and regional level. Additionally, the paper establishes that the present strategy of de-risking at national level eventually will result in enhanced regulation to fulfill the aim of the present regulatory framework, which is why a proactive approach by recontracting the client base is recommended. At a regional level, it is found that de-risking is valid, why a solution needs to come from the EU enhancing control, monitoring and sanctions to establish trust and the possibility for financial inclusion.

The value of public-private partnerships for financial intelligence

This paper discusses the lack of effectiveness of the current anti-money laundering and counter-terrorist financing reporting regime, which leads to defensive and over-reporting. However, the end-goal of the reporting regime is to get more convictions, and to seize more ill-gotten assets. Partnerships between financial institutions and law enforcement authorities allow relevant information sharing in a trusted environment to improve the detection of suspicious transactions. The existing national initiatives in this field, such as the Joint Anti-Money Laundering Intelligence Task-force in the United Kingdom, have proven to be very successful. Yet, this is not sufficient to achieve greater effectiveness as illicit transactions are mostly cross-border. Presently, reporting entities can only provide fragmented pieces of information to their respective domestic Financial intelligence Unit (FIU). To achieve the goal to have a better cross-border vision, Europol developed in 2017 a functionality to allow EU FIUs to quickly forward cross-border Suspicious Transaction Reports relevant to other EU FIUs. Europol decided to push further the cross-border cooperation by setting up the first transnational public-private partnership for financial information sharing. The Europol Financial Intelligence Public-Private Partnership (EFIPPP) was launched in December 2017, bringing together experts from 15 major banks and competent authorities from eight EU member states and non-EU countries, involving FIUs, law enforcement authorities and supervisors, to improve transnational cooperation. Participants of the EFIPPP have started to exchange strategic information and sanitized case studies. Ultimately, the objective of the EFIPPP is to facilitate the exchange of operational or tactical intelligence associated with on-going investigations.

Social Media and (Counter) Terrorist Finance: A Fund-Raising and Disruption Tool

The proliferation of social media has created a terrorist finance vulnerability due to the ease with which propaganda can be spread, promoting fund-raising for a certain cause. Social media companies recognize the importance of preventing violent extremist and terrorist content, but less attention is paid to their fund-raising role. As well as presenting a threat, the movement of terrorist fund-raising activities online creates a disruption opportunity. This article argues that social media companies need to display greater awareness of their vulnerability to supporting terrorist financing and greater collaboration with law enforcement and financial institutions to strengthen the integrity of the system against abuse.

A regulatory misfit? A closer look at the counter-terrorist financing strategies in African states

This article undertakes a multivariate empirical study in examining the correlation between compliance levels with the Financial Action Task Force standards on counter-terrorist financing (CFT) and the frequency of terror activities in African states. Results indicated that irrespective of compliance levels to specific CFT recommendations, assessed independently, terror levels remained unaffected. This is suggestive of misguided CFT recommendations which are mainly focused on the banking sector and blindsided to the position in African states where alternative means of conduits prevail. Consequently, the viability of home-grown, targeted solutions to CFT, is explored as crucial for reduced terror activities in the continent.

Crypto-assets and Financial Consumer ; A Review of Surrounding Legal Issues

Crypto-assets or cryptocurrencies have emerged globally lately. This paper aims to discuss several issues about crypto-assets or cryptocurrencies while it introduces the some Korean issues. Recent attempts to regulate crypto-assets or cryptocurrencies are mostly to avoid/decrease regulatory arbitrage. Activities surrounding crypto-assets or cryptocurrencies may constitute pseudo-deposit taking activities subject to the related banking regulations. As cryptocurrencies are sometimes traded like money, activities dealing with cryptocurrencies may be subject to regulations about anti-money laundering (AML) and counter terrorist financing (CTF). Securities issues to protect investors are most topical; securities issues makes ICOs reviewed from an investor protection aspect thereby justifying application of securities regulations. Furthermore, the issue of accounting and taxation, and privacy issue are also important which need to keep watching.

Is It Time to Reform the Counter-terrorist Financing Reporting Obligations? On the EU and the UK System

AbstractThis Article critically considers the effectiveness of the European Union's (EU) counter-terrorist financing (CTF) strategies. In particular, it concentrates on the use of financial intelligence gathered from the submission of suspicious activity reports (SARs) by reporting entities to Member States Financial Intelligence Units (FIU). The Article identifies a series of weaknesses in the United Kingdom's (UK) reporting regime: Defensive reporting, increased compliance costs, and the definition of suspicion. It concludes by making a series of recommendations that are aimed at improving the effectiveness of the EU and UK CTF reporting obligations.

Anti money laundering compliance and the new standards on beneficial ownership

This paper discusses the new Financial Crimes Enforcement Network (FinCEN) rule on beneficial ownership and the general due diligence challenges currently facing financial institutions. Covered financial institutions must comply with these rules by 11th May, 2018, and should consider the most effective means to take immediate steps to modify their anti money laundering (AML) compliance programmes to accommodate this latest expansion of the AML regulatory regime (specifically the USA’s BSA, AML and Counter-Terrorist Financing (CTF) regulations and associated guidance). Although narrated from a US jurisdictional perspective, non-US financial institutions and regulatory regimes (eg, European Union [EU] under the purview of the European Union’s Anti-Money Laundering Directive) are considered within the scope of discussion. It is acknowledged that non-US financial institutions may be required to adapt their compliance programmes to account for the new US beneficial ownership standards. Therefore, possible approaches toward development of universal operational solutions will be presented and assessed. Finally, this paper observes that the misuse of limited liability companies (LLCs) and offshore financial centres (OFCs) can serve as a harbinger of criminal activity and seeks to encourage further the discussion of due diligence governance and controls within the AML compliance community.

The Heart of Know Your Customer Requirements: The Discriminatory Effect of AML and CTF Policies in Times of Counter-Terrorism in the UK

The duties of loyalty and confidentiality are central to the relationship between banks and their customers. In the wake of national and international security concerns, Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) legislation have put banks at risk for excessive sanctions and legal liability for failing to comply with these laws. In response, banks have adopted de-risking policies that undermine the banks’ confidential relationship to their customers. In order to limit their own risk, banks act pre-emptively by denying accounts to customers or terminate existing accounts of legitimate customers based on risk profiles. Consequently, banks become de facto extensions of law enforcement. This provides incentives to banks to discriminate against entire groups of customers and to dispense with less profitable customers in the name of mitigating risk. The risk-profiling policies of banks raise civic and human rights concerns, which extend beyond the private relationship between the bank and its customer.

Eff ectiveness of the Anti-Money Laundering and Counter-Terrorist Financing Legislation as a Determinant for Asset Confi scation and Freezing Sanctions

The paper deals with a national risk assessment. The subject of the risk assessment is money laundering and terrorism financing. This is the first time it has been conducted in the Slovak republic. The contribution shows what are the decisive criteria in evaluating the national system of anti-money laundering and terrorism financing. The first variable that needs to be taken in account is measures examining the legal framework. The second variable is the institutional framework. The competency of personnel represents the third variable. The infrastructure creates the fourth variable in order to prevent, avoid and respond to such a threat. The other variables are strongly related to the effectiveness of the sanctions. The infrastructure belongs to the other variables. The contribution deals also with data sources and lists those that should be used as a source for further evaluation. The outcome of the NRA will be a comprehensive report.

Why are Designated Non-Financial Businesses and Professions (DNFBPs) Important to High Net Worth Individuals? The Role of Professional Associations

In response to the trend of money launderers resort to the non financial sector to conceal their illicit and criminal incomes, the Financial Action Task Force (FATF) released Standards on Designated Non-Financial Businesses and Professions (DNFBPs)to require countries to improve their Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) measures on DNFBPs. FATF developed standards, commonly known as the Recommendations on Anti-Money Laundering and Counter-Terrorist Financing. The Standards include that DNFBPs be subject to AML/CTF regulations in order to prevent criminal activity. In February 2012, the FATF published revised recommendations which deal with risks relating to money laundering, terrorist financing, the financing of the proliferation of weapons of mass destruction and others. The FATF Recommendations are recognised as the global anti-money laundering (AML) and counter-terrorist financing (CFT) standard. Therefore, quite a number of legislative frameworks to combat Money Laundering (ML) and Terrorist Financing (TF) have been developed in several countries around the world. Nigeria is not left out. Other countries include Canada, France, Spain, Mexico and Sweden even though their level of compliance as found out in a study by Omar, is still not comforting. It is therefore crucial for this paper to essentially address why Designated Non-Financial Businesses and Professions (DNFBPs) are important to HNWIs and consider the roles of professional bodies.

The fundamentals of financial product distribution oversight: Towards the age of maturity?

In recent years, regulators have placed increased expectations on financial product manufacturers to better understand and control their distribution network. The focus is to ensure financial products are sold in compliance with anti-money laundering (AML) and counter-terrorist financing (CTF) regulations, and in a manner that is suitable to and in the end client’s best interest. This requires financial product manufacturers to perform thorough distributor due diligence (KYD) over the intermediaries distributing their products. As a result, the former have had to implement and continuously adapt their distribution oversight function, as both the regulations and the expected outcomes thereof have become clearer, and the scope continues to evolve. With distribution networks becoming increasingly intermediated, the due diligence programme needs to be robust and, to really be successful in its mission, combined with efforts to build and maintain strong partnerships with distributors. In an environment where the financial industry is coming under increased pressure on its revenues, as well as costs to the end client, financial product manufacturers and distributors share a common need to rationalise this process. New emerging technologies and innovative approaches offer opportunities to create such a robust and efficient due diligence process. This paper focuses on describing the main regulations at play, highlighting the key challenges specifically for Luxembourg domiciled investment fund asset managers and the cross-border distribution of their products.

Protection of the national financial system from the money laundering and terrorism financing

The contribution deals with national risk assessment of the money laundering and the terrorism financing at the national level. The contribution shows what are decisive criteria to evaluate the national system of anti-money laundering and counter terrorism financing examining the legal frame, the institutional frame, the competency of the personnel, the infrastructure to prevent, avoid and respond such a threat. It identifies how every product, sector and all designed non-financial business and professions should be evaluated. It elaborates on the factors that may aggravate or mitigate the risks of the proposed variables. The contribution tries to draw a complexity of conducting the national risk assessment as well it hints what may be the data sources for the evaluating process. It compares the variables, its risks and description with the FATF recommendations, FATF methodology and FATF risk assessment as the main open sources but goes further and tries to adjust it to the local level and makes it more customizing.

The Significance of Assessing Money Laundering Risk as a Part of Auditing Operations

In addition to the ever attractive financial sector, the effect of globalisation on the development of money laundering and terrorist financing process has gradually been including the non-financial sector, namely, independent legal professions. The specific nature of the auditing profession, providing a full insight into financial operations and analysis of individual business entities' transactions, can result in a detection and prevention of money laundering, theft and other criminal activities. Auditor independence is the auditor's main tool when performing basic auditing tasks, controls and reporting on suspicious transactions in accordance with the adopted code of ethics. The risk-based approach is omnipresent in auditing even though auditors often focus on low-risk business entities. However, some business processes result in events and circumstances which increase the risk of fraud and errors. The risk of failure in detecting fraud is significantly greater than the risk of failure in detecting material misstatement that is objectively present in financial statements, due to the fact that fraud is deliberately misleading statement, while error is unintended failure, most commonly caused by negligence. Due to the implementation of international standards into a national framework, focusing on permanent training and control of the non-financial sector, the auditing profession has earned its role of “gatekeeper” in the anti-money laundering and counter-terrorist financing system.

Protecting charities from terrorists … and counterterrorists: FATF and the global effort to prevent terrorist financing through the non-profit sector

What role has FATF played in the global effort to counter terrorist financing through the non-profit sector? How have advocates for the sector responded and what do these developments tell us about FATF’s operations and influence? This article reflects on the emergence and evolution of FATF Recommendation 8, initially introduced as Special Recommendation VIII after the terrorist attacks in the United States on 11 September 2001. We show how the breadth of that recommendation elicited a response in the form of a "transnational advocacy network" among those within the non-profit sector. The resulting process of dialogue and the recent change in the text of the recommendation provide important lessons for scholars and practitioners concerned about FATF's accountability and authority.

Managing correspondent banking ML/TF risks: Recent regulatory developments on the risk-based approach model

This paper provides background and describes the current regulatory views of a sound risk-based approach as well as the specific risk factors, controls and other process tools that need to be accounted for when employing such an approach. Since 2010, regulations globally have focused on defining the risk-based approach as a strategy and have determined appropriate elements to consider while carrying it out. Gathering information from independent reliable sources; assessing relevant risk factors of their customers; taking tailored action based on the level of risk and documenting the rationale for such measures are some of the elements adopted by international laws, regulations and guidelines as representative of a risk-based approach. The fact that enforcement activities have increased, penalties are reaching higher levels and are more widely publicised, has inclined financial institutions to move towards de-risking or implementing inefficient know your customer’s customers (FYCC) programmes for all their correspondent banking relationships. These are not the only means to manage risk for correspondent banking relationships. Other efficient controls have been suggested by the Basel Guidelines, such as knowing the anti-money laundering (AML)/counter terrorist financing (CTF) policies of a customer, adapting their product offering, tailored monitoring to the risk of the respondent bank and where required, taking into account red flags resulting from external information and from self-developed customer intelligence. This paper shows how all measures, processes and assessment of risk factors, together with adequate de-risking and KYCC controls, contribute to a strong management of money laundering (ML) or terrorist financing (TF) risks in correspondent banking activities.

Legitimacy of the Summer 2017 GCC crisis and Qatar’s AML framework

PurposeIn June 2017, members of the Gulf Cooperation Council (GCC) ended diplomatic ties with Qatar. There is a legitimate concern about the accusation levied on Qatar. This paper aims to analyse the progress Qatar’s financial system has made with respect to its anti-money laundering (AML) and counter-terrorist financing (CFT) regulations, which further serves as the country’s effort to combating the financing of terrorism (CTF). The paper further wishes to advance the discussion by considering the legitimate goals of the aforementioned bodies and their discourse on creating national and international obligations towards reducing terrorist financing through robust AML frameworks.Design/methodology/approachThe paper analyses Qatar’s legislative and regulatory overhaul following the Financial Action Task Force’s Mutual Evaluation Report. Qatar had distinctively strengthened its approach against Money Laundering and Terrorist Financing. The paper takes an ex ante approach by understanding Qatar’s “strategic deficiencies” before the FATF’s mutual evaluation. Subsequently, the paper studies independent international evaluations of Qatar’s AML/CTF legislation and regulation.FindingsThe paper finds Qatar in significant compliance to the recommendations of the various international bodies, including the Financial Action Task Force (FATF), Basel AML Index, IMF’s financial sector reviews, United Nations and independent reports on AML progress from regulatory bodies around the world. None of these organizations present obligatory rules but have set and determined and international standard for AML/CTF laws.Originality/valueThe primary aim is to draw parallels between Qatar’s regulatory AML and CTF efforts through the country’s compliance with international initiatives, such as the FATF guidelines, Basel AML Index, IMF’s financial sector reviews, United Nations and independent reports on AML progress from regulatory bodies around the world.