In September 2022, the Annual Report of the Financial Action Taskforce (FIU) caused a stir. According to the report, more than 298,000 cases of potential money laundering and terrorist financing were reported for 2021 - more than twice as many as in the previous year.
If you take a closer look at the FIU report, you will find out: Reports on potential terrorist financing and other state protection-related crime, at 3,183 cases, only accounted for slightly more than one percent of the total number of reported cases. Unlike many money laundering-related reports, however, these cases are always and immediately transferred to the so-called in-depth analysis due to their risk profile. Applying the risk-based approach, these cases per se have an increased relevance, which is expressed through short-term processing and the initiation of measures.
Terrorist financing: threat to internal security and the integrity of the economic system
There are good reasons for this: "The general threat posed by terrorist organisations in Germany remains high. Terrorist groups, extremist networks as well as individuals sympathising with them are active in Germany." This is the conclusion of the sectoral risk analysis of the Federal Ministry of the Interior published in 2020.
According to this, terrorist activities in Germany emanate both from extremist groups and from individual terrorists 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 the companies operating here. Consequently, the Federal Government already gave the fight against international terrorism and its financing "top priority" in the report on the first national risk analysis published 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 financial resources from both illegal and legal sources. Threat potential in this context can exist for non-profit or non-governmental organisations (NGOs). These organisations, for example registered associations, foundations and non-profit limited liability companies or non-profit joint-stock companies and entrepreneurial companies, can be misused by criminals for the purpose of financing terrorism, or they can be specifically founded and used for this purpose:
- GOs can, for example, be infiltrated by extremist-minded individuals who embezzle funds and make them available to targeted terrorist organisations.
- NGOs can unwittingly finance terrorism by paying money to unrecognised terrorist organisations in an effort to carry out aid projects in areas controlled by these organisations.
- NGOs can also be deliberately set up and then used to raise funds for terrorist organisations and to conceal the activities of these organisations.
- In addition, NGOs can be used specifically to collect donations in cash and in kind and to hold events that serve the pursuit of terrorist goals. The fact that these organisations are legally classified as non-profit increases the trust placed in them.
Concealing the true intentions of such "non-profit" organisations, which in reality serve terrorist purposes, has in the past enabled criminals to travel to war and crisis zones under the guise of aid convoys. The sectoral risk analysis of the Federal Ministry of the Interior lists in this regard that "a humanitarian project in the target area of a terrorist organisation can legitimise the travel of a money courier with the financial means carried or so-called aid convoys for the transport of material goods."
For companies that, for example, cooperate with NGOs as part of their ESG activities, there is a risk, for the reasons described above, that funds provided will fall into the wrong hands. This not only poses the risk of terrorist financing. There may also be implications in terms of sanctions and embargoes if funds or in-kind resources flow to sanctioned persons or organisations.
Legal requirements for the prevention of terrorist financing
In order to combat terrorist financing, the German legislator relies on measures for prevention as well as criminal punishment and prosecution.
The measures for the prevention of terrorist financing go hand in hand with the obligatory measures for combating money laundering. Depending on the status of the obligated party, different requirements for the prevention of money laundering and terrorist financing must be fulfilled. These include, among other things, the reporting of identified suspicious cases. In order to comply with the provisions of the AMLA, responsibilities must be defined, employees must be trained and appropriate processes for identifying and reporting suspicious cases must be set up.
Business partners, but also recipients of donations or other support services, should be continuously examined and evaluated for risks of money laundering and terrorist financing. These aspects must be taken into account within the framework of the risk analysis prescribed for MLA obligated parties.
Independent of the obligations under the AMLA, companies are additionally obliged to comply with financial sanctions and embargo measures. This aspect is of great importance for the fight against terrorist financing, as many terrorist organisations and persons attributed to them are subject to sanctions and embargo measures to make their financing more difficult. Companies should therefore monitor their transactions and business relationships in this regard on a regular and, ideally, ongoing basis.
KPMG's Forensic division supports you in meeting your obligations to prevent money laundering and terrorist financing. This includes conducting an appropriate risk analysis, establishing effective processes and measures, and conducting internal investigations.
In addition, we offer you a forensic data analysis of your transactions and business relationships to identify anomalies and potential sanctions and embargo violations.
If you already cooperate with NGOs or are planning to do so, we will support you in the context of a comprehensive open source research and screen your existing and planned business relationships in order to identify the associated risks of terrorist financing and money laundering.