Terrorist Financing and the threat beyond ISIS

Financial Crime Consultant at TORI Global

If you have read the papers, watched the news or waded through the numerous reports being generated on ISIS, you will be unsurprised to hear that the organisation has spread its tentacles far beyond Syria and Iraq. It is all along the African coastline of the Mediterranean, it is in Afghanistan and Libya and has followers in France, Belgium, Turkey as well as the UK and US to name but a few. It has become a beast with many heads and many of those heads are either invisible or at the very least, difficult to see. These connections all need financing and it is perhaps this area that gives us a potential route to identifying not just ISIS members and their fellow travellers but also the groups who may eventually replace them.

A recent report by the Centre on Religion and Geopolitics (CRG) suggests that there are at least fifteen groups based in Syria with 65,000 followers who have aspirations of taking up ISISs mantle once they have been defeated. Two of these groups Jabhat al-Nusra and Ahar al-Sham have the same ideological aspirations as ISIS and they want to found an Islamic state and wage jihad on the rest of the world. It is therefore important that we don’t rush into a full scale conflict without having an end game in place. This has happened in both Iraq and Afghanistan and has in both cases been a strategic failure.

To be successful it is the Arabic and wider Muslim world who need to take the lead in countering the spread of the extremist Salafi-jihadism and neutralising the threat of ISIS and the other extremist groups in the Middle East be they Sunni or Shia. They need to be full time partners and not just bit part players or worse still, passive observers. This will include taking active steps to prevent citizens sending funds to terrorist groups and implementing strong AML/CFT legislation.

It is also important to recognise that the battle hardened ISIS fighters will not simply evaporate into the mist once ISIS is defeated or at least severely diminished, they will join the new groups and provide them with a keen cutting edge. It will therefore require a coalition of fellow Muslims to blunt that blade, which at this moment in time, with the execution of Sheikh Nimr al-Nimr, the burning of the Saudi embassy in Iran and the conflict in Yemen, seems a forlorn hope.

Follow the money

It has been observed that there is a marked overlap between money laundering and terrorist financing – both criminals and terrorists use similar methods to raise, store and move funds. However, the motive for generating those funds differ. Terrorists ultimately want to make, move and use money to commit terrorist acts and unlike criminal gangs, disparate individuals come together through a shared motivation and ideology, hence we see foreign fighters making their way to fight for ISIS and the promised Caliphate. All of this takes funding and the regulated sector, as well as the regulatory authorities need to be aware of the potential threat that this represents.

ISIS has shown that it is a well organised group able to raise funds effectively and FATF has confirmed in its February 2015 report and its more recent December update that ISIS continues to generate most of its funding from within the territory it controls - from the exploitation of oil, gas, and other natural resources to the extortion and theft from local populations. However they are still actively engaged in kidnapping, sexual slavery, selling and taxing drugs, as well as selling the world’s cultural heritage from the archeological sites that they have looted and destroyed. They are still expanding their reach and recent reports from Afghanistan have suggested that they are moving into Helmand province and ousting the drug gangs and Taliban from the region and obtaining another valuable revenue stream. There are also reports suggesting that they are becoming heavily involved in people trafficking taking individuals from Afghanistan and setting up operations in Libya to traffic refugees into the soft underbelly of Europe, some of whom will undoubtedly be trained fighters. This spread of influence internationally and the possible infiltration of terrorist cells into the heart of Europe gives us the potential to track funds but unlike with money laundering, the funds we will be tracking are likely, for the most part, to be small.

Despite the large funds being generated by ISIS, it should be noted that only a small proportion of the sums they raise are being used to launch terror attacks, indeed some of the attacks will be entirely self-funded, as we saw in the case of the recent US attack, or require only a small outlay of funds, as we saw in the Paris attacks. This makes identifying financial transfers very difficult, as we may not be looking at laundered funds per se but rather a personal bank loan or a very small transfer of funds, which may come in via an MSB or a small personal transfer of funds from one retail account to another or through a Hawala transfer or smuggled in as cash. This requires the regulated sector to be more proactive in recognising terrorist financing and treating it separately to money laundering and not just as an add-on to ensure that the facilities our regulated institutions offer are not being misused.

First Steps

It is important that we get past the concept of secrecy for secrecy’s sake and take steps to improve the exchange of information. This should mean effective meaningful information sharing between operational agencies and include our domestic national agencies, international agencies and the public and private sector - with appropriate safeguards and protocols put in place. Financial intelligence has played an important role in investigations conducted after terrorist attacks but it must play a greater role in preventing future terrorist attacks and contribute to the prevention and disruption of future terrorism activities.

This is of course easier said than done, as many jurisdictions have strict privacy laws which restrict what can be collected, stored or shared. This represents a challenge but it also represents an opportunity for countries to re-examine their data sharing protocols and how they utilise the intelligence gathered to protect the wider community as a whole. A balance needs to be struck that meets the needs of privacy for the community while protecting that community from terrorist attack and this will involve compromise.

Government agencies should be releasing regular updates to the regulated sector on both terrorist and money laundering threats/risks, specifically if targeted at the financial or sector or potentially seeking to use it to further attacks. Information sharing should not be a one way street and our agencies must be doing more to help educate and assist the regulated sector wherever possible.

Strengthening international co-operation and improving the exchange of information between countries and international agencies will not occur overnight and it will take time to implement efficient practical information sharing protocols but it is something that needs to be done if we are to identify terrorist funding and be more effective at stopping money laundering in the wider sense.

The regulated sector will also need to adopt different risk models to identify not only direct terrorist funding but those likely to be engaged in terrorist funding who may require enhanced due diligence. This may require development of grey lists similar to those used in Mexico to identify new potential OFAC targets before they go on the OFAC list or some other measure involving a mixture of KYC, CDD and transaction monitoring. We cannot rely on AML models designed to identify the placement, layering and integration of elicit funds to work in cases where the terrorist suspect is self-funding, the funds come from a legitimate source such as a charity, or government agency, or the level of funding is small.

Beyond ISIS

ISIS is a very real, very current problem in the Middle East and but we must also consider the other terrorist groups who represent an equally real and credible threat and not simply focus exclusively on ISIS. The spread of groups such as Boko Haram, al-Shabaab or Al-Nusra Front represent a threat that must be countered and this can’t simply be the Wests problem. It is an African and Muslim problem where the West can and must assist but not be seen as the lead.

Similarly we have Lashkar-e-Taiba in Kashmir who were involved in the Mumbai attack in 2008. India has alleged that the Inter-services Intelligence of Pakistan (ISI) trained members of the group and other Kashmiri separatist groups in an attempt to disrupt the region. Terrorist activity destabilises regions, creates chaos, spreads fear and destroys economies and more must be done by the countries effected in those regions. In Kashmir we have a clear example where thousands have been killed during this long running conflict and both India and Pakistan have a duty to resolve their differences and bring peace to the region.

The West at times can be both myopic and too narrowly focused to see the wider picture, it fails to plan ahead or it makes collective assumptions, which are not based on fact or at best are based on half-truths and poor intelligence. Examples of this include Saddam’s weapons of mass destruction and the failure to recognise the convoluted tribal loyalties and rivalry’s in the region, which can lead to the choice of allies who are apt to kill our service men and women if the wind changes direction. Planning for the end game must have a more long-term strategic value than the short-term assuaging of public anxiety.

The bombing campaign in Syria and Iraq will degrade ISISs ability to make money in that region but it will not destroy the group or prevent it raising funds in other regions, nor will it prevent its fighters joining other terrorist groups or going to other regions. It will also do little to assuage the simmering tensions between Shia’s and Sunni’s, which is perhaps the greater threat to the region in the long-term.

If the West is perceived as the instigator of the war on terror and the killing of Muslim’s then we may see more disenfranchised Muslim youths flocking to the cause to defend Islam. We must also recognise the conflict raging between Shia’s and Sunni’s and the proxy wars being fought between Saudi Arabia and Iran which may destabilise the region further. In the short-term the West must work with Russia to put pressure on both Iran, Syria and Saudi Arabia to sit down and talk, which I accept is no simple task but it is a necessary step to prevent a further escalation of the conflict in the region.