14 Aug 2017
The al Qaeda terrorist attacks in New York on September 11, 2001 highlighted the threat posed by terrorist financing, and resulted in President George Bush declaring a ‘Financial War on Terrorism’. The international community and the US were ill-prepared for this new form of financial crime despite several previous large scale terrorist attacks by al Qaeda, including the bombing of the World Trade Centre (1993) and the US embassies in Tanzania and Kenya (1998), and the suicide attack on the USS Cole in Yemen (2000). It wasn’t until the international community introduced a series of draconian counter-terrorist financing (CTF) measures that the fulcrum of the ‘Financial War on Terrorism’ was truly formed. Prior to the 9/11 attacks, the financial crime efforts of the international community had been largely directed towards money laundering. The United Nations introduced a series of CTF measures aimed at limiting and tackling the vast array of financial sources that were exploited by terrorists, and in particular al Qaeda. The cornerstone of the UN’s legislative measures was Security Council Resolution 1373, which was unanimously adopted on September 28 2001. A similar pattern to the response to money laundering emerged in the aftermath of the terrorist attacks in the US, where by both the European Union and the Financial Action Task Force (FATF) extended their remit from money laundering to terrorist financing.
But there’s a fundamental flaw with these CTF measures: they are founded on the AML efforts of the Vienna and Palermo Conventions, which are aimed at tackling money laundering, a process that involves hiding or disguising the proceeds of crime. Terrorist financing does not follow the money laundering model. In fact the opposite happens: terrorists seek to convert ‘clean’ money into ‘dirty’ money. This process usually referred to as reverse money laundering.
A great deal of literature has been written on the array of financial resources that terrorists have exploited to fund their activities. For example, a large number of the studies have concluded that terrorists have traditionally utilised two sources of funding: state and private sponsors. Since the instigation of the ‘Financial War on Terrorism’ the ability of nation states to provide financial support for terrorists has fallen, but nonetheless, as of June 2017, the US State Department identifies three state sponsors of terrorism: Iran, Sudan and Syria. In February 2017, FATF identified several nation states that have strategic AML and CFT deficiencies: Afghanistan, Bosnia and Herzegovina, Ethiopia, Iraq, Lao PDR, Syria, Uganda, Vanuatu and Yemen. However, terrorists have been able to adapt their financial structures and have been able to respond to the CTF legislative provisions, and continue to find new funding mechanisms. For example, IS have demonstrated an unprecedented ability to accrue funding from a very wide range of financial sources, including several social media platforms. In August 2014 the US Treasury Department imposed sanctions on three terrorists (Shafi al-Ajmi, Hajjaj al ‘Ajmi and Al-Anizi) who “through funding raising appeals on social media and the use of financial networks … have been funding terrorists fighting in Syria and Iraq”.
In light of this, is the United Kingdom’s CTF legislative framework able to prevent terrorists from obtaining funding from terrorist financiers with access to an ever increasing range of social media platforms? To answer this, one key question must be addressed: do social media payments fall within the scope of the Money Laundering Regulations 2017? The scope of the Payment Services Regulations and the Electronic Money Laundering Regulations need to be carefully considered. If such payments fall within the remit of the Payment Services Regulations, they would be through money remittance or executing payment transactions. In order for the payments to fall under the Electronic Money Regulations they would be classified as e-money. If the payments fall under either of these Statutory Instruments, the social media provider will be an authorised payment institution/payment services provider/e-money institution, all of whom will be subject to Money Laundering Regulations 2017. However, it is not clear how the Money Laundering Regulations will apply. In light of the increasing use of cryptocurrencies, this position is unacceptable.
The above are my initial thoughts as I begin a more detailed research project into the scope and applicability of the Money Laundering Regulations 2017 towards terrorist financing via social media platforms. I am hoping to finish this research project and disseminate the findings/conclusions in the first few months of 2018.
Dr. Nicholas Ryder is professor of Financial Crime at Bristol Law School, part of the faculty of Business and Law at the University of the West of England.
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