Combating the Financing of Terrorism (CFT)

Combating the Financing of Terrorism (CFT) involves investigating, analyzing, deterring and preventing sources of funding for activities intended to achieve political, religious or ideological goals through violence and the threat of violence against civilians. By tracking down the source of the funds that support terrorist activities, law enforcement may be able to prevent some of those activities from occurring. Instead of trying to catch a criminal plotting or committing an act of terrorism through other means such as surveillance, law enforcement addresses the problem from the money side by detecting suspicious financial transactions and tracking down all the individuals and organizations involved in those transactions.

CFT includes teaching financial investigative techniques to law enforcement, teaching prosecutors to win money laundering cases, and training financial supervisory and regulatory authorities to identify suspicious activity. CFT efforts may examine charities, underground banking entities and registered money service businesses, among other entities.

Also known as Counterfinancing of Terrorism.

Individuals and organizations who finance terrorism need to conceal how the money will be used and where it originated. The funds may come from legal sources, such as legitimate religious or cultural organizations, or from illegal sources, such as drug trafficking and government corruption. The funds may also come from an illegal source but appear to come from a legal source through money laundering. Money laundering and terrorism financing are often linked. When law enforcement is able to detect and prevent money laundering activities, it is often simultaneously preventing those funds from being used to finance acts of terror. Combating money laundering is key to CFT. Little of the money used to finance terrorism comes from dual-purpose charities, while most of it comes from underground banking entities called hawala as well as from trade-based money laundering and cash couriers.

Financial institutions play an important role in combating the financing of terrorism because terrorists often rely on it, especially banks, to transfer money. Laws that require banks to perform due diligence on their customers, both new and existing, and to report suspicious transactions such as high-value cash transactions to the authorities, can help prevent terrorism.

An additional reason for CFT is that the use of the financial system by criminals engaged in money laundering and terrorist financing is considered a threat to the financial system’s stability. The public may not trust the integrity of the financial system if the system cannot detect illicit activities.

Financial Intelligence Units (FIU) and cross-border information sharing among nations contribute to CFT. FIUs are specialized government agencies that investigate reports of potentially suspicious financial transactions received from individuals and institutions. FIUs then give law enforcement information about transactions that warrant further investigation.

The Financial Action Task Force (FATF), which is composed of 35 countries and two regional organizations (the European Commission and the Gulf Co-operation Council), works to combat money laundering and the financing of terrorism through creating standardized processes to stop threats to the international financial system. When there are differences in anti-money laundering and CFT laws among countries, especially when some countries have weaker controls than others, terrorists will abuse those countries’ financial systems to secretly move money. By creating standardized procedures for the financial sector, the criminal justice system, and certain businesses and professions, terrorism financing becomes harder to hide. The FATF also collects and shares information about trends in money laundering and terrorism financing and works closely with the IMF, the World Bank, and the United Nations.

Anyone who willfully provides money to carry out a terrorist act, whether directly or indirectly, is guilty of financing terrorism. Because terrorists use different methods, called typologies, to finance their activities and conceal the sources of their financing depending on their local economy, financial market regulators and law enforcement must use a variety of techniques to catch these criminals.