What Is Combating the Financing of Terrorism (CFT)?
Combating the Financing of Terrorism (CFT) is a set of government laws, regulations, and other practices that are intended to restrict access to funding and financial services for those whom the government designates as terrorists. By tracking down the source of the funds that support terrorist activities, law enforcement may be able to prevent some of those activities from occurring.
CFT is also known as Counterfinancing of Terrorism or Countering the Financing of Terrorism.
- Combating the Financing of Terrorism (CFT) is focused on restricting the movement of funds to terrorist organizations.
- It may focus on a variety of entities, such as banks, charities, and businesses, and a number of activities, such as regulation, supervision, and reporting.
- Most CFT policies are efforts made to identify and halt the movement and laundering of funds, which in some cases may be disguised as legitimate financial transactions, used to finance terrorist activities.
- The primary body driving CFT is the Financial Action Task Force (FATF), a cooperative arrangement among 35 countries that work together to make policy and share information.
- The implementation of CFT policies involves both significant benefits (preventing terrorism) and costs (loss of privacy, mass surveillance, and high risk of abuse) to society.
How Combating the Financing of Terrorism (CFT) Works
Because anyone who willfully provides money to carry out a terrorist act, whether directly or indirectly, is considered to be guilty of financing terrorism, individuals and organizations who finance terrorism need to conceal how the money will be used and where it originated. Terrorists use different methods to finance their activities and conceal the sources of their financing by means specific to their local economy, so financial market regulators and law enforcement must use a variety of techniques to catch these criminals.
The funds may come from legal sources, such as legitimate businesses, government funding, and religious or cultural organizations, or from illegal sources, such as drug trafficking, kidnapping for ransom, and government corruption. The funds may also come from an illegal source but appear to come from a legal source through money laundering.
Money laundering and terrorism financing are often linked. When law enforcement is able to detect and prevent money laundering activities, it may also be preventing those funds from being used to finance acts of terror. Combating money laundering is key to CFT. Instead of trying to catch a criminal plotting or committing an act of terrorism through other means, law enforcement officials may address the problem from the money side by pursuing the flow of funding that supports the activities.
CFT policies involve investigating and analyzing suspicious financial flows and the routine surveillance and collection of vast amounts of data regarding transactions across the economy. CFT efforts may focus on charities, informal banking activities (such as hawala), and registered money service businesses, among other entities. However, most CFT policies and regulations by necessity apply broadly to entire populations and financial markets.
National and International Combating the Financing of Terrorism (CFT) Initiatives
CFT policies largely originate and are modeled upon the report Forty Recommendations, which was published by the G-7's Financial Action Task Force (FATF). The FATF, which is composed of 35 countries and two regional organizations (the European Commission and the Gulf Co-operation Council), works to combat money laundering and the financing of terrorism through creating standardized processes to stop threats to the international financial system. Following the FATF, world organizations, international financial institutions, and many national governments have pursued CFT initiatives and policies.
At the level of international institutions and non-governmental organizations (NGOs), CFT includes teaching financial investigative techniques to law enforcement, teaching prosecutors to win money laundering cases, and training financial supervisory and regulatory authorities to identify suspicious activity. The FATF also collects and shares information about trends in money laundering and terrorism financing and works closely with the International Monetary Fund (IMF), the World Bank, and the United Nations.
At the national level, CFT efforts are essentially anti-money laundering policies. The primary mechanism of anti-money laundering laws and regulations is to compel individuals and businesses to disclose information about financial transactions, organizational and ownership structures, and the identities of individuals and entities involved to government authorities. Once identified, suspicious financial activities and assets can be referred for law enforcement prosecution or may be administratively seized or frozen.
Financial Intelligence Units (FIU) and the practice of cross-border information sharing among nations contribute to CFT. FIUs are specialized government agencies that investigate reports of potentially suspicious financial transactions received from individuals and institutions. FIUs then give law enforcement information about transactions that warrant further investigation.
Financial institutions play an important role in combating the financing of terrorism because terrorists often rely on them, especially banks, to transfer money. Laws that require banks to perform due diligence on their customers, both new and existing, and to report suspicious transactions, such as high-value cash transactions, to the authorities can help prevent terrorism.
When there are differences in anti-money laundering and CFT laws among countries, especially when some countries offer greater financial freedom and privacy than others, proponents of CFT will pressure those countries to increase financial restrictions and surveillance on the grounds that they may otherwise allow terrorists to secretly move money. By creating standardized procedures for the financial sector, the criminal justice system, and certain businesses and professions, terrorism financing becomes harder to hide.
Benefits and Costs of Combating the Financing of Terrorism (CFT)
The obvious, intended benefit of CFT is to disrupt and hopefully prevent the incidence of terrorist attacks. An additional reason for CFT is that the use of the financial system by criminals engaged in money laundering and terrorist financing is considered a threat to the financial system’s stability. The public may not trust the integrity of the financial system if the system cannot detect illicit activities.
CFT also imposes major costs on society. The most significant of these is that CFT policies often reduce or eliminate privacy and anonymity in financial and other transactions for all people in society.
Whether or not they are engaged in financing terrorism, everyone has to give up their financial privacy according to advocates of CFT. The nature of money laundering is to hide suspicious transactions among many other innocuous transactions, so information about most or all transactions has to be collected in order to detect laundering. Because people value their own privacy, this represents an enormous loss to society, in addition to the administrative burden of the disclosures themselves.
As it is carried out through law enforcement, CFT is implicitly (or explicitly) achieved through violence and the threat of violence or other coercion against civilians and private businesses. This raises a moral issue because the threat of one type of potential violence, terrorist attacks, is simply replaced by a threat of violence by the government against everyone who does business.
Finally, flowing from the other costs, CFT raises a distinct risk that widespread financial surveillance of the population, backed up by the threat of law enforcement action, will be abused. Information is power, and once in place, the power thus created by CFT policies can be used against any individuals or groups that a government chooses to go after simply by labeling them "terrorists."
These powers can, have, and will be used to target and persecute political dissidents, legitimate protest movements, or specific segments of the population that a government wants to discriminate against.