Egmont helps FIUs and banks to detect extreme right financial flows, aims for best practice

The increasingly transnational spread of extreme right-wing terrorism warrants more involvement from financial intelligence units (FIUs) which may be able to provide financial information instrumental in identifying a person’s participation, the global Egmont Group representing illicit-finance authorities said.

FIUs can identify new links to the terrorist activities and their financing, Egmont said in a bulletin, calling for the organisation of public-private information sharing.

As a demonstration of the difficulties for banks in identifying financial flows, however, experts said the representative examples in the Egmont bulletin, aimed at helping to enhance the fight against extreme right-wing terrorism, show the private sector as not identifying far right terrorist financing in the first instance.

The bulletin includes seven case individual studies. These are all about individuals, for example, singled out from adverse media screening or as persons of interest, and do not point to the bank identifying terrorism from transaction behaviour, said Stephen Reimer, a research fellow at the Royal United Services Institute in London.

“Once an individual or association was identified, the private sector appears ready to jump in to support, but they’re not the ones identifying far-right terrorism financing activity in the first instance,” he said, referring to the case studies.

“That cooperation helps FIUs to broaden their intelligence picture, but it is more like using finance to counter terrorism, rather than countering the financing of terrorism,” he said.

“The underlying message from the Egmont Group report is that banks would struggle to identify terrorism financing from transactions alone,” Reimer said.

Needle in haystack

This is unsurprising. The methods used to raise terrorist funds domestically are predominantly through legitimate means, such as salaries and state benefits, and organised crime groups mostly do not appear to have direct links to funding terrorism, according to the UK National risk assessment of money laundering and terrorist financing 2020.

Banks can use sanctions screening to detect particular persons or entities, however, and fulfil their legal obligation under the UK Terrorism Act 2000 to submit SARs where they suspect terrorist financing to the UKFIU. In reported industry feedback of August 2021, some banks had put Government-of-Afghanistan entities into their screen filters so they might stop and review transactions for potential Taliban connections.

The international standard-setting body, the Financial Action Task Force (FATF), found in a June 2021 report that extreme right-wing actors have notably been less reluctant to use regulated financial institutions to move funds than other perpetrators of terrorism, partly because many groups and their activities are not considered illegal. Financing of ethnically or racially motivated terrorism remains a priority for FATF, as one of its objectives until July 2022 under the German presidency of Marcus Pleyer.

Egmont says, nonetheless, that its report should help reporting entities better detect extreme right-wing terrorist behaviour, advocating creation of red flags, law enforcement support for the FIU, broader national risk assessments, potential new task forces on terrorism and organized public-private information sharing.

“Risk indicators can be designed by the FIUs, attested by competent authorities, or jointly created. Once completed, these indicator sets should be widely shared with competent authorities and reporting entities,” the Egmont bulletin said.

“At present, banks seek to identify terrorism offences financing from based on risk indicators and gaining knowledge from experts at conferences. These activities alone are not enough to identify most right-wing transactions,” Reimer said.

There are many red flags for financing of terrorism generally, as FATF, but the more general these are, the more likely reliance on them can lead to false positives, he said.

SARs detections

FIUs make most of their detections from suspicious transaction reports (SARs), Egmont said. As research from the UK’s Financial Conduct Authority (FCA) has confirmed, however, the flow of SARs on terrorist financing is ebbing.

Firms making 1,974 annual REP-CRIM submissions to the FCA for 2019/20 had disclosed to the National Crime Agency only 665 SARs under the Terrorism Act 2000, compared with an overall 480,202 SARs submitted to the agency. This is steadily down from the 940 SARs under the Terrorism Act 2000 submitted the previous year, and 1,665 SARs in 2017/18. The low numbers may have a knock on effect given, as reported, FIUs are not looking at some companies with extremist ties.

Egmont’s emphasis on using SARs to detect or uncover right-wing extremism is not a silver bullet, said Dr Bethan Johnson, head of strategic planning and advancement at the virtually located Centre for Analysis of the Radical Right. FIUs and banks must build awareness that so much is happening outside traditional banking in extreme right-wing terrorism, and this includes in cryptocurrencies, she said.

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This article first appeared on Thomson Reuters Regulatory Intelligence.

Thomson Reuters, a worldwide trusted provider of answers, helps professionals make confident decisions, run better businesses and gain competitive advantage in complex arenas – law, tax, compliance, government and media.

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