Technology and vigilance – the key to combating terrorist financing

The nature of terrorism has changed.

Lone wolf attacks and small terrorist cells are now one of the most feared threats across the globe. And as the method of attack has changed, so too has the way such terrorist organisations are funded.

Research from the Norwegian Defence Research Establishment found that 75% of the 40 violent extremist small cell terrorist plots in Europe between 1994 and 2013 cost less than the equivalent of $10,000.

The Charlie Hebdo and kosher supermarket attacks that took place in Paris at the beginning of 2015, resulting in the deaths of 12 people, are believed to have been funded by a €6,000 consumer loan, the proceeds of the overseas sale of a used car and cash transfers linked to the sale of counterfeit goods.

Luis Campbell, money laundering reporting officer (MLRO) and director at KPMG, said the relatively small amounts of funds involved means that it is incredibly hard to detect the illegal transactions that are being used to fund these deadly terrorist attacks.

“It is extraordinarily difficult to detect given the small amounts of money that are often involved, and terrorists are constantly changing their approach to funding their activities,” he said. “Our sector is trying to understand and identify typologies so we can be a step ahead of them.

“Like other regulated organisations, we use our client and engagement acceptance procedures to screen out questionable clients.”

“Through the range of services we provide, accountants can help clients to check and improve their own counter-terrorist financing,” he added.

To help combat the increasing difficulty of detecting the flows of funds to terrorist organisations, it is getting evermore important for accountants and bookkeepers to filter out the organisations that may be susceptible to being involved in funding terrorist organisations before they are ever taken on as clients through efficient customer due diligence.

KPMG audit quality and risk management partner Ian Bone said: “We will try and spend a lot of focus and attention at the inception of the client relationship around trying to ensure we are only going to deal with reputable companies and companies where we understand the structure, shareholding and the way they do business.

“This is not solely looking at the risk of terror funding, but also money laundering and companies that might be operating any structures that might breach laws and regulations.”

Bone added that some sectors may even require further investigations because of the higher risk they present to being involved in such criminal activities.

“There are industries that might be inherently higher risk because of what they do, such as companies in the arms and munitions space,” he said. “For this, you want to focus on your understanding of trade alliances and export controls.”

Constant vigilance

After the initial client on-boarding process, it is still essential that accountants remain vigilant for any suspicious activity or relationships in a set of accounts. Bone said it is here that technology can help.

“It is far easier now to download large amounts of financial information from a client and then analyse that and run routines looking for specific items,” he said. “If you came across a supplier that you were surprised to see or didn’t see the relevance to the entity and you had it flagged up as a heightened risk, it is far easier to do searches across a large volume of transactions with a reference to that counterparty.”

If such a transaction is found, Bone added that it is vital that these suspicions are reported to the relevant authorities. This needs to be done through the relevant person in your organisation, the MLRO, who will need to submit a suspicious activity report to the National Crime Agency should he or she deem it appropriate.

It is important, however, that any actions taken in identifying the suspicious activity do not ‘tip off’ the organisation, and that they remain unaware of any alarm bells that may have been triggered.

The rise of the machines

Looking to the future, KPMG is investing heavily in emerging technology to try and stay one step ahead of the terrorists and those funding their operations.

Campbell said: “We are investing in technology such as cognitive technology, also known as artificial intelligence. Although a little way off, this could ‘read’ millions of documents and ‘test’ more data (not just statistical samples) and so prove an important tool to help auditors identify any nefarious activity.”

Find out more about what to do if you have found a suspicious transaction in AAT’s Anti-Money Laundering Factsheet

Matt Scott is an award-winning journalist covering the business and finance sectors.

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