The main purpose of terrorism is to threaten ordinary people, governments or international organisation into acting in a particular way or desisting from action, usually by fear tactics. Terrorist financing is a term used to describe the activities that provide financial support to terrorism.
One way to suppress terrorism is to dry out financial resource from terrorist financers to terrorists, or from terrorist headquarters to terrorist cells. Like all criminals, the cost of conducting their ‘illegal operations’ includes the following factors: the cost of the attack operation, the wages and salaries of the individuals, communications, training, travel and logistics. These factors can only be funded by having a large financial resource.
Sources of terrorist financing
Unlike money laundering, where the source of funds are from illicit activities, terrorist financing can be derived from both legitimate or illegitimate sources. Funding from legitimate sources is not surprising. Evidence has shown that they could be financed by states, private actors, individuals and organisations, usually through donations and investments in legitimate businesses. The main reason why these group of people choose to fund terrorists is that these financers and the terrorists have a common cause to advance together.
However, due to recent global clampdown on terrorist financing, terrorists have turned to illegal sources of funding, by committing organised crimes such as arms trafficking, extortion, kidnapping, robbery, drug trafficking and many others.
Movement of terrorist funds
To distribute the funds, terrorists can tap into the financial system to move the funds. This is why financial institutions have controls and measures in place to monitor suspicious trends. Another traditional method is the physical movement of hard cash. Cash is attractive to terrorists because it is completely anonymous and is easy to convert into another resource. However, cash is bulky and harder to conceal, and this is one of the main reason why countries around the world are withdrawing high denominations cash notes from circulation.
Methods used to finance terrorism
The stages used in money laundering is as follows: placement, layering and integration. However, as we have established that funds can be from both legal and illegal sources, the methods used in money laundering cannot be applied directly to terrorist financing. Therefore, the methods used to finance terrorism should be classified into three ways:
- Organising fundraising for terrorist purposes
- Movings funds raised to terrorist headquarters
- Moving funds from terrorist headquarters to terrorist individuals
These 3 steps do not necessarily have to involve the stages of money laundering, however, it can be a part of this 3 steps terrorist financing process. Unlike money launderers, where criminals aim to legitimise their illicit funds, terrorists may have no concerns in not legitimising their illicit funds. In addition, the main purpose is to distribute funds to advance terrorist purposes, and not to accumulate funds.
Fight against terrorism
Finacial institutions and non-financial institutions have a screening process to filter suspicious activities in their accounts. In the case of Singapore’s central bank, Monetary Authority of Singapore (MAS), financial institutions are required to:
- Immediately freeze funds, other financial assets or economic resources of designated individuals and entities;
- Not enter into financial transactions or provide financial assistance or services in relation to (i) designated individuals, entities or items; or (ii) proliferation and nuclear, or other sanctioned activities; and
- Inform MAS of any fact or information relating to the funds, other financial assets or economic resources owned or controlled, directly or indirectly, by a designated individual or entity.