Examining the practical viability of internationally recognised standards in preventing the movement of money for the purposes of terrorism. A crime script approach

Author:Nicholas Gilmour, Tristram Hicks, Simon Dilloway
Position:Centre for Defence and Security Studies, New Zealand Police, Wellington, New Zealand
Pages:260-276
SUMMARY

Purpose The purpose of this paper is to examine - using crime script analysis - the practical effectiveness of internationally endorsed and universally recognised counter-terrorism financing (CTF) standards in preventing the movement of money for the purposes of terrorism. The paper does not seek to examine the originating circumstances of terrorist finances or how laundered value is assigned. Design/methodology/approach Preliminary evaluation focuses on the discrepancies between the practices of money... (see full summary)

 
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Examining the practical viability
of internationally recognised
standards in preventing the
movement of money for the
purposes of terrorism
A crime script approach
Nicholas Gilmour
Centre for Defence and Security Studies, New Zealand Police,
Wellington, New Zealand
Tristram Hicks
AML Consulting (Global) Ltd., London, UK, and
Simon Dilloway
Lopham Consultancy, South Lopham, UK
Abstract
Purpose The purpose of this paper is to examine – using crime script analysis – the practical effectiveness
of internationally endorsed and universally recognised counter-terrorism nancing (CTF) standards in
preventing the movement of money for the purposes of terrorism. The paper does not seek to examine the
originating circumstances of terrorist nances or how laundered value is assigned.
Design/methodology/approach Preliminary evaluation focuses on the discrepancies between the
practices of money laundering and terrorist nancing. Following an introduction to crime scripts,
internationally endorsed anti money laundering (AML)/CTF practices are discussed to identify the process
used to trace, prevent and limit money laundering and terrorist nancing. Several terrorist nancing case
studies are then aligned to the process of crime script analysis to determine whether existing AML/CTF
practices are effective in preventing terrorist nancing.
Findings The AML model “Placement, layering, integration” is only relevant to CTF in the comparatively
rare cases when the origin of the money is crime. This creates a false sense of security through over reliance
on AML/CTF for CTF purposes. A crime script approach can be applied to terrorist nance, but it is currently
hindered by insufcient reporting of low level nancing of terrorists, their addresses and associates. Law
enforcement make insufcient use of nancial intelligence – as a routine practice – in their crime and terrorist
investigations; they have not adopted parallel investigation as a routine approach and consequently remain
largely unconnected with the AML/CTF regime.
Practical implications Utilising terrorist nancing case studies, this paper identies that existing
AML/CTF international standards and practices are not adequate for controlling the movement of funds for
nancing terrorism because of the lack of focus on a specic script that aligns to known terrorist nance
methodologies. While the paper identies that existing AML/CTF international standards are thorough, the
process underpinning the nancing of terrorism is too dissimilar to the process of money laundering, namely,
placement, layering, and integration, to support practices associated with terrorism prevention and detection.
Originality/value This paper provides an examination of the practicalities behind the countering of
terrorist nancing from a compliance and investigative perspective. The paper is of interest to those involved
in policy, compliance and investigations associated with terrorist nancing.
Keywords AML, FATF, Money laundering, Terrorist nancing, Compliance sector
Paper type Research paper
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1359-0790.htm
JFC
24,2
260
Journalof Financial Crime
Vol.24 No. 2, 2017
pp.260-276
©Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-04-2016-0027
Introduction
Although interest has existed for many years, attention – namely, following the events of
9/11 and a growth trend in terrorism studies – has focused reection on the wider practices
surrounding the nancing of terrorism. Likewise, interest has developed in this area of study,
thanks to increased levels of risk closely associated with the almost indistinguishable
methods in which routine nancial activities appear to support the funding of terrorism. The
use of legitimate and “semi-legal” activities (Europol, 2014) now equally reects the apparent
size and scope of terrorist activities existing in the globalised world. As coverage has
recently indicated, the Islamic State of Iraq and the Levant (ISIL) phenomenon presents a
new type of terrorist organisation, one that involves a series of unique funding streams that
are crucial to its activities (FATF, 2015). Nevertheless, despite the uncertain nexus between
organised crime and terrorism (Brzoska, 2009), a combined approach to counter-terrorism
nancing (CTF) and anti money laundering (AML) has continued to evolve, slowly
thwarting what now appears to be a pragmatic and successful series of different approaches
to preventing and detecting terrorist nancing.
Subsequent to the events of 9/11, eight (later nine) “special recommendations” against
terrorist nancing were added to the existing AML mandate of the Financial Action Task
Force (FATF). In 2012, these 40 original recommendations 9 “special recommendations”
were consolidated to provide a comprehensive approach to AML and CTF – the now widely
recognised FATF 40 recommendations. Acknowledged as the global benchmark and
standard for the countering of money laundering and terrorist nancing, the FATF
recommendations integrate existing UN counter-terrorist nancing measures, including UN
Security Council resolutions 1373 and 1624, and resolutions 2178 and 2195. By implementing
targeted nancial sanctions programmes, protecting vulnerable sectors, including the
charitable sector and money-service businesses, and encouraging effective reporting of
suspicious activity, the FATF recommendations build effortlessly upon existing money
laundering practices driven previously by criminal and non-terrorist activities. At the centre
of the focus to tackle terrorist nancing, FATF created four recommendations directly
associated with terrorist nancing and the nancing of proliferation. These are:
(1) Rec 5 – Terrorist nancing offence;
(2) Rec 6 – Targeted nancial sanctions related terrorism & terrorist nancing;
(3) Rec 7 – Targeted nancial sanctions related to proliferation; and
(4) Rec 8 – Non-prot organisations.
What these recommendations indicate is that to detect terrorist involvement in
otherwise legitimate nancial activities, nancial institutions must ensure strong
application of the “know your customer” (KYC) principle and of customer due diligence
policies and procedures. A fundamental expectation therefore exists in the reporting of
suspicious transactions that may indicate criminal activity supporting terrorism. While
national competent authorities have identied patterns or indicators for money
laundering – outlined as money laundering typologies – there is still little in the way of
known patterns of terrorism nancing that nancial institutions, in particular, can use.
Figure 1 illustrates the existing misalignment of money laundering and terrorist
nancing. It indicates how terrorist nancing can circumvent many of the existing
money laundering practices that have for a long time been the focus of FATF
recommendations and driver of KYC standards.
Despite FATF having made a concerted effort to CTF, the issues surrounding the growth
and damage caused by groups such as ISIL have initiated separate – more focused – efforts.
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Movement of
money

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