Money laundering and terrorism financing are often mentioned in the same context, without much consideration to the critically important differences between them.
Many of the controls that businesses implement are meant to serve the dual purposes of combating both money laundering and terrorism financing.
The controls instituted to combat money laundering have also strengthened the ability to identify, deter and disrupt terrorism financing. According to the US Terrorist Financing Risk Assessment of 2015, 58% of the individuals investigated by law enforcement for ties to terrorist organisations were reported as having engaged in suspected money laundering, including structuring.
However, money laundering and terrorism financing are two separate crimes, and, while no one has been able to create a workable financial profile for operational terrorists, there are key distinctions that can help understand the differences and can help distinguish suspicious terrorist financial activity from money laundering.
The most basic difference between terrorism financing and money laundering involves the origin of the funds:
- Terrorism financing uses funds for an illegal political purpose, but the money is not necessarily derived from illicit proceeds. The purpose of laundering funds intended for terrorism is to support terrorist activities. The individuals responsible for raising the funds are not the beneficiaries of the laundered funds. The money benefits terrorist activity.
- On the other hand, money laundering always involves the proceeds of illegal activity. The purpose of laundering is to enable the money to be used legally. The individuals responsible for the illegal activity are usually the ultimate beneficiaries of the laundered funds.
From a technical perspective, the laundering methods used by terrorists and other criminal organisations are similar. Although it would seem logical that funding from legitimate sources does not need to be laundered, there is a need for the terrorist group to disguise the link between it and its legitimate funding sources; one reason being the continued and un-compromised future use of that source. In doing so, the terrorists use methods similar to those of criminal organisations: cash smuggling, structuring, purchase of monetary instruments, wire transfers, and use of debit, credit and/or prepaid cards. The hawala system, an informal value transfer system involving the international transfer of value outside the legitimate banking system and based on a trusted network of individuals, has also played a role in moving terrorist-related funds.
In addition, money raised for terrorist groups is also used for mundane expenses like food and rent, and is not always strictly used for just the terrorist acts themselves.