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The Future of the Financial (in)Action Task Force

Financial (In)Action Task Force

When it comes to terrorism and the consistent recurrence of suicide attacks, bombings, and killings many feel, despite international efforts to combat groups such as ISIS, Al Qaeda, and Boko Haram, terrorism is getting worse – not better. Unfortunately, while disheartening to say, this sentiment isn’t exactly wrong.  In 2015, it was reported that deaths by terrorism in OECD countries increased by 650%. Furthermore, in 2016, The Global Terrorism Index concluded that while the number of terrorist bombings decreased throughout the year, the bombs that were detonated in 2016 were more efficient, more lethal and more deadly than ever and had engaged in tactics to maximize fatalities. To put it simply, if an entire terrorist operation were to be looked at like a process that resembled a supply chain of sorts, from funding being the initial raw material to the terror-attack being the end product, every part of the process has become more effective, smarter and resource efficient. In effect, the entire system has grown to function like a well-oiled machine.

The proliferation of terrorism has clear social, economic, and humanitarian effects: lives are lost and the global economy suffers. In 2015, the economic impact of terrorism-related costs worldwide totalled US$89.6 billion, which is a staggering number for the global financial industry.  This growth and persistence of terrorism poses a very problematic concern for the international community. Specifically, the continuing existence of terrorist groups brings into question the effectiveness of international policy-making bodies such as the Financial Action Task Force (FATF), whose purpose is specifically to create international policies that will assist nations to detect, prevent, and stop money laundering activities and terror-financing.

Created in 1989 by the G20 to act as a policy-making body for the international financial system, the FATF introduced a set of 9 special recommendations on October 29, 2001, which were meant to set a “new international standard for combatting terrorist financing.” According to experts, “funding is the lifeblood of terrorist organizations” and that without it, terrorist attacks would cease to exist. It seems logical. Without any money to buy guns or make bombs, terrorists would lose the arsenal with which they cause destruction. So the solution, upon conception, seems easy: identify terrorist groups and cut their funding. As simple and as straightforward as it sounds, it hasn’t been. The FATF’s 9 recommendations, which specifically outline various tactics nations need to undertake to effectively counter terrorist-financing, have effectively proven to be useless. Not only has terror financing continued to persist, in certain parts of the world – it has worsened. Although G20 member states have readily adopted and accepted the recommendations, the funding of terrorist activities and extremism has not slowed. The question that remains then is: why hasn’t the FATF been an effective international governing body in bringing together nations to fight against the financing of terrorism? If the FATF’s member states have openly accepted the 9 recommendations, it is problematic to see that not only have terrorist attacks become more international, they have become more sophisticated as well. While many reasons can be attributed as the cause, two main issues with the FATF’s 9 recommendations remain most debated as the cause.

Firstly, the recommendations are simply not up-to-date. Experts have stated that one of the greatest challenges is the fact that terrorists remain constantly aware of what governments are doing and adjust their tactics accordingly. According to research, terrorist financing mutates continuously and this has two effects. Firstly, it renders a large strain on FATF recommendations. From their inception, FATF recommendations have remained unchanged and as a whole, quite generalized. The 9 special recommendations created to combat terror-financing have remained the same since their introduction on October 29, 2001 and were assigned to member states as a one size fits all approach. As terrorists have become “increasingly adept at eluding detection through use of cash, sophisticated laundering operations or legitimate front companies,” this one size fits all approach simply does not effectively combat the continuing terror-financing activities currently underway. For example, while one of FATF’s nine special recommendations on countering terror-financing recognizes the importance of properly screening charities, as they have often been used to launder money to terrorists, none of the recommendations highlight that legitimate businesses in the private sector need to be watched. This is a problem. For example, the New York Times has reported that Osama Bin Laden “owned and operated a string of retail honey shops throughout the Middle East and Pakistan…[and] in addition to generating revenue, the honey was used to conceal shipments of money and weapons.” The fact that the FATF’s recommendation do not include industry as a possible risk-sector is problematic.

The second most prominent challenge that the FATF continues to face is that nation states have simply been unable to implement the recommendations proposed to them. The reason for this is twofold. Firstly, the recommendations that have been proposed are undeniably west-focused with the capabilities of the developed world in mind. The UN recently published a CTITF Working Group report, titled Tackling the Financing of Terrorism. Within the report, it was said that to be fully effective in this global fight against terrorism, nations must be “equipped with appropriate anti-money laundering legal, regulatory and institution frameworks.” Furthermore, the report highlights that it is important for nations to have the capacity to “enforce laws and to collect, analyze and share real-time intelligence and documentary evidence within and across national borders.” This undeniably leads to a very prominent issue as developing nations and countries in transition simply are unable to afford the means necessary to combat terror-financing. The FATF recommendations do not take into account that in order to implement the recommendations that have been suggested, a complex infrastructure and layered support system needs to be in place – one that is undeniably not economically feasible for many emerging markets and third world countries. As discussed earlier, the persistence of terror-financing and resulting terror attacks are costly and costs can number in the billions. It is incredibly difficult for developing nations to account for the cost of damages and in addition to that, create costly compliance tools and implement equally costly regulation frameworks.

In a period where the cost of inaction is high and the opposition is rapidly innovating to continue its terrorist rampage against the international community, the FATF cannot remain complacent. Adjustments and policy renditions need to be made so that the 9 recommendations are relevant and feasible for all member states of the FATF. The FATF is a powerful international body, and it needs to act proactively and quickly to reduce the overgeneralizations that have weakened the strength of the 9 recommendations. A one-size-fits-all approach does not work for a problem that is multi-faceted, and the FATF must work to remedy that.

Sarah Israr
Sarah Israr is a published writer and freelance journalist. Having completed an Honors Bachelor of Arts in Business and English Literature at the University of Toronto, she has developed a keen interest in technology, cybersecurity, and foreign policy. Her work as a reporter has been published in the South China Morning Post’s country business reports, and her literary pursuits have been recognized by the University of Toronto which awarded her the Sonny Ladoo Book Prize award in 2014. Trilingual, and having lived in three continents by the age of ten, she is an avid traveler and is infinitely passionate about ethical consumption and sustainable change.

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