Financial Institutions Warned Over Terrorist Financing Risks

A new guidance document has been issued by financial regulatory bodies, alerting institutions to potential red flags when it comes to detecting and preventing terrorist financing (TF) activities.

Key Indicators of Illegal Activity

The guidelines highlight several key indicators that may signal illegal activity, including:

• Shared addresses: Individuals involved in cash transactions sharing the same address, particularly if it’s also a business location or doesn’t seem to correspond to their stated occupation.
• Inconsistencies in occupations: Stated occupations not matching the level or type of activity. For example, a student or unemployed individual making large wire transfers or withdrawing maximum daily cash amounts at multiple locations.
• Non-profit organizations with unusual transactions: Transactions that appear to have no logical economic purpose or link between the organization’s activities and other parties involved.

Other Indicators

Other indicators include:

• Transactions linked to high-risk locations: Transactions connected to countries designated by national authorities or the Financial Action Task Force (FATF).
• Inconsistencies in customer identification: Unexplained inconsistencies in customer identification or verification processes.
• Safe deposit box usage: Commercial entities using safe deposit boxes with unknown or unremarkable business activities.
• Inconsistencies in travel-related purchases: Frequent airline ticket purchases or visa applications linked to high-risk jurisdictions.

Combined Indicators of Terrorist Financing Activity

The guidelines also highlight several combined indicators that may suggest TF activity, including:

• Travel-related red flags: Clients identified by media or law enforcement as having traveled to or attempted to travel to high-risk jurisdictions.
• Online presence supporting violent extremism: Customers with online presences supporting violent extremism or radicalization.
• Uncharacteristic purchases: Individuals or entities making uncharacteristic purchases, such as camping equipment or weapons.

Securities Fraud Indicators Associated with Terrorist Financing Activity

Additionally, the document identifies several securities fraud indicators that may be associated with TF activity, including:

• Multiple account openings: Customers opening multiple accounts for different legal entities they control.
• Unusual receipt of incoming transactions: Receipt of many incoming cheques or wire transfers from unrelated third parties.
• Funds allocation: Allocation of funds among numerous accounts or making large payments to third parties.
• Lack of legitimate business reason: Lack of a legitimate business reason for receiving many third-party deposits.

Insurance Fraud Indicators Linked to Terrorist Financing Activity

Finally, the guidelines warn financial institutions to be aware of insurance fraud indicators that may be linked to TF activity, including:

• Policy cancellations and refunds: Transactions in which policies are cancelled shortly after premiums have been paid, resulting in the return of premiums.
• Unusual settlement instructions: Unusual settlement instructions or payment to unconnected parties.
• Overpayment and refund requests: Overpayment of premiums with requests for refunds to third parties or accounts held in different countries.

Conclusion

Financial institutions are advised to remain vigilant and report any suspicious transactions or activities to the relevant authorities. By being aware of these indicators, financial institutions can play a critical role in preventing terrorist financing activity.