In September 2022, the annual report of the Financial Action Taskforce (Financial Intelligence Unit (FIU)) created a stir. According to the report, over 298,000 cases of potential money laundering and terrorist financing were reported in 2021 – more than twice as many as in the previous year.
If you look at the FIU report in more detail, you will discover: Reports of potential terrorist financing and other government security-related crime totalling 3,183 cases accounted for just over one percent of the total reported cases. However, unlike many money laundering-related reports, these cases are always immediately placed under in-depth analysis due to their risk profile. Using the risk-based approach, these cases have increased relevance per se, characterised by quick handling and the initiation of measures.
Terrorist financing: Threat to internal security and integrity of the economic system
There are good reasons for this: “The general threat situation posed by terrorist organisations in Germany remains high. Terrorist groups, extremist networks and individuals sympathising with these are active in Germany.” The German Federal Ministry of the Interior’s sectoral risk analysis published in 2020 comes to this conclusion.
According to this, terrorist activities in Germany originate from both extremist groups and individual perpetrators of terrorism acting alone.
These actors pose a threat to internal security in Germany as well as a threat to the integrity of Germany’s financial centre and the reputation of businesses operating here. The German federal government therefore gave the fight against international terrorism and the financing thereof “highest priority” in the report on the first national risk analysis published back in 2019.
Partner, Head of Forensic, Head of Data Protection
KPMG AG Wirtschaftsprüfungsgesellschaft
Use and abuse of NGOs for terrorist activities
Terrorist organisations obtain their funds from both illegal and legal sources. Potential threats may exist for non-profit or non-governmental organisations (NGOs) in this context. These organisations, for example, registered associations, foundations, non-profit GmbHs (German limited companies), non-profit public limited companies and entrepreneurial companies, can be misused by criminals for the purposes of financing terrorism, or they can be specifically founded and used for this purpose:
- For example, NGOs can be infiltrated by extremist-minded individuals who misappropriate funds and make them specifically available to terrorist organisations.
- NGOs can unwittingly fund terrorism by paying monies to unrecognised terrorist organisations in an effort to provide relief projects in areas controlled by those organisations.
- NGOs can also be specifically established and then used to acquire funds for terrorist organisations, disguising the activities of those organisations.
- In addition, NGOs can be purposefully deployed to collect monetary donations and donations in kind and to organise events aimed at pursuing terrorist goals. The fact that these organisations are legally classified as not-for-profit heightens the trust placed in them.
Disguising the true intentions of such “non-profit” organisations, which in fact serve terrorist purposes, has in the past allowed criminals to travel under the guise of relief convoys in war zones and crisis areas. In this regard, the sectoral risk analysis of the Federal Ministry of the Interior states that “a humanitarian project in the target area of a terrorist organisation can legitimise travel for a money mule carrying the funds or aid convoys transporting material goods”.
For example, business entities that work with NGOs as part of their ESG activities run the risk of the funds provided falling into the wrong hands for the reasons described above. This does not only harbour the risk of terrorist financing. There may also be implications in terms of sanctions and embargoes when funds or property are received by sanctioned individuals or entities.
Legal requirements for the prevention of terrorist financing
In order to combat the financing of terrorism, the German legislature relies on measures for prevention as well as criminal punishment and prosecution.
Measures for the prevention of terrorist financing go hand in hand with the compulsory measures to combat money laundering. Varying requirements for the prevention of money laundering and terrorist financing must be met depending on the status of the party under obligation. This includes, but is not limited to, reporting any suspected cases identified. In order to be able to comply with the requirements of the German Anti-Money Laundering Act (Geldwäschegesetz (GwG)), responsibilities must be defined, employees must be trained and corresponding processes established to identify and report suspected cases.
Business partners, as well as recipients of donations or other support services, should be continuously reviewed and assessed for money laundering and terrorist financing risk. These aspects must be taken into account within the scope of the risk analysis prescribed for parties obligated under the Anti-Money Laundering Act.
Regardless of the obligations arising from the Anti-Money Laundering Act, business entities are also obliged to comply with financial sanctions and embargoes. This consideration is very important in combating terrorist financing, as many terrorist organisations and individuals connected to these are subject to sanctions and embargoes, which make it more difficult to finance them. Business entities should therefore monitor their transactions and business relationships in this regard on a regular and, ideally, an ongoing basis.
KPMG’s Forensics division helps you meet your anti-money laundering and terrorist financing obligations. This includes conducting an appropriate risk analysis, establishing effective processes and measures, and performing internal investigations.
We also provide forensic data analysis of your transactions and business relationships to thereby identify anomalies as well as potential breaches of sanctions and embargoes.
If you are already working with, or planning to work with, NGOs, we will assist you in conducting comprehensive open source research and will closely review your existing and proposed business relationships to identify any associated risks of terrorist financing and money laundering.