CFT COMPLIANCE INFORMATION

The following article provides an overview of legislation aimed at countering the financing of terrorism (CFT laws), and includes region-specific examples of CFT compliance legislation in the UK, USA and Europe.

Following the 9/11 terrorist attacks in New York and Washington, national and international compliance and regulatory frameworks rapidly expanded to include countering the financing of terrorism (CFT) as a central focus. Although terrorist attacks can be carried out with relatively small amounts of money, developing and maintaining terrorist support infrastructures for travel, safe houses and training can add up to substantial sums.

Targeting the financing structures of these terrorist networks – business and charitable fronts, states providing sanctuary and security, financiers and financial facilitators, and even transnational criminals such as arms dealers – has proven effective. Taking aim at these support networks significantly downgrades terrorists’ capacity for perpetrating attacks by compelling terrorist enablers to refuse assistance to stateless agents of radicalism and terror.

Within this context, national governments and international governing bodies and institutions around the world have implemented CFT legislation, and instituted regulatory initiatives to prevent terrorists and their supporters from exploiting banking and financial systems. These legal and regulatory measures have created many new compliance requirements for countless economic sectors. As such, it is necessary for financial and business professionals to be aware of CFT compliance requirements in general, and of industry-specific CFT regulations, in particular.

How is terrorist financing related to money laundering?

People launder money to hide the source of funds, which enables them to successfully use those funds in the legitimate economy. The aim of terrorist financing, however, is to ensure funding for terrorism-related activities. Whereas laundered funds always have illicit sources (otherwise there would be no need to launder the money), money used to finance terrorism can come from both legitimate and illegitimate sources. Indeed, the financing of terrorism is intended to camouflage the destination of funds and the nature of the activities being funded; whilst the process of laundering money is concerned chiefly with blurring the origins of the funds.

Examples of CFT legislation

Given the large number of legislative changes implemented over a relatively short period, CFT compliance now features a range of new requirements and features. The following list contains examples of CFT-relevant legislation, and in no way is intended to be a comprehensive list.

UNSC Resolution 1373 (2001)

UNSC Resolution 1373 was established in the wake of the 9/11 attacks against the United States, and it is particularly important because it has been adopted, either in whole or in part, by numerous UN member states. It calls upon all nations to “prevent and suppress the financing of terrorist acts”, criminalise terrorist fundraising, to freeze terrorist funds, and to prohibit terrorists from gaining access to the world’s financial systems. Other UNSC resolutions impact CFT compliance and legislation, including UNSC Resolution 1267 (1999), which sanctioned and demanded the freezing of Taliban and Al-Qaida-controlled funds, and UNSC Resolution 1566 (2004), which updated the UN’s definition of terrorism.

The UK Terrorism Act

The UK enacted the Terrorism Act of 2000 as “the primary piece of counterterrorism legislation”, according to the UK Home Office. Created in response to the increasing internationalisation of terror, the Act broadened the scope of UK anti-terrorism legislation that had been more narrowly focused on Northern Ireland.

Three key elements of the Terrorism Act of 2000 include: • Proscription of 46 international terrorist organisations in addition to the 14 pertaining to Northern Ireland • Enhancement of the police’s investigatory powers • Criminalisation of terrorism-related offenses such as the incitement of terrorist acts.

Several years later, the implementation of the Terrorism Act of 2006 aimed to provide law enforcement departments, intelligence agencies and courts with the necessary tools to combat terrorism. The law also broadened the scope of criminalised terrorist-related activities to include glorification of terrorism, dissemination of terrorist publications, and terrorist training as offenses. The Act proscribed two additional terrorist organisations, on the grounds that they glorified terrorism. Other UK counter-terrorism legislation includes the Anti-Terrorism, Crime and Security Act of 2001, the Regulation of Investigatory Powers Act of 2000 and the Prevention of Terrorism Act of 2005.

The USA PATRIOT Act

The USA PATRIOT Act of 2001 was signed into law on 26 October 2001 in the wake of the 9/11 terrorist attacks. The USA PATRIOT Act is a far reaching law with special significance to any bank or corporation that does business in the US or with US partners. One section of particular interest to CFT compliance is Title III: International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001. Many provisions of this complex law are germane to the financial community and require much more extensive review than this summary brief allows.

On 12 March 2002, former US Treasury Under Secretary for Enforcement Jimmy Gurule addressed the Bankers Association for Finance and Trade, and outlined several of the key provisions of the Act.

US Executive Order 13224

Executive Order 13224 was signed by President Bush on 23 September 2001 in order to give the US Government a powerful tool to impede terrorist financing. In general, the Order enables the disruption of financial or other terrorist support networks by authorising the US government to designate and block the assets of terrorism-related foreign individuals and entities. The US Treasury’s Office of Foreign Assets Control (OFAC) executes the Order 13224 through its Anti-Terrorism Sanctions Program.

FATF 40 + 9 Recommendations

The Financial Action Task Force (FATF) issued 40 Recommendations on money laundering which, combined with the 9 Special Recommendations on terrorist financing, effectively cover the regulatory spectrum with respect to Anti Money Laundering (AML) and CFT.

The FATF 40 and 9 Special Recommendations are intended to serve as a framework to “detect, prevent and suppress the financing of terrorism and terrorist acts”. While not laws of themselves, many countries have adopted these recommendations in whole or in part.

Subjects covered in the 9 Special Recommendations include: • Criminalising the financing of terrorism and associated money laundering • Freezing and confiscating terrorist assets • Reporting suspicious transactions related to terrorism, international cooperation, alternative remittance, wire transfers, non-profit organisations and cash couriers.

The EU Third Money Laundering Directive (3MLD)

The EU Third Money Laundering Directive, adopted in 2005, required that member states comply with this directive by 15 December 2007. The Directive expands previous EU regulations in order to fully comply with the FATF 40 and 9 Special Recommendations.

The scope of the 3MLD is broad with respect to affected industries; its provisions affect not only members of the financial system, but also lawyers, notaries, accountants, real estate agents, casino operators, trust, and company service providers. The Directive also extends to all providers of goods where cash payments in excess of €15,000 are made, irrespective of whether the payment is completed in one transaction, or in cases where several transactions appear to be linked.

One of the main requirements of the 3MLD is increased Customer Due Diligence. It is mandated that all required service providers identify and verify the identity of their customers and possible beneficial owners of client entities, and that they continue to monitor their business relationship with customers. The Directive also sets out Enhanced Customer Due Diligence requirements for high-risk customers, such as those who have never been physically present in the business relationship.

Reporting obligations is another important subject covered in the 3MLD. The Directive requires that member states establish a Financial Intelligence Unit (FIU) to effectively combat terrorist financing and money laundering. It also requires that the FIU has access to information that it requires to fulfil its tasks. It specifically prohibits (Chapter 3, Section 2, Article 28) companies from disclosing to a customer or third party that an investigation has commenced.

Other topics covered in the 3MLD include record-keeping and statistical data storage, as well as enforcement and implementation measures. The 3MLD repeals previous EU Money Laundering Directives, and has been adopted by many member states.