At the end of last year, the US Department of Treasury released its National Terrorist Financing Risk Assessment. Despite the multiple attacks perpetrated by domestic extremists in 2018 - including the Pittsburgh synagogue shooting, Jeffersontown Kroger shooting and US mail bombing attempts in October alone - the assessment made no mention of domestic or far-right-wing extremism.
Another misconception? When thinking of terrorism in Europe, we often break it down between far-right-wing and Islamist groups, when in actuality, according to the just published EU Terrorism Situation and Trend Report (TE-SAT), nearly two-thirds of all attempted or completed terrorist attacks were instigated by separatist groups. Without an understanding of the nature of terrorist financing, it becomes harder for financial institutions to know what to look for and to implement impactful counter-terrorist financing controls.
These examples only showcase some of the assumptions that can negatively affect our ability to prevent and detect funds travelling to terrorist groups. Based on our experience in the FinTech space, we’ve broken down a few more common terrorist financing misconceptions:
Misconception 1: Terrorist financing exists in a silo.
Terrorist financing is most simply thought of as an activity pursued by someone with strong ideological affiliations to a terrorist group or cause. While this is certainly true in some cases, only thinking about direct and ideologically driven terrorist financing has the danger of concealing the wider nexus between terrorist financing and other types of financial crime. While the use of drug trafficking to fund terrorist activity has been well-recorded, other intersections between terrorist financing and criminal activity can be overlooked. For instance, one source of funding for the Charlie Hebdo attacks included fraudsters selling counterfeit goods. And yet terrorist financing goes beyond just the perpetrators of financial crime. Given that terrorist financing is about the destination of the funds, those seeking to purchase illegal goods, whether counterfeits, weapons or drugs, could also engage in terrorist financing unwittingly, being unaware of where the funds for their purchase end up.
The terrorist financing network expands beyond the sale of illegal goods. A convicted ISIS fundraiser had tried to raise funds through financial aid fraud, and foreign terrorist fighters have been known to engage in bank and credit card fraud to help fund their movement. The mass enslavement of the Yazidi by ISIS is the most prominent example of how terrorist groups have used human trafficking to raise funds, though other groups such as Boko Haram and al-Shabaab have engaged in the practice as well. In addition to the direct sale of individuals, terrorist groups like ISIS have also been known to use online and social media advertising in the trafficking of persons or in ransoming them back to their families and have also been reported to engage in organ trafficking.
To best combat terrorist financing, our approach to suspicious activity shouldn’t stop with our first instinct, as even cases of other types of financial crime may have links to terrorism, and individuals with links to criminal activity may be indirectly engaging in terrorist financing both wittingly and unwittingly.
Misconception 2: We’re looking for donations from ideological sympathisers.
While donations are certainly an important and desirable revenue stream if you are a terrorist group, and recently active networks such as the Liberation Tigers of Tamil Eelam relied on complicated networks of genuine, coerced and unwitting donors to fund nearly their entire operations, these sorts of donations don’t actually represent that much of the entire terrorist financing picture at present. Interpol in 2018 reported that only 3% of all terrorist financing was generated through overseas donations. While the latest TE-SAT still underlines the threats related to international donations, and while groups are constantly evolving in their use of revenue streams, focusing too heavily on international donations could lead us to ignore more prominent revenue streams.
So where should we be looking instead? Sources of terrorist financing are numerous and will vary greatly between groups and actors, and so what your high risk indicators are will depend greatly on your product offering and location. Though entities such as charities are often considered as a part of CTF efforts, limited companies receive less attention, despite their evidence of their usage in terrorist financing schemes. An area that certainly warrants more attention is environmental crime, and Interpol’s data indicates that 38% of all terrorist financing is generated through activities like illegal logging, wildlife trade, mining and fishing. Crafting more tailored monitoring rules for transactions with links to high-risk industries in high-risk jurisdictions for environmental crime and terrorism would help to detect this sort of activity.
Misconception 3: Geography is the most important factor.
During our work as anti-financial crime consultants, we have spoken to several Heads of Financial Crime who express frustration when a suspected terrorist financing case is risen to them primarily because of the customer’s nationality or geographic location, with no other specific evidence indicating that they may be linked to terrorism. Given the misconceptions we’ve already explored, there are serious dangers with jumping to the conclusion of terrorist financing. Terrorist financing is already difficult to spot, especially given that most recent attacks only require less than $10,000 in funds to complete. In fact, the 5 terrorist attacks that took place in the UK in 2017 in total cost just £5,000 to execute. Overly favouring geographic factors risks underestimating the presence of domestic terrorism. The intersections with other crime types and the more complicated channels where terrorist financing can manifest only add to the need to demonstrate a suspicion of terrorist financing more substantively.
What’s the risk though? While it’s important to be safe rather than sorry when it comes to terrorist financing, in reality, a too simplistic approach could lead to vulnerable individuals being de-risked. For example, individuals who do aim to donate to a terrorist cause tend to use the path of least resistance in moving the funds from their country of origin to the conflict zone. Unfortunately, these overlap heavily with channels used by genuine actors seeking to remit funds home or donate to overseas causes. Without additional evidence linking the customer to terrorism, you could end up unwittingly engaging in profiling in a way that is unfair to customers and inefficient in your anti-financial crime efforts. One positive step we’ve seen employed in the FinTech sector is a more holistic approach to customer risk, which takes into account a variety of evolving data points--from IP address to device ID to transaction patterns and speeds--which help paint a more nuanced picture of a customer, that isn’t overly reliant on nationality or country of residence. The best approach to identifying terrorist financing is one driven by a mix of customer data factors, suspicious transactional patterns and references and open source intelligence in order to pin down the nature of your suspicion. Even a quick Google or social media search can go a long way.
Ultimately we need to widen our understanding of the nuances and complexities of terrorist financing and challenge the industry to consider cases beyond the more stereotypical patterns. With that said, there are a few key takeaways that we should all consider when framing our approach to terrorist financing:
Dynamic Approach to Terrorist Financing - Broaden your understanding of how terrorist financing may manifest, and see beyond just geographic red flags. We need more than that to form a suspicion of terrorist financing, and this approach doesn’t reflect the reality of the risks we currently face. Taking a dynamic approach to customer risk as it extends to terrorist financing risk is critical, and utilising open source intelligence can contribute to this.
Data and Knowledge Sharing - Having a strong relationship with law enforcement not only will help when it comes to active cases, but can also help you learn about new and emerging typologies and gain actionable information that you can build into your transaction monitoring tools. Improved data and typology sharing not only through public-private partnerships, but also through private-private partnerships can help facilitate greater overall resilience against terrorist financing threats and help everyone stay on top of a landscape that is rapidly changing.
Training and Awareness - CTF training, whether by internal or external parties, needs to be consistently evolving and reflective of the major trends we see in funding patterns and that you see in your day to day operations. Training should be coordinated by terrorist group or actor type, as all groups favour different financing structures, which change depending on their success and failures. CTF training isn’t just about procedure, but about the wider geopolitical context shaping terrorism at home and overseas.
FINTRAIL believes that all companies, should have the opportunity to thrive, free from the threat of financial crime and in doing so reduces the opportunities for exploitation of the most vulnerable.
If you would like to discuss the issues in this post, or wider anti-financial crime topics in an increasingly digital FinTech world, please feel free to get in touch with one of our team or at firstname.lastname@example.org.