D2.2: Set of use cases and scenarios

Title: TERRORIST FINANCING: DEFINITION AND METHODS

Terrorist financing: definition and methods

Terrorist financing refers to the processing of funds to sponsor or facilitate terrorist activity. 

A terrorist group, like any other criminal organization, builds and maintains an infrastructure to facilitate the development of sources of funding, to channel those funds to the providers of materials and or services to the organization, and, possibly, to launder the funds used in financing the terrorist activity or resulting from that same activity. 

Terrorist organizations derive income from a variety of sources, often combining both lawful and unlawful funding, and where the agents involved do not always know the illegitimate end of that income. The forms of financing can be grouped in two types: 

1. Financial support – In the form of donations, community solicitation and other fundraising initiatives. Financial support may come from states and large organizations, or from individuals.

2. Revenue generating activities - Income is often derived from criminal activities such as kidnapping, extortion, smuggling or fraud. Income may also be derived from legitimate economic activities such as diamond trading or real estate investment.

The terrorist financer will want to disguise the illegal end of the funds, while trying to maximize the revenues for the organization sponsored. It may be necessary to disguise the source of the funds, as well, either because such funds have an illegal origin, or because the organization wants to preserve the continuity of the legitimate financing. The need to camouflage the source of the funds means that terrorist financing has certain similarities with traditional money laundering, namely the use of three stages to place, layer and integrate the funds in the international financial system.

There is a crucial difference between traditional money laundering and terrorist financing, however. The monitoring of financial transactions in traditional money laundering, from a financial investigator point of view, is done in order to link the funds to a criminal act that has taken place already and to strip the criminal and any accomplices from the economic benefits of engaging in criminal behaviour. In terrorist financing, however, the investigation is done in order to prevent individuals to gain access to funds that could finance future criminal activity and, therefore, it is done in order to prevent a crime from happening. The monitoring of financial transactions with the purpose of identifying terrorist financers, therefore, must take into account the intentions of those engaging in the financial transactions observed.