Terrorist Finance-Staying Out Of Trouble

Are you sure that money is not being channelled through your organisation to fund international terrorism? Tim Parkman explains the subtle and sophisticated mechanisms that terrorists use to fund their activities.

For board directors trying to understand and control the risk of financial crime, fraud, money laundering and market abuse, the events of 11 September 2001 placed terrorist financing firmly in the spotlight.

Terrorist groups fund their operations through a variety of agents or fronts, using economic, commercial and financial systems to disguise the origin and the purpose of the funds.

SOPHISTICATED FINANCE

Terrorist financing uses sophisticated measures to raise large sums and research reveals ingenuity and, interestingly, similarities in the range of fund-raising and distribution methods used over the past 30 years. They include:

• Cash donations from local and expatriate sympathisers.
• Donations collected by religious leaders and clergy.
• The use of cells or moles to divert funds and resources from legitimate charities and not-for-profit organisations.
• The creation or acquisition of legitimate businesses.
• The extortion of money/forced donations from individuals and businesses from within the terrorists’ local community.
• Funds from fraudulent schemes, such as credit card fraud, insurance fraud and government subsidy fraud.
• Funds derived from the trading of so-called ‘blood diamonds’ and other precious metals and stones.
• Cash and profits from prostitution, people-trafficking, smuggling, narcotics and other forms of organised crime.

Well-organised groups also exploit synergies. For example, during the 1980s the LTTE in Sri Lanka, which still raises an estimated $50m per annum, operated a fleet of tankers. The ships not only made legitimate profits, but were also used for smuggling weapons and illegal immigrants.

Often, the business activity and the terrorism feed off each other. Despite its periodic public slayings of drug dealers, the Taliban funded itself from Afghanistan’s poppy trade for many years. The Provisional IRA’s bombing of Belfast buses and bus stations not only furthered its campaign of violence but also eliminated competition to its profitable taxi businesses.

TRACING THE ORIGINS

Terrorist financing has much in common with money laundering. Traditionally described as the conversion or transfer of money to disguise its illegal origins, money laundering is used to make ill-gotten wealth appear legitimate so that it can be spent or reinvested – a process known as integration.

Yet there are some key differences between terrorist financing and money laundering, with important operational, legal and political consequences.

REVERSAL OF THE CRIMINAL CHAIN

While money laundering starts with an illegal act and ends with a legitimate act, terrorist financing can start with a legal act and always ends with a crime This poses legal challenges. At what point does a crime occur and when do you make arrests?

It is possible to point to terrorist financing chains – the 9/11 attacks are a classic example – where, if you strip out the conspiracy, nothing illegal was actually done until the act of terrorism itself.

Renting apartments, hiring cars, paying for flying lessons and buying mace and pepper spray were not in themselves illegal actions, and neither were the financial transactions associated with them.

VOLUME OF FUNDS

For serious money launderers, the amounts involved are very large. Current estimates suggest there is approximately $1tn in criminal assets hiding in the global economy at any given time. That is far more than is likely to be allocated to terrorism. And while many terrorist groups are organised enough to collect very substantial sums, running into tens of millions each year, not every attack is spawned from those funds.

As the UK’s 7/7 bombers showed, a lethal attack on a transport system can be planned and funded well within the confines of an average monthly salary. This poses severe operational difficulties for those organisations charged with trying to disrupt the flow of terrorist funds through the financial system. How do you detect an unusual retail purchase or a suspicious mobile phone bill?

COMBATING TERRORIST FINANCING

The primary mechanism for combating terrorist financing is the 1999 International Convention for the Suppression of the Financing of Terrorism. This required signatory UN member states to criminalise the act of providing or collecting funds with the intention or knowledge that they would be used to carry out a terrorist attack. It also required them to pass laws allowing the seizure and confiscation of terrorist assets – something the UK undertook with the Terrorism Act 2000.

Following the 9/11 attacks, UNSCR 1373 expanded the existing sanctions to include organisations and individuals as well as countries. In the regulated financial sector, institutions are required to screen their customers against UN blacklists of individuals and organisations suspected of being connected with terrorism. They commit a criminal offence and risk severe penalties, including the imprisonment of directors and officers, if they provide any kind of financial service to the listed parties.

The UK Government's wider counter-terrorism strategy, announced in June 2006, focuses on the so-called four Ps:

• Prevent terrorism by tackling disadvantage, deterring promoters of terrorism and engaging in ‘the battle of ideas’.
• Pursue terrorists through better intelligence, disruption of their activities and international cooperation, which includes the countering of terrorist finance.
• Protect the country through the strengthening of border security and the defence of key utilities, the transport infrastructure and crowded places.
• Prepare for the consequences of terrorist attacks when they occur; for example, by building incident response capabilities and continually testing and evaluating national preparedness.

Terrorist financing is a multi-faceted challenge requiring a range of responses across national life and business, too, has its part to play.

Tim Parkman MA (Oxon) is the managing director of Lessons Learned Ltd and the author of Countering Terrorist Financing. A training handbook for financial services.

The handbook is available from www.lessonslearned.co.uk.