Terrorist Financing

What is Terrorist Financing?

Terrorist financing refers to the process of providing funds or resources to support terrorist activities. It involves the illicit movement of money, assets, or other forms of value to enable acts of terrorism, including planning, recruitment, training and the execution of terrorist acts.

How is terrorist financing prevented?

To combat terrorist financing, AML measures are essential. Financial institutions and authorities work together to detect and prevent suspicious transactions and report them to the relevant authorities. By implementing strict AML procedures, such as transaction monitoring and customer due diligence, the aim is to disrupt the financial networks that fund terrorism and ensure that the individuals and entities involved are prosecuted.

How can terrorist financing be defined? 

Terrorist financing can be tricky to identify, as it can come from either legitimate or illegitimate sources. Indeed, unlike traditional money laundering, where the funds have been obtained illegally and then ‘cleaned’ to be used once again, money for terrorist financing can come from legitimate sources, too, including donations, salaries, and business profits, as well as illegitimate criminal sources.   

The act of terrorist financing often involves recurring characteristics, such as the moving of low-value amounts, making them harder to track than large-scale deposits. In addition, terrorist financing is also regularly associated with the exploitation of legitimate businesses and will transfer funds through a network of money transfer systems, otherwise known as Hawala, in order to minimise suspicion. 

What is the difference between money laundering and terrorist financing?

While money laundering is performed by criminal individuals or organisations to conceal the origin of illicit funds, the purpose of terrorist financing is to fund harmful operations and groups. Other differences between the two include:

• Source of funds: Funds from money laundering are the proceeds of crime, including fraud, tax evasion and organised crime. On the other hand, the source of funds for terrorist financing is irrelevant – it can come from the aforementioned illicit sources or legitimate sources like donations or personal salaries.  

• Transaction sizes: Money laundering involves the processing of large amounts of illicit money, whereas terrorist financing often deals with far smaller, more frequent funds.

• The direction of money: Money laundering is a circular process – once the money is cleaned, it comes back to the individual as ‘legitimate’. Terrorist financing, on the other hand, is one-way, being moved from one place to the other without being returned.

The importance of preventing terrorist financing 

Combatting terrorist financing is crucially important for the maintenance of a country’s financial system and for the safety of citizens worldwide. 

Terrorist organisations rely on a network of funds to operate and execute attacks and demonstrations across the world. By cutting off their source of funds, their ability to operate can be severely impacted, reducing their effectiveness and ability to cause harm to individuals, communities and governments. 

In addition, alongside money laundering, which diverts approximately £2 billion each year in the UK, terrorist financing can undermine the stability of any given country’s economy, with a robust plan against both practices dissuading criminals from targeting a specific financial system. 

How is terrorist financing detected?

The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 came into force in January 2020 and are a key piece of legislation that combats the practice of terrorist financing. These regulations implement the EU's Fifth Money Laundering Directive (5MLD) into UK law and put in place several pieces of legislation that help to prevent terrorist financing activities from taking place. 

While the identification of such practices can be difficult, terrorist financing red flags include: 

• Abnormal financial activity: Activity that’s unusual for a client or business, including large deposits, financial risks that don’t make sense for the customer or frequent money transfers to high-risk countries. 

• Evasive customer behaviour: Including suspicious behaviours like having a reluctance to provide personal information or being usually secretive.  

• Transactions with high-risk entities: Including transactions with individuals on sanctions lists or high-risk countries. 

• Use of suspicious services: Including the use of alternative remittance systems, such as Hawala or the misuse of electronic funds transfers (EFTs). 

How SmartSearch can help

By using SmartSearch, you can address any concerns of terrorist financing thanks to our range of tools that make your customers and their activity transparent. By investing in SmartSearch, you can make use of the following tools: 

• Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD) checks: Truly understand your customer and their business intentions by performing CDD checks using SmartSearch. For more high-risk customers, use our EDD checks to give you peace of mind. 

• Transaction monitoring: Identify patterns of unusual and suspicious transactions that are inconsistent with a customer's history. Transaction monitoring should be done during the onboarding phase and on an ongoing, consistent basis.  

• Perform Politically Exposed Person (PEP) and Sanctions checks: Screen your customers against PEPs and Sanctions lists to identify their risk.  

• Effortless Suspicious Activity Reporting (SAR): If you find suspicious financial activity, seamlessly submit a SAR using our platform.  

To discover what our platform is like hands-on, book a free demo or contact us now to find out how we can help elevate your business!