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There is probably nothing which can damage the reputation of a financial institution more than the suggestion that it has been used as a conduit to provide funds which have been used to finance a terrorist act. Even if the institution is an innocent participant, the very link of its name to death and carnage can be damaging. So the institution needs as much help as possible to identify and exclude known terrorists from their business but also to stand some chance of identifying the criminals who are already inside.
Although key Western governments had some form of anti-terrorism legislation already, the terrorist attacks in New York and Washington in 2001 provided the incentive for more robust and wide ranging laws to counter the financing of terrorism (CFT). National legislation and international cooperation is needed to target those who finance terrorist networks, be they charities, businesses, individuals or even states which provide finance and sanctuary to terrorists. Key pieces of legislation have included the UK Terrorism Act and the USA Patriot Act, and the Financial Action Task Force has included specific Recommendations and guidance on terrorist financing.
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There is a subtle but very important difference between terrorist financing and money laundering activities. Money Laundering is the term used to describe the use of the financial system by criminals to hide the source of funds gained from illegal activity such as drug trafficking, bribery, extortion, embezzlement, theft or other criminal activity, as the criminals try to make their ill gotten gains appear genuine.
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In effect, Money Laundering is about turning dirty money into clean money. Terrorist Financing can be the opposite of this – clean money (often in legitimate donations to charities) misdirected by account holders to their criminal colleagues in what appear to be legitimate activities (again, often charities but it can be any form of institution). And it need only take a small amount of money to launch such an attack, so defences need to be strong.
But there are two aspects in which a financial institution can protect itself from both risks – strong Know Your Customer processes and strong transaction checking processes. Know Your customer describes the means by which the identity, background and other aspects of potential customers can be checked, so that known and suspected terrorists can be excluded. Legislation and regulation require firms to obtain evidence of identity of a customer at take-on and to keep a record of that evidence for as long as there is a relationship with a customer.
Legislation and regulation also require a firm to keep up to date its knowledge of a customer throughout the life of the relationship, so that changes in the customer's activity can be assessed and dealt with – all with the principal aim of preventing Money Laundering and Terrorist Financing. Having robust processes is all the more important when a business is looking for new clients in emerging markets, where legislation and regulation may not yet be as strong as in more developed financial markets.
A business does not want to make the wrong decisions when looking at any type of customer, be it an individual or a corporate, and especially at times of volatile economic conditions and with such reputational risks. Good quality know your customer processes will ensure that a business knows background of an individual customer as well as the identity and background of the shareholders and key principals behind a corporate entity or joint venture. This provides two key benefits for the risk-aware financial business – first, comfort that the firm is not exposing itself to excessive risk of being used by criminals to finance terrorism; and second (and equally important), sufficiently detailed knowledge of the customer's source of wealth and financial position to be able to sell products which are appropriate and which help the customer and the firm to make money.
Similarly, during the life of a customer relationship, the firm wants to be able to carry out checks on a customer's transactions to make sure that they are genuine and to be able to research any which may appear unusual. In particular with transactions, a firm must be able to complete due diligence very quickly where there are concerns, to be sure that suspicious items are blocked but also that settlement or delivery is completed on or by the planned value date – a firm does not want to have to be paying back-value for delaying a transaction when speedier due diligence could have avoided it. Good quality Know Your Customer work will allow a firm to be efficient and compliant in this area, report suspicions and not waste time or hard earned money.
In all major jurisdictions around the world, criminal legislation and regulation make it an offence (often criminal) to make funds available to an individual or corporate entity for the purposes of terrorism. World-check is the leading tool which helps firms to meet legal requirements and run a safe business in the ongoing fight against financial crime.
Terroristfinancing.net gives you access to a wide range of advice, systems and materials which ensure that you can carry out your checks on your customers at take-on and during the life of the relationship to the level expected of you by legislation and regulation. World-check.com helps you to be sure that you can exclude criminals, determine whether your customer is low or high risk and monitor and review them accordingly, and make decisions during the life of the relationship. You will then be able to comply with stringent legal and regulatory requirements, keep the criminals away from your doors and protect your reputation.
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