Questions and Answers: the fight against terrorist financing

Met dank overgenomen van Europese Commissie (EC), gepubliceerd op dinsdag 2 februari 2016.

There are a number of tools existing at EU level to cut networks that facilitate terrorist activities from financing.

The Fourth Anti-Money Laundering package, adopted in May 2015, will help strengthen and improve cooperation between Financial Intelligence Units; improve awareness of and responsiveness to any weaknesses and money laundering and terrorist financing risks; bring about a coordinated European policy to deal with non-EU countries which have inefficient Anti-Money Laundering/Combating the financing of terrorism (AML/CFT) regimes; and ensure full traceability of fund transfers both within the European Union and to and from the EU. This package takes into account the Financial Action Task Force's standards (FATF) (see MEMO/12/246), the international standard-setter in the field, and goes further on a number of issues to promote the highest standards for anti-money laundering and to counter terrorism financing.

The EU concluded with the U.S. an agreement on access to transfer of financial data in the framework of the US Terrorist Finance Tracking Program ('TFTP Agreement') which is in force since August 2010. The Terrorist Finance Tracking System enables identification and tracking of terrorists and their support networks through targeted searches run on the financial data provided by the Designated Provider (SWIFT).

In December 2015 the Commission proposed a Directive on combatting terrorism which comprehensively criminalizes the acts of financing of terrorist attacks and their preparation as well as the financing of activities such as recruitment, training and the funding of travel abroad for terrorism purposes.

The European Agenda on Security, adopted in April 2015, underlined the need for measures to address terrorist financing in a more effective and comprehensive manner. Steps taken over the past year include the introduction of criminal sanctions for the financing of terrorism through a proposal for a Directive on combating terrorism, and the European Union's signature of the Council of Europe Convention on the Prevention of Terrorism. The conclusions of both the Justice and Home Affairs Council on 20 November and the Economic and Financial Affairs Council of 8 December as well as of the European Council of 18 December 2015 stressed the need to further intensify the work in this field.

The sanctions regime set out in Council Common Position 2002/402/CFSP transposes United Nations Security Council (UNSC) resolutions and listings against Al Qaida. At the same time, the UNSC resolution 2253 was approved passed by the United Nations Security Council on 17 December 2015 and targets, more specifically targeting funding to Da'esh and extending the former "Al Qaeda" sanctions regime, showed a deep global consensus to act against terrorist financing.

Furthermore, the sanctions regime contained in Common Position 2001/931/CFSP sets out the EU autonomous measures to fight terrorism, and more specifically an asset freeze and the prohibition for EU economic operators to make economic or financial resources available to listed individuals and entities. The EEAS is currently liaising with EU Member States and non-EU members to make sure that there is a proper assessment of the information provided by the competent national authorities on the national listing/proscription decisions. Listings of entities and individuals as "terrorists" at EU level are done in respect for human rights and procedural standards set by the EU Court of Justice.

How will the EU tackle the abuse of the financial system for terrorist financing purposes through the new Action Plan?

The EU has developed rules to combat money laundering and the financing of terrorism, with the ultimate objective to prevent the EU financial system from being misused for these purposes. The 4th Anti-Money Laundering Directive (Fourth AMLD), which was adopted on 20 May 2015, seeks to protect credit and financial institutions against these risks. As such, its swift transposition and implementation is the first key step. Member States are encouraged to bring forward the date for effective transposition and entry into force to end 2016 at the latest. However, recent events have urged the EU to take further steps. Therefore, the Commission has examined different possibilities for improving the current legislative framework, and speed up some other non-legislative initiatives.

What further steps will be taken to close off the options for terrorist financing?

As requested during the extraordinary Justice and Home Affairs Council of 20 November 2015, the Commission will work on a proposal for a number of targeted amendments to the Fourth Anti-Money Laundering Directive, on the following points:

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    enhanced due diligence measures/counter-measures to be taken towards high risk third countries;
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    virtual currency exchange platforms;
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    prepaid instruments, such as prepaid cards;
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    Enhance the powers of EU Financial Intelligence Units and facilitate their cooperation. This entails the further alignment of rules for such Units to the latest international standards,
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    provide the Financial Intelligence Units with swift access to information on the holders of bank-and payment accounts, through centralized registers or electronic data retrieval systems at national level.

What are Financial Intelligence Units?

These are public authorities that exist in every Member State. They gather and analyse information about any suspicious transactions spotted by banks for instance or any relevant information when it comes to money laundering or terrorism financing. If their analysis of a file shows enough evidence for criminal prosecution, they transmit the file to law enforcement authorities for further action.

What actions can be undertaken to enhance financial intelligence in the fight against terrorist financing?

The access of Financial Intelligence Units (FIUs) to - and exchange of - information can be enhanced in 2 ways:

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    by introducing centralised bank and payment account registers: the existence of centralised registers at national level, which allow to identify all national bank accounts belonging to one person, or other similar mechanisms such as "central retrieval systems", is often cited by law enforcement authorities as facilitating financial investigations, including those relating to terrorism financing. Having such a register in all Member States would provide direct operational support to the Financial Intelligence Units (FIUs). The Commission will work on a proposal to amend the Fourth Anti-Money Laundering Directiveto establish a centralised bank and payment accounts register or electronic data retrieval systems in all Member States, which would provide FIUs (or other competent authorities) with information on the identification of holders of bank and payment accounts. In parallel, the Commission will look into the possibility of a distinct legal instrument to broaden the scope for accessing these centralised bank and payment account registers for other purposes (e.g. law enforcement investigations, including asset recovery, tax offences) and by other authorities (e.g. tax authorities, Asset Recovery Offices, other law enforcement services, Anti-corruption authorities). Any initiative would have to be accompanied by appropriate safeguards, notably regarding data protection, and conditions of access.
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    by aligning the rules for Financial Intelligence Units (FIUs) with the latest international standards: FIUs play an important role in identifying the financial operations of terrorist networks across borders and in detecting their financial backers. International standards now emphasise the importance of extending the scope of and the access to information available to FIUs (this is currently limited in certain Member States by the requirement to file a prior "Suspicious Transaction Report"). The Commission will work on a proposal to amend the Fourth Anti-Money Laundering Directivein order to enhance the access to information available to FIUs.

What can the EU do to further address terrorist financing risks linked to high-risk third countries?

The Fourth Anti-Money Laundering Directive empowers the Commission to identify third countries with strategic deficiencies in the area of anti-money laundering or countering terrorist financing (the so-called EU "list of high risk third countries") and obliges Member States to apply enhanced due diligence measures on financial flows coming from and going to these listed countries. The Commission will accelerate its work on this issue and adopt a delegated act with the names of these countries by the second quarter 2016. In parallel the Commission will propose to amend the directive to define a list of compulsory enhanced due diligence measures and counter-measures that should be applied by financial institutions towards such high risk third countries. This will provide for more coordination and harmonisation at EU level, avoiding loopholes with some Member States with lower due diligence requirements.

Will the Commission propose an EU framework to freeze terrorist assets?

At the moment the EU implements the UN resolutions regime under the Common Foreign and Security Policy in order to freeze the assets of persons, groups and entities involved in terrorist acts and subject to restrictive measures, such as persons and groups linked to Al-Qaeda or Isil/Da'esh.

However, the Treaty includes the possibility for the EU to define a legal framework for administrative measures with regard to capital movements and payments, such as the freezing of funds, financial assets or economic gains of persons or groups. This could be used to freeze the assets of terrorists posing a threat to EU internal security. Such a system could be applied for example for perpetrators of terrorist attacks on European soil who, unlike the already existing measures, have not established links to international terrorist groups. The Commission will assess the need for and possible benefits of an EU regime.

An EU regime based on article 75 would be complementary to the existing EU system based on the Common Foreign Security Policy. Both systems have different aims (international peace and security v. internal security) and a different scope.

Will the Commission set up an EU Terrorist Finance Tracking System (TFTS)?

The EU-US Terrorist Financing Tracking Programme (TFTP) Agreement has been a key tool to detect the movement of funds by terrorists through financial transactions or the identification of terrorist networks and affiliates. Following an impact assessment, the Commission concluded at the time that setting up an EU-based system (referred to as TFTS, Terrorist Finance Tracking System) duplicating the TFTP would not be cost-effective nor bring added value. However, given the changing threat picture, it is worth analysing the possible need for complementary mechanisms to the TFTP to fill possible gaps such as transactions which are excluded from the EU-US TFTP agreement - notably intra-EU payments in euro - and may not be possible to track otherwise.

The Commission will carry out and conclude, at the latest by 4th quarter 2016, an assessment of the need for and added value of such a system in light of the new challenges before taking a decision on possible initiatives in this respect.

How can virtual currencies be used to finance terrorism?

There seems to be a risk that virtual currencies may be used by terrorist organisations to conceal financial transactions, as these can be carried out more anonymously. The Commission is planning to bring virtual currency exchange platforms under the scope of the Fourth Anti-Money Laundering Directive, in order to help identify the users who trade in virtual currencies. In addition, the Commission will examine the possibility of applying the licensing and supervision rules of the Payment Services Directive (PSD) to virtual currency exchange platforms, as well as virtual "wallet providers" (see below). This will promote better control and understanding of the market and ultimately help prevent money laundering and terrorist financing.

What is the difference between a virtual currency exchange platform and a virtual wallet provider?

Virtual currency exchange platforms can be considered as 'electronic' currency exchange offices that trade virtual currencies for real currencies (or so-called 'fiat' currencies, such as the euro). On the other hand, virtual currency wallet providers hold virtual currency accounts on behalf of their customers. In the 'virtual currency' world, they are the equivalent of a bank offering a current account. They store virtual currencies and allow for their transfers to other wallets/virtual currency accounts.

There is a growing consensus in Europe that virtual currency exchange platforms should be subjected to 'know-your-customer' rules under the Fourth Anti-Money Laundering Directive, which will have to identify and verify the identity of the person exchanging virtual currencies for real currencies and vice versa.

Why not just ban virtual currencies?

While several jurisdictions in the world, including some European Union Member States, and the European Banking Authority have issued warnings about the risks that virtual currencies may entail, none have actually banned them. Virtual currencies are often considered as a useful tool for rapid international payment transfers and low cost money remittances. To date, virtual currencies represent an innovative but rather small market. The European Central Bank in its last report on virtual currencies (February 2015) concluded that virtual currencies entail certain risks but do not at this point in time pose a threat to financial stability due to their still limited size - around 70,000 transactions are made daily on virtual currency platforms, worth around €40 million.

Terrorists used prepaid cards during the recent Paris attacks. What are the risks linked to such cards, and how can they be tackled?

Prepaid cards have been used by terrorists to anonymously finance terrorist attacks. Whilst the Commission fully acknowledges that prepaid instruments are beneficial for many citizens, including those people who are economically vulnerable or financially excluded, it is also aware of the risks stemming from the anonymity of some of these cards. The Commission intends to amend the Fourth Anti-Money Laundering Directive to address these concerns without doing away with the benefits that these cards offer when used normally.

How can you better identify the cardholders of prepaid cards?

The majority of prepaid cards, including the ones sold by supermarkets, tobacconists or newsagents, often need to be activated online before they can be used. Requiring these distributors to verify the identity of their customer - a process defined as ‘customer due diligence’ - at the time of the sale, can dissuade the purchase of the card and undermine its distribution. Instead, it is possible to postpone this verification process to a later stage in most EU countries. The Commission is currently examining ways to ensure that customer due diligence is carried out by the time the card is activated. For example, in the UK, it is common that the issuer cross-checks the personal information of a cardholder against the information provided by the credit reference agencies. Where such registries do not exist, a letter could be sent to the cardholder's address, including a code that the user has to key in on the website of the issue.

What other non-legislative actions will the EU take in the fight against terrorist financing?

Support work done by Financial Intelligence Units

The EU will continue to deliver operational support to Financial Intelligence Units (FIUs). FIUs in Europe exchange information and identify money laundering and terrorist finance activities by matching information on suspected transaction reports through a decentralised IT system called FIU.net. The FIU.net network has been integrated into Europol on 1 January 2016. It will further enhance capabilities in the fight against terrorist financing.

Tackling obstacles to exchanging information between FIUs

A planned mapping exercise among FIUs to identify practical obstacles to access to and exchange of information should be advanced and accelerated in order to provide results before the end of 2016. FIUs are also expected to interact closely with other enforcement authorities. In this context, the Commission will also further look at means to support joint analysis of cross-border cases by FIUs and solutions to enhance the level of financial intelligence.

Conducting a supranational risk assessment of money laundering and terrorist financing risks, in line with the provisions of the Fourth Anti-Money Laundering Directive

In order to avoid blind spots and respond to the evolving nature of terrorism financing, the EU will put in place a framework for analysing terrorism financing risks in a broader perspective. The aim is to analyse those risks affecting the internal market and propose mitigating actions, including Recommendations to Member States (on a "comply or explain" basis) to address such risks. The Commission has already designed the methodology for this assessment and started the analysis process. Such framework should allow the Commission to develop, in addition to Recommendations to Member States, new policy initiatives at EU level which are both evidence based and tailored to the actual risks.

Why is it necessary to harmonise the criminalisation of money laundering?

Terrorists often resort to criminal proceeds to fund their activities and use money laundering schemes to convert, conceal or acquire such proceeds of criminal activities. All Member States have criminalised money laundering, but there are differences between Member States as to the definition of money laundering and the sanctions applied. These differences create obstacles in cross-border judicial and police cooperation to tackle money laundering, and have a direct relevance to action against terrorist financing.

A strengthened EU legal framework to combat money laundering thereby contributes to tackling terrorist financing more effectively. It will introduce minimum rules regarding the definition of the criminal offence of money laundering (applying it to terrorist offences and other serious criminal offences) and to approximate sanctions. Thereby, the EU will bring its legal framework in line with international standards.

How do we prevent terrorists from moving and laundering cash across borders? Are existing rules still fit for purpose?

Criminal organisations whose illicit activities generate large volumes of cash have a limited number of options available to them to move and launder their money. The first step is to tackle the movement of cash across borders.

According to rules which came into force in 2007 (Regulation 1889/2005), natural persons carrying cash of a value of €10,000 or more have to declare this to customs upon entering or leaving the EU. These rules are an integral part of the EU's anti money laundering (AML) and terrorist financing (TF) framework.

Overall, the current rules perform well. But at the same time, new challenges do need to be dealt with. The Commission wants to improve the situation in four main areas including:

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    allowing authorities to act on suspicious cash sent in post and freight shipments which are currently only covered by the standard customs declaration which does not provide the requisite level of detail regarding the origin and intended use of the cash;
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    improving the exchange of information on cash declarations and infractions (failure to declare or incorrect declarations) between authorities;
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    considering to extend the definition of cash to include precious metals;
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    allowing authorities to temporarily detain amounts below the threshold when there are clear suspicions about the origins of the cash being carried.

A Commission proposal to amend the Cash Control Regulation is planned by the end of 2016.

Are you planning to ban €500 banknotes?

The use of high denomination notes, in particular the EUR 500 note, is a problem reported by law enforcement authorities. According to a Europol report,€500 banknotes represent one third of the value of all banknotes in circulation, even though it is not a commonly used payment instrument. These notes are in high demand among criminal groups who engage in physical transportation of cash due to their high value and low volume. The Commission will work with the European Central Bank, Europol and other relevant parties on this matter to assess whether any specific action is necessary in this area.

What is the EU doing to curb the illicit trade in cultural goods and what more could be done?

As part of the enforcement of EU sanctions against Syria and Iraq, the Commission is already undertaking a number of actions against the looting and trade of cultural goods from those countries. These include:

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    providing information to EU member states on aspects of border procedures not explicitly covered by the existing sanctions regulations;
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    circulating so-called "Red Lists" which classify and illustrate the endangered categories of archaeological objects or works of art that are protected by national legislation in Iraq and Syria, and are vulnerable to theft, looting and subsequent trafficking;
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    offering training as of 2016 for customs officers from EU Member States to give them greater expertise in identifying suspicious consignments and using relevant on-line databases such as Interpol's Stolen Works of Art.

Commission services are now considering the best possible means to combat the illicit trafficking of cultural goods, including through adoption of EU legislation in this area. Options that will be considered involve the introduction of a certification system for the import of cultural goods into the EU coupled with guidance to stakeholders such as museums and the art market. The Commission will put forward a legislative proposal by the second quarter of 2017.

For more information:

IP/16/202

MEMO/16/209

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