Internacional | 14.12.2023

Crowdfunding for Terrorism Financing and Illicit Financial Flows from Cyber-enabled Fraud

The Financial Action Task Force (FATF), an intergovernmental body, has primary responsibility for developing worldwide standards for anti-money laundering (AML) and combatting the financing of terrorism (CFT), continuously monitors how criminals and terrorists raise, use and move funds and assesses whether countries are taking effective action. It works closely with other organisations, including the International Monetary Fund, the World Bank and the United Nations. FATF regularly publishes reports that raise awareness about the latest money laundering and terrorist financing techniques so that countries and private sector can take the necessary steps to mitigate these risks.
Recently, FATF published reports on crowdfunding for terrorism financing (31 October 2023), and, in partnership with the Egmont Group and INTERPOL, on illicit financial flows from cyber-enabled fraud (9 November 2023).

Crowdfunding for Terrorism Financing

Crowdfunding is an innovative fundraising solution, used by people from all over the world, especially from the online community and usually in smaller amounts, to fund legitimate ideas, projects or business ventures. It can be used for a variety of purposes, including disaster relief, supporting community causes and organisations, political campaigns, funding start-up businesses, supporting creative endeavours, and generating investments.
Crowdfunding is a significant international market and experts expect that it will continue to grow and evolve over the coming years. Some estimates have valued the global crowdfunding market at USD 17.2 billion in 2020 and note that it is expected to reach USD 34.6 billion by 2026. In 2022, there were over 6 million crowdfunding campaigns around the world.
Although the majority of crowdfunding activity is legitimate, events around the world have demonstrated that certain crowdfunding activities (those related to donation-based crowdfunding platforms, or fundraising through social media platforms and messaging apps) have been exploited for illegal purposes by various types of threat actors. Terrorist actors have shown to be adaptable, and they take advantage of permissive environments to conduct their activities. In particular, the Islamic State of Iraq and the Levant (ISIL), Al-Qaeda and ethnically or racially motivated terrorist (EoRMT) individuals and groups have exploited crowdfunding to raise money for terrorist financing purposes. The possibility of quickly and easily reaching a global audience can make crowdfunding an attractive method of fundraising for terrorist financing.

There are four main methods that terrorists and violent extremists use to raise funds through crowdfunding:
• Abuse of humanitarian, charitable and non-profit causes which can act as a front to raise funds for terrorism.
• Dedicated crowdfunding platforms or websites which, given the volume and variety of activity, makes it difficult to detect illicit activity.
• Social media platforms and messaging apps to allow extremists to amplify their messages and lead users to specific fundraising causes.
• Interaction of crowdfunding with virtual assets, including the use of privacy coins and anonymity enhancing services such as tumblers and mixers.

In practice, terrorists often use a combination of techniques and methods. For example, they may establish a fundraising campaign on a dedicated crowdfunding platform, share the campaign on social media, and request payment in virtual assets.
The crowdfunding landscape is likely to evolve further, with the introduction of new payment technologies and the proliferation of online platforms supporting different types of crowdfunding activity. However, globally, there is insufficient understanding of the risks related to this sector, and because of this, regulation varies from country to country. In this connection, competent authorities should ensure that they identify, assess and understand the money laundering/terrorist financing risks for their respective country and take action to ensure those risks are mitigated effectively. This includes ensuring that any emergent terrorist financing risks, such as those posed by crowdfunding activity, are detected when they do occur.

Illicit Financial Flows from Cyber-enabled Fraud

Cyber-enabled fraud (CEF) is a major transnational organised crime that has grown exponentially in recent years. The scale and magnitude of CEF is expected to grow with the rising trend of digitalisation and virtual services across the globe.

The following types of criminal activity are referred to collectively as CEF:
• Business Email Compromise (BEC) fraud: Victims receive email instructions that purport to be from their clients or suppliers’ asking victims to transfer funds to new payments accounts.
• Phishing fraud: Victims are deceived into revealing sensitive information such as personal data, banking details or account login credentials. The criminal will then use the information to drain the victims’ money from their payments accounts, open new payment accounts or make fraudulent transactions.
• Social media and telecommunication impersonation fraud: This includes scenarios where victims are contacted via mobile or social media applications by criminals pretending to be government officials, relatives or friends, and prey on the victims’ emotions to induce payment or hand over control of payments accounts or to carry out financial activities such as a loan application or an account opening to receive criminal proceeds.
• Online trading/trading platform fraud: Victims are deluded by fake advertisements or advisers online to non-existent or fake (fraudulent) platforms for trading or investment related to both fiat and virtual assets.
• Online romance fraud: Victims are duped into sending money to criminals after being convinced that they are in a romantic relationship.
• Employment scams: Fake job offers on social media platforms trick victims to pay scammers using various excuses, including advanced payment for purchasing commodities to boost sales of a trading platform or a guarantee fee to secure employment.

CEF can have a devastating impact on individuals, organisations, and economies worldwide, causing significant financial losses and eroding trust in digital systems. The transnational nature of this crime, with proceeds of cyber-enabled fraud often rapidly transferred to different jurisdictions, makes this a global concern. As digital innovation continues to advance, so will the sophistication and scale of cyber-enabled fraud, if left unchecked.

There are three priority areas in which jurisdictions should act to tackle CEF and related money laundering more effectively:
• enhancing domestic co-ordination (jurisdictions should develop co-ordination mechanisms to bring together relevant competent authorities to tackle CEF and the laundering of related proceeds holistically. Jurisdictions should also leverage public-private partnerships to improve detection and investigations, and accelerate operational asset recovery responses);
• supporting multi-lateral collaboration (to enhance asset recovery outcomes and avoid dissipation of CEF-related proceeds, jurisdictions should work together to intercept CEF-proceeds expeditiously. A global united approach is required to effectively trace and recover CEF-proceeds, which are being laundered and distributed across multiple jurisdictions);
• strengthening detection and prevention (to enhance detection, jurisdictions should ensure ease of victim reporting. Jurisdictions should also work with the private sector to improve suspicious transaction reporting. Jurisdictions should promote awareness and vigilance against CEF through public education. Jurisdictions can also collaborate with the private sector to support CEF prevention strategies).

2024 UIA events

Topics in current discussions on the fight against money laundering and terrorist financing will be the subject of the UIA seminars “A Road to Human Rights Due Diligence - Anti-Money Laundering, Anti-Corruption, Environmental Protection and more” (Tokyo, Japan, from March 21 to March 22, 2024) and “La lutte contre le blanchiment de capitaux: enjeux et défis” (Tangier, Morocco, from May 03 to May 04, 2024), in which the Banking and Financial Services Law Commission is involved.

By Barbara Bandiera
President of the UIA Banking and Financial Services Law Commission
Milan, Italy