The Financing of Terrorism: The link between money laundering and the financing of terrorism is, perhaps, not

is, perhaps, not one which

immediately comes to mind. Criminal and terrorist assets represent the same threats to financial and public stability. Criminal organisations
benefit from the damage created as a result of militant actions and, as a consequence, subsidise such terrorist and guerrilla activities.

After 11 September 2001, the global threat of terrorism and its widespread repercussions were propelled into both the public and political arenas.
Proceeds generated as a result of illicit activities pose a threat not only to public safety, but also to financial institutions themselves and global
economic development. The reason is that they allow criminal organisations to acquire a vast economic power.

The events surrounding September 11 proved that terrorist groups, such as Al-Qaeda, are also increasingly building up financial empires (or war
chests) with the specific aim to undermine public safety and international financial stability [1] .

Up until September 11, it was felt that efforts made to improve the transparency and safety of the global financial system had been a success. It
had enabled criminal money to be tracked. The severity of the terrorist attack contradicted this belief. It highlighted the obvious: the movements
of suspected laundered funds were still indeterminable. Organisations can still hide the ownership of suspicious assets behind shell companies
and offshore banking facades. At the United Nations Conference on Combating Terrorist Financing in 2005, the Executive Director of the United
Nations, Antonio María Costa, quoted Kofi Annan, the then UN Secretary General, when defining terrorism. He stated that; “Any action
constitutes terrorism if it is intended to cause death or serious bodily injury to civilians or non-combatants with the purpose of intimidating a
population or compelling a government or an international organization to do or abstain from doing any act.”. The financing of terrorism is
where funds or other property is made available, directly or indirectly, with the sole intention that the funds be used to further terrorism or to
initiate terrorist acts to be carried out.

After September 11, the United Nations Security Council were among the first to react to the threat of the financing of terrorism. Since the Third
Prevention of Money Laundering and Financing of Terrorism Directive (Commission Directive 2006/70/EC), lawyers in countries that have
transposed the legislation, are under a duty to report clients that are suspected of funding terrorist efforts, in a similar manner to the duty relating
to suspected money laundering.

Financial Action Task Force (FATF)

3.1 What is the FATF?

The Financial Action Task Force (FATF) can be seen as the international standard-setter in the
fight against terrorist financing and money laundering. It was established in 1989, by a Group of
Seven (G-7) Summit held in Paris. The summit recognised the growing threat posed by money
laundering to the banking system and financial institutions and set up the FATF to develop and
promote national and international policies, globally, to help eliminate this threat. In 2001, the
FATF took over responsibility for the development of standards in the fight against terrorist
financing.

The FATF’s main responsibility is to ensure global action to combat money laundering and
terrorist financing is undertaken. Since its creation, the FATF has been at the forefront of
measures designed to counter criminal attempts to use the financial system to further criminal
and terrorist purposes. Most notably, in 1990 the FATF established a series of money laundering
recommendations. In 2001, they established a series of special recommendations on the
prominent threat of terrorist financing, collectively known as the 40+9 Recommendations whose
aim was to unite anti-money laundering and terrorist financing efforts into one universal
instrument.

The FATF examines techniques and counter-measures and reviews whether existing national and
international policies are sufficient to combat the developing threat. The FATF monitors
compliance with the 40+9 recommendations through a two-pronged strategy.
Firstly, member countries complete annual self-assessment style questionnaire and secondly, the
FATF regularly conducts on-site Mutual Evaluation Report examinations on individual
jurisdictions, assessing the effectiveness of their national policies in dealing with money
laundering and terrorist financing. The importance was reiterated in 2005 by the United Nations
Security Council:

[The United Nations] strongly urges all Member States to implement the comprehensive,
international standards embodied in the Financial Action Task Force’s (FATF) Forty
Recommendations on Money Laundering and the FATF Nine Recommendations on Terrorist
Financing [1].

3.2 FATF Money Laundering Recommendations

Global efforts to combat money laundering and the financing of terrorism have been tailored to
attack criminal and terrorist organisations through their financial operations [2]. The strategy has
been aimed at depriving them of the means to act and gain knowledge of how their financial
networks and methods work in order to prevent any future operations.

The 40 recommendations mentioned above are intended to provide counter-measures against

money laundering and encompass the criminal justice system, law enforcement, the financial
system and its regulators, together with international co-operation. They also set out principles
and minimum standards for action.

Countries are free to implement the details of the recommendations in the manner they choose, in
order to fit them into their own constitutional frameworks. Despite not being binding, many
countries have chosen to make a commitment to implement them in order to combat money
laundering.

The recommendations were first published in 1990, and have been subsequently revised in 1996
and 2003. They are constantly reviewed and updated to take into account any changes or
anticipated changes in money laundering trends. In 1996, the FATF issued a series of
interpretative notes designed to clarify their application.

In 2003, the FATF amended the scope of the recommendations to include designated non-
financial businesses and professionals. Designated non-financial businesses and professionals
are defined by the FATF to include casinos, real estate agents, dealers in precious stones and
metals, and lawyers, notaries, other independent legal professionals and accountants.

The 2003 amendments applied, for the first time, customer/ client due diligence and record
keeping practices to designated non-financial businesses and professionals. They are required to
report transactions suspected of being linked to money laundering to the designated authorities.

In the case of lawyers, the FATF recommends that lawyers be excused from this responsibility if
their knowledge or suspicions arises as a result of legal professionally privileged circumstances.
The 2003 amendments revised the recommendations to include the FATF’s enhanced counter
terrorist financing mandate.
The forty recommendations suggest (summarised):

1. The criminalisation of money laundering on similar terms to those suggested in the 1988 UN
convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances and the 2000 UN
Convention against Transnational Organized Crime, as well as for extended sanctions (civil and
regulatory) to be applied to legal persons who fail to adhere to the Directive;

2. That countries adopting the recommendations should establish a national centre for receiving
information about suspected money laundering transactions (a Financial Intelligence Unit or
FIU) and ensure that there are designated law enforcement authorities that have responsibility
and resources necessary to investigate such transactions;

3. The adoption of measures such as tracing in order to confiscate property and proceeds from
money laundering. The recommendations also call for steps that prevent the State from
recovering such property to be voidable;

4. That client due diligence should be completed by all financial institutions and non-financial
businesses and professions, including lawyers, and records to be kept for five years. The
recommendations also call for ‘special attention’ to be paid to all complex and unusually large
transactions and to those transactions involving new or developing technologies;

5. That there be a requirement for all financial institutions and non-financial businesses and
professions including lawyers to report suspicious transactions to the Financial Intelligence Unit
(FIU) and for protection/ immunity to be offered to such informants;

6. Financial institutions should develop programmes, such as internal policies, designed to combat
money laundering and terrorist financing and ensure that all subsidiaries adhere to the
recommendations to the extent the country has implemented them;

7. That all shell banks should be discontinued and all financial institutions should report all
domestic and international currency transactions above a certain amount;

8. That there should be enhanced regulation, supervision and guidance offered to financial
institutions and non-financial businesses and professions, in their compliance with the
recommendations; and

9. That there should be improved efficiency regarding international co-operation, mutual legal
assistance including possible extradition and information sharing amongst jurisdictions.

There are interpretative notes available.

3.3 FATF Terrorist Financing Special Recommendations

The nine special recommendations, designed to combat terrorist financing were first published
by the FATF in 2001, in response to the terrorist attack on September 11 2001. They initially
contained only eight recommendations encompassing the criminalisation of terrorist financing
and provision for combating the problem. They were then updated in 2004 to include cash
couriers.
Cash couriers are used by individuals who wish to transfer cash internationally. The benefits of
the human courier system are understandable. There is no electronic transfer and, therefore, no
lasting record of the transaction. It is also arguable that the courier carries all the risk in carrying
the “dirty” money into the destination country.

The amendment reflected the growing concern that money resultant from criminal activities,
such as drugs trafficking, is being increasingly used to fund terrorist extremists, The Irish
Republican Army (IRA) in Northern Ireland, the Revolutionary Armed Forces of Colombia
(FARC), the Madrid bombings in 2004 and the September 11 attacks were arguably funded by
money gained as a result of criminal activities [3]).

Implementation has been monitored through a self-assessment questionnaire, designed to elicit

details from different jurisdictions, as to their progress with their implementation.

The nine special recommendations call for (summarised):

1. The immediate ratification and implementation of UN anti-financing of terrorism instruments,

such as the 1999 United Nations International Convention for the Suppression of the Financing
of Terrorism;

2. The criminalisation of the financing of terrorism, terrorist acts and terrorist organisation and the
freezing and confiscation of terrorist assets;

3. A national method of reporting suspected funds for terrorism, terrorist acts or terrorist
organisations to be established;

4. The international co-operation and mutual legal assistance to ensure prompt and effective
criminal/civil investigations and prosecutions of suspected terrorist financing, acts and
organisational breaches;

5. Financial and non-financial entities providing a service for the transmission of money or value to
be subject to all of the FATF Recommendations;

6. Client due diligence to be completed by all financial institutions and for enhanced security
measures to be adopted in relation to clients who do not provide complete originator
information; and

7. Enhanced regulation of non-profit organisations and other entities particularly susceptible to

abuse, together with enhanced measures designed to track the physical cross-boarder
transportation of funds.

The ninth recommendation called for countries to adopt measures to detect and prevent the
physical cross-border transportation of money related to terrorist financing and money
laundering.

The goal in providing these special recommendations is to ensure that financial institutions and
other susceptible entities do not unwittingly hide or move terrorist funds. The FATF has also
provided guidance on detecting terrorist financing activities for financial institutions and for the
implementation of the special recommendations in general.

3.4 FATF Members and Observers

The following jurisdictions are members of the FATF and, therefore, bound to adhere to the
FATF’s 40+9 Recommendations (see above):

 Argentina  Japan
 Australia  Kingdom of the Netherlands (The
 Austria Netherlands, Netherlands Antilles, Aruba)
 Belgium  Luxembourg
 Brazil  Mexico
 Canada  New Zealand
 China  Norway
 Denmark  Portugal
 European Commission (Member States  Russian Federation
list)  Singapore
 Finland  South Africa
 France  Spain
 Germany  Sweden
 Greece  Switzerland
 Gulf Co-operation Council  Turkey
 Hong Kong, China  United Kingdom
 Iceland  United States
 India 
 Ireland
 Italy

The following jurisdiction has observer status:

 Republic of Korea

3.4.1 FATF Blacklist

In 2000, the FATF issued its first list of “Non-Cooperative Countries or Territories”. The list
contained FATF members believed to be uncooperative in international efforts against money
laundering and later terrorist financing.

The most common breach of the FATF mandate is a jurisdiction’s unwillingness or inability to
provide other foreign authorities with information relating to on-going investigations of
suspected international money laundering, such as client or bank account details.

At the time of writing [4] no country was present on the FATF Blacklist.
3.5 FATF Sub-Organisations

There are numerous associate members and observer body organisations which supplement the
work of the FATF and have specific anti-money laundering and terrorist financing functions.
These “sub-organisations” can be split into three groups: Associate Member Organisations,
Observer Bodies and Other International Organisations.

They are described below:

3.5.1 Associate Members:

 Asia/Pacific Group on Money Laundering (APG)

The origins of Asia/Pacific Group on Money Laundering or APG date back to the “raising
awareness” stage of the FATF in the early 1990s. It was established to ensure the adoption,
implementation and enforcement of the FATF’s recommendations for universally adopted
international anti-money laundering standards within Asia and the Pacific countries. After the
events of September 11, the APG, like the FATF, expanded the scope of its work to include
countering terrorist financing, and the universal adoption of the FATF’s special
recommendations.

The APG’s duties include providing assistance to countries and territories within its scope and to
encourage the co-operation of countries with confiscation, forfeiture and extradition matters and
information sharing. The APG provides guidance to countries in setting up systems and
organisations for reporting suspicious transactions, helping the countries develop systems
tailored to regional factors and circumstances.

The APG also conducts mutual evaluation reports, in a similar manner to the FATF. It
determines the extent to which countries and territories within its scope have adhered to the
FATF anti-money laundering and terrorist financing recommendations.

The following jurisdictions are members of the APG:

 Afghanistan  Lao People’s Democratic  Palau

 Australia Republic  Papua New Guinea
 Bangladesh  Macao, China  The Phillippines
 Brunei Darussalam  Malaysia  Samoa
 Cambodia  Maldives  Singapore
 Canada  The Marshall Islands  Solomon Islands
 Chinese Taipei  Mongolia  Sri Lanka
 Cook Islands  Myanmar  Thailand
 Fiji Islands  Nauru  Timor Leste
 Hong Kong, China  Nepal  Tonga
 India  New Zealand  United States of
 Indonesia  Niue America
  Japan  Pakistan  Vietnam
 Republic of Korea (South  Vanuatu
Korea)

 Caribbean Financial Action Task Force (CFATF)

The Caribbean Financial Action Task Force (CFATF) was designed to encourage the co-
ordination of and the participation in anti-money laundering and terrorist financing training
programmes. It is amed at assessing the degree to which its members have implemented the
recommendations of the FATF and CFATF. Membership includes Jamaica, Costa Rica and
Panama.

CFATF was established in the early 1990s and adapted the recommendations of the FATF to
have regional perspective. Furthermore, an important aim of the CFATF is to continuingly
develop measures designed to combat the laundering and the re-direction of the proceeds from
crime.

The following jurisdictions are members of CFATF:

 Anguilla  Dominican Republic  Panama

 Antigua & Barbuda  El Salvador  Saint Kitts and Nevis
 Aruba  Grenada  Saint Lucia
 Bahamas  Guatemala  Saint Vincent & the
 Barbados  Guyana Grenadines
 Belize  Haiti  Suriname
 Bermuda  Honduras  Trinidad and Tobago
 British Virgin Islands  Jamaica  Turks and Cacios Islands
 Cayman Islands  Montserrat  Venezuela
 Costa Rica  Netherlands Antilles
 Dominica  Nicaragua

 Financial Action Task Force on Money Laundering in South America (GAFISUD)

Members of the Financial Action Task Force on Money Laundering in South America or
GAFISUD include amongst others Colombia, Chile, Brazil and Argentina. This particular FATF
sub-organisation was created in 2000 with the aim of co-ordinating efforts towards developing
and implementing a global strategy to prevent money laundering and the financing of terrorism.
Like the other sub-organisations, GAFISUD conscientously co-operates with the FATF, with the
purpose of achieving this aim.
GAFISUD carries out a similar task to that of the FATF in that it carries out a series of mutual
evaluations on member countries, to see the extent to which they have implemented the FATF
Recommendations and Special Recommendations (the 40+9 recommendations). It is also
committed to co-ordinating anti-money laundering training and educational programmes.

The following jurisdictions are members of GAFISUD:

 Argentina  Colombia  Perú

 Bolivia  Ecuador  Uruguay
 Brazil  Mexico
 Chile  Paraguay

The following jurisdictions are observers of GAFISUD:

 Germany
 Spain
   
 France
 Portugal

 The Middle East & North Africa Financial Action Task Force (MENAFATF)

The Middle East & North Africa Financial Action Task Force (MENAFATF) is a voluntary
organisation, established by a regional agreement. It does not derive from an international treaty,
and adheres to cultural values, constitutions and legal systems.

MENAFATF was established to ensure that countries within the Middle East and North Africa
(the MENA) region comply with the standards and measures established by the FATF 40+9
recommendations. Its objective is to raise and unite compliance and standards within the region,
in order to create an effective system of combating money laundering and the financing of
terrorism.

The rules and procedures of MENAFATF are determined via a consensus of the members and
closely resemble those of other international bodies such as the FATF.

The following jurisdictions are members of MENAFATF:

 Algeria  Lebanon  Syria

 Bahrain  Morocco  Tunisia
 Egypt  Oman  United Arab Emirates
 Jordan  Qatar  Yemen
  Kuwait  Saudi Arabia

 Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures

and the Financing of Terrorism (MONEYVAL)

The Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering

Measures and the Financing of Terrorism or MONEYVAL was established in 1997 to conduct
self and mutual assessments and evaluations of anti-money laundering, and later, anti-terrorist
financing measures adopted by members. Typically, members of MONEYVAL are not members
of the FATF directly.

MONEYVAL aims at encouraging member jurisdictions to improve their anti-money laundering

measures, to bring them in line with the recommendations of the FATF and to facilitate and
enhance international co-operation.

MONEYVAL works in a similar way to the European Commission, in that members appoint up
to three national or international legal anti-money laundering experts to form the hierarchy of
MONEYVAL. Additionally, MONEYVAL ‘employees’ also consist of past and current
Presidency of the FATF and scientific experts.

The following jurisdictions are members of MONEYVAL:

 Albania  France  Poland

 Andorra  Georgia  Romania
 Armenia  Hungary  Russian Federation
 Azerbaijan  Latvia  San Marino
 Bosnia and  Liechtenstein  Serbia
Herzegovina  Lithuania  Slovakia
 Bulgaria  Malta  Slovenia
 Croatia  Moldova  The former Yugoslav Republic of
 Cyprus  Monaco Macedonia
 Czech Republic  Montenegro  Ukraine
 Estonia  The Netherlands

The following jurisdictions are observers of MONEYVAL:

 Canada    
 Holy See (The Vatican City)
 Israel
 Japan
  Mexico
 United States of America

3.5.2 Observer Bodies:

 Eurasian Group (EAG)

The Eurasian Group (EAG) was set up in 2004 resulting from the initiative of the Russian
Federation. The move was highly supported by the FATF, the International Monetary Fund
(IMF), the World Bank and several other countries.

The EAG is a FATF-style body that is not part of any other FATF style body, such as
MONEYVAL. Its objective is to encourage its members to adopt a global system of preventing
money laundering and terrorist financing. Similar to many other bodies, the EAG’s aim is to
facilitate the consistent implementation of anti-money laundering and anti-terrorist financing
standards and to evaluate the effectiveness of existing anti-money laundering and anti-terrorist
financing mechanisms.

Also, EAG encourages its members to facilitate international co-operation in order to improve
methods and results of money laundering and terrorist investigations.

The following jurisdictions are members of EAG:

 Belarus  Kyrgyzstan
 China  Russian Federation
 Kazakhstan  Tajikistan
 Uzbekistan

The following jurisdictions are observers of EAG:

 Georgia  Moldova
 Germany  Turkey
 France  Ukraine
 Italy  United Kingdom
 Japan  United States of America

 Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG)

The purpose of the Eastern and Southern Africa Anti-Money Laundering Group or ESAAMLG
is to implement the recommendations of the FATF and to take and co-ordinate measures to
combat money laundering and the financing of terrorism.

ESAAMLG members participate in self-assessment designed to evaluate their progress in

implementing the recommendations of the FATF. The following jurisdictions are members of
ESAAMLG:

 Botswana  Mozambique
 Tanzania
 Kenya  Namibia
 Uganda
 Lesotho  Seychelles
 Zambia
 Malawi  South Africa
 Zimbabwe
 Mauritius  Swaziland

The following jurisdictions are observers of ESAAMLG:

 United Kingdom
 United States

 Intergovernmental Anti-Money Laundering Group in Africa (GIABA)

The Intergovernmental Anti-Money Laundering Group in Africa (GIABA) was established on 10

December 1999. Members include amongst others Ghana, Nigeria, Senegal. It aims at protecting
national economies and financial institutional systems against the dangers of the integration of
the proceeds of crime and terrorist financing. Its objective is to find global solutions to the issues
these illicit activities pose. The strategy of GIABA has been to improve and intensify measures
designed to combat the proceeds of crime and to encourage co-operation amongst its members.

The following jurisdictions are members of GIABA:

 Benin  Ghana  Niger

 Burkina Faso  Guinea Bissau  Nigeria
 Cape Verde  Guinea Conakry  Senegal
 Côte d'Ivoire  Liberia  Sierra Leone
 Gambia  Mali  Togo

3.5.3 Other International Organisations:

 Offshore Group of Banking Supervisors (OGBS)

The Offshore Group of Banking Supervisors (OGBS) was established in response of growing
concern in 1980 over the risk that the offshore financial institutions were not subject to sufficient
supervision or subjected to adequate control and could therefore be easily susceptible to money
launderers, and those wishing to provide collateral for terrorist projects. The OGBS objective,
among others, is to promote the implementation of universal international standards of
supervision for cross-border banking, money laundering and terrorist financing.

The following jurisdictions are members of OGBS:

 Aruba  Cayman Islands  Mauritius

 Bahamas  Guernsey  Netherlands Antilles
 Barbados  Isle of Man  Panama
 Bermuda  Jersey  Samoa
 British Virgin Islands  Labuan  Vanuatu
 Macau, China

The following jurisdictions are observers of OGBS:

 Antigua-Barbuda
 Cook Islands

3.6 The Egmont Group of Financial Intelligence Units

As the threat of money laundering and terrorist financing became more prominent over the past
decade, individual jurisdictions have established specialised government authorities, referred to
as Financial Intelligence Units. A Financial Intelligence Unit or FIU is defined as:

A central, national agency responsible for receiving (and as permitted, requesting), analyzing and
disseminating to the competent authorities, disclosures of financial information:

i. Concerning suspected proceeds of crime and potential financing of terrorism; or

ii. Required by national legislation or regulation, in order to combat money laundering and
terrorism financing. [5]

The above definition does not require a particular territory to establish a specific separate
organisation to deal with anti-money laundering and counter terrorist financing threats. On the
contrary, pre-existing government entities can, and have in practice, been given the task of
combating money laundering and terrorism financing. The main task of these respective FIUs is
to develop systematic solutions to combat money laundering and terrorist financing. Typically
they are law enforcement agencies which provide an avenue for information exchange.

The Egmont Group was established in 1995 as an informal collection of small FIUs to help
facilitate co-operation. The aim of the Egmont Group is to encourage mutual co-operation and
improve FIU interaction in international attempts to combat money laundering and terrorist
financing amongst its members not only to strengthen positions of individual participating
countries, but to also strengthen the global economic resistance. At the time of writing [6] , since
its inception, the number of member institutes has grown from fourteen to one-hundred-and-
eight.

To meet its aim, the Egmont Group has developed several working groups, including Legal,
Training and Communication, Outreach, Operational and Information Technology. The working
groups are designed to seek and rectify hindrances in international anti-money laundering and
counter terrorist financing methods. For example, the Legal Working Group is responsible for
examining obstacles related to information sharing amongst government agencies, whilst the
Outreach Working Group facilitates and develops the global network of FIUs.

_________________________

1. S/Res/1617 (2005): Threats to international peace and security caused by terrorist acts, United
Nations Security Council, 5244th meeting, on 29 July 2005;
2. Thony, J-F, Money Laundering and Terrorism Financing: An overview;
3. Scott-Joynt, J, “Cash couriers reveal terror fund challenge”, (Wednesday 12 May 2004);
4. November 2008;
5. Muller, W.H, Kälin, C.H & Goldsworth, J.G, Anti-Money Laundering: International Law and
Practice, (1st ed., 2007, John Wiley & Sons Publishing) at page 87;
6. November 2008.