AML Spotlight: Terrorist financing

Terrorist financing, or TF as it is commonly known, is the provision to collect funds with the intention that they should be used in full, or in part to carry out acts that are associated with the support of terrorist organisations, to further their causes or to commit acts of terror.

Funds may be obtained legitimately as well as illegally, including through ‘charity’ and illegitimately gained cash donations, as well as government or HMRC benefits, student loans, and assets such as property.

The funds may be used to purchase weapons, to assist with recruitment or to carry out terror attacks.

Whilst TF is often ‘linked’ to money laundering, it also stands alone as its own risk.

‘Dirty’ money can be used to fund terrorism through the proceeds of predicate crimes such as:

• Counterfeit goods – including designer handbags and clothing
• Tobacco smuggling
• Human trafficking
• Drug smuggling
• Child slavery
• Fraud

More information on this can be found on the UK Government's website within the section titled ‘Feedback on Global Impact (Human) Messaging’.

TF can also include the opposite to traditional money laundering, in that legitimate funds can be used for illegitimate purposes. In TF cases seen previously funds have included:

• Benefit credits
• Student loans
• Salaries

As TF methodology becomes clearer and is countered more effectively, those involved in this activity will continually adapt. For example, the use of virtual currencies (more information can be found here) and crowdfunding which provide additional anonymity is growing. We encourage a proactive approach when it comes to emerging TF trends to assist with identifying behaviors.

There is limited information or evidence available regarding the threat of Terrorist Financing in the legal sector, however, the National Risk Assessment 2020 states: “Consistent with the findings of previous NRAs, we continue to assess that legal services are not attractive for terrorism financing and assess the risk to be low”.

This being said, it is important to recognise that this does not equate to ‘nil’ and consideration should always be given to the potential of this risk in your business.

The application of strong AML controls and holistic customer due diligence procedures are also key in mitigating TF risk.

It should be noted that acting for a client established in, or which is a nexus to a HRTC (as listed here), may come with additional TF risk as the HRTC list continues to mirror both the Financial Action Task Force’s ‘Jurisdictions under increased monitoring’ and ‘High-risk jurisdictions subject to a call for action’ documents.

All countries included in either of these lists have significant shortcomings in both their anti-money laundering, counter terrorist financing and counter-proliferation financing controls.

Sanctions screening should form part of a practice’s due diligence checks. As the sanctions regime is absolute, practices should ensure there are appropriate measures in place to ensure they do not undertake unauthorised business with sanctions targets in areas of less risk. This may include open-sourced searches for smaller practices, or those with a lower risk exposure. Larger practices, or those with higher exposure or risk profiles should consider more complex, comprehensive or bespoke solutions.

Although it is often difficult to spot low value or level terrorist financing it’s important that you remain vigilant regarding the potential for TF and that it remains in your considerations when risk assessing clients/matters.

The fundamental AML/due diligence principles remain:

• Do you know who your customer is and how they are funding the matter you’re being asked to undertake?
• Do you truly understand the rationale behind the matter you’re being asked to undertake?
• Does this make sense?

Whilst similar to money laundering red flags, TF red flags/risks may include:

• No geographic links between the properties purchased, clients or the practice.
• Clients / funds from high-risk countries.
• Involvement of complex offshore structures.
• Rapid changes in who the client is and their source of the funding.
• Purchase of cash business or high yield return businesses.
• Unusual client behaviour/conversations
• Third-party credits or debits
• Charity/not-for-profit payments
• Legitimate funding (such as government/HMRC benefits or student loans) with no apparent living expenditure.
• The use of Money Service Bureau – consider whether this makes sense. Is it attempt to hide the origin of funds for example?

Further information on potential red flags can be found within section 18 of the Legal Sector Affinity Guidance here.

OSINT can be an extremely useful tool in holistic due diligence, especially in relation to adverse media screening. OSINT is the practice of collecting and analysing information which is available through publicly available searches. Ever heard the phrase “Google it”? In its simplest terms, this is OSINT.

OSINT sources may include media articles, online publications such as blogs and social media platforms, public government data, professional publications and commercial data.

Training courses on OSINT are available – a quick internet search will highlight what is available in your area.

Whilst we cannot share specifics, we are aware of TF-related cases that have only come to light thanks to an internet search which linked clients to known terrorist groups.

All MLROs must have access to the National Crime Agency (NCA) Suspicious Activity Reports (SARs) reporting system. If you have knowledge or have reasonable grounds to suspect that your client may be involved in activities relating to terrorism, you can report this through the NCA portal, quoting the appropriate Glossary code. The most recent version of the NCA Glossary codes can be found here.

In addition, consideration should also be given to whether you wish to continue to act for the client/matter.

Resources:

• Terrorism Act 2000 (legislation.gov.uk)
• National risk assessment of money laundering and terrorist financing 2020 - GOV.UK (www.gov.uk)
• Countering Terrorist Financing - GOV.UK (www.gov.uk)
• scottish-legal-sectoral-ml_tf-risk-february-2022.pdf (lawscot.org.uk)
• Terrorist Financing (fatf-gafi.org)