Terrorist Financing – The case of Hamas

Terrorist financing means the financing of terrorists, terrorist acts, and terrorist organizations (FATF glossary). Terrorist acts can range from planning and executing terrorist attacks to recruiting and training members, acquiring weapons and equipment, and influencing public opinion.

Terrorist organizations pose a significant global threat, causing widespread fear, instability, and loss of life. According to the FATF, terrorist organizations rely on various methods to support their operations, which can originate from various sources and concealed through various methods including:

• Charitable organizations: Misuse of legitimate charities to funnel funds to terrorist groups, often exploiting their tax-exempt status to obscure financial transactions.
• Criminal activities: Involvement in illicit activities such as drug trafficking, extortion, and kidnapping to generate funds for their operations.
  Hawala and underground banking systems: Informal money transfer systems that facilitate cross-border transfers without official records, making it difficult to trace their illicit origins and destinations.
• Cryptocurrencies: They are increasingly used to transfer funds anonymously and bypass traditional financial regulations, posing challenges for law enforcement agencies to track and intercept these transactions.
• Crowdfunding platforms: Abuse of online platforms to receive donations for
  terrorist activities, taking advantage of anonymity-enhancing tools and ease of access provided by these platforms.

The case of Hamas

The recent attack of Hamas on Israel highlights the importance of combating terrorist financing.

According to Reuters, Hamas is known to have a wide fundraising tools that includes charitable organizations, taxes on goods, and donations from friendly nations such as Iran and Qatar. The group also uses cryptocurrencies, credit cards, and contrived trade deals to avoid international restrictions.

The United States has increased its efforts to cut off funding to Hamas. However, completely cutting off the money to Hamas and affiliated terrorist groups has been difficult.

Regulated entities need to understand that the primary goal of individuals or entities involved in the financing of terrorism is not necessarily to conceal the sources of the money but to conceal both the financing and the nature of the financed activity.

Combating Terrorism Financing – Practical strategies

It is crucial for entities to implement a comprehensive approach to terrorist financing that includes understanding the methods by which terrorist organizations acquire and utilize funds and taking measures to prevent them.

Here are some key strategies:

• Tailor your risk assessment to include terrorist financing risks:
  When conducting your AML risk assessments, specifically consider the potential for terrorist financing associated with different customer types, products, services, and geographical locations. This tailored approach will help you identify and prioritize high-risk areas for enhanced due diligence and monitoring.
• Implement enhanced due diligence (EDD) for high-risk customers:
  For customers identified as posing a higher risk of terrorist financing, conduct more rigorous EDD procedures. This may include verifying the source of funds, understanding the customer’s business or activities, and obtaining additional information about the customer’s beneficiaries or counterparties.
• Monitor transactions for suspicious patterns:
  Establish robust transaction monitoring systems that can identify patterns indicative of terrorist financing, such as large or frequent cross-border transactions, transactions involving high-risk jurisdictions or entities, and transactions that deviate from the customer’s established patterns of activity.
• Leverage data analytics: 
  Utilize data analytics techniques to gain insights from transaction data. This can help identify unusual patterns, cross-checks with sanctions lists, and correlations between multiple transactions.
• Implement sanctions screening:
  Screen all transactions and customers against relevant sanctions lists to ensure that you are not facilitating transactions with individuals or entities that have been designated as supporting terrorism. This includes screening against lists from the United Nations Security Council, the U.S. Office of Foreign Assets Control (OFAC), and other relevant authorities.

By understanding the complex mechanisms of terrorist financing and taking appropriate measures, we can better target our efforts to disrupt their funding sources and ultimately dismantle their operations, safeguarding communities from the devastating impact of terrorism.

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