Money Laundering and Terrorist Financing
Introduction
Money laundering is now at the fore of policies for the maintenance of the stability of banking and financial systems as well as the detection and thwarting of terrorism. Focusing on money laundering has become important because of the adverse impacts of this crime to economies and governments as well as the established connection between money laundering and terrorism.
From an economic perspective, money laundering influences economies by affecting the 1) integrity and operations of the financial sector, 2) status of the real economy, and 3) dealings with external sectors. Money laundered enters economies in a similar manner as inward investments. However, unlike investments, dirty funds do not permeate into the economy because laundered funds depart swiftly as fast as these have arrived but leaving adverse impacts against on the economy.[1]
In the case of the financial sector, long-term viability depend on the attraction and retention of legal funds that could be used to finance investments and circulated in the economy in the form of loans and mortgaged as well as credit and debit services. This means that the money entering the company should be subject to investment and reinvestment on a long-term basis, which money laundered cannot provide because of the speed with which dirty money enters and exits the economy. It is not so much the sudden entry of loss of funds that causes an adverse effect to the economy but the implications of the introduction of dirty money to the financial sector. Money laundering carries the ability of eroding the integrity of financial systems by providing an impetus for the corruption of bank employees through bribery that in turn affects public perception of the reliability of the financial sector. This means that money laundering has the ability to create crimes within the financial sector through the corruption of bank employees and processes.[2]
With regard to the real economy, dirty money has an adverse effect by corrupting the financial sector, which is an important institution or mechanism for the management and allocation of funds to various economic activities as well as diverting funds to non-productive or counter-productive activities such as support for the continuance or continuation of new crimes. Laundered money usually becomes sterile investments spent for the purchase of luxury items that do not create necessarily support further growth such as when invested in legitimate economic activities. Although money enters the economy, it does not contribute to economic growth but disrupts legitimate investments by affecting the integrity and reliability perceptions of the financial sector.[3]
In relation to the external sector, money laundered can also adversely affect the balance of trade in economies through which dirty money passes. On the part of the economy from which dirty money came from, money laundered may be legitimate money used in crime and brought outside of the country. This means that the economy loses money similar to capital flight. On the part of economies receiving laundered money, the money entering the economy are used in purchasing luxury items usually as imports without benefiting the economy.[4]
From a political perspective, money laundering has the effect of undermining the confidence of the public towards laws and legal processes because of the inability to prevent the entry of dirty money as well as the commission of fraud by government officials and employees of the financial sector. Moreover, the failure governments to prevent the commission of further crimes such as fraud amounts to the placement of power and control to criminal organisations that could also influence the direction of government decisions in thwarting this crime.[5]
Due to the economic and political effects of money laundering that cuts across financial sectors, economies and governments together with its links to terrorism, concerted action against not only money laundering but also the links to other crimes became important policy considerations.
Definition of Money Laundering
Money laundering has a number of definitions. However, most states adhere to the conceptualisation provided by the Vienna Convention in 1988 and the Palermo Convention in 2000. Under the Vienna Convention, predicate offences were only limited to drug-related crimes so that other predicate crimes were not covered as sources of proceeds processed through money laundering. This created a loophole favourable to people engaged in the laundering of money from other sources apart from drug trafficking. With the recognition of this legal gap, the Palermo Convention expanded the predicate offences of money laundering to a wide range of crimes that could give rise to criminal proceeds subjected to laundering mechanisms. Moreover, the Financial Action Task Force (FATF) on Money Laundering, established as the body charged in establishing international standards for policies against money laundering, defines this mechanism as the process of handling proceeds from crimes to conceal its illicit origin to ensure the legitimisation of such criminal gains.[6]
Money laundering developed to refer to the conversion of money and other property, with the knowledge that these emerged from criminal actions and through direct or indirect participations of the perpetrators, in order to conceal the unlawful origin or to assist the perpetrators in disguising the illicit origin of money and other property as a means of evading legal consequences of such actions[7]. Money laundering also refers to the concealment of the actual nature, origin, location, allocation, movement and rights to property, with knowledge that such property came from illegal actions. In addition, money laundering involves the use, possession or receipt of property derived from crime or participation in illegal activities[8]. In this sense, laundering is a crime with a predicate offence, consisting of the criminal actions, such as drug trafficking or smuggling, which brought about the criminal proceeds or gains laundered[9].
Three Steps in Money Laundering
Placement
First phase involves the introduction of money derived from crime into banks and financial institutions by opening personal or company accounts through which large amounts of money are transferred and deposited. Since people engaging in money laundering are aware of the illegality of their actions, they devise various tactics in using financial institutions to provide afford dirty money with a semblance of legality. Tactics used include the breaking up of sizable amounts of money for deposit in many inconspicuous bank accounts, converting money by purchasing monetary instruments, changing the location of accounts, and manually shipping money across borders for deposit in foreign banks, and purchase of valuable goods for resale. This stage involves risks because banks and financial institutions have wide experience in various transactions so that large amounts of money are accorded with care and at the same time suspicion. Moreover, law enforcement authorities seek the cooperation of banks and financial institutions in tracking down the monetary proceeds of crime. Since bank standards involve detailed records of accounts and account activities, law enforcement authorities can easily track money from crime. In addition, banks and financial institution are compelled to report all suspicious transactions so that anything considered by experienced banks and financial institutions as suspicious undergo investigation regardless of the result.[10]
Layering
Second phase involves the placement of funds already infused into the legitimate financial system via a succession of financial processes intended to divert investigations towards other areas or parties instead of focusing on the source of the large amounts of money or lead investigations to conclude on the legitimacy of the account and monetary transactions. During this phase, common mechanisms in diverting or ensuring the legitimate perception of money involve the establishment of offshore accounts and the transfer of money to offshore accounts resulting to difficulties in tracking money suspected to have come from crime. Fund transfers are supported by the creation of false loans, invoices and other devices to support the withdrawal and deposit of money from one account to another as well as the use of the skills of legitimate accounting or auditing companies to establish legitimate transactions.[11] Without investigative links, local authorities may find it difficult to identify the destination or recipient of money transfers to offshore accounts outside of their jurisdiction.
Integration
Third and final phase of money laundering is the reintroduction of funds through legitimate economic activities. After ensuring the legitimate origin of funds, money is then appropriated through legitimate means in a number of ways. One way of reintroducing money from crime is through consumption, especially luxury or high-end items as a means of disposing the money by converting it into legitimately purchased valuables. Consumption allows members or recipients of crime to burn all funds, which are obtained illegally, and remove all semblance of illegitimacy. Another means of reintroducing laundered money is through investments in common assets such as purchasing company shares and engaging in real estate development projects. By converting money into different legitimate forms, proceeds from these activities can be allocated and utilised freely. Still another means of legitimising laundered money is engagement in investments with economic players with a similar high susceptibility to engage in money laundering mechanisms such as hotels, restaurants, cinemas, casinos, and other establishments receiving or paying money in cash making it easier to infuse dirty money. By engaging in fast-cash investments, money laundered can be easily merged with the flow of cash as well as hide the money laundering activity by averting or complicating investigations by hiding suspicious activity with another activity that could also be considered suspicious.[12] Reintroducing laundered money allows the criminals to engage in legitimate activities and freely allocate money, making money laundering realise its purpose.
Overlapping of Money Laundering and Terrorist Financing
Based on the nature and characteristics of money laundering, this constitutes a distinct activity from the financing of terrorism[13]. However, there are overlapping processes between money laundering and terrorism financing[14]. The funds arising from crimes apart from terrorism are laundered to achieve legitimacy to support free spending and appropriation while terrorist funding are laundered to hide the legal origins of the funds such as from public coffers and charitable institutions[15]. This means that money laundering is used as a mechanism for different purposes but nonetheless find great utility for money laundering mechanisms. Moreover, perhaps the only characteristic shared by money laundering and terrorism is the fact that both crimes engage in the financial transactions to conceal the actual source and intentions of funds[16]. People engaged in money laundering and terrorism take common interest in the concealing the illegal source and illegal use of funds to achieve a semblance of legitimacy to enable free spending and use of funds.
Apart from the use of terrorist groups of money laundering as a channel for appropriating funds from legitimate sources to finance terrorist activities, laundered funds from crime could also be appropriated to terrorism. Objective alliances could develop between parties involved in crimes and groups engaged in terrorist activities, based on convergent interests. Criminals engaging in money laundering can benefit from the directed or targeted damage that terrorist organisations are capable of executing. Criminals can use the arms and training of terrorists to execute killings or destruction that would eventually serve their interests such as the creation of diversions to allow them freedom to operate. Terrorist groups can benefit from becoming recipients of money laundered by criminals by obtaining the funds necessary in fulfilling planned terrorist activities.[17]
The interest of terrorist activities in money laundering is supported by the parallelisms in the geographies of terrorist movements and money laundering of criminals, especially drug trafficking. Money laundering and terrorist funding in Africa are centred on the areas engaged in mining and smuggling of diamonds and other precious stones. Al-Qaeda’s operation in Afghanistan has strong links to the illegal opium trade in the area. The ideology of some terrorist groups can also become a front for the operation of crimes in the same way that money laundering by criminals can support terrorist activities.[18]
Money laundering emerged to describe the processes that criminals go through to legitimise dirty money. This developed to encompass the means through which terrorist financing sources are hidden or through which links of funds sourced from crime are obscured. Regardless of the purpose or utility and source of the funds of different terrorist groups, it is clear that terrorist financing go through money laundering mechanisms as a means of obtaining funds from crime or obscuring funds from legitimate sources.
Methods of Money Laundering
Banking
Banks constitute the first venue targeted by people engaging in money laundering. Since the deposit and transfer of large sums of money draws suspicion, alternative ways of exploiting banking institutions have developed such as using nominees, correspondent banks, and private banks. Nominees are people in good standing in the community so that depositing dirty money under their names allays suspicion by law enforcement authorities. Nominees could be relatives, friends, partners or other people that criminals can use as fronts in placing dirty money in banks for easy transfer and use. Correspondent banking constitutes the arrangement or agreement for one bank to provide services to another bank for fund transfers, currency exchange or other transactions. Money launderers exploit correspondent banks with poor regulation or corrupt systems to transfer funds from one bank to another without the receiving bank knowing the nature of the funds to make the funds achieve legitimacy. Private banking involves customised services to wealthy clients of banks encompassing various financial services such as fund transfers and investments. Due to the personalised nature of private banking services, these become vulnerable to money laundering for a number of reasons. Private banking involves the development of fiduciary relations by bank employees with clients to ensure better service but this could also open opportunities for bribery and corruption of bank employees by money launderers. Private banking consumers are mostly wealthy individuals with political power or connections so that banks no longer inquire into the sources of funds or purpose of money transfers in order to serve the convenience of clients. Private banking could also involve transactions requiring the protection of the identity of clients so that it is common practice for banks to establish shell companies or trusts to protect the identity of their clients. However, situations like this could be exploited to provide legitimate fronts for dirty money as well as provide walls for the investigation of accounts using privacy regulations and other legitimate means.
Apart from these banking processes, one mode of banking has also been observed to be vulnerable to money laundering. Credit cards could also be exploited by money launderers because of the difficulty in using large amounts of cash for transactions. Credit cards can be used in laundering money by overpaying credit in order to maintain a high amount of balance. Credit cards can then be used in different countries for various purchases. In jurisdictions having poor banking regulations, money launderers can apply for credit accounts in different banks and under different names to spread dirty money and then use the accounts to make purchases or withdrawals that make it difficult to trace the people actually using the credit cards. Credit cards are also easier to obtain when compared to opening of accounts for international transfers and less susceptible to investigations.
Exchange Offices
The nature of exchange offices of providing a wide range of services to different customers could also be exploited as a means of laundering money. Exchange offices provide services such as purchasing and selling foreign currencies or the consolidation of a number of small-denomination bank notes to large-denomination bank notes, encashment of financial instruments such as personal checks, travellers checks and money orders, and offering of wire transfers for cash pick-up or bank deposits. Since exchange offices offer services to a wide range of people for various transactions, this creates impersonal relations between exchange offices and clients with some offices not having organised records for previous clients served. As such, exchange offices can be a means through which money launderers can evade detection. In countries with relaxed regulations, exchange offices have the propensity to be exploited by money launders by using wire service to send cash or converting financial instruments to clean cash.
Securities Market
Securities market deals with the trading of securities, specifically stocks and bonds through brokers. Clients interested in purchasing stocks and bonds engage the services of brokers to represent them in their purchases and watch over the rise and fall of prices during trading periods. As an incentive for brokers to secure the interests of their clients in terms of the right time for purchasing and selling stocks and bonds, the arrangement works through a commission basis so that the bigger earnings accruing to the client also entails a bigger commission for the broker. Competition is also strong and often harsh among broker companies and brokers so that the stringent competition as well as high stakes and returns could motivate brokers to collude with clients and companies in manipulating stock exchange processes to ensure returns for their clients. Expectations of high returns could be exploited by money launderers in infusing dirty money in the securities market, to achieve the purpose of legitimising dirty money while at the same time earning from the activity. Identity of money launderers can also be protected by using nominees and trusts as fronts. Moreover, relaxed regulations of brokerage firms result to the concurrent relaxed investigations of the background of their clients and the source of funds making it easy to infuse dirty money into the stock exchange system.
Legitimate Businesses
Money launderers can establish legitimate business firms by using nominees as fronts using dirty money as capital and using dummies to own, manage and infuse dirty money into the legitimate economy. Great pains are taken to conceal ties of the company with criminals or money launderers so that the company operates much like a normal company duly registered, paying taxes, engaged in legal business activities. Another way of acquiring the use of legitimate businesses is through the stock exchange since the buyers of stocks are not usually divulged; any person with money can buy the stocks of corporations and even gain control of decision-making. By using dirty money to purchase stocks in exchange for future dividends dirty money is legitimised since dividends are traceable to legitimate sources so that this can be appropriated legitimately in the market. Moreover, the company can be used to invest and transfer funds to any place around the world using valid business purposes. Another way of using legitimate business firms is through the mergers with and acquisitions of legitimate businesses using dirty money as payment or capital infusion. This provides money launderers with a means of transferring funds through banks or converting dirty money into legitimate company revenue and profit. In addition, money launderers usually engage in cash-based businesses that speedily spread dirty money such as casinos, restaurants, bars and clubs, hotels, and retail chains. Legitimate business firms become fronts for money laundering with launderers mixing dirty with clean money and receiving clean money in exchange to make it difficult for investigators to separate dirty from clean money or trace the appropriation of dirty money.
Definition of Terrorist Financing
To facilitate the development of policies and solutions to money laundering by terrorists, terrorist financing has been provided a working definition by the International Convention for the Suppression of the Financing of Terrorism in 1999. Terrorist financing is a criminal action committed by any individual that use various means, whether the participation is direct or indirect or the action has been willingly or forcefully committed, knowingly collects or provides monetary support for use fully or partially to commit the following actions: a) actions falling under the offences identified and described in treaties; and b) actions intended to result to serious physical injuries or death to civilians or other individuals not part of armed hostilities, intimidate populations, or compel governments and international organisations to commit or abstain from committing certain actions.[19] This law also provides that it is not necessary for the intended actions to have actually taken place in order to constitute a crime. It is sufficient that money has been allocated for these purposes.
This constitutes the commonly accepted definition of terrorist financing for purposes of policy determination and legal actions. The more difficult aspect is defining terrorism and terrorist actions. Although many countries have adopted the international convention, not all states agree on a clear and workable definition of terrorism. Some countries consider revolutionary groups as terrorists while others consider political movements as not terrorists. This creates a problem in the implementation of law, especially for offshore accounts when one jurisdiction considers an account as money laundering for terrorist financing while in other jurisdiction this may be considered as money laundering or maybe classified as not constitutive of crime.
Sources of Terrorist Financing
Crime has become a more important aspect of the sub-economy of terrorists. The economic activities of different terrorist groups depend upon the objectives of the terrorist organisation. Drug trafficking constitute the greatest source of financing for terrorist groups. Other important sources of funding for terrorist groups include racketeering or the forceful collection of payments from households or businesses, kidnapping for ransom collection, goods or human trafficking, as well as the distinct activity of arms trafficking that involves not only the purchase and sale of arms and equipment to gain money and for their use.[20] Since criminal activities have become a primary source of funding for criminal activities, this indicates the development of a stronger link between crime funds and terrorist financing through money laundering.
Previously, terrorist financing used to come from governments. During the cold war, regional conflicts occurred because of bloc alignments so that terrorist groups were bent on destabilising the other bloc in different geographic regions. As such, governments became the source of funds because the conflicts were embedded with political interests. With the ending of the cold war, government financing have been minimised. A number of isolated states maintain the provision of armed groups with financing, training and weapons but the other terrorist organisations needed to seek alternative sources of financing.[21]
Initial alternative means of funding terrorist actions included maximisation of diasporic ties to have a source of financing. Terrorist groups draw funds from nationals living abroad with a good or excellent source of income. Individuals and business in industrial countries could be a source of funds of terrorist groups. Charitable institutions play a key role in channelling money from the diaspora to terrorist groups due to its key characteristics. Charitable institutions carry the legitimacy to collect funds and send them to different countries around the world in the guise of social welfare programs. In addition, charitable institutions have the ability to mingle funds obtained from legitimate sources, whether these were exacted voluntarily or forcefully and government funds with money from criminal activities through a legitimate façade.[22] When these forms of mergers happen, investigators find it difficult to distinguish between clean and dirty money or the source and recipient of dirty money.
Methods of Laundering Terrorist Funds
It was only in the last decade that terrorism has been considered as an important predicate crime for money laundering. This recognition was spurred by the internationalisation of the operations of terrorist groups such as Al-Qaeda that led to the September 11 attacks on the key facilities in the United States. This scale of operation implied the collection and use of large amounts of money that could only be transferred through money laundering.
Laundering of terrorist funds occur in the same manner as the laundering of money from crime but with differences since the purpose of terrorist groups is both to obscure the legitimate sources of funds as well as to legitimise money derived from crimes. The stage process of money laundering applies, with terrorist groups infusing money into the banking and finance system, which is easily done with legitimate sources, obscuring or legitimising the source of the money by converting or transferring the funds, and reintroducing funds into the legal economic sector through purchases of weapons and equipment in a legitimate manner.
Laundering of terrorist funds can happen in any country but countries with intricate financial systems are preferred since investigations are more difficult to conduct making it more difficult from law enforcement to track funds suspected as dirty money or money intended to support terrorist groups. Moreover, countries with relaxed regulations or easily corruptible systems also constitute preferred venues for money laundering since money can draw the cooperation of bank employees to help in obscuring or legitimising fund sources. The system also makes it easy for terrorist groups or fund sources to use the banking and finance system to transfer funds to dummy individuals or corporations of terrorist groups. In addition, terrorist groups also perform the different phases of money laundering in different countries and banking institutions.[23]
Banking
Terrorists also employ different modes of laundering money such as opening many cash deposits named after different people since large amounts raise suspicion. Funds are transferred to unremarkable accounts of individuals and legitimate businesses to prevent detection. The purpose of using banks is to conceal the source of funds whether these came from legitimate or illegitimate sources while at the same time achieving legitimacy for the money laundered. In the case of terrorism, funds or costs of terrorist activities are not necessarily large so that money can pass through banks and other financial institutions inconspicuously. During the 9/11 terrorist attacks in the US, the estimated cost of the operations ranged between 400,000 to 500,000 US dollars[24], an amount, which when divided into small amounts and sent through banking institutions did not warrant close scrutiny. The Madrid bombing in 2004 was estimated to cost only 10,000 US dollars[25], which means that unlike common money laundering, terrorist financing does not necessarily involve large amounts. This results to the greater difficulty in detecting the flow of funds to terrorism and the ease for terrorists and fund sources to exploit the loopholes in the banking system to conceal the source and purpose of funds.
Alternative Remittance and Wire Transfer Systems
Similar to money laundering, the movement of terrorist funding could also happen through alternative fund transfer systems using exchange offices or money transfer services apart from banks. In completing transactions, alternative money transfer systems seek the identification of the sender and details of the recipient without necessarily investigating the sources of funds or the purpose of the transfer. Unless the money transferred constitutes large amounts, alternative money transfer systems usually do not become suspicious of transactions so that terrorists and their financers divide the money using many senders and recipients. However, even if alternative wire transfer services require identification, these usually do not have the database to check whether the identification and the information contained in the identification match. Terrorists can easily use counterfeit identification cards to send highly untraceable money.
Non-Profit Organisations
Since terrorism could have ideological underpinnings, it is probable for terrorist groups to have links with legitimate non-government organisations espousing similar advocacies to the terrorist groups. Alliances of this kind allow terrorist groups another venue of financing its activities in the form of charitable donations and project funding to justify the transfer of funds. In this way, the reverse occurs since the source of the funds is legitimate and what is being concealed is the recipient and actual purpose of the funds by using valid donation recipients such as community groups or other non-government organisations serving as fronts for terrorists. This makes it difficult for law enforcement authorities to trace the flow of funds and this is made more difficult due to the lack of consistency in the black listed non-governments of the US and the UN. This means that non-government organisations blacklisted in the US but not in the UN can engage in laundering of terrorist financing in other jurisdictions[26].
Alliances with Criminal Activities
Terrorist activities have links with criminal activities such as smuggling and narcotics trade since as mentioned earlier there is a similarity in the geographical routes of these crimes and terrorism. Cash couriers used in smuggling are also used in manually carrying funds from one location to another. Terrorists can even obtain the aid of smugglers to move terrorist financing across different countries. Financing of the bombing of the Australian embassy located in Jakarta has been traced to be sent using cash couriers[27]. Narcotics trade could also be used as source of funds and to support the movement of terrorist funding. Terrorists with arms could offer protection to drug traffickers in exchange for funds or to carry terrorist funds from one country to another.
Launderers are increasingly becoming creative since they also have knowledge of developments in anti-money laundering efforts. This means that money launderers are innovating on their methods and developing new means of laundering funds at the same or even faster rate that policy makers develop anti-money laundering guides and law enforcement in applying anti-money laundering laws and policies.
Laundering of Terrorism Funds as a Global Policy & Legal Problem
Money laundering of terrorist financing constitutes a global problem because of the value of money laundered, amounting to ,000 to ,500 billion[28], with an unknown amount reaching terrorist groups. Apart from the amount of money laundered, conservative estimates of money going through the informal international sector around 0 to 0 billion[29], which criminals and terrorist likely share. The sheer value of money that could be allocated to terrorism constitutes a huge threat to governments.
Apart from the value of money laundered that could go to terrorist groups, laundering for terrorist financing is directed towards the maintenance of secrecy, making it difficult to collect the data necessary for statistical analysis. People or groups engaged in laundering do not keep written records of their transactions make public the proceeds of their finance generating activities, source or origin of their proceeds, and recipients or allocation of the money laundered. High levels of secrecy makes it easy for terrorist groups to launder or receive laundered money and difficult for law enforcement authorities to track.
Global occurrence of money laundering makes it difficult to solve by single governments alone so that cooperative investigations and actions are necessary to ensure the continuity of the tracking of funds passing through the different financial channels in different jurisdictions. Criminals and terrorist groups exploit inconsistencies in money laundering policies of different jurisdictions to sidetrack investigations.[30]
International Efforts against Terrorist Financing
The international fight against terrorism finds bases on international law together with the adoption and application of states of these laws. Convention for the Suppression of the Financing of Terrorism introduced in 1999 to become effective in 2002, constituted the first international legislations that directly focused on terrorist financing. The convention provided a broad definition of terrorist financing as the provision or collection of funds with the intention of supporting the actualisation of terrorist actions. Due to the broad definition, funds can constitute any form and emanate from any source. Through this definition, terrorist financing extended beyond the act of money laundering since it also covered the source or contributors of the funds, regardless of the legality of the source, and other accomplices that made the laundering of money for terrorist activities possible. Moreover, criminal liability accrues even if the terrorist activity has not actually been implemented so that as long as funds were intended for terrorist groups, people involved are criminally liable. The convention also contributed a definition of terrorist actions, which was an issue in the previous international legislations, as any action intended to cause serious physical harm or death to civilians or parties not involved in an ongoing conflict when the purpose of the act is to intimidate the public or intimidate governments to do or not to do certain actions. This definition allowed terrorism and terrorist financing to achieve a distinction from money laundering by criminals, which is necessary in the development of specific protocols for terrorism and terrorist financing. Other importance feature of this convention is the provision of common strategies that participating states can enforce to foster cooperation. Moreover, the convention also targeted offshore financing, by drawing focus on shell or front companies with suspicious dealings, management groups authorising irregular transactions, and auditing, reporting or publication of annual accounts of companies under suspicion. To ensure implementation, the convention also enjoins bank officials to make the additional effort of verifying information by asking the client or account holder to produce documents or checking company registrations and other public documents to prove the legitimacy of accounts and transactions.[31] This means that even with the recognition of the impact of terrorism, there is still wide room for cooperation.
In support of these international laws, the Financial Action Task Force (FATF) has introduced forty recommendations on ways of addressing money laundering. The G7 Summit established the FATF in 1989 to provide policies on money laundering. The recommendations revolved around three objectives including: 1) improvements in national systems in combating money laundering through the criminalisation of money laundering and enforcement of confiscation procedures; 2) strengthening the role of banking and finance systems in reporting and supporting investigations on suspect accounts and account holders; and 3) strengthening of multi-level international cooperation for information sharing, investigations, seizures and extraditions. These recommendations underwent successive revisions to consider changes in the global environment. As such, after 2001, eight recommendations were included to make implementation of anti-money laundering and terrorist financing more effective.
First recommendation is action on the part of governments to ratify the Convention for the Suppression of the Financing of Terrorism and comply with the provision of the UN Security Council Resolution 1373 in 2001 that prohibits the financing of terrorist actions. It is only through international cooperation that terrorist financing that occurs across different jurisdictions can be monitored, curtailed and even prevented. Second recommendation is legislative action in criminalising terrorism and judicial action in prosecuting terrorist groups in order to provide more stringent penalties to people found to be engaged in terrorist financing and terrorism. Third recommendation is for governments to seize or take custody of assets and funds of terrorist groups since funding is the greatest weakness of terrorists. Fourth recommendation is mandating banks and financial institutions to report and assist in the investigation of terrorist financing activities by law enforcement developing close partnerships with banks. Fifth recommendation is for governments to provide international cooperation or assistance in investigating and apprehending terrorist groups and financers together with government and bank officials involved in terrorist financing. Sixth recommendation is ensuring that states do not knowing or unknowingly become hosts to terrorist groups by governments enforcing means of monitoring the entry of suspicious individuals or the movement of groups inside their jurisdictions. Seventh recommendation is implementing sound monitoring and regulatory measures for large monetary transactions in order to provide banks with policy support in dealing with money laundering and terrorist financing. Eighth recommendation is the identification and monitoring of non-government and charitable institutions for use as intermediaries or sources of terrorist financing.[32]
Conclusion
There remains a wide room for development in laws against money laundering and terrorist financing, especially since terrorism has adopted the electronic channels that no longer required a face in opening accounts or transferring funds. The electronic or digital age has opened crime opportunities for terrorist groups. Websites can be used not only to indoctrinate viewers to empathise with terrorist groups but these channels can also be used in soliciting funds and other equipment they need in actualising terrorist activities.
In the case of international law, stronger advocacies are needed for more countries to ratify the Convention for the Suppression of the Financing of Terrorism in order to ensure the cooperation of more states that would result in continuous investigations to support arrests and seizures. Finance remains a weakness of terrorist groups and strengthening anti-money laundering and terrorist financing would weaken the capability of terrorist groups to perpetrate another September 11 or subway bombings.
In addition, the differences between and money laundering and terrorist financing involves an understanding of the legal and policy needs to effect activities against these crimes. One difference that merits varied attention is the role of banks and financial institutions in money laundering and terrorist financing since governments cannot rely on the banking sector for the identification of terrorist financing transactions because unlike money laundering the amounts transferred or moved does not necessarily involve large amounts to warrant suspicion. Another difference is the investigation of terrorist financing since unlike money laundering, the source of funds could be entirely legitimate so that there is need to determine the alliances of non-government organisations involved in crimes.
Since the strategies applied in money laundering and terrorist funding continue to evolve as criminals and terrorists find more loopholes in the legal system, the more important it becomes for governments and private institutions to engage in partnerships and concerted actions to support cross-national investigating and monitoring. This is especially so since criminals and terrorists are exploiting legitimate means such as nominees, legitimate businesses, and inconspicuous transactions to conceal the source and purpose of the transfer or movement of funds.
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