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The Fundamentals of Terrorist Financing

› Contents

› What is terrorist financing (FT)?

› So-called Islamic State of Iraq and the Levant (ISIL) in a nutshell

› Also Daesh (Arabic equivalent)

› Also so-called Islamic State of Iraq and Syria (ISIS)

› Emerging FT risks and threats

› CFT framework in Jersey

› Terrorist asset freezing and sanctions

› International CFT initiatives

› Key learning points

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› Presenters

› Jersey Financial Services Commission, Financial Crime Policy Division

› Hamish Armstrong, Senior Adviser

› Vladimir Jizdny, Senior Adviser

› Government of Jersey

› George Pearmain, Lead Policy Adviser: Financial Crime

› Michael Entwistle, Deputy Director, External Relations

› Joint Financial Crimes Unit

› Detective Inspector Dave Burmingham, Head of the JFCU Joint Financial Crime Unit

› Purpose

› Raise awareness of FT concept and applicable CFT framework

› Increase understanding of current and emerging FT risks and threats

› Promote awareness of ISIL & Al-Qaida Sanctions List

› Promote stronger engagement between public and private sector in CFT

matters

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› Background

› FATF – Anti Money Laundering and Countering the Financing of Terrorism

› 40 + 9 Recommendations now integrated into 40 Recommendations

› Small amounts, often indistinguishable from legitimate funds.

Direct costs of a terrorist attack Date Estimated cost

› London transport system July 2005 £ 8 000

› Madrid train bombings March 2004 $ 10 000

› Istanbul truck bomb attacks November 2003 $ 40 000

› Jakarta JW Marriot Hotel bombing August 2003 $ 30 000

› Bali bombings October 2002 $ 50 000

› USS Cole attack October 2000 $ 10 000

› East Africa embassy bombings August 1998 $ 50 000

› What is terrorist financing?

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› What is terrorist financing?

› FT is the use of property for terrorism purposes or for support of a terrorist

entity, or

› Dealing with terrorist property (concealing, removing or transferring),

› The support a terrorist entity entails provision of educational or day-to-day

living expenses,

› The main objective of FT is to provide funds for terrorist activity: using bad

and good money for bad purposes

› What is terrorist financing? Concept

Fund-raising

Movement of funds

Use of funds

Placement

Layering

Integration

Terrorist financing Money launderingSimilarities

Retain control

Avoid detection

Protect the identity of

key individuals

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› What is terrorist financing?Process

Fund- raising

Movementof funds

Use of funds

› Allocation of funds

to activity as

necessary

› Funds transferred to terrorist groups

(often indistinguishable from

legitimate transfers)

› Various legitimate and criminal

activities to raise necessary funds

for terrorist groups

› What is terrorist financing?Fund-raising

Fund-raising

Self-funding

Legitimate commercial enterprises

Criminal proceeds

NPOs

Taxing local population and

businesses

State funding

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› What is terrorist financing?Funds movement

Movement of funds

Banks MVTS, e.g. WUOnline payment

systems, e.g. Paypal

Physical movement, smuggling

› What is terrorist financing?End use of funds

End use of funds

Operational funds

Salaries, member

compensation

Social services

Propaganda

mass- communications

Training and indoctrination

Bribes

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› ISIL in a nutshell

› How ISIL made its billions

› Video covering main revenue streams used by ISIL

› Oil trade

› Taxation and extortion

› Bank robberies

› Criminal antiquity excavation

› Kidnaps for ransom

› Protection money

› How ISIL Funds its activities

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› ISIL in a nutshell

› ISIL is a new form of terrorist organisation

› Funding is vital for its activities

› Salafi jihadist militant group

› Proclaimed worldwide caliphate and claims to have religious, political and

military authority over all Muslims worldwide

› Strategy to achieve its political goals

› Terrorise – intimidate civilians and coerce governments

› Mobilise – their supporters (propaganda, deadly attacks on ‘disbelievers’)

› Polarise – drive Muslim diaspora in the West from their governments

› ISIL in a nutshell

› Main sources of revenue according to the U.S. Department of Treasury

› Oil and gas (app. $ 500 million)

› Taxation and extortion (hundreds of millions)

› Looted banks (estimated $ 500 million)

› Main efforts to disrupt the sources

› Oil and gas supply chains targeted by the Coalition

› Government salaries not paid out in areas held by ISIL

› Main efforts to prevent ISIL from accessing international financial system

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› ISIL in a nutshell

› FATF report on financing of ISIL published in February 2015 (Financing of ISIL report)

› Major sources of funds include

› Revenue from local criminal activities in the territory controlled

› Kidnapping for ransom

› Donations (wealthy private individuals, NPOs, charities)

› Material support to include foreign terrorist fighters

› Fundraising through modern communication networks

› Emerging FT risks and threats

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› Emerging FT risks and threats

› FATF report published in October 2015

› Underlines the importance of genuine public/private partnership

› In addition to “traditional FT threats and methods“

› Foreign terrorist fighters (FTF)

› Fundraising through social media

› New payment products and services

› Exploitation of natural resources

› Emerging FT risks and threats

› FTF Bulletin

› disseminated by JFCU to reporting entities

› to be used for suspicious activity and transaction monitoring purposes

› FTFs travel pattern comprises five distinct phases

› Each phase characterised by different financial activities and transaction types

› Phase indicators considered in conjunction with additional factors

› Deviation from a customer’s normal profile

› Sources of funds

› Info on the purpose of transactions

› Publicly available information

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› Emerging FT risks and threats

› Distinct features of global FT environment

› FT motivated by international tensions and conflicts

› Use of conduit/transit/neighbouring countries

› Legitimate funds commingled with funds intended for FT

› Managing terrorist organisations and financial management

› Emerging FT risks and threats

› Indicators

› Very difficult to spot (often small amounts of licit origin)

› Multiple FT indicators often needed to form suspicion

› Thorough understanding of customer’s business and risk profile needed and

proper monitoring of transactions and activity

› Examples:

› Multiple customers sending funds to same beneficiary in a high-risk country – similar to money

laundering pattern

› Multiple money remittances with no apparent purpose from Syria and Iraq to areas of high

long-term unemployment

› Some recipients known to local agencies – FT pattern

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› Emerging FT risks and threats in the UK

› Taking out small loans

› Low level criminality (theft, drug trafficking)

› Misuse of charities (funds diverted by rogue individuals)

› Use of ATMs

› CFT Framework in Jersey

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› CFT Framework in Jersey

› Terrorism (Jersey) Law 2002 (the “Terrorism Law”)

› Terrorist Asset-Freezing (Jersey) Law 2011 (the “Terrorist Asset-Freezing Law”)

› European Union Legislation (Implementation) (Jersey) Law 2014

› EU Legislation (Sanctions-Al-Qaida)(Jersey) Order 2014 (the “Al-Qaida Order”)

› EU Legislation (Sanctions-Afghanistan)(Jersey) Order 2014, (the “Afghanistan Order”)

› Money Laundering (Jersey) Order 2008 (the “Money Laundering Order”)

› CFT framework in JerseyTerrorism Law

› Article 2 of Terrorism Law – defines terrorism

› Act or threat of such an act which is intended to:

› influence, coerce or compel government in Jersey or any other government to do or

refrain from doing an act; or

› to intimidate the public or a section of the public

› Act done or threat made when advancing a political, racial, religious or

ideological cause

› Act intended to: cause death or serious injury; create serious risk to health;

involve serious damage to property; seriously disrupt or seriously interfere

with provision of emergency police, fire and rescue or medical services, etc.

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› CFT framework in JerseyTerrorism Law

› Key features

› Criminalization of FT is consistent with International Convention for the

Suppression of the Financing of Terrorism (Article 2)

› Broad definition of property – all property whether movable or immovable,

vested or contingent, situated in Jersey or elsewhere

› Funds do not need to be used to carry out, or attempt, a terrorist act or be

linked to a specific act; a threat of an act will suffice

› Also

› FT offences are a predicate offence for money laundering

› Article 29 of Proceeds of Crime (Jersey) Law 1999: criminal property

› CFT framework in JerseyTerrorism Law

› Article 15 of Terrorism Law – link to “fund-raising”

› Any use (in whole or in part, directly or indirectly) of property for the purposes of

terrorism or support of a terrorist entity

› Possession of property, provision of property or a financial service, or collection

or receipt of property intending that the property may be used, or knowing,

suspecting.. that it may be used for the purposes of terrorism or for the support

of a terrorist entity

› Support of terrorist entity includes support by way of providing or subsidising

educational or other day-to-day living expenses

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› CFT framework in JerseyTerrorism Law

› Article 16 of Terrorism Law – link to “moving funds”

› An offence to do any act (concealing or disguising, removing the terrorist

property from Jersey, transferring the terrorist property to nominees) which

facilitates the retention or control of terrorist property

› Terrorist property defined in Article 3 of Terrorism Law

› Property intended to be used or likely to be used, in whole or in part, directly or indirectly,

for the purposes of terrorism or for the support of terrorist entity, and includes the

resources of a terrorist entity

› CFT framework in JerseyTerrorism Law

› Article 6 of the Terrorism Law - proscribed organizations

› Section 3 of the Terrorism Act 2000 (UK legislation)

› Regarded as terrorist entity (Article 4)

› Funding of terrorist entity is a criminal offence (Article 15)

› You should not rely on the UK Consolidated List to identify proscribed

organizations

› Schedule 1 of the Terrorism Law, as amended

› UK Home Office List of proscribed organizations

https://www.gov.uk/government/publications/proscribed-terror-groups-or-organisations--2

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› Terrorist Asset Freezing and Sanctions in Jersey

› Sanctions

› Policy lies with the Chief Minister’s Department

› UN Sanctions – implemented by Terrorist Asset-Freezing Law (designated person)

› EU Sanctions – implemented by Terrorist Asset-Freezing Law and Al Qa’ida and

Afghanistan Orders

› UK Sanctions – implemented by Terrorist Asset-Freezing Law (designated person)

› Relevant institution – any legal or natural person carrying on financial

services business

› Located in or operating in or from within Jersey, or

› Incorporated or constituted under the law of Jersey

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› Al-Qaida and Afghanistan Orders

› Al-Qaida Order: Gives effect to Council Regulation (EC) No 881/2002 which

implements UNSCR 1267 and 1989

› Imposes financial sanctions against persons and entities associated with the Al-Qaida

network – includes ISIS

› Afghanistan Order: Gives effect to Council Regulation (EC) No 753/2011

which implements UNSCR 1267 and 1988

› Imposes financial sanctions against individuals, groups, undertakings in view of the

situation in Afghanistan – includes Taliban

› Significant overlap with Terrorist Asset-Freezing Law

› Exactly implements EU listings – so time lag against UNSCR

› Consistency with EU process when licence is granted, varied or revoked

› Terrorist Asset-Freezing Law

› Initially designed to cover obligations under UNSCR 1373 to freeze

terrorist property by

› Automatically mirroring UK designations made under Terrorist Asset-Freezing Act

› Automatically mirroring list of persons published in accordance with EU Council

Regulation (EC) No 2580/2001

› Allowing Minister to designating other persons domestically

› Definiton of “designated person” now extended to cover persons listed by

UNSC Committees 1267, 1989 and 1988 (Al-Qaida and Afghanistan)

› Link to UN sanctions notices:

http://www.jerseyfsc.org/the_commission/sanctions/un_sanctions_notice.asp

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› Terrorist Asset-Freezing Law

› Offence to

› Deal with funds and economic resources owned, held or controlled by a

designated person

› Make funds or financial services available:

› to a designated person

› for benefit of a designated person

› Make economic resources available:

› to a designated person

› for benefit of a designated person

› Terrorist Asset-Freezing Law

› Freeze is immediate

› You must not move or deal with the funds in any way – you will not be told

to freeze!

› You must notify the Chief Ministers Department, who and how much

international@gov.je

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› Sanctions

› UK Consolidated List – provides a current list of designated persons

currently subject to financial sanctions for believed involvement in terrorist

activity

› Terrorism and Terrorist Financing Sanctions filter

› Mohammed Bouyeri – EU listing only

› Mousa MARZOOK – UK listing only

› Money Laundering Order

› Article 11(3)(e) requires relevant person to have policies and procedures to

determine whether a business relationship or one-off transaction involves:

› Person subject to measures under Law applicable in Jersey for the prevention and

detection of money laundering and FT

› Terrorist Asset-Freezing Law

› Al-Qaida and Afghanistan Order (time-lag)

› Proscribed Organizations

› Connected with an organization that is subject to such measures

› Connected with a country or territory that is subject to such measures

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› International CFT initiatives

› International CFT initiativesFATF

› Stock-take of current frameworks and systems

› Focus on measures taken to freeze terrorist funds and criminalise FT

› Rapid review of 194 jurisdictions, including Jersey, outlines global implementation of

key CFT measures. Findings include:

› Almost all countries have criminalised FT as a distinct offence

› Relatively few jurisdictions have obtained convictions for FT (33)

› 27 jurisdictions have expanded their laws to combat foreign terrorist fighters

› Most jurisdictions have legal instruments to implement targeted financial sanctions (however

slow implementation of the new designations)

› Most jurisdictions never make practical use of targeted financial sanctions

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› International CFT initiativesFATF

› Actions to improve current frameworks and systems

› Strengthen international standards and their implementation

› Interpretative note to FATF Recommendation 5 (FATF IN5) revised to address the threat of

foreign terrorist fighters

› Countries required to criminalise financing the travel of individuals who travel to a State other

than their States of residence or nationality for the purpose of the perpetration, planning, or

preparation of, or participation in, terrorist acts or the providing or receiving of terrorist

training

› Particular focus in FATF Methodology on implementation of requirement to criminalise

kidnap and ransom insurance payments

› FATF Recommendation 5 - reimbursing monies paid to a terrorist is a criminal offence

› International CFT initiativesFATF

› Actions to improve current frameworks and systems (cont’d)

› Implement targeted sanctions regimes (incl. proposing designations)

› Identify FT risks and develop effective ways to tackle them

› Protect NPO sector from the risk of terrorist abuse: FATF updating its best practice paper

› Identify and target individuals suspected to be involved in FT

› Use of passenger name records

› Police regulatory perimeter (unregulated MVTS) and increase transparency of financial

flows

› Empower FIUs to improve exchange of information domestically and internationally

› Strengthen inter-agency communication, spontaneous exchange of information among countries

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› International CFT initiativesFATF

› Actions to improve current frameworks and systems (cont’d) - current

thinking

› Update ISIL report to provide curent picture of sources used to fund activities

› Develop up-to-date FT indicators to be shared with private sector

› Improve exchange of information

› Analysis of gaps, challenges faced and responses

› FATF and Egmont Group to consider information-sharing obstacles and updating international

standards of information sharing

› Calls on all jurisdictions to issue advisories to private sector on the latest FT risks, update Interpol’s

database of foreign terrorist fighters

› International CFT initiativesFATF

› Actions to improve current frameworks and systems (cont’d) - current

thinking

› Strengthen international standards and their implementation

› Special follow-up process for ‘outliers’

› Identify and discuss areas where FATF standards should be strengthened (to better reflect

UNSC dealing with FT)

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› Key learning points

› Key learning points

› Terrorism presents most serious asymetric threat

› Systems and controls to include: CDD reflective of both ML and FT

risks; and transaction and activity monitoring including FT indicators

› Terrorist Asset-Freezing Law requires you to immediately freeze

terrorist assets

› Don’t rely on lists – think about it!

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Hamish Armstrong, JFSCDave Burmingham, JFCUMichael Entwistle, CMD

Vladimir Jizdny, JFSCGeorge Pearmain, CMD