2002-06-07
Added · Updated
This guidance does not replace national laws. It recommends that authorized institutions adopt the material for staff training and report identified suspicious transactions to the Joint Financial Intelligence Unit and the HKMA. Institutions should increase scrutiny when transactions involve suspected terrorists or exhibit specific indicators, such as dormant accounts receiving sudden deposits, misleading customer information, or wire transfers lacking originator details. This scrutiny applies due diligence and anti-money laundering policies, potentially leading to reporting under applicable regimes. Financial institutions knowingly carrying out such transactions may commit criminal offences under many jurisdictions’ laws.
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Our Ref :
To:
Encl:
Circulars
07 Jun 2002
Guidance in detecting terrorist financing
B10/1C
7 June 2002
The Chief Executive
All authorized institutions
Dear Sir/Madam,
Guidance in detecting terrorist financing
The Financial Action Task Force recently issued guidance for financial institutions in detecting terrorist financing. A copy of the guidance is enclosed for your easy reference. The document describes the general characteristics of terrorist financing with case studies illustrating the manner in which law enforcement agencies were able to establish a terrorist financing link based on information reported by financial institutions. Annex 1 of the document contains a series of characteristics of financial transactions that have been linked to terrorist activity in the past. The list of characteristics is not meant to be exhaustive, and only serves to show the types of transaction that could be a cause for additional scrutiny if one or more of the characteristics is present. The parties involved in the transaction should also be taken into account, particularly when the individuals or entities appear on any lists of suspected terrorists that are available. It would be useful for institutions to adopt the guideline as part of the training material for staff in the detection of suspicious transactions. You are also reminded that such transactions identified should be reported to the Joint Financial Intelligence Unit and the HKMA. Yours faithfully, D T R Carse Deputy Chief Executive Guidance for financial institutions in detecting terrorist financing (PDF file, 98KB)
Last revision date : 01 August 2011
All rights reserved.
This document may be reproduced for non-commercial purposes.
Requests for permission to reproduce all or part of this publication for commercial purposes should be directed to:
FATF Secretariat
2, rue André-Pascal
75775 Paris Cedex 16
France
Contact@fatf-gafi.org
GuidFITF01_en.doc
19.04.2002/18h00
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Introduction ........................................................................................................................ 1
Terrorist financing and risks to financial institutions...................................................... 1
Reinforcing existing requirements.................................................................................... 2
Determining when increased scrutiny is necessary ........................................................ 2
Characteristics of terrorist financing ................................................................................ 3
Sources of terrorist funds .................................................................................................. 4
Laundering of terrorist related funds.................................................................................. 5
Annex 1: Characteristics of financial transactions that may be a cause for increased scrutiny........ 7
A. Accounts................................................................................................................... 7
B. Deposits and withdrawals.......................................................................................... 8
C. Wire transfers............................................................................................................ 8
D. Characteristics of the customer or his/her business activity....................................... 9
E. Transactions linked to locations of concern............................................................... 9
Annex 2: Sources of Information..................................................................................... 11
A. United Nations lists ................................................................................................. 11
B. Other lists................................................................................................................ 11
C. Standards ............................................................................................................... 11
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At its extraordinary Plenary meeting on 29-30 October 2001, the Financial Action Task Force
on Money Laundering (FATF) agreed to develop special guidance for financial institutions to help them detect the techniques and mechanisms used in the financing of terrorism. The FATF subsequently brought together experts from its member countries to gather information on and study the issue of terrorist financing as part of its annual exercise on money laundering methods and trends. One goal of this exercise was to begin establishing such guidance for financial institutions that could be issued along with the annual FATF Report on Money Laundering Methods and Trends. Material derived from the exercise, along with contributions from the Egmont Group and other international bodies, was used in developing the present document. The information contained in it represents a first attempt to provide necessary guidance for financial institutions in this area.
The goal in providing this guidance is to ensure that financial institutions do not unwittingly
hide or move terrorist funds. Financial institutions will thus be better able to protect themselves from being used as a conduit for such activity. To help build awareness of how terrorists, their associates or those who support terrorism may use the financial system, this document describes the general characteristics of terrorist financing. The accompanying case studies illustrate the manner in which competent law enforcement authorities or financial intelligence units (FIUs) are able to establish a terrorist financing link based on information reported by financial institutions. Annex 1 contains a series of characteristics of financial transactions that have been linked to terrorist activity in the past. When one or several of these potentially suspicious or unusual factors is present in regard to a specific financial transaction – especially when the individual or entity may appear on one of the lists of suspected terrorists, terrorist organisations or associated individuals and entities (see Annex 2:
Sources of Information) – then a financial institution would have cause to increase its scrutiny of the transaction and any associated individuals or entities. In certain instances, this scrutiny could result in reporting the transaction to authorities under applicable suspicious or unusual transaction reporting systems.
A financial institution that carries out a transaction, knowing that the funds or property
involved are owned or controlled by terrorists or terrorist organisations, or that the transaction is linked to, or likely to be used in, terrorist activity, may be committing a criminal offence under the laws of many jurisdictions. Such an offence may exist regardless of whether the assets involved in the transaction were the proceeds of criminal activity or were derived from lawful activity but intended for use in support of terrorism.
Regardless of whether the funds in a transaction are related to terrorists for the purposes of
national criminal legislation, business relationships with such individuals or other closely associated persons or entities could, under certain circumstances, expose a financial institution to significant reputational, operational, and legal risk. This risk is even more serious if the person or entity involved is later shown to have benefited from the lack of effective monitoring or wilful blindness of a particular institution and thus was to carry out terrorist acts.
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5. Consideration of the factors contained in this guidance is intended to clarify, complement and
/ or reinforce already existing due diligence requirements, along with current policies and procedures imposed by national anti-money laundering programmes. It should be stressed, however, that this guidance does not constitute an additional rule or regulation. Rather it represents advice from the operational experts of FATF members as to factors associated with financial transactions that should trigger further questions on the part of the financial institution. The FATF encourages all financial institutions to consider these factors along with policies, practices and procedures already in place for ensuring compliance with appropriate laws and regulations and for minimising reputational risks. It should be noted as well that, while the characteristics indicated in this document may apply specifically to terrorist financing, most of them may also apply in identifying suspicious transactions generally. Financial institutions in many jurisdictions may already be aware of these characteristics through existing guidance notes or other sources.
6. In providing this guidance, the FATF intends it to be consistent with applicable criminal and
civil laws, as well as relevant regulations, to which financial institutions may be subject in their particular jurisdiction. It should be noted however that this guidance does not replace or supersede any obligations under the current national laws or regulations. In particular, implementing the measures proposed by this guidance should not be construed as necessarily protecting a financial institution from any action that a jurisdiction might choose to take against it. Furthermore, this guidance does not supersede or modify requirements imposed by national or regional authorities, which call for the freezing of assets of individuals and entities suspected of being terrorists or terrorist related, as part of implementing relevant United Nations Security Council Resolutions (see Annex 2:
Sources of Information).
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' occurs. Financial institutions should exercise reasonable judgement in modifying and implementing policies and procedures in this area. This Guidance should not be interpreted as discouraging or prohibiting financial institutions from doing business with any legitimate customer. Indeed, it has been designed solely as a means of assisting financial institutions in determining whether a transaction merits additional scrutiny so that the institution is thus better able to identify, report (when appropriate) and ultimately avoid transactions involving the funds supporting or associated with the financing of terrorism.
9. It should be acknowledged as well that financial institutions will probably be unable to detect
terrorist financing as such. Indeed, the only time that financial institutions might clearly identify terrorist financing as distinct from other criminal misuse of the financial system is when a known terrorist or terrorist organisation has opened an account. Financial institutions are, however, in a position to detect suspicious transactions that, if reported, may later prove to be related to terrorist financing. It is the competent enforcement authority or the financial intelligence unit (FIU) then that is in a position to determine whether the transaction relates to a particular type of criminal or terrorist activity and decide on a course of action. For this reason, financial institutions do not necessarily need to determine the legality of the source or destination of the funds. Instead, they should ascertain whether transactions are unusual, suspicious or otherwise indicative of criminal or terrorist activity. !
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Article 2, International Convention for the Suppression of the Financing of Terrorism, 9 December 1999.
Example 2: Individual’s account activity and inclusion on UN list show possible link to terrorist activity An individual resided in a neighbouring country but had a demand deposit account and a savings account in Country N. The bank that maintained the accounts noticed the gradual withdrawal of funds from the accounts from the end of April 2001 onwards and decided to monitor the accounts more closely. The suspicions of the bank were subsequently reinforced when a name very similar to the account holder’s appeared in the consolidated list of persons and/of entities issued by the United Nations Security Council Committee on Afghanistan (UN Security Council Resolution 1333/2000). The bank immediately made a report to the financial intelligence unit (FIU). The FIU analysed the financial movements relating to the individual’s accounts using records requested from the bank. It appeared that both of the accounts had been opened by the individual in 1990 and had been fed mostly by cash deposits. In March 2000 the individual made a sizeable transfer from his savings account to his checking account. These funds were used to pay for a single premium life insurance policy and to purchase certificates of deposit. From the middle of April 2001 the individual made several large transfers from his savings account to his demand deposit account. These funds were transferred abroad to persons and companies located in neighbouring countries and in other regions. In May and June 2001, the individual sold the certificates of deposit he had purchased, and he then transferred the profits to the accounts of companies based in Asia and to that of a company established in his country of origin. The individual also cashed in his life insurance policy before the maturity date and transferred its value to an account at a bank in his country of origin. The last transaction was carried out on 30 August 2001, that is, shortly before the September 11th attacks in the United States. Finally, the anti-money laundering unit in the individual’s county of origin communicated information related to suspicious operations carried out by him and by the companies that received the transfers. Many of these names also appeared in the files of the FIU. This case is currently under investigation.
( those funds and then finally a way to ensure that the funds can be used to obtain material and other logistical items needed to commit terrorist acts.
) work they purport to carry out. Most of the members of the organisation, however, have no knowledge that a portion of the funds raised by the charity is being diverted to terrorist causes. For example, the supporters of a terrorist movement from one country may carry out ostensibly legal activities in another country to obtain financial resources. The movement’s supporters raise these funds by infiltrating and taking control of institutions within the immigrant community of the second country. Some of the specific fundraising methods might include: collection of membership dues and / or subscriptions; sale of publications; speaking tours, cultural and social events; door-to-door solicitation within the community; appeals to wealthy members of the community; and donations of a portion of their personal earnings.
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For more information on the hawala system of alternate remittance / underground banking, see the 1999-2000 FATF Report on Money Laundering Typologies, 3 February 2001 (pp. 4-8). Example 4: Cash deposits to accounts of non-profit organisation allegedly finance terrorist group The financial intelligence unit (FIU) in Country L received a suspicious transaction report from a bank regarding an account held by an offshore investment company. The bank’s suspicions arose after the company’s manager made several large cash deposits in different foreign currencies. According to the customer, these funds were intended to finance companies in the media sector. The FIU requested information from several financial institutions. Through these enquiries, it learned that the managers of the offshore investment company were residing in Country L and a bordering country. They had opened accounts at various banks in Country L under the names of media companies and a non-profit organisation involved in the promotion of cultural activities. According to the analysis by the FIU, the managers of the offshore investment company and several other clients had made cash deposits to the accounts. These funds were ostensibly intended for the financing of media based projects. The analysis further revealed that the account held by the non-profit organisation was receiving almost daily deposits in small amounts by third parties. The manager of this organisation stated that the money deposited in this account was coming from its members for the funding of cultural activities. Police information obtained by the FIU revealed that the managers of offshore investment company were known to have been involved in money laundering and that an investigation was already underway into their activities. The managers appeared to be members of a terrorist group, which was financed by extortion and narcotics trafficking. Funds were collected through the non-profit organisation from the different suspects involved in this case. This case is currently under investigation.
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As a normal part of carrying out their work, financial institutions should be aware of elements of individual transactions that could indicate funds involved in terrorist financing. The following list of potentially suspicious or unusual activities is meant to show types of transactions that could be a cause for additional scrutiny. This list is not exhaustive, nor does it take the place of any legal obligations related to the reporting suspicious or unusual transactions that may be imposed by individual national authorities. This list of characteristics should be taken into account by financial institutions along with other available information (including any lists of suspected terrorists, terrorist groups, and associated individuals and entities issued by the United Nations3 or appropriate national authorities – see Annex 2 : Sources of Information), the nature of the transaction itself, and the parties involved in the transaction, as well as any other guidance that may be provided by national anti-money laundering authorities. The existence of one or more of the factors described in this list may warrant some form of increased scrutiny of the transaction. However, the existence of one of these factors by itself does not necessarily mean that a transaction is suspicious or unusual. For examples of terrorist financing cases developed from the enhanced scrutiny/reporting by financial institutions, please also see the various case examples provided in the body of the main document. Financial institutions should pay particular attention to:
(1) Accounts that receive relevant periodical deposits and are dormant at other periods.
These accounts are then used in creating a legitimate appearing financial background through which additional fraudulent activities may be carried out. (2) A dormant account containing a minimal sum suddenly receives a deposit or series of deposits followed by daily cash withdrawals that continue until the transferred sum has been removed. (3) When opening an account, the customer refuses to provide information required by the financial institution, attempts to reduce the level of information provided to the minimum or provides information that is misleading or difficult to verify. (4) An account for which several persons have signature authority, yet these persons appear to have no relation among each other (either family ties or business relationship). (5) An account opened by a legal entity or an organisation that has the same address as other legal entities or organisations but for which the same person or persons have signature authority, when there is no apparent economic or legal reason for such an arrangement (for example, individuals serving as company directors for multiple companies headquartered at the same location, etc.). (6) An account opened in the name of a recently formed legal entity and in which a higher than expected level of deposits are made in comparison with the income of the founders of the entity.
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This guidance does not supersede or modify requirements imposed by national or regional authorities, which call for the freezing of assets of individuals and entities suspected of being terrorists or terrorist related, as part of implementing relevant United Nations Security Council Resolutions.
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(7) The opening by the same person of multiple accounts into which numerous small deposits are made that in aggregate are not commensurate with the expected income of the customer. (8) An account opened in the name of a legal entity that is involved in the activities of an association or foundation whose aims are related to the claims or demands of a terrorist organisation. (9) An account opened in the name of a legal entity, a foundation or an association, which may be linked to a terrorist organisation and that shows movements of funds above the expected level of income.
(1) Deposits for a business entity in combinations of monetary instruments that are atypical of the activity normally associated with such a business (for example, deposits that include a mix of business, payroll and social security cheques). (2) Large cash withdrawals made from a business account not normally associated with cash transactions. (3) Large cash deposits made to the account of an individual or legal entity when the apparent business activity of the individual or entity would normally be conducted in cheques or other payment instruments. (4) Mixing of cash deposits and monetary instruments in an account in which such transactions do not appear to have any relation to the normal use of the account. (5) Multiple transactions carried out on the same day at the same branch of a financial institution but with an apparent attempt to use different tellers. (6) The structuring of deposits through multiple branches of the same financial institution or by groups of individuals who enter a single branch at the same time. (7) The deposit or withdrawal of cash in amounts which fall consistently just below identification or reporting thresholds. (8) The presentation of uncounted funds for a transaction. Upon counting, the transaction is reduced to an amount just below that which would trigger reporting or identification requirements. (9) The deposit or withdrawal of multiple monetary instruments at amounts which fall consistently just below identification or reporting thresholds, particularly if the instruments are sequentially numbered.
(1) Wire transfers ordered in small amounts in an apparent effort to avoid triggering identification or reporting requirements. (2) Wire transfers to or for an individual where information on the originator, or the person on whose behalf the transaction is conducted, is not provided with the wire transfer, when the inclusion of such information would be expected.
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(3) Use of multiple personal and business accounts or the accounts of non-profit organisations or charities to collect and then funnel funds immediately or after a short time to a small number of foreign beneficiaries. (4) Foreign exchange transactions that are performed on behalf of a customer by a third party followed by wire transfers of the funds to locations having no apparent business connection with the customer or to countries of specific concern.
(1) Funds generated by a business owned by individuals of the same origin or involvement of multiple individuals of the same origin from countries of specific concern acting on behalf of similar business types. (2) Shared address for individuals involved in cash transactions, particularly when the address is also a business location and/or does not seem to correspond to the stated occupation (for example student, unemployed, self-employed, etc.). (3) Stated occupation of the transactor is not commensurate with the level or type of activity (for example, a student or an unemployed individual who receives or sends large numbers of wire transfers, or who makes daily maximum cash withdrawals at multiple locations over a wide geographic area). (4) Regarding non-profit or charitable organisations, financial transactions for which there appears to be no logical economic purpose or in which there appears to be no link between the stated activity of the organisation and the other parties in the transaction. (5) A safe deposit box is opened on behalf of a commercial entity when the business activity of the customer is unknown or such activity does not appear to justify the use of a safe deposit box. (6) Unexplained inconsistencies arising from the process of identifying or verifying the customer (for example, regarding previous or current country of residence, country of issue of the passport, countries visited according to the passport, and documents furnished to confirm name, address and date of birth). !
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(1) Transactions involving foreign currency exchanges that are followed within a short time by wire transfers to locations of specific concern (for example, countries designated by national authorities, FATF non-cooperative countries and territories, etc.). (2) Deposits are followed within a short time by wire transfers of funds, particularly to or through a location of specific concern (for example, countries designated by national authorities, FATF non-cooperative countries and territories, etc.). (3) A business account through which a large number of incoming or outgoing wire transfers take place and for which there appears to be no logical business or other economic purpose, particularly when this activity is to, through or from locations of specific concern. (4) The use of multiple accounts to collect and then funnel funds to a small number of foreign beneficiaries, both individuals and businesses, particularly when these are in locations of specific concern.
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(5) A customer obtains a credit instrument or engages in commercial financial transactions involving movement of funds to or from locations of specific concern when there appears to be no logical business reasons for dealing with those locations. (6) The opening of accounts of financial institutions from locations of specific concern. (7) Sending or receiving funds by international transfers from and/or to locations of specific concern.
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Several sources of information exist that may help financial institutions in determining whether a potentially suspicious or unusual transaction could indicate funds involved in the financing of terrorism and thus be subject to reporting obligations under national anti-money laundering or antiterrorism laws and regulations. #
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Committee on S/RES/1267 (1999) website: http://www.un.org/Docs/sc/committees/AfghanTemplate.htm %
(1) Financial Action Task Force
FATF Identification of Non-Cooperative Countries and Territories FATF website: http://www.fatf-gafi.org/NCCT_en.htm (2) United States Executive Order 13224, 23 September 2001 (with updates) US Department of the Treasury website: http://www.ustreas.gov/terrorism.html (3) Council of the European Union Council Regulation (EC) Nº 467/2001 of 6 March 2001 [on freezing Taliban funds] Council Decision (EC) Nº 927/2001 of 27 December 2001 [list of terrorist and terrorist organisations whose assets should be frozen in accordance with Council Regulation (EC) Nº 2580/2001] Council Common Position of 27 December 2001 on application of specific measures to combat terrorism [list of persons, groups and entities involved in terrorist acts] EUR-lex website: http://europa.eu.int/eur-lex/en/index.html
(1) Financial Action Task Force
FATF Special Recommendations on Terrorist Financing FATF website: http://www.fatf-gafi.org/TerFinance_en.htm FATF Forty Recommendations on Money Laundering FATF website: http://www.fatf-gafi.org/40Recs_en.htm (2) UN Conventions and Resolutions International Convention on the Suppression of Terrorist Financing
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Website: http://untreaty.un.org/English/Terrorism.asp UN Security Council Resolutions on Terrorism Website: http://www.un.org/terrorism/sc.htm (3) Council of the European Union Council Regulation (EC) Nº 2580/2001 of 27 December 2001 on specific restrictive measures directed against certain persons and entities with a view to combating terrorism EUR-lex website: http://europa.eu.int/eur-lex/en/index.html
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Source: Hong Kong Monetary Authority — original document · Summary generated with machine assistance and reviewed before publication; the authoritative text is the regulator's original document. How RegAlert works
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