Funding isn’t key and funding has alt causes.

The amount of terrorist attacks in recent years, the displacement of over 5 million Syrians—that has led to a global refugee crisis—, and the renewed seizure of power by the Taliban in Afghanistan have once again made the combat of Islamist terrorism one of the main priorities of law enforcement and regulatory bodies. The issue had first attracted significant international attention as a result of the 9/11 attacks. Although terrorist attacks cannot be prevented by simply interrupting the funding of terrorism (in fact, some ISIS attacks required comparatively little funding) (die Zeit, 2015), CFT is one of the main tools in the fight against terrorism. The literature review has revealed that legislators and prevention experts such as the FATF rely on banks and other financial service providers to develop, implement, and enforce suitable measures for the prevention of terrorist financing. There are several issues associated with this approach of making banks the first line of defense against terrorist financing, as banks’ compliance officers face significant systemic obstacles and weaknesses in the fight against terrorist financing.

As demonstrated in Sect. 2, banks generally make an effort to combat terrorist financing, mainly to avoid damages to their reputation and maintain the trust of the public (Beekarry, 2011). In addition, breaches usually lead to harsh sanctions (Zagaris, 2004). Therefore, it is not surprising that banks monitor their customers’ transactions and cash withdrawals (Barrett, 2011). However, the expert interviews have demonstrated how intelligent terrorist financiers are able to game the system by blending in. Little is known about how terrorist financiers act and operate, meaning that it is extremely difficult for compliance officers to identify them. Although banks create risk profiles to identify potential terrorist financiers, these profiles are often based on assumptions and prejudices about certain ethnic groups. Hence, they tend to be rather basic and often ineffective, according to the interviewees. Our research contributes to the closing of this knowledge gap by illustrating concrete methods that terrorist financiers employ to fly under the radar of compliance officers. As the empirical results show, smart terrorist financiers are aware of how the “typical” terrorist is profiled and will employ several different diversion techniques, including the use of straw men and forged documents, to prevent being categorized as suspicious. When compliance officers are aware of these methods, they will be able to better identify and anticipate them.

The main issue, however, is that organized crime, especially money laundering and terrorist financing are often regulated in the same vain. In line with regulatory standards, banks’ compliance departments use mechanisms that aim to prevent both money laundering and terrorist financing at the same time, even though the two offenses have little in common. This approach fails to recognize how fundamentally different terrorist financing is from other organized crime offenses both in terms of offenders’ motivation and their operations.

The main reason why terrorist financiers should be persecuted differently than money launderers is that they do not usually use incriminated funds when sending money via the banking sector. When the origins of funds are unsuspicious, only their designated purpose could serve as a point of reference. Unlike with money laundering, terrorist financing intends to support the execution of a criminal offense that is set to take place in the future, meaning that banks, financial service providers, investigators, and law enforcement agencies have two options—they must either be able to anticipate the offender’s intentions (which could be difficult to substantiate) or risk a terrorist organization gaining financing before they have enough evidence to arrest the offender. Since the criminal offense has not yet taken place, a bank’s transaction analyses are largely ineffective in identifying the illegal transaction. A prosecution is only successful when a connection between the offender and a terrorist organization can be identified. In addition, even when a connection is determined, terrorist financiers rely particularly heavily on the fact that it can be difficult for law enforcement to substantiate that the person sending the funds truly intended to finance a terrorist organization (willful misconduct) by claiming that the offense was committed unintentionally. It can thus be expected that identifying offenders’ intentions will be extraordinarily difficult for compliance officers and not very realistic. As long as the customer manages to explain their transfer’s plausibly and can provide appropriate documentation, they will probably not be suspected of terrorist financing (Teichmann, 2020). In terms of carrying out an investigation, this reality is problematic.

Moreover, money laundering involves certain steps and processes by which illicit funds are integrated into the financial system. On their way to the formal economy, illicit funds pass through a series of transactions with the aim of disguising their illegal origin. However, the financing of terrorism is not about the hiding of illicit funds, it is about the raising of funds for the financing of criminal activities involving the suppression of a state by means of violence and coercion. The main objective of terrorist financiers is therefore not necessarily the concealment of the source of funds, but the concealment of both the funding and the nature of the funded activity. In conclusion, there is a difference in the motivation of the two offences. The purpose of terrorist financing is purely ideological: to finance terrorist activities, whether legal or illegal. On the other hand, the main purpose of money laundering is to make a profit from criminal activities.

The findings of the empirical analysis illustrate that compliance officers cannot make the mistake of underestimating who they are up against. Terrorist financiers are intelligent and educated in terms of their sophistication and understanding of how compliance systems work. Hence, identifying intelligent terrorist financiers can be extremely difficult. Although the financial sector is significantly more regulated than any other sector, due to these systemic issues banks seemingly continue to offer loopholes for terrorist financiers to exploit. This implies that banks alone cannot effectively prevent terrorist financing. After all, they are not investigative authorities, and they usually lack the necessary means to carry out deeper investigations.