The uptick in terrorist attacks against Western targets in recent years has forced many EU countries to take a deeper look into how these crime organizations still manage to thrive and how their plans continue to be financed. Following the United States’ passage of the Patriot Act and the declared “war on terror” – the EU has also taken action to tighten legislation and close loopholes that once allowed terrorists to exploit democratically-granted freedoms to commit horrible acts of violence against the West.
Among other steps, many EU countries have created procedures and implemented regulations to identify and thwart money laundering by terror organizations, including the online money laundering practice known as Transaction Laundering.
As the new advanced form of money laundering, Transaction Laundering has quickly become the more common, and the least regulated cybercrime. The principle of Transaction Laundering is simple: an unknown entity uses an approved merchant’s payment credentials to process card payments for unknown products and services.
Despite is “newness”, advanced forms of money laundering and terror financing have a history together. The 2015 attack on the offices of Paris satire magazine Charlie Hebdo was partially financed by online payment fraud. The attacker bought €8,000 of counterfeit items, mostly consisting of Nike shoes that he procured from China via Western Union and sold in France online. This chain of funding shows a correlation between Transaction Laundering and terrorism, using legitimate marketplaces to conduct an illegal activity (in this case, selling counterfeit shoes) and then using the proceeds to launder money for terrorists. And in 2017, the FBI revealed that ISIS was financing their domestic terror agenda in the US via Transaction Laundering over eBay and PayPal.
Shiite Lebanese Islamist group Hezbollah has also been implicated in money laundering schemes to help finance its terrorist activities. According to Reuters reporter, Joshua Fruth, the organization “hires professional money launderers with a detailed knowledge of compliance that could rival the AML experts working at banks.”
According to the 2018 European Union Terrorism Situation and Trend Report (TE-SAT), in recent years there has been an increase in the frequency of jihadist attacks, but a decrease in the sophistication of their preparation and execution. This could well be an indication of the success of various Europol programs that have been successful in impacting the financing of organized terror – but perhaps less so in stopping “lone wolf” or “copycat” attackers.
TE-SAT 2018: Key Terror Finance Findings
The United Nations Office on Drugs and Crime (UNODC) estimates that 2 and 5% of global GDP is laundered each year. That’s roughly EUR 715 billion and 1.87 trillion each year. The very broad and lengthy TE-SAT report dedicates significant space to the issue of terror financing, and the role money laundering plays – both online and offline. Several large-scale financial investigations during 2017 are discussed in the report, including:
- An investigation into a large network of Lebanese nationals providing money laundering services to EU-based organized crime groups. These crime groups used a share of the laundering profits to finance Hezbollah terrorism-related activities – a classic example of the connection between organized crime and terrorism.
- An investigation into financial support for foreign terrorist fighters (FTFs) in Iraq, Syria, and Libya, which uncovered the process that supports FTFs through their families in Europe. This financing was through a network of facilitators and money collectors, and investigators followed the path of some €2 million.
The report also delves into the informal and traditional value transfer system used widely in the Middle East known as Hawala. Based on trust and operating outside the conventional banking system, money is paid to a network of brokers known as a “Hawaladars” and is virtually impossible to trace. The report reveals that many prominent Hawala operators are based in the United Arab Emirates (UAE), which “frequently serves as the international platform for illicit finance activities.”
Recent Legislation in EU Countries to Fight Terrorist Money Laundering
Nearly all EU countries have enacted some form of terrorist-oriented legislation in recent years. The below countries have specifically and legislatively addressed the financial aspects of terror infrastructure in 2017:
Lithuania amended its criminal code to define the financing and support of terrorist activities as including the preparatory stage and provision of support to terrorists or a group with terrorist goals. More importantly, the country adopted a new version of the ‘Law on Money Laundering and Terrorist Financing Prevention’, to be in line with EU Directive 2015/849, which measurably changes the regulation and prevention of money laundering for terrorist financing.
In May 2017, Italy adopted Legislative Decree 90, which implements EU Directive 2015/849 regarding the prevention of the use of the financial system for money laundering or terrorist financing. The Decree establishes clear rules concerning the cooperation between various law enforcement agencies to track suspicious transactions, including those intended to fund terrorist activities.
In April 2017, the Criminal Finances Act was passed and implemented. This sweeping legislation provides law enforcement agencies with significantly-expanded powers to tackle terrorist financing, delineating specific procedural needs and the details of inter-agency cooperation. The act also allows for improved intel sharing for disclosed information that may assist in determining whether a person is involved in a terrorist financing offense, or that funds are terrorist financing funds, and enables seizure of assets and terrorist cash without the need to go through the courts.
Portugal passed legislation mandating the freezing and confiscation of crime proceeds in the European Union. Moreover, the country amended its criminal code in relation to money laundering, terrorist financing, and judicial cooperation on terrorism and cross-border crime.
In 2017, Malta amended its ‘Prevention of Money Laundering Act’ to include Funding of Terrorism. The act amended the previously-passed Prevention of Money Laundering
Act. Moreover, relevant asset recovery bureau regulations came into force by virtue in 2017.
The EU is getting tougher to combat the financial side of terror, cracking down on many of the ways terrorists are able to move money around and placing more scrutiny on what happens within each EU country and across borders.
Notably, the EU reinstated its Policy Cycle for 2018 – 2021, which was originally set up in 2010 as a four-year effort to combat the biggest threats posed by international and organized crime groups. Both traditional money laundering and Transaction Laundering are a key priority for this updated, multi-annual effort. The policy states that it strives “to combat criminal finances and money laundering and facilitate asset recovery in view of effectively confiscating the criminal profits of Organized Crime Groups (OCGs), especially targeting money laundering syndicates offering money laundering services to other OCGs and those OCGs making extensive use of emerging new payment methods to launder criminal proceeds.”
What remains to be seen is how effectively EU states can translate this into cohesive, effective anti-online money laundering policies and practices.