Terrorism needs funding. Preventing and disrupting the financing of terrorism is key to limiting the capability of terrorist groups to prepare or carry out attacks. In the recent twin blasts that killed at least 84 people and wounded more than 280 people in Iran, the ISIS armed group claimed responsibility. It was the deadliest attack to target Iran since its 1979 Islamic revolution.
According to ACAM’s report, the Islamic State, Al Qaeda, and Hizballah remain top threats to the US financial system and the safety of the United States. Domestic violent extremism poses a new, serious risk to the people of the United States and its financial institutions.
In 1989, the Financial Action Task Force (FATF), an inter-governmental body, was established to set standards and to promote effective implementation of legal, regulatory, and operational measures for combating money laundering, terrorist financing and the financing of proliferation, and other related threats to the integrity of the international financial system. FATF continuously monitors how criminals and terrorists raise, use, and move funds and continues its work to fight money laundering and terrorist financing with the support of G20 Members.
Over the past 20 years, the International Monetary Fund (IMF) has helped shape policies on anti-money laundering and combating the financing of terrorism (AML/CFT) globally and within its members’ national frameworks.
The Egmont Group of Financial Intelligence Units (The Egmont Group) adds value to member financial investigation units (FIUs) by improving the stakeholders’ understanding of money laundering/terrorist financing risks and draws upon operational experience to inform policy considerations, including AML/CFT implementation and AML/CFT reforms.
The United Nations Security Council’s Counter-Terrorism Committee (CTC) was established by Security Council resolution 1373 (2001), which was adopted unanimously on September 28, 2001, in the wake of the 9/11 terrorist attacks in the United States. The CTC was tasked with monitoring the implementation of said resolution, which required countries to implement several measures to enhance their legal and institutional ability to counter terrorist activities at home, in their regions, and around the world.
For many years, these organizations and other stakeholders have been working together to combat financing of terrorism. However, terrorism remains a critical global threat and, if gone unaddressed, it could worsen in the near future. Based on a report of the Australian Government, the terrorism threat in Southeast Asia is increasing because of links between local extremists and terrorist groups such as ISIL (ISIS) in the southern Philippines. By the same token, as technology evolves, terrorist groups can exploit vulnerabilities posed by increasing anonymity on the internet.
Global partnership and effort as an AML/CFT strategy
Measures to combat terrorist financing need to be implemented in all jurisdictions around the world. To prevent and disrupt the financing of terrorism, governments, in partnership with the private sector, should not allow any safe havens for terrorists and those who finance them.
FATF’s new strategy sets clear objectives1: To cut off the financing of terrorism, particularly for serious terrorist threats such as ISIL and Al-Qaeda; to reinforce safeguards that will deny terrorists access to the financial system and prevent them from exploiting vulnerable countries as safe havens; and to ensure that financial intelligence is effectively used. It also lays out critical steps to execute the new strategy:
The new strategy indicates the transition of FATF’s approach:
A recent money laundering case
Based on the U.S. Department of the Treasury’s press release in November 20232, the U.S. Treasury has taken unprecedented action to hold Binance Holdings Ltd. and its affiliates (collectively, Binance) accountable for violations of the U.S. anti-money laundering and sanctions laws, which protect the country’s national security and the integrity of the international financial system. Binance is the world’s largest virtual currency exchange, responsible for an estimated 60% of centralized virtual currency spot trading.
According to the U.S. Treasury, Binance settled with Financial Crimes Enforcement Network (FinCEN) and Office of Foreign Assets Control (OFAC) for violations of the Bank Secrecy Act (BSA) and apparent violations of multiple sanctions programs. The violations include failure to implement programs to prevent and report suspicious transactions with terrorists — including Hamas’ Al-Qassam Brigades, Palestinian Islamic Jihad (PIJ), Al Qaeda, and the Islamic State of Iraq and Syria (ISIS) — ransomware attackers, money launderers, and other criminals, as well as matching trades between U.S. users and those in sanctioned jurisdictions like Iran, North Korea, Syria, and the Crimea region of Ukraine. By failing to comply with AML and sanctions obligations, Binance enabled a range of illicit actors to transact freely on the platform. Today’s settlements are part of a global agreement simultaneous with Binance’s resolution of related matters with the Department of Justice (DOJ) and the Commodity Futures Trading Commission (CFTC).
“Binance turned a blind eye to its legal obligations in the pursuit of profit. Its willful failures allowed money to flow to terrorists, cybercriminals, and child abusers through its platform,” said Secretary of the Treasury Janet L. Yellen. “Today’s historic penalties and monitorship to ensure compliance with U.S. law and regulations mark a milestone for the virtual currency industry. Any institution, wherever located, that wants to reap the benefits of the U.S. financial system must also play by the rules that keep us all safe from terrorists, foreign adversaries, and crime, or face the consequences.”
FinCEN’s settlement agreement assesses a civil money penalty of $3.4 billion, imposes a five-year monitorship, and requires significant compliance undertakings, including the assurance of Binance’s complete exit from the United States. OFAC’s settlement agreement assesses a penalty of $968 million and requires Binance to abide by a series of robust sanctions compliance obligations, including full cooperation with the monitorship overseen by FinCEN. To ensure that Binance fulfils the terms of its settlement — including that it does not offer services to U.S. persons — and to ensure that illicit activity is addressed, Treasury will retain access to books, records, and systems of Binance for a period of five years through a monitor. Failure to live up to these obligations could expose Binance to substantial additional penalties, including a $150 million suspended penalty, which would be collected by FinCEN if Binance fails to comply with the terms of the required compliance undertakings and monitorship.
Unprecedented challenge in the implementation of AML/CFT measures
According to FATF, combatting terrorist financing has been a priority since 2001. However, in 2015, the global scope and nature of terrorist threats intensified considerably, with terrorist attacks in many cities across the world and the terrorist threat posed by the so-called Islamic State of Iraq and the Levant (ISIL/Da’esh) and by Al-Qaeda and their affiliated terrorist organizations.
Since then, terrorism threats have evolved, from large terrorist organizations to returning terrorist fighters and right-wing extremists. Funds continue to flow cross-border to provide resources for nationally designated organizations. In effect, many jurisdictions continue to suffer persistent attacks from small cells and radicalized lone actors, drawing inspiration from a range of dangerous ideologies.
Small terrorist cells are a unique challenge because the direct costs of mounting an attack are relatively small. They do not need much money or use sophisticated financing models, so they are difficult or impossible to identify.
Based on ACAMS’ Anti-Financial Crime Briefing, banks and money service businesses remain the main institutions terrorists use, although the risk associated with virtual currencies is increasing as their use becomes more widespread, as shown in the recent case of Binance.
It is imperative that law enforcement agencies or financial intelligence units follow the money trail and understand how these terrorist organizations operate and how they manage their finances through digital forensics (i.e., the collection and recovery of data from mobile devices such as phones, computers, external drives, tablets, and their information repositories, including SMS and cloud storage). Advanced technologies can also be utilized to isolate user created data, de-duplicate it, and render it searchable.
Hence, strengthening the capabilities of law enforcement and intelligence agencies, in partnership with the private sector around the world, to conduct financial intelligence and digital forensics can be an effective weapon to uncover the structure of terrorist groups, the activities of individual terrorists, and their logistics and facilitation networks.
As published in The Manila Times, dated 31 January 2023
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