Anytime money laundering is mentioned, be sure to find terrorist financing also. This is because the two words are used interchangeably and/or jointly – but in the real sense they are two different things. There are obvious differences between money laundering and terrorist financing, but the risks of both are often assessed and managed using the same information flows between public and private sector institutions.
The main aim of this article is to throw light on how money laundering differs from terrorist financing.
The definition clearly draws a distinction between the two. Money Laundering according to Article 6, UN Conversion Against Transnational Organised Crime, is the conversion or transfer of property knowing that such property is the proceeds of crime, for the purpose of concealing or disguising the illicit origin of the property or of helping any person who is involved in the commission of the predicate offence to evade the legal consequences of his or her action; or the concealment or disguise of the true nature, source, location, disposition, movement or ownership of or rights with respect to property, knowing that such property is the proceeds of crime. Simply put, the process of making dirty monies look clean. Terrorist financing, on the other hand, refers to the processing of funds to sponsor or facilitate terrorist activity.
The motivation for washing dirty money and financing terrorist activity is another difference which could be talked about. The motivation for any criminal to engage in money laundering is the profit or reward he or she will get, but the ideology of the criminal or terrorist is the main motivating factor for financing terrorism. Most criminals undertake or finance a terrorist activity because they believe in that course of action. The ideology can be religious, political and/or psychological.
Criminal groups primarily seek monetary gain, but terrorist groups usually seek non-financial goals such as publicity for their cause and political influence. It should be noted that the intention of money laundering is to clean ill-gotten gain or dirty money so it appears to be the proceeds from legal activities. But that of the terrorist financing is to intimidate a population or to compel a government or an international organisation to do or abstain from doing any specific act through the threat of violence.
Ordinarily, criminal activity produces funds and other proceeds that traditional money launderers must disguise by depositing large cash deposits into the financial system without detection. But the terrorist is financed with both legal sources such as personal donations and profits from businesses and charitable organisations, as well as illegal sources such as the drug trade, the smuggling of weapons and other goods, fraud, kidnapping and extortion. Because the terrorist operations require relatively small amounts of money, the financiers need to place substantially smaller funds into the hands of terrorist cells, their members and/or bank accounts. This was evidenced in the September 11 attacks on the World Trade Centre and the Pentagon, which were estimated to have cost approximately US$500,000.
The conduit through which these activities take place is also another differentiating factor. The formal financial system favours the washing of dirty funds. This is because most of the monies laundered are done via the financial system. But this is changing since the criminals are always finding other means and ways to clean their dirty money, as I have demonstrated in my earlier articles. Financiers of terrorist activities normally use cash couriers and other informal financial systems (Hawala system) to support the act of terrorism. They don’t necessarily need the financial system to operate.
The process of money laundering is circular. That is, when the money leaves (wash) it (the profit, reward and/or benefits) eventually ends up with the person who generated it. But that of terrorist financing is linear. This means that when the individual or group supports a terrorist act, the money is used to propagate that activity and the process ends.
To detect money laundering, one must be able to identify a suspicious activity (transactions and/or behaviours) such as deposits uncharacteristic of a customer’s wealth or the expected activity. But on the other hand, to detect terrorist financing one must be able to identify suspicious relationships such as wire transfers between seemingly unrelated parties and/or to high-risk or blacklisted countries.
Terrorist groups will want to disguise illegal funds while at the same time preserving the continuity of or maximising revenue from legitimate sources. The need to camouflage the sources of funds means that terrorist financing has certain similarities with traditional money laundering – namely the use of the three steps: i.e. to place, layer and integrate the funds in the international financial system.
Would you mind doing me a favor? Share this article with someone so that the awareness of money laundering and terrorist financing can be spread to avoid it being used as a conduit by criminals.
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