The mechanism of control of corruption and the rule of law. Mediating the effect of culture on terrorism financing
| DOI | https://doi.org/10.1108/JMLC-11-2018-0066 |
| Date | 02 July 2019 |
| Pages | 498-514 |
| Published date | 02 July 2019 |
| Author | Anas Al Qudah,Ahmed Bani-Mustafa,Ahmed Yamen |
| Subject Matter | Financial risk/company failure,Financial compliance/regulation,Financial crime |
The mechanism of control of
corruption and the rule of law
Mediating the effect of culture on
terrorism financing
Anas Al Qudah
Department of Finance, Yarmouk University, Irbid, Jordan
Ahmed Bani-Mustafa
Australian College of Kuwait, Kuwait, and
Ahmed Yamen
Department of Accounting, American University of the Middle East, Kuwait and
Department of Accounting, Ain Shams University, Cairo, Egypt
Abstract
Purpose –In this study, the authorsaim to investigate the control of corruption (COC)mechanism and the
rule of law (ROL) in mediating the effect of culture on terrorism financing. Thus, whether the COC and the
ROL can mediate the effect of culture on terrorism financing across 78 countries has been examined. This
study can provideadditional evidence about the importanceof having good institutional qualityto hinder any
deviant behaviorlike terrorism financing.
Design/methodology/approach –Structural equation modeling is used to test the mechanism of the
ROL and COC in mediating theeffect of culture on terrorist financing (TF). This research tries to investigate
the indirect path of culturein TF through COC and ROL and to examine the roleof institutions in motivating
or demotivatingthe deviant behaviors.
Findings –The results revealed that COC andROL completely mediate the relation between culture and
TF. This supports the postulation that there is an indirect relationship between culture and TF. Also, the
resultsindicate that ROL is more powerful than COC, as a governmentaltool, in controlling TF.
Originality/value –This paper highlights the fact that, according to authors’research, this is the first
study, to the best of their knowledge,that tests the mechanism of the ROL and COC in mediating the effect of
cultureon TFactions and money laundry.
Keywords Terrorist financing, Culture dimensions, Rule of law and control of corruption
Paper type Research paper
Introduction
Terrorism is a worldwide problem. According to the Global TerrorismIndex (2017) Report,
eight of the world’s nine regions havewitnessed an increase in terrorism since 2002. In 2016,
there were approximately 26,000 terrorisms-related deaths, an increase of 13 times since
2002. Also in 2016, the economic costs of terrorism amounted to about $84bn, compared to
$13bn 14 years ago; many funding sources are coming from financial transfers and
donations. The reasons for this kind of radicalization range from terrorists’income and
education levels to their religiousbeliefs and the influence of their society’s culture.
Although there is no agreement among experts about the definition of terrorism, many
researchers have attempted to draw upa profile of the typical terrorist and the factors that
JMLC
22,3
498
Journalof Money Laundering
Control
Vol.22 No. 3, 2019
pp. 498-514
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-11-2018-0066
The current issue and full text archive of this journal is available on Emerald Insight at:
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influence terrorism (Vohryzek et al.,2001). According to Ganor (2009), terrorism can be
defined as activities that aim to achieve political goals through the installation of fear and
anxiety among a target population. Terrorist financing (TF) refers to the act of processing
finances to sponsor terrorist activities. Like any otherorganization, terrorist groups ensure
that they have a constant supply of funds which are channeled from suppliers through
money laundering and other financial crimes (Giraldoand Trinkunas, 2007). There are two
types of TF: the provision of financial support and the undertaking of revenue-generating
activities. In most cases, the money that finances terrorists comes from either criminal
activities or legal sources (Del Cid G
omez, 2010). In most countries, policymakers are
continually fightingagainst terrorism funding and money laundering.
The Financial Action Task Force (2013) states that legislators could play a vital role in
preventing future terrorist activities. Consequently, scholars, policymakers and legislators
have attempted to create a holistic frameworkwithin which to counter terrorism. However,
these attempts seem to be inadequate as terrorist attacks are increasing more than ever
(Enders et al.,2016). Many scholars point to the failure to fully understandthe phenomena of
terrorism as an explanationfor the lack of success in countering it (Beck, 2002;Jenkins,1988;
Mamdani, 2002). Some scholars claim that there is no general theory of terrorism because
the types of terrorist activities and their reasons are wide ranging (Bjørgo, 2011;Brannan
et al.,2001). However, it is well-known that financing is a constant and key factor in their
growth and success. Studiesindicate that terror groups rely on several sources of financing.
Additionally, they use a wide range of methods to move funds around undetected
(Giraldo and Trinkunas, 2007). The fact that some terrorist organizations raise their funds
through illegal activities, such as drug trafficking, calls for policymakers to intervene.
Eradicating the causes of terrorism remains the most sustainable way to curb this activity
(Krieger and Meierrieks (2011). Interference with their means of fundingcould weaken and
eventually eradicatethese groups.
Despite the intensification of the war on terrorism, since the mid-1980s, there are
variations in how different countries attempt to curb TF (Oberschall, 2004). First, the way
financing systems work differs among countries(Giraldo and Trinkunas, 2007); this creates
differences in the way activities, such as money laundering and TF, are remedied. Second,
cultures also differ across countries. The methods Western countries use to curb TF differ
from those of their Asian counterparts.
The recent rise and integration of capital markets mean that terrorist attacks can have
effects that go beyond national boundaries(Oberschall, 2004). An attack on one nation could
substantially compromise the stability of financial markets in other interlinked nations.
Additionally, terrorist activities can lead to reductions in stock returns and increases in
inflation (Chen and Siems, 2004;Guidolin and La Ferrara, 2010). They can also lower the
confidence of potential investors,consequently reducing local and foreign direct investment.
In the long run, as the living conditions of a country’s citizens deteriorate because of
terrorism, the economy is also adversely affected. In some cases, terrorism can be so
extensive, it can cause a country to experience sluggish recovery. Therefore, policymakers
are important stakeholdersin the fight against terrorist acts (Post, 2005).
An understanding of the financialconsequences of terrorism helps in devising pragmatic
mechanisms that aim to mitigate this menace. As financing is key to terrorist groups’
activities, policymakers must establish strategies that aim to compromise these groups’
abilities to access funds. According to Peterka-Bentonand Benton (2014), the most practical
approach to defeating terrorismfinancing is through understanding the role nationalculture
(NC) plays in terrorist activities. However, these authors addressthe impact of only a single
Effect of
culture on
terrorism
financing
499
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