Talk Is [Not Always] Cheap: The G20 and Terrorist Financing
The latest statement by the G20 on the fight against terrorism during the meeting in Antalya may seem as an afterthought included with official communiqués in view of the attacks in Paris. Predictably, members of the G20 condemned the attacks in Ankara in October 10th and Paris in November 13th although omitting similar events in Beirut on November 12th.
Generally overlooked among the statements of resolve and condolences was an explicit commitment to dismantle the “financing channels of terrorism” following the recommendations by the Financial Action Task Force (FATF)—an intergovernmental body that issues policy recommendations recognized as the international standards to safeguard the financial system against money laundering, terrorist financing, and other threats against the integrity of the system. The membership of the FATF consists of 34 member jurisdictions and 2 regional intergovernmental organisations, the GCC and the European Commission. Additionally, the FATF monitors the progress of its members in effectively implementing measures and issues typologies for understanding traditional and emerging threats to the financial system.
- The Financial Action Task Force has conducted an extensive review to identify terrorist financing methods and help jurisdictions effectively implement targeted financial sanctions. To date, two-thirds of jurisdictions have not taken actions to freeze assets.
- Technological challenges are widening the gap between international and domestic counter-terrorist instruments and the ability to weaken terrorist financiers.
- Due to its first hand experience with terrorist financiers, asset freezing, and in its role as a co-leader of the Counter-ISIL Finance Group, Saudi Arabia is well placed to assist low-capacity jurisdictions to effectively implement the recommendations by the FATF.
Talk Is [Not Always] Cheap
Choking the financial lifeline of violent extremist groups is not an afterthought in the wake of the attacks in Paris. In preparation for the G20 meeting in Turkey, the FATF conducted an extensive review of 194 jurisdictions in the Anti-Money Laundering/Countering the Financing of Terrorism Network (AML/CFT) to determine the effective—or lack thereof—implementation of targeted financial sanctions. Unlike the designations from the Office of Foreign Assets Control by the U.S. Department of Treasury applicable to U.S. citizens and entities that operate under U.S. jurisdiction, the designations by the United Nations allow member states to effectively comply with Resolutions 1267, 1368, and 1989 aimed at combating terrorism by providing a consolidated sanctions list that member states can use to freeze the assets of known terrorist or terrorist financiers.
Interestingly the review published in early November found that while most jurisdictions have legal instruments to implement targeted financial sanctions, two-thirds of the jurisdictions have never taken any practical actions to freeze the assets of designated individuals and/or entities. According to the report, part of the problem is explained by the lack of expediency in implementing the sanctions which gives terrorists and terrorist financiers the ability to use or move the funds before they are frozen. Therefore, even if the United Nations designates an individual or an entity, delays in freezing assets dilutes the effect of blacklisting people or groups. Evidently reducing the time between a designation and implementation would increase the effectiveness of these sanctions. However, the larger issue remains: jurisdictions have adequate legal powers to implement the sanctions yet they simply do not do it and the reasons for this remain unclear. While it may be a lack of capacity to identify targets or implement and supervise sanctions or a preference for using other instruments the problem is not a lack of understanding that hindering terrorist financing is a valuable weapon in weakening these groups but the widespread apathy for employing sanctions.
The review of the jurisdictions revealed the following:
|9||percent have proposed a designation to the UN Sanctions Committees|
|18||percent have a link to an individual or entity designated in the UN sanctions lists|
|9||percent have frozen assets in accordance with resolutions 1267/1989 and 1988|
|10||percent have received a foreign request for freezing assets|
|16||percent have made national designations pursuant to Resolution 1373|
|67||percent (130 of 194) have never done any of the above|
Sanctions vs. Technology
In addition to the implementation challenges, the AML/CFT network faces an ever-widening gap between the legal instruments and the technology available to transfer funds to terrorist organizations. In its October report on Emerging Terrorist Financing Risks, the FATF identified social media, virtual currencies, and on-line payment methods as important vulnerabilities for funding terrorist organizations in addition to traditional methods such as donations and criminal activities. Social networks such as Facebook, Twitter, and Instagram allow terrorist organizations to conduct crowdfunding campaigns that may provide liquidity to the organization. Whereas some campaigns overtly ask for support for terrorist groups (advertisements placed in formats other than text increase the difficulty of identifying and blocking them), in other cases terrorist financiers may seek support by allegedly using the funds to provide humanitarian aid. In this case, individuals unwillingly and unknowingly may donate money in fact destined to help terrorist organizations rather than charities.
The link between social media and on-line payment methods only increases the difficulty in tracing terrorist financiers. For example, the merger of WeChat, China’s biggest messaging app, with Western Union allowing users to send money from their bank account, credit or debit cards to Western Union branches, bank accounts or digital wallets exploits the anonymity and the access to sympathisers who may donate without worrying about similar regulations to those in the banking system. The barriers for transferring money through on-line payment methods are significantly lower than when using the banking system due to the small amount of information individuals need to provide. Furthermore, social media and on-line payment methods easily avoid the restrictions placed on banks located in controlled territories blocked from accessing the international financial system.
Virtual currencies such as bitcoin also allow terrorist organizations and terrorist financiers to circumvent measures for tracing and blocking financial channels. The anonymity afforded by bitcoin allows users to transfer value over the internet which creates strong incentives for criminal groups to employ it because, as explained by the FATF, while the original purchase of bitcoins may be visible through the banking system, subsequent transfers are difficult to detect. In a criminal conviction in the United States, Ali Shukri Amin was found guilty of using twitter to provide instructions to his 4,000 followers on how to use bitcoin to fund Daesh including specifics on what bitcoins were, how the bitcoin system works, and how to employ Dark Wallet to retain anonymity and send donations to the mujahedeen. The trade-off, however, may be in the volatility of virtual currencies. In the last year, bitcoin hit a low price of $177 and a high price of $408 which could potentially dissuade financiers from using them to pay for terrorist operations.
Bitcoin prices December 2014-December 2015
From Talk to Action
While Saudi Arabia holds observer status at the FATF, it is a co-leader in the Counter-ISIL Finance Group (CIFG) along with Italy and the U.S. In its last meeting held in October in Washington D.C., the CIFG established four working groups to examine the following areas: Daesh’s cross-border illicit financial flows, oil smuggling, financial connections with affiliates, and looting and sale of antiquities. The outcome-oriented nature of these groups combined with the ample experience with illicit finance of its leaders has the potential to operate as an effective mechanism for the 25 members of the CIFG to exchange and integrate intelligence as well as overcome the challenges involved in coordinating follow-up actions.
Saudi Arabia is well-placed to train and provide assistance to low-capacity jurisdictions to effectively implement international tools at the domestic level to counter terrorist financing. Not only does Saudi Arabia have extensive firsthand experience with terrorist financiers, it also holds membership in international forums that can help disrupt the financial channels of terrorism. In terms of its experience, the kingdom has the highest number of criminal convictions using targeted financial sanctions—863—and the largest amount of assets frozen: $33 million. Furthermore it is also one of the countries with the highest number of foreign terrorist fighters (FTFs). In the case of Daesh, FTFs are closely related to terrorist financing due to the self-funding schemes and the possibility that they bring additional assets to Daesh-held territory that help the group’s operation. Understanding how self-funding schemes operate may prove essential in preventing FTFs from arriving to their final destination.
Even if observers tend to characterize official statements made in the context of high-level meetings as cursory it is also true that not all official statements are cast in the same mould. In the case of disrupting the financial flows of terrorist groups, the FATF and CIFG provide much-needed standards and expertise required by states to counter this threat. Nevertheless, without forums such as the G20, the work by the FATF and the CIFG would go unnoticed by a larger non-expert audience. Meetings held by groups such as the G20 provide the platform for communicating the consensus and relevant actions among states on disrupting terrorist financing.
Despite the fact that official statements made during high-level meetings are not legally binding they still provide a degree of accountability. In reputational terms, states openly declare their commitment to either conduct or refrain from particular actions in the international system. These open statements allow other states and non-state actors to monitor compliance and, if necessary, denounce those who have reneged on their obligations. States, of course, will sometimes deviate from the expected behavior however there is strong evidence to suggest that states enter into agreements intending to comply. Whether compliance requires a big or marginal effort by states is a different matter.
In particular, for disrupting terrorist financing it will be crucial for states and private financial sector actors to continue exchanging cases studies through formal and informal channels. It is through this sharing of expertise that countries can design measures that weaken traditional methods and emerging threats for terrorist financing. More importantly, institutional mechanisms allow states to escape from only reactive policies against financiers to measures that can outsmart those seeking to fund malfeasant behavior.
- Whereas the FATF and CIFG provide the standards and the expertise for countering terrorist financing, it is forums such as the G20 that provide the necessary platform for communicating the consensus and relevant actions among states on disrupting the financial channels of terrorism.
- Official statements made during G20 while not binding provide a degree of accountability, at least in terms of reputation, of the commitments made by states and the actions they have undertaken to comply.
- Constant exchanges of information in the form of cases studies through institutional mechanisms such as the FATF are the most effective way for countries to understand and design measures that disrupt the traditional as well as emerging ways in which terrorist group seek financing.