Follow The Money: The Strong Connection Between Terror and Money Laundering

Every year, an estimated US$800 billion to US$4 trillion is laundered around the world. Over recent years, the money laundering that had been growing for decades has gained another layer of complexity. Nowadays, cryptocurrency is being used as yet another destination of the illicit funds being laundered by criminals - Chainalysis detected a total of $2.8 billion in Bitcoin. 

Global terrorism, similarly to money laundering, requires funds to be moved within or across jurisdictions to fund its activities. They both have comparable modes of operations and objectives. AML (Anti-Money Laundering) refers to all the laws, regulations and procedures designed to inhibit criminals from concealing illegally obtained funds as legitimate income. The Basel AML Index measures the world’s annual progress against money laundering and terrorist financing across 144 countries. In 2020, the report’s index was at 5.22 out of 10 - the report also stated that only 6 countries in the world had shown improvement in preventing money laundering. 

Just how linked are money laundering and terror in threatening economic and financial stability and providing efficient means for criminals to undertake their endeavours? How can effective AML activities help fight global terror? 

Funding terrorism with money laundering

Terrorist organisations vary greatly, going from large, state-like organisations to tiny, decentralised groupuscules and networks. Terrorist attacks have also been committed by lone individuals acting on behalf of themselves, receiving inspiration in highly radicalised environments or through self-radicalisation. All of them, though, requires some sort of financing for the acts of terror they plan or act on. 

Terrorists use many different means to finance their criminal activities and camouflage where they get their funds from. These funds can come from legal sources like legitimate businesses, government funding, religious or cultural organizations; or illegal sources like drug trafficking, kidnapping, government corruption. It is also possible for these funds to come from illegal sources that are made to appear like legal sources, thanks to money laundering. 

Financing is required by terror groups not only to fund particular terrorist operations but also to cover the general costs of developing and maintaining a terrorist organisation and to create an environment within which it is possible for it to comfortably sustain its activities. 

Thus, money laundering and the financing of terrorism are very often linked. In the unfortunately rare cases when law enforcement is able to detect and halt money laundering activities, it could also be forestalling the financing of acts of terror.

Combatting the financing of terror

In 1989, the first AML initiatives arose, when a worldwide grouping of countries and organizations created the Financial Action Task Force (FATF). They aim to prevent money laundering around the world. After the 9/11 terrorist attacks in October 2001, FATF  Its mission is to devise international standards to prevent money laundering and promote their implementation. In October 2001, following the 9/11 terrorist attacks, FATF broadened its actions to incorporate the combating of terrorist financing. 

The International Monetary Fund (IMF), too, has been fighting against money laundering as a means of terrorist financing. The IMF has urged its 189 member countries to adhere to international standards to prevent terrorist financing.

Effective AML tools to prevent money laundering

AML-enabling organizations such as the FATF or the IMF have helped develop incredibly important tools to combat money laundering throughout the years. “Effective anti-money laundering and combating the financing of terrorism regimes are essential to protect the integrity of markets and of the global financial framework as they help mitigate the factors that facilitate financial abuse”, says Min Zhu, Deputy Managing Director of the IMF. 

Indeed, AML tools can:

• Unmask the infrastructure of criminal organizations, systems of corruption, and plans to perpetrate terror acts

• Provide authorities with guides to understand those who facilitate criminal and illicit activities

• Achieve the destruction of unlawfully acquired assets

• Provide effective deterrence efforts against a great range of criminal activities, including terrorism.

As money laundering continues to suggest a very real threat to governments, financial institutions, and businesses, Anti-Money Laundering Compliance Programs have helped halt the spread of such crimes. AML Compliance Programs offer solutions for businesses to be able to keep track of all transactions and report any financial activities that seem illegal to the authorities. It is important to be informed about the corresponding laws and regulations, like the Bank Secrecy Act (1970) in the US and the Fourth Money Laundering Directive introduced by the European Union in 2017. 

In case of violation of these regulations, financial institutions are charged with considerable fines for their lack of compliance. To help institutions stay updated on the legal changes regarding international and regional regulations, AML compliance software solutions have recently started to appear. Often powered by AI, these solutions keep track of the changing landscape and jurisdictions. Some of these software includes: 

• FileInvite

• Clear View KYC

• ProcessGene GRC Software Suite

• ML Verify

• Biz4x by 4xLabs

• SAS Anti-Money Laundering

• Actimize

• AML Manager

• AMLcheck

• Token of Trust Identity Verification

Effective AML practices include: 

• The internal regulation of operations

• A user vetting and processing policies

• Account reviews

• Transaction monitoring and detection

• The reporting of the protocol in case of any illegal financial activity

The importance of AML in the fight against money laundering

As we have explored above, criminals and terrorist groups use money laundering to hide their activities and their funds. Financial institutions play a very important role in the prevention of financial crime. If financial institutions, unfortunately, fail to comply with the AML  regulations in place to fight money laundering, financial crimes won’t stop increasing. Between 2 and 5% of GDP (Gross Domestic Product) is money laundered through the financial system, in full view of the world. That is a truly huge amount.