Over the last several decades, the global community has come together in an effort to stop terrorism. A large part of the focus has been on stopping and responding to the financing of terrorist activities. CFT regulations (Countering the Financing of Terrorism/Combating the Financing of Terrorism) are among the most powerful and effective tools that international authorities utilize.
Banks, financial institutions, and other financial entities that accept U.S. customers—and customers from most other major countries—must have proper CFT policies in place. In this article, you will find an overview of Combating the Financing of Terrorism (CFT) regulations, how they work, and what they mean for banks and other financial institutions.
The Basics of Combating the Financing of Terrorism (CFT)
Money laundering and terrorist financing threaten global stability. According to the International Monetary Fund (IMF), the international effort to fight back against money laundering and terrorism financing was ramped up dramatically following the September 11th, 2001 attacks on New York City and Washington, D.C. Soon after, national and international anti-money laundering (AML) regulations were expanded to include specific provisions targeted towards the Combating the Financing of Terrorism (CFT).
Broadly defined, CFT is a set of national and international regulations that are designed to restrict access to the financial system for those designated as terrorists and/or members of a terrorist organization. Law enforcement agencies work to disrupt and track the flow of funds in an effort to stop terrorist attacks before they happen and to hold the perpetrators accountable. CFT regulations apply to private banks, lenders, and other financial institutions.
CFT Recommendations from the Financial Action Task Force (FATF)
Terrorism financing is truly an international issue and an international area of concern. A global organization called the Financial Action Task Force (FATF) spearheads the collective effort to develop and implement effective CFT regulations. With headquarters in Paris, France, the Financial Action Task Force (FATF) is made up of 37 countries that are among the most important global economies. Member nations include the United States, United Kingdom (UK), Germany, France, the Russian Federation, South Korea, Japan, China, Saudi Arabia, Turkey, and Brazil.
40 different specific AML/CFT regulations have been passed by the FATF. Although there are some differences from country to country, the CFT recommendations from FATF are designed to promote more strict global standards against money laundering and the funding of terrorism. They help to increase overall transparency across international financial systems and promote cross-country cooperation when it comes to money laundering issues and matters of terrorism financing.
How Does the Countering of Terrorism Financing Work?
CFT is a very complicated matter. What is clear is that known and suspected terrorists put a lot of effort into concealing the source and flow of their funds. One of the main financial goals of terrorist organizations is to move money around in a manner that allows them to facilitate their illicit—potentially deadly—operations. In some cases, terrorism funding comes from legal sources. It could even come from a legitimate business. In other cases, terrorism funding is derived largely from other illegal activities, such as financial fraud, human trafficking, or drug smuggling. CFT is linked closely with anti-money laundering regulations. This is because detecting the source and flow of funds can go a long way toward disrupting terrorist operations. Among other things, CFT includes:
- Identification of the owners of financial accounts;
- Policies to identify and report suspicious transactions;
- Routine surveillance of accounts and general data collection;
- Heightened surveillance of accounts deemed high risk;
- Analysis of suspicious transactions; and
- Training of relevant personnel on AML and CFT regulations.
CFT, KYC, and AML
In the modern financial system, combating the financing of terrorism (CFT) is closely linked to the concepts of know-your-client/know-your-customer (KYC) and anti-money laundering (AML). Here is a brief overview of the key things that you should understand about these two concepts:
Know-Your-Client/Know-Your-Customer (KYC)
Broadly speaking, KYC compliance refers to the legal regulations that require banks and financial institutions to know who they are working with. As part of KYC compliance, financial entities must proactively gather basic identifying information about their customers to ensure that the person opening up an account or otherwise using financial services is who they claim to be. Among other things, KYC verification can involve identity verification, address verification, age verification, and income verification. In general, valid government documents—passport, driver’s license, etc—need to be provided to verify the identity of a prospective client or customer. For obvious reasons, financial institutions cannot effectively combat the financing of terrorism—and comply with CFT standards—without KYC. The bottom line is that financial institutions need to know who they are working with.
Anti-Money Laundering (AML)
As explained by the Financial Crimes Enforcement Network (FinCEN), anti-money laundering (AML) regulations are a set of rules placed on banks and other financial institutions to help ensure that they can detect and report suspicious activity. The Bank Secrecy Act (BSA) of 1970 is the federal law upon which money AML regulations are derived. That being said, AML requirements have expanded significantly over the past five decades. Indeed, the Anti-Money Laundering Act of 2020 has once again reformed our country’s AML laws to help stop misconduct. Following the attacks of September 11th, Combating the Financing of Terrorism (CFT) regulations became an increasingly important part of a more comprehensive AML policy. Financial institutions must comply with AML rules.
Integrity Is a Leader in KYC, AML, and CFT Compliance
A division of Aristotle, Integrity is a leader in KYC verification for banks and other financial entities. We provide compliance verification tools that are trustworthy, efficient, effective, and narrowly tailored to meet your needs. If you have any questions about KYC regulations, AML regulations, or CFT policies, our team is here to help you find the right solution for your situation. Contact us today to set up a free, no-obligation demo of our services.