Effective Counter Financing of Terrorism investigations

Goals of Counter Financing of Terrorism (CFT) Legislation, Enforcement and Compliance

Analyzing and understanding how a terror related attack was financed so that copycat attacks are prevented;
Working with various national agencies and international partners to bring terrorist financers and facilitators to justice;
Designating, sanctioning and freezing the assets of terrorist organizations;
With respect to the financial system, the goals are:
- To protect the integrity of financial systems
- To prevent the utilizing of financial systems to finance terrorist activities

CFT has to be combined with broader counter-terrorism strategies due to the challenges faced by banks and financial institutions to trace the intended use of such financial activities. As noted the funds may derive from legitimate sources.
Terrorism financing methods are likely to vary depending on local conditions and economic structures. CFT efforts in Brussels will vary from CFT measures in Raqqa. As such, CFT measures have to be tailored to prevailing local conditions.
Due to these and other reasons, effective counter financing of terrorism initiatives require multi-agency efforts, coordination between such agencies and the private sector, and also requires national/international policy level actions to address deeper societal and structural issues.
See Section Below: Broader Considerations on why CFT is Valuable

Challenges Associated with Effectively Obtaining the Goals of Counter Financing of Terrorism Initiatives

KYC Due Diligence Problems:
- Well known terrorist do not have accounts under their own names. This is especially so in the last few years due to the ramping up of efforts to combat money-laundering and counter financing of terrorism internationally. As such, terrorists are likely to use proxies and nominees to open and maintain bank accounts.
- Banks would have to spend inordinate amounts of time to scrutinize every transaction to ferret out linkage to terrorists.
Usage of Alternative Financial systems:
- Large numbers of terrorists do not utilize global financial system and use cash to transact. For example in places like Afghanistan, Iraq, Somalia, Syria and Yemen most people do not have bank accounts. Cash based transactions are difficult to trace especially when done in smaller amounts.
- When suspected terrorists and organizations are identified and barred from using the formal financial systems, they are likely to use alternative informal financial channels such as hawala and hundi. Interdicting such financial mechanisms is difficult.
Investigating transactions for possible terrorism financing poses difficulties because:
- Counter Financing of Terrorism is defined by its purpose, as such
  - The source of funds may derive from perfectly legitimate sources, such as donations from unsuspecting donors or through legitimate businesses that the organization operates in addition to pursuing its other goals through terror inducing means
  - It is hard to generalize sources and methods
  - Methods may vary from place to place, for e.g. ivory trade financing of terrorism is specific to countries that have elephants and not a methodology that can be applied generally elsewhere
Designation of a Certain Group as a Terrorist Organization by a country (however influential) may not be accepted by all countries across the world.
- Certain Groups deemed Terrorist Groups by a foreign government, may nonetheless be viewed as legitimate organizations in the home country and receive wide support by the populace there.
  - Hamas and Hezbollah for example are viewed as legitimate organizations in many Arab countries. As such they receive voluntary support from many in such countries.
  - Financial regulation cannot eliminate such support without addressing root causes and also implementing other coercive measures to induce them to stop terrorist activities.
Various Sources of Funding: Different funding sources require different mitigation and combating tactics and techniques
- Illicit/Illegal sources
  - Depending on local conditions and historical factors, terrorist may fund their operations using funds generated from
    1. Smuggling of antiquities, oil, cigarettes, counterfeit goods, diamonds or ivory, among others
    2. Drug trafficking, including cultivation and manufacturing of heroin, cocaine etc.
    3. Human trafficking
- Legitimate sources of funds

The terrorist group may have a wealthy benefactor who obtained the money legitimately, such as bin Laden who came from a wealthy family
The terrorist group may set up and run legitimate businesses such as IRA’s taxi service
The self-motivated terrorist may utilize personal funds/savings to engage in lone wolf attacks which could be carried out very cheaply.
1. 2015 Norwegian Defense Research Establishment study: over 90 percent of the jihadist cells in Europe between 1994 and 2013 were self-funded, typically through savings, welfare payments, personal loans or proceeds of petty crime

To better fight terrorism, in addition to implementing and enforcing robust CFT programs and initiatives, governments need to

dismantle the structures that allow fostering of illicit/illegal economies (such as black markets) by addressing underlying social and economic issues;
break the connection of terrorist groups to these economic structures;
promote development, improve governance and rule of law and crackdown on corruption;

Broader Considerations on Why CFT is Valuable

The goal of CFT efforts is not only to bar terrorists and terrorist organizations (or other extremist groups) from utilizing the financial system. Imposition of sanctions against such individuals and groups is intended to disrupt their financial networks. This includes deterring and discouraging their sympathizers (including deep pocketed powerful individuals) at the risk of financial interests or other punitive measures authorized by law.
More important than the goal of drying up terrorist financing, the larger goal of CFT is to gather intelligence. According to the 9/11 Commission’s report, “Expect less from trying to dry up terrorist money and more from following the money from following the money for intelligence, as a tool to hunt terrorists, understand their networks, and disrupt their operations.”
- Financial intelligence in vital in detecting, analyzing and dismantling dangerous networks.
Gathering intelligence in such a manner helps governments to map out the links between known terrorist operatives and supporters and to identify new ones.
- The goal of CFT is not just to target and terrorism event itself. Terrorist organizations have to recruit and train fighters, buy weapons and equipment, bribe corrupt officials, wage propaganda campaigns, and plan and carry out operations. These activities cost money, so understanding how groups raise, store, move and spend that money helps identify the larger network of the terrorists.
Coordinated CFT initiatives on both the national and international levels, including through mechanisms such as the UN Security Council resolutions, tend to enhance international cooperation, and thereby increases the likelihood that CFT efforts succeed both in terms of gathering intelligence and also depriving terrorists the financial means to perpetuate their acts.
- Coordinated CFT initiatives on both the national and international levels are especially important as terrorist financing mechanisms become even more sophisticated. As terrorists adapt to CFT initiatives, national governments and international cooperation need to work even harder to deter CFT financing mechanisms