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E-Learning Series. Terrorist Financing Models. What is Terrorism and Terrorist Financing ?. What are the trends in Terrorism ?. What are the sources of Money for Terrorist Organisations. Principle methods to transfer the money by Terrorist Organisations.

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e learning series

E-Learning Series

Terrorist Financing Models

table of contents
What is Terrorism and Terrorist Financing ?

What are the trends in Terrorism ?

What are the sources of Money for Terrorist Organisations

Principle methods to transfer the money by Terrorist Organisations

How the terrorist Organisations Apply Money ?

Terrorist Instances in India

Models of Terrorist Financing

9 Special Recommendations of FATF

Table of contents
defining terrorism and terrorist finance
Fiscal Year 2005 Annual Report
  • What is Terrorism ?
  • Schmid and Jongman - 1988
  • World Bank – Terrorist Financing
  • Calculated use of unlawful violence or threat of unlawful violence to inculcate fear; intended to coerce or to intimidate governments or societies in the pursuit of goals that are generally political, religious, or ideological.” Within this definition, there are three key elements—violence, fear, and intimidation—and each element produces terror in its victims
  • Terrorist financing can be raised by legitimate sources such as fund-raising activities and business profits, as well as illegitimate sources such as the drug trade and fraud.
  • The fight against terrorism financing requires an understanding of the way terrorist organisations obtain their money and its use.
  • An anxiety-inspiring method of repeated violent action, employed by (semi-) clandestine individual, group or state actors, for idiosyncratic, criminal or political reasons, whereby - in contrast to assassination - the direct targets of violence are not the main targets.
Defining terrorism and Terrorist Finance
  • It is defined by the World Bank as the use of funds “to encourage, plan, assist or engage in” acts of terrorism, where the primary motivation is not financial gain.
what is terrorist financing
What is Terrorist Financing

$ 500 Million Damages

$ 400 Million Cost of the mounting attacks

trends in terrorist financing

After the events of September 11, 2001, awareness of terrorist activity around the world has grown, such as its international impact and ideological orientation.

  • India witnessed the awareness only after the 26/11/2008 attacks on Mumbai.
Trends in Terrorist Financing
why terrorist organisations need money
Money Requirements
  • Terrorist organizations need money to:
  • Recruit and sustain:
  • Money is needed to recruit, support, train, transport, house, compensate and equip terrorist agents.
  • Acquire influence:
  • Money is needed to sustain media campaigns and win political support.
  • Build the support base:
  • Money is needed for educational and social programs to win members and create a support base.
  • Carry out terrorist activity.
Why Terrorist Organisations need Money
sources of money

Even though terrorist groups have similar qualities their sources of money may differ. Terrorist organizations obtain money from a number of legitimate and illegitimate sources

Sources of Money

Illegal activities:

Terrorists obtain funds from illegal activities such as drug trafficking, smuggling, kidnapping and extortion. Drug trafficking is particularly lucrative. In Latin America, 'narco-terrorists' obtain much of their money from the drugs trade.

Wealthy Sponsors:

Terrorists may receive funds from wealthy individual or sponsors which can support their terrorist activities.

Charitable and religious institutions:

Legitimate charitable and religious institutions can be a source of funding for terrorists. They are ideal conduits because they are very lightly regulated and do not need to provide a commercial justification for their activities.

sources of money1

Commercial enterprises:

    • Terrorist organisations may run or own otherwise legitimate commercial enterprises to generate profits and commingle illegal funds. These include jewellery businesses, trading companies, convenience stores, real estate ventures and investment management firms.
  • State sponsors:
    • A number of rogue nations have been known to provide assistance, financial support and safe harbour to terrorist organisations. A prime example of this was Afghanistan under the Taliban regime. Because a large amount of funding for terrorist activities comes from legitimate sources, terrorism financing is sometimes depicted as the reverse of traditional money laundering.
Sources of Money
examples of illegal activities

According to the United Nations Office on Drugs and Crime (UNODC), in 2007 Afghanistan was the largest global supplier of the opium that is used to make heroin. It is believed that these heroin drug profits provide funds, to varying degrees, to Taliban remnants, Al-Qaida, regional warlords, and other terrorist and extremist elements in the region.

Read more

Examples of Illegal Activities
examples of illegal activities1

According to the U.S. Federal Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), the traffic of cigarettes is a profitable business. Smugglers purchase cigarettes in states where the taxes are low and then resell them at a discount in areas where the taxes are higher. Several major cases of illicit cigarette trafficking have links between the traffickers and Hamas, Hezbollah and Al-Qaida.

Examples of Illegal Activities
examples of illegal activities2

The Revolutionary Armed Forces of Colombia (FARC) has been identified as one of the most dangerous international terrorist groups based in the Western Hemisphere. The UNODC states that over the past decade, terrorist groups such as the FARC have increasingly moved into the drug trade to finance operations. The UNODC estimates that in 2003 this group made over $200 million from the drug trade (primarily cocaine) to finance its criminal and terrorist activities.

Examples of Illegal Activities
examples of legal activities

This source includes charities and non-profit organizations (NPOs), import/export, sale of publications, valid employment, subscriptions and memberships, speaking tours, and precious metals and stones.

Examples of Legal Activities
do you know
Do you know ?

Experts believe that the worldwide movement of money through IVTS “Hawala” is in the tens of billions of dollars annually. For example, it is estimated that approximately five billion dollars moves through Hawala networks a year in Pakistan, while in India it is estimated to be 40 per cent of the gross domestic product.

moving terrorist money

There are three primary methods used by terrorists to transfer funds. While the goal is always to avoid detection, terrorists must deal with the advantages and drawbacks of each method.

    • Formal system
    • Informal system
    • Informal value transfer system (IVTS)
Moving terrorist money
slide17

Formal System

    • This method is used for the most part in western societies and involves commercial financial institutions, including banks, credit unions, savings and loan associations, casinos, insurance companies, currency exchanges, etc.
  • Informal System
    • This method is used mostly in less advanced financial venues such as Afghanistan and Pakistan and involves smuggling, couriers and bulk cash shipments using airplanes, ships, automobiles, mail and freight.
  • Alternate remittance
    • With this method the funds or an equivalent value are made payable to a third party in another geographical location.
moving terrorist money1
Moving terrorist money

Legal money as well as illegal money is used in funding the organizations

Money is generally moved before the crime takes place

Financial greed is not the objective of the terrorist financing operations

  • 9/11 was funded in 3 primary ways
    • Wire transfers from outside USA countries
    • Physical Transport of cash and Travelers cheques
    • Accessing the funds in foreign banks with the help of Debit and Credit cards

9/11

moving terrorist money2
Moving Terrorist Money
  • Traditional financial institutions:
    • Often, individual accounts are opened and small withdrawals and deposits are made in order to avoid the reporting requirements of money laundering and counter-terrorism legislation.
  • Alternative remittance systems:
    • Unregulated remittance systems such as 'Hawala' and 'Hundi' are extensively used to transfer funds without any documentation.
  • Currency transfers:
    • Cash is smuggled across borders, particularly through land crossings and sea shipments.
  • Trade financing:
    • With the growth of terrorist-owned commercial firms, trade finance is increasingly being used.
application of funds

Terrorists need money to operate their organizations. And the results are often devastating when they are able to access and use this money. This section of the training looks more closely at some of the ways funds are used.

Application of Funds
terrorist instances in india
Terrorist Instances in India

Mumbai has been the most preferred target for most terrorist organizations, primarily the separatist forces from Pakistan. In the past few years a series of attacks including explosions in local trains in July 2006, to the most recent and unprecedented attacks of 26 November 2008, where two of the prime hotels, a landmark train station and a Jewish Chabad house, in south Mumbai, were attacked and sieged.

functional role of terrorists

The funding requirements of terrorist organizations vary depending on factors such as the type of organization, who is involved, and where they are located. But the one constant is their ability to adapt and change their terrorist financing activities to avoid detection.

Functional Role of Terrorists
learning objectives
Learning Objectives

What is terrorism and terrorist financing?

What are the trends in terrorism?

What are the sources of money for terrorist organisations?

What are the principal methods used by terrorist organisations to transfer money?

What are the application of money for terrorist organisations?

What are the terrorist instances in India

Models of Terrorist financing

What are the Financial Action Task Force's 9 Special Recommendations?

slide31

Money Laundering

Terrorist financing

VS.

slide32

Money Laundering

Terrorist financing

Funds are already obtained by the criminals

Funds are required to be obtained by criminals

Funds are obtained by illegitimates means only

Funds can be obtained in a legitimate manner

Funds are relatively bigger in amount

Funds are smaller as compared to ML operation

Terrorist financing is the means and not the end of transaction whereas laundering is end of the transaction.

models of terrorist financing
Models of Terrorist Financing
  • Traditional Model is defined by World Bank
  • Reverse Laundering is defined by Australian Transaction Reports and Analysis Centre
  • Adapted from J. Schmidt, ITAC Intelligence Assessment: A Terrorist Financing/Resourcing Model, August 15, 2008
traditional model of financing
Traditional Model of Financing

Money Launderers use the illegal money and Terrorists may use legal money as well as illegal money

In case the funds are obtained from the legitimate sources then the stages of laundering are omitted. The money is transferred to the terrorist organisations directly.

reverse laundering

Terrorist financing is considered as the reverse of laundering

    • Terrorism financing is sometimes depicted as the reverse of traditional money laundering since the funds often come from legitimate sources rather than criminal activities.
    • Instead of taking "dirty money" and "washing" it to make it look legal, terrorist financing involves the reverse. That is, the task of moving legal proceeds into the hands of terrorists
Reverse Laundering
slide36

Money Laundering

Terrorist financing

Illegal Money

Legal Money

Placement

Layering

Integration

Legal Money

Illegal Money

alternate model1

Acquisition:

    • In this stage, funds or goods are initially moved into the process that eventually results in their being used by terrorists or direct supporters. Contributors at this stage may or may not know that the final purpose of the funds or goods is for terrorist activity.
  • Accumulation:
    • In this stage, smaller amounts of funds or goods are pooled or funneled into larger ones. This is done by moving them to one or a few financial institution accounts or physical locations. As in the acquisition stage, individuals who combine the funds may or may not know how they will be ultimately used.
Alternate Model
alternate model2

Remittance to Organsation

    • In this stage, the aggregated funds or goods are moved to either the central terrorist organization or person or group acting on behalf of the organization. Upto this point, some or all of the people handling the funds may not be aware of their intended purpose.
  • Remittance to the Cell
    • In this stage, funds or goods are distributed to the cells (individuals or groups) that are responsible for carrying out the organization’s activities. As with stage 3, the transmissions may occur in one or a number of steps and include the same transmission methods. In addition, methods might include providing cells with debit cards and credit cards if they can readily be used. Logistics play a large part in how sophisticated the transmission method used
Alternate Model
alternate model3

Application

    • In this stage, the funds or exchanged goods are exchanged for end-use goods and services to carry out terrorist activities. End-use goods and services include such things as weapons, travel, training, food, accommodation, fraudulent documents, recruitment, propaganda, bribes and compensation.
    • Not all five stages are necessarily present in every terrorist financing process;
Alternate Model
learning objectives1
Learning Objectives

What is terrorism and terrorist financing?

What are the trends in terrorism?

What are the sources of money for terrorist organisations?

What are the principal methods used by terrorist organisations to transfer money?

What are the application of money for terrorist organisations?

What are the terrorist instances in India

Models of Terrorist financing

What are the Financial Action Task Force's 9 Special Recommendations?

fatf recommendations

FATF Special recommendations have been set by the FATF to reduce the risk of being taken advantage of by terrorist financing activity. These regulations, combined with the FATF 40 Recommendations on money laundering, require that all institutions involved in financial transactions:

  • Improve internal controls to lessen the profitable aspects of criminal activity
  • Conduct customer due diligence procedures on all new and existing clients
  • Introduce surveillancemeasures for suspicious transactions and keep transaction records for future verification
  • Report suspicious transactions to national authorities. The means for reporting varies by country
FATF Recommendations
fatf recommendations1

Ratification and implementation of UN instruments

  • Criminalising the financing of terrorism and associated money laundering
  • Freezing and confiscating terrorist assets
  • Reporting suspicious transactions related to terrorism
  • International cooperation
  • Alternative remittance
  • Wire transfers
  • Non-profit organisations
  • Cash couriers
FATF Recommendations
detecting the ctf transactions

Terrorists are less able to carry out their activities when funds are either eliminated or diminished. Detection is about disrupting the flow of terrorist funds, and thus preventing the injury and death of innocent people

Detecting the CTF Transactions
detecting the ctf transactions1

In every situation, with every client, even the ones you know well, you need to ask yourself the following:

  • Does this make sense?
  • Is there something about this transaction that seems unusual when compared to others by the same individual, or organization or others in similar businesses?
  • Is there a pattern with these transactions that makes me suspicious?

Recognizing when something is not quite right is the first step in detecting terrorist financing.

Detecting the CTF Transactions
slide49

You have completed the training on Counter terrorist financing

  • Please feel free to contact us on education@indiaforensic.com