Groups like al Qaeda, al-Shabaab and ISIS use front companies, global trade and bank accounts of religious charities to finance their operations. Detecting this is one of the biggest challenges for anti-money laundering teams across the world
To understand how the terrorist organisations finance their operations, Loretta Napoleoni, the Italian bestselling author, economist and journalist studied and interviewed a wide range of terrorist groups globally. This includes the Italian “Red Brigades”, a Marxist organisation to members of Al Arqawi in the Middle East, and the Islamic State of Iraq and Syria (ISIS), a rapidly growing Sunni militant group that is consolidating power throughout Iraq and Syria, and is currently thought to be the richest insurgent group in the world.
Terrorism can be a very expensive business, says Loretta. She has thrown light on how the business model of terrorist organisations has evolved, and how the legitimate global financial system becomes unwittingly complicit as a channel for terrorist financing.
In the course of her research study, Loretta found that there was a link between terrorist organisations with political/ religious ideologies and the business operations needed to finance them. Terrorist organisations operate like any other organisation. They need money to operate. And it is the ideology that defines and determines what these terrorist organisations want to achieve.
For instance, we have Islamist/ jihadist armed organisations that want to bring back the Sharia law. They are very expensive to run because they are illegal and therefore, have to constantly operate underground. To fund their activities they have developed predominantly two-fold strategies: one is using illegal activities in order to fund themselves and the other is to use legal activities such as money offered by sponsors, which is clean money until it is used for a terrorist attack.
Ideology plays into the ambition of terrorist groups to finance their projects. One can’t have a terrorist organisation without the ideology. It is more than a criminal organisation. A criminal organisation just wants to make money; the terrorist organisation wants to change the political landscape and establish its ideological extremism. They have a political goal to achieve. ISIS and other extremist Islamic groups are successfully raising money for weapons and other nefarious activities/ operations.
Organisations like ISIS and most armed organisations in the Islamic world today operate predominantly in cash and the cash comes from different activities, which of course can be robbery, armed smuggling, among other things. ISIS is making a lot of money with that. Then there is ransom for kidnapping, “today’s most significant source of terrorist financing".
The US Patriot Act has made it virtually impossible to move funds from A to B through banks to fund terrorist activities in dollars, though they can still do transactions in other currencies. But illegal economy is based upon the dollar. The US Patriot Act did stop flow of money through banking system. The Act has more or less blocked terrorist access to international banking system and made everything much more expensive and difficult for illegal activities. How do we stop a cash economy like the one ISIS has developed? It seems almost impossible.
Terrorist organisations are certain to continue operating. They are using more and more social media in all of this to recruit sponsors. That is a big problem because social media is a lot more difficult to control. After 9/11 most of the activity took place through web pages and it was easy to shut them down and track them down. Now, you don’t only have web pages, you have Facebook and private to private conversations, you have Twitter. It’s really much bigger as far as communications go. The proliferation of social media makes it harder to control. The following is an extract from Wall Street Journal about the use of Social media.
“Terrorist financiers take to social media, raising risks for banks – Appeals for donations and fund-raising campaigns for organisations linked to terrorism are appearing on social media tools with increasing frequency. The trend may force financial institutions to look more closely at whether they are analysing and monitoring social media outlets as part of their anti-money laundering/ combating financing of terrorism (AML/CFT) controls, says risk management advisory firm the Castell Group. In some cases, fund-raising appeals posted to social media sites will include explicit listings of banks and account numbers accepting funds transfers. Larger institutions may find themselves at risk due to potential correspondent relationships with regional banks used to collect donations. US Treasury Undersecretary David Cohen highlighted the rise of social networks as a fund-raising tool in recent months, saying they “allow anyone with an Internet connection to set himself up as an international terrorist financier” in a speech in March”. (Source: The Wall Street Journal).
Traditional criminal activities that terrorists may engage in, and that can expose them to potential detection include among many others:
• The drug trade
• Smuggling weapons and other goods
• Bank robberies
• Fraud (e.g. Cheque or credit card, insurance or securities fraud)
Groups like Al Qaeda, Al Shabaab and ISIS use front companies, global trade and bank accounts of religious charities to fund their terrorist acts. Detecting this is one of the biggest challenges of AML teams around the world. There is a need to understand current types of terrorist financing threats to financial institutions.
Note: A substantial part of this article is based on ideas of Loretta Napoleoni the Italian bestselling author and economist.
(Saiyid (SSA) Zaidi
is a training and development consultant as well as external subject matter expert at the Educom Group Banker's Academy in New York.)