Countering terrorism financing through anti-money laundering measures
It is time for re-regulation; Europe is strengthening its AML/CFT measures in order to lower current terrorist financing (TF) risks.
“Money is the lifeblood of terrorist operations,” declared George Bush after the 9/11 attacks.
French finance minister Michel Sapin has beaten the same drum when he recently claimed that “the struggle against terrorism . . . is first and foremost [for us] a struggle against its financing.”
That is why he revived anti-money laundering issues announcing the French government will strengthen its actions regarding terrorism funding.
three main actions are on the agenda: Improving the supervision of prepaid bankcards, “which played a role in the preparation of the attacks of November 13” and cause users’ identification problems, heightening Tracfin’s powers, the anti-money laundering arm of the finance ministry, and increasing pressure on “dataveillance” such as watch lists – “Fiches S” in France.
Indeed, similarly to post 9/11 terrorist attacks, the shock of Paris attacks seems to boost the development on AML regime as it promises to attack these at their root causes by reducing the profits terrorist fighters generate – in other words, making impossible for criminals to launder money in the first place.
The AML regime
Money laundering, the process of disguising the criminal origin of funds and reinserting them into the legal economy, is indeed an indispensable component of most criminal activities.
The origins of the AML regime are usually traced back to the 1980s, when US political priorities were targeting drugs traffics. Created in 1989 by the G7, the FATF was not meant to last. It was rather given a one-off mandate of drafting international AML standards.
However, the 9/11 terror attacks preserved it from dissolution and it therefore became the main international body active in the fight against money laundering and terrorist financing.
Indeed, in the aftermath of 11 September, the UN Security Council developed a strong focus on countering terrorist financing because it seemed a promising strategy for preventing terrorists acts and for identifying those coordinating.
Among other developments, FATF’s Forty Recommendations, already widely accepted, were complemented by IX Special Recommendations to set out the basic framework to detect, prevent and suppress the financing of terrorism and terrorist acts.
Also, the Basel Committee on Banking Supervision (BCBS) reinforced the preventive approach to AML “Customer Due Diligence for Banks” – by far the most detailed set of international standards pertinent to bank regulation in the area of AML. There was then a clear transition from rather narrow customer identification principles to comprehensive and onerous customer due diligence rules.
Banks, focus of attention
The foundations of the AML/CFT regime had already been laid prior to 9/11 but terrorist attacks have acted as powerful catalysts for reforms in the private banking sector.
FBI investigations resulted in the discovery of suspicious transactions. Riggs Bank “has been under intense scrutiny since investigators discovered a possible money trail from Princess Haifa al Faisal, wife of the Saudi ambassador, to two Sept. 11 hijackers”, reported the Wall Street Journal.
Consequently, Riggs Bank was sued on behalf of victims “for allegedly contributing to the disaster through negligence” and by shareholders for failing to comply with anti-money laundering laws. The World-Check 2006 report interestingly observes “Riggs is a story about the price paid when an Anti-Money Laundering (“AML”) compliance program lacks proper oversight”.
The private banking sector has faced increasing pressure and continues to bear the burden of preventing the crime.
European legislation and international cooperation
The EU is currently setting up a new legal framework for AML and CFT, which will consist mainly of the Fourth AML-Directive.
This directive has come into force on 26 June 2015 and must be transposed into the national laws of the Member States by June 2017, but Mr Sapin said he would also ask the other EU member states to “significantly accelerate” the implementation of this latest directive.
Professors at the University of Vienna explain “it envisages strengthening the risk-based approach and the Customer Due Diligence regime but also increases pressure on obliged entities to have in place policies, controls and procedures to manage effectively risks”. It also requires increased collection and storage of personal data.
The global web of legislation needed to stop terrorist financing has glaring gaps that are easily taken advantage of by the Islamic State and its supporters. By G20 leaders’ own admissions, there are critical gaps in the effort to stop terrorist financing.
Hence, the banking sector continues to be the most reliable and efficient way to move funds internationally, and remains vulnerable to TF.
However, G20 leaders promised to cooperate on managing borders, airline safety, sharing information on suspected terrorists, countering propaganda and freezing terrorist assets – drying up the financial sources of the “Islamic State”.
The Globe and Mail reports “efforts are also hampered by the lack of information exchange between countries”.
Limited effectiveness
Some remain sceptical regarding countering terrorist financing as an effective strategy to prevent terrorist acts: deadly attacks keep coming (Madrid, 9/11, London bombings, Paris attacks), and even the most devastating terror attacks cost relatively little to pull off.
Indeed, many experts admit that the chances of detecting terrorists’ funds in a bank sufficiently far in advance of a planned attack that it can be prevented are incredibly small.
According to the Economist, western officials say al-Qaeda operatives spent $350,000 to $500,000 to plan and carry out the September 11th attacks, and the Madrid bombings cost about $15,000.
Still, CFT is adjacent enough to AML. Credit-card fraud, welfare fraud and smuggling are some of the other known sources of funds for terrorist activities. Rohan Gunaratna, a Singapore-based expert on al-Qaeda, has pointed to Spain and Belgium as two centres for such activities.
New challenges
Regulation needs efficient enforcement. FATF’s goal is indeed to ensure that all jurisdictions have implemented fundamental measures to counter terrorist financing on an urgent basis, lead by example, and assist implementation in low-capacity jurisdictions – most nations not making use of instruments provided under their respective national laws, according to DW.
Virtual currencies compound the challenges that financial institutions face today: its anonymous nature allows criminals to participate in financial markets and convert, transfer, and withdraw funds without detection.
