In 2005, following the Madrid and London attacks of 2004 and 2005, the EU adopted a counter-terrorism strategy based on four pillars: prevention, protection, pursuit and response. The strategy emphasised the importance of cooperating with non-EU countries and international institutions. Since then, it is regularly updated, the last one taking place in 2014. The fight against terrorism is a main priority in broader strategic documents, such as the EU’s internal security strategy, adopted in 2010 and renewed in 2015. It is also part of the EU Global Strategy adopted in 2016, aiming at joining up internal and external policies.
The von der Leyen Commission continues to consider terrorism as a major threat. The 2020 Commission’s work programme[1] includes a new EU Security Union strategy, which focus on combating terrorism, alongside other major threats. Current news about terrorist attacks highlight the need to improve cross border cooperation, including by reinforcing the European Public Prosecutor’s Office (EPPO) powers to allow investigation and prosecution of cross-border terrorism. It would be particularly relevant concerning the new risks of money laundering and terrorist financing linked to the complexity of our financial system and called for better supervision.[2] Terrorist financing is one of the criminalised offences linked with terrorism. It is part of the European legal framework, based on international measures. It needs particular countering actions because of its specificity among financial crimes, but these measures can have unwanted side effects.
The European framework to counter terrorist financing
The EU has adopted a variety of measures aimed at combating the financing of terrorism. They generally either prevent financing or freeze assets already targeted as used for terrorist purposes. The legal framework is mainly based on European texts. For instance, the Anti-Money Laundering Directives (AMLD) follows recommendations from international organisations, such as those from the Financial Action Task Force (FATF), and enforces United Nations sanctions regimes.
The UN Global Counter-Terrorism Strategy[3] adopted by the General Assembly in 2006 is a global instrument to enhance national, regional and international efforts to counter terrorism. It is composed of four pillars, namely:
– Addressing the conditions conducive to the spread of terrorism
– Measures to prevent and combat terrorism
– Measures to build states’ capacity to prevent and combat terrorism and to strengthen the role of the United Nations system in that regard
– Measures to ensure respect for human rights for all and the rule of law as the fundamental basis for the fight against terrorism.[4]
The UN General Assembly reviews the UN Global Counter-Terrorism Strategy every two years, in order to keep it updated and relevant on new terrorist threats or means. Concerning terrorist financing, the resolution states that “[States] resolve to undertake the following measures to prevent and combat terrorism, in particular by denying terrorists access to the means to carry out their attacks, to their targets and to the desired impact of their attacks”, among others by refraining from financing terrorist activities, and by fully cooperating “in the fight against terrorism, in order to find, deny safe haven and bring to justice […] any person who supports, facilitates, participates or attempts to participate in the financing, planning, preparation or perpetration of terrorist acts or provides safe havens.”[5] It also encourages States “to implement the comprehensive international standards embodied in the Forty Recommendations on Money-Laundering and Nine Special Recommendations on Terrorist Financing of the Financial Action Task Force.”[6]
The Financial Action Task Force on Money Laundering (FATF) is an inter-governmental body established by the 1989 G-7 Summit held in Paris in response to the growing concern over money laundering. It was given the responsibility of examining money laundering techniques and trends, and issuing recommendations after reviewing the action taken at a national or international level to combat this crime. In 2001, the FATF issued the Eight Special Recommendations to deal with the issue of terrorist financing.[7] The International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation have been delivered the 16 February 2012, but they are regularly updated. The last revision was made in October 2020.
The successive European Anti-Money Laundering (AML) Directives endorse the implementation of the FATF’s recommendations. The system they put in place is based on three elements :
– The first one is the criminalisation of money laundering and terrorist financing.
– The second element is the prevention of money laundering through duties for the private sector.
– Finally, it supports the focus on financial intelligence with the creation of financial intelligence units (FIUs).[8]
The Fifth Anti-Money-Laundering Directive, the last one, published on the 19 June 2018, complements the existing EU framework for combating money laundering and terrorist financing.[9] It is supposed to increase transparency, facilitate the work of financial intelligence units, set up centralised bank account registers to identify holders, and address risks linked to virtual currencies and anonymous prepaid cards.[10] Several other pieces of legislation harmonise or update existing rules:[11] a Directive on countering money laundering by criminal law,[12] a Directive on facilitating the use of financial and other information,[13] a Regulation on controls on cash entering or leaving the Union[14] and a Regulation on the mutual recognition of freezing and confiscation orders.[15] All these new rules entered in force in 2018 and will start to apply from 2020. Europol has hosted FIU.net since January 2016, a decentralised and sophisticated computer network supporting the FIUs in the European Union. Indeed, the FIUs are central and national units responsible for receiving and analysing information from private entities on financial transactions which are considered to be linked to money laundering and terrorist financing.
The EU-US Terrorist Finance Tracking Programme (TFTP) Agreement is another pillar of the EU counterterrorism financing framework. This programme involved the analysis of millions of banking transactions worldwide through access to the financial records stored in the database of a Belgian cooperative called Society for Worldwide Interbank Financial Telecommunication (SWIFT), undertaken by the USA in the aftermath of the 9/11 attacks. In 2010, an agreement was concluded between the EU and the USA on the processing and transfer of data for the purposes of the TFTP.
Terrorist financing means
Terrorist groups or individuals regularly adapt how and where they raise and move funds and other assets, in order to circumvent safeguards that jurisdictions have put in place to detect and disrupt these activities. Identifying, assessing and understanding terrorist financing (TF) risk is, therefore, an essential part of dismantling and disrupting terrorist networks. However, national counter terrorist financing (CFT) strategies face particular challenges. First, a wide variety of sectors is misused by terrorist financing activities, which, in addition, very often demonstrate a cross border nature.[16] Furthermore, the value of funds greatly depends on the size of the terrorist group,[17] and, generally, the low quantity of funds needed for small cells makes their targeting quite difficult for national authorities.
Large terrorist groups which control a territory, such as ISIL/Da’esh, require significant funds to maintain infrastructure, staff, activities, and stable income. Their finances are highly centralised, with a governing body controlling all revenues and expenses, and their strategy relies on funds generated within the territory they control. For example, according to a report of the FATF:
“IS earns revenue primarily from five sources, listed in order of magnitude which are illicit proceeds from occupation of territory, such as bank looting, extortion, control of oil fields and refineries, and robbery of economic assets and illicit taxation of goods and cash that transit territory where IS operates; kidnapping for ransom; donations including by or through non-profit organisations; material support such as support associated with Foreign Terrorist Fighters (FTFs) and fundraising through modern communication networks. These revenue streams are inconsistent and shift based on the availability of economic resources and the progress of coalition military efforts against IS.”[18]
It is also supplemented by proceeds of smuggling of cultural artefacts. It is estimated that IS earns around USD 2 billion per year, which makes it the richest terrorist group in the world. Regarding natural resources, IS exploits oil, gas reserves, minerals, and monetary assets theoretically worth more than USD 2 billion by late 2015. Indeed, the territory benefits from high concentration of natural resources, allowing high degree of self-financing. In 2014, raids on Syrian and Iraqi banks brought USD 500 million, which were taken from the coffers of Mosul’s central bank when the city was taken in June 2014. Furthermore, IS’ control over water resources is a really important strategic tool due to the severity of the water crisis in the country. Finally, throughout 2016, direct and indirect taxes, as well as the confiscation of goods, appear to have become important sources of revenue too. The UN Assistance Mission for Iraq estimates that USD one billion in cash were taken from 90 bank branches located in Iraqi provinces under IS’ control. It also gains funds from the confiscation and selling of local notables’ homes.[19]
Smaller groups with lower financing needs are still considered as threats. Foreign Terrorist Fighters are not a new phenomenon. However, the recent scale of the issue in relation to conflict in Syria and Iraq, and their role played in terrorist attacks, raise concerns. They are not considered as a significant source of funding for big groups, but they constitute one of the main parts of material support to terrorist groups. FTFs mainly raise money through self-funding by individuals and recruitment and/or facilitation networks. Funds are then moved to the conflict zone in cash. Finally, the small terrorist cells have been revealed as significant threats by the deadliness of 2015 Paris attacks. One of the main difficulties for tackling these groups is their much lower financial needs than larger groups, which makes it harder to identify them by FIUs. The costs of planning and executing an attack is lower than maintaining a fighting force, engaging recruitment or propaganda operations etc… They often rely on funding from the cell members’ own salaries or welfare payments. In the ISIL/Da’esh context, there may be links between the small terrorist cells and the facilitators of FTFs that travel to or from the conflict zone.[20]
With the significant use of New information and communication technologies (NICT) by terrorist groups in recent years, there was an increasing concern over their use of crypto-currencies. Indeed, they are created by private actors in various countries all over the world, they are cross-border in their application and infrastructure, and they are easily accessible, transferable, exchangeable and tradable from nearly anywhere in the world.[21] A small number of cases suggests some jihadist and right-wing extremists are using cryptocurrencies. They are likely attracted by cryptocurrencies’ perceived anonymity and Peer to Peer (P2P), decentralised nature. However, they currently do not provide substantial benefits for a wide range of terrorist and extremist actors over other established TF methods.[22]
The impact of terrorist financing on the European Union
One could think that terrorist financing greatly impacts the European Union and its Member States because of, among others, the links made between crimes of money laundering and terrorist financing, such as in the successive AML Directives. The scale of money laundering is difficult to assess, but it is, indeed,considered to be significant. The United Nations Office on Drugs and Crime (UNODC) estimates that between 2 and 5% of global gross domestic product (GDP) is laundered each year. It represents between EUR 715 billion and 1.87 trillion each year. But these links can be questioned, due to inherent differences in their nature. According to the in-depth analysis of the Directorate-General for internal policies of the EU Parliament evaluating EU measures to combat terrorism financing, “money laundering is driven by profits and the process takes place after illegal funds have been obtained. Terrorism financing, however, takes place before the crime and becomes criminal money after the transfer to an individual or group associated with terrorism.”[23]
Terrorist financing does not have a big financial impact in itself within the EU. On the territory IS controls, the group obviously impacts local finances and economy, as it monopolises the exploitation of territorial natural resources and extorts funds to population and banks. In Europe, terrorist activities are carried out by smaller groups, which have lower funds needs. The financial consequences for Member States and the EU are more linked to terrorist activities themselves, such as the attacks. Since 2004, terrorism has cost the EU about €5.6 billion in lost lives, injuries, and damage to infrastructures, and around €185 billion in lost GDP, at least. It also harms trade, foreign direct investment, tourism (with immediate but often short-lived consequences), and transport, even if it is more difficult to estimate it. Furthermore, the EU counterterrorism budget rose significantly in 2016, with €4 billion in commitments and €3 billion in payments for security and citizenship. Nevertheless, it is not straightforward to calculate Member States spending on counterterrorism. Indeed most countries do not reveal their security spending due to national security concerns, which particularly apply to the field of intelligence.[24]
The need to counter terrorist financing by itself also has an impact on the EU, the Member States and on individuals. The EU has addressed terrorist financing, on the one hand, through terrorist assets freezing measures and, on the other hand, through instruments monitoring financial flows, such as the AML legislation and the EU–US Terrorist Finance Tracking Programme (TFTP). Some critics emerged, as certain measures taken in the fight against terrorism have had disproportionate impacts on suspects and wider groups within society, in violation of fundamental rights, as well as being counterproductive.[25] The controversies regarding the TFTP have been addressed by the Court of Justice of the EU in several cases, and this program has been found incompatible with EU law concerning flows of personal data from the EU to the USA.[26] Other critics are directed against AML Directives, with their ever-expanding catalogue of offences which raises concerns as regards to the principle of legality, the data protection principle of purpose limitation and potential over-criminalisation. Moreover, the responsibility to detect suspicious transactions has been shared with the private sector, transferring a substantial administrative and financial burden to the latter. And, at the same time, a risk-based approach to be applied by financial institutions may lead to abuses, such as arbitrary decisions and customer profiling. Finally, specific problems arose with the activities of EU FIUs. The successive directives highly diversified arrangements, with varying mandates and activities between the units which may be contrary to their objectives. This dispersal may also cause the tendency of private financial entities to under or over report suspicious transactions.[27]
Terrorist financing is a particular financial crime, which needs specific countering measures, because of the means used and the amount involved. As money is prerequisite to any action, it became especially important for the European Union and the Member States to cut the funds before it can help perpetrating terrorist activities. However, the European legal framework needs improvement, especially regarding issues of individual rights respect.
[1] COM(2020) 37, 29.1.2020
[2] Elena Lazarou, “Peace and Security in 2020, Overview of EU action and outlook for the future”, Study of the EPRS, European Parliament, September 2020, pp. 63-70.
[3] UN Document, A/RES/60/288 (2006), 8 Septembre 2006.
[4] UN Office of Counter-Terrorism, “UN Global Counter-Terrorism Strategy” : https://www.un.org/counterterrorism/un-global-counter-terrorism-strategy [consulted on the 11 November 2020]
[5] UN Document, A/RES/60/288 (2006), II. Measures to prevent and combat terrorism, articles 1 and 2, 8 Septembre 2006.
[6] A/RES/60/288 (2006), II. Measures to prevent and combat terrorism, article 10.
[7] FATF website, “History of the FATF” : https://www.fatf-gafi.org/about/historyofthefatf/ [consulted on 11 November 2020]
[8] Wouter van Ballegooij and Piotr Bakowski, “The fight against terrorism, Cost of Non-Europe Report”, Study of the EPRS, European Parliament, May 2018, pp. 22-26. Available online : https://www.europarl.europa.eu/RegData/etudes/STUD/2018/621817/EPRS_STU(2018)621817_EN.pdf
[9] Directive (EU) 2018/843 of the European Parliament and of the Council, 30 May 2018, OJEU L 156, 19.6.2018
[10] Beatrix Immenkamp, Gianluca Sgueo and Sofija Voronova with Alina Dobreva, “The fight against terrorism”, Briefing of the EPRS, European Parliament, June 2019, p.6.
[11] Elena Lazarou, “Peace and Security in 2020, Overview of EU action and outlook for the future”, Study of the EPRS, European Parliament, September 2020, pp. 63-70.
[12] Directive (EU) 2018/1673 of the European Parliament and of the Council of 23 October 2018 on combating money laundering by criminal law, OJ L 284, 12.11.2018.
[13] Directive (EU) 2019/1153 of the European Parliament and of the Council of 20 June 2019 laying down rules facilitating the use of financial and other information for the prevention, detection, investigation or prosecution of certain criminal offences, and repealing Council Decision 2000/642/JHA, OJ L 186, 11.7.2019.
[14] Regulation (EU) 2018/1672 of the European Parliament and of the Council of 23 October 2018 on controls on cash entering or leaving the Union and repealing Regulation (EC) No 1889/2005, OJ L 284, 12.11.2018.
[15] Regulation (EU) 2018/1805 of the European Parliament and of the Council of 14 November 2018 on the mutual recognition of freezing orders and confiscation orders, OJ L 303, 28.11.2018.
[16] FATF Report, Terrorist Financing Risk Assessment Guidance, FATF, Paris, July 2019. Available online : http://www.fatf-gafi.org/media/fatf/documents/reports/Terrorist-Financing-Risk-Assessment-Guidance.pdf
[17] FATF, Consolidated FATF Strategy on Combating Terrorist Financing, February 2016, pp. 3-4. Available online : http://www.fatf-gafi.org/media/fatf/documents/reports/FATF-Terrorist-Financing-Strategy.pdf
[18] FATF Report, Financing of the Terrorist Organisation Islamic State in Iraq and the Levant (ISIL), February 2015, p. 12. Available online: http://www.fatf-gafi.org/media/fatf/documents/reports/Financing-of-the-terrorist-organisation-ISIL.pdf
[19] European Parliament, Directorate-General for Internal Policies, Policy Department, Agnès LEVALLOIS, Jean-Claude COUSSERAN, Lionel KERRELLO, The financing of the ‘Islamic State’ in Iraq and Syria (ISIS), In-Depth Analysis requested by the European Parliament’s Committee on Foreign Affairs,September 2017, pp. 8-10.
[20] FATF, Consolidated FATF Strategy on Combating Terrorist Financing, February 2016, pp. 3-4.
[21] European Parliament, Directorate-General for Internal Policies, Policy Department for Economic, Scientific and Quality of Life Policies, Prof. Dr. Robby HOUBEN and Alexander SNYERS, Crypto-assets Key developments, regulatory concerns and responses, Briefing for the ECON committee, May 2020. Available online : https://www.europarl.europa.eu/RegData/etudes/BRIE/2020/648793/IPOL_BRI(2020)648793_EN.pdf
[22] European Parliament, Directorate-General for Internal Policies, Policy Department for Citizens’ Rights and Constitutional Affairs, Tom KEATINGE, David CARLISLE and Florence KEEN, Virtual currencies and terrorist financing: assessing the risks and evaluating responses, Study at the request of the TERR Committee, May 2018, pp. 27-45. Available online :
[23] European Parliament, Directorate-General for Internal Policies, Policy Department C, Citizens’ Rights and Constitutional Affairs, Evaluation of EU measures to combat terrorism financing, In-depth analysis for the LIBE Committee, 2014, p.22. Available online : https://www.europarl.europa.eu/RegData/etudes/note/join/2014/509978/IPOL-LIBE_NT%282014%29509978_EN.pdf
[24] Wouter van Ballegooij and Piotr Bakowski, “The fight against terrorism, Cost of Non-Europe Report”, Study of the EPRS, European Parliament, May 2018, pp. 22-26.
[25] Idem, pp. 32-44.
[26] Wouter van Ballegooij and Piotr Bakowski, “The fight against terrorism, Cost of Non-Europe Report”, Study of the EPRS, European Parliament, May 2018, p. 20.
[27] Idem note 18.