What is Combating the Financing of Terrorism (CFT)?
Combating the financing of terrorism (CFT) is a financial measure used to disrupt the flow of money and other resources to terrorist groups through a set of government laws, regulations, and other practices. It can focus on a variety of different entities including banks, charities, businesses, as well as activities such as regulation, supervision, and reporting.
Specifically, CFT aims to deny terrorist organizations the funding they need to carry out attacks, by making it more difficult for them to generate or receive financial support. This is why most policies are efforts made to identify and halt the movement and laundering of money, which can in some cases be disguised as legitimate financial transactions.
CFT is an important tool in the global fight against terrorism, as it can help to prevent attacks from happening in the first place. With just over 10,000 terrorist attacks worldwide in 2020, the importance of CFT cannot be underestimated.
What does Combating the Financing of Terrorism involve?
The international community has adopted a number of CFT measures, which are designed to make it harder for terrorists to access funding. Since funds can come from legal sources such as recognized businesses, government funding, and religious or cultural associations, as well as illegal sources including drug trafficking and government corruption, measures are put in place to target both the supply and demand side of terrorist financing.
Prevention of such activities might include:
- freezing terrorist assets,
- closing down financial institutions that support terrorism,
- disrupting financial transactions,
- improving financial intelligence,
- developing better financial inclusion policies,
- and of course criminalizing the financing of terrorism.
The primary institution driving such regulations is the Financial Action Task Force (FATF). Its 37 member countries and two regional organizations work together to set standards and best practices for the international financial system in order to combat Money Laundering and terrorism financing.
At the international level, through the help of the FATF, CFT makes sure that law enforcement knows the right financial investigative techniques, instructs prosecutors how to win Money Laundering cases, and teaches financial regulatory authorities to recognize suspicious activity.
Nationally, combating the financing of terrorism involves anti-money laundering laws. Institutions, such as BaFin in Germany, have regulations in place in order to have confidence in the country's financial system and prevent Money Laundering and terrorist financing from occurring.
The main goal of these regulations is to urge people and businesses to communicate information to government authorities about financial transactions, identities of individuals and operations involved, and organizational and ownership structures. After identification, the suspicious activities can be reported to law enforcement for prosecution.
What is the difference between Money Laundering and terrorism financing?
Most often, Money Laundering and terrorism financing are linked. Through the detection and prevention of Money Laundering, law enforcement agencies are also subsequently preventing those funds from being used to finance acts of terror. Thus, through the pursuit of funds (Money Laundering), law enforcement is not fruitlessly trying to catch a criminal plotting or executing an act of terrorism. Rather, the funds will lead them to the source.
So in sum, Money Laundering is the act of acquiring funds illegally and hiding the sources of where the funds came from through a complex system of banking transfers or other transactions. Whereas, terrorism financing is providing money for acts of terrorism, which can be done through Money Laundering.
What are examples of terrorist financing?
As mentioned, terrorist financing is the deliberate act of providing financial support to terrorist organizations and can take many forms, including fundraising, Money Laundering, and arms trafficking.
Being a global problem that has been made worse by the rise of online banking and digital currencies, terrorist groups such as ISIS have used social media to solicit donations and to crowdsource funds for their terrorist activities. While the 9/11 attacks in the U.S. were primarily financed through illegal means, subsequent terrorist attacks in Europe have been funded through a variety of methods, including private donations and credit card fraud.
Additionally, terrorist financing has been linked to drug trafficking, human trafficking, and the sale of conflict minerals. As terrorist organizations continue to adapt their financing methods, it has become increasingly difficult for law enforcement to track and disrupt terrorist activity.
What is CFT compliance and its meaning in banking?
Financial institutions are extremely important when it comes to combatting the financing of terrorism. Since terrorists often rely on banks and other monetary institutions to transfer funds, banks must perform due diligence on their customers by law and collect identifiable information on their clients through KYC checks.
Furthermore, it is the responsibility of the financial institution to report any suspicious transactions in order to prevent Money Laundering and in turn terrorist financing.