Current trends in terrorist financing
| DOI | https://doi.org/10.1108/JFRC-03-2021-0022 |
| Published date | 18 October 2021 |
| Date | 18 October 2021 |
| Pages | 107-125 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial compliance/regulation |
| Author | Fabian Maximilian Teichmann |
Current trends in terrorist financing
Fabian Maximilian Teichmann
Teichmann International AG, St. Gallen, Switzerland
Abstract
Purpose –The purpose of thispaper is to illustrate how intelligent terrorist financiersavoid detection when
acquiring and subsequently transferringfinancial assets to finance terrorism. Particular emphasis is placed
on cryptocurrency.
Design/methodology/approach –A qualitative content analysis of 30 semi-standardised expert
interviewswith both criminals and prevention experts led to the identification of means for the circumvention
of currentcombat the financing of terrorism (CFT) measureswith a focus on cryptocurrency.
Findings –The findings illustrate, for the benefit of law enforcement agencies, investigators, regulating
authorities and legislators,the specific low-risk methods that terrorist financiersuse to generate and transfer
assets.These findings help to develop more effective preventionmethods.
Research limitations/implications –Qualitative findings from the analysis of semi-standardised
interviewsare limited to the 30 interviewees’perspectives.
Practical implications –Identification of gaps in existing CFT mechanisms provides compliance
officers,law enforcement agencies and legislators with valuable insightsinto how criminals operate.
Originality/value –The existing literature focuseson organisations that combat terrorist financing and
the improvement of CFT measures. This article outlines how terrorist financiers avoid detection. Both
preventativeand criminal perspectives are considered.
Keywords Terrorism, Compliance, Compliance and regulation, Terrorist financing, Cryptocurrency
Paper type Research paper
1. Introduction
With the rise of the “Islamic State”(ISIS), which has claimed responsibility for several
terrorist attacks in Europe and battles over territories in Syria and Iraq, combatting
terrorism continues to be a central goal for law enforcement agencies and regulators.
However, while there is consensus that terrorism must be prevented, there is disagreement
about how exactly this can be achieved.
One potential solution is to interrupt the funding of terrorist organisations. This
approach assumes that many forms of terrorism require significant financial means. In
order to orchestrate attacks, terrorists need, among other resources, weapons and
explosives; without access to sufficient funding, their operations will be constrained.
However, with regard to recent attacks in Nice, Stockholm and Berlin, this assumption
should be relativised. In these three cases, the terrorists used weaponised trucks, which
made the attacks comparativelycheap.
Although not every terrorist attack is expensive, larger terrorist organisations, such as
Al-Qaeda and ISIS, require a certain amount of money to maintain their structures. For
instance, fighters who protect ISIS territoryin Syria must be paid a living wage. Therefore,
combatting terrorist financing is of interest to the international community, as doing so
Funding:The authors received no financial support for the research, authorship and/or publication
of this article.
Current trends
in terrorist
financing
107
Received26 March 2021
Revised4 June 2021
Accepted6 August 2021
Journalof Financial Regulation
andCompliance
Vol.30 No. 1, 2022
pp. 107-125
© Emerald Publishing Limited
1358-1988
DOI 10.1108/JFRC-03-2021-0022
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1358-1988.htm
weakens terrorist organisations.In particular, a lack of resources limits these organisations’
room for manoeuvre,especially in terms of orchestrating massive terroristattacks.
Statistics on the sources of funds and transfer methods of terrorists are inevitably
inaccurate, as there is likely to be a considerable number of unknown cases. The current
study investigates how intelligent terrorist financiers avoid detection when acquiring and
subsequently transferringfinancial assets to finance terrorism. The aim is to anticipate how
intelligent criminals may operate and to recommend legal measures that will increase the
effectiveness of steps to combat the financing of terrorism (CFT). For this purpose, the
funding of terrorists is analysed from the perspective of criminals, whose methods for
the generation and transfer of funds are reconstructed.
Initially, 15 informal (unrecorded) interviews were conducted with presumed providers
of illegal financial services. The intention was to investigate exploratively the sources of
income that terrorists use and how they transfer funds transnationally. Based on the
findings of this pre-study, 15 semi-structured interviews with compliance experts were
conducted. Here, the use of cryptocurrency forterrorist financing was of particular interest.
The statements of the interviewees were analysedwithin the scope of summarising content
analysis, following Mayring (2010). The findings illustrate, for the benefitoflaw
enforcement agencies, investigators,regulating authorities and legislators, the specific low-
risk methods that terrorist financiers use to generate and transfer assets. In particular, the
former could gain valuable insights into how terrorist financiers operate to be able to
anticipate and trace their actions more effectively, while regulators such as the Financial
Action Task Force (FATF), the United NationsOffice on Drugs and Crime (UNODC) and the
Egmont Group, a group of Financial Intelligence Units, and legislators could draw
implications for theirpolicies.
The remainder of the paper is structuredas follows. First, a literature review provides an
empirical perspective on terrorism, itscosts and how it is financed. Moreover, overviews of
CFT measures and the functioning of cryptocurrency are provided. Subsequently, the
methodology and empiricalfindings of this study are detailed. Thereafter, recommendations
are made concerning instrumentsthat investigators could use and the implementation of an
international regulatory framework for more active CFT efforts. The concluding section
summarises the implicationsof the study.
2. Literature review
2.1 Impact of terrorism and prevention mechanisms
Terrorist attacks can hurt the economy of the targeted country by increasing uncertainty,
which usually leads to a decrease in investments(Abadie and Gardeazabal, 2008;Blomberg
et al.,2004;Brown et al.,2004;Enders and Sandler, 1996;Kaufmann et al., 1997;Koh, 2007;
Nitsch and Schumacher, 2004;Pizam and Smith,2000). In addition, the stock market can be
affected (Drakos, 2004). Terrorism can also cause declines in tourism because tourists are
unlikely to visit at-riskdestinations (Frey et al., 2004). Moreover, terrorism negativelyaffects
domestic savings ratesand consumption, for instance because citizens placetheir savings in
“safe havens”(Frey et al., 2004) and foreign trade because of the general increase in
insecurity caused by terrorism (Frey et al.,2004). There can further be substantial indirect
costs such as longer waiting periods at airports, higher friction and transaction costs in
international trade and higher militarycosts (Frey et al., 2004). Furthermore, there can be an
overlap between terrorism and organised crime such as money laundering. The linkage
between criminal groups and terrorist networks, the crime–terror nexus, is well established
in the literature and has beenanalysed thoroughly by researchers (see e.g. Berry et al.,2003;
Shelley and Picarelli, 2005;Franco and Sumpter, 2018;Ruggiero, 2019;Ünal, 2019;
JFRC
30,1
108
To continue reading
Request your trial