Tackling Terror Finance

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TOPIC: General Studies 3:

• Security challenges and their management in border areas; linkages of organized crime with terrorism

In News: In the wake of the dastardly terror attack in Pulwama carried out by Pakistan based terror outfit Jaish-e-Mohammad, India has upped the ante against Pakistan on the issue of terror funding by pushing to blacklist the neighbouring country at the plenary meeting of the anti-terror finance watchdog Financial Action Task Force, FATF being held in Paris.

Pakistan was placed on the FATF grey list in June, 2018 and put on notice to be blacklisted by October this year if it did not curb money laundering and terror financing. The resolution against Pakistan was moved by the US, and supported by the UK, France, Germany, and India. It said Pakistan was not doing enough to comply with anti-terrorist financing and anti-money laundering regulations. Pakistan was then given a 27-point action plan that was to be implemented by September this year and the same is being monitored by FATF Asia Pacific sub group.

In June 2018, Pakistan submitted a 26-point action plan to the FATF, committing to implement it over the next 15 months. The action plan included a squeeze on the finances of Jamaat-ud Dawa, Falah-i-Insaniyat, Lashkar-e-Taiba, Jaish-e-Mohammad, Haqqani Network and the Afghan Taliban. The failure to negotiate the action plan could have led to Pakistan being blacklisted.

What would a black-list mean?

It would mean enhanced financial scrutiny of its government, possible sanctions against its central bank, and a downgrade of its financial and credit institutions. This is something Pakistan, already facing an acute debt crisis, can ill-afford. Amongst the FATF’s stern observations of what it called Pakistan’s lack of “understanding” of the terror finance risks posed by groups, such as the Taliban, al-Qaeda, Islamic State, Lashkar-e-Taiba and Jaish-e-Mohammed, was a clear message: Islamabad must visibly demonstrate that it has taken measures to crack down on and shut down the infrastructure and finances of these groups.

Terror Financing: The financing of terrorism involves providing finance or financial support to individual terrorists or non-state actors.

Mechanism established internationally to curb it: The Financial Action Task Force on Money Laundering (FATF) made nine special recommendations for CFT (first eight then a year later added a ninth). These nine recommendations have become the global standard for CFT and their effectiveness is assessed almost always in conjunction with anti-money laundering. The FATF Blacklist (the NCCT list) mechanism was used to coerce countries to bring about change.

A 2008 FATF report on terrorism financing noted the importance of links between financial tools and wider counter-terrorist activity to combat terrorist financing.

Indicators of the collection and movement of funds that could be associated with terrorism financing:

• Account transactions that are inconsistent with past deposits or withdrawals such as cash, cheques, wire transfers, etc.
• Transactions involving a high volume of incoming or outgoing wire transfers, with no logical or apparent purpose that come from, go to, or transit through locations of concern, that is sanctioned countries, non-cooperative nations and sympathizer nations.
• Unexplainable clearing or negotiation of third-party cheques and their deposits in foreign bank accounts.
• Structuring at multiple branches or the same branch with multiple activities.
• Corporate layering, transfers between bank accounts of related entities or charities for no apparent reasons.
• Wire transfers by charitable organisations to companies located in countries known to be bank or tax havens.
• Lack of apparent fund-raising activity, for example a lack of small cheques or typical donations associated with charitable bank deposits.
• Using multiple accounts to collect funds that are then transferred to the same foreign beneficiaries
• Transactions with no logical economic purpose, that is, no link between the activity of the organization and other parties involved in the transaction.
• Overlapping corporate officers, bank signatories, or other identifiable similarities associated with addresses, references and financial activities.
• Cash debiting schemes in which deposits in the US correlate directly with ATM withdrawals in countries of concern. Reverse transactions of this nature are also suspicious.
• Issuing cheques, money orders or other financial instruments, often numbered sequentially, to the same person or business, or to a person or business whose name is spelled similarly.

FATF

• The FATF was established in July 1989 by a G-7 Summit in Paris to examine and develop measures to combat money laundering. In October 2001, it expanded its mandate to incorporate efforts to combat terrorist financing as well.
• The FATF’s objectives are “to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system”.
• The FATF monitors the progress of members and non-members in implementing the FATF Recommendations, “a comprehensive and consistent framework of measures which countries should implement in order to combat money laundering and terrorist financing, as well as the financing of proliferation of weapons of mass destruction”. It identifies jurisdictions with “weak measures to combat money laundering and terrorist financing (AML/CFT) in two FATF public documents that are issued three times a year”.

India is an FATF member; Pakistan is not.

The Way Forward:

• Global problems beckon global solutions. With terrorism now a common threat confronting like-minded nations, intelligence sharing between friendly nations is sine qua non. Though some level of intelligence sharing does exist with certain friendly nations, India must forge far more deliberate intelligence cooperation with intelligence agencies of terror-afflicted nations. It is important to develop seamless coordination resulting in speedy sharing of hard, actionable intelligence with foreign agencies.
• Also, UN protocols on counter-terrorism and agencies like Interpol and the Paris-based Financial Action Task Force must endeavour towards greater cooperation to combat the common enemies of humanity.
• India, as a country needs to up its game by involving all the agencies and ensuring proper flow of information from one point to another. In addition, it is common knowledge that terrorists today are not merely in rag-tag outfits but with advanced technology and continually improving modern weaponry and tools to support their nefarious designs. Thus, security agencies have to keep abreast of all technological innovations taking place. As the nation endeavours to improve its technical intelligence capabilities in its myriad applications, human intelligence capabilities need also to be sharpened. Thus, for India, eternal vigilance and security upgrades remain the price to pay to fire-wall itself from terrorism.

Connecting the Dots:

1. What are the sources of terror financing? Examine the nexus between terrorism and organised crime. What steps have been taken to stifle terror financing in India? Discuss.
2. Terrorist organisations and organised crime cartels have not only appropriated each other’s methodologies but have also developed a symbiotic relationship. Do you agree? Illustrate.