The job of keeping track of the flow of money that is being used to finance terrorist groups is highly 'resource intensive' and difficult to achieve. John Byrne, a former director of the American Bankers' Association and now a leading light of ACAMS, shares his insights with us in the first of a two-part article.

An ever-growing problem, terrorist finance is the source of much unease within the AML community. This view was reinforced in the findings of a recent snapshot poll undertaken across 1,500 members of ACAMS, the Association of Certified Anti-Money Laundering Specialists, at its most recent conference in the United States.

Limited knowledge

ACAMS’s poll said that 63% of compliance officers or money-laundering reporting officers do not believe current AML controls are suited to identifying the financing of terrorism, demonstrating a high level of perceived risk. A further 58% said they had limited knowledge of terrorist financing trends and typologies, with the latter being a particularly important element of an institution’s toolkit that governments need to provide in order to detect inappropriate activity. This article will attempt to address this latter shortcoming, with a detailed insight, gleaned from several of our CTF experts, into the source of terrorist fighter funds. In addition, it provides known typologies of terrorist financing models, to further enable institutions in their ongoing attempts to address this major challenge.

Terrorism is an ancient practice and has always had a financial component. As an issue facing the financial community, terrorist financing itself is not new and has long been a concern. For example, in the 1970s the British authorities made a sustained effort to cut off IRA funding, while in the 1990s, financial institutions were concerned with the conflicts in Bosnia and Afghanistan. Today, however, countries and the global financial system that ties them together face unique challenges as a result of crisis in the Middle East and the rise of ISIS (Islamic State of Iraq and Syria, sometimes called the Islamic State of Iraq and the Levant) and other extremist groups.

Why things are different now

One factor that distinguishes earlier terrorist financing practices from those of today is the extent to which grass-roots financing by private donors from all over the world has to be countered. Social media and Internet banking has played an important part in facilitating the growth of ISIS into what is deemed the best organized and most globally active terrorist group ever seen, which is correspondingly far better financed than any other earlier terrorist operation.

ISIS is reported to have amassed over $2 billion in funds and is financed in a variety of ways that allow it access to vast amounts of money as an occupier of land rich in oil fields and agricultural wealth. It identifies itself as the legitimate government of the land it occupies, trying to restore the caliphate that was undone by the French and British in the Skyes-Picot agreement of 1916, but which actually ended centuries before in the break between Shia and Sunni. As such, ISIS “taxes” or extorts money from occupied populations and detains and ransoms whom it sees fit. Although it spends many of its resources on arms and fighting it also seeks to promote its vision of the caliphate by providing services to the faithful under its rule. When it loses territory or lacks the stability to sell oil, its huge financial obligations are hard to meet.

ISIS and its funding

As a global organization, ISIS’s financing is particularly large-scale and complicated. This is also one of its weaknesses, because such a large entity burns cash at a tremendous rate and requires vast sums to sustain its operations. The sheer scale of finance it requires day in, day out might ultimately help financial institutions to stunt its growth by developing a detailed understanding of the financing patterns on which it relies.

ISIS earns revenue from a number of sources. These include bank-looting, extortion, the control of oil fields and refineries, the theft of economic assets and the 'taxation' of people inside the territories it occupies. It also benefits from ransom money through kidnapping and from donations, either from not-for-profit organizations or from individual support.

The most valuable of these in terms of overall receipts is oil, obtained from sources within occupied territories and sold on, usually for cash, through a complex black market. This is closely followed by extortion, tax and ransom payments. Donated funds tend to be channelled towards foreign terrorist fighters, who obtain funding from social media appeals to individual donors or who use crowd-sourced models. The sums from these donations are small but, when added together, are quite effective and enable ISIS to sustain much of its grass-roots combat activity. They are also much harder to detect without a detailed understanding of terrorist finance.

FTFs

Before going into case studies in detail, it is worth defining the phrase 'foreign terrorist fighter' (FTFs) and looking at how these people operate. These are predominantly males aged between 18 and 35 years old who may be Muslim converts and who use both Arabic and Western 'monikers' interchangeably. They are frequently well educated and very active on social media. They typically conduct single-entity financial transactions, often using members of their families. As mentioned already, FTFs are commonly financed through smaller donations made through social media and they may also support themselves by working, claiming social benefits or obtaining loans on which they subsequently default. They travel to and from the primary conflict regions in Syria or Iraq, frequently entering via porous borders from such countries as Turkey, Jordan and, increasingly, Yemen and Libya. A thorough understanding of the terrain of conflict regions and newly occupied areas is essential to anyone who is trying to monitor the movement of terrorist finance and detect types of funding.

* In our second instalment, we look at some case studies and come up with 10 tips to help us control terrorist finance through FTFs. John Byrne is the executive vice president of ACAMS, the Association of Certified Anti-Money Laundering Professionals, which is holding a conference in London this week.