AML and the fight against Terrorist Financing

AML and the fight against Terrorist Financing

As we all know 'Terrorism has no nationality or religion'. However, it needs money for sponsoring its activities and survive. The common assumption is fighting the war on terror requires a humongous expenditure of money. Yet, conducting a terrorist operation can be surprisingly economical, and inventive terrorists are using every means at their disposal to raise funds and move money, from petty crime to bitcoins to legitimate charities.

Islamic State (IS) one of the worlds most brutal terrorist organization is considered to be world’s largest and richest amongst the terrorist groups holds as much as $2 billion. Counterterrorism officials say the group knows how to use that money to its advantage.

However, in the recent year's terrorism has taken infinite forms, most of the recent and notable terrorist operations have cost substantially less to implement than the Sept. 11 attacks whose estimated cost was around $500,000.Many terrorist and criminal organizations raise money through a variety of criminal enterprises, including narcotics trafficking, credit card scams, and smuggling. For example, Mohammad Hammoud and five other individuals were convicted in 2003 for organizing a cigarette smuggling ring in North Carolina for Hezbollah’s (Islamist militant group and political party) benefit.

Back on July 31, 2006, when Germany was hosting the World Cup soccer tournament, a planned terrorist attack was narrowly averted. Two men in their early twenties boarded the commuter train in the city of Cologne with bombs hidden in their suitcases, which would have resulted in the deaths of hundreds of people. However, due to faulty construction, the bombs did not go off. As per a news report, this particular terrorist operation cost less than $500.

The bombs were simple: a propane tank, alarm clock, batteries and a plastic bottle filled with gas and all of these items are available in stores next to our house.

As per United Nations estimation, the attack on the London transportation system in 2005 that killed 57 people and injured hundreds cost only around $14000.Below image depicts how a large number of terrorist activities have occurred economically in the last 20 years.

One thing is certain, these terrorist organisations over the years have understood that moving big chunks of money in the financial system could be a risk for them as they would expose themselves to unnecessary attention, hence they are breaking down the money into small pieces and then moving it around, so to avoid detection by financial crime teams. 

So how should the financial institution track the movement of these small funds across the financial system is something of prime importance in present and in future?

If we look at this from a larger picture lot of Regulators across the globe are introducing new regulations to tighten the Anti Money Laundering space to combat terrorist financing.  

Few of these regulations listed below:

  1. Addressing risks linked to prepaid cards and virtual currencies. The threshold for identifying the holders of prepaid cards is lowered from €250 to €150 and customer verification requirements are extended. 
  2. Improving cooperation between the member states' financial intelligence units. FIUs will have access to information in centralized bank and payment account registers, enabling them to identify account holders.
  3. Improved checks on risky third countries. The Commission has established and regularly updates (by delegated acts) a harmonized list of non-EU countries with deficiencies in their anti-money laundering prevention regimes. Additional due diligence measures will be required for financial flows from these countries. 
  4. Enhanced access to beneficial ownership registers, so as to improve transparency about the ownership of companies and trusts. 

The whole 'Know Your Customer' process should be aligned. You've got to have your arms around the customer relationship, so if a customer has a relationship on one side of the bank, and one on the other, you've got to be able to put those together.

If the financial institutions don't have strong end to end process maps and solid documentation about their assumptions of risk, they will always come up short; and will be prone to risk. So that's the first place to start. Financial institutions should implement governance in order to manage their process maps and risk awareness.

New technologies like artificial intelligence and machine learning would play a great role in combating terrorist financing. Financial institutions cannot fight money laundering with legacy systems in place as the launderers are using new technologies and ideas to launder money, a manual approach to detect laundering activities will be of little help to the whole financial system.

There is much these new technologies can offer to the world of Anti Money Laundering - technology can be leveraged to find the odd one out from a group of millions of records and investigate further which seemed impossible few years ago. Yet, technology alone would not serve the purpose it should always be accompanied by people who ultimately make the decisions based on the data and their experiences of working with multiple cases.

Source :

Case Study: KYC & CDD

Case Study: KYC & CDD

The significant influence of PEPs on KYC and AML

The significant influence of PEPs on KYC and AML