Counter terror financing: Europe makes gains but challenges remain
05 Jul 2018

In the world of counterterrorism, 2017 was another sombre year.

62 people were killed across the EU in cities as far apart as Barcelona and Turku.

Over half of the fatalities were in the UK alone, with attacks on Westminster, Borough Market and Manchester Arena; in the latter, the worst attack that year, 22 people were killed, including children.

The question of how these attacks are financed is therefore a pressing one, particularly as the UK urges the EU to keep security concerns paramount in the Brexit negotiations.

Of interest is Europol’s 2018 Terrorism Situation and Trend Report (TE-SAT) sheds some light on the situation.

The report makes disturbing reading.


Outlining trends, it recites a litany of unnerving facts about the pattern of terrorism in the EU: jihadist attacks are on the up and are more destructive though less sophisticated than others; they prefer attacking people, rather than property; jihadists are often lone actors and harder to catch; far-right terrorism is expanding; and separatism remains by far the largest cause behind European terrorism, though its death toll is limited.

On the financing aspect, perhaps unexpectedly, European terrorism has yet to adopt cryptocurrency to any real extent alongside its embrace of modern encrypted communications, particularly compared to their increasing use in organised crime.

As such, the expansion of anti-money laundering (AML) powers in the Fifth Anti-Money Laundering Directive (5AMLD) to cover cryptocurrency may have a fairly limited impact on terrorism.

There is, however, some cause for hope: there were fewer jihadists travelling to Iraq and Syria and, of those who had gone, very few returned, suggesting that at least some of the flow of training and radicalism has been cut off by border enforcement and, perhaps, Western military action against European-domiciled jihadists abroad.

There is also, thankfully, no evidence of any preparation to use weapons of mass destruction in Europe.

The report makes clear, however, that most of the inspiration and planning for these attacks is conducted online, typically from abroad.

The gradual collapse of IS in Iraq and Syria has not, the report notes, made the threat from jihadism in Europe less pronounced, as their recruiters in Europe simply change tactics and reuse old material.

Progress and organised crime

In recent years, the EU has made some significant efforts on the legislative front to combat terror financing, mainly in its recently endorsed 5AMLD.

It has also maintained links with the US on the financing details of terrorists, which could prove useful in investigations.

EU member states have also committed to exchange data and work closely to crack down on terror funding.

Despite efforts or gains made on the legislative front, challenges remain.

As highlighted in the report, there are significant links between organised crime in Europe and terrorist organisations elsewhere in the world.

The report gives the example of a Lebanese money-laundering outfit that offered their services across Europe, and used some of the profits to fund the activities of Hezbollah in Lebanon.

Perennial attackers also collect money – sometimes forcibly – from the various diasporas associated with their community in Europe.

It is clear that any action against organised crime could have a knock-on effect on terrorist financing abroad, and therefore on the flow of training and attackers to Europe.

Meanwhile, intriguingly, the report outlines a significant role for front organisations, particularly for the PKK.

Beneficial ownership registers and similar measures to root out the true owners of European companies, such as those laid out in the 5AMLD and the UK’s upcoming Sanctions and Anti-Money Laundering Bill, could go a long way to making these funding routes more difficult for, and dangerous to, terrorist organisations.

Yet homegrown jihadism remains a potent threat.

Funding sources for this are much harder to identify.

The hawala factor

Many are taken through an Islamic-inspired funding system particular to the Middle East, North Africa and Indian subcontinent, which has proved very difficult to counteract: hawala.

The word is Arabic, meaning trust or transfer, which gives a helpful guide to how the system works – it depends on the trust and honour of a global network of hawaladars, brokers, and has proved its resilience since it was established in the 8th century AD.

In essence, a sender gives a certain amount of money to a broker, intended for the recipient, to whom the sender gives a password.

The broker will contact his counterpart in the recipient’s locale, and upon the receipt of the password, that broker will pay the money to the recipient (minus a commission), on the assumption that the sender’s broker will settle the debt in the future.

The system, ingeniously, relies on no actual transfer across localities or across borders, rendering it almost impossible to trace without informants inside the network – and even then, stumbling across terrorist financing is very difficult, as the names of sender and recipient are not recorded as a matter of course.

The password obviates the need for formal identification.

Cracking down on hawala was a priority for the United States in the aftermath of the September 11 attacks, after evidence emerged that the method was a favourite of al-Qaeda.

Although several networks around the world were closed down at the behest of the US, with some prosecutions, these actions were not particularly effective in shutting down the flow of money to terrorism.

The EU faces similar problems.

Most people using hawala are entirely legitimate, sending money to relatives abroad or settling business debts with partners in the Middle East.

The system’s inherent incompatibility with banking and credit institutions, partly due to the Islamic prohibition on usury, means it is also well below the effective control of regulatory agencies used to the regular and predictable capital flows in global banking.

Even new regulations on payment systems providers simply fail to apply to hawala – as discussed, the genius of the system is that there is no payment across borders to intercept, no accountable documentation to seize, and no names to arrest.

The adoption of an EU strategy on controlling hawala, particularly with the significant expansion in Europe’s Muslim population in the aftermath of the refugee crisis, will prove a critical element in cutting off the flow of funding to European terrorism – but doing this without either impacting legitimate money flows in a highly discriminatory fashion, or without taking the sting out of a crackdown, will be very difficult indeed.

“Pessimistic note”

All that said, the report strikes a pessimistic note.

The TE-SAT report says, ominously, that many jihadists within Europe are self-motivated and self-funded.

Terrorism is, regrettably, quite cheap: all a terrorist might need is a decent job or a dab hand at social security manipulation.

Indeed, many of the most destructive attacks, such as the atrocity at Manchester Arena, have been carried out by solo actors with inexpensive, readily-available materials.

Even worse, the report points out many of them have sympathetic relatives, who will funnel them money with no possibility of oversight.

There is possible respite to be gained from 5AMLD measures like greater oversight of prepaid cards, but in the main funding for these actors is too diffuse to surveil or control.

All the while, the cost of terrorism continues to mount up: RAND Europe estimated it cost the EU a staggering €180 billion between 2004 and 2016, billions of which was in enforcement alone.

It is hard to imagine any AML/CTF system which would be able to stop this. 5AMLD, and RAND Europe, make clear that greater co-operation between European financial intelligence organisations is hugely important, but it is unlikely to stop the majority of attacks in the EU.

Indeed, if one is expecting a stop to the majority of terrorism to come from EU governments, one may be looking in the wrong place: an end to this wave of blood will come, if it comes, from the people of Europe and the communities from which attackers arise, be they separatist or Islamist.

Even then, it is unlikely to stop altogether.

Europe may be living with these monstrous crimes for a long time yet.

About the author: Richard Nicholl (@rtrnicholl) is a Master’s student at the University of St Andrews, specialising in legal history. He also works as a freelance journalist and legal researcher.




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