The Fight Against Terrorist Financing
PART 1 – THE european commission’s fight against terrorism
The recent terrorist attacks in Europe have prompted the European Commission to strengthen its fight against terrorism. Terrorist organisations and individual terrorists need financing to maintain their networks, to recruit and supply, and to commit terrorist acts themselves. The Commission’s role in the fight against terrorism includes cutting off sources of finance, making it harder to escape detection when using these funds, and using any information from the financing process. Existing laws and regulations already contribute towards preventing and fighting terrorism, however new trends have emerged and therefore new measures are required.
This article draws upon the Commission’s Action Plan to strengthen the fight against terrorist financing, which is available at http://ec.europa.eu/justice/newsroom/criminal/news/160202_en.htm. The Commission measures included the drafting of an Action Plan to update and develop rules and tools to fight against these emerging threats. The Action Plan will focus on two main strands of action:
Tracing terrorists through financial movements and preventing them from moving funds or other assets; and
Disrupting the sources of revenue used by terrorist organisations, by targeting their capacity to raise funds.
1. Preventing the movement of funds and identifying terrorist funding
Terrorists are involved in a variety of both licit and illicit activities to finance terrorist acts. Tracking financial flows can help to identify and pursue terrorist networks. New financial tools and payment modes create new vulnerabilities that need to be addressed. Closing off options for terrorism funding is crucial for security, but measures in this field may also touch on the lives and the economic activity of citizens and companies throughout the EU. This is why the Commission’s proposals will have to balance the need to increase security with the need to protect fundamental rights, including data protection, and economic freedom.
1.1. Immediate action that can be taken under the existing framework
The adoption of the Fourth Anti-Money Laundering Directive (AMLD) in May 2015 represented a significant step in improving the effectiveness of the EU’s efforts to combat the laundering of money from criminal activities and to counter the financing of terrorist activities. Accordingly, there are several ways in the fight against terrorist financing wherein the Commission intends to step up its’ efforts within the existing framework. Measures proposed include the following:
A call has been made on Member States to bring forward the transposition of the AMLD by the end of 2016;
Furthermore, the Commission intends to accelerate its work in the identification of third countries with strategic deficiencies in the area of anti-money laundering or countering terrorist financing; and
It is also encouraging Member States to improve the exchange of financial intelligence between EU Financial Intelligence Units (FIUs) and third countries’ FIUs, and between FIUs and the private sector, in line with the Financial Action Task Force recommendations and best practices.
1.2. New actions to tackle the abuse of the financial system for terrorist financing purposes
In December 2015, the Commission proposed a Directive on combatting terrorism which criminalises terrorist financing and the funding of recruitment, training and travel for terrorism purposes. The Commission is now proposing further ways to tackle the abuse of the financial system for terrorist financing purposes.
A number of targeted amendments to the AMLD have been proposed by the Commission including the following:
Ensuring a high level of safeguards for financial flows from high risk third countries – The Commission will amend the Directive to include a list of all compulsory checks (due diligence measures) that financial institutions should carry out on financial flows from countries having strategic deficiencies in their national anti-money laundering and terrorist financing regimes. Applying the same measures in all Member States will avoid having loopholes in Europe, where terrorists could run operations through countries with lower levels of protection;
Enhancing the powers of EU FIUs and facilitating their cooperation – Facilitation of cooperation between FIUs can be accelerated in different areas. Measures taken could include aligning rules for the access to information by FIUs with the latest international standards, and identifying and tackling obstacles concerning access to relevant information, exchange and use of information and operational cooperation;
Centralised national bank and payment account registers or central data retrieval systems in all Member States – The Commission will propose the establishment of centralised bank and payment account registers or electronic data retrieval systems in all Member States. Thus providing FIUs easier and faster access to information on the holders of bank and payment accounts;
Tackling terrorist financing risks linked to virtual currencies – Virtual currencies are currently not regulated at EU level. To prevent their abuse for money laundering and terrorist financing purposes, the Commission will propose to bring anonymous currency exchanges under the control of competent authorities by extending the scope of the AMLD to include virtual currency exchange platforms, and have them supervised under anti-money laundering / countering terrorist financing legislation at national level. These platforms would then have to apply customer due diligence controls when exchanging virtual for real currencies, ending the anonymity associated with such exchanges;
Tackling risks linked to anonymous pre-paid instruments (e.g. pre-paid cards) – Prepaid cards have been used by terrorists to finance the logistics of terrorist attacks anonymously, e.g. the terrorists who committed the attacks in Paris on 13 November 2015 reportedly used prepaid cards to pay for hotel rooms. On the other hand the benefits of prepaid cards are numerous such as: allowing economically vulnerable or financially excluded people to have a means of payment; limitation of fraud; means of payment for social benefits and; safeguarding of privacy through anonymity. The terrorist financing risk posed by prepaid cards is essentially linked to those anonymous (reloadable or non-reloadable) prepaid cards run on domestic or international schemes. Without wiping out the benefits of these instruments the Commission is proposing to lower thresholds for identification and widening customer verification requirements;
Improving the efficiency of the EU’s transposition of UN asset freezing measures – The UN listings (in general and also in respect of designated organisations such as Al-Qaeda and Daesh) need to be applied as quickly as possible to have the maximum impact and to minimise the risk that listed persons and entities can withdraw funds before the restrictive measures come into force. Furthermore it is proposed that the accessibility of UN listings to EU financial institutions will be improved to speed up the transposition process.
1.3. Other initiatives to complement the existing legal framework
Other initiatives proposed by the Commission include:
Harmonising money laundering criminal offences and sanctions – All Member States have criminalised money laundering, but there are differences between Member States as to the definition of money laundering and the sanctions applied. These differences create obstacles in cross-border judicial and police cooperation to tackle money laundering, and have a direct relevance to action against terrorist financing. The Commission intends to propose a Directive on criminal offences and sanctions for money laundering. The objective will be to introduce minimum rules regarding the definition of the criminal offence of money laundering (applying it to terrorist offences and other serious criminal offences) and to approximate sanctions;
Tackling illicit cash movements – EU legislation sets controls on persons carrying cash equal to or in excess of €10,000 entering or leaving the EU. Through a legislative proposal on illicit cash movements, the Commission tends to extend the scope of the existing regulation to include cash shipped by freight or post and to allow authorities to act upon lower amounts of cash where there are suspicions of illicit activity. Beyond the use of cash in general, the use of high denomination notes, in particular the €500 note, is a problem reported by law enforcement authorities. These notes are in high demand among criminal elements who engage in physical transportation of cash due to their high value and low volume. The Commission plans to work with the European Central Bank, Europol and other relevant parties on this matter; and
Completing the EU framework to track and freeze terrorist assets – The Commission plans to explore the need for a complementary EU system for tracking terrorist financing, for example to cover intra-EU payments which are not captured by the EU-US Terrorism Financing Tracking Programme (TFTP).
2. Disrupting the sources of revenue of terrorist organisations
The ways in which terrorism can be financed are diverse. Cultural goods illicitly removed from Iraq and Syria can be a significant source of terrorist income. Where this income relies on proceeds from European markets, identifying and cutting off the trade could have a real impact on an important source of funding of terrorist activities. Illegal wildlife trafficking is also increasingly recognised as a further source of funding of terrorist and related activities.
The Commission is considering a wider response to combatting terrorism financing via illicit trafficking in cultural goods – whatever the country of provenance – to overcome some of these problems. Options that will be considered involve the introduction of a certification system for the import of cultural goods into the EU coupled with guidance to stakeholders such as museums and the art market. Additionally, the Commission plans to shortly present an EU Action Plan to tackle the illicit financial flows related to wildlife trafficking.
The Action Plan lists a number of concrete measures that will be put into practice by the Commission immediately, whilst others will follow in the months to come. All the actions should be carried out by the end of 2017.
The European Agenda on Security underlined the need for measures to address terrorist financing in a more effective and comprehensive manner. This includes action by EU institutions, Member States and EU agencies, but also improved cooperation, and in particular exchange of information amongst the relevant authorities. Member States are encouraged to use all the tools at their disposal and ensure that agreed EU actions are swiftly implemented. The Commission also calls on the co-legislators to take forward their work on the forthcoming Commission proposals in a timely manner. In addition, working together, the EU and Member States are being requested to deepen their engagement with EU financial institutions and economic operators to understand the challenges they face in implementing international standards in the field of counter-terrorist financing, and assess how policies and practices can be re-enforced to address relevant risks in a rapidly evolving environment.
Part 2 – Revival of the F.E.E. Anti-Money Laundering Working Party
At the end of last year FEE announced that it would be reviving the Anti-Money Laundering Working Party which had been dormant for close to two years and to do this FEE organised a face to face meeting in Brussels for working party participants on 1 March 2016. This meeting was attended by Juanita Bencini, Chair of the MIA’s AML sub-committee and Michelle Spiteri Bailey from the MIA Secretariat.
The meeting was attended by a good cross section of European countries with about 18 participants in total. Several of the hot topics in the space of anti- Money laundering and financing of terrorism were discussed at length, throughout the day-long meeting.
Adoption of the EU 4th A.M.L. Directive
The FEE Secretariat communicated that, in the wake of the Paris attacks, (the Brussels attack had not yet happened at that date) there was increased pressure by European politicians to, first of all, strengthen the provisions in the Directive regarding the criminalising of financing of terrorism and secondly to try to bring forward the implementation of the 4th Directive to end 2016. The participants from the various countries all provided input on the state of implementation of the Directive in the various Member States. For all countries present, this is still work-in-progress. Overall, most Member States are still at an early stage with the implementation. The set-up of the beneficial ownership registers appears to be challenging in many countries and it remains unclear how the access to the various registers for the accountancy profession would be organised, and what is required beyond access to the register to satisfy the due diligence requirements.
Next Round of Financial Action Task Force (F.A.T.F.) Evaluations
A healthy discussion ensued regarding the current round of FATF evaluations with some countries such as Spain and Belgium which have already gone through the evaluation, providing insights on the process and methodology used by the assessors. For example it was indicated that countries with a low level of Suspicious Transaction Reports (STRs) may encounter particular difficulties during the evaluation. In general it was agreed that the current round of evaluations is much tougher than previous assessments and countries were exhorted to prepare well for them. It was agreed that during the scheduled calls between the working party participants, the countries would keep on exchanging ideas and views on this topic which was felt to be important to all. Malta’s evaluation will be carried out by Moneyval, which is the FATF style regional body, and will, in all probability, be held in 2018.
Revision by the F.A.T.F. of the Risk based Guidance for Accountants
The FATF is planning a review of the guidance on the risk based approach (RBA) for accountants since the last version dates back to 2008. FEE had been one of the contributors to the 2008 version of the RBA and the Working Party agreed that is important that FEE participates and contributes to the discussion of the new draft.
During the meeting it was agreed that there should be a task force set up to identify the AML issues which particularly affect the accountancy profession. It was felt that this would be a good initiative for FEE to promote, given its role in providing direction to the European accountancy profession. The Maltese contingent volunteered to form part of this new initiative on behalf of the Malta Institute of Accountants.
This Institute will be keeping close contact with its Members to inform them of developments on this subject matter.