Countering Terror Financing – Explained, pointwise

Introduction

The Third Ministerial of ‘No Money for Terror’ (NMFT) on Counter-Terror Financing was held in New Delhi recently. Delegates from ~75 countries and international bodies attended the event. The event was focused on ways to combat global terror financing networks. Prior to this, India had also hosted a special meeting of the United Nation Security Council’s (UNSC) Counter Terrorism Committee (UNSC CTC) in late October 2022. Terrorism is a global menace and India has been a victim of terrorist activities for long. With the advent of technology and rising sophistication and capabilities of terror organizations, the challenge of countering terrorism is becoming more formidable. Given that terror funding, activities and their impacts transcend national boundaries, global cooperation has become imperative to combat the problem. Despite several initiatives, there are many gaps in the current arrangements which reduce the effectiveness of the measures.

What is the meaning Terror Financing?

Terrorist financing involves the solicitation, collection or provision of funds with the intention that they may be used to support terrorist acts or organizations. Funds may stem from both legal and illicit sources. According to the International Convention for the Suppression of the Financing of Terrorism, a person commits the crime of financing of terrorism “if that person by any means, directly or indirectly, unlawfully and willfully, provides or collects funds with the intention that they should be used or in the knowledge that they are to be used, in full or in part, in order to carry out” an offense within the scope of the Convention.

The primary goal of individuals or entities involved in the financing of terrorism is to conceal both the financing and the nature of the financed activity.

What are the major sources of Terror Financing?

Private Donations: Donations to terrorist organisations can come from a wide-variety of sources. Wealthy private donors can be an important source of income for some terrorist groups. FATF reports have also recognised the important role that sponsors play in sustaining some terrorist organisations.

Abuse and Misuse of Non-profit Organizations (NPOs): FATF study found that the abuse of NPOs, or the risk of unintentional misuse, manifests in five different ways: (a) Diversion of donations through affiliated individuals to terrorist organisations; (b) Exploitation of some NPO authorities for the sake of a terrorist organisation; (c) Abuse of programming/program delivery to support the terrorist organisation; (d) Support for recruitment into terrorist organisations; (e) Creation of ‘false representation and sham NPOs’ through misrepresentation or fraud.

Proceeds of Criminal Activity: Terrorist organisations engage in a variety of illegal activities to generate funds. For instance, terrorist organisations commit identity theft in order to raise finances through credit card fraud. In addition to insurance and loan fraud, drug trafficking, extortion, kidnapping for ransom, smuggling of products and selling of antiques and cultural artefacts and associated tax fraud have been identified as sources of funding for terrorist organisations.

Extorting Local and Diaspora Populations and Businesses: FATF reports have recognised that terrorist organisations extort local populations as a way to sustain their activities e.g., the Islamic State of Iraq and the Levant (ISIL) used to extort the income of all inhabitants in areas where it operated. It also extorted ‘taxes’ from movements of goods under its territory.

Self-funding: Several FATF reports have recognised that the amounts of money needed to fund small attacks can be raised by individual terrorists and their support networks using savings, access to credit or the proceeds of businesses under their control.

Legitimate Commercial Enterprise: Several law enforcement investigations and prosecutions have found a nexus wherein revenues from a commercial enterprise are routed to a support terrorist organization. Evidence of terror funding has been found from wide range of enterprises from used-car dealerships to restaurant franchisees.

State-Sponsorship of Terrorism: The Gilmore Commission of the US Congress gave the following definition of State-sponsored Terrorism: The active involvement of a foreign government in training, arming, and providing other logistical and intelligence assistance as well as sanctuary to an otherwise autonomous terrorist group for the purpose of carrying out violent acts on behalf of that government against its enemies. Organizations like Hamas and Hezbollah are heavily dependent on state support.

Fundraising through Social Media: The widespread access to and anonymity of the Internet (especially the rapid expansion of social media), have been exploited by terrorist groups to raise funds from sympathetic individuals globally. Social networks are widely used by terrorist organisations to spread their terrorist propaganda and reach out globally to sympathisers.

Crowdfunding: The use of organised crowdfunding techniques also represents an emerging terror financing risk. Crowdfunding is an Internet-enabled way for businesses, organisations, or individuals to raise money, from donations or investments, from multiple individuals. Crowdfunding websites allow people to easily set up a fundraising page and collect donations. Crowdfunding is vulnerable to exploitation for illicit purposes, including instances where the true purpose of the funding campaign is masked.

Virtual Currencies: Virtual currencies such as bitcoin have attracted the attention of various criminal groups and poses a risk of terror funding. This technology allows for anonymous transfer of funds internationally.

Exploitation of Natural Resources: In countries where the government lacks effective control of territory and its resources, the natural resource sector is vulnerable to exploitation for terror financing. Terrorist organisations could use these resources as a means to raise funds by controlling or exploiting a wide variety of resources that include gas, oil, timber, diamonds, gold (and other precious metals), wildlife (e.g., ivory trading) and charcoal (e.g., in Somalia).

What are the current international mechanisms to curb Terror Financing?

The Financial Action Task Force (FATF)

FATF is an inter-governmental body to counter global money laundering and terrorist financing. It sets international standards that aim to prevent funding of illegal activities. The FATF works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas. The FATF has developed the FATF Recommendations, or FATF Standards, which ensure a co-ordinated global response to prevent organised crime, corruption and terrorism. The FATF also works to stop funding for weapons of mass destruction.

Financial Intelligence Units

In order to create a global coordination framework for fight against money laundering and terror financing, a system of Financial Intelligence Units (FIUs) has been established.

The core function of an FIU is the receipt, analysis and transmitting relating to suspect financial transactions. Additional roles of FIUs include supervisory functions of the implementation of the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) obligations, coordinating national initiatives for counter terror funding policies etc. Law enforcement FIUs would generally also have law enforcement powers with regard to AML/CFT issues.

In 1995, the Egmont Group of FIUs was established in order to enhance the exchange of intelligence between jurisdictions. The Egmont Group of Financial Intelligence Units endeavors to ensure that all the FIUs respect a number of key standards in order to enable maximum cooperation between them.

Counter-Terrorism Committee (CTC)

In the aftermath of the 11 September attacks against the United States in 2001, the Security Council unanimously adopted resolution 1373 (2001). The resolution established a dedicated Counter-Terrorism Committee (CTC) of the UNSC. The Committee comprising all 15 UNSC members were tasked with monitoring the implementation of resolution 1373 (2001) which requested countries to implement a number of measures intended to enhance their legal and institutional ability to counterterrorist activities at home, in their regions and around the world.

The United Nations Office of Counter-Terrorism (UNOCT)

It has five main functions: (a) Provide leadership on the General Assembly counter-terrorism mandates; (b) Enhance coordination and coherence across the Global Counter-Terrorism Coordination Compact entities to ensure the balanced implementation of the four pillars of the UN Global Counter-Terrorism Strategy; (c) Strengthen the delivery of United Nations counter-terrorism capacity-building assistance to Member States; (d) Improve visibility, advocacy and resource mobilization for United Nations counter-terrorism efforts; (e) Ensure that due priority is given to counterterrorism across the United Nations system.

The United Nations Global Counter-Terrorism Coordination Compact is the largest coordination framework across the three pillars of work of the United Nations: peace and security, sustainable development, human rights and humanitarian affairs.

International Convention for the Suppression of the Financing of Terrorism

The Terrorist Financing Convention is a United Nations treaty (1999) that makes it illegal to pay for terrorist acts. The convention also aims to make it easier for the police and courts to work together to stop, investigate, and punish those who pay for such acts. As of October 2018, 188 states had signed the treaty.

No Money for Terror (NMFT)

The NMFT started in 2018 as an initiative of the French government . In the First Conference (2018) participating States agreed on “fully criminalising terrorism financing even in the absence of a link to a specific terrorist act” and “enhancing the traceability and transparency of financial flows” by developing frameworks to tackle the risks associated with the use of cash, informal remittance systems (including hawalas), prepaid cards, anonymous means of payments etc. The Conference also called for urgent and effective “implementation of FATF standards relating to non-profit organisations“ without disrupting civil society activities.

The Second Conference (2019) identified “kidnapping for ransom” and “emerging technologies” such as digital and cryptocurrencies,  and crowdfunding platforms as new channels through which terrorism may be financed. It also flagged the need for monitoring of non profit organisations .

The Third Conference was held in November 2022 in India.

What are India’s domestic efforts to combat Terror Financing?

The Government has taken various steps to combat terror funding in the country. These include:

First, the Government has strengthened the provisions in the Unlawful Activities (Prevention) Act, 1967 to combat terror financing by criminalizing the production, smuggling or circulation of high quality counterfeit Indian currency as a terrorist act. It has also enlarged the scope of proceeds of terrorism to include any property intended to be used for terrorism.

Second, A Terror Funding and Fake Currency (TFFC) Cell has been constituted in National Investigation Agency (NIA) to conduct focused investigation of terror funding and fake currency cases.

Third, An advisory on terror financing has been issued in April 2018 to States/UTs. Guidelines have also been issued in March, 2019 to States/UTs for investigation of cases of high quality counterfeit Indian currency notes.

Fourth, Training programmes are regularly conducted for the State Police personnel on issues relating to combating terrorist financing.

Fifth, FICN (Fake Indian Currency Notes) Coordination Group (FCORD) has been formed by the Ministry of Home Affairs to share intelligence/information among the security agencies of the States/Centre to counter the problem of circulation of fake currency notes.

Sixth, Intelligence and security agencies of Centre and States work in tandem to keep a close watch on the elements involved in terror funding activities and take action according to the law.

What are the challenges in Countering Terror Financing?

First, There is a lack of coordination between international organisations. A coordinated effort between several global counter-terrorism initiatives is missing.

Second, As highlighted in the recent Third NMFT Conference, State-support to terrorism prevents effective counter-terrorism response. The Union Home Minister remarked that some countries have made terrorism their “State Policy”. In such circumstances crackdown on terror havens becomes difficult.

Third, The limitations of the domestic institutional frameworks hamper the implementation of international standards at a national level.

Fourth, Making a distinction between terror-related financial activities and legitimate financial flows is difficult for the agencies. It is easy to blend terror-financing transactions with genuine business activity due to high volumes of financial transactions taking place globally e.g., it was widely believed that Indo-Pakistan border trade in the Kashmir Valley was also used to facilitate terrorism in Kashmir valley.

Fifth, Genuine businesses are forced to share funds with terrorist groups to carry on their regular business activities. In India, this is evident in mining and infrastructure activities in the red corridor. Law enforcement agencies face the challenge regarding treating these companies as victims of terrorism or the associates of terrorists.

Sixth, Terror groups are (mis)using front organizations (disguised as Non-Profit Organizations) to provide financial support, logistical services, encourage recruitment, and spread malignant propaganda. Government action on such organizations is criticized as ‘human-rights violation’ or abuse of power.

What should be done going ahead?

First, In order to be effective, efforts to counter the financing of terrorism need to rely more on financial intelligence sharing between countries and enhanced coordination between national Governments, public and private sector.

Second, In order to be more effective, targeted financial sanctions and other Financial Action Task Force (FATF) mandatory measures need to be buttressed with risk assessment and typology identification, enhanced intelligence sharing and better cooperation between the public and private sectors.

Third, The Union Home Minister has proposed a ‘five-pronged’ approach to counter terror financing at the NMFT Conference. This is includes “monitoring framework” for cooperation between intelligence agencies, “beyond-border cooperation“, the need for “complete transparency” among countries in sharing intelligence among others.

Fourth, The State-sponsorship of terrorism has to be effectively curbed. At the NMFT Conference, India’s External Affairs Minister and Home Minister have called for ‘rising above geo-political interests‘ to counter terrorism.

Conclusion

Despite multitude of efforts to counter-terrorism, financing of terror groups has continued unabated. Emerging Technologies like cryptocurrencies are posing new challenges to the agencies. The Governments need to overcome their political differences to combat the scourge of terrorism.

Syllabus: GS III, Role of external state and non-state actors in creating challenges to internal security, Money-laundering and its prevention, Linkages of organized crime with terrorism.

Source: Indian Express, Indian Express, The Times of India, PIB, FATF