Third Post in a Series on the FATF Plenary Outcomes
This blog is the third post on the Financial Action Task Force (“FATF”) fourth Plenary, an event where delegates were invited from around the world to (virtually) meet and discuss a wide range of global financial crimes and ongoing risk areas. Among the several strategic initiatives identified by FATF was Ethnic or Race Motivated Terrorist Financing (“EoRMTF”), on which FATF issued a report detailing its implications for anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”) (the “Report”).
Similar to FATF’s first-time report regarding environmental crime and money laundering, the Report marks the first time FATF has looked at the financing of ethnically or racially motivated terrorism. The Report highlights how very difficult it can be to identify and trace EoRMTF, including because of the following factors: the major role of so-called “lone wolf” actors; competing legal regimes in different countries; growing transnational links between extreme right wing (“ERW”) groups; limited information on ERW groups; and the fact that some ERW groups are not considered illegal or have not been listed as groups to monitor. The Report also notes the irony that ERW groups often use legal – not illicit – funds to promote their efforts, and that “ERW groups appear to be less concerned with concealing their transactions than in other forms of [terrorist financing]” – but that “many jurisdictions also reported that ERW actors are becoming increasing operationally sophisticated in how they move [and conceal] their funds.”
The project team for the Report was led by delegations from Germany and the United States and included representatives from 13 countries, as well as from several international organizations including the European Commission, EUROPOL, and the International Monetary Fund. The FATF project team reviewed approximately 100 sources including academic texts, reports provided by international organizations, policy papers, and news articles in order to develop the Report. Further, the project team collected input from 32 jurisdictions and entities, including 37 case studies.
As indicated by the Report, EoRMTF “is a complex phenomenon that encompasses a wide range of actors.” EoRMTF is often carried out by individuals, referred to as “lone wolves,” but is also carried out through organizations, ranging from small and medium sized groups to “transnational movements which span borders, and sometimes even continents.”
The Report’s stated objectives are to:
- Increase the understanding of Terrorist Financing (“TF”) risks related to ERW among competent authorities, non-governmental bodies, the private sector, and the broader public.
- Outline the primary streams of revenue for ERW actors, by examining how ERW groups and individuals raise, move and use funds, as well as the international links between them.
- Highlight the leading trends and methods within EoRMTF, in particular the international and transnational aspects of EoRMTF.
- Increase awareness of the role that relevant financial institutions (“FIs”) and non-financial businesses can play in detecting suspicious activity and highlight the importance of public-private partnerships in CFT efforts tackling these risks.
- Examine key challenges in combatting EoRMTF, for both operational agencies and other relevant authorities, and non-governmental actors (including the non-profit sector and the private sector), and where possible expand on how those challenges can be overcome.
The sources of funding of EoRMTF attacks are a large focus of the Report. The Report distinguishes self-funded individuals, which are typically spontaneous and do not involve complex organization and weapons, from attacks organized by ERW groups, which tend to be funded by “a range of common sources.” Because ERW-motivated attacks are most commonly conducted by individual actors, it is difficult to track how funds are moved. The costs of individual attacks are low, so the related transactions made by the perpetrators often do not raise red flags. Further, while “lone-wolf” attackers may have been influenced by ERW groups, they may not have had any direct contact with group members. Indeed, the Report concludes that because expenses for attacks by “lone wolves” are “low, and do not differ from normal transactions, there are often few or no red flags in the financial system and most useful financial information is only discovered through police investigations after an attack has taken place.” This observation has obvious relevance to the ability, or lack thereof, of FIs to catch such activity through their AML/CFT programs.
The Report notes that members of the ERW community have become more skilled in handling their financial transactions, with some structuring transactions to avoid reporting thresholds, and other possibly created layered stages of money laundering. The Report posits that as ERW groups garner more attention, they are likely to take more substantial steps to conceal their transactions.
ERW group funding can be broken into two categories: legal sources and illegal sources. Some examples of legal sources of funding sought out by ERW groups noted in the Report are:
- Crowdfunding – the practice of soliciting contributions from a large number of people, particularly from the online community, and usually in smaller amounts, to support an idea or a project;
- Membership Fees – collecting membership fees in cash or by using bank accounts held at local or regional FIs; and
- Commercial Activities – engaging in activities such as organizing music festivals and concerts and selling various merchandise goods and real estate related deals;
Generating funding from legal sources can make early detection and enforcement more difficult, but certain overt and publicly advertised funding models such as crowdfunding can draw the attention of FATF as well as national authorities. ERW groups also partake in criminal activities to source funds. For example, terrorist organizations such as ISIL and Al Qaeda have engaged in kidnappings for ransom and extortions to generate funds. Drug trafficking networks are also commonly used to fund terrorist organizations. Drug manufacturing and trafficking has served historically as a major source of international terrorism, including ironically by groups for whom drug use is absolute anathema from a religious or cultural perspective – unless, apparently, the produced and distributed drugs are consumed by the perceived enemy and target of the terrorism.
Another challenge of combating EoRMTF identified by the Report is that the United Nations, other international organizations, and various academic reports all use different terms to identify the threat of EoRMTF. Some of the terms identified by the Report include “right-wing extremism,” “racially or ethnically motivated terrorism,” “far right terrorism,” “ideologically motivated violent extremism,” and extreme right wing terrorism.” While the Report does not “seek to define or re-define ethnically or racially motivated terrorism,” but for consistency uses the term ERW throughout to refer to the groups and individual s subscribing to ERW violent and non-violent ERW ideology and uses the term “extreme-right wing terrorism” (“ERWT”) to refer to terrorist activity motivated by ERW ideology.
Relatedly, “not all countries classify violent activity by ERW individuals or groups as terrorism.” Rather than viewing ERW groups as terrorist groups or national security threats, some jurisdictions instead classify ERW-affiliated groups and individuals as criminal gangs and primarily pursue non-terrorism related criminal charges for violent activity. There is also a large variance among jurisdictions with regard to the prosecution of crimes motivated by racial or ethnic bias. The method of prosecution for crimes motivated by racial or ethnic bias “can impact which agencies (law enforcement or security or intelligence services) and legal authorities are used for investigation and prosecution of the underlying violent activity and its financing.” Because of the jurisdictional differences in the classification and prosecution of EoRMTF, including the treatment of extremist speech or hate speech, ERW groups or individuals are able to seek out jurisdictions with greater protections for ERW activity, making it difficult for other jurisdictions with greater protections to pursue enforcement actions.
Strategies for Combating EoRMTF
The Report’s detailed analysis of EoRMTF aims to provide a greater understanding of how the vulnerabilities of ERW individuals and groups can be utilized by law enforcement, FIUs, securities services aiming to combat these groups. These same insights can help FIs and Designated Non-Financial Institutions to identify and report suspicious financial activity linked to these groups.
One mechanism for combating EoRMTF identified by the Report is to create or expand public-private information sharing forums useful for sharing threat specific information on particular groups or individuals. The Report suggests that such collaboration can include a broad range of actors – including FIs, digital technology companies, and the non-profit sector.
The Report also encourages jurisdictions in the FATF Global Network to include risk information in their National Risk Assessment (“NRA”) process. As of the publishing of the Report, only 6 of 27 FATF members who completed a NRA covered EoRMTF. The Report encourages national AML/CFT authorities to focus on the inclusion of ERW groups in the NRA process, given the rising threat from ERW groups and as well as growing evidence of cross-border links.