Financial Crime World

Terrorism Financing: Understanding the Threat and Compliance Requirements

In an effort to combat terrorism financing, the Cayman Islands has enacted the Terrorism Act (2018 Revision), which defines key terms such as “terrorism” and “terrorist financing”. As financial service providers (FSPs) play a critical role in detecting and preventing illicit activities, it is essential they understand these definitions and comply with related requirements.

Understanding Terrorist Financing

According to the TA, terrorism financing can come from both unlawful and lawful sources. FSPs must be aware that terrorist groups may use legitimate funds or combine them with illegal proceeds to finance their activities. This distinguishes terrorist organizations from traditional criminal entities.

To disguise links between funding sources and terrorist groups, these organizations employ various methods, including:

  • Cash smuggling
  • Structured deposits
  • Purchases of monetary instruments
  • Credit/debit card transactions
  • Wire transfers

Vulnerabilities in Charities and Non-Profit Organizations (NPOs)

Charities and NPOs are also vulnerable to being misused for terrorist financing. FSPs must be vigilant in monitoring transactions that may be linked to such entities.

Applicability of the Terrorism Act

The TA applies to actions, persons, or property within and outside the Cayman Islands. Any individual who suspects an offence under this Act is required to disclose the information to the Financial Reporting Authority (FRA) or the police as soon as reasonably practical. Failure to do so can result in serious consequences.

International Targeted Financial Sanctions

In addition, FSPs must be aware of international targeted financial sanctions and comply with related requirements. The United Nations (UN) and European Union (EU) sanctions are implemented in the Cayman Islands through Overseas Orders in Council. FSPs must:

  • File suspicious activity reports
  • Freeze funds
  • Inform the Governor as required under relevant Acts/orders

Proliferation Financing

What is Proliferation Financing?

Proliferation financing (PF) refers to providing funds or financial services used, in whole or part, for the manufacture, acquisition, possession, development, export, transportation, brokering, transfer, stockpiling, or use of nuclear, chemical, radiological, or biological weapons and their means of delivery. This is in contravention of national Acts or international obligations.

FSPs must refer to the Proliferation Financing (Prohibition) Act (2017 Revision) for guidance on PF. The TA deals with matters related to the prevention, suppression, and disruption of proliferation financing.

Conclusion

In conclusion, understanding the definitions of “terrorism” and “terrorist financing” is crucial for FSPs in the Cayman Islands. Compliance with related requirements is essential in preventing illicit activities and supporting national security efforts.