Global Counter-Terrorist Financing and Soft Law: Multi-Layered Approaches 2020931660, 9781789909999, 9781789909982

Citation preview

JOBNAME: EE3 Goldbarsht PAGE: 1 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Global Counter-Terrorist Financing and Soft Law

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 00aPrelims

/Pg. Position: 1 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 2 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 00aPrelims

/Pg. Position: 2 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 3 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Global Counter-Terrorist Financing and Soft Law Multi-Layered Approaches

Doron Goldbarsht Lecturer in Law, Macquarie University, Australia

Cheltenham, UK + Northampton, MA, USA

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 00aPrelims

/Pg. Position: 1 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 4 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

© Doron Goldbarsht 2020 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA

A catalogue record for this book is available from the British Library Library of Congress Control Number: 2020931660 This book is available electronically in the Law subject collection DOI 10.4337/9781789909999

ISBN 978 1 78990 998 2 (cased) ISBN 978 1 78990 999 9 (eBook) Typeset by Columns Design XML Ltd, Reading

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 00aPrelims

/Pg. Position: 2 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 5 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

Contents List of figures List of tables Acknowledgements List of primary acronyms used

vi vii viii ix

1. Introduction

1

2. The importance of countering terrorist financing

15

3. Binding and non-binding norms in countering terrorist financing

45

4. Examining the level of implementation

80

5. Examining the level of compliance

100

6. Features of the regime that have led to its high levels of compliance

213

7. Conclusion

228

Appendix A:

Matrix of comparison including impossible combinations

241

Appendix B:

Rating compliance with FATF Recommendations

242

Appendix C:

List of FATF members (as of July 2019)

244

Appendix D:

List of FSRBs

246

Appendix E:

List of FATF Observers

247

Index

249

v

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 00aPrelims

/Pg. Position: 1 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 6 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

Figures 2.1 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 6.1

Money laundering placement, layering and integration Convention ratifications by states over time Signatures and ratifications between 2000 and 2015 Ratification of UN instruments Criminalisation of terrorist financing Freezing and confiscation of terrorist assets Suspicious Transaction Reporting International cooperation Requirements for money/value transfer services Wire transfer rules Non-profit organisations Cross-border declaration and disclosure Implementation of all international standards Multi-layered implementation of all the Recommendations

40 87 87 89 90 91 92 93 94 95 96 97 98 219

vi

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 00aPrelims

/Pg. Position: 1 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 7 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

Tables 5.1 5.2

Full matrix of comparison Summary of United Kingdom rating compliance with FATF Recommendations Summary of Australia rating compliance with FATF Recommendations Summary of India rating compliance with FATF Recommendations Summary of Israel rating compliance with FATF Recommendations Summary of Malaysia rating compliance with FATF Recommendations Summary of Thailand rating compliance with FATF Recommendations

5.3 5.4 5.5 5.6 5.7

103 122 141 160 180 194 212

vii

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 00aPrelims

/Pg. Position: 1 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 8 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

Acknowledgements To my wife, Erin, and our daughters, Arielle and Hallel, whose love, support and patience make life joyful and rewarding. And to Ros, Andrew, Chris, Michelle and Hayley, without whom this book would not have been possible.

viii

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 00aPrelims

/Pg. Position: 1 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 9 SESS: 6 OUTPUT: Fri Apr 3 14:57:55 2020

Primary acronyms used AML

Anti-Money Laundering

AUSTRAC CTF FATF FIU FSRB G7 ICJ ICRG IMF MER NCCTs NPO OECD

Australian Transaction Reports and Analysis Centre Counter Terrorist Financing Financial Action Task Force Financial Intelligence Unit FATF-Style Regional Body Group of Seven International Court of Justice International Co-operation Review Group International Monetary Fund Mutual Evaluation Report Non-Cooperative Countries and Territories Non-Profit Organisation Organisation for Economic Co-operation and Development Security Council Serious Organised Crime Agency Suspicious Transaction Report United Nations United Nations Security Council

SC SOCA STR UN UNSC

ix

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 00aPrelims

/Pg. Position: 1 /

Date: 2/4

JOBNAME: EE3 Goldbarsht PAGE: 10 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 00aPrelims

/Pg. Position: 2 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 1 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

1. Introduction For almost five decades, international efforts to counter terrorism have been the subject of various international treaties, including the United Nations (‘UN’) Convention for the Suppression of Unlawful Seizure of Aircraft,1 the UN International Convention against the Taking of Hostages,2 the UN Convention for the Suppression of Terrorist Bombings,3 the UN International Convention for the Suppression of Acts of Nuclear Terrorism,4 and the UN International Convention for the Suppression of the Financing of Terrorism (otherwise known as the Terrorist Financing Convention).5 Certain aspects of these treaties have also been taken up by the UN Security Council (‘UNSC’), which has adopted several binding resolutions—for example, SC Resolution 1267 (1999)6 and SC Resolution 1373 (2001),7 under Chapter VII of the UN Charter dealing with terrorist financing.8 More recently, these traditional multilateral approaches have been complemented by non-conventional mechanisms—in particular, when addressing terrorist financing, the Financial Action Task Force

1 Convention for the Suppression of Unlawful Seizure of Aircraft, 16 December 1970, entered into force 14 October 1971, 860 UNTS 105. 2 International Convention against the Taking of Hostages, 17 December 1979, entered into force 3 June 1983, 1316 UNTS 205. 3 International Convention for the Suppression of Terrorist Bombings, 15 December 1997, entered into force 23 May 2001, 2149 UNTS 284. 4 International Convention for the Suppression of Acts of Nuclear Terrorism, 13 April 2005, UN Doc A/RES/59/290 (2005). 5 International Convention for the Suppression of the Financing of Terrorism, 9 December 1999, entered into force 10 April 2002, UN Doc A/54/49 (Vol. I) (1999) (‘Terrorist Financing Convention’). 6 UN Security Council, Security Council resolution 1267 (1999) [Afghanistan], 15 October 1999, S/RES/1267 (1999) (‘SC Res 1267 (1999)’). 7 UN Security Council, Security Council resolution 1373 (2001) [on threats to international peace and security caused by terrorist acts], 28 September 2001, S/RES/1373 (2001) (‘SC Res 1373 (2001)’). 8 United Nations, Charter of the United Nations, 24 October 1945, 1 UNTS XVI (‘UN Charter’).

1

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 01Chapter1

/Pg. Position: 1 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 2 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

2

Global counter-terrorist financing and soft law

(‘FATF’) and its recommendations. These recommendations do not constitute traditional formal sources of international law as recognised, inter alia, by article 38 of the Statute of the International Court of Justice (‘ICJ’),9 and are considered as non-binding in the technical normative sense. Nonetheless, they have attained normative character and have achieved remarkable levels of implementation by states. Today, the FATF recommendations represent the international standard in countering terrorist financing (‘CTF’). The objective of this book is to analyse the processes of norm creation in the field of CTF, and to assess state compliance with these norms in a legal field that was previously regulated by the traditional approach of creating binding norms in international law. Central to this enquiry is the following question: How is it that an organisation that creates nonbinding norms represents today’s world standard, with high rates of compliance? This book will examine compliance with non-binding norms, focusing on the FATF’s CTF recommendations—so-called ‘soft law’ instruments, but which force legislators to conform. This is an original examination that fills the gaps existing in today’s literature by looking at the origins and motives of broad CTF legislation in selected states, then details each of the recommendations and the ways in which they are implemented in those states. The book reveals the effect of non-binding norms in the field of CTF and identifies several possible reasons for the decisive influence of these international non-binding standards. The research methodology adopted for this book to meet the abovementioned objective is both qualitative and quantitative in nature. The qualitative aspect comprises a literature review of sources including conventions, UNSC resolutions, scholarly works, FATF recommendations, reports and domestic laws. The quantitative aspect measures implementation within all states of the world. It includes a unique in-depth examination of how these norms are followed in six cases selected for analysis based on factors hypothesised to influence the degree of implementation. These factors are membership in the organisations that produce the norms, examining whether membership in an organisation affects the application of its decisions; a terrorist presence in the state that the state is trying to eliminate, which may logically encourage the state to implement the CTF regime; and the state being a financial centre, as it is possible that states implement the CTF regime to United Nations, Statute of the International Court of Justice, 18 April

9

1946.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 01Chapter1

/Pg. Position: 2 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 3 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Introduction

3

ensure that their developed financial systems are protected from those terror organisations that would attempt to abuse them. The book employs a number of terms in specific senses: ‘implementation’, ‘compliance’, ‘effectiveness’, ‘binding [and] non-binding norms’, ‘international standards’ and the ‘regime’. These terms are contested in the literature and are often discipline-specific. For the purposes of this book, implementation of international norms refers to incorporating them into domestic law through legislation, judicial decisions, executive decrees or other enforceable processes. Compliance involves implementation, but is broader. It is concerned with the factual matching of state behaviour and international norms. Effectiveness refers to whether the goals of the norm are achieved. Binding refers to instruments that, on the international stage, fall within the sources of law as defined in article 38 of the ICJ Statute and UNSC resolutions under Chapter VII of the UN Charter. Non-binding refers to ‘soft law’, which falls outside of those sources. Norms include binding and non-binding instruments, while international standards are the accepted norms to be complied with worldwide. The regime refers to the many norms that represent the standards of CTF. Following this introduction, Chapter 2 explains the need to fight the financing of terrorism. It is true that the CTF regime already exists, and some could argue that there is no need to discuss the reasons for its emergence. However, the context of the norm creation, the relationship between soft law and hard law in that context, and the fact that the nature of the targets with which the non-binding norms deal affects the level of compliance, require a fuller understanding of the nature and scope of CTF. After emphasising the importance of CTF, Chapter 3 focuses on the characteristics and creation of binding and non-binding norms within the UNSC, intergovernmental organisations established by treaty, and the FATF, an intergovernmental body established by the Group of Seven (‘G7’). This is necessary both to understanding the complex CTF regime and to analysing the multi-layered approach and the reasons for the high compliance with the regime. Chapter 4 examines implementation in 193 states, with a focus on those norms that pertain to CTF (excluding those that relate also to anti-money laundering (‘AML’)). This analysis is essential to an understanding of the multi-layered approaches adopted by the FATF. The quantitative analysis in this chapter provides an important contribution to the CTF literature by measuring the implementation of the CTF norms in a comprehensive and systematic manner. Chapter 5 then examines compliance with the norms by comparing six states in a unique and sophisticated matrix, borrowing from comparative constitutional law principles of case selection. These case studies are, to the

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 01Chapter1

/Pg. Position: 3 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 4 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

4

Global counter-terrorist financing and soft law

extent possible, identical but for the key permanent criteria. This helps to isolate the effect of these criteria. Since the various possible explanations changed, the permanent criteria are most likely to be the cause of the outcome: all states eventually comply. This examination will assist the judgments as to whether, and to what extent, defined requirements are being achieved in practice. In Chapter 6, those features of the regime— including the legal environments in which it operates and the existence of multi-layered norms—that have led to its high compliance rates are examined. Chapter 7 closes the book with answers to the question posed above. This book does not put forward a ‘recipe for success’ in ensuring an effective structure for compliance with non-binding norms. Instead, the book demonstrates that an understanding of this complex regime can shed light, from a broad perspective, on the departure from regular international lawmaking processes and on the emerging forms of international governance in this era of globalisation. From a practical perspective, looking at the CTF regime and understanding its multi-layered approach (binding and non-binding norms, with some overlapping, enforced by an intergovernmental body), as adopted by the FATF, can inform the field in how this regime can be replicated as a tool in the prevention and resolution of conflict and the promotion of international justice.

TRADITIONAL FORMAL SOURCES OF LAW Domestic law is reasonably certain and found mostly in legislation and the judgments of a hierarchy of courts. In contrast, international law is not as accessible, coherent or certain. There is no official global legislature, nor a formal hierarchy of international courts and tribunals. The traditional discussions about what are and are not sources of international law usually revolve around four classic sources contained in article 38(1) of the ICJ Statute, which involved, at the close of World War I, states agreeing upon the means by which to identify binding international obligations for the purpose of resolving their disputes. This article identifies four sources of international law: (1) treaties between states; (2) customary international law derived from the practice of states; (3) general principles of law recognised by civilised nations; and (4) judicial decisions and the writings of the most highly qualified publicists as subsidiary means for the determination of rules of international law. Strictly speaking, the ICJ Statute, as an international treaty, is only binding for those states that are parties to it. However, in light of

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 01Chapter1

/Pg. Position: 4 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 5 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Introduction

5

the fact that 193 states have signed and ratified the ICJ Statute as an annex to the UN Charter, article 38 is generally considered to provide an authoritative list of sources of international law.10 It has, however, been called into question whether state behaviour in implementing and complying with non-binding instruments evidences the acceptance of new modes of lawmaking not reflected in the ICJ Statute, and whether those four sources of international law continue to provide an adequate reflection of applicable norms and standards in contemporary international governance.11 For example, this traditional framework does not account for resolutions of the UNSC, which, although related to an international treaty (the UN Charter), constitute administrative acts by an organ of an international organisation. As such, these resolutions do not readily fall into the ambit of article 38 of the ICJ Statute. Yet, article 25 of the UN Charter stipulates that UNSC resolutions are binding by requiring the members of the UN “to accept and carry out the decisions of the Security Council in accordance with the present Charter”. Indeed, resolutions of the UNSC, particularly those adopted under Chapter VII of

10 United Nations, Vienna Convention on the Law of Treaties, 23 May 1969, entered into force 27 January 1980, 1155 UNTS 331, art 2(1)(b) (‘Vienna Convention’). See also art 34 for the general rule regarding treaties and third states: “A treaty does not create either obligations or rights for a third State without its consent.” Alexandru Bolintineanu, ‘Expression of Consent to be Bound by a Treaty in the Light of the 1969 Vienna Convention’ (1974) 68(4) American Journal of International Law 672; José E. Alvarez, The Impact of International Organizations on International Law (Brill Nijhoff, 2017) 5. 11 Ademola Abass, International Law (Oxford University Press, 2013) 62–3. See generally Alan Boyle and Christine M. Chinkin, The Making of International Law (Oxford University Press, 2007). Some commentators suggest that the acts of certain international institutions, particularly resolutions of the UN General Assembly, are binding. Their justifications generally assimilate these acts to more traditional sources, either by suggesting that similar thresholds of consent or intention are met, or by indicating that while such resolutions may not themselves be authoritative, they are constitutive of more traditional sources— particularly of custom. See Grigory Tunkin, Theory of International Law (Harvard University Press, 1974) 162–76. For support of the second type, see Rosalyn Higgins, The Development of International Law through the Political Organs of the United Nations (Oxford University Press, 1963) 5, who argues that the resolutions of the UN General Assembly are not binding per se, although those rules of general international law that they may embody are binding on member states, with or without the help of the resolutions. The body of resolutions as a whole, however, taken as indications of a general customary law, undoubtedly provides a rich source of evidence.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 01Chapter1

/Pg. Position: 5 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 6 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

6

Global counter-terrorist financing and soft law

the UN Charter, play a significant role in contemporary international governance.

SOFT AND HARD LAW Sources doctrine is also a quite well-developed argumentative practice pertaining to the authority or binding nature of various legal instruments. According to David Kennedy: “Sources rhetoric provides two rhetorical or persuasive styles which we might call ‘hard’ and ‘soft’. A ‘hard’ argument will seek to ground compliance in the ‘consent’ of the state to be bound. A ‘soft’ argument relies upon some extra consensual notion of the good or the just.”12 The sheer quantity of ‘soft law’ literature, covering an array of subject matter, reveals consensus on its parameters.13 At a basic level, almost all scholars believe that ‘hard law’ refers to rules and principles that are legally binding, whereas ‘soft law’ refers to rules and principles that are not. Dupuy’s observation is that “the very nature of ‘soft law’ lies in the fact that it is not itself legally binding”,14 while Gersen and Posner define soft law as “rule issued by a lawmaking authority that does not comply with constitutional and other formalities or understandings that are necessary for the rule to be legally binding”.15 Karmel and Kelly define soft law as “[n]on-binding standards and principles of conduct”16 while Shelton similarly describes it as 12 David Kennedy, ‘The Sources of International Law’ (1987) 2(1) American University Journal of International Law and Policy 1, 2. 13 For the environment, see e.g. Pierre-Marie Dupuy, ‘Soft Law and the International Law of the Environment’ (1991) 12 Michigan Journal of International Law 420; Dinah Shelton, ‘The Environment and Natural Resources’ in Dinah Shelton (ed.), Commitment and Compliance: The Role of Non-Binding Norms in the International Legal System (Oxford University Press, 2003) 122. For international banking, see e.g. Douglas W. Arner and Michael W. Taylor, ‘The Global Financial Crisis and the Financial Stability Board: Hardening the Soft Law of International Financial Regulation?’ (2009) 32 UNSW Law Journal 488; Lawrence L. Lee, ‘The Basle Accords as Soft Law: Strengthening International Banking Supervision’ (1999) 39 Virginia Journal of International Law 1. For health, see Sharifah Sekalala, Soft Law and Global Health Problems (Cambridge University Press, 2017). For domestic legislative resolutions, see Jacob E. Gersen and Eric A. Posner, ‘Soft Law: Lessons from Congressional Practice’ (2009) 61 Stanford Law Review 573. 14 Dupuy, above n 13, 428. 15 Gersen and Posner, above n 13. 16 Roberta S. Karmel and Claire R. Kelly, ‘The Hardening of Soft Law in Securities Regulation’ (2009) 34 Brooklyn Journal of International Law 884.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 01Chapter1

/Pg. Position: 6 /

Date: 24/2

JOBNAME: EE3 Goldbarsht PAGE: 7 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

Introduction

7

consisting of “legally non-binding norms”.17 Some have criticised this definition as being too basic, or have formulated more context-driven definitions, such as Shaffer and Pollack’s view of hard and soft law “not as binary categories but rather as choices arrayed along a continuum”.18 Chinkin has observed that “it is no longer possible to assume that a proposition is either a legally binding norm or not”.19 It is widely accepted that soft law refers to norms that are neither law nor mere political or moral statements, but lie somewhere in between. According to Shaw, the term ‘soft law’ “is meant to indicate that the instrument or provision in question is not of itself ‘law’, but its importance within the general framework of international legal development is such that particular attention requires to be paid to it”.20 In very general terms, Reisman’s description of soft law as “intentionally nonbinding arrangements”21 appears to be shared by most writers, and this book adopts the binding or non-binding distinction. Soft and hard laws are created for multiple reasons and serve various functions. First, where hard law already exists in the area of interest, soft law provides a flexible way to elaborate on, and fill gaps in that hard law, which evolves under unexpected events. Second, where there is no hard law in the area, soft law can pave the way to hard law by leading to normative consensus, which gives rise to new binding hard law commitments (‘hardening of soft law’).22 Shelton explains that soft law can be both ‘elaborative’ of hard law, by providing guidance in the interpretation of existing hard law, and subsequently accepted as ‘emergent hard law’, facilitating the creation of hard customary international law.23 Likewise, Trubek, Cottrell and Nance contend that soft law instruments can

Shelton (ed.), above n 13, 1. Gregory C. Shaffer and Mark A. Pollack, ‘Hard vs. Soft Law: Alternatives, Complements and Antagonists in International Governance’ (2010) 94 Minnesota Law Review 706. 19 Christine M. Chinkin, ‘The Challenge of Soft Law; Development and Change in International Law’ (1989) 38 International & Comparative Law Quarterly 850, 866. 20 Malcolm N. Shaw, International Law (4th edn, Cambridge University Press, 1997) 494–5. 21 Michael W. Reisman, ‘Soft Law and Law Jobs’ (2011) 2(1) Journal of International Dispute Settlement 25. 22 Kenneth W. Abbott and Duncan Snidal, ‘Hard and Soft Law in International Governance’ (2000) 54 International Organizations 421, 54. 23 Shelton (ed.), above n 13, 30. 17 18

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 01Chapter1

/Pg. Position: 7 /

Date: 24/2

JOBNAME: EE3 Goldbarsht PAGE: 8 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

8

Global counter-terrorist financing and soft law

establish “non-binding standards that can eventually harden into binding rules once uncertainties are reduced and a higher degree of consensus ensues”.24 A soft law instrument is considered successful if it has achieved its desired effect, but it could be too much to expect that all soft law instruments need to become hard law in order to serve useful purposes. Ab initio, however, this book takes the view that international law is created through the sources contained in article 38(1), and thus ‘soft law’ recommendations are not legally binding per se. In addition, soft law norms generated within intergovernmental forums are not subject to the checks and balances present in the domestic hard law regulatory process. As a result, soft law regulation can serve as an indirect means of pushing international policies unlikely to win direct approval through the regular domestic political process.

TRADITIONAL THEORIES OF COMPLIANCE The issue of compliance is of fundamental importance in international law. It is central to the way in which states regulate their relations with each other, and yet there is no single theory that satisfactorily explains why states choose to comply.25 In fact, there are four dominant theories that attempt to analyse the phenomenon: the managerial; consent; legitimacy; and the transnational legal process. Each of these theories is discussed below. However, none of the theories, when applied to the CTF regime, can fully explain why states comply with the FATF soft law recommendations. Rather, it is suggested in this book that the high rate of compliance is due to the rationality and self-interest of individual states. States are concerned about their reputations and about the possibility of being sanctioned for their conduct. The David M. Trubek, Patrick Cottrell and Mark Nance, ‘“Soft Law”, “Hard Law”, and European Integration: Toward a Theory of Hybridity’ in Graínne de Búrca and Joanne Scott (eds), Law and New Governance in the EU and the US (Hart, 2006) 32. 25 Andrew T. Guzman, ‘A Compliance-Based Theory of International Law’ (2002) 90(6) California Law Review 1823, 1830; Harold H. Koh, ‘Why Do Nations Obey International Law?’ (1997) 106 Yale Journal of International Law 2599, 2599–600; John K. Setear, ‘Responses to Breach of a Treaty and Rationalist International Relations Theory: The Rules of Release and Remediation in the Law of Treaties and the Law of State Responsibility’ (1997) 83 Virginia Law Review 1. 24

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 01Chapter1

/Pg. Position: 8 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 9 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Introduction

9

features of the CTF regime, along with the multi-layered approach adopted by the FATF, can satisfy those concerns. The Managerial Model One of the traditional theories for compliance with international law was developed by Chayes and Chayes, whose research is focused on regulatory regimes.26 According to this theory, states have a strong tendency to comply with the rules to which they have committed themselves.27 States do not join regimes readily. However, once a treaty regime has been established, compliance becomes the option that is most efficient for the state. Chayes and Chayes argue that when a state is found to be non-compliant with the regime, this is almost never due to wilful violation. Rather, non-compliance is the result of deficiencies within the treaty regime or within the non-complying state itself. The use of sanctions is rare and, moreover, ineffective. For these reasons, regimes should adopt a managerial approach rather than an enforcement strategy in order to promote compliance.28 Chayes and Chayes present “an alternative ‘managerial model’, relying primarily on a cooperative, problem-solving approach instead of a coercive one”.29 Consent The notion of consent is a generally accepted rationale for applying international law to national conduct.30 The consent theory is based on the assumption that states are not bound by any obligation under international law unless they have agreed to it. In the words of Louis Henkin, “a state is not subject to any external authority unless it has voluntarily consented to such authority”.31 Indeed, the law of treaties 26 Abram Chayes and Antonia H. Chayes, The New Sovereignty: Compliance with International Regulatory Agreements (Harvard University Press, 1995); Abram Chayes and Antonia H. Chayes, ‘On Compliance’ (1993) 47(2) International Organization 175, 176. 27 Chayes and Chayes, The New Sovereignty, above n 26, 3–9. 28 Ibid 271–85. 29 Ibid 3. 30 John K. Setear, ‘An Iterative Perspective on Treaties: A Synthesis of International Relations Theory and International Law’ (1996) 37(1) Harvard International Law Journal 139, 156. 31 Louis Henkin, International Law: Politics, Values and Functions (Academy of International Law, 1989) 27.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 01Chapter1

/Pg. Position: 9 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 10 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

10

Global counter-terrorist financing and soft law

contains elaborate rules regarding the issue of consent. The consentbased theory also relies on the assumption that treaties are to be obeyed.32 Consent to be bound generates a legal obligation, and states tend to comply with such obligations. Legitimacy Thomas Franck’s legitimacy theory33 focuses on why nations honour their treaty obligations. In this respect, legitimacy theory moves beyond consent theory and the notion that “treaties are to be obeyed”.34 It is based on the assumption that states obey rules that are seen to have been developed “in accordance with the right process”.35 According to Franck, the likelihood of a state complying with its international obligations is dependent on four factors:36 ‘determinacy’ (the clarity of the obligation); ‘symbolic validation’ (the existence of procedures or rituals that lend legitimacy to the obligation); ‘coherence’ (the rationality of the obligation); and ‘adherence’ (the presence of secondary rules that support the interpretation and application of the obligation). States are more apt to comply when these factors are present. Transnational Legal Process Harold Koh’s theory of transnational legal process is concerned with how the rules of international law are developed, interpreted and enforced.37 The theory takes a broad view of the interaction of state and non-state actors in the transnational development of norms. These norms are then internalised by individual states.38 Koh argues that a state’s domestic

32 Vienna Convention, above n 10, art 26 (“Every treaty in force is binding upon the parties to it and must be performed by them in good faith”); Chayes and Chayes, ‘On Compliance’, above n 26, 185. 33 Thomas M. Franck, ‘Legitimacy in the International System’ (1998) 82(4) American Journal of International Law 705, 705. 34 Vienna Convention, above n 10, art 26. 35 Franck, above n 33, 706. 36 Thomas M. Franck, Fairness in International Law and Institutions (Oxford University Press, 1995) 49. 37 Harold H. Koh, ‘Transnational Legal Process’ (1994) 75(1) Nebraska Law Review 181, 183. 38 Ibid 204.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 01Chapter1

/Pg. Position: 10 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 11 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Introduction

11

legal institutions play a key role in compliance. He claims that transnational legal norms are internalised by these domestic institutions, and that this leads to compliance.39

MULTI-LAYERED NORMS IN THE CTF REGIME The CTF regime consists of three pillars: (1) the Terrorist Financing Convention; (2) UNSC resolutions under Chapter VII (primarily SC Res 1267 (1999) and SC Res 1373 (2001)); and (3) FATF recommendations. The FATF recommendations include, refer to, and complement the binding norms of the first two pillars, and so an examination of compliance with the recommendations requires examining the binding norms as well. There is, after all, an inherent difficulty in determining whether compliance with some FATF recommendations stems from the recommendations themselves, or from the binding norms. However, through process tracing, an examination of whether the CTF regime in the different states follows the recommendations—as evidenced by the dates of updated rules, justifications during the revision of rules, and the fact that the rules continue to be revised from time to time, in accordance with the latest recommendations—can overcome this difficulty. On 17 December 1996, the UN General Assembly adopted a resolution that urged all member states to take steps to prevent and counteract, through appropriate domestic measures, the financing of terrorists and terrorist organisations.40 Two years later, as a means of implementing the abovementioned resolution, the General Assembly decided to draft the Terrorist Financing Convention, in the hope that it could complement the conventions already in place to counter terrorism. The convention contains provisions that declare terrorist financing a criminal act, as well as requiring states to impose restrictions on financial institutions to prevent their use for the deposit and transfer of terrorist funds. It maintains that international cooperation is critical for an effective fight against terrorist financing. Key provisions of the Terrorist Financing Convention were subsequently included in resolutions adopted by the Security Council under Chapter VII of the Charter. This meant that these CTF obligations attained normative character even for those states that had not become party to the convention. Two key resolutions of the Guzman, above n 25, 1836. UN General Assembly, Measures to eliminate international terrorism, GA Res 51/210, UN GAOR, 51st sess, 88th plen mtg, UN Doc A/RES/51/210 (17 December 1996). 39 40

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 01Chapter1

/Pg. Position: 11 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 12 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

12

Global counter-terrorist financing and soft law

Security Council are SC Res 1267 (1999) and SC Res 1373 (2001). SC Res 1267 (1999) imposes financial sanctions against Al-Qaeda, the Taliban and their worldwide associates. SC Res 1373 (2001) was adopted in response to the 11 September 2001 attacks. It requires all states to criminalise and prevent terrorist financing through their domestic legal systems, in effect universalising the Terrorist Financing Convention. The Terrorist Financing Convention and the UNSC resolutions are important hard law tools that inform the efforts of states to regulate domestically. However, as stated above, they are not the only tools used for this purpose. The international standard today in the field of CTF has been set by the FATF, a classic example of an intergovernmental body formulating soft law norms.41 These norms are known as ‘recommendations’, being detailed technical standards that cover regulatory, supervisory, law enforcement, and legal issues.42 While some recommendations replicate obligations contained in the Terrorism Financing Convention and the UNSC CTF regime, others are unique to the FATF. With regard to the nature of hard and soft law, the theories are many and varied. For positivists, hard law refers to formally binding legal obligations and soft law refers to non-binding legal obligations—which may nevertheless lead to the adoption of binding hard law.43 Rationalists contend that hard and soft law have distinct attributes, which states select for different contexts.44 Constructivists often favour soft law instruments for their capacity to generate shared norms and a sense of common purpose and identity, without the constraints raised by concerns over potential litigation.45 Regardless of their views about the strengths and Kenneth S. Blazejewski, ‘The FATF and Its Institutional Partners: Improving the Effectiveness and Accountability of Transgovernmental Networks’ (2008) 22 Temple International and Comparative Law Journal 10; Kenneth W. Abbott, Philipp Genschel, Duncan Snidal and Bernhard Zangl (eds), International Organizations as Orchestrators (Cambridge University Press, 2015) 289. 42 FATF, Methodology for Assessing Technical Compliance with the FATF Recommendations and the Effectiveness of AML/CFT Systems (February 2013, last updated February 2017) 2; FATF, International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation (February 2012, last updated June 2016). 43 Shaffer and Pollack, above n 18, 706; Shelton (ed.), above n 13. 44 Shaffer and Pollack, above n 18, 707. See also Charles Lipson, ‘Why Are Some International Agreements Informal?’ (1991) 45 International Organization 495, 508. 45 Shaffer and Pollack, above n 18, 708; Trubek, Cottrell and Nance, above n 24, 67. 41

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 01Chapter1

/Pg. Position: 12 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 13 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Introduction

13

weaknesses of hard and soft law as alternative tools, all three schools depict the adoption of hard and soft law as matters of choice.46 At its core, soft law does not bind, rather it influences. In the case of the FATF, however, it seems that compliance is a question of ‘when’ rather than ‘if’, as there is no room for choice. The recommendations are non-binding (or soft law). While they do not comprise legally binding obligations per se, they are recognised as requiring a political commitment by UN and FATF members to adopt a common approach to prevent the support of terrorist activities by financial institutions. FATF recommendations are not simply precise specifications of the content of more general norms; rather, they put forward a combination of precise and broad norms for implementation.47 They do not delegate authority to interpret or implement the law, although they do enjoy enforcement by way of Mutual Evaluation Reports (‘MERs’) and follow-up procedures, which no government or regulated sector can shirk, in addition to sanctions for non-compliance in the form of blacklisting and economic sanctions.48 The literature considers the positive aspects of soft law to include the following: lesser intrusion into state sovereignty when dealing with sensitive subject matter; greater flexibility for states to cope with uncertainty (which allows states to engage in ‘deeper’ cooperation than they would if they had to concern themselves with enforcement); and an enhanced ability to deal with diversity.49 These positive attributes of soft law apply to the FATF and its recommendations. However, the high level of implementation and compliance with non-binding norms stems from a few critical elements: the FATF members; the FATF’s hard compliance framework; and the fact that this framework operates side by side with, or replicates, binding norms—specifically, the Terrorist Financing Convention and the Security Council’s CTF regimes. It is rare to find non-binding norms standing in isolation; instead, they are used most Shaffer and Pollack, above n 18, 708. For instance, Recommendation 37 asks countries to rapidly, constructively and effectively provide the widest possible range of mutual legal assistance (broad implementation); yet, according to Recommendation 5, countries should criminalise not only the financing of terrorist acts but also the financing of terrorist organisations and individual terrorists (precise implementation). 48 Petrus Van Duyne, Jackie Harvey and Liliya Gelemerova, ‘The Monty Python Flying Circus of Money Laundering and the Question of Proportionality’ in Georgios A. Antonopoulos (ed.), Illegal Entrepreneurship, Organized Crime and Social Control: Essays in Honour of Professor Dick Hobbs (Springer, 2016) 161, 170. 49 Abbott and Snidal, above n 22, 423; Shaffer and Pollack, above n 18, 719. 46 47

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 01Chapter1

/Pg. Position: 13 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 14 SESS: 5 OUTPUT: Fri Apr 3 14:57:55 2020

14

Global counter-terrorist financing and soft law

frequently either as a precursor to binding norms, or as a supplement to a binding instrument. The FATF’s non-binding norms take a third path, by complementing these binding norms and overlapping with them, favouring the implementation of all recommendations made. This is achieved in a manner that is indifferent to the normative source of the recommendation, resulting in high levels of compliance. The FATF is both a global policymaking forum formulating soft law norms and an enforcement body. It sets global standards and uses several compliance mechanisms to ensure that they are implemented. One mechanism is the MER, under which countries are ‘peer-reviewed’ and assessed for compliance with the recommendations, then followed up and assisted in ensuring the successful implementation of the standards. The available sanctions constitute the second mechanism. This book asserts that the multi-layered approach adopted by the FATF, which combines binding and non-binding norms, allows the FATF recommendations to be highly influential, and that the unique character of the FATF, its recommendations, and its compliance mechanisms have been the predominant cause of states around the globe implementing FATF recommendations in the past, and will be the most likely prompt for them to do so in the future.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 01Chapter1

/Pg. Position: 14 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 1 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

2. The importance of countering terrorist financing This chapter will explain why there is a need to counter the financing of terrorism. It will point out that although the direct cost of carrying out a terror attack can be negligible, the real cost of the attack (including indirect expenses) is not cheap at all. In doing so, the chapter will argue that there is no need to distinguish between the financing of the terrorist organisation’s military wing and that of its civil wing. The purpose of the discussion here is to emphasise the importance of the fight against terrorist financing. The chapter will present the terrorist financing methods and techniques that are dealt with by the CTF regime. In the same context, it will discuss the struggle against money laundering, since concealing the sources of (and uses for) terrorist financing involves techniques similar to those used to launder money.

FINANCIAL MANAGEMENT OF TERRORIST ORGANISATIONS It is often assumed that terrorist funding is of minor importance because terrorist attacks can be carried out cheaply. Explosives are readily available at low cost, bombs can be homemade, attacks can involve the use of simple household knives or other readily available implements, and publicly accessible items can be used opportunistically to create harm—such as steering a road vehicle off-course. Such an assumption, however, reflects a lack of insight into the mode of operation of terrorist organisations and their structure. Those who recognise that the financing of terrorism can require a lot of money claim that it is necessary to distinguish between the different destinations of funding, and that efforts to counter the financing of terror should be directed towards countering the receipt of funds destined for the perpetration of terror attacks—which again may be performed at such low cost that the battle hardly seems worth it. Some of the better-known terrorist attacks, such as the 2002 nightclub bombings in Bali, Indonesia, were, according to a UN Monitoring Group 15

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 1 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 2 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

16

Global counter-terrorist financing and soft law

report, committed at a cost of between US$10,000 and US$50,000,1 while the most expensive attack known to date, in the United States on 11 September 2001, is said to have amounted to a cost of US$500,000.2 Roughly 75 per cent of the 40 violent extremist terrorist plots in Europe between 1994 and 2016—such as the attacks on the Charlie Hebdo office and a kosher store in Paris in January 2015—cost less than the equivalent of US$10,000.3 According to a study that combed the bank accounts behind those who committed the attacks, the Nice attack that took place on 14 July 2016, while crowds were busy celebrating Bastille Day, cost no more than US$3,000, and the Bataclan theatre attack in Paris on 13 November 2016, which left 130 people dead and hundreds more wounded, cost less than US$100,000.4 Consequently, while also taking into account that any effective fight against terrorism will necessarily infringe upon personal civil rights and involve huge financial cost, scholars have argued that the fight against the United Nations, First Report of the Analytical Support and Sanctions Monitoring Team appointed pursuant to Resolution 1526 (2004) concerning Al-Qaida and the Taliban and associated individuals and entities, United Nations, New York, S/2004/679, 12. The report recounts that the terror attacks on the US embassies in Kenya and Tanzania in 1998 cost less than US$50,000; the terror attack against the USS Cole in the waters of the Gulf of Aden in Yemen in 2000 cost less than US$10,000; the Marriott hotel bombing in Jakarta cost about US$30,000; the attack in Istanbul in November 2003 cost less than US$40,000; the train bombings in Madrid in 2004 cost about US$10,000; and the attack on the London Underground in 2005 cost less than £8,000. See also Jeffrey Simser, ‘Terrorism Financing and the Threat to Financial Institutions’ (2011) 4 Journal of Money Laundering Control 334, 344; Thomas J. Biersteker and Sue E. Eckert, ‘Taking Stock of Efforts to Counter the Financing of Terrorism and Recommendations for the Way Forward’ in Thomas J. Biersteker and Sue E. Eckert (eds), Countering the Financing of Terrorism (London, 2008). In relation to the London attack, see United Kingdom Home Office, Report of the Official Account of the Bombings in London on 7th July 2005 (London, 11 May 2006) para 63. 2 National Commission on Terrorist Attacks Upon the United States, The 9/11 Commission Report: Final Report of the National Commission on Terrorist Attacks Upon the United States (July 2004) 169; Phil Williams, ‘Warning Indicators and Terrorist Finances’ in Jeanne K. Giraldo and Harold A. Trinkunas (eds), Terrorism Financing and State Responses: A Comparative Perspective (Stanford University Press, 2007) 72, 72; Marieke de Goede, Speculative Security: The Politics of Pursuing Terrorist Monies (University of Minnesota Press, 2012) 130. 3 Emilie Oftedal, ‘The Financing of Jihadi Terrorist Cells in Europe’ (Norwegian Defence Research Establishment, January 2015) 7. 4 Center for the Analysis of Terrorism, Attentats À Paris: Comment Les Terroristes Ont-Ils Financé Leurs Attaques? (20 October 2016). 1

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 2 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 3 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

The importance of countering terrorist financing

17

financing of terrorism is destined to fail because the amounts are so small that trying to stop those funds from reaching the recipient organisation is a hopeless undertaking.5 Finance for terrorist organisations, whether in large or small amounts, is in fact of significant importance. The following sections will examine the sources via which terrorist organisations obtain finance, and the varied ways in which they distribute those funds, as well as the need to counter the funding of terrorism on a global scale. However, it is first necessary to consider what terrorism is, and the problem posed by the lack of an accepted binding definition for this term. The Ambiguity of ‘Terrorism’ A precondition of any useful discussion of terrorism is to define it [and] although this is the first question which generally arises, it is shrouded in a mist of legal ambiguity.6

‘Terror’ itself is a vague term, the definition of which involves a determination of ideological and political aspects. That determination influences the legitimacy or morality of the definition. Charles Yost, the former US ambassador to the UN, outlined the problem well in 1972: The fact is, of course, that there is a vast amount of hypocrisy on the subject of political terrorism. We all righteously condemn it—except where we ourselves or friends of ours are engaging in it. Then we ignore it, or gloss over it, or attach to it tags like ‘liberation’ or ‘defence of the free world’ or ‘national honour’ to make it seem like something other than what it is.7

The use of the word ‘terror’ to describe applied for political purposes appeared for connection with the French Revolution and Robespierre against enemies from within,

violence and intimidation the first time in 1793 in the regime of fear led by which primarily involved

Michael Head, ‘Counter-Terrorism Laws: A Threat to Political Freedom, Civil Liberties and Constitutional Rights’ (2002) 3 Melbourne University Law Review 666. 6 Jean M. Sorel, ‘Some Questions about the Definition of Terrorism and the Fight against Its Financing’ (2003) 2 European Journal of International Law 365, 366. 7 Quoted in Maxwell Taylor, The Terrorist (Brassey’s Defence Publishers, 1988) 2–3. 5

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 3 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 4 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

18

Global counter-terrorist financing and soft law

public executions.8 Since then, this use of the word has expanded to encompass a range of situations. In some instances, it is seemingly used as a synonym for perceived evil. Its precise meaning has become blurred, and the term is lacking in meaningfulness. Indeed, Sir Jeremy Greenstock, the then-permanent UK representative to the UN, has asserted that “[w]hat looks, smells and kills like terrorism is terrorism”.9 And yet, the decisions of international organisations—primarily UN institutions—are meant to reflect the international stance that ill-defined ‘terrorism’ severely undermines: the protection of basic human rights, particularly life, liberty and security, but also civil, political, economic, social and cultural rights; the state and the political process; and international peace and security.10 Disagreement certainly exists between states and international organisations over the definition of terrorism and what precisely should be subsumed under that term, and what should be considered instead as a different sort of political violence. Sometimes the same or similar activities are called by different names, depending on the identity of the acting parties. To this end, actions described by one party as terror will be defined by the other side as a legitimate struggle for national independence, and those thought of on the one side as terrorists will be lauded on the other side as heroes and freedom fighters. The definition of terror is important not just for political purposes or for public discourse, but also from a legal perspective. The legal definition of terror in accordance with international law was developed in order to enable the war against terror to be efficient and to permit greater international cooperation, as well as to create a foundation for the normative legal framework to define what is permissible or not, and what is legitimate or not, in any political struggle. As each state defines terror in a different manner, Cassese asks: “how can states work together for

Vincent R. Johnson, ‘The Declaration of the Rights of Man and of Citizens of 1789, the Reign of Terror, and the Revolutionary Tribunal of Paris’ (1990) 1 Boston College International and Comparative Law Review 1, 19–22. See also Ben Saul, Defining Terrorism in International Law (Oxford University Press, 2008) 2. 9 UN General Assembly, UN GAOR, 56th sess, 12th plen mtg record, UN Doc A/56/PV.12, 18 (1 October 2001). 10 Saul, above n 8, 28. 8

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 4 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 5 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

The importance of countering terrorist financing

19

the arrest, detention or extradition of alleged terrorists, if they do not move from the same notion?”11 Since the 1970s, various attempts have been made to reach binding (or hard law) international agreement regarding the definition of ‘terror’. Lack of agreement has traditionally arisen from questions of whether ‘freedom fighters’ engaged in national liberation movements should be classified as terrorists, or whether establishing international rules on terrorism is even possible without delving into the root causes of the phenomenon.12 This lack of agreement has resulted in a lack of conventions with a comprehensive definition of terrorism.13 However, as the topic of terrorism has increasingly come to the fore in the international arena, a ‘working’ definition of terrorism has steadily solidified from state legislation,14 decisions of various geographical organisations,15 and international organisations such as the UN.16 Therefore, despite the unique nature of individual acts of terrorism, the international community has increasingly moved towards an agreed-upon definition, an ability to 11 Antonio Cassese, ‘The Multifaceted Criminal Notion of Terrorism in International Law’ (2006) 4(5) Journal of International Criminal Justice 933, 934. 12 Ibid 935. 13 The Terrorist Financing Convention introduces a comprehensive definition of terrorism in the context of financing terrorism, as discussed in Chapter 3 on pp 48–51. 14 For instance, in the United States, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act) Act of 2001, § 802, and the Iran Sanctions Act of 1996, § 14; in the United Kingdom, the Terrorism Act 2000, s 1; in Canada, the Criminal Code, s 83.01(1); in Australia, the Criminal Code Act 1995, s 101.1; and in New Zealand, the Terrorism Suppression Act 2002, s 5. 15 The Council Framework Decision of 13 June 2002 on combating terrorism 2002/475/JHA, art 1; League of Arab States, Arab Convention on the Suppression of Terrorism, 22 April 1998, entered into force 7 May 1999, art 1(2); Organization of the Islamic Conference, Convention of the Organisation of the Islamic Conference on Combating International Terrorism, 1 July 1999, annex to Resolution No. 59/26-P, art 1(2); Organization of African Unity, OAU Convention on the Prevention and Combating of Terrorism, 14 June 1999, entered into force 6 December 2002, art 1(3). 16 UN General Assembly, Measures to Eliminate International Terrorism— Report of the Secretary-General, 6 September 1996, A/51/336; UN General Assembly, Measures to eliminate international terrorism, GA Res 51/210, UN GAOR, 51st sess, 88th plen mtg, UN Doc A/RES/51/210 (17 December 1996); UN Security Council, Security Council resolution 1566 (2004) [concerning threats to international peace and security caused by terrorism], 8 October 2004, S/RES/1566 (2004).

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 5 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 6 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

20

Global counter-terrorist financing and soft law

distinguish terror from other crimes, and, hence, a convention for responding to acts of terrorism. Terrorism can be defined in terms of the primary motivating factor behind the particular act of terror in question. The many motivating factors behind terrorist acts can be divided into three substantive categories; however, it should be noted that these categories are not exhaustive and that the activities of some terror organisations can be placed into more than one category:17 (1)

(2)

Terrorism as a means of opposing controlling authorities, or to advance objectives of self-determination or national independence: Many groups of revolutionaries, freedom fighters and national organisations have adopted terrorism as a means to achieve their political objectives. In the 1940s, Jewish groups were active against the British Mandate in Israel in a struggle to achieve national independence. During the 1950s and 1960s, terrorism was used by national liberation movements seeking to throw off the colonial regime—for example, in Cyprus and Algeria. During the 1970s, terrorism was increasingly adopted by national liberation movements in Western Europe, including the Basque Liberation Movement in Spain and the Irish Republican Army (‘IRA’). During the 1980s and 1990s, terrorism was taken up by the Tamil Tigers in Sri Lanka, and by the Palestinian Liberation Organization (‘PLO’), and other Palestinian groups, against Israel. Fundamentalist terrorism as an expression of the struggle between religion and cultures: The late twentieth century saw a strengthening of fundamentalist religious terrorism. For example, one can look to Al-Qaeda’s fight against Christianity, Judaism and their allies; the fight of the Islamic State (‘IS’) against all religion that is not fundamentalist Sunni Islam; or the religious war (jihad) of Hezbollah, Hamas and the Islamic Jihad against the State of Israel. This kind of terror is not necessarily connected to specific political claims, but aims instead to undermine a religion or an aspect of a culture.18

17 George Rosie, The Directory of International Terrorism (Paragon House, 1987) 22–4. 18 Louis P. Pojman, ‘The Moral Response to Terrorism and Cosmopolitanism’ in James P. Sterba (ed.), Terrorism and International Justice (Oxford University Press, 2003) 135–57, 138.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 6 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 7 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

The importance of countering terrorist financing

(3)

21

State-perpetrated terrorism: Here, a state may engage in acts of terrorism either directly or indirectly, domestically or internationally. When discussing ‘direct’ acts of state terrorism, scholars are referring to a ‘regime of terror’ wherein a state might engage in brutal punishments, executions, and general neglect of its citizens in order to discourage threats of anarchy from the inside—as perpetrated by the totalitarian regimes of Nazi Germany (concentration camps) and Soviet-Russia (the Gulag). In a different manner, a state might conduct terrorism against its enemies externally—for example, by assassinating leaders or military commanders.

A state may also indirectly support terrorism. Those states that aid terrorist groups by backing, supporting and encouraging a particular ideology, as well as by supplying financial, military and operational support (as in the case of Iran, which supports Hezbollah), are supporting terror. There are also terrorist organisations that utilise the executive arm of the state in order to achieve their own political ends and to strengthen their influence over other sovereign states, as well as their control over their own population. The lack of a definition of terrorism came to an end with the creation of the Terrorist Financing Convention, which defines terrorism by referring to existing conventions dealing with specific acts. The fact that the convention defined terrorism did not change much, as the historical problems in reaching binding (or hard law) international agreement regarding the definition of ‘terror’ did not disappear. But, as will be seen in Chapter 4, the involvement of the UNSC and its binding resolutions, together with the FATF non-binding recommendations, led states to ratify the Terrorist Financing Convention in high numbers and, as will be seen in Chapter 5, to adopt, in practice, the agreed definition of terrorism. This prompted Professor Cassese to claim that terrorism is a customary crime with distinct elements deriving from a combination of mutually reinforcing sources, including the Terrorist Financing Convention,19 and Professor Saul to argue that the clearest area of new ‘international anti-terrorism law’ concerns norms against terrorist financing, that it is evident that anti-financing norms emanate from disparate sources (the Terrorist Financing Convention, the UNSC resolutions and the FATF

19 Antonio Cassese, International Criminal Law (Oxford University Press, 2003) 120–31.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 7 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 8 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

22

Global counter-terrorist financing and soft law

recommendations) of varying normative quality (binding and nonbinding), and that the combination of such sources in their totality is universal and rule-like.20 The Importance of Finance for Terrorism In an exploration of the costs involved in terrorism, Williams categorises the funds required by terrorist organisations as follows:21 (i) Subsistence for the perpetrators as they prepare for their actions; (ii) The cost of special training and the development of expertise that is critical to the successful completion of the mission; (iii) The purchase of any weapons or explosive materials that are to be used in the attack; (iv) The cost of travel for meetings related to the plan; and (v) The cost of communications among those involved.

This categorisation, however, refers solely to the costs involved in committing a single, specific attack. Although different scholars often mention the various costs required to maintain a terrorist organisation,22 in practice they do not tend to take these costs into account in their writing. Consequently, the direct costs are acknowledged while the indirect costs are ignored—along with the specific ways in which terrorist organisations operate. Indeed, Williams argues that the fight against the financing of Al-Qaeda lacks effectiveness because the group’s terrorist attacks are cheap.23 Passas argues further that because terror is cheap, the introduction of financial controls meant to deprive terrorist organisations of their funds is quixotic at best and a fictitious notion at worst, stating that “in case after case, we find that the operational costs of atrocities amount to a few thousand dollars each, … it is plain that such amounts will 20 Saul continued to argue that the universality of the norms against terrorist financing established genuinely new customary international law rules. See Ben Saul, ‘The Emerging International Law of Terrorism’ (2010) Indian Yearbook of International Law and Policy 2009 169. 21 Williams, above n 2, 80–81; Martin Rudner, ‘Using Financial Intelligence against the Funding of Terrorism’ (2006) 1 International Journal of Intelligence and Counter Intelligence 32, 35. 22 Simser, above n 1, 344; Sener Dalyan, ‘Combating the Financing of Terrorism: Rethinking Strategies for Success’ (2008) 1 Defense Against Terrorism Review 137, 138; Mark Pieth, ‘Criminalizing the Financing of Terrorism’ (2006) 5 Journal of International Criminal Justice 1074, 1075–6. 23 Williams, above n 2, 78.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 8 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 9 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

The importance of countering terrorist financing

23

hardly be detected by any financial controls we [could] devise and implement”. Passas concludes that “as long as anyone sympathizes with a particular cause, a legal or criminal means of raising funds and transferring them secretly will always be available”.24 Similarly, Davis argues that “the elaborate regime designed to counter financing of terrorism is largely ineffective … because legal efforts to reduce terrorist financing face [the obstacle that] terrorist operations aimed at ‘soft’ targets … often involve property of relatively little value”.25 Lone offenders and some terrorist groups, such as the National Organisation of Cypriot Fighters (‘EOKA’) in Cyprus, have managed to sustain their campaigns on a shoestring budget.26 They have few members to train and equip, they rely on simple weapons such as knives, and—in contrast to larger terrorist organisations—they are not subject to the high and indirect costs of developing and maintaining a terrorist organisation.27 However, most experts agree that organised terrorist groups—especially prominent, sophisticated, or “‘bigger’ terrorist organisations”28—are funded with quite substantial amounts of money, which are necessary for their survival and evolution over lengthy periods of time. Larger organisations in particular, require ample money with which to recruit and train members and fighters (including providing overseas training) and to purchase weaponry.29 Such groups include the Provisional Irish Republican Army (‘Provisional IRA’); the Basque Homeland and Freedom

Nikos Passas, ‘Setting Global CFT Standards: A Critique and Suggestions’ (2006) 3 Journal of Money Laundering Control 281, 287, and later Nikos Passas, ‘Terrorism Financing Mechanisms and Policy Dilemma’ in Jeanne K. Giraldo and Harold A. Trinkunas (eds), Terrorism Financing and State Responses: A Comparative Perspective (Stanford University Press, 2007) 31. 25 Kevin E. Davis, ‘The Financial War on Terrorism’ in Victor V. Ramraj et al., Global Anti-Terrorism Law and Policy (Cambridge University Press, 2012) 183, 205. 26 Panagiotis Dimitrakis, ‘British Intelligence and the Cyprus Insurgency 1955–1959’ (2008) 2 International Journal of Intelligence and Counter Intelligence 375, 386. 27 Matthew Levitt, ‘Low Cost, High Impact: Combatting the Financing of Lone-Wolf and Small-Scale Terrorist Attacks’, Testimony submitted to the Terrorism and Illicit Finance Subcommittee, House Financial Services Committee, 6 September 2017. 28 John Horgan, ‘Playing the “Green Card”—Financing the Provisional IRA: Part 1’ (1999) 2 Terrorism and Political Violence 1, 32. 29 R. E. Bell, ‘The Confiscation, Forfeiture and Disruption of Terrorist Finances’ (2003) 2 Journal of Money Laundering Control 105. 24

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 9 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 10 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

24

Global counter-terrorist financing and soft law

(‘ETA’) in Spain; Hezbollah in Lebanon; the Islamic Resistance Movement (‘Hamas’), originally formed in Gaza; the Revolutionary Armed Forces of Colombia (‘FARC’) in Colombia; Lashkar-e-Taiba in Pakistan; the Taliban in Afghanistan; Al-Qaeda, which originated in Afghanistan but which operates globally; Boko Haram, which is based in north-eastern Nigeria but is also active in Chad, Niger and northern Cameroon; and the Islamic State of Iraq and the Levant/Syria (‘ISIL’/‘ISIS’), which had, up until 2015, an estimated annual budget of US$1 billion.30 These groups tend to operate in a way that assumes some degree of social responsibility (or support for social structures) by establishing a ‘civil wing’ as well as a ‘military wing’. The civil wing is a subdivision that specialises in providing social services that range across a broad spectrum—from helping to build roads in Colombia (FARC) to providing financial assistance to activists’ families at Christmas (Provisional IRA) and granting full healthcare support (Hamas)—and become essential to the community. The military wing, by contrast, specialises in committing terrorist attacks and related activities. This structure is designed to address considerations of efficiency and versatility; therefore, both wings operate under the one organisation. Financing the Military Wing Funding the personnel of military wings is no small feat. For example, Al-Qaeda had approximately 70,000 activists in its various camps in Afghanistan before the 11 September 2001 attack. FARC had a membership of 16,000 activists in 2001. By 2010, after the Colombian government had campaigned against FARC’s funding sources, its recruits had dropped to 8,000 in number. In the 1990s, the ETA, on average, paid a salary of US$240 per month for active married members (plus US$40 per child). Its average annual expenditure from 1978 to 1997 was approximately US$4 million. ETA’s expenditure increased dramatically after the payment of a ransom for the release of a businessman whom it kidnapped in 1998, bringing an estimated US$12–15 million to the organisation.31 The PLO paid its members a monthly salary ranging from 700 to 1,000 Lebanese pounds (and 650 and 25 Lebanese pounds, respectively, for wives and children), with Napoleoni observing that “to fund such an army the PLO had to build a strong financial and economic base”.32 Fawaz Gerges, ISIS: A History (Princeton University Press, 2016) 22. Loretta Napoleoni, Modern Jihad: Tracing the Dollars Behind the Terror Networks (Pluto Press, 2003) 38. 32 Ibid 40. 30 31

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 10 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 11 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

The importance of countering terrorist financing

25

The estimated cost for a ‘regular’, full-time member of the Red Brigades (based in Italy) who had gone underground was about US$15,000 a year, including salary, rent, food, clothing and personal weapons. Therefore, to run an organisation with as few as 500 regulars, the Red Brigades needed to raise approximately US$8 million a year. A former member of the Red Brigades admitted that “although we lived an extremely frugal existence and did not need much to survive, we needed cash, a lot of it, to finance our fight”.33 Sterling estimated that the cost of running the Red Brigades in the 1970s and 1980s was close to US$10 million a year (equivalent to US$100 million today).34 It is claimed that Hezbollah receives US$60–80 million per year in funding from Iran,35 while the estimated annual budget of Hamas is approximately US$700 million. Al-Qaeda is claimed to have received approximately US$50 million per year,36 and the IRA between US$9.8 million and US$22.5 million per year.37 During the war in Sri Lanka (1983–2009), the Liberation Tigers of Tamil Eelam (‘LTTE’) were considered to have received between US$100 million and US$200 million annually.38 Finally, FARC and fellow terror organisation El Movimiento 19 de Abril are said to have received US$150 million a year by 1984.39 Clearly, terror organisations need money—a good deal of it—and know how to secure it. The day-to-day activities of a terrorist organisation require an arsenal. While a Stanley knife and a flight ticket are, at times, enough to commit a terrorist attack, creating and sustaining an atmosphere of sustained fear and horror, and subsequently impeding the daily life of ordinary citizens, Ibid 54. Claire Sterling, The Terror Network: The Secret War of International Terrorism (Weidenfeld and Nicolson, 1981) 284. 35 Louise Richardson, What Terrorists Want (John Murray, 2006) 87. 36 Rohan Gunaratna, Inside Al-Qaeda: Global Network of Terror (Columbia University Press, 2002) 60–63. 37 Security forces estimate that the organisation needs about £5 million per annum to run effectively. See House of Commons, Northern Ireland Affairs Committee, The Financing of Terrorism in Northern Ireland: Fourth Report of Session 2001–02, Volume 1: Report and Proceedings of the Committee (2 July 2002) 18; Napoleoni, above n 31, 30; W. A. Tupman, ‘Where Has All the Money Gone? The IRA as a Profit-Making Concern’ (1998) 1(4) Journal of Money Laundering Control 303, 307. 38 Mikel Buesa, ‘Untangling ETA’s Finance: An In-Depth Analysis of the Basque Terrorist’s Economic Network and the Money It Handles’ (2013) 4 Defense and Peace Economics 317, 335–6. 39 Napoleoni, above n 31, 40. 33 34

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 11 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 12 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

26

Global counter-terrorist financing and soft law

requires a substantial cache of weapons at the ready. Terrorist organisations are indeed able to access the same sophisticated weapons usually owned only by organised military—for example, Hezbollah is equipped with unmanned aerial vehicles and advanced missile technology. Hamas, when attacking Israel, has (since 2001) fired thousands of rockets of varying types and quality. The average cost of each rocket was US$800, and the tunnels Hamas dug from Gaza to Egypt or to Israel, cost an estimated US$140 million a year.40 Finally, Al-Qaeda holds anti-plane missiles41 and consistently attempts to assemble an atomic bomb, including trying to buy a component from South Africa in 1993 for US$1.5 million.42 The funds required for sustaining and reaching terror-related goals are therefore a clearly appropriate, if not crucial, factor to consider in combating terrorist activity. The financing of terrorist organisations is clearly at very high levels and, as noted earlier, funding is spent in two different, but related, areas: (1) (2)

direct terror activity (that is, money spent on salaries, training, travel and equipment), as addressed above; and financial assistance to the organisation’s members and community, which indirectly supports the specific acts of terror committed, and which is often neglected as a critical aspect of terrorist activity. This area will now be explored.

Financing the Civil Wing The civil wing of a terrorist organisation, especially one of the ‘bigger ones’, provides various social services to the community. A close examination of the activities of the civil wing reveals that its actions, whether advertently or inadvertently, result in a strengthening of the military wing of the organisation. These activities can range from educational and social services for the poor, orphans and widows (who 40 Ulrike Putz, ‘Graveyard Shift for Islamic Jihad: A Visit to a Gaza Rocket Factory’, Spiegel Online, 29 January 2008, available at www.spiegel. de/international/world/graveyard-shift-for-islamic-jihad-a-visit-to-a-gaza-rocketfactory-a-531578.html [accessed 1 October 2019]; Amos Harel, ‘Hamas’ Strategic Tunnels: Millions of Dollars to Spirit Kidnapped Israelis into Gaza’, Haaretz, 14 October 2013 (in Hebrew). 41 Napoleoni, above n 31, 185. 42 David Greenway, ‘Al-Qaeda’s Quest for the Bomb’, New York Times, 19 February 2010, available at www.nytimes.com/2010/02/20/opinion/20ihtedgreenway.html [accessed 1 October 2019].

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 12 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 13 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

The importance of countering terrorist financing

27

are often poor, orphaned or widowed due to the operation of the military wing of the organisation), to the provision of health care and assistance for seniors.43 These are essential forms of support that, when provided by the civil wing, promote and garner the faith and loyalty of the local population. Support for the existence and activities of the organisation’s military wing subsequently increases. To illustrate, in southern Lebanon, where the national government maintains only a token presence, Hezbollah-funded schools and hospitals serve thousands of the region’s mostly poor residents. The residents, in turn, continue to revere the party and its still active armed wing. Ahmad Raad, director of a Hezbollah-controlled hospital, explains how donations from Iran, funnelled through certain private charities, are to be used exclusively for the health care, education and support of war widows.44 In this manner, funding received by the civil wing of Hezbollah and other terrorist organisations is shown to bear a connection with their military wings, despite the fact that the costs of the military wings are relatively minor in comparison to civil expenditure. Brisard, for example, states that the primary objective of Al-Qaeda’s expenditure is reinvestment into its sub-organisations, in order to foster global support for its ideology. Al-Qaeda is believed to have financially supported, over the years, terror cells in Libya, Indonesia, the Philippines and Somalia. Brisard concludes that 90 per cent of the funds raised by Al-Qaeda is spent on the administration and maintenance of the organisation, while less than 10 per cent is spent on the planning and execution of terror attacks.45 Likewise, Hezbollah’s funds are spent primarily on furthering the group’s overall agenda of establishing a Shi’a entity in Lebanon. To this end, the majority of its funds finance social welfare and political activities that support terror in a more indirect fashion.46 Furthermore, according to 43 According to the FATF, terrorist organisations use funds for the following broad categories: operations, propaganda and recruitment, training, salaries and member compensation and social services. See FATF, Emerging Terrorist Financing Risks (October 2015) 9–10, 13. 44 Scott Wilson, ‘Lebanese Wary of a Rising Hezbollah—Fears of Militia’s Broader Ambitions Reignite Debate over Its Populist Agenda’, Washington Post Foreign Service, 20 December 2004, A17. 45 Jean-Charles Brisard, Terrorism Financing: Roots and Trends of Saudi Terrorism Financing, Report Prepared for the President of the Security Council, United Nations (JCB Consulting, 19 December 2002) 7. 46 Matthew Levitt, ‘Hezbollah Finances, Funding the Party of God’ in Jeanne K. Giraldo and Harold A. Trinkunas (eds), Terrorism Financing and State Responses: A Comparative Perspective (Stanford University Press, 2007) 137.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 13 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 14 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

28

Global counter-terrorist financing and soft law

Gunning, Israeli intelligence estimates that 80–90 per cent of the money raised by Hamas is spent on charitable, educational and medical institutions, leaving just 10–20 per cent for ‘military’ endeavours.47 Like Hezbollah and Hamas, the Provisional IRA was concerned for the welfare of the relatives of those members who had become imprisoned, the support of men ‘on the run’ and their families, and the support of IRA men who had served lengthy prison sentences and subsequently had little chance of securing legitimate employment. The Provisional IRA also provided weekly or monthly stipends to the families of prisoners, in addition to further support at Christmas time.48 Indeed, it involves very little stretch of the imagination to see how money directed to the religious, educational and welfare programmes of the civil wing come to support and perpetuate terrorism by generating loyalty and spreading the aims and ideals of the organisation among the public for which it ostensibly cares. This can extend to inducing incitement against states that the organisation opposes, abetting acts of terrorism against them, and providing financial support to the terrorists themselves (those wounded and imprisoned) and their families (in the event of death). The civil wing supports the military wing in additional ways, such as by strengthening a movement ideology—from the religious leaders who preach support for the goals of the organisation, to teachers in classrooms and summer camps, to university lecturers. In this manner, terrorist organisations spread their ideals and teachings via the civil wing and support the instillation of the terrorist organisation’s ideals from infancy to adulthood. This is distinct from acts of persuasion and from ‘brainwashing’, ‘indoctrination’ or ‘re-education’, which involve a material change in beliefs, attitudes or behaviour. Rather than attempting to override the world view held by any individual, terrorist organisations aim to have people born into their world view, and to then support and strengthen that world view in their social and educational environments. Loyalty to the cause is established, in many instances, in elementary school, where children are taught to admire the perpetrators of terrorist acts through youth groups, training camps and health services—not to mention an extensive array of advertising and publicity techniques. 47 Jeroen Gunning, ‘Terrorism, Charities and Diasporas: Contrasting the Fundraising Practices of Hamas and Al-Qaeda among Muslims in Europe’ in Thomas J. Biersteker and Sue E. Eckert (eds), Countering the Financing of Terrorism (London, 2008) 93, 100. 48 Horgan, above n 28, from Martin McGartland, Fifty Dead Men Walking (Blake Publishing Ltd, 1997) 182.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 14 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 15 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

The importance of countering terrorist financing

29

Hamas, for example, holds annual summer camps in which children are given lectures on the use of explosives and instruction in the operation of various weapons, alongside their tuition in religion, computer studies, and sports. The civil wing is also used as a major tool for recruitment to the military wing.49 Through promises of aid in such forms as reduced tuition fees or university scholarships, people are enticed to join the organisation and are then offered financial compensation to commit terrorist acts. Higher amounts are offered to those willing to sacrifice themselves for the sake of the organisation’s goals. The question of whether to distinguish between the different wings of a proscribed body has come before the courts of multiple jurisdictions. These courts have largely concluded that a terror organisation should be considered as a whole entity, and that individual wings should not be considered separately or distinctly when determining whether the collection, retention or ultimate intended use of funds obtained by a proscribed organisation can be considered criminal.50 That efforts to prevent the financing of a proscribed organisation need to be comprehensively applied. They should be directed towards the Richardson, above n 35, 79. In 7385/03 Agbaria v State of Israel (31 August 2003) (Israel), the accused had funnelled funds belonging to Hamas from overseas to charitable organisations in the Palestinian Territories, to prisoners arrested for security offences and terrorist acts, and to the families of the prisoners. The criminal charges were, among others, membership in a proscribed terrorist organisation, supporting a proscribed terrorist organisation, offences related to performing services for an illegal organisation, money laundering and financing terrorism. Weinstein v Islamic Republic of Iran, 184 F Supp 2d 13 (2002) concerned a lawsuit filed against Iran by the families of US citizens killed in a terrorist attack. The US District Court ruled that the funds from Iran did not directly fund the military wing, but aided it by financing the civil wing of the same body. See also the decision by a German court to outlaw the German office of the Al-Aqsa Charitable Foundation: German Administrative Court—Press Release 69/2004, Administrative Court, 6/A/10.02 (3 December 2004), available at www.terrorisminfo.org.il/Data/pdf/pdf3/JAN13_05_1093557097.pdf [accessed 1 October 2019] (translation by Intelligence and Terrorism Information Center for Special Studies (Israel)). The court noted that it would be impossible to trace the transfer of funds intended for different purposes between different components of the organisation; however, “no distinction [should be made] between its social work and [its activities in] the military sphere”. See also 7223/03 Mahajna v State of Israel (2003(3)) 584; 6552/05 Abidat v State of Israel (unreported, 17 August 2005) 11; 900/04 Gol v State of Israel (2004(4)) 333; 854/07 Abu Daka v State of Israel (unreported, 8 March 2007) 7. 49 50

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 15 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 16 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

30

Global counter-terrorist financing and soft law

organisation as a discrete entity, without a distinction being drawn between the different wings or sectors of the organisation, or between the ultimate intended purposes of the funds. When viewed as distinct bodies—even bodies that promote entirely different objectives—it can still in fact be acknowledged that, in practice, the operations of one wing assist in financing the other: If you give money (or raise money to be given) for the teaching of arithmetic to children in an elementary school run by [a proscribed organisation], you [will be] providing material support to a terrorist organisation even though you are not providing direct support to any terrorist acts.51

A dollar of funding provided for baby formula could potentially allow the organisation to spend a dollar elsewhere on bullets. Funds donated to orphanages, community activities, or hospitals operated by a terrorist organisation free up the organisation to spend the same amount on financing terrorist activity. This point was made clearly in the Holy Land Foundation case, which found that the substantial expenditure of terrorist organisations and the fungible nature of money led to some of the money that is collected externally under humanitarian banners being re-routed for military and operational uses. It was also argued that this freed up other funds for specific terrorist acts and the provision of weapons, explosives, transportation services, safe houses, and salaries for operatives.52 Singh-Kaur v Ashcroft, 385 F 3d 293, 299–300 (3d Cir 2004); Humanitarian Law Project v Gonzales, 380 F Supp 2d 1134, 1137 (CD Cal 2005). 52 United States v Holy Land Foundation for Relief and Development, 304CR 240G (US District Court, Northern District of Texas, 26 July 2004) 4. Based in Texas, the Holy Land Foundation was the largest Islamic charitable organisation in the United States. In 2001, the organisation was proscribed as a terror organisation in the United States, its property was seized, and the organisation was closed down. The prosecution did not attempt to argue that the organisation itself was involved in violence, but rather that it transferred moneys to charitable organisations run by Hamas and that, in doing so, the Holy Land Foundation was supporting Hamas in its entirety. The jury, on 27 May 2009, found the defendants guilty on all 108 counts. The court sentenced the two heads of the foundation to 65 years’ imprisonment, and the others to between 15 and 20 years’ imprisonment: affirmed on appeal, United States v El-Mezain, 664 F 3d 467 (5th Cir 2011), cert denied, 133 S Ct 525 (2012). For further discussion in relation to the civil procedure, see Boim v Holy Land Foundation for Relief and Development, 549 F 3d 685 CA 7 (2008). See also Humanitarian Law Project v Reno, as Attorney General of the United States, 205 F 3d 1130, 1136 (9th Cir 2000). See also Weiss v National Westminster Bank PLC, 453 51

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 16 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 17 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

The importance of countering terrorist financing

31

A terrorist organisation’s ability to transfer funds between its various wings is critical in allowing the financing of military operations to occur under the cover of humanitarian, ostensibly legitimate, activity. Moreover, the terrorist organisation does not operate its books in a fashion that is open to public scrutiny. Hence, when funds are received by the civil wing, there is no way to track how and where those funds will eventually be used. In addition, the moneys expended for civilian and allegedly positive purposes appear to support potential terrorists and their families, providing the type of support that plays a substantial role in a person deciding whether or not to carry out terrorist activity.

TERRORIST FINANCING METHODS AND TECHNIQUES Every terror organisation has its preferred method of securing finances, and these methods evolve with the organisation over time in response to, among other variables, changes in the external legal framework in which the organisation operates. Nevertheless, it is possible to divide the methods through which terror organisations finance themselves into four categories,53 as follows: (1) proceeds of criminal activity; (2) statesponsorship of terrorist activity; (3) proceeds of legitimate activity; and (4) charitable donations.54 F Supp 2d 609, 631–2 (EDNY 2006); “Money, after all, is fungible, and terrorist organisations can hardly be counted on to keep careful bookkeeping records”, in Kilburn v Socialist People’s Libyan Arab Jamahiriya, 376 F 3d 1123, 1130 (DC Cir 2004); and “fungible assistance, such as monetary donations, enable[s] a terrorist organisation to solicit funds for an ostensibly benign purpose, and then transfer other equivalent funds in its possession to promote its terrorist activities”, in United States of America, Board of Immigration Appeals, Re S-K-, 23 I&N Dec 936, 944 (BIA 2006). 53 In some studies, the sources of funds will have been divided into three groups, such as when financing via legitimate activities and via criminal activities are defined together as ‘self-financing’. See Ilias Bantekas, ‘The International Law of Terrorist Financing’ (2003) 97(2) American Journal of International Law 315; Anne Clunan, ‘The Fight against Terrorist Financing’ (2006) 121(4) Political Science Quarterly 569; Samy Yiagadeesen, ‘Terrorism Financing and Financial System Vulnerabilities: Issues and Challenges’ (2006) 3 Trends in Terrorism Series, Canadian Centre for Intelligence and Security Studies 31. 54 David Cortright and George A. Lopez (eds), Uniting against Terror: Cooperative Nonmilitary Responses to the Global Terrorist Threat (MIT Press, 2007). A case can be made for another category of sources, ‘illicit proceeds from

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 17 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 18 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

32

Global counter-terrorist financing and soft law

Proceeds of Criminal Activity This source of financing is based on the proceeds of criminal activity, the majority of which is international in scope. When utilising this method, it is incumbent on the entity providing the funds to hide both the source of the funds and their destination. Owing to the profitability of such activity, and the ability to rely on money laundering methods favoured by criminal organisations, this method constitutes a prime source of funding for terror organisations.55

occupation of territory’, especially after Hamas took control of the Gaza Strip in June 2007, and later ISIL’s expansion of territorial control into parts of Iraq and Syria. In the case of Hamas, as a controlling authority, it began to collect tax from the residents of Gaza. See State Department, Background Information on Foreign Terrorist Organisations, Office of the Coordinator for Counterterrorism (8 October 2008). Moreover, Hamas began to request a goods tax from companies operating in Gaza that smuggled goods into the Strip. See International Crisis Group, Ruling Palestine I: Gaza Under Hamas, Middle East Report 73 (19 March 2008) 19. Hamas even collects a ‘tunnel tax’ on every new tunnel that is dug, and puts a levy on different services—such as the registration of cars and the issuance of birth certificates, among other things. See Steven Gurkin and Diaa Hadid, ‘From Cigarette Sales to Smuggled Cash, Hamas Cuts Every Corner to Beat Boycott’, Associated Press Worldstream, 30 September 2007. In the case of ISIL, primary sources of revenue are mainly derived from the illicit proceeds from its occupation of territory. These sources include control of oilfields and refineries and the robbery of economic assets. Recently, SC Resolution 2170 (2014) and SC Resolution 2199 (2015) identified ISIL-related funding streams, including revenues generated from the control of oilfields and related infrastructure, kidnapping for ransom, private donations from individuals and entities, fundraising through the internet, and possible sanctions evasion through aircraft or other transport to transfer gold or other valuable items and economic resources for sale on international markets. In addition, SC Resolution 2178 (2014) requires all member states to prevent and suppress the financing of foreign terrorist fighters, including their travel and subsequent activities. See FATF, Financing of the Terrorist Organisation Islamic State in Iraq and the Levant (February 2015) 5, 10–11; UN Security Council, Security Council resolution 2170 (2014) [on threats to international peace and security caused by terrorist acts by Al-Qaida], 15 August 2014, S/RES/2170 (2014); UN Security Council, Security Council resolution 2199 (2015) [on threats to international peace and security caused by terrorist acts by Al-Qaida], 12 February 2015, S/RES/2199 (2015); and UN Security Council, Security Council resolution 2178 (2014) [on threats to international peace and security caused by foreign terrorist fighters], 24 September 2014, S/RES/2178 (2014) (‘SC Res 2178 (2014)’). 55 For a list of different terrorist organisations and their preferred method of illegally obtaining funds, see John Rollins and Liana S. Wyler, ‘Terrorism and

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 18 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 19 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

The importance of countering terrorist financing

33

The criminal activities preferred by terrorist organisations tend to be robberies,56 the drug trade,57 smuggling58 (particularly of people, weapons, equipment and cigarettes),59 and extortion60 (of which kidnapping for ransom is the primary form).61 Some or all of these methods have traditionally been used to raise funds by terrorist organisations around the world. State Sponsorship of Terrorist Organisations In the past, a high percentage of finance allocated to terrorist organisations came from state sponsorship.62 However, the international community has exerted great effort to minimise such support by imposing economic and other sanctions on such states. Consequently, today this method of financing terror is considerably less popular,63 although it is

Transnational Crime’ (June 2013) 7-5700, R41004 Foreign Policy Issues for Congress, Congressional Research Service appendix A. 56 Horgan, above n 28, 13, drawing from Robert P. Clark, The Basque Insurgents. ETA: 1952–1980 (University of Wisconsin Press, 1984). See also Taylor, above n 7, 52. 57 James A. Piazza, ‘The Opium Trade and Patterns of Terrorism in the Provinces of Afghanistan: An Empirical Analysis’ (2012) 4(2) Terrorism and Political Violence 213. 58 Daveed Ross and Kyle Dabruzzi, The Convergence of Crime and Terror: Law Enforcement Opportunities and Perils (Manhattan Institute Policing Terrorism Report No. 1, June 2007); United States Department of Justice, ‘Man Sentenced for Conspiracy to Provide Material Support to Terror Organisation’ (Press Release, 30 October 2008). 59 United States v Hammoud, 378 F 3d 426 (4th Cir 2004) 3–4; Maarten van Dijck, ‘The Link between the Financing of Terrorism and Cigarette Smuggling: What Evidence is There?’ (2007) 1 Human Security Endangered by Terrorism and Organised Crime Journal 5. 60 John Horgan, ‘The Provisional Irish Republican Army: Command and Functional Structure’ (1997) 3 Terrorism and Political Violence 1, 13. 61 McKenzie O’Brien, ‘Fluctuations between Crime and Terror: The Case of Abu Sayyaf’s Kidnapping Activities’ (2012) 24(2) Terrorism and Political Violence 320; FATF, Organised Maritime Piracy and Related Kidnapping for Ransom (July 2011) 26. 62 See United States Department of State Publication Bureau of Counterterrorism, Country Reports on Terrorism 2017 (19 September 2018) ch 2; Richardson, above n 35, 73. 63 Anne C. Richard, Fighting Terrorist Financing: Transatlantic Cooperation and International Institutions (Center for Transatlantic Relations, Johns Hopkins University, 2005) 6–9.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 19 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 20 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

34

Global counter-terrorist financing and soft law

still possible to find terror organisations, such as Hezbollah, whose primary source of funding is derived from state sponsors.64 Proceeds of Legitimate Activity Legitimate business activities are also used as a vehicle for securing funds by terrorist organisations. This proves to have many advantages. As with other legal methods of obtaining funds, such as receiving donations, it is extremely difficult to track and prove the ultimate destination of moneys obtained in this manner.65 Legitimate business activity creates optimal conditions for integrating those involved with a terrorist organisation into a genuine business, the activities of which disguise and belie its true purpose: generating profit to be invested into the activities of a terrorist cell.66 Donations, Abuse and Misuse of Non-Profit Organisations This type of funding, which was recognised as a concern by the FATF,67 is obtained via charitable donations from naive private citizens, as well as from those who are well aware of the final destination of their contribution, who are based all around the world (in the United States since 2001, approximately 33 per cent of terrorist financing cases involved direct financial support from individuals to terrorist networks).68 The charities ostensibly operate in aid of genuine social services but, in practice,

For more on state sponsorship in general, see Clunan, above n 53, 574; Bantekas, above n 53, 316. For state sponsorship of Hamas, see Matthew Levitt, ‘A Hamas Headquarters in Saudi Arabia?’ (2005) 521 Washington Institute for Near East Policy. For state sponsorship of Hezbollah, see Ely Karmon, ‘“Fight on All Fronts”: Hezbollah, the War on Terror, and the War in Iraq’ (2003) 46 Washington Institute for Near East Policy. 65 See, for example, with regard a lucrative business set up by ETA, Buesa, above n 38. 66 An example of integration between terrorist activity and the financial network can be found in the case of BMI, one of the largest cases heard in the United States: United States v Biheiri, 293 F Supp 2d 656 (ED Va 2993). 67 FATF, Best Practices, Combating the Abuse of Non-Profit Organisations (Recommendation 8) (June 2015). 68 United States Department of the Treasury, National Terrorist Financing Risk Assessment (2015) 44; FATF, Emerging Terrorist Financing Risks, above n 43, 13. 64

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 20 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 21 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

The importance of countering terrorist financing

35

transfer funds to the military wing of the terror organisation or, alternatively, release funds donated to the civil wing for use in the military wing—both acting to strengthen the military wing.69 This kind of financing is predominantly (but not solely) used by Islamist terrorist organisations,70 which take advantage of charitable donations constituting one of the five principal righteous good deeds that are required forms of observance in Islam (known as Zakat in Arabic).71 The donations ostensibly go to the needy, widows and orphans, and are distributed to meet other needs of the Muslim community, such as to establish mosques and religious educational institutions. Enlisting funds in this manner poses substantial difficulties for law enforcement and prosecutorial authorities, who must essentially distinguish between three types of organisations: legitimate organisations that provide assistance for needy individuals; organisations that inadvertently support terror without knowing that they do so; and organisations that support terrorist organisations in a direct and knowing manner. Preventing the operation of charitable organisations that support terror is complicated due to the immense difficulty of attempting to identify the

69 It is possible to identify ongoing terrorist abuse in the global non-profit organisation (‘NPO’) sector, and increase in the misuse of some NPOs providing humanitarian assistance, either to raise funds or to move funds to countries neighbouring a crisis zone. For example, according to the Australian Transaction Reports and Analysis Centre (‘AUSTRAC’), funds sent to Syria and neighbouring countries for humanitarian aid are at increased risk of being used for financing terrorism if they are sent through less-established charities and NPOs that do not have proper due diligence measures in place. See AUSTRAC, Terrorism Financing in Australia 2014 (2014) 6; FATF, Emerging Terrorist Financing Risks, above n 43, 14. 70 James Adams, The Financing of Terror (New English Library, 1986); Paul Wilkinson, Contemporary Research on Terrorism (Aberdeen University Press, 1987) 401. In 1981, the US District Court ruled that the NORAID organisation was acting in the United States as an arm of the Provisional IRA, stating that there was uncontroverted evidence that NORAID was an agent of the IRA and provided money and services other than for relief purposes. See Warren Richey, ‘On the Trail of US Funds for IRA’, Christian Science Monitor, 14 January 1985, 6; Attorney General v Irish Northern Aid Committee, 530 F Supp 241 (SDNY 1981), aff’d, 668 F 2d 159 (2d Cir 1982). 71 Levitt, above n 64, 23; Zakat is a religious contribution for charitable purposes of at least 2.5 per cent of one’s accumulated wealth held for a full year. See Mervyn K. Lewis and Latifa M. Algaud, Islamic Banking (Edward Elgar Publishing, 2001) 27–30.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 21 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 22 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

36

Global counter-terrorist financing and soft law

ultimate, actual purpose for which their funds will be utilised.72 Such organisations are usually constructed in a complex manner, which makes it difficult for law enforcement agencies to track the path of funds. The following features illustrate the difficulty involved in enforcing anti-terror financing in relation to charitable donations. (1)

(2)

(3)

Extended networking: Charitable organisations often receive donations from other charitable organisations based around the globe, which makes it easier for funds obtained by a legitimate charity to eventually be utilised by a charity established by a terrorist organisation. Large-scale organisations: Many large-scale organisations have offices located in multiple cities around the world, particularly in Western countries, where liberties such as freedom of expression permit the organisation to enlist funds and accept donations without close scrutiny. Ability to trace: Many organisations transfer funds to the needy by crossing international borders with large amounts of cash, which are only then distributed to the intended recipients.

The inter-relationship between different components of a terrorist body means that fighting the financing of terrorism using an artificial distinction between the different wings of that body is misguided.73 It can be concluded that the organisational structure of the terrorist organisation and its mode of operation cause funds directed to the civil wing to contribute to the operations of the military wing. Therefore, funding of the civil wing should be seen as an indirect method of financing terrorist activities, and it seems that the FATF adopted this view in its recommendations.74 72 Matthew Levitt, ‘Charitable Organisation and Terrorist Financing: A War on Terror Status-Check’, paper presented at the workshop ‘The Dimensions of Terrorist Financing’, University of Pittsburgh, 19 March 2004. 73 For different opinions, see Gunning, above n 47, 99–101; Kevin E. Davis, ‘Legislating against the Financing of Terrorism: Pitfalls and Prospects’ (2003) 3 Journal of Financial Crime 269, 271; George Williams, ‘Anti-Terror Legislation in Australia and New Zealand’ in Victor V. Ramraj et al., Global Anti-Terrorism Law and Policy (Cambridge University Press, 2012) 541, 551; Nicola McGarrity, ‘The Criminalisation of Terrorist Financing in Australia’ (2012) 3 Monash University Law Review 55, 70. 74 FATF, Best Practices, Combating the Abuse of Non-Profit Organisations (Recommendation 8) (June 2015), 43; FATF, Risk of Terrorist Abuse in NonProfit Organisations (June 2014) 119.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 22 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 23 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

The importance of countering terrorist financing

37

Understanding the different methods and techniques that terrorist organisations use to finance their despicable acts, and achieving compliance with the CTF regime, are critical to starving terrorist organisations of funds and disrupting their activities in the long term.75 Keeping in mind that terrorist acts are threats to the peace and acts of aggression, especially when they occur in an international dimension, can affect the development of binding and non-binding norms addressing these risks. The standards set by the organisations dealing with CTF are ultimately subject to implementation and, later, compliance by national governments. This is necessary, as different jurisdictions must respond to the particularities of their own sectors, governance systems, and cultures. Case studies can demonstrate the ongoing compliance difficulties. Terrorists and terrorist organisations need money to operate and survive, no matter whether they are ‘lone wolf’ actors, small groups or large organisations, and regardless of their motivating factors. This influences the development of international legal norms in response to the different methods of financing used by terrorists and terrorist organisations. These norms have varying levels of implementation and compliance. An example of the development of a norm can be found in the financing of terrorist organisations via charities. One of the three pillars of CTF today, the FATF, recognises that non-profit organisations (‘NPOs’) are misused and exploited by terrorists and terrorist organisations through a variety of means. Therefore, the FATF published a unique non-binding recommendation dealing with this method of financing. The fact that this norm is unique to the FATF (and does not overlap with binding norms) may have an effect on the level of its initial implementation. It may take some time for states to comply with the recommendation. This is especially true for those states in which the NPO sector plays a vital social role—such as India and Thailand, which are included in the case studies in this book.

THE DISTRIBUTION OF FUNDS Money Laundering Terrorist financing involves two primary activities: sourcing finances and distributing those finances. Therefore, CTF necessarily involves tackling 75

Columns Design XML Ltd

/

FATF, Emerging Terrorist Financing Risks, above n 43, 5.

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 23 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 24 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

38

Global counter-terrorist financing and soft law

both the sources and the distribution process. If the international community were to consider the distribution of finances for terrorist purposes as similar to the process of money laundering, it could utilise alreadyexisting structures to combat the distribution process. This idea will now be explored. What is money laundering? While money laundering can be defined in numerous ways,76 most nations subscribe to the definition adopted by the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances,77 which defines it as follows: (i) The conversion or transfer of property, knowing that such property is derived from any offence or offences established in accordance with subparagraph (a) of this paragraph [drug trafficking], or from an act of participation in such offence or offences, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of such an offence or offences to evade the legal consequences of his actions; (ii) The concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of property, knowing that such property is derived from an offence or offences established in accordance with subparagraph (a) of this paragraph or from an act of participation in such an offence or offences.78

The Illicit Traffic Convention elaborates on this definition to add that money laundering also involves: (i) The acquisition, possession or use of property, knowing, at the time of receipt, that such property was derived from an offence or offences established in accordance with subparagraph (a) of this paragraph or from an act of participation in such offence or offences;79 Guy Stessens, Money Laundering: A New International Law Enforcement Model (Cambridge University Press, 2000) 82. For an overview of various definitions of money laundering, see Valsamis Mitsilegas, Money Laundering Counter-Measures in the European Union: A New Paradigm of Security Governance versus Fundamental Legal Principles (Kluwer Law International, 2003) 25–30. 77 United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, 19 December 1988, entered into force 11 November 1990, UN Doc E/CONF.82/15 (1988) (‘Illicit Traffic Convention’). 78 Ibid art 3(b). 79 Ibid art 3(c)(i). 76

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 24 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 25 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

The importance of countering terrorist financing

39

The Illicit Traffic Convention limits predicate offences (offences as a result of which proceeds have been generated that may become the subject of an offence), to those involving drug trafficking. However, the international community has, over time, developed the notion that other offences need to be acknowledged, leading to the inclusion of other serious crimes in the definition of predicate offences in other international instruments. For example, the Palermo Convention80 states that all participating countries must apply the definition of money laundering to “the widest range of predicate offences”.81 The link between money laundering and terrorist financing Concealing the sources of, and uses for, terrorist finances involves techniques very similar to those used to launder money.82 Effective concealment means that both the funds and the sources remain available for future terrorist activities, as the financing activity goes undetected by those wishing to combat it.83 The FATF defines the term ‘money laundering’ succinctly as the processing of criminal proceeds to disguise their illegal origin in order to ‘legitimise’ the ill-gotten gains of crime.84 The money laundering predicate offence is the underlying criminal activity that generates the proceeds that, when laundered, result in the offence of money laundering. The techniques used to launder money are essentially the same as those used to conceal the sources of, and uses for, terrorist financing, with the difference that funds used to support terrorism may originate from legitimate sources. Therefore, there is a need to criminalise the financing of terrorism and designate such offences as money laundering predicate offences (expanding the scope of the AML framework).85 Money laundering initially came to the fore when its ubiquitous connection to illegal trafficking in narcotic drugs was realised. It became clear that drug traffickers were converting usually small denominations of United Nations Convention against Transnational Organized Crime, 15 November 2000, entered into force 29 September 2003, 2225 UNTS 209. 81 Ibid art 2(2). 82 Paul A. Schott, Reference Guide to Anti-Money Laundering and Combating the Financing of Terrorism (2nd edn, World Bank, 2006) 5. 83 Kimberly L. Thachuk, ‘Terrorism’s Financial Lifeline: Can it be Severed?’ (2002) 191 Strategic Forum, Institute for National Strategic Studies, National Défense University 3. 84 FATF, What is Money Laundering? Basic Facts about Money Laundering (undated). 85 See Schott, above n 82, 1–5. 80

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 25 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 26 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

40

Global counter-terrorist financing and soft law

currency into financial instruments, legal bank accounts, or other assets. Since that time, it has been well established that money launderers utilise placement, layering and integration in order to convert their illicit proceeds into legal moneys and/or goods, as shown in Figure 2.1 below.

Placement: Cash deposited into accounts

Integration: In money laundering, funds used to acquire legitimate assets

Layering: Funds moved to other institutions (to obscure origin)

Integration: In financing terrorism, funds distributed to fund terrorist activities

Figure 2.1 Money laundering placement, layering and integration The first stage, ‘placement’, involves transferring illegally gained funds to a legitimate financial system—typically via a financial institution, such as by depositing cash into a bank account. Where large amounts of cash are involved, they are divided into smaller amounts and deposited either into multiple branches of one financial institution over time, or into multiple financial institutions, so that each deposit is less conspicuous. What may also occur at this point is the conversion of smaller denominations into larger ones, the exchange of one currency for another, or even the conversion of cash into financial instruments and the merging of illicit funds with legitimate money. The second stage, ‘layering’, occurs once the illicit funds have entered the financial system, where the money is then distributed among other institutions or converted for source concealment. The funds can potentially be transferred elsewhere via a negotiable financial tool, such as a money order or cheque, or electronically deposited into other accounts. The final stage, ‘integration’, which involves integrating funds into the legitimate economy, is usually achieved through buying items such as luxury goods, real estate, securities or other financial assets.86

86 Kenneth Murray, ‘In the Shadow of the Dark Twin—Proving Criminality in Money Laundering Cases’ (2016) 19(4) Journal of Money Laundering Control 447, 451. For an ‘enable, distance and disguise’ model, which arguably encompasses a wider range of facilitation and laundering conduct, see Stephen Platt, Criminal Capital: How the Finance Industry Facilitates Crime (Palgrave Macmillan, 2015) 31.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 26 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 27 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

The importance of countering terrorist financing

41

Terrorist financing schemes have these stages in common with money laundering schemes, with the exception of the stage of integration. While money laundering transfers criminally gained funds to the legitimate economy, terrorist financing involves distributing funds to terrorists and their organisations. Informal Funds Transfer Until recently, by transferring funds between international accounts, the banking network could be used as an efficient means of laundering legitimately garnered funds intended for illegitimate terrorist activity. Financiers of terror could thus take advantage of the availability of a framework that allowed for the simple, speedy transfer of large sums with no questions asked about their ultimate destination. Following the introduction of new reporting obligations for banks, this method of funds transfer has been increasingly avoided by terrorist organisations. The result is a present-day increase in the use of untraceable transfer methods operating outside the conventional financial sector, where value or funds are moved from one geographic location to another, such as through informal money or value transfer services,87 also known as ‘alternative remittance systems’, such as Hawala,88 and the use of case carriers.89 87 The FATF defines a money or value transfer service as “a financial service that accepts cash, cheques, other monetary instruments or other stores of value in one location and pays a corresponding sum in cash or other form to a beneficiary in another location by means of a communication, message, transfer or through a clearing network to which the money/value transfer service belongs”. See FATF, Combating the Abuse of Alternative Remittance Systems (20 June 2003) 2. 88 Nikos Passas and Samuel Munzele Maimbo, ‘The Design, Development, and Implementation of Regulatory and Supervisory Frameworks for Informal Funds Transfer Systems’ in Thomas J. Biersteker and Sue E. Eckert (eds), Countering the Financing of Terrorism (London, 2008) 174, 174–6; Marieke de Goede, ‘Hawala Discourses and the War on Terrorist Finance’ (2003) 21(5) Environment and Planning D: Society and Space 513. Informal funds transfer systems are also called hundi (in India); fei ch’ien (‘flying money’, in China); phoe kuan (in Thailand); and Black Market Peso Exchange (in South America). See FATF, FATF IX Special Recommendations (October 2001) 21. 89 Hamas leaders attempted to smuggle funds into Gaza across the Egyptian border (before the Arab Spring and the replacement of the government). According to the media, in May 2006, a senior Hamas operative, Sami Abu Zuhari, was caught in an attempt to smuggle US$817,000 into the Gaza Strip. See Steven Erlanger, ‘Hamas Spokesman is Caught Smuggling Cash into Gaza’, New York Times, 20 May 2006. A month later, another senior Hamas operative, Mahmoud Azahar, while serving as the Hamas Minister for Foreign Affairs, was

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 27 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 28 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

42

Global counter-terrorist financing and soft law

Hawala operates in the following fashion, using a hypothetical example. Money originating in Kenya never physically leaves Kenya and is paid in the currency of the recipient country. A sender goes to a broker in Nairobi and deposits, for instance, US$500 to Mr X in Mogadishu. A fellow broker in Mogadishu is contacted and asked to pay Mr X the US$500, which he does from his own pocket. The Mogadishu broker is reimbursed at a later date by asking his Nairobi counterpart either to physically transfer the cash to Mogadishu, or to purchase goods or services for him in Nairobi for the equivalent amount.90 The financing of foreign terrorists is not a new phenomenon, but the scale has increased recently with the conflicts in Syria and Iraq. The costs involved are generally modest, and include money for transportation, accommodation, mobile phones, food and other general living expenses. Individuals usually use their own funds (when the terror organisation is not providing some of the funds, as in the case of ISIL)91 from legitimate sources to finance their travel to the conflict zone. When there is a need to move and access funds, money or value transfer services are being used—primarily the traditional methods of Hawala and case carriers.92 Conclusions: A Considerable Price Tag Accompanies Terrorist Activity The cost of financing a terrorist organisation depends, of course, on the size of the organisation, the organisation’s objectives and infrastructure, the purpose for which funds are being obtained, and how the organisation invests in arms, training, education, social services, and intelligence gathering, to mention just a few. This is especially true of those caught in an attempt to smuggle US$20 million stuffed inside 12 suitcases into the Gaza Strip. See Herb Keinon, ‘Analysis: Stopping the Hamas Money Flow’, Jerusalem Post, 15 December 2006. In November 2006, a further two senior Hamas operatives, Mosheir Al Masari and Ahmed Bacher, were caught with US$4 million. One month later, the head of the Palestinian Authority, Ismail Haniya, was caught in the Rafeyeh Border Crossing with US$35 million. See ‘Hamas MPs Cross Egypt to Gaza with More than $4M’, Reuters, 15 November 2006. 90 ‘Hawala: How it Works’ 45(3) Africa Research Bulletin: Economic, Financial and Technical Series (May 2008) 17780C. 91 Oftedal, above n 3; Tom Keatinge, ‘Identifying Foreign Terrorist Fighters: The Role of Public–Private Partnership, Information Sharing and Financial Intelligence’ (Royal United Services Institute, July 2015). 92 FATF, Emerging Terrorist Financing Risks, above n 43, 29.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 28 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 29 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

The importance of countering terrorist financing

43

organisations that control the territories in which they operate.93 However, the funding required to operate an organisation is far higher than that required for the orchestration of a single terrorist attack. When considering amounts ranging from the tens of thousands to the millions of dollars for each terrorist organisation, every year, the importance of preventing these funds from reaching such organisations is clear, and the struggle to prevent the financing of terrorist organisations is a struggle clearly well worth maintaining. A successful fight against terror requires the prevention of funds being made available to, and sourced by, the organisation as a whole, which diminishes the need to prevent the organisation from accessing funds to commit a singular attack. Financing such organisations requires huge amounts—amounts on a scale that makes it possible, albeit difficult, to act against the transfer, acceptance and possession of funds required to maintain the organisation. This approach would again eradicate the need to target the funding of singular attacks, which often amount to no more than the cost of a kitchen knife. An explosive belt or some other device, a knife, or an airline ticket—these are common tools of terror—and the cost of their acquisition is so small that it leads to the commonly held opinion that the cost of terror is also small. When combined with the costs involved in running the organisation that plans and carries out the attack, however, the amounts in question are, in actuality, significant. It would be extremely dangerous to perceive an attack and its direct costs as an island, where the critical importance of combating the ocean of funds behind it is lost, and in fact can appear superfluous. Furthermore, not only does the financing of terror occur across a global network, but terrorist organisations also operate across international borders. Any effective struggle against the financing of terror must also be global in nature.94 Full implementation and compliance with the CTF standards globally is a fundamental goal when looking for a successful campaign, as the regime is only as strong as its weakest link. Terrorists will typically exploit the weakest link in the chain—a weak regulatory system in one jurisdiction will have a global impact and could potentially undermine the security of our societies. As illustrated in this chapter, it is of utmost importance that the fight against financing terror be conducted against organisations as whole Passas, ‘Terrorism Financing Mechanisms and Policy Dilemma’, above n 24, 32. See also Rudner, above n 21. 94 Richard, above n 63, xvii. 93

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 29 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 30 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

44

Global counter-terrorist financing and soft law

entities, in a global arena.95 The next chapter will discuss the relevant history of CTF, including its three pillars: the Terrorist Financing Convention; the UNSC; and the FATF. It will elucidate the origins, objectives, structure and legal status of these norm-setting bodies. The chapter will also explore the setting of standards and the actions necessary for implementation and compliance with the norms.

95

Columns Design XML Ltd

/

Schott, above n 82, ch 3, 1.

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 02Chapter2

/Pg. Position: 30 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 1 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

3. Binding and non-binding norms in countering terrorist financing Countering terrorist financing is grounded in logic: like all modern organisations, terrorist organisations require money to survive, function and thrive. If access to finances is limited, the organisation and its activities can then also be limited.1 CTF is, however, a formidable task when the global nature of contemporary terrorism is considered. The definition of terrorism remains subject to dispute,2 complicating international practical counter-terrorism efforts and academic research. An additional complication is posed by the different ways in which terrorist groups generate and move funds. While some international CTF measures pre-date 11 September 2001, the attacks on that date led to a proliferation of national, regional, international and intergovernmental cooperative and regulatory measures3 to “starve the terrorists of funding, turn them against each other, rout them out of their safe hiding places, and bring them to justice”.4 This chapter will focus on the two predominant organisations

1 Oldrich Bures, ‘Private Actors in the Fight against Terrorist Financing: Efficiency versus Effectiveness’ (2012) 35(10) Studies in Conflict and Terrorism 712. 2 Ben Saul, Defining Terrorism in International Law (Oxford University Press, 2008); Alex Schmid, ‘Terrorism—The Definitional Problem’ (2004) 36(2) Western Reserve Journal of International Law 375. 3 Ilias Bantekas, ‘The International Law of Terrorist Financing’ (2003) 97 American Journal of International Law 315; Anthony Aust, ‘CounterTerrorism—A New Approach: The International Convention for the Suppression of the Financing of Terrorism’ (2001) 5 Max Planck Year Book of UN Law 285, 287. 4 George W. Bush, ‘President Freezes Terrorists’ assets’, Remarks on Executive Order (US Department of State, 24 September 2001), available at https://2001-2009.state.gov/s/ct/rls/rm/2001/5041.htm [accessed 24 August 2019].

45

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 1 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 2 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

46

Global counter-terrorist financing and soft law

that set the standard in counter-terrorism financing: the UN and the FATF. The origins, objectives, structures and quality of their measures will be explored, their standard-setting procedures will be analysed, and the actions necessary for implementation of the norms adopted by them (UNSC binding norms and FATF non-binding norms) will be considered. The chapter will begin by discussing the state of counter-terrorism financing prior to 11 September 2001.

SETTING THE SCENE: THE INTERNATIONAL REGIME Prior to the attacks of 11 September 2001, the international community did not assign a high priority to combating terrorist financing. As Roth, Greenberg and Wille note, terrorist financing before 11 September 2001 was also not a “priority for either domestic or foreign intelligence collection”, which was “episodic, insufficient, and often inaccurate”.5 A substantial barrier to cooperation on counter-terrorism was a tendency to combat terrorism without actually defining it. Instead, international conventions were developed to address specific acts, such as airplane hijacking,6 hostage taking,7 causing harm to diplomats,8 and bombings,9 among numerous others.10 John Roth, Douglas Greenberg and Serena Wille, Staff Report to the Commission: Monograph on Terrorist Financing (National Commission on Terrorist Attacks Upon the United States, 2004) 4. 6 Convention for the Suppression of Unlawful Seizure of Aircraft, 16 December 1970, entered into force 14 October 1971, 860 UNTS 105. This convention makes it an offence for any person on board an aircraft in flight to “unlawfully, by force or threat thereof, or any other form of intimidation, [to] seize or exercise control of that aircraft” or to attempt to do so (art 1). 7 International Convention against the Taking of Hostages, 17 December 1979, entered into force 3 June 1983, 1316 UNTS 205. This convention provides that “any person who seizes or detains and threatens to kill, to injure, or to continue to detain another person in order to compel a third party, namely, a State, an international intergovernmental organization, a natural or juridical person, or a group of persons, to do or abstain from doing any act as an explicit or implicit condition for the release of the hostage commits the offence of taking of hostage within the meaning of this Convention” (art 1). 8 Convention on the Prevention and Punishment of Crimes against Internationally Protected Persons, including Diplomatic Agents, 14 December 1973, entered into force 20 February 1977, 1035 UNTS 168. This convention defines an ‘internationally protected person’ as a head of state, minister for foreign affairs, representative or official of a state or international organisation who is 5

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 2 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 3 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Binding and non-binding norms in countering terrorist financing

47

Regional efforts to combat terrorism have also taken place,11 through conventions that focus on different crimes but have similar structures, wordings, and methods of dealing with the illegal acts in question. What many of these conventions have in common is that they first declare the illegal act to be a criminal one and detail the elements of the entitled to special protection in a foreign state, and his or her family (art 1). It requires parties to criminalise and make punishable “by appropriate penalties which take into account their grave nature” the intentional murder, kidnapping or other attack upon the person or liberty of an internationally protected person, a violent attack upon the official premises, the private accommodations, or the means of transport of such person; a threat or attempt to commit such an attack; and an act “constituting participation as an accomplice” (art 2). 9 International Convention for the Suppression of Terrorist Bombings, 15 December 1997, entered into force 23 May 2001, 2149 UNTS 284. This convention creates a regime of universal jurisdiction over the unlawful and intentional use of explosives and other lethal devices in, into, or against various defined public places with intent to kill or cause serious bodily injury, or with intent to cause extensive destruction of the public place. 10 Convention on Offences and Certain Other Acts Committed on Board Aircraft, 14 September 1963, entered into force 4 December 1969, 704 UNTS 219; International Civil Aviation Organization, Convention for the Suppression of Unlawful Acts against the Safety of Civil Aviation, 23 September 1971, entered into force 26 January 1973, 974 UNTS 177; Convention on the Physical Protection of Nuclear Material, 26 October 1979, entered into force 8 February 1987, 1456 UNTS 101; Convention for the Suppression of Unlawful Acts Against the Safety of Maritime Navigation, 10 March 1988, entered into force 1 March 1992, 1678 UNTS 221; International Convention for the Suppression of Acts of Nuclear Terrorism, 13 April 2005, UN Doc A/RES/59/290 (2005); Convention on the Suppression of Unlawful Acts Relating to International Civil Aviation, 10 September 2010. 11 League of Arab States, Arab Convention on the Suppression of Terrorism, 22 April 1998; Organization of the Islamic Conference, Convention of the Organisation of the Islamic Conference on Combating International Terrorism, 1 July 1999, annex to Resolution No: 59/26-P; Council of Europe, European Convention on the Suppression of Terrorism, 27 January 1977, entered into force 4 August 1978, CETS No. 90; Organization of American States, Convention to Prevent and Punish the Acts of Terrorism Taking the Form of Crimes against Persons and Related Extortion That Are of International Significance, 2 February 1971, entered into force 16 October 1973, 1438 UNTS 191; Organization of African Unity, Convention on the Prevention and Combating of Terrorism, 14 June 1999; South Asian Association for Regional Cooperation, Regional Convention on the Suppression of Terrorism, South Asian Association for Regional Cooperation, 4 November 1987; Commonwealth of Independent States, Treaty on Cooperation among States Members of the Commonwealth of Independent States in Combating Terrorism, 4 June 1999.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 3 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 4 SESS: 5 OUTPUT: Fri Apr 3 14:57:55 2020

48

Global counter-terrorist financing and soft law

offence (establishing the mens rea and actus reus), then establish legal jurisdiction, the rights of the defendant, an obligation to extradite or prosecute, and international cooperation.12 The primary difficulty posed by the conventions is clear: the criminal acts in question can only be fought after they have already occurred. It was not until the end of the 1990s that the international community developed a convention to deal with terrorism as a phenomenon that was more than a mere list of specific criminal activities.

TERRORIST FINANCING CONVENTION On 17 December 1996, the United Nations General Assembly adopted a resolution13 that urged all member states: to take steps to prevent and counteract, through appropriate domestic measures, the financing of terrorists and terrorist organizations, whether such financing is direct or indirect, through organizations which also have or claim to have charitable, social or cultural goals or which are also engaged in unlawful activities such as illicit arms trafficking, drug dealing and racketeering, including the exploitation of persons for purposes of funding terrorist activities, and in particular to consider, where appropriate, adopting regulatory measures to prevent and counteract movements of funds suspected to be intended for terrorist purposes without impeding in any way the freedom of legitimate capital movements and to intensify the exchange of information concerning international movements of such funds.14

The first draft of the resolution was considered at a meeting of European Union member states and at a Group of Eight (‘G8’) meeting.15 The draft was considered from 15 to 26 March 1999 and the General Assembly accepted the recommendation of the committee that was in charge of the 12 For an analysis of the patterns of international conventions concerning international crimes, see Roger S. Clark, ‘Offenses of International Concern: Multilateral State Treaty Practice in the Forty Years since Nuremberg’ (1988) 57 Nordic Journal of International Law 49. 13 Resolutions of the United Nations General Assembly are not legally binding on member states per se. However, this resolution led to the drafting of the convention. 14 UN General Assembly, Measures to Eliminate International Terrorism, GA Res 51/210, UN GAOR, 51st sess, 88th plen mtg, UN Doc A/RES/51/210 (17 December 1996), para 3(f). 15 Aust, above n 3, 286. The G8 was a political forum comprising the world’s eight wealthiest nations. It became the G7 in 2014, after the suspension of Russia.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 4 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 5 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Binding and non-binding norms in countering terrorist financing

49

drafting process. It adopted the text of the convention by a vote of 116 for and none against, with three abstentions (Benin, Lebanon and Syria). Late on 9 December 1999, the General Assembly adopted the Terrorist Financing Convention without a vote.16 This was the first international treaty to deal directly and explicitly with terrorist financing—it was not concerned with terrorist crimes, but with the financing of such crimes. The problem facing the drafters of the Terrorist Financing Convention was that they were not able to define the new offence of ‘financing terrorism’ by reference to a specific act.17 The idea of defining a list of specific offences that could be found in the other counter-terrorist conventions was rejected because it would preserve the lacuna where the existing conventions did not cover ‘simple’ terrorist acts, such as shootings and stabbings. An option of having a ‘mini-definition’ to include the financing of those crimes as an offence under the convention, without defining those acts as offences, was also rejected. The main argument against the mini-definition was that it would complicate or prevent the adoption of the convention, because some delegations emphasised the need to distinguish between legitimate national liberation movements and terrorist groups.18 The text of the convention, as eventually negotiated, states that: 1. Any person commits an offence within the meaning of this Convention if that person by any means, directly or indirectly, unlawfully and wilfully, provides or collects funds with the intention that they should be used or in the knowledge that they are to be used, in full or in part, in order to carry out: (a) An act which constitutes an offence within the scope of and as defined in one of the treaties listed in the annex; or (b) Any other act intended to cause death or serious bodily injury to a civilian, or to any other person not taking an active part in the hostilities in a situation of armed conflict, when the purpose of such act, by its nature or context, is to intimidate a population, or to compel a government or an international organization to do or to abstain from doing any act. 2. (a) On depositing its instrument of ratification, acceptance, approval or accession, a State Party which is not a party to a treaty listed in the annex may declare that, in the application of this Convention to the 16 International Convention for the Suppression of the Financing of Terrorism, 9 December 1999, entered into force 10 April 2002, UN Doc A/54/49 (Vol. I) (1999) (‘Terrorist Financing Convention’). 17 Ibid 291. 18 Report of the Ad Hoc Committee (UN Doc A/54/37, para 38).

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 5 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 6 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

50

Global counter-terrorist financing and soft law

State Party, the treaty shall be deemed not to be included in the annex referred to in paragraph 1, subparagraph (a) … 3. For an act to constitute an offence set forth in paragraph 1, it shall not be necessary that the funds were actually used to carry out an offence referred to in paragraph 1, subparagraphs (a) or (b).19

The first section refers to a list of conventions in the annex to the Terrorist Financing Convention. The second section establishes a general definition of terrorism. The convention contains provisions that declare terrorist financing a criminal act, requiring states to impose restrictions on financial institutions to prevent their use for the deposit and transfer of terrorist funds, and maintains that international cooperation is critical for an effective fight against terrorist financing.20 By 1 December 2000, it had been signed by 35 states, of which only two had ratified. By 11 September 2001, the number of ratifications had increased to four. Prior to 11 September 2001, apart from the Terrorist Financing Convention, there was little focused, synchronised international effort to counter terrorist financing. The counter-terrorism landscape then changed with two key contemporary CTF frameworks leading the regime and shaping CTF efforts worldwide:21 the ‘smart sanctions’ model put forth by the UNSC (binding) and the anti-money laundering model advanced by the FATF (non-binding).22 Terrorist Financing Convention, above n 16, art 2. According to art 2.2(a), a state party that is not a party to a treaty listed in the annex may declare that, in the application of the convention to the state party, the treaty shall be deemed not to be included in the annex. 20 For the elements of the terrorist financing offence, see Mark Pieth, ‘Criminalizing the Financing of Terrorism’ (2006) 5 Journal of International Criminal Justice 1074, 1079–82. 21 The combination of UNSC resolutions and the FATF focus on CTF quickly led, beginning in 2001, to the widespread introduction of legal (UNSC) and quasi-legal (FATF) international standards and instruments to control financial transfers and assets. See Michael Brzoska, ‘The Role of Effectiveness and Efficiency in the European Union’s Counterterrorism Policy: The Case of Terrorist Financing’ (2011) 51 Economics of Security Working Paper 7; Marieke de Goede, Speculative Security: The Politics of Pursuing Terrorist Monies (University of Minnesota Press, 2012) 513–32. 22 Oldrich Bures, ‘EU Counterterrorism Policy: A Paper Tiger?’ (2006) 18(1) Terrorism and Political Violence 57; Eleni Tsingou, ‘Global Governance and Transnational Financial Crime: Opportunities and Tensions in the Global Anti-Money Laundering Regime’ (2005) 161(5) Centre for the Study of Globalisation and Regionalisation; William Vlcek, ‘European Measures to Combat Terrorist Financing and the Tension between Liberty and Security’, Work 19

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 6 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 7 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Binding and non-binding norms in countering terrorist financing

51

UNSC smart or targeted sanctions establish a ‘Black List’ of particular persons or entities and impose upon all UN members an obligation to freeze the assets of, and apply travel bans to, targeted individuals, and to criminalise attempts to receive finances or weapons. The FATF model, by contrast, based on recommendations, is more specifically focused on CTF (and Anti-Money Laundering (AML)). There exists no binding obligation to abide by these FATF recommendations.23 However, as stated before, the recommendations are recognised as representing a political commitment from the UN and FATF members to prevent the support of terrorist activities by financial institutions, and are considered to reflect the current international standard in CTF.24

UNITED NATIONS SECURITY COUNCIL The UNSC was the first organ of an international organisation to undertake significant action against terrorist financing on a genuinely global basis. This was important, as the UNSC is entrusted, by an institution boasting 193 member states from around the world, with maintaining or restoring international peace and security. To carry out its mandate, the UNSC enjoys extraordinary power: if it considers a crisis or conflict to amount to a threat to peace, a breach of peace, or an act of aggression, the UNSC is empowered by Chapter VII of the UN Charter to adopt enforcement measures, which UN member states are obliged, under the Charter, to implement.25 Package 2—Securitization beyond Borders: Exceptionalism inside the EU and Impact on Policing beyond Borders (London School of Economics and Political Science, 2005). 23 The UNSC has stopped short of adopting a Chapter VII resolution ordering states to enforce the FATF’s recommendations, but it has “strongly urged” them to do so. See UN Security Council, Security Council resolution 1617 (2005) [Threats to international peace and security caused by terrorist acts], 29 July 2005, S/RES/1617 (2005) (‘SC Res 1617 (2005)’). 24 James Thuo Gathii, ‘The Financial Action Task Force and Global Administrative Law’ (2010) Journal of the Professional Lawyer 197, 198; Dmitry Feoktistov, ‘Iran, the Black List and Russia’s Upcoming FATF Presidency’ (2013) 19(1) Security Index: A Russian Journal on International Security 19, 19; Matthew Levitt and Michael Jacobson, ‘The Money Trail: Finding, Following, and Freezing Terrorist Finances’ (2008) 89 Washington Institute for Near East Policy 19. 25 United Nations, Charter of the United Nations, 24 October 1945, 1 UNTS XVI (‘UN Charter’), art 39.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 7 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 8 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

52

Global counter-terrorist financing and soft law

Mandate The UN Charter established six main organs of the UN, including the UNSC. The Charter states that the UN has four purposes: (1) to maintain international peace and security; (2) to develop friendly relations among nations; (3) to cooperate in solving international problems and in promoting respect for human rights; and (4) to be a centre for harmonising the actions of nations.26 The Charter further assigns primary responsibility for maintaining international peace and security to the UNSC, which may meet whenever such peace and security is threatened. The UNSC has 15 members: five permanent members27 and ten non-permanent members elected for twoyear terms by the General Assembly,28 each with one vote. All UN members agree to accept and carry out the decisions of the UNSC, which has the authority to impose binding obligations on member states under Chapter VII of the Charter, while other organs of the UN are generally restricted to making recommendations to member states only. Structure and Organisation To perform its functions, the UNSC has created a series of subsidiary organs to focus on specific issues. The mandate of subsidiary organs, whether they are committees or working groups, can range from procedural matters to substantive issues.29 For example, the Counter-Terrorism Committee, detailed below, is a subsidiary organ of the UNSC. As such, it is dependent on the UN in administrative and financial matters, although, as a quasi-judicial institution,30 it must be independent of any one state—including its parent body, the UNSC.

Ibid art 1. The People’s Republic of China, France, the Russian Federation, the United Kingdom of Great Britain and Northern Ireland, and the United States of America. See UN Charter, above n 25, art 32(1). 28 Ibid art 23(2). 29 UN Charter, above n 25, art 29. 30 Simon Chesterman, The UN Security Council and the Rule of Law (Institute for International Law and Justice, New York University School of Law, 2008) 17. 26 27

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 8 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 9 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Binding and non-binding norms in countering terrorist financing

53

UNSC Counter-Terrorist Financing Efforts Security Council Resolution 1267 (1999) After bombing attacks on the US embassies in Kenya and Tanzania in 1998, international efforts to fight terrorism intensified. A year later, the UNSC adopted, under Chapter VII, SC Res 1267 (1999),31 which required UN member states, inter alia, to restrict the activities, and freeze the assets, of individuals and entities identified as being linked to the Taliban. SC Res 1333 (2000)32 added a 12-month arms embargo over the territory of Afghanistan under Taliban control, and expanded the financial sanctions to cover Osama bin Laden and Al-Qaeda. SC Res 1267 (1999) also set up a committee—the 1267 Committee—to determine what those entities linked to the Taliban were,33 and to monitor states’ compliance with the sanction against them.34 Once persons or entities were listed by the 1267 Committee, states were obliged to implement three types of sanctions against them: the freezing of assets, a travel ban and an arms embargo: + The freezing of assets applies to all assets within the state’s jurisdiction, excluding funds exempted for humanitarian reasons. States must freeze assets controlled by the listed person, as well as those owned or controlled by persons acting on their behalf or under their direction. + The travel ban is intended to prevent listed persons from entering or passing though the territory of any state. + The arms embargo imposes on states an obligation to prevent listed nationals from selling and supplying military equipment, even if the sales are conducted outside their territories. On 17 June 2011, the UNSC split the 1267 Committee into two committees—namely, the Al-Qaida Sanctions Committee and the 1988 Sanctions Committee (which focuses on the Taliban).35 The Al-Qaida 31 UN Security Council, Security Council resolution 1267 (1999) [Afghanistan], 15 October 1999, S/RES/1267 (1999) (‘SC Res 1267 (1999)’). 32 UN Security Council, Security Council resolution 1333 (2000) [Afghanistan], 19 December 2000, S/RES/1333(2000) (‘SC Res 1333 (2000)’). 33 SC Res 1267 (1999), above n 31, para 6(e). 34 Ibid paras 6(a), 6(b), 6(g) and 9. 35 The 1988 Committee is a UNSC subsidiary organ that oversees the implementation by member states of the three sanctions measures—the same as those overseen by the 1267 Committee (assets freeze, travel ban and arms

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 9 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 10 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

54

Global counter-terrorist financing and soft law

Sanctions Committee is assisted by a Monitoring Team with expertise related to the activities of Al-Qaeda or the Taliban, including counterterrorism and related legislation, the financing of terrorism, and international financial transactions.36 From the adoption of SC Res 2253 (2015), the Al-Qaida Sanctions Committee became known as the 1267/ 1989/2253 ISIL (Da’esh) and Al-Qaida Sanctions Committee, and the Al-Qaida Sanctions List became known as the ISIL (Da’esh) and AlQaida Sanctions List.37 Security Council Resolution 1373 (2001) The attacks perpetrated on 11 September 2001 were a clear indication that greater international cooperation to fight terror and the financing of terrorism was required. In response, SC Resolution 1373 (2001) was adopted on 28 September 2001.38 The resolution contains three sets of general obligations for states, the first two of which are phrased as mandatory (“The Security Council … Decides”) and the third is in hortatory terms (“The Security Council … Calls upon all States to …”).39 Of the mandatory obligations, one deals entirely with financing, requiring embargo)—imposed against targeted individuals and entities as designated by the 1988 Committee in its Sanctions List (in order to streamline the implementation of all UNSC Sanctions Lists, the 1988 Sanctions List was modified (1 March 2015) to make it compatible with a new list format designed for all Sanctions Committees). See UN Security Council, Security Council resolution 1988 (2011) [on establishment of a new Sanctions Committee focusing on the threat from those associated with the Taliban], 17 June 2011, S/RES/1988 (2011) (‘SC Res 1988 (2011)’). 36 Established under UN Security Council, Security Council resolution 1526 (2004) [on improving implementation of measures imposed by paragraph 4 (b) of resolution 1267 (1999), paragraph 8(c) of resolution 1333 (2000) and paragraphs 1 and 2 of resolution 1390 (2002) on measures against Al-Qaida and the Taliban], 30 January 2004, S/RES/1526 (2004), para 7. 37 UN Security Council, Security Council resolution 2253 (2015) [on renaming of Al-Qaida Sanctions Committee as ‘1267/1989/2253 ISIL (Da’esh) and Al-Qaida Sanctions Committee’ and the Al-Qaida Sanctions List as ‘ISIL (Da’esh) and Al-Qaida Sanctions List’ and on extension of the mandate the Office of the Ombudsperson for a period of 24 months from the date of expiration of its current mandate in Dec. 2017], 17 December 2015, S/RES/2253 (2015), para 1. See also FATF, Financing of the Terrorist Organisation Islamic State in Iraq and the Levant (ISIL) (February 2015). 38 UN Security Council, Security Council resolution 1373 (2001) [on threats to international peace and security caused by terrorist acts], 28 September 2001, S/RES/1373 (2001) (‘SC Res 1373 (2001)’). 39 Ibid paras 1–3.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 10 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 11 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Binding and non-binding norms in countering terrorist financing

55

states to criminalise the collection of funds that support terrorism in any form; to freeze the resources of persons who commit, or attempt to commit, terrorist acts, as well as those of any entities controlled by such persons or acting under their direction; and to prevent their nationals and any person in their territories from providing any form of financial or related service to terrorists, attempted terrorists, or any entities under their control or direction. The second obligation requires states to refrain from providing any form of support to terrorists, and to prevent terrorist acts from occurring though a number of steps set out in the paragraph. These steps include suppressing recruitment to terrorist groups, denying safe haven to anybody connected to terrorism, prosecuting terrorists and punishing them in a manner that reflects the seriousness of their crimes, and ensuring that their border controls prevent terrorists from moving between states. There is a strong emphasis on international cooperation, with states being required to exchange information in order to provide early alerts to each other of planned acts of terrorism, and to aid each other in criminal investigations.40 SC Res 1373 (2001) consists largely of language taken from the Terrorist Financing Convention, which for some time lacked sufficient ratification to come into force. Unlike international conventions, which require signing, ratification and implementation by the states in order to have a binding effect on them, a UNSC resolution adopted under Chapter VII is binding on all UN member states and only requires transformation into domestic legal order. Counter-Terrorism Committee The Counter-Terrorism Committee was established by SC Res 1373 (2001). The committee, comprising all 15 UNSC members, was tasked with monitoring the implementation of SC Res 1373 (2001), which required states to implement a number of measures intended to enhance their legal and institutional ability to counter terrorist activities, including taking steps to:41

40 41

Columns Design XML Ltd

/

Ibid para 2. Ibid para 6.

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 11 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 12 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

56

Global counter-terrorist financing and soft law

+ criminalise terrorism financing; + immediately freeze any funds related to persons involved in acts of terrorism; + deny all forms of financial support for terrorist groups; + suppress the provision of safe haven, sustenance or support for terrorists; + share information with other governments on any groups practising or planning terrorist acts; + cooperate with other governments in the investigation, detection, arrest, extradition and prosecution of those involved in such acts; and + criminalise active and passive assistance for terrorism in domestic law, and prosecute violators. Under SC Res 1535 (2004),42 the UNSC established the CounterTerrorism Committee Executive Directorate to assist the work of the Counter-Terrorism Committee and coordinate the process of monitoring the implementation of SC Res 1373 (2001) and subsequent resolutions and decisions of the Council on Counter-Terrorism.43 In carrying out its mandate, the Counter-Terrorism Committee engages in: + country visits—at the country’s request, to monitor progress, as well as to evaluate the nature and level of technical assistance a given country may need in order to implement SC Res 1373 (2001); + technical assistance—to help connect countries to available technical, financial, regulatory and legislative assistance programmes, and to potential donors;44 + country reports—states are required to report to the CounterTerrorism Committee on the steps that they have taken to implement the resolution (the reports form what many experts consider to

42 UN Security Council, Security Council resolution 1535 (2004) [on combating terrorism], 26 March 2004, S/RES/1535 (2004) (‘SC Res 1535 (2004)’). 43 For example, UN Security Council, Security Council resolution 1624 (2005) [on threats to international peace and security], 14 September 2005, S/RES/1624 (2005), on the prohibition of incitement to commit terrorist acts, and SC Res 2178 (2014). 44 Counter-Terrorism Committee, Policy Guidance PG.1 (6 December 2005) S/AC-40/2005/PG.1.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 12 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 13 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Binding and non-binding norms in countering terrorist financing

57

be the world’s largest body of information on the counter-terrorism capacity of each of the 193 UN member states);45 + promotion of best practices—to encourage countries to apply known best practices, codes and standards, taking into account their own circumstances and needs;46 and + special meetings—to develop closer ties with relevant international, regional and subregional organisations, and to help avoid duplication of effort and waste of resources through better coordination. In response to SC Res 1373 (2001) (binding norm), many states became party to the Terrorist Financing Convention. By early 2004, 132 states had signed the convention and 112 had ratified it. This increase in ratifications can perhaps also be attributed to the FATF and its recommendations (non-binding norms)—specifically, Recommendation 36 (adopted on 31 October 2001), which urged states to become party to different conventions, including the Terrorist Financing Convention.

FINANCIAL ACTION TASK FORCE Mandate The FATF, also known by its French name Groupe d’action financière (or ‘GAFI’), was first established in 1989, during the G7 Summit in Paris,47 as an intergovernmental body to deal with the increasing problem of drug money laundering. In 1996, the FATF’s focus evolved from drug money laundering to dealing with money laundering of proceeds of any serious crimes or offences.48 While terrorism financing was not part of the FATF’s remit, the G7 announced on 25 September 2001 that its members: SC Res 1373 (2001), above n 38, para 6. Counter-Terrorism Committee, Directory of International Best Practices, Codes and Standards (20 December 2010). The SC Res 1373 (2001) directory is organised according to the paragraphs of the said resolution, and the FATF recommendations can be found as Best Practice, Code and Standard to prevent and suppress the financing of terrorist acts. 47 Also, known as the Summit of the Arch because most of its meetings were held at La Grande Arche in La Défense in Paris. 48 G7 Summit, Economic Declaration (Paris, 16 July 1989) G7 Information Centre, 52–3, available at www.g8.utoronto.ca/summit/1989paris/communique/ index.html [accessed 3 July 2017]. 45 46

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 13 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 14 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

58

Global counter-terrorist financing and soft law

Called on the Financial Action Task Force to encompass terrorist financing into its activities. We will meet in the United States in early October to review economic developments and ensure that no stone goes unturned in our mutual efforts to wage a successful global campaign against the financing of terrorism.49

Then, in early October 2001, the FATF extended its mandate to include efforts with regard to CTF as well as AML.50 The FATF has operated under a fixed lifespan since its establishment, meaning that its ministers must review, and decide upon, its continuation.51 In April 2019, it was agreed to make the FATF mandate open-ended, starting in 2020, recognising that the FATF has evolved from a temporary forum to a sustained public and political commitment for CTF, AML and proliferation financing.52 Today, the objectives of the FATF are to set standards and promote the effective implementation of legal, regulatory and operational measures for combating terrorist financing, money laundering, and the financing of the proliferation of weapons of mass destruction.53 The FATF is, therefore, a policymaking institution that works towards generating the required political motivation to reform national regulations and legislation in these areas.

G7 Information Centre, Statement of G7 Ministers of Finance (25 September 2001), available at www.g8.utoronto.ca/finance/fm010925.htm [accessed 3 July 2017]. This announcement came after the G8 statement, issued on 19 September 2001 (eight days after the terrorist attacks of 11 September 2001), called for the “expanded use of financial measures and sanctions to stop the flow of funds to terrorists” and “the denial of all means of support to terrorism and the identification and removal of terrorist threat”. See G7 Information Centre, Statement by the Leaders of the G8 over Last Week’s Terrorist Attacks in New York and Washington (19 September 2001), available at www.g8.utoronto.ca/terrorism/sept192001.html [accessed 3 July 2017]; Ben Hayes, ‘Counter-Terrorism, Policy Laundering, and the FATF’ (2012) 14 International Journal of Not-for-Profit Law 5, 21–2. 50 FATF, 25 Years and Beyond: The Financial Action Task Force—Setting the Standards to Combat Money Laundering and the Financing of Terrorism and Proliferation (2014). 51 FATF, ‘Declaration of the Ministers and Representatives of the Financial Action Task Force’, Washington, DC, 20 April 2012. 52 FATF, Mandate (12 April 2019). 53 Ibid 1. 49

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 14 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 15 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Binding and non-binding norms in countering terrorist financing

59

Structure and Organisation FATF President and Vice-President The FATF President is a senior official appointed from among members of the FATF Plenary for a non-renewable term of two years, beginning on 1 July and ending two years later on 30 June. The President is responsible for convening and chairing meetings of the FATF Plenary and Steering Groups (an advisory body to the President), as well as for overseeing the FATF Secretariat.54 The FATF Vice-President is also appointed from among members of the Plenary for a two-year term preceding his or her presidential term. The Vice-President provides assistance to the President in discharging his or her duties and stands in to assume presidential responsibilities when required.55 FATF Secretariat The FATF Secretariat, created in 1992,56 supports the FATF by arranging various Plenary and Working Group meetings, as well as Presidential, Steering Group and FATF delegations, and by acting as a focal point for the FATF. The Secretariat service is supplied by the Organisation for Economic Co-operation and Development (‘OECD’)57 and specifically performs the following functions: facilitating cooperation between members, FATF-Style Regional Bodies (‘FSRBs’), and observers; managing FATF correspondence and records; ensuring efficient communication with members and those external to the FATF; managing internal and external websites; and all other tasks assigned to it by the FATF President or Plenary.58 The FATF annual budget funds the Secretariat and other services, and consists of the contributions of its members, which are made in accordance with the scale of their contributions to the OECD. Individual member contributions to the FATF budget are in line with OECD scales

FATF, FATF Presidency, Financial Action Task Force website, available at www.fatf-gafi.org/pages/aboutus/fatfpresidency [accessed 3 July 2017]. 55 FATF, Mandate (12 April 2019) 8–9. See also FATF, FATF Mandate Renewed for Eight Years (14 May 2004) 4. 56 FATF, 25 Years and Beyond, above n 50, 7. 57 The FATF is housed at the OECD headquarters in Paris, but is independent from the OECD. Ibid 8. 58 FATF, Annual Report 2013–2014 (2014) 5. 54

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 15 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 16 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

60

Global counter-terrorist financing and soft law

(an equal base fee for all member countries and a proportional amount in line with OECD Standard Scale rules).59 Plenary Group The FATF works primarily through its Plenary Group, which meets at least three times a year and is guided by consensus in its decisionmaking.60 It also has five working groups, outlined below, which are assigned specific tasks based on the identification of new threats to the implementation of AML/CTF systems:61 + + + + +

Evaluations and Compliance Group (‘ECG’); Global Network Co-ordination Group (‘GNCG’); Policy Development Group (‘PDG’); Risk, Trends and Methods Group (‘RTMG’); International Cooperation Review Group (‘ICRG’)—charged with identifying and examining those jurisdictions that fail to implement effective AML/CTF systems and recommending counter-measures where required.

The FATF Plenary Group, chaired by the FATF President and supported by the Secretariat, is the sole decision-making group of the FATF and supervises the work performed by the five working groups. It may establish and mandate working groups and other subgroups as necessary. Members and observers Between 1991 and 1992, the FATF’s membership was expanded from its original 16 (the G7, European Commission, and eight other countries) to 28 members. In 2000, it further expanded to 31 members, and has since grown again to 39 members (37 member jurisdictions and two regional organisations) as at July 2019. The FATF also has an observer, who represents most financial centres across the globe.62

59 FATF, Mandate (12 April 2019) 10; FATF, Annual Report 2008–2009 (2009) 23. 60 FATF, 25 Years and Beyond, above n 50, 7. 61 FATF, Mandate (12 April 2019) Annex D; FATF, Annual Report 2008–2009 (2009) 8. 62 For the full list of FATF members, see Appendix C. For the limited expansion of FATF members to enhance FATF’s geographic balance, see Louis de Koker and Mark Turkington, ‘Transnational Organized Crime and the Anti-Money Laundering Regime’ in Pierre Hauck and Sven Peterke (eds),

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 16 /

Date: 24/2

JOBNAME: EE3 Goldbarsht PAGE: 17 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Binding and non-binding norms in countering terrorist financing

61

In addition, there are nine FATF ‘Associate Members’,63 known as FSRBs.64 The nine FSRBs have an essential role in promoting the effective implementation of the FATF recommendations by their membership and in providing expertise and input in FATF policymaking—or, as Schott states, “FSRBs are to their regions what FATF is to the world”.65 Also, the FATF has formed institutional partnerships with various international observer organisations, including the UN, the International Monetary Fund, the World Bank, and the Egmont Group of Financial Intelligence Units.66 Each of these institutions has a membership that far exceeds the limited membership of the FATF.67 Through these institutions, the FATF can indirectly engage FATF non-member states and advance the universal implementation of the recommendations.68 Among other functions, these latter groups perform specific CTF (and AML) activities. When considering a country for membership, the FATF considers various criteria to ensure that the candidate is strategically important. The criteria taken into account are categorised in the following way: Quantitative indicators to consider: gross domestic product (GDP), scope of the banking, insurance and securities sectors, and population size; A qualitative indicator to consider: impact on the global financial system, including the degree to which the financial sector and its interaction with international markets is open and transparent, regional prominence in AML/CTF efforts, extent of commitment to, and active participation in, FSRB and AML/CTF efforts, and the extent of AML/CTF risks faced and efforts to combat them; and

International Law and Transnational Organized Crime (Oxford University Press, 2016) 241, 247. 63 FATF, Annual Report 2005–2006 (2006) 4–6. 64 For the full list of FSRBs, see Appendix D. 65 FATF, Mandate (12 April 2019). 66 The Egmont Group of Financial Intelligence Units (‘FIUs’), a united body of 164 FIUs (as of August 2019), meets regularly to find ways to promote the development of FIUs and to cooperate—especially in the areas of information exchange, training and the sharing of expertise. 67 For the full list of current observers, see Appendix E. 68 The FATF invites these international observer organisations to attend meetings on the topics of CTF (and AML) and regularly coordinates activities with them. The organisations do not have functional partnerships with the FATF to the same depth as the FSRBs.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 17 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 18 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

62

Global counter-terrorist financing and soft law

Additional considerations: such as adherence to financial sector standards and participation in other relevant international organisations.69

Membership of the FATF is achieved via three steps. The first step requires that a candidate country provide a written commitment at the political level that endorses the recommendations and the FATF CTF (and AML) methodology.70 It also requires agreement to undertake mutual evaluation of compliance with FATF membership criteria, using the CTF (and AML) methodology applicable at the time of the evaluation, as well as to submit subsequent follow-up reports. Finally, as part of the first step, a candidate country—which is granted an observer status at this point—must agree to participate actively in the FATF and to meet all commitments incumbent to FATF membership, including demonstrating support in all relevant fora for the role and work of the FATF. The second step involves a mutual evaluation, achieving agreement on an action plan. The third step involves granting membership, which is done where the Mutual Evaluation Report is deemed satisfactory.71 FATF Counter-Terrorist Financing Efforts The Forty Recommendations In the early days of its operation, the FATF developed a thorough action plan, known as the Forty Recommendations, for AML. As the techniques, trends and methods utilised in money laundering evolved over time, the recommendations, described as a ‘crown jewel of soft law’,72 were revised a few times (with the most recent update in June 2019) to ensure

69 FATF, Membership Policy (April 2015), available at www.fatf-gafi. org/about/membersandobservers/fatfmembershippolicy.html [accessed 24 August 2019]. 70 FATF, Methodology for Assessing Technical Compliance with the FATF Recommendations and the Effectiveness of AML/CFT Systems (February 2013, last updated February 2017). 71 Where a mutual evaluation fails only marginally to reach a satisfactory standard, the country in question may attempt to demonstrate clear commitment at the political level to achieve the required standard within a reasonable time frame. An action plan detailing the steps that will be taken may be prepared by the country for review and presentation to the FATF Plenary. 72 Guy Stessens, Money Laundering: A New International Law Enforcement Model (Cambridge University Press, 2000) 17.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 18 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 19 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Binding and non-binding norms in countering terrorist financing

63

that they remained up to date, relevant, and capable of universal application.73 By October 2001, the FATF had issued eight Special Recommendations to deal with CTF. In October 2004, it added a ninth,74 which served to enhance the strength of agreed international standards for fighting terrorist financing and money laundering. These Nine Special Recommendations on Terrorist Financing, read with the Forty Recommendations on AML, became known as the 40+9 Recommendations, and have been endorsed by more than 190 countries.75 The Nine Special Recommendations primarily urge states to implement: + International instruments: Implement international treaties— among them, the Terrorist Financing Convention.76 + Terrorist financing offences: Criminalise terrorist financing on the basis of the Terrorist Financing Convention.77 + Financial sanctions related to terrorism and terrorism financing: Implement targeted financial sanctions regimes to comply with UNSC resolutions relating to the prevention and suppression of terrorism and terrorist financing, primarily SC Res 1267 (1999) and SC Res 1373 (2001).78 + Suspicious activity reports: When a financial institution suspects that funds are related to terrorist financing, it should be required, by law, to report promptly its suspicions to the Financial Intelligence Unit (‘FIU’).79 + International cooperation: Assist other states in their investigations into terrorist financing.80 73 Kevin Shepherd, ‘Risky Business: The Gatekeeper Initiative and the Risk-Based Approach to Client Due Diligence’ (2011) 25(2) Probate and Property 83; FATF, International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation: The FATF Recommendations (Paris, updated October 2018). 74 FATF, International Best Practices Detecting and Preventing the Illicit Cross-Border Transportation of Cash and Bearer Negotiable Instruments (19 February 2010). 75 FATF, Annual Report 2013–2014 (2014). 76 FATF Recommendation 36 (old number R.35 and SR I). 77 FATF Recommendation 5 (old number SR II). 78 SC Res 1267 (1999); SC Res 1373 (2001); FATF Recommendation 6 (old number SR III). 79 FATF Recommendation 20 (old number R.13 and SR IV). 80 FATF Recommendation 37 (old number R.36 and SR V).

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 19 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 20 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

64

Global counter-terrorist financing and soft law

+ Money or value transfer services: Take measures to ensure that natural or legal persons that provide money or value transfer services are licensed and subject to effective systems for monitoring.81 + Wire transfer: Ensure that financial institutions include required and accurate originator information, and required beneficiary information, on wire transfers and related messages, and that the information remains with the wire transfer or related message throughout the payment chain.82 + Non-profit organisations: Review the adequacy of laws and regulations that relate to entities that can be abused for the financing of terrorism.83 + Cash couriers: Have measures in place to detect the physical cross-border transportation of currency and bearer negotiable instruments, including through a declaration system and/or disclosure system.84 In February 2012, the FATF completed a comprehensive review of its standards and subsequently published revised recommendations.85 The revision, which also integrated the Nine Special Recommendations on Terrorist Financing into the recommendations, aimed to bolster global safeguards and further defend financial system integrity by granting governments more effective tools with which to act against financial crimes. The FATF has identified ‘core’ recommendations that should be the priority areas for sequenced implementation in all countries. The core FATF recommendations include the criminalisation of money laundering and terrorist financing; customer due diligence and record keeping; and suspicious transaction reporting.86 These core recommendations are most relevant when looking at the key principles for follow-up procedures: FATF Recommendation 14 (old number SR VI). FATF Recommendation 16 (old number SR VII). 83 FATF Recommendation 8 (old number SR VIII). 84 FATF Recommendation 32 (old number SR IX). 85 FATF recommendations; FATF, Report to G20 Leaders by the Financial Action Task Force (June 2012) 2. The recommendations were adopted on 16 February 2012 and updated in February 2013, October 2015, June 2016 and October 2018. 86 The core recommendations for TF are Recommendation 5 and 20. See FATF, Guidance on Capacity Building for Mutual Evaluations and Implementation of the FATF Standards within Low Capacity Countries (February 2008) 5. 81 82

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 20 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 21 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Binding and non-binding norms in countering terrorist financing

65

follow-up requires evaluating members to rectify the deficiencies identified in the Mutual Evaluation Report (‘MER’) and to implement the recommendations made, focusing on the core and key FATF recommendations rated partially compliant (PC) and non-compliant (NC). Members with more robust CTF (and AML) systems and fewer PC/NC ratings for the core FATF recommendations in their MERs are subject to less onerous processes that exert less pressure, and vice-versa. Regular follow-up applies where the MER shows significant deficiencies in the member’s CTF (and AML) system and where any of the six core FATF recommendations are rated either PC or NC.87 The FATF recommendations also include a number of so-called ‘gatekeeper’ recommendations: We recognize that many money-laundering schemes involve the corruption of financial intermediaries. We will therefore consider requiring or enhancing suspicious transaction reporting by the ‘gatekeepers’ to the international financial system, including company formation agents, accountants, auditors and lawyers, as well as making the intentional failure to file the reports a punishable offence, as appropriate.88

The recommendations also focus on the gatekeepers, who are in a good position to prevent or facilitate these activities. The gatekeepers, to whom the recommendations are directed, include accountants, auditors, real estate agents, notaries, lawyers, and trust and company service providers, in addition to other designated non-financial businesses and professions that facilitate transactions that move money across domestic and international financial systems.89 The recommendations include requirements in relation to record keeping and customer due diligence,90 87 Asia/Pacific Group on Money Laundering, Revised Second Round Mutual Evaluation Follow-Up Procedures (2013) 3. 88 Ministerial Conference of the G-8 Countries on Combating Transnational Organized Crime, Communique (October 1999) 32; See also Kevin L. Shepherd, ‘Guardians at the Gate: The Gatekeeper Initiative and the Risk-Based Approach for Transactional Lawyers’ (2009) 43(4) Real Property, Trust and Estate Law Journal 607, 619. 89 FATF Recommendation 19. 90 FATF Recommendation 10. For a discussion on the relationship between CTF (and AML) and customer due diligence measures in the financial services industry and exclusion from financial services, see Louis de Koker, ‘Money Laundering Control and Suppression of Financing of Terrorism: Some Thoughts on the Impact of Customer Due Diligence Measures on Financial Exclusion’ (2006) 13(1) Journal of Financial Crime 26.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 21 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 22 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

66

Global counter-terrorist financing and soft law

and obligations for Suspicious Transaction Reports (‘STRs’) without alerting the customer in question.91 As mentioned before, there exists no binding obligation to abide by these FATF recommendations. However, they are considered to reflect the current international standard in the fight against terrorist financing.92 Mutual Evaluation Report To achieve global implementation of the FATF recommendations, the FATF, with its relatively small membership, relies on a strong global network of nine FSRBs, in addition to its own 38 members. The nine FSRBs play an essential role in promoting the effective implementation of the FATF recommendations by their membership, and in providing expertise and input in FATF policymaking. More than 190 jurisdictions around the world have committed to the FATF recommendations through the global network of FSRBs and FATF memberships. The FATF established informal networks and, together with the FSRBs (which are responsible for implementation of the recommendations by countries within their region), conducts MERs—a stringent country evaluation and monitoring process—for almost every state in the world.93 On an ongoing basis, the FATF assesses whether a country is sufficiently compliant with the FATF standard, providing an in-depth description and analysis of each country’s system for preventing abuse of the financial system. Over the past 20 years, the FATF has developed, used and refined

FATF Recommendation 20. Ilias Bantekas, ‘The International Law on Terrorist Financing’ in Ben Saul (ed.), Research Handbook on International Law and Terrorism (Edward Elgar, 2014) 121; Levitt and Jacobson, above n 24; Kenneth W. Abbott, Philipp Genschel, Duncan Snidal and Bernhard Zangl (eds), International Organizations as Orchestrators (Cambridge University Press, 2015) 286. For a detailed discussion of the non-binding nature of the recommendations, see Chapter 6 under the heading ‘Non-Binding Nature of the Recommendations’. 93 MERs can also be carried out by the International Monetary Fund (‘IMF’) and the World Bank. See Nadim Kyriakos-Saad, ‘The Methodology for Assessing Compliance with Anti-Money Laundering and Combating the Financing of Terrorism Standards’ (2005) 3 Current Developments in Monetary and Financial Law 265. See also (as an example) World Bank, Mutual Evaluation Report: Anti-Money Laundering and Combating the Financing of Terrorism— Solomon Islands (14 July 2010); World Bank, Mutual Evaluation Report: Anti-Money Laundering and Combating the Financing of Terrorism—Republic of the Philippines (8 July 2009). 91 92

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 22 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 23 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Binding and non-binding norms in countering terrorist financing

67

rigorous mechanisms to help ensure global compliance with its standard.94 It assesses compliance through the MER. The MER sets out the specific requirements of each recommendation as a list of criteria, which represent those elements that should be present in order to demonstrate full compliance with the mandatory elements of the recommendations. For each recommendation, the FATF’s assessors reach a conclusion about the extent to which a country complies (or does not comply) with the standard. There are four possible levels of compliance: ‘compliant’—no shortcomings are present; ‘largely compliant’—only minor shortcomings exist; ‘partially compliant’—moderate shortcomings exist; and ‘non-compliant’—major shortcomings are present.95 The MER summarises the CTF (and AML) measures in place as at the date of the FATF assessor’s on-site visit in the country. It analyses the level of compliance with the FATF Forty Recommendations and the level of effectiveness of the CTF (and AML) system, and recommends how the system could be strengthened. Based on the results of a jurisdiction’s MER, where the MER reveals a significant number of key deficiencies, it is likely that this jurisdiction will be referred for a review and, when necessary, will face sanctions. Near the end of the third round, the FATF began revising its standards again, in the members’ words, “to take into account the changing threats to the international financial system, and close any shortcomings and loopholes in the existing Recommendations, reflecting the lessons learnt from implementing and evaluating them”.96 As a result, for its fourth round of MERs, the FATF has adopted complementary approaches for assessing technical compliance with the FATF recommendations, and for assessing whether and how the CTF (and AML) system is effective. The fourth round takes as its primary focus the question of effectiveness, a condition in which “[f]inancial systems and the broader economy are protected from the threats of money laundering and the financing of 94 The FATF also benefited from the membership of various financial institutions, mainly the World Bank and the IMF, whose Financial Sector Assessment Program, and Report on the Observance of Standards and Codes Processes (together with their technical assistance), extended implementation of the FATF recommendations. See Louis de Koker and Mark Turkington, ‘AntiMoney Laundering Measures and the Effectiveness Question’ in Barry Rider (ed.), Research Handbook on International Financial Crime (Edward Elgar Publishing, 2015) 520, 522. 95 FATF, Methodology, above n 70. 96 FATF, Annual Report 2012–2013 (2013) 15, available at http://www.fatfgafi.org/publications/fatfgeneral/documents/annual-report-2012-2013.html [accessed 7 December 2017].

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 23 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 24 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

68

Global counter-terrorist financing and soft law

terrorism and proliferation, thereby strengthening financial sector integrity and contributing to safety and security”.97 In judging that effectiveness, and reflecting the outcome-based nature of experimentalism, the methodology emphasises that the aim is not to assess how a jurisdiction “is implementing individual Recommendations; or the performance of specific organisations, or institutions”.98 Rather, assessors will rate the performance of states on 11 “immediate outcomes”, which the FATF believes feed eventually into overall effectiveness.99 These outcomes, however, are broadly written. Outcome 2, for example, states: “International cooperation delivers appropriate information, financial intelligence, and evidence and facilitates action against criminals and their assets.”100 Outcome 5 reads: “Legal persons and arrangements are prevented from misuse for money laundering or terrorist financing, and information on their beneficial ownership is available to competent authorities without impediments.”101 The then-FATF President noted that the approach was novel for a standard-setting body and so would entail challenges for FATF.102 According to Mark Nance, this evolution of monitoring shows strong signs of experimentalist dynamics, with changes being made in response to experience.103 The FATF’s revised methodology suggests that

Ibid. Ibid 14. 99 An evaluation prepared using the fourth-round methodology can be found in the MERs from 2015 on Australia and Malaysia (conducted by the Asia/ Pacific Group on Money Laundering), which constitute two of the six case studies in this book (as will be detailed below). The MER on Israel, which is another case study in this book, was conducted by MONEYVAL. It was adopted in December 2013 but followed the 2004 CTF (and AML) methodology. For details on the MERs, see the case studies in Chapter 5. For the effectiveness assessments, see FATF, Methodology, above n 70, 5; for discussion focusing on the effectiveness question relating to CTF (and AML) measures, see de Koker and Turkington, above n 94. 100 FATF, Annual Report 2012–2013 (2013) 15, available at http://www.fatfgafi.org/publications/fatfgeneral/documents/annual-report-2012-2013.html [accessed 7 December 2017]. 101 Ibid. 102 Ibid. 103 Mark T. Nance, ‘Re-Thinking FATF: An Experimentalist Interpretation of the Financial Action Task Force’, Crime, Law and Social Change (Springer, 2017) 14. 97 98

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 24 /

Date: 24/2

JOBNAME: EE3 Goldbarsht PAGE: 25 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Binding and non-binding norms in countering terrorist financing

69

contributions by financial institutions are increasing.104 In some cases, the FATF may find a country technically non-compliant with the recommendations, and yet somehow effective at achieving the overall goals.105 Although the FATF’s preference is for official state-issued documentation, its fourth round explicitly requires assessors to investigate and consider the reliability of such documents. In this regard, the third round of MERs is not comprehensive. Its evaluation methodology is quite perfunctory: in most cases, countries that require their institutions to verify identities using state-issued documents are rated as being technically compliant with the verification standard, regardless of the reliability of those documents.106 It will be left to each assessment team to determine whether reliability will be a factor in the fourth round of mutual evaluations. The structure of the evaluations seems to have itself evolved in response to external criticisms. For example, in 2012, Global Witness proposed a series of reforms to the common methodology in order to strengthen the AML regime and the 2013 common methodology. The fourth round of MERs corresponds with these proposals,107 although whether or not the proposals directly influenced the FATF is not clear. Whether countries have improved the effectiveness of their legal frameworks will be evident in 2021, when the FATF’s current round of assessments is due for completion. Sanctions While the FATF does not have legal authority to impose decisions on its members or to impose sanctions for their failure to comply with its standards,108 its mandate to CTF is tied, as detailed above, to several very powerful international financial institutions (such as the UN, the IMF, the World Bank, and the Egmont Group of FIUs). It also has the support of 104 Inês De Oliveira, ‘The Governance of the Financial Action Task Force: An Analysis of Power and Influence throughout the Years’, Crime, Law and Social Change (Springer, 2017) 1–20, 12. 105 Nicholas W. Turner, ‘The Financial Action Task Force: International Regulatory Convergence through Soft Law’ (2014) 59 New York Law School Law Review 547, 558. 106 Louis de Koker, ‘The FATF’s Customer Identification Framework: Fit for Purpose?’ (2014) 17(3) Journal of Money Laundering Control 281. 107 Global Witness, How FATF Can Measure and Promote an Effective Anti-Money Laundering System, Briefing Document (2012), available at https:// www.globalwitness.org/en/archive/how-fatf-can-measure-andpromote-effectiveanti-money-laundering-system/ [accessed 24 February 2018]. 108 Levitt and Jacobson, above n 24, 20.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 25 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 26 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

70

Global counter-terrorist financing and soft law

powerful governments such as the United States, international organisations such as the European Union, and, of course, its members. As such, what may be referred to as the ‘soft law’ of the FATF is reinforced by strong connections.109 FATF dealing with high-risk and non-cooperative jurisdictions In addition to the FATF and FSRB MERs and follow-up processes, the FATF uses other mechanisms by which to identify and respond to jurisdictions with strategic deficiencies in their CTF (and AML) regimes that pose a risk to the international financial system and impede efforts to combat money laundering and terrorist financing. The Non-Cooperative Countries and Territories (‘NCCTs’) exercise began in 1998, at a time when many countries around the world did not have adequate AML measures in place. The objective of the initiative was to secure the adoption by all financial centres—in jurisdictions both inside and outside of FATF membership—of international standards to prevent, detect and punish money laundering, and thereby effectively cooperate internationally in the global fight against money laundering. Between 2000 and 2001, the FATF conducted a review of NCCTs. Forty-seven jurisdictions were referred to the NCCT process and were reviewed in two rounds (31 in 2000110 and 16 in 2001111). A total of 23 jurisdictions were identified as NCCTs (15 in 2000 and eight in 2001) and entered on the Black List. The effect of this is that financial institutions should pay special attention to business relations and transactions with persons, including companies and financial institutions, from the listed countries.112 At its February 2000 Plenary meeting, the FATF established four regional review groups (Americas, Asia/Pacific, Europe, and Africa/ Gathii, above n 24. Antigua and Barbuda, Bahamas, Belize, Bermuda, British Virgin Islands, Cayman Islands, Cook Islands, Cyprus, Dominica, Gibraltar, Guernsey, Isle of Man, Israel, Jersey, Lebanon, Liechtenstein, Malta, Marshall Islands, Mauritius, Monaco, Nauru, Niue, Panama, Philippines, Russia, Samoa, Seychelles, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, and Vanuatu. The 15 jurisdictions identified as NCCTs at that time are in bold. 111 Costa Rica, Czech Republic, Egypt, Grenada, Guatemala, Hungary, Indonesia, Myanmar, Nigeria, Palau, Poland, Slovakia, Turks and Caicos Islands, United Arab Emirates, Ukraine and Uruguay. The eight jurisdictions identified as NCCTs at that time are in bold. 112 Guy Stessens, ‘The FATF Black List of Non-Cooperative Countries or Territories’ (2001) 1 Leiden Journal of International Law 199, 205–206. 109 110

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 26 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 27 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Binding and non-binding norms in countering terrorist financing

71

Middle East)113 consisting of representatives from the FATF member governments that served as the main points of contact with the reviewed country or territory. Countries were selected for review based on the experience of FATF members. The jurisdictions to be reviewed were informed of the work to be carried out by the FATF. The review groups gathered relevant laws, regulations and other relevant information and analysed this information against 25 ‘Rules and Practices’ criteria that were identified by the FATF and published in the initial report on the NCCTs process.114 The FATF stated that: No specific criteria can be considered a litmus test of a particular jurisdiction’s level of co-operation in the international fight against money laundering. Rather, each jurisdiction must be judged by the overall, total effect of its laws and programmes in preventing abuse of the financial sector or impeding efforts of foreign judicial and administrative authorities.115

The FATF then drafted a report that was sent to the jurisdictions for comment. Each reviewed jurisdiction provided its comments on its respective draft reports. These draft reports and comments were discussed between the FATF and the jurisdictions concerned during a series of face-to-face meetings. The assessments of the jurisdictions that were identified as noncooperative by the FATF were discussed as a priority item at each FATF Plenary meeting. Decisions to revise the NCCTs list were taken in the FATF Plenary, with the FATF assigning particular importance to reforms in the area of criminal law, financial supervision, customer identification, suspicious transaction reporting and international cooperation. The FATF also sought to ensure that the listed jurisdictions were effectively implementing the necessary reforms. Thus, the jurisdictions that enacted sufficient legislation were asked to submit implementation plans to enable the FATF to evaluate the actual implementation of the legislative changes. The FATF, through the review groups, then made an on-site visit to the NCCT at an appropriate time to confirm the effective 113 FATF, Review to Identify Non-Cooperative Countries or Territories: Increasing the Worldwide Effectiveness of Anti-Money Laundering Measures (22 June 2001) 29. In October 2004, the FATF consolidated the four review groups into two: the Review Group on Asia/Pacific and the Review Group on the Americas, Europe and Africa/Middle East. See FATF, Annual Review of NonCooperative Countries and Territories 2006–2007 (2007) 3. 114 FATF, Report of the FATF on Non-Cooperative Countries or Territories (14 February 2000) annex. 115 Ibid 6.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 27 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 28 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

72

Global counter-terrorist financing and soft law

implementation of the reforms. When the review group was satisfied that the jurisdiction had taken sufficient steps to ensure continued effective implementation of AML measures, it recommended to the Plenary that the jurisdiction be de-listed.116 To ensure the continued effective implementation of the reforms enacted, the FATF adopted a monitoring mechanism to be carried out in consultation with the relevant FSRB. This mechanism included the submission of regular implementation reports and a possible follow-up visit to assess progress in implementing reforms and to ensure that stated goals had been fully achieved. The monitoring process was carried out based on the implementation plans, specific issues raised in the implementation reports, and the experience of FATF members on implementation issues. In this context, subjects included, as appropriate, the issuance of secondary legislation and regulatory guidance; inspections of financial institutions planned and conducted; STR systems; money laundering investigations and prosecutions conducted; regulatory, FIU and judicial cooperation; the adequacy of resources; and an assessment of the compliance culture in the relevant sectors. Counter-measures The FATF urged each non-cooperative jurisdiction, which the FATF entered on its Black List, to adopt measures in order to remove the detrimental rules and practices that were found in that jurisdiction. A special focus was given to compliance with FATF core recommendations. The FATF has, therefore, announced a number of measures to be taken with respect to countries that do not pay heed to the demand to remove the detrimental rules and practices. Pending the adoption of the appropriate laws and policies, the FATF demanded that its members scrupulously apply FATF Recommendation 19, which holds that “[f]inancial institutions should be required to apply enhanced due diligence measures to business relationships and transactions with natural and legal persons, and financial institutions, from countries for which this is called for by the FATF”.117 The type of enhanced due diligence measures applied should be effective and proportionate to the risks. Countries should be able to apply appropriate counter-measures when called upon to do so by the FATF. Countries should also be able to apply counter-measures independently of any call by the FATF. Such counter-measures should be FATF, Annual Review of Non-Cooperative Countries and Territories 2006–2007 (2007) 4. 117 FATF Recommendation 19 (old number 21). 116

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 28 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 29 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Binding and non-binding norms in countering terrorist financing

73

effective and proportionate to the risks. Examples of the countermeasures that could be undertaken by countries include the following: + refusing the establishment of subsidiaries, branches or representative offices of financial institutions from (or in) the country concerned, or otherwise taking into account the fact that the relevant financial institution is from a country that does not have adequate AML/CTF systems;118 + limiting business relationships or financial transactions with the identified country, or persons in that country;119 + prohibiting financial institutions from relying on third parties located in the country concerned to conduct elements of the customer due diligence process;120 and + requiring increased supervisory examination and/or external audit requirements for branches and subsidiaries of financial institutions based in the country concerned.121 The Black List is the most drastic measure so far taken as part of the FATF strategy to spread its recommendations geographically. The former special adviser to the US Treasury Secretary explained the logic behind the black listing as follows: Yet Washington could not afford to take the ‘bottom-up’ approach of seeking a global consensus before taking action; if the debate were brought to the UN General Assembly, for example, nations with underregulated financial regimes would easily outvote those with a commitment to strong international standard … The three efforts [OECD, FATF and FSF] each followed a ‘top-down’ approach in which nations would establish international standards and evaluative criteria before engaging with those who lacked the commitment.122

Dmitry Feoktistov, Deputy Director of the Department on New Challenges and Threats of the Russian Foreign Ministry, explained why these counter-measures are so effective:

118 119 120 121 122

FATF Recommendation 19.2(c). FATF Recommendation 19.2(e). FATF Recommendation 19.2(f). FATF Recommendation 19.2(h). William F. Wechsler, ‘Follow the Money’ (2001) 80(4) Foreign Affairs 40,

46.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 29 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 30 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

74

Global counter-terrorist financing and soft law

For any individual country, being put on the FATF Black List is not just a blow to its international reputation. If a country remains on the Black List for a long period, other countries are asked to take financial countermeasures against the offender. It means that all banking operations with such a country will be meticulously X-rayed for anything suspicious. Strictly speaking, this does not amount to sanctions, but in practice such a situation makes life for the country in question very difficult. Russia has first-hand experience of such difficulties the country itself was put on the Black List in the early 2000s because it did not have a law on countering the financing of terrorism; such a law is a must-have for every nation.123

Russia was listed on the Black List on 22 April 2000 because of the lack of a comprehensive anti-money laundering law and regulations that meet international standards. In particular, Russia lacks comprehensive customer identification requirements, an STR system, a fully operational FIU with adequate resources, and effective and timely procedures for providing evidence to assist in foreign money laundering prosecutions.124 However, after being identified as an NCCT in June 2000, Russia enacted significant reforms to address the issues identified. By 1 February 2002, it had, in effect, a new CTF Act, which included customer identification requirements, a suspicious activity reporting system, procedures for international cooperation, and provisions for a Commission for Financial Monitoring to operate as an FIU. Russia was de-listed by the FATF in October 2002.125 Within months of the issuance of the FATF Black List, seven jurisdictions had enacted legislation that purported to improve the prevention and detection of money laundering. As mentioned above, 47 countries and territories were examined in two rounds of reviews (in 2000 and 2001) and 23 were listed as NCCTs. The FATF has not reviewed any new jurisdictions since 2001 in the framework of the NCCT initiative and, as of October 2006, there were no NCCTs in the context of the NCCT initiative following the de-listing of Nigeria and Myanmar in June and October 2006 respectively. 123 Dmitry Feoktistov, above n 24, 19. For a different opinion, suggesting that there is no data to support the argument that blacklisting has actually harmed an economy and that market activity does not respond strongly to blacklisting, see Nance, above n 103. 124 FATF, Review to Identify Non-Cooperative Countries or Territories: Increasing the Worldwide Effectiveness of Anti-Money Laundering Measures (22 June 2000) 9. 125 FATF, Annual Review of Non-Cooperative Countries or Territories 2003 (20 June 2003) 15–16.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 30 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 31 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Binding and non-binding norms in countering terrorist financing

75

The vast majority of states that were identified as NCCTs were small states.126 In this context, it is worth mentioning the theory of international relations scholars who argue that the nature of international institutions provides opportunities for small states to increase their influence on the process of global standard-setting by holding such bodies—and, through them, large states—accountable to basic and widely accepted principles of justice and fairness in international politics. According to Professor Sharman, there are, in particular, four characteristics of international organisations that are important for small states seeking to influence these institutions.127 First, although international organisations are often created by states in their own interests, they are nonetheless largely autonomous from their member states. The international organisations are thus focused on their own survival and success. Second, the organisations are ill-equipped to use coercion or to monitor unwilling compliance. International regimes are unlikely to be effective if they are resisted by states. Instead, the organisations rely on the desire for institutional reputation and legitimacy. Third, international organisations can be held accountable if their actions do not comply with accepted norms, such as the importance of competition. As such, they are vulnerable to ‘accountability politics’ and can be pressured into conforming with widely held behavioural standards and with their own previous commitments. Fourth, international organisations operate in an environment in which member states demand not only results, but also value for money. Organisations that fail to meet the expectations of member states, or that attract unfavourable publicity, may be marginalised and deprived of funding. According to Pagani, because international institutions generally rely on moral and reasoned suasion, such as benchmarking and blacklisting, they are highly reliant on their own institutional standing and reputation. Therefore, damage to their public image greatly hinders their effectiveness and their ability to meet institutional goals.128

See nn 110 and 111 for a list of countries entered on the Black List. Jason Sharman, ‘The Agency of Peripheral Actors: Small State Tax Havens and International Regimes as Weapons of the Weak’ in John M. Hobson and Leonard Seabrooke (eds), Everyday Politics of the World Economy (Cambridge University Press, 2007) 51–3; see also Hurt’s observation that resistance works best when presented in terms borrowed from the language of the authority: Ian Hurd, ‘Legitimacy, Power, and the Symbolic Life of the UN Security Council’ (2002) 8(1) Global Governance 35, 47. 128 Fabrizio Pagani, ‘Peer Review: A Tool for Co-Operation and Change: An Analysis of the OECD Working Method’ (OECD, 2002) 13. 126 127

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 31 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 32 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

76

Global counter-terrorist financing and soft law

Professor Sharman uses the example of how small states reversed the OECD’s own rhetoric regarding competition in order to highlight the shortcomings in the implementation of its standards. The OECD was embarrassed by widely publicised accusations of anti-competitive behaviour and discriminatory standards. By early 2001, it had softened its stance on sanctions and agreed to negotiate the content of the new standards. Although it did not officially abandon the implementation of these standards, the OECD removed the central plank of abolishing ring-fenced concessions. It also compromised the ‘top-down’ approach by abolishing the threat of sanctions and agreeing to dialogue. In another compromise, in early 2002, it was agreed that tax havens—now referred to as ‘participating partners’—would reform only after all OECD members had taken equivalent measures.129 Because Switzerland and Luxembourg have consistently refused to implement any reforms relating to information sharing, this concession effectively means that tax havens are not obligated to adopt new standards. It is, however, important to note that the FATF method of blacklisting NCCTs, which was later replaced by public statements from the FATF’s International Co-operation Review Group, is a powerful tool of global financial regulation.130 It has been highly successful because being blacklisted by the FATF carries serious reputational costs that affect capital markets.131 When the FATF names states that are non-compliant, it signals to market actors that transactions with institutions in those jurisdictions may be subject to additional scrutiny. Discussing the case of Liechtenstein, Sharman writes: “In many cases it is difficult to conclusively link material decline to the effects of blacklisting but the general opinion among government officials and those in the financial services industry was that the lists caused the damage.”132 Ronen Palan (ed.), Global Political Economy (Routledge, 2003). D. W. Drezner, All Politics is Global: Explaining International Regulatory Regimes (Princeton University Press, 2007). In contrast, Simmons assumes that the United States is the regulatory hegemon, but is unwilling to pay the enforcement costs for imposing a binding standard. See Beth A Simmons, ‘The International Politics of Harmonization: The Case of Capital Market Regulation’ (2001) 55(3) International Organization 589, 609. 131 J. C. Sharman, ‘Power and Discourse in Policy Diffusion: Anti-Money Laundering in Developing States’ (2008) 52 International Studies Quarterly 635. 132 J. C. Sharman, The Money Laundry: Regulating Criminal Finance in the Global Economy (Cornell University Press, 2011). For an article suggesting that there is no data to support the argument that blacklisting has actually harmed an economy and that market activity does not respond strongly to blacklisting, see Nance, above n 103. 129 130

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 32 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 33 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Binding and non-binding norms in countering terrorist financing

77

In addition, because of the FATF’s multi-layered approach described above, it is difficult to damage the reputation of the FATF where its recommendations overlap with binding norms. As Hülsse and Kerwer argue, the FATF’s experts generate legitimacy by marketing practical knowledge as the correct and impartial solution. This rule-making authority is enhanced by third-party endorsement,133 by the successful monitoring of unwilling compliance by states through FSRBs, and by expanding the FATF member list from the original 16 to 39, as of September 2019. The FATF thus avoids bad publicity and minimises the risk of failing to live up to the expectations of its members. The International Co-Operation Review Group Since 2007, the FATF’s International Co-operation Review Group (‘ICRG’), which replaced the NCCTs initiative, has analysed high-risk jurisdictions and recommended specific action to address the terrorist financing (and money laundering) risks emanating from them. Throughout 2008 and 2009, the FATF issued a series of public statements expressing concerns about the significant deficiencies in the AML/CTF regimes of a number of jurisdictions. For two of these jurisdictions, Iran and the Democratic People’s Republic of Korea, the FATF took the additional step of calling upon its members and urging all jurisdictions to apply counter-measures to protect their financial sectors from money laundering and terrorist financing risks emanating from them. Based on a continued lack of progress by both jurisdictions, the FATF has reiterated its call for counter-measures at each subsequent Plenary meeting. In 2009, the leaders of the Group of 20 (‘G20’)134 specifically called on the FATF to reinvigorate its process for assessing countries’ compliance with international AML/CTF standards and to publicly identify 133 Rainer Hülsse and Dieter Kerwer, ‘Global Standards in Action: Insights from Anti-Money Laundering Regulation’ (2007) 14(5) Organization 625. For an opinion that the FATF recommendations reflect uncertainty about the best policy, but that also limits enforcement and, therefore, convergence, see C. Jojarth, Crime, War and Global Trafficking: Designing International Cooperation (Cambridge University Press, 2009). 134 The G20 is an international forum for the governments and central bank governors from 20 major economies. The G20 countries produce around 80 per cent of global economic output in terms of gross domestic product adjusted for purchasing power parity and account for three-quarters of global trade. See Manjit Singh, ‘Stability in Economic Growth of G20 Countries’ (2014) 59(2) Economic Affairs 243, 244. See also G20, G20 Members and Participants (undated), available at http://www.g20.org/Webs/G20/EN/G20/Participants/ participants_node.html [accessed 21 August 2017].

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 33 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 34 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

78

Global counter-terrorist financing and soft law

high-risk jurisdictions by February 2010. This call reinforced the revision process already underway within the FATF and led to the FATF’s adoption, in June 2009, of new ICRG procedures. Since that time, the G20 has called for the continuation of FATF efforts to fight against money laundering and terrorist financing and to regularly update the public list of jurisdictions with strategic deficiencies. Initial referral to the ICRG is based primarily on the results of the jurisdiction’s MER (rather than the FATF members in the NCCTs initiative, as described above). Jurisdictions whose MER reveals a significant number of key deficiencies are referred to the ICRG for a preliminary review conducted by one of the four ICRG regional review groups appointed by the FATF. Based upon that report, the FATF decides whether it should conduct a more in-depth review of the jurisdiction’s key strategic CTF (and AML) deficiencies. Each reviewed jurisdiction is provided an opportunity to participate in face-to-face meetings with the regional review group to discuss the report, including developing an action plan with the FATF to address the deficiencies identified. The FATF specifically requests high-level political commitment from each reviewed jurisdiction to implement these action plans. Based upon the results of this review and an in-depth review of the jurisdiction’s key strategic anti-money laundering deficiencies, the ICRG draws up various lists. These lists, which are approved by the FATF Plenary meeting, are the Black List (jurisdictions subject to a call for counter-measures), the Dark Grey List (jurisdictions that have not made sufficient progress, or have not committed to an action plan), and the Light Grey List (jurisdictions that have developed an action plan).135 When appraising the impact of the efforts of the FATF, it must be recognised that the reach of the FATF is global. As several regional FSRB-type organisations have fully endorsed the FATF’s recommendations,136 its reach, in fact, extends far further than its 39 members. While the FATF lacks the authority to directly enforce binding laws, its soft law influence is quite profound. Members that fail to comply with the FATF’s recommendations, or that reject its key aspects (that is, decriminalising terrorist financing), will face severe economic hardship from the FATF 135 House of Lords, European Union Committee, Money Laundering and the Financing of Terrorism—Volume II: Evidence (19th Report of Session 2008–09) 246. 136 The criteria for admission as a member require members to be fully committed at the political level, to implement the FATF recommendations, and to undergo regular mutual evaluations. See FATF, Annual Report 2003–2004 (2004) 12.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 34 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 35 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Binding and non-binding norms in countering terrorist financing

79

counter-measures, as detailed above, and will risk expulsion—an unattractive prospect for members in the current political climate.137 Three pillars have been demonstrated to dictate action in the arena of CTF: the Terrorist Financing Convention and the UNSC (binding norms), and the FATF recommendations (non-binding norms). The FATF’s non-binding norms add to and overlap with the binding norms of the convention and the UNSC. The following chapter will detail how different countries have implemented the FATF soft law recommendations.

137

Columns Design XML Ltd

/

Abbott et al., above n 92, 290.

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 03Chapter3

/Pg. Position: 35 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 1 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

4. Examining the level of implementation The previous chapter demonstrated that there exists a well-developed and unique international normative framework to combat the financing of terrorism. This framework encompasses substantive obligations for states, as well as different enforcement and oversight mechanisms. Yet, like most international regulatory regimes, the three pillars of the CTF framework face different challenges in relation to implementation and compliance. This chapter will first address the distinction between implementation and compliance and explain why measuring the effectiveness of CTF can be problematic. It will then examine the implementation of the CTF regime in 193 states in accordance with the relevant FATF recommendations that deal with CTF. These include recommendations that are unique to the FATF, as well as those that overlap with the relevant UNSC resolutions, the Terrorist Financing Convention, or both. For the purposes of this book, each country’s implementation was examined separately. However, in order to present the results more clearly, countries are grouped according to their geographical region. Graphs are used to show the number of countries that have implemented the recommendations (without considering the quality of the implementation) and the number of countries that have not yet done so.

INTRODUCTION: CRITERIA OF EFFECTIVE IMPLEMENTATION Before discussing how to ensure effectiveness, it is important to define what will be considered effective. Effectiveness can be measured at various levels1 and, in so doing, the distinction between ‘implementation’, ‘compliance’ and ‘impact’ has proven to be useful.2 Putting the Michael Brzoska, ‘Measuring the Effectiveness of Arms Embargoes’ (2008) 14 Peace Economics, Peace Science and Public Policy 2. 2 David Easton, A Systems Analysis of Political Life (Wiley, 1965). 1

80

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 04Chapter4

/Pg. Position: 1 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 2 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of implementation

81

definitions from the introduction to this book into practice, ‘implementation’ refers to incorporating the international norms into domestic law, such as state implementation of the FATF recommendations. ‘Compliance’ involves implementation, but is concerned with factual matching of state behaviour and international standards. It addresses whether this framework is implemented in the way mandated—for example, by state prosecutions under domestic laws implementing the FATF recommendations. A study of ‘impact’ examines the behaviour of those addressed by the regime’s framework in response to the implementation. Implementation and compliance are largely viewed as important preconditions for impact, which is generally understood in the literature as the ultimate measure of effectiveness, as policies are designed to shape the real world and not merely the regulatory framework.3 This book is primarily concerned with the first two levels of an inquiry into effectiveness: implementation and compliance. In examining steps that have been taken to implement and comply with the FATF recommendations, several questions arise. How comprehensive is the legislation that has been adopted? How much time elapsed before implementing legislation and regulations? Has the stringency of the legislation changed over time? What factors have affected this change? Compliance goes beyond implementation. Measuring compliance is more difficult than measuring implementation. It involves assessing the extent to which governments follow through on the steps they have taken to implement the recommendations. Some measurable factors—such as the staffing and budgeting of bureaucracies charged with ensuring compliance, the quantity and quality of data that are kept, and the extent to which incentives and sanctions are actually used and imposed—give indications of efforts towards compliance. In the end, however, assessing the extent of compliance is a matter of judgement.4 Compliance is essential to effectiveness, but does not equate to it. Countries may be in compliance with the binding and non-binding norms, but the norms may nevertheless be ineffective in attaining their objectives. And even norms that are effective in attaining their stated objectives may not be effective in addressing the problems that they were intended to address. In light of 3 Michael Brzoska, European Peace and Security Policy: Transnational Risks of Violence (Bloomsbury, 2015) 50; José E. Alvarez, The Impact of International Organizations on International Law (Brill Nijhoff, 2017) 39; Donald S. Van Meter and Carl E. Van Horn, ‘The Policy Implementation Process: A Conceptual Framework’ (1975) 6(4) Administration & Society 445, 449. 4 Harold K. Jacobson and Edith B. Weiss, ‘Compliance with International Environmental Accords’ (1995) 1(2) Global Governance 119, 123.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 04Chapter4

/Pg. Position: 2 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 3 SESS: 5 OUTPUT: Fri Apr 3 14:57:55 2020

82

Global counter-terrorist financing and soft law

the considerable uncertainties of an effectiveness analysis, the focus of this book will be limited to assessing implementation (this chapter) and compliance (Chapter 5). A better understanding of the implementation of, and compliance with, CTF measures is a necessary prerequisite for assessing effectiveness, which is beyond the scope of this book. Suffice it to say the studies that have focused on effectiveness are problematic. For example, when analysing the effectiveness of CTF strategies, it is tempting to look at the statistics that can be derived directly from terrorist events. First, it is easy to identify an increase or decrease in terrorist attacks. In addition, the data can be summarised, viewed, represented by visual graphs, and compared clearly. And, if that were not enough, ultimately, the data refer to the heart of the CTF—the ultimate goal, which is to prevent terrorist attacks. From here, it only makes sense to examine the effectiveness that a strategy has on the number of terrorist attacks and the number of casualties and injured. However, an examination of this data may lead to incorrect conclusions. There have been a number of attempts to assess the effectiveness of the CTF regime by counting either the number of terrorist attacks5 or the 5 Morag tried to examine the degree of efficacy of Israel’s anti-terror policies and ability to cope with terrorism using seven categories, concluding that, based on most of the parameters, Israel has been successful in coping with terrorism. See Nadav Morag, ‘Measuring Success in Coping with Terrorism: The Israeli Case’ (2005) 28(4) Studies in Conflict and Terrorism 307. LaFree examined the effect of some interventions by the British state in Northern Ireland by looking at the numbers of terrorist attacks that took place after the measures had been implemented: see Gary LaFree, ‘Efficacy of Counterterrorism Approaches: Examining Northern Ireland’ (START Research Brief, October 2006). Kollias et al. examined empirically the effectiveness of counter-terrorism policy in Greece by using annual budget data: see Christo Kollias, Petros Messis and Suzanna Paleologou, ‘Terrorism and the Effectiveness of Security Spending in Greece: Policy Implications of Some Empirical Findings’ (2009) 31(5) Journal of Policy Modeling 788. Barros tried to establish the effects of the opening up by the Spanish state of political channels for ETA. He did so by comparing the numbers of attacks in periods in which two different political parties were in power: see Carlos P. Barros, ‘An Intervention Analysis of Terrorism: The Spanish ETA Case’ (2003) 14 Defence and Peace Economics 401. Van Dongen outlined a different way of measuring counter-terrorism effectiveness. His method rests on the assumption that counter-terrorism should be broken down into separate components that should all be evaluated separately: see Teun Van Dongen, ‘Break It Down: An Alternative Approach to Measuring Effectiveness in Counterterrorism’ (2011) 6(3) Journal of Applied Security Research 357. See also David Cortright and George A. Lopez (eds), Uniting against Terror: Cooperative Nonmilitary Responses to the Global Terrorist

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 04Chapter4

/Pg. Position: 3 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 4 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of implementation

83

number of victims,6 but one difficulty faced is the availability (and trustworthiness) of data and information, which is either secret or otherwise difficult to assess.7 In light of these data problems, and the fact that very little publicly available information exists on attacks that were planned but never took place, it is often difficult to assess whether or not lack of finance was a factor.8 Therefore, effectiveness in the case of the CTF regime is difficult to assess and there are good reasons to be sceptical of the results of such attempts:9 (1)

First, it is not clear what increases and decreases in activity say about the state of the terrorist organisation committing the attack. It is possible that the organisation’s decline initiates a wave of terrorist attacks to send a message to its own members.10 In this case, an increase in the numbers of terrorist attacks or victims is certainly not a sign that a regime is not working. An increase can also be the result of radicalisation of a movement in leadership transition, where new leaders vest their authority by organising spectacular actions or committing large numbers of attacks. In such

Threat (MIT Press, 2007); Anne Clunan, ‘The Fight against Terrorist Financing’ (2006) 121(4) Political Science Quarterly 569. 6 Alexander included numbers of casualties as a criterion that counterterrorist campaigns should be judged by: Yonah Alexander, Combating Terrorism: Strategies of Ten Countries (University of Michigan Press, 2002). See also Morag, above n 5, 310–13; Barry Davies, Terrorism: Inside a World Phenomenon (Virgin Books, 2003) 8. For the indirect effect on the economy, see Asaf Zussman, ‘Assassinations: Evaluating the Effectiveness of an Israeli Counterterrorism Policy Using Stock Market Data’ (2006) 2 Journal of Economic Perspectives 193. 7 Drakos Konstantinos, ‘Security Economics: A Guide for Data Availability and Needs’ (2009) Economics of Security 6; Michael Levi, ‘Combating the Financing of Terrorism’ (2010) 50(4) British Journal of Criminology 650. 8 John Roth, Douglas Greenberg and Serena Wille, Staff Report to the Commission: Monograph on Terrorist Financing (National Commission on Terrorist Attacks Upon the United States, 2004); Nikos Passas, ‘Terrorism Financing Mechanisms and Policy Dilemma’ in Jeanne K. Giraldo and Harold A. Trinkunas (eds), Terrorism Financing and State Responses: A Comparative Perspective (Stanford University Press, 2007) 31; Thomas J. Biersteker and Sue E. Eckert (eds), Countering the Financing of Terrorism (London, 2008) 235–54. 9 Van Dongen, above n 5; Michael Brzoska, ‘The Role of Effectiveness and Efficiency in the European Union’s Counterterrorism Policy: The Case of Terrorist Financing’ (2011) 51 Economics of Security Working Paper 7. 10 Audrey K. Cronin, How Terrorism Ends: Understanding the Decline and Demise of Terrorist Campaigns (Princeton University Press, 2009) 78.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 04Chapter4

/Pg. Position: 4 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 5 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

84

(2)

(3)

Global counter-terrorist financing and soft law

cases, the increasing severity of terrorist violence says more about the terrorist group than it does about the CTF regime applied against it. A second problem with using the numbers of attacks or victims as indicators of success or effectiveness is that they do not say much about the severity of a terrorist campaign. Not all terrorist attacks are similar, and one would expect the effect of a large-scale attack (such as 11 September 2001)—which requires much preparation, resources and operational capabilities—to be greater than the effect of a simple arson. By focusing on the number of attacks, these differences would be ignored—which can be especially misleading if terrorist organisations decide to lower the frequency of their attacks to save resources for larger and more advanced attacks.11 Finally, given that the effect of a single attack can be enormous, terrorist organisations do not need to commit as many attacks as they possibly can. The assassination of a head of government or a cabinet member is a single attack, yet it sends a powerful message about a terrorist organisation’s ability to disrupt a country’s political process.

As stated above, it is problematic to try to assess impact. This chapter will therefore focus on assessing effectiveness (as a second-best alternative to impact assessments) via two objective parameters that have a direct link to the CTF regime and where lack of data will not create a problem. First, the chapter will look at how the regime shaped the regulatory framework (the implementation). Second, it will consider the quality of the implementation (the compliance),12 whereby it will be possible to weigh the effectiveness of the CTF regime.

11 Daniel Byman, ‘Scoring the War on Terror’ (2003) National Interest (Summer 2003) 72. 12 There are some potential issues with assessing the outcome as well, and it is essential to analyse the data with caution. See Serious Organized Crime Agency, Review of the Suspicious Activity Report Regime (London, 2005); Counter-Terrorism Committee, Survey of the Implementation of Security Council Resolution 1373 (2001) by Member States S/2009/620 (3 December 2009); Peter Sproat, ‘Counter-Terrorist Finance in the UK: A Quantitative and Qualitative Commentary Based on Open-Source Materials’ (2010) 13(4) Journal of Money Laundering Control 315.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 04Chapter4

/Pg. Position: 5 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 6 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of implementation

85

IMPLEMENTATION: SHAPING THE REGULATORY FRAMEWORK This section of the book will explore 193 states (all UN member states) and their technical implementation of the international standard established by the CTF regime—primarily, the Terrorist Financing Convention, SC Res 1267 (1999) and SC Res 1373 (2001), and those FATF recommendations that pertain to terrorism financing (those that pertain to money laundering will be excluded). These require states to take a number of legal, institutional and practical measures to prevent and suppress terrorist financing. Information on the implementation of the CTF regime has been compiled from several sources: MERs13 and follow-up reports14 of the FATF and FSRBs; UNSC reports, which emerge from the work of the UN Counter-Terrorism Committee;15 member states’ reports, pursuant to paragraph 6 of SC Res 1373 (2001), which calls upon all states to report the steps they have taken to implement the resolution; and other governmental reports.16 Compiling this information has produced a comprehensive database of the implementation of the CTF regime, dating from the adoption of SC Res 1373 (2001) in September 2001 to the date 13 The FATF conducts peer reviews of each member on an ongoing basis to assess levels of implementation of the FATF recommendations, providing an in-depth description and analysis of each country’s system for preventing criminal abuse of the financial system. See FATF, Methodology for Assessing Technical Compliance with the FATF Recommendations and the Effectiveness of AML/CFT Systems (February 2013, last updated February 2017). 14 FATF, Third Round of AML/CFT Mutual Evaluations Process and Procedures (October 2009). 15 Counter-Terrorism Committee, Report by the Chair of the CounterTerrorism Committee on the Problems Encountered in the Implementation of Security Council Resolution 1373 (2001), S/2004/70 (26 January 2004); CounterTerrorism Committee, Proposal for the Revitalisation of the Counter-Terrorism Committee, S/2004/124 (19 February 2004); Counter-Terrorism Committee, Creation of the Counter-Terrorism Committee Executive Directorate, SC Res 1535 (2004) (26 March 2004); Counter-Terrorism Committee, Survey of the Implementation of Security Council Resolution 1373 (2001), S/2008/379 (10 June 2008); Counter-Terrorism Committee, Survey of the Implementation of Security Council Resolution 1373 (2001) by Member States, S/2009/620 (3 December 2009); Counter-Terrorism Committee, Global Survey of the Implementation of Security Council Resolution 1373 (2001) by Member States, S/2011/463 (1 September 2011). 16 For example, US Department of State Publication Bureau of Counterterrorism, Country Reports on Terrorism 2014 (April 2015).

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 04Chapter4

/Pg. Position: 6 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 7 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

86

Global counter-terrorist financing and soft law

of writing (July 2019). The data compiled was assessed for each state in order to determine how that state had responded to the CTF regime. At this point, only implementation was examined, without considering the actual quality of the implementation (that is, compliance, which will be subject to analysis in Chapter 5). For example, where a state has ratified the Terrorist Financing Convention, it is considered for the purposes of this chapter to have fully implemented the specific CTF standard; where a state has ignored the CTF standard, it is appraised as being ‘not implemented’. This method was applied to each UN member state. The database is especially unique and valuable, as the existing literature fails to examine all states.17 Therefore, the margin for error should be lessened significantly and the ‘real numbers’ of implementation ought to emerge. Implementation of UN Instruments The Terrorist Financing Convention was opened for signature on 10 January 2000.18 SC Res 1373 (2001), which urged19 states to become parties to the Terrorist Financing Convention, was adopted on 28 September 2001. FATF Recommendation 36, adopted on 31 October 2001, demanded inter alia that states take immediate steps to ratify the Terrorist Financing Convention. In the 20 months after the convention was opened for signature, until SC Res 1373 (2001), states did not perceive any urgency to ratify the convention, and only four states had in fact ratified it (Figure 4.1).20 Immediately following SC Res 1373 (2001), and before the adoption of Recommendation 36, one more state had ratified the convention.21 The lag in ratifying the Terrorist Financing Convention ended with Recommendation 36, which led to ratification by 11 states within six months, and by another 23 within a year. Twenty 17 Previous studies have focused on the implementation in a much more limited number of states: see Jean F. Thony and Cheong A. Png, ‘FATF Special Recommendations and UN Resolutions on the Financing of Terrorism’ (2007) 14(2) Journal of Financial Crime 150; International Monetary Fund and World Bank, Anti-Money Laundering and Combating the Financing of Terrorism: Observations from the Work Program and Implications Going Forward, Supplementary Information (31 August 2005) 5–11. 18 On 10 April 2002, the convention entered into force after 22 countries had ratified it. 19 SC Res 1373 (2001), para 3(d). In para 3, the UNSC “Calls upon all States to”, while in the other paragraphs it “Decides that all States shall”. 20 United Kingdom, Botswana, Sri Lanka and Uzbekistan. 21 Azerbaijan signed the Financing Convention on 4 October 2001 and had ratified it by the end of the same month.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 04Chapter4

/Pg. Position: 7 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 8 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of implementation

87

No. of States

months after the adoption of the recommendation, no fewer than 59 states had ratified the convention, compared with a total of four for the same period prior to its adoption.22 This pattern of activity can be seen in Figure 4.1 below. 30

25

23

20

11

10

4

1

0

Figure 4.1 Convention ratifications by states over time While many states signed the convention upon its presentation, these signatures were not always accompanied by actual ratification. A significant increase in ratifications began in late 2001, with the introduction of SC Res 1373 (2001) and FATF Recommendation 36. This pattern can be seen below, in Figure 4.2.

No. of States

180 160 140 120 100 Signed

80 60

Rafied 46 43

40 20 0

14 0

24

17

7

4

5

3

2

4

3

4

1

Figure 4.2 Signatures and ratifications between 2000 and 2015 In addition to the ratification of the Terrorist Financing Convention, Recommendation 36 of the FATF asks that states implement the UNSC resolutions relating to CTF—particularly SC Res 1373 (2001), which urges countries to become parties to the relevant international conventions and protocols relating to terrorism as soon as possible.

22 As of 18 September 2019, 189 states are parties to the convention—the most recent being Lebanon, which acceded in August 2019.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 04Chapter4

/Pg. Position: 8 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 9 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

88

Global counter-terrorist financing and soft law

When examining the implementation of these requests, one finds that in South Eastern Europe,23 Eastern Europe,24 North America, and other Western regions,25 all states have implemented. Only a few individual countries in South America and in Central America and the Caribbean26 have not implemented. This high level of implementation is similar in South Asia,27 Central Asia and the Caucasus,28 and South East Asia.29 Implementation drops only slightly when examining West Asia, where Lebanon has not yet ratified the convention,30 and Africa, where all countries in North Africa,31 and nearly all countries in East Africa,32 West

Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Montenegro, Romania, Serbia, Slovenia and the former Yugoslav Republic of Macedonia (‘South Eastern Europe’). 24 Belarus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, the Republic of Moldova, the Russian Federation, Slovakia and Ukraine (‘Eastern Europe’). 25 Andorra, Australia, Austria, Belgium, Canada, Cyprus, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Israel, Italy, Liechtenstein, Luxembourg, Malta, Monaco, the Netherlands, New Zealand, Norway, Portugal, San Marino, Spain, Sweden, Switzerland, Turkey, the United Kingdom of Great Britain and Northern Ireland, and the United States of America (‘Western’ states). 26 Antigua and Barbuda, Bahamas, Barbados, Belize, Costa Rica, Cuba, Dominica, Dominican Republic, El Salvador, Grenada, Guatemala, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, and Trinidad and Tobago (‘Central America and the Caribbean’). 27 Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka (‘South Asia’). 28 Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan (‘Central Asia and the Caucasus’). 29 Brunei Darussalam, Cambodia, Indonesia, Lao People’s Democratic Republic, Malaysia, Myanmar, Philippines, Singapore, Thailand, Timor-Leste and Viet Nam (‘South East Asia’). 30 Bahrain, Islamic Republic of Iran, Iraq, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, United Arab Emirates and Yemen (‘West Asia’). 31 Algeria, Egypt, Libya, Mauritania, Morocco, South Sudan, Sudan and Tunisia (‘North Africa’). 32 Burundi, Comoros, Djibouti, Eritrea, Ethiopia, Kenya, Madagascar, Mozambique, Rwanda, Seychelles, Somalia, Uganda and the United Republic of Tanzania (‘East Africa’). 23

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 04Chapter4

/Pg. Position: 9 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 10 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of implementation

89

and Central Africa33 and Southern Africa,34 comply. Chad and Gambia are the only exceptions. Furthermore, with the exception of the Democratic People’s Republic of Korea, all East Asia countries35 and the Pacific Islands states36 have implemented the decisions. Therefore, to date, 83 per cent of the UN member states meet the requirement of the FATF to become party to UN instruments, as seen below in Figure 4.3.

No. of States

I-PI = Implemented/Largely Implemented/Parally Implemented

180 160 140 120 100 80 60 40 20 0

161

32

Implemented (I-PI)

Not Implemented

Figure 4.3 Ratification of UN instruments Criminalisation of Terrorist Financing The obligation of states to criminalise terrorist financing is set forth in the Terrorist Financing Convention, SC Res 1373 (2001), and FATF Recommendation 5. Implementation of this obligation requires the establishment of a comprehensive legal regime.37 A significant number of states have introduced a terrorism financing offence that fully conforms to the convention, the resolution, and the recommendation. All Western 33 Benin, Burkina Faso, Cameroon, Cape Verde, Central African Republic, Chad, Congo, Côte d’Ivoire, Democratic Republic of the Congo, Equatorial Guinea, Gabon, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, São Tomé and Principe, Senegal, Sierra Leone and Togo (‘West and Central Africa’). 34 Angola, Botswana, Lesotho, Malawi, Mauritius, Namibia, South Africa, Swaziland, Zambia and Zimbabwe (‘Southern Africa’). 35 China, the Democratic People’s Republic of Korea, Japan, Mongolia and the Republic of Korea (‘East Asia’). 36 Fiji, Kiribati, Marshall Islands, Micronesia (Federated States of), Nauru, Palau, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu, Cook Islands and Vanuatu (‘Pacific Islands’). 37 Counter-Terrorism Committee, Global Survey, above n 15, 73.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 04Chapter4

/Pg. Position: 10 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 11 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

90

Global counter-terrorist financing and soft law

No. of States

European, North American, and other Western states have criminalised the financing of terrorism, as have South Eastern European and Eastern European states. More than half of the South American states, and the states of Central America and the Caribbean, have also criminalised the financing of terrorism. Implementation in Asia is somewhat different, with most West Asian states not yet having criminalised the financing of terrorism. The same is true with regard to South East Asia and the Pacific Islands. Implementation is, however, improving in East Asia, where, apart from the Democratic People’s Republic of Korea, all East Asian states have criminalised the financing of terrorism. In Africa, implementation is quite high, except for a few individual states. Today, approximately 74 per cent of states have met requirements pertaining to the criminalisation of terrorist financing, as seen below in Figure 4.4. 180 160 140 120 100 80 60 40 20 0

I-PI = Implemented/Largely Implemented/Parally Implemented

142

51

Implemented (I-PI)

Not Implemented

Figure 4.4 Criminalisation of terrorist financing Freeze and Confiscate Terrorist Assets Freezing terrorist assets is a key element of the Terrorist Financing Convention, SC Res 1267 (1999), SC Res 1373 (2001), and FATF Recommendation 6, and must be understood as a preventive measure. The request is that states take immediate action to identify relevant individuals and entities, as well as all of their associated funds and assets, and to freeze those funds and assets without prior notice to the person or entity, in order to prevent the assets being moved. Almost all Western states have revised their legislation, and the level of implementation is similar in Eastern Europe and South Eastern Europe. In Central America, the Caribbean and South America (except Colombia and Peru), states have not yet sufficiently revised their domestic legislation so that they can freeze and confiscate. Most states in West Asia have

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 04Chapter4

/Pg. Position: 11 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 12 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of implementation

91

updated their domestic law so that they can freeze and confiscate assets, as did states in Central Asia and the Caucasus. Implementation in South Asia is rather low, with most states not yet having adopted the recommendation, and four countries not having appropriate legislation (Afghanistan, Bangladesh, Maldives and Nepal). In contrast, in the Pacific Islands, most states have implemented legislation allowing freezing and confiscating, and in East Asia, except North Korea, all states have laws that allow freezing and confiscation. Finally, technical implementation is relatively low in Africa, with the exclusion of North Africa. Today, approximately 63 per cent of states have met the requirements with regard to freezing and confiscating terrorist assets, as seen below in Figure 4.5. No. of States

I-PI = Implemented/Largely Implemented/Parally Implemented

150

122

100

71

50 0

Implemented (I-PI)

Not Implemented

Figure 4.5 Freezing and confiscation of terrorist assets Suspicious Transaction Reporting When financial institutions suspect that funds are related in some way to a terrorist organisation, they are required, according to FATF Recommendation 20 and the Terrorist Financing Convention,38 to report immediately to the FIU. Therefore, for the purpose of implementing this recommendation, states should have an FIU that is dedicated to receiving and analysing STRs. All Western states, South American states, and Southern European states have established FIUs, while most states in Central America and the Caribbean have set them up. Jamaica has initiated a programme with which to modernise its FIU, while Barbados has approved the creation of six additional positions within its FIU and has upgraded its information technology system. In East Asia, reporting obligations include the financing of terrorism primarily in those states that have partially criminalised terrorist 38

Columns Design XML Ltd

/

Terrorist Financing Convention, art 18.1(b)(iii).

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 04Chapter4

/Pg. Position: 12 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 13 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

92

Global counter-terrorist financing and soft law

No. of States

financing. In Central Asia and the Caucasus, in 2009, Kazakhstan and Turkmenistan adopted appropriate CTF legislation, which involved creating FIUs, while Tajikistan established a Financial Monitoring Department—the equivalent of an FIU. In South Asia, all states except Cambodia have set up FIUs, while all states of the Pacific Islands have FIUs. In East Asia, all states except for North Korea have FIUs. Many Western and Central African states established FIUs due to the proactive role played by the Intergovernmental Action Group against Money-Laundering. In Southern Africa, six states have some measures in place pertaining to reporting obligations. The dissemination of STRs by South Africa and Mauritius has resulted in a number of investigations and the prosecution of money-laundering cases. In East Africa, however, there is a comparatively weak implementation. Half of the states in North Africa established FIUs and commenced reporting suspicious transactions when the FIU of Morocco received its first report in October 2009. Today, 56 per cent of all states are considered to be compliant with the recommendations, as seen below in Figure 4.6. 180 160 140 120 100 80 60 40 20 0

I-PI = Implemented/Largely Implemented/Parally Implemented

109 84

Implemented (I-PI)

Not Implemented

Figure 4.6 Suspicious Transaction Reporting International Cooperation—Mutual Legal Assistance According to Recommendation 37, each state should afford others the greatest possible measure of assistance in connection with criminal and civil enforcement, and in administrative investigations, inquiries, and proceedings related to the financing of terrorism. States are also urged to take all possible measures to ensure that they do not provide safe haven for individuals charged with financing terrorism, and to have procedures in place to extradite, where possible, such individuals.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 04Chapter4

/Pg. Position: 13 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 14 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of implementation

93

No. of States

Most Western states have in place a robust legal framework to support mutual legal assistance and extradition requests, particularly within the framework of the European Union. All have procedures in place for the ready exchange of information, including by means of their FIU. This is mirrored in Eastern Europe, Central America, the Caribbean, Southern Africa and South America, where most states have set up mutual legal assistance arrangements to facilitate regional and international cooperation and information-sharing, but less so in South Asia and in Central Asia and the Caucasus. In East Asia and South East Asia, most states have adopted legal provisions on extradition and have designated a central authority for extradition and mutual legal assistance. There is less implementation in states such as China, Japan, Mongolia and the Republic of Korea. In the Pacific Islands, all states have set up mutual legal assistance arrangements and have enacted extradition and mutual legal assistance laws. In East Africa, in 2009, the Intergovernmental Authority on Development’s Capacity Building Program against Terrorism adopted conventions on extradition and mutual legal assistance that have enhanced the legal framework for cooperation in countering terrorism among states in the area.39 In North Africa, however, mutual legal assistance and extradition are still needed in almost all states. Today, 71 per cent of states worldwide are considered compliant with international cooperation requirements, as seen below in Figure 4.7. 180 160 140 120 100 80 60 40 20 0

I-PI = Implemented/Largely Implemented/Parally Implemented

137

56

Implemented (I-PI)

Not Implemented

Figure 4.7 International cooperation Intergovernmental Authority on Development, Capacity Building Program against Terrorism, available at www.igadregion.org/icpat [accessed 1 October 2019]. 39

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 04Chapter4

/Pg. Position: 14 /

Date: 24/2

JOBNAME: EE3 Goldbarsht PAGE: 15 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

94

Global counter-terrorist financing and soft law

Alternative Remittance (Value Transfer Services)

No. of States

Recommendation 14, which the FATF shares with the Terrorist Financing Convention but which is separate from the UNSC resolutions, highlights the need to bring all money or value transfer services, whether formal or informal, within the ambit of certain minimum legal and regulatory requirements. Interestingly, for the first time, the data indicate that a number of Western states are non-compliant with this recommendation. Canada, New Zealand and Russia are failing to comply with Recommendation 14, while almost completely implementing other recommendations. When these states are considered along with European states such as Romania, Croatia and Ireland, a ‘breach’ of the effectiveness of the regime is seen. Only 47 per cent of states are considered compliant with the requirements for money/value transfer services, as seen below in Figure 4.8. 180 160 140 120 100 80 60 40 20 0

I-PI = Implemented/Largely Implemented/Parally Implemented

103 90

Implemented (I-PI)

Not Implemented

Figure 4.8 Requirements for money/value transfer services Wire Transfer Rules The objective of Recommendation 16—a recommendation unique to the FATF—is to prevent terrorists from having unfettered access to wire transfers for moving their funds, and to detect misuse when it occurs. Specifically, it aims to ensure that basic information about the origin (for example, name, address and account number) of wire transfers is immediately available to appropriate law enforcement or prosecutorial authorities to assist them in detecting, investigating, and prosecuting terrorists and other criminals, and tracing their assets; to FIUs for analysing suspicious or unusual activity; and to beneficiary financial

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 04Chapter4

/Pg. Position: 15 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 16 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of implementation

95

No. of States

institutions in order to facilitate the identification and reporting of suspicious transactions. The implementation of this recommendation is considerably lower than that of the other recommendations discussed. More than 55 per cent of states are considered non-compliant with the requirements for wire transfer rules, including Canada, Qatar, Norway, Ireland, Turkey, Portugal, Sweden, New Zealand, Australia and Italy, as seen below in Figure 4.9. 180 160 140 120 100 80 60 40 20 0

I-PI = Implemented/Largely Implemented/Parally Implemented

107 86

Implemented (I-PI)

Not Implemented

Figure 4.9 Wire transfer rules Non-Profit Organisations According to Recommendation 8—also unique to the FATF—states need to review the adequacy of their laws and regulations that pertain to entities that can be abused for the purposes of terrorist financing. According to the FATF, non-profit organisations (‘NPOs’) are particularly vulnerable to misuse as conduits for terrorist financing, including for the purpose of escaping asset freezing measures, and for the concealment of the clandestine diversion of funds intended for legitimate purposes to terrorist organisations. Many Western states, however, have not reviewed their non-profit sectors for terrorism financing risks, whereas in South Eastern Europe all states have legislation in place to regulate NPOs. In Eastern Europe, the Russian Federation has introduced legislation on the regulation of NPOs, while, in 2009, Hungary clarified the legal framework for its non-profit sector by ruling that all NPOs must register as non-profit business associations. Approximately half of the states in Central America, the Caribbean and South America implement some measures to guard against terrorist financing through the non-profit sector, whereas in South Asia and in

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 04Chapter4

/Pg. Position: 16 /

Date: 24/2

JOBNAME: EE3 Goldbarsht PAGE: 17 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

96

Global counter-terrorist financing and soft law

No. of States

Central Asia and the Caucasus, implementation is rather low. Efforts in South East Asia have involved many states attempting to review their non-profit sectors to ensure that adequate regulations are in place. In South Asia, all eight states have legislation in place to regulate NPOs. Overall, the technical implementation of this recommendation is quite low, with states such as India, Argentina, Hungary, Malta, Chile, Greece, Poland and Norway failing to comply. To date, approximately 44 per cent of states are considered to be compliant with requirements for NPOs, as seen below in Figure 4.10. 180 160 140 120 100 80 60 40 20 0

I-PI = Implemented/Largely Implemented/Parally Implemented

109 84

Implemented (I-PI)

Not Implemented

Figure 4.10 Non-profit organisations Cash Couriers—Cross-Border Declaration and Disclosure According to Recommendation 32, which was added as a standard by the FATF in October 2004, and which can also be found in the Terrorist Financing Convention, states should have measures in place to detect the physical cross-border transportation of currency and bearer negotiable instruments. All Western states, except for Andorra and Greece, have introduced legislation to monitor the cross-border movement of cash, through either a declaration or a disclosure system.40 This is also the case for Eastern Europe and South Eastern Europe.41 In Central America and the Caribbean, many states have established legislation to control the For those states that are members of the European Union, a declaration system was put into place through the adoption of Regulation (EC) No. 1889/2005 of the European Parliament and of the Council of 26 October 2005, on control of cash entering or leaving the European Community. 41 The states of the subregion that are members of the European Union use the declaration system on the control of cash entering or leaving the European Union, which was introduced by the adoption of Regulation (EC) No. 1889/2005 of the European Parliament and the Council of 26 October 2005. 40

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 04Chapter4

/Pg. Position: 17 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 18 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of implementation

97

No. of States

physical cross-border movement of cash and bearer negotiable instruments. In South America, many states have improved measures to identify cash couriers, by establishing declaration or disclosure systems for the reporting of cross-border cash movement. Although a number of South Asian states have implemented declaration regimes for the cross-border movement of cash and bearer negotiable instruments, some regimes address only the movement of cash out of the state and neglect the movement of cash into the state (such as Nepal) or cash movement via airports (such as India), with no information on the movement of currency and bearer negotiable instruments via land borders. In East Asia, South East Asia and the Pacific Islands, more than half of the states implement these regimes, while in Africa, approximately half of the states have implemented them. To date, approximately 54 per cent of states are considered compliant with the requirements for cross-border declaration and disclosure. Of particular interest is the observation that compliance is higher here than noncompliance, as seen below in Figure 4.11. 180 160 140 120 100 80 60 40 20 0

I-PI = Implemented/Largely Implemented/Parally Implemented

105 88

Implemented (I-PI)

Not Implemented

Figure 4.11 Cross-border declaration and disclosure Conclusion The key findings show, as detailed above and as summarised across the nine Special Recommendations in Figure 4.12 below, that a majority of jurisdictions have implemented the international standards. Member states of the UN have signed and ratified the Terrorist Financing Convention and criminalised terrorist financing as a distinct offence. They have legal instruments to implement targeted financial sanctions, whether established by the UN, requested by another country, or proposed by the country’s own motion. Most member states have established an FIU to receive STRs, and a legal framework to promote international

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 04Chapter4

/Pg. Position: 18 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 19 SESS: 5 OUTPUT: Fri Apr 3 14:57:55 2020

98

Global counter-terrorist financing and soft law

cooperation and to detect the physical cross-border movement of currency and bearer negotiable instruments. Fewer member states, but still a significant number, have implemented non-binding norms and established legal regulatory systems to counter illegal value transfer services and to ensure safe wire transfers. Regardless of whether the Recommendation is a ‘core FATF Recommendation’ (as detailed above on p 64), the implementation is weaker where it is not multi-layered—where the FATF recommendations do not overlap with the Terrorist Financing Convention or the UNSC—and in countries that are not Western states.42 180 160

I-PI = Implemented/Largely Implemented/Parally Implemented

140 120 100 80 60 40 20 0

Implemented (I-PI)

Not Implemented

Figure 4.12 Implementation of all international standards This chapter has investigated state implementation of the international norms, which are incorporated into domestic laws. The next chapter will discuss compliance with the international standard—the factual matching of state behaviour and international norms. When states criminalise the provision of funds, do they also criminalise the financing of terror organisations and individual terrorists, and treat such activity as a serious crime? Do they freeze and confiscate assets? Do they have an independent and autonomous FIU? What are the conditions for STRs? And, above 42 An analysis of the multi-layered approach and a presentation of the FATF recommendations in three different groups, according to their interaction with the Terrorist Financing Convention and the UNSC resolutions, is presented in Chapter 6 under the heading ‘Multi-Layered Recommendations’. The multilayered approach is part of the reason for the high level of implementation (and compliance) with the CTF norms identified.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 04Chapter4

/Pg. Position: 19 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 20 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of implementation

99

all, what is the reason for the CTF legislation? Is it to meet the needs of the state, to follow the UNSC resolutions, or to comply with the FATF recommendations? These questions will be answered by focusing on the legal and practical measures of compliance in different case studies. The answers will indicate whether each state’s CTF legislation is following the FATF recommendations and whether the multi-layered approach is achieving a high rate of compliance.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 04Chapter4

/Pg. Position: 20 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 1 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

5. Examining the level of compliance FRAMEWORK FOR EXAMINING COMPLIANCE The CTF regime’s objectives can be divided into two groups. The first group consists of measures that criminalise the actual acts related to the financing of terrorism. The second group comprises practical measures: terrorist financing offences and activities are investigated, financiers are prosecuted, and courts convict offenders in accordance with the severity of the offence. Ran Hirschl has identified five case-study principles for the selection of suitable cases: the ‘most similar cases’ principle, which considers countries that are, as much as possible, identical but for the factors of causal interest; the ‘most different cases’ principle, where the focus is on countries that are different for all criteria that are not central to the study, but similar for those that are; the ‘prototypical cases’ principle, where the focus is on countries that have as many key characteristics as possible that are found in a large number of countries; the ‘most difficult cases’ principle, whereby the countries selected are the most difficult for, or adverse to, the argument advanced by the scholar; and the ‘outlier cases’ principle, according to which the countries selected are those not well explained by existing accounts.1 The principal line of analysis chosen for examining compliance in this book was to compare different cases, which differ from each other under different criteria, with the same outcome—proceeding from what John Stuart Mill, in his work A System of Logic, termed the ‘method of agreement’.2 This method was chosen as it consists of establishing a single common factor among a variety of cases that can then be considered as the common root cause for a similarly observed phenomenon in all instances. This principle is, arguably, exceptional in international law research as a principle for selecting countries for 1 Ran Hirschl, Comparative Matters: The Renaissance of Comparative Constitutional Law (Oxford University Press, 2014) 245–67. 2 John Stuart Mill, A System of Logic: Ratiocinative and Inductive (1843), from Hirschl, above n 1, 246.

100

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 1 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 2 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

101

comparison. However, it seems appropriate to adopt as the central concern of this book: state compliance with non-binding norms. While it is true that the comparison in this book focuses on the laws that states create to govern their relations with each other, the book also undertakes a high-level analysis of the domestic laws of foreign states.3 Further, the complex matrix for comparison developed in this book began with the ‘most similar cases’ principle, but expanded to include multiple cases while at the same time remaining consistent with the logic of that principle. In so doing, the matrix provides a unique process of controlled comparison that can enrich the principles available for case selection when considering research with similar characteristics. For each state, compliance was assessed by exploring the similarity between the implementation and what the regime requested (legal measures), and the evidence of implementation ‘on the ground’, such as investigations, prosecutions, convictions, and freezing of funds (practical measures). One of the elements that render the CTF regime unique is that it applies to all states, irrespective of whether they are members of the regime’s organisations. These states follow the CTF regime and are subject to its sanctions. To illustrate this point, for the first selection criterion, the examination considered whether membership of the organisations that dictated the norms affects the application of its decisions. States were chosen that differ from each other in relation to their membership of the regime: the United Kingdom is a permanent member of the UNSC and a member of the FATF, while Australia is not a permanent member of the UNSC but is a member of the FATF. As it is impossible to find a permanent UNSC member that is not also a member of the FATF, Israel was examined as a non-member of both the UNSC and the FATF.4 The first selection criterion indicates that all selected states comply with the CTF regime, and that the relationship between compliance with the CTF regime and membership in those organisations that dictate the regime, if one exists at all, is purely coincidental. Having illustrated this, it was considered possible that states comply with the CTF regime for other reasons. Therefore, another criterion was added: that the state is a financial centre, as it is possible that states 3 Eric Posner and Cass R. Sunstein, ‘The Law of Other States’ (2006) 59 Stanford Law Review 131, 165. 4 It should be noted that Israel joined as a member on December 2018. Israel’s commitment to meeting the requirements for full membership of the FATF—including undergoing a successful MER, which it has now done—will be discussed in the case study on Israel.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 2 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 3 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

102

Global counter-terrorist financing and soft law

comply with the CTF regime to ensure that their developed financial systems are protected from those terror organisations that would try to abuse them. Financial centres are geographical locations with an agglomeration of banks (including headquarters, branches and subsidiaries) and other financial intermediaries. Their general functions are to balance savings and investments over time; transfer money from savers to investors; and act as a medium-of-exchange and as an interspatial store-of-value. For a centre to be considered an international financial centre, it must have a concentration of all of the following five banking activities: financing foreign trade; currency exchange; transferring funds across political boundaries; foreign borrowing and lending; and foreign investment.5 Malaysia (a financial centre) and Thailand (not a financial centre) were added as another two states to be examined in depth. To ensure that there were no other reasons for compliance, another category was explored, and a third selection criterion added: a terrorist presence that the state is trying to eliminate and that may logically encourage the state to implement the CTF regime. Terrorist presence can be measured by looking at four factors: the total number of terrorist incidents; the total number of fatalities caused by terrorism; the total number of injuries caused by terrorism; and the approximate level of total property damage from terrorist incidents.6 India (with terrorist presence) was then selected for in-depth examination.

5 Youssef Cassis and Eric Bussière (eds), London and Paris as International Financial Centres in the Twentieth Century (Oxford University Press, 2005) 1; Dominic Barton, ‘International Financial Centres: The Terms of Competition and Prospects for the Asia-Pacific Region’ in Soogil Young, Dosoung Choi, Jesús Seade and Sayuri Shirai (eds), Competition among Financial Centres in Asia-Pacific: Prospects, Benefits, Risks and Policy Challenges (Institute of Southeast Asian Studies, 2009) 66; Geoffrey G. Jones, ‘International Financial Centres in Asia, the Middle East and Australia: A Historical Perspective’ in Youssef Cassis (ed.), Finance and Financiers in European History, 1880–1960 (Cambridge University Press, 1992) 405. 6 These factors are used by the Global Terrorism Index, a report published annually by the Institute for Economics and Peace. The index provides a comprehensive summary of the factors, based on data from the Global Terrorism Database. It produces a composite score to rank countries according to the impact of terrorism. See Institute for Economics and Peace, Global Terrorism Index 2018, available at http://visionofhumanity.org/app/uploads/2018/12/GlobalTerrorism-Index-2018-1.pdf [accessed 25 April 2019].

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 3 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 4 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

103

Table 5.1 distinguishes between all available options, with no country fully resembling another in its relationship to the criteria.7 Identifying the criteria that explain compliance—‘Regime enforces its decisions’— eliminates the possibility that factors other than the permanent criterion being tested explain the outcome. When all cases are considered together, it becomes apparent that the only similarity lies in the regime’s enforcement of its decisions and recommendations. Table 5.1 Full matrix of comparison

UNSC permanent member FATF member Terrorist presence Financial centre Regime enforces its decisions

UK

Australia

India

Israel

Malaysia

Thailand

U

✘

✘

✘

✘

✘

U

U

U

✘

✘

✘

U

✘

U

U

✘

U

U

U

U

U

U

✘

U

U

U

U

U

U

For each case study, after an introduction that explains why the chosen state is relevant to an investigation under each of the criteria detailed above, the factual matching of the state’s behaviour and the FATF recommendations dealing with CTF is assessed with regard to (in the following order): (a) international instrument; (b) terrorist financing offences; (c) target financial sanctions related to terrorism and terrorism financing; (d) suspicious transaction reports; (e) international cooperation; (f) money or value transfer services; (g) wire transfers; (h) non-profit organisations; and (i) cash couriers. Together, these criteria were previously known as the Nine Special Recommendations. 7 Ideally, there would have been 16 states as case studies. However, due to the existence of impossible combinations (every permanent member of the SC is a member of the FATF; every permanent member of the SC is a financial centre; every member of the FATF is a financial centre; and every permanent member to the SC has a terrorist presence), as well as weak countries in the developing world that do not comply with any of the criteria suggested for different objective reasons (rather than deciding not to comply)—such as severe lack of resources and a skilled workforce, or overall weakness in legal institutions— there is a total of six states (the full matrix, which includes the impossible combinations, is included as Appendix A).

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 4 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 5 SESS: 5 OUTPUT: Fri Apr 3 14:57:55 2020

104

Global counter-terrorist financing and soft law

For each of these recommendations, an explanation is given for the legal regime that existed in the state before the FATF recommendation, the rating that the state received in the FATF’s MER, and how the state responded to the FATF report and changed its domestic legislation accordingly (and, when available, how these changes were reflected in the ratings that the FATF gave in the following MER). Each case study ends with a summary, in a table format, indicating how the relevant state’s compliance with the recommendations changed—mostly improved—over time (and between two FATF MERs). With all states implementing the FATF recommendations and complying with them (to a certain degree)—regardless of whether they are a member of the organisations that dictate the norms, or whether they have an incentive to comply with the FATF recommendations (that is, they are a terrorist centre or a financial centre)—it becomes clear that the FATF non-binding norms are highly influential and represent the international standard in CTF, in a legal field that was previously regulated by the traditional approach of binding norms.

THE UNITED KINGDOM The United Kingdom (‘UK’) has substantial experience in responding to terrorist threats and pursuing the support networks that make terrorist acts possible. For many years, terrorism in Northern Ireland constituted a significant threat to security in the UK. Terrorism in Northern Ireland has in fact resulted in more deaths than the attacks on 11 September 2001—albeit over a much longer period. It has been estimated that more than 3,300 people will have been killed and 40,000 injured in terrorist attacks in the UK by 2019.8 The compliance with the international standard in the UK should therefore be unsurprising—particularly given that the UK is a permanent member of the UNSC and a member of the FATF, and is a financial 8 Ashley Kirk, ‘How Many People Are Killed by Terrorist Attacks in the UK?’, The Telegraph (5 October 2017); FATF, Third Mutual Evaluation Report: Anti Money Laundering and Combating the Financing of Terrorism—The United Kingdom of Great Britain and Northern Ireland (June 2007) 45 (‘MER 2007 (UK)’); Kent Roach, The 9/11 Effect: Comparative Counter-Terrorism (Cambridge University Press, 2011) 244; Clive Walker, Blackstone’s Guide to the Anti-Terrorism Legislation (Oxford University Press, 2009) 276; Laura K. Donohue, Counter-Terrorist Law and Emergency Powers in the United Kingdom, 1922–2000 (Irish Academic Press, 2001).

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 5 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 6 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

105

centre with terrorist presence. The UK has adopted a proactive approach to pursuing not only predicate offences, but also the proceeds of crime and the financial aspects of terrorism cases. The National Terrorist Finance Investigation Unit is the law enforcement agency responsible for investigating terrorist financing in the UK, supplying experienced specialist investigators to the terrorist finance team of the National Criminal Intelligence Service.9 As a matter of policy, every investigation into terrorism involves a financial investigation. Before 11 September 2001 and the international standard, the UK had a wide range of legislative measures in place to counteract terrorist activity. The centrepiece of this legislative framework was the Terrorism Act 2000, which was designed to provide a permanent and nonemergency foundation for terrorism-related law.10 The UK Parliament nevertheless enacted the Anti-Terrorism, Crime, and Security Act 2001, in time to report to the Counter-Terrorism Committee at the end of 2001, taking the 90-day period for reporting back to the Counter-Terrorism Committee11 as a deadline for enacting new CTF laws. This Act was introduced into Parliament in November 2001 and became law less than a month later.12 From the data collected in Chapter 4, it is evident that the UK technically implemented all of the international standards. However, as will be demonstrated, despite this implementation and despite having modern legislation with regard to CTF, the UK needed to enact additional legislation in order to comply with the international standard.

Under the Serious Organised Crime and Police Act 2005, the Serious Organised Crime Agency came into being on 1 April 2006. This brought together the National Criminal Intelligence Service, the National Crime Squad, elements of Her Majesty’s Revenue & Customs, and the Immigration Service. See National Criminal Intelligence Service, Annual Report and Accounts 2005–2006 (2006) 25. 10 Roach, above n 8, 244; Walker, above n 8, 242. 11 SC Res 1373 (2001), para 6: The UNSC “calls upon all States to report to the Committee, no later than 90 days from the date of adoption of this resolution and thereafter according to a timetable to be proposed by the Committee, on the steps they have taken to implement this resolution”. 12 For a critical assessment of the procedure for the acceptance of the law, see Daniel Moeckli, Human Rights and Non-discrimination in the ‘War on Terror’ (Oxford University Press, 2008). For critics on the law itself, see Adam Tomkins, ‘Legislating against Terror: The Anti-Terrorism, Crime and Security Act 2001’ (Summer 2002) Public Law 205. 9

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 6 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 7 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

106

Global counter-terrorist financing and soft law

(a) International Instrument The UK signed the Terrorist Financing Convention on 10 January 2000 and ratified it on 7 March 2001.13 In addition, the UK implemented SC Res 1267 (1999) and SC Res 1373 (2001), in accordance with this international standard.14 (b) Terrorist Financing Offences Part III of the Terrorism Act15 outlines four primary CTF offences, consistent with the requirements of the FATF16 and the UNSC:17 (1)

Fund raising—when a person (including a corporate entity)18 invites another to provide money or other property and intends or has reasonable cause to suspect that it may be used for terrorism,19 or receives money or other property and intends or has reasonable cause to suspect that it may be used for terrorism,20 or provides money or other property and knows or has reasonable cause to suspect that it may be used for terrorism;21

Compared to its rapid signing of the Terrorist Financing Convention, the UK delayed its ratification of the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and on the Financing of Terrorism, 16 May 2005, entered into force 1 May 2008, CETS No: 198 (‘Warsaw Convention’). The Warsaw Convention was opened for signature on 16 May 2005 and the UK did not sign it until the end of April 2015. As the European Union Committee of the House of Lords states: “The failure to sign and ratify the Warsaw Convention sends out a negative message about current UK commitment to the prevention and control of money laundering and the financing of terrorism.” See House of Lords, European Union Committee, Money Laundering and the Financing of Terrorism—Volume II: Evidence (19th Report of Session 2008–09), 51. 14 FATF Recommendation 36 and SC Res 1373 (2001), para 3(d). 15 Terrorism Act 2000, s 15. This act was later amended by the AntiTerrorism, Crime and Security Act 2001 (which received royal assent on 14 December 2001) and the Terrorism Act 2006 (which received royal assent on 30 March 2006). 16 Recommendation 5. 17 SC Res 1373 (2001), para 1(b). 18 See the Interpretation Act 1978, s 1. 19 Terrorism Act 2000, s 15(1). 20 Ibid s 15(2). See also R v Golamaully (2016); R v Shajira (2015); R v Khan (2015). 21 Terrorism Act 2000, s 15(3). 13

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 7 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 8 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

(2)

107

Use and possession—when a person (including a corporate entity) possesses money or other property and intends or has reasonable cause to suspect that it may be used for terrorism;22 Funding arrangement—where a person (including a corporate entity) enters into an arrangement which results in money or other property being made available and the person knows or has reasonable cause to suspect that it will or may be used for terrorist purposes;23 and Money laundering of terrorist assets that facilitates the retention or control of terrorist property.24

(3)

(4)

The broad definition of terrorism25 in the Terrorism Act “closely matches”26 the definition in the Terrorist Financing Convention.27 The sanctions on terrorist financing offences stipulated in the Terrorism Act reflect the severity of the offence, with a maximum penalty of 14 years’ imprisonment or a fine of an unlimited amount, or both. Upon conviction for offences under sections 15–18, the court may confiscate the money and property involved.28 Other criminal legislation, to be further discussed below, includes the Terrorism (United Nations Measures) Order, adopted on 10 October 2001, which provides that a criminal offence has occurred where a person makes funds, economic resources, or financial services available to an individual listed under the Order,29 and The Al-Qa’ida and Taliban (United Nations Measures) Order 2002,30 which establishes the same offence for a different designated list.31 Comprehensive data on CTF Ibid s 16. Ibid s 17. 24 Ibid s 18. 25 Ibid s 1. 26 MER 2007 (UK), above n 8, 41. 27 Terrorist Financing Convention, art 2(1)(b). The definition of terrorism was updated later by the Counter-Terrorism Act 2008 to include the commission of acts of terrorism for racial, religious and political motives. 28 Terrorism Act 2000, ss 22, 23. 29 The Terrorism (United Nations Measures) Order 2001 (SI 2001/3365), art 8; amended in 2006 (SI 2006/2657) and in 2009. 30 The Al-Qa’ida and Taliban (United Nations Measures) Order 2002 (SI 2002/111), art 8; amended in 2006 (SI 2006/2952). 31 On 27 January 2010, the UK Supreme Court decided in the case HM Treasury v Ahmed [2010] UKSC 2; [2010] 2 AC 534 (at [45]–[46], [61]) that the 2006 Order was ultra vires the United Nations Act 1946. On 4 February 2010, the Supreme Court made an order quashing the 2006 Order, even though it was 22 23

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 8 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 9 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

108

Global counter-terrorist financing and soft law

criminal proceedings between 2001 and 2007 is not publicly available for reasons explained in the Intelligence and Security Committee’s review of the London terrorist attacks in 2005, when the committee requested from the Home Office and the Crown Prosecution Service details of those convicted of terrorism offences. The committee was told “that the figures do not exist in this form. All that could be provided were … detailed convictions data starting from 2007”.32 However, it can be gleaned from reports of an independent review of the Terrorism Act for these years,33 and the MER,34 that the UK is not just legislating against, but is also actively prosecuting offences of, terrorist financing. Between 11 September 2001 and the end of 2007, 74 CTF charges were laid in the UK—46 of which were under section 15, 11 under section 16, 13 under section 17, and seven under section 18 of the Terrorism Act. About half of the cases resulted in convictions, while the other half resulted in discontinuation,35 extradition or verdicts of not guilty. Since early 2007, the Counter-Terrorism Division of the Crown Prosecution Service has successfully prosecuted a range of terrorist financing offences. In 2007, it prosecuted three defendants who pleaded guilty to offences contrary to section 17 of the Terrorism Act. In 2008, it successfully prosecuted four defendants, while in 2009, one conviction was achieved for the supply of goods to terrorist organisations. There were no convictions in 2010, while 2011 saw one conviction for fundraising and transferring these funds for terrorist purposes. There

required by Chapter VII obligations. The Supreme Court did not rule upon the lawfulness of the 2001 Order or the 2009 Order, but both Orders were liable to be quashed on the same grounds as the 2006 Order. This case changed the method by which the UK complied with SC Res 1373 (2001) and forced the government to legislate an Act rather than Statutory Orders. See the Terrorist Asset-Freezing (Temporary Provisions) Act 2010; Roach, above n 8, 262–3. 32 Intelligence and Security Committee, ‘Could 7/7 Have Been Prevented?’ Review of the Intelligence on the London Terrorist Attacks on 7 July 2005, Presented to Parliament by the Prime Minister by Command of Her Majesty (May 2009). 33 Lord Carlile of Berriew, Reports on the Operation of the Terrorism Act 2000, 2001–2007 (2007). 34 MER 2007 (UK), above n 8, 45. 35 When a conviction for a more serious offence and no verdict was returned in respect of the terrorist financing charges.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 9 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 10 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

109

were three CTF convictions in 2012, 11 in 2013, one in 2014, 39 in 2015, 47 in 2016, and 22 in 2017.36 (c) Target Financial Sanctions Related to Terrorism and Terrorism Financing In addition to the European Union (‘EU’) instruments, which are regulated in accordance with the UNSC resolutions37 and automatically enforced in the UK, the UK incorporates its provisions into two primary domestic provisions that give effect to the international standard set by the regime.38 These can be summarised as follows: + Provisions freezing funds used for terrorist financing, enforcing SC Res 1373 (2001), came into force on 10 October 2001 and are contained in the Terrorism (United Nations Measures) Order.39 This Order empowers the Treasury to direct banks and financial institutes to freeze the accounts of individuals and entities suspected of involvement in terrorism. + The Al-Qa’ida and Taliban (United Nations Measures) Order40 implements SC Res 1267 (1999) and came into force on 25 January 2002. Both pieces of legislation prescribe financial restrictions in the UK against persons who have been designated under the relevant UNSC resolutions, and prescribe financial restrictions in the EU under European Community (‘EC’) Regulations. They also assign to the UK the power to impose financial restrictions where the UK has reasonable grounds to suspect that a person or entity is or may be designated under the relevant UNSC resolutions; is or may be acting on behalf of, or at the direction 36 See House of Lords, European Union Committee, above n 13, 101. See also FATF, Anti-Money Laundering and Counter-Terrorist Financing Measures— United Kingdom (‘MER 2018 (UK)’) 89. 37 Council Regulation (EC) No. 881/2002 of 27 May 2002, para 2-4. 38 FATF Recommendation 6, SC Res 1267 (1999), para 4(b); SC Res 1373 (2001), para 4(c). 39 Terrorism (United Nations Measures) Order 2001 (SI 2001/3365). Replaced by the Terrorism (United Nations Measures) Order 2006 (SI 2006/ 2657). Replaced by the Terrorist Asset-Freezing (Temporary Provisions) Act 2010. 40 Al-Qa’ida and Taliban (United Nations Measures) Order 2002 (SI 2002/ 111). Replaced by the Al-Qa’ida and Taliban (United Nations Measures) Order 2006 (SI 2006/2952).

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 10 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 11 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

110

Global counter-terrorist financing and soft law

of, a designated person; or is or may be directly or indirectly owned or controlled by a designated person. The UK’s response to SC Res 1373 (2001) was fast. Lists were issued on 12 October, 2 November, and 7 November 2001, identifying 48 individuals and 77 organisations whose accounts would be frozen.41 In addition, the UK’s CTF policies allow for the seizure and forfeiture of terrorist-related cash, and the freezing of terrorists’ financial assets, in accordance with the Anti-Terrorism, Crime and Security Act, which authorises the seizure and ultimate forfeiture of cash anywhere in the UK if reasonable suspicion exists that the cash was to be used for terrorist purposes, or formed part of the resources of a proscribed organisation.42 The Anti-Terrorism, Crime and Security Act accelerated a shift away from the criminal law model by allowing terrorist cash and property to be forfeited in civil proceedings on the balance of probabilities.43 Proscription under the Terrorism Act remained an executive-dominated process; however, one could appeal to the Proscribed Organisation Appeal Commission. Nevertheless, very few challenges to proscription have been mounted.44 As of 2 October 2017, 71 international terrorist organisations had been proscribed under the Terrorism Act, and 14 organisations in Northern Ireland had been proscribed under previous legislation.45 From the adoption of SC Res 1373 (2001) in 28 September 41 The first report that the UK submitted to the UNSC committee pursuant to para 6 of SC Res 1373 (2001). See S/2001/1232 (24 December 2001). As of 12 June 2017, 18 individuals and 22 organisations are in the consolidated list of financial sanctions targets: available at www.gov.uk/government/uploads/system/ uploads/attachment_data/file/618578/Terrorism_and_Terrorist.pdf [accessed 5 July 2017]. 42 Anti-Terrorism, Crime and Security Act 2001, s 1. 43 Ibid. See also Laura K. Donohue, The Cost of Counterterrorism: Power, Politics, and Liberty (Cambridge University Press, 2008) 145; Roach, above n 8, 265. This approach was consistent with the European Court of Human Rights, which held that forfeiture intended as a preventative measure did not constitute a penalty: see Welch v United Kingdom (1995) 20 EHRR 247. 44 Secretary of State for the Home Department v Lord Alton of Liverpool and Others [2008] EWCA Civ 443. The Mujahedin-e-Khalq (People’s Mujahadin Organization of Iran) had been proscribed under the Terrorism Act 2000. It appealed against the proscription. The court found that the organisation had in the past used terrorist methods, but had repeatedly renounced the use of violence and therefore the proscription could not be upheld. 45 United Kingdom Home Office, Proscribed Terrorist Groups or Organisations (Policy Paper, 12 July 2013, last updated 2 October 2017), available at www.gov.uk/government/publications/proscribed-terror-groups-or-organisations–2 [accessed 30 October 2017].

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 11 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 12 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

111

2001 until 19 December 2001, when the first state report was published, seven accounts had been frozen, containing a total of £7.2 million. A few months later, the UK froze £78 million belonging to the former Taliban government of Afghanistan (although the frozen funds were returned in 2002, when the relevant names were removed from the target list by the UN Sanctions Committee).46 Since 2001, a total of £440,000 in cash has been seized in 28 seizures under the Anti-Terrorism, Crime and Security Act; £650,000 in terrorist-related funds has been seized under the Proceeds of Crime Act 2002;47 and approximately £500,000 in terrorist assets has been frozen in the UK under the 2006 Order or earlier orders.48 In addition, the Counter-Terrorism Act 2008 has empowered Her Majesty’s Treasury to freeze the assets of, or prohibit the financial and material support of, specific persons, entities or countries when the FATF defines them as NCCTs.49 In so doing, in its MER 2007, the UK complies fully with the FATF’s requirement to impose counter-measures upon jurisdictions of concern.50 New legislative provisions were introduced under the Terrorist AssetFreezing Act 2010 in relation to SC Res 1373 listings which replaced the Terrorism (United Nations Measures) Order 2006 previously assessed. The main technical aspect of the recommendation was found to be in place (i.e. enables freezing without delay), however the FATF found a few deficiencies, and rated the compliance with Recommendation 6 to be largely compliant.51 (d) Suspicious Transaction Reports In order to fulfil this requirement, countries must establish an independent and autonomous FIU52 that serves as a national centre for receiving and, where permitted, requesting, analysis and dissemination of STRs

MER 2007 (UK), above n 8, 74. Proceeds of Crime Act 2002 (as amended by the Serious Organised Crime and Police Act 2005). 48 MER 2007 (UK), above n 8, 73. 49 Counter-Terrorism Act 2008, s 62. 50 FATF Recommendation 19. 51 MER 2018 (UK), above n 36, 185. 52 Louis de Koker, ‘Applying Anti-Money Laundering Laws to Fight Corruption’ in Adam Graycar and Russell G. Smith (eds), Handbook of Global Research and Practice in Corruption (Edward Elgar, 2011) 340, 351. 46 47

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 12 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 13 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

112

Global counter-terrorist financing and soft law

and other information regarding potential terrorist financing.53 The designated FIU in the UK is the Serious Organised Crime Agency (‘SOCA’), which is sufficiently operationally independent. Only UK FIU staff receive and analyse STRs. The head of the FIU determines when to disseminate financial intelligence and signs MOUs with foreign FIUs. While the funding for the FIU is within SOCA’s budget and controlled by Her Majesty’s Treasury, the FIU can make specific requests. This transparency and operational independence appear to ensure that UK FIU public aims are not undermined by undue influence or interference.54 Figures indicate that SOCA is cooperating proactively and making spontaneous disclosures to other FIUs. In accordance with the FATF standard,55 the legislation is based on STRs and is not constrained by a transaction amount or de minimis limit.56 Under section 21A of the Terrorism Act, which was updated less than a month after the FATF published its recommendations, it is an offence for someone working in the regulated sector who knows or suspects, or has reasonable grounds for knowing or suspecting, that another person has committed an offence under sections 15–18 of the same Act (for example, terrorist financing offences) not to disclose this, either to their institution’s nominated officer or to a constable.57 The legal obligation imposed upon the regulated sector by the UK to submit STRs in relation to terrorist financing was designed to fully implement the international standard.58 As stated in the 2014 Suspicious Activity Report, “[t]he UK remains

FATF Recommendation 29. MER 2007 (UK), above n 8, 84. 55 “All suspicious transactions, including attempted transactions, should be reported regardless of the amount of the transaction”: interpretive note to Recommendation 20 to the FATF recommendations (February 2012). 56 National Crime Agency, Suspicious Activity Reports (SARs) Annual Report 2014 (2015). See also House of Lords, European Union Committee, above n 13, para 55. 57 Terrorism Act, s 21A (amended on 20 December 2001). See also s 19 of the Terrorism Act for positive legal duties to report beliefs or suspicions in relation to the terrorist financing offences that come to a person’s attention in the course of employment. Andrew Haynes, ‘Money Laundering: From Failure to Absurdity’ (2008) 11(4) Journal of Money Laundering Control 303, 308; Roach, above n 8, 259. 58 FATF Recommendation 20. 53 54

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 13 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 14 SESS: 5 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

113

committed to maintaining the UKFIU as a dedicated appropriately resourced entity, as required by the Financial Action Task Force (FATF)”.59 The approach adopted by the UK is an ‘all crimes’ approach: no matter how trivial the criminal activity, if there is any suspicion that it might involve property that may be laundered, there is an obligation to report it. As the Deputy Chief Executive of the British Bankers’ Association concurred, “You smell a rat and you report it”. Figures indicate that the British Bankers’ Association smelled a great many rats. In 2002, 4,775 STRs were made to the UK FIU; in 2003, 2,783 reports were made. The year 2004 saw 2,248 reports and 2005 saw 2,091 reports.60 By 2007–08, 838 STRs, specifically pertaining to terrorist financing, had been submitted to SOCA, followed by 318 in 2013, 756 in 2014 and 1,082 in 2015.61 (e) International Cooperation The UK is active in promoting international cooperation on terrorism bilaterally, and in multinational fora (the EU, UN and G8),62 which is consistent with the international standard.63 The UK has systems in place for adequate administrative cooperation equally for the FIU, law enforcement, and financial supervisors, as follows. The FIU has broad capabilities to cooperate with foreign FIUs. Exchanges of information are allowed spontaneously and upon request. The FIU is authorised to conduct enquiries on behalf of its foreign counterparts, including searches of its STR database and other databases to which it has access. According to the FATF, there are generally clear and effective gateways for the UK’s FIU to exchange information with foreign FIUs.64 UK legislation permits the exchange of information on a reciprocal basis; bilateral or multilateral agreements or arrangements such as memoranda of understanding; and exchanges through appropriate

59 National Crime Agency, Suspicious Activity Reports (SARs) Annual Report 2014 (2015) 3, 39. 60 MER 2007 (UK), above n 8, 144–8. 61 House of Lords, European Union Committee, above n 13, para 100. See also MER 2018 (UK), above n 36, 51. 62 The first report the UK submitted to the UNSC committee pursuant to para 6 of SC Res 1373 (2001). See S/2001/1232 (24 December 2001) 9. 63 FATF Recommendation 37; SC Res 1373 (2001), para 3(b). 64 MER 2007 (UK), above n 8, 275.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 14 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 15 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

114

Global counter-terrorist financing and soft law

international or regional organisations or bodies, such as Interpol or the Egmont Group of FIUs.65 Law enforcement officials can cooperate with their foreign counterparts. Cooperation is not subject to unduly restrictive conditions, and a request to UK authorities for cooperation cannot be refused on the grounds of laws imposing secrecy or confidentiality requirements on financial institutions or designated non-financial businesses and professions.66 The Financial Services Authority can provide a wide range of assistance to international counterparts; it is able to share information with foreign counterparts proactively, and on request. The exchange of information by the Financial Services Authority is also not subject to disproportionate or unduly restrictive conditions; it will not refuse cooperation with foreign counterparts on the grounds that the request involves fiscal matters. According to the Financial Services and Markets Act 2000, the Financial Services Authority must take such steps as it considers appropriate to cooperate with other institutions, whether in the UK or elsewhere, that have similar functions to the Financial Services Authority, or operate to prevent and detect financial crime.67 (f) Money or Value Transfer Services Money or value transfer services fall within the description of ‘money service businesses’ in the Money Laundering Regulations 2007.68 Therefore, money or value transfer service operators fall within the same category as more traditional operators, such as Western Union, but also within the same category as alternative remittance providers, including Hawala. All types of money service businesses are required to register with the UK’s tax and customs authority, and HM Revenue & Customs monitors compliance with CTF controls. This HM Revenue & Customs compliance monitoring was introduced in 2002,69 after the FATF recommendation was issued in October 2001.70 Ibid. Serious Organised Crime and Police Act 2005, ss 34 and 35. 67 Ibid s 354. 68 Money Laundering Regulations 2007, reg 2(1): ‘money service business’ means an undertaking which by way of business operates a currency exchange office, transmits money (or any representations of monetary value) by any means or cashes cheques which are made payable to customers. 69 Money Laundering Regulations 2001 (the CTF regulation come into force on 15 July 2002). 70 FATF Recommendation 14. 65 66

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 15 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 16 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

115

According to the Money Laundering Regulations, money service businesses must be registered and must maintain a current list of their agents, and make this list available to HM Revenue & Customs.71 The Regulations updated the previous provisions, which implemented, in part, the European Parliament Directive on the prevention of the use of financial systems for the purposes of money laundering and terrorist financing.72 HM Revenue & Customs has certain sanction authority in relation to money service businesses, and may issue warning letters73 and impose financial sanctions of up to £5,000.74 Money or value transfer services providers are also required to establish and maintain CTF programmes and to ensure that they are being complied with throughout the organisation, including its subsidiaries and branches.75 The UK complies with all criteria under this recommendation.76 (g) Wire Transfers As a member of the EU, the UK is bound by the European Commission Regulation on payer information, which accompanies transfers (‘Wire Transfer Regulation’).77 As a European Commission Regulation, this Money Laundering Regulations 2007, reg 26(1). See also Money Laundering Regulations 2003, reg 10(2)(b)(v). 72 Money Laundering Regulations 2003 (SI 2003/3075); Directive 2007/ 64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market amending Directives 97/7/EC, 2002/65/ EC, 2005/60/EC and 2006/48/EC and repealing Directive 97/5/EC(OJ L 319 of 5 December 2007. The Directive points out that the EC action should continue to take particular account of the FATF recommendations and since the recommendations were substantially revised and expanded in 2003, this Directive should be in line with that new international standard. See Directive 2007/64/EC, para 15. Directive 2005/60/EC, preface (5). 73 Money Laundering Regulations 2007, reg 20(3). 74 Ibid reg 20(1). 75 Ibid regs 19–20. 76 MER 2018 (UK), above n 36, 200. 77 Regulation (EC) No. 1781/2006 of the European Parliament and of the Council of 15 November 2006 on information on the payer accompanying transfers (in force since 1 January 2007). On 29 March 2017, the UK gave notice to the European Council under art 50 of the Treaty on European Union of the UK’s intention to leave the EU: Treaty of European Union, 7 February 1992, entered into force 1 November 1993, OJ C 191 (1992). For whether, as a matter of UK constitutional law, the Crown—acting through the executive government of the day—is entitled to use its prerogative powers to give notice under art 50 for the United Kingdom to cease to be a member of the European Union, see 71

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 16 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 17 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

116

Global counter-terrorist financing and soft law

instrument is applicable in the UK and further implementation is limited mostly to the establishment of rules on penalties applicable to infringements of the provisions of the Regulation.78 When assessing the influence of the regime—in this case, represented only by the FATF79—on this Regulation, the Wire Transfer Regulation is found to specifically point out that it is implementing the FATF recommendation: “Community action should ensure that Special Recommendation VII on wire transfers (SR VII) of the Financial Action Task Force (FATF) … is transposed uniformly throughout the European Union.”80 The Regulation also specifically addresses the need to ensure that the legislative framework created by the Community for the purpose of CTF and improving judicial cooperation is adapted to the FATF CTF recommendations.81 The Wire Transfer Regulation meets the technical requirements set out in the international standard, which means that it obtains and verifies originator information; maintains full originator information for crossborder transfers; accompanies domestic wire transfers with more limited originator information, and makes full originator information available within three days; adopts specific procedures for identifying and handling wire transfers not accompanied by full originator information; and monitors compliance and sanctions. However, the EU Regulation classifies wire transfers within the EU as domestic: “where both the payment service provider of the payer and the payment service provider of the payee are situated in the Community, transfers of funds shall be required to be accompanied only by the account number of the payer or a unique identifier allowing the transaction to be traced back to the payer”.82 R (on the Application of Miller) v Secretary of State for Exiting the European Union (Rev 1) [2016] EWHC 2768 (Admin) (3 November 2016). For the impact on existing EU Directives, EU Regulations and legal issues that will frame Brexit, see Catherine Barnard, ‘Law and Brexit’ (1 March 2017) 33(1) Oxford Review of Economic Policy 4. See also Department for Exiting the European Union, The United Kingdom’s Exit from, and New Partnership with, the European Union (Policy Paper, 15 May 2017), available at https://www.gov. uk/government/publications/the-united-kingdoms-exit-from-and-new-partnershipwith-the-european-union-white-paper/the-united-kingdoms-exit-from-and-newpartnership-with-the-european-union–2 [accessed 21 August 2017]. 78 Regulation (EC) No. 1781/2006, art 15. 79 FATF Recommendation 16. 80 Regulation (EC) No. 1781/2006, Preamble, recital 2. 81 Ibid Preamble, recitals 3 and 5. 82 Ibid art 6(1).

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 17 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 18 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

117

In contrast, the FATF defines domestic transfers as “any wire transfers where the originator and beneficiary institutions are located in the same jurisdiction. This term therefore refers to any chain of wire transfers that takes place entirely within the borders of a single jurisdiction, even though the system used to effect the wire transfer may be located in another jurisdiction”.83 The derogation set out in the EU Regulation fails to comply with the FATF requirement applicable to domestic wire transfers in that article 6.1 of the EU Regulation does not meet the objectives of the international standard (represented here only by the FATF recommendation). The sanctions regime came into effect on the date set by the Regulation, in December 2007.84 On 26 June 2015, the Fourth European Union Anti-Money Laundering Directive came into force.85 Member states, the UK among them, had until 26 June 2017 to implement the Directive into national law.86 The UK Treasury launched a consultation on 15 September 2016 entitled ‘Transposition of the Fourth Money Laundering Directive’, which closed on 10 November 2016. The final regulations were laid before the UK Parliament on 22 June 2017 and came into force on 26 June 2017.87 (h) Non-Profit Organisations Charity laws in England, Wales and Scotland impose a registration obligation on organisations that meet the definition of being charitable.88 Regulation and supervision of the charity sector is undertaken in England and Wales by the Charity Commission of England and Wales and in Scotland by the Office of the Scottish Charities Regulator (’OSCR’).89 Charities in England and Wales are required to formulate accurate 83 FATF, FATF Special Recommendation VII: Wire transfers, text of the Special Recommendation and Interpretative Note 2. 84 Regulation (EC) No. 1781/2006, art 17. 85 Directive (EU) 2015/849 of the European Parliament and of the Council. 86 The Directive replaces the Third Anti-Money Laundering Directive (2005/ 60/EC), which was implemented in the UK by way of the Money Laundering Regulations 2007 (SI 2007/2157), which came into force on 15 December 2007. 87 Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. 88 Charities Act 1993 (UK), s 3; Charities and Trustee Investment (Scotland) Act 2005, s 3; Charities Act (Northern Ireland) 2008, s 16(1). 89 The UK is a political union made up of four constituent countries: England and Wales (which for legal purposes counts as a single jurisdiction) and Northern Ireland, which are common law jurisdictions, and Scotland, which

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 18 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 19 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

118

Global counter-terrorist financing and soft law

accounts, with disclosure levels appropriate to their level of income and expenditure, and to keep these accounting records for a period of six years. They are also required by statute to submit financial information to the Charity Commission on an annual basis. Charities in Scotland are also required to keep accounting records for a period of six years. These records are subject to audit or independent examination, depending on the charity’s income and other factors. In addition, the OSCR has wide powers, in accordance with its supervisory function, to obtain access to documents, including accounts of charities. In addition, from April 2006, all charities registered with the OSCR have been required to submit appropriate financial statements with their annual returns.90 Northern Ireland legislation received royal assent on 9 September 2008, after the FATF found in 2007 that, with respect to the international standard,91 “while England and Wales and Scotland have well-established systems for the regulation of charities with adequate provision for the registration, transparency, supervision and investigation of charities, the same does not currently apply to Northern Ireland”.92 A charity in England and Wales and in Scotland must have a governing document at the point of registration, which must set out the charity’s objectives and the identity of the persons, such as trustees or directors, who govern its activities. The regulatory requirements imposed on charities, including the statutory duty to prepare and submit annual returns, ensure that they maintain basic records—including changes to trustees or directors, as well as income and expenditure.93 Pertaining specifically to the investigation of terrorism, section 17 of the Anti-Terrorism, Crime and Security Act significantly extends existing gateways for information sharing between public authorities, including charity regulators, for the purpose of criminal investigations. The UK’s FIU has officers dedicated to the investigation of NPOs with alleged or suspected links to terrorist financing, and has developed a substantial level of expertise in this area. In Scotland, the OSCR has well-established links for sharing information with the Charity Commission and the Crown Office for Scotland.94 The Charity Commission has extensive legal powers that allow it to sanction wrongdoing or mismanagement in operates a hybrid system based on both common law and civil law principles. See MER 2007 (UK), above n 8, 4. 90 MER 2007 (UK), above n 8, 241–2. 91 FATF Recommendation 8. 92 MER 2007 (UK), above n 8, 244. 93 Charities Act 1993 (UK), ss 41–46. 94 Ibid; Charities and Trustee Investment (Scotland) Act 2005, s 24.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 19 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 20 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

119

charities, or in any institution purporting to be a charity, in the UK. These powers include the ability to freeze bank accounts, suspend and remove trustees, and remove charities from the register.95 The Charity Commission conducts about 400 targeted ‘review visits’ each year to monitor compliance with the Charities Act 1993.96 In Scotland, the OSCR has the power to investigate charities and other bodies, such as those controlled by a charity or charities, or any that represent themselves as charities while not on the Register, and this inquiry may be made either generally or for a particular purpose.97 The UK’s 2017 national risk assessment98 includes a chapter on NPOs that identifies NPOs as generally being low risk for TF. A Domestic Sector Review of the charity sector was completed in 2017 to identify the features and types of charities most at risk of TF abuse. The FATF, which sets the international standard with regard to CTF and NPOs, found that NPOs in the UK appear to be adequately resourced in order to carry out their functions, as well as to provide adequate support to the work of law enforcement authorities in relation to terrorism and terrorist financing investigations,99 in terms of their governing legislation. (i) Cash Couriers The UK introduced a written declaration system, the Cash Controls Regulation, under the EU Council Regulation,100 which means that any person entering or leaving the UK is required to answer any questions that an HM Revenue & Customs officer may put to them about anything carried by them, or about their luggage, and anything contained therein.101 In addition, a person must produce such items for examination if requested to do so, which applies to cash and bearer negotiable

95 96 97 98

Charities Act 1993 (UK), s 26. MER 2007 (UK), above n 8, 243. Charities and Trustee Investment (Scotland) Act 2005, ss 1, 28. National Risk Assessment of Money Laundering and Terrorist Financing

2017. Ibid 244. Regulation (EC) No. 1889/2005 (26 October 2005) (‘Cash Controls Regulation’). 101 Cross-border cash declarations are reported to HMRC and provided to the National Crime Agency once a month under an MOU between the agencies which has been in place since 22 January 2018. See MER 2018 (UK), above n 36, 227. 99

100

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 20 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 21 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

120

Global counter-terrorist financing and soft law

instruments.102 According to this Regulation, all persons entering or leaving the European Community must declare any cash that they are carrying if it amounts to €10,000 or more.103 The Cash Controls Regulation provides for the declaration to be made either orally, electronically or in writing.104 In the preface to the Cash Controls Regulation, there is a statement that the Community’s legislator should take into account the complementary activities carried out in other international fora—in particular those of the FATF,105 where it calls upon governments to take measures to detect physical cash movements, including a declaration system or other disclosure obligation.106 UK authorities are able to stop or restrain currency or bearer negotiable instruments, for a reasonable time period, where there exists a suspicion of terrorist financing, in order to ascertain whether evidence of money laundering or terrorist financing can be found. Schedule 1 of the Anti-Terrorism, Crime and Security Act provides for the seizure of any amounts of cash, however small, if there are reasonable grounds to suspect that the cash is linked to terrorism. The available sanctions involve allowing a customs officer to question a person travelling across UK borders about any items they are carrying, including cash and bearer negotiable instruments.107 Failure to answer these questions truthfully can result in criminal sanctions.108 Also, as required under the Cash Controls Regulation, HM Revenue & Customs has the option to impose penalties up to a maximum of £5,000 for failure to comply with the obligation to declare.109 The police may decide to conduct a criminal investigation under section 18 of the Terrorism Act, which can involve the arrest of any person associated with the cash—including the person found to be carrying it.

Customs and Excise Management Act 1979, s 78. Regulation (EC) No. 1889/2005, art 3. 104 The EU has developed a range of measures that aim at cutting off terrorists’ access to funding. The Third Anti-Money Laundering Directive expressly extends the scope of the anti-money laundering regime to terrorist financing. The Cash Controls Regulation requires the disclosure of cash or equivalent in excess of €10,000 when entering or leaving the EU. The Regulation on funds transfers implements the FATF recommendations. 105 FATF Recommendation 32. 106 Cash Controls Regulation, art 4. 107 Customs and Excise Management Act, s 78. 108 Ibid s 167. 109 Cash Controls Regulation, art 9. 102 103

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 21 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 22 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

121

The FATF’s influence in the UK is exemplified by a question posed by the European Union Committee of the House of Lords, about why a gap exists between the efforts invested by the UK to combat piracy, and the concerted action taken by the government to consider whether the funds of piracy actively finance terrorism. A representative of the government concluded that the best means of addressing the issue through the FATF is for the FATF to continue its work on promoting controls on money laundering and terrorist financing in low capacity countries, and that any further course of action explored by the UK government would be “some kind of FATF statement about the problem”.110 The Committee opinion was that the government needed to raise the issue with its EU partners and the FATF, with a view to establishing the extent of the link between the proceeds of piracy and terrorism, and warning members of the FATF about these risks. There is no doubt that the UK perceives the FATF to be the organisation that leads the fight against terrorist financing. (j) Summary It is evident that the UK complies with the FATF recommendations and has implemented a CTF system that is effective in many respects—it has introduced new laws and updated previous ones in accordance with the international standard dictated by the FATF.111 It made a rapid legislative response to SC Res 1373 (2001), although this was eventually deemed by the courts to have been implemented disproportionately, and it updated legislation to reflect FATF decisions, as presented in the FATF recommendations or MER on the UK. The UK did not stop with implementation, but in fact also established a dedicated body specialising in CTF, which joins, as a matter of policy, any investigation of potential terrorism. Furthermore, UK institutions report cases of suspicious financial transactions and proceed with investigations, prosecutions and convictions that can result in long sentences of imprisonment.

110 111

Columns Design XML Ltd

/

House of Lords, European Union Committee, above n 13, para 168. MER 2018 (UK), above n 36, 5.

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 22 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 23 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

122

Global counter-terrorist financing and soft law

Table 5.2 Summary of United Kingdom rating compliance with FATF Recommendations112 Old Number Recommendations

New Number

Rating113

New Rating114

SR.I: Implement UN instruments SR.II: Criminalise terrorist financing SR.III: Freeze and confiscate terrorist assets SR.IV: Suspicious transaction reporting SR.V: International cooperation

36

Compliant

Compliant

5

Compliant

Compliant

6

Compliant

20

Compliant

Largely Compliant Compliant

37

Compliant

SR.VI: Requirements for money/value transfer services SR.VII: Wire transfer rules

14

Largely Compliant Partially Compliant Largely Compliant Largely Compliant

SR.VIII: Non-profit organisations SR.IX: Cash couriers

16 8 32

Largely Compliant Compliant Compliant Compliant Largely Compliant

AUSTRALIA While Australia is not a permanent member of the UNSC, it has been a member of the FATF since 1990. It is a financial centre, but is not considered a terrorist centre. Even though more than 100 Australians have been killed in terrorist attacks overseas since 11 September 2001,115 the numbers diminish considerably with regard to attacks on Australian soil, where six people (not including the terrorists themselves) have been killed in terrorist attacks and another 12 have been injured (including three in the Martin Place siege in Sydney in 2014, where they were 112 The ‘Old Number Recommendations’ column refers to the corresponding 2003 FATF recommendation. 113 MER 2007 (UK), above n 8. 114 MER 2018 (UK), above n 36. 115 Department of the Prime Minister and Cabinet, Counter-Terrorism White Paper: Securing Australia, Protecting Our Community, Parl Paper No. 66 (2019) 7.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 23 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 24 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

123

injured by police bullets). An objective assessment of recent terrorist attacks suggests that the terrorism threat and the risk of getting killed in a terrorist attack in Australia are low. Despite a minimal yet persistent threat, the Australian government has proceeded to respond to terrorism comprehensively. It has only been for a short period of time that Australia has enacted laws aimed at terrorism. Prior to 11 September 2001, it dealt with terrorist financing through the Crimes (Foreign Incursions and Recruitment) Act 1978,116 which made it an offence to contribute to the preparation or promotion of entering a foreign state to engage, or with intent to engage, in a hostile activity in that foreign state, and, at the state/territory level, with the Criminal Code Act 1983 (Northern Territory).117 The attacks of 11 September 2001 provided the catalyst for the introduction of Australia’s first national anti-terror laws. It appears that these new laws were required in order to deal with instances where existing criminal law could not adequately respond to, or prevent, the financing of terrorist acts overseas.118 As George Williams summarised, “[f]rom 2002 to 2007, under the conservative Howard Coalition government, Parliament enacted forty-eight separate anti-terrorism statutes—an average of one new law every seven weeks”,119 including legislation pertaining to terrorist financing. Australia indeed required contemporary legislation to deal with terrorist financing, but appears to have enacted new laws relating to terrorist financing primarily in response to the FATF’s recommendations. The Australian government clarified, after the FATF revised its recommendations following 11 September 2001, that in order for Australia to maintain its internationally respected position, urgent action to implement the FATF recommendations was necessary. In the words of Chris Ellison, then Minister for Justice and Customs, “Australia will now commit to implementing FATF’s revised 40 Recommendations which will require a significant review of Australia’s anti-money laundering regime, including 116 Crimes (Foreign Incursions and Recruitment) Act 1978 (Cth), s 7, as repealed by the Counter-Terrorism Legislation Amendment (Foreign Fighters) Act 2014 (Cth), s 144. 117 Criminal Code Act 1983 (NT), s 55(1). 118 George Williams, ‘A Decade of Australian Anti-Terror Laws’ (2011) 35(3) Melbourne University Law Review 1136, 1161. 119 George Williams, ‘Anti-Terror Legislation in Australia and New Zealand’ in Victor V. Ramraj et al., Global Anti-Terrorism Law and Policy (Cambridge University Press, 2012) 541, 547.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 24 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 25 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

124

Global counter-terrorist financing and soft law

some new measures intended to counter terrorist financing’.120 In October 2005, less than two years after Senator Ellison made this announcement, the FATF conducted a MER of Australia’s CTF (and AML) policies.121 It found that while Australia had indeed legislated according to the standard and had implemented all the international standards except the recommendation related to wire transfer, there were a number of perceived deficiencies in Australia’s arrangements. This meant that there was a failure to comply with all accepted standards. Many of these deficiencies were addressed, in accordance with FATF recommendations, by the Anti-Money Laundering and Counter-Terrorism Financing Act 2006,122 as noted by the MER 2015 (Australia).123 Australia’s enactment of legislation in order to comply with the international standard set by the FATF that pertains solely to terrorism financing (that is, money laundering is excluded), is described below. (a) International Instrument Australia signed the Terrorist Financing Convention on 15 October 2001, just two weeks after the adoption of SC Res 1373 (2001), and ratified it on 26 September 2002. Following the announcement by Daryl Williams, then Federal Attorney-General, on 18 December 2001, that the government would introduce amendments to the Criminal Code Act 1995124 to make funding of terrorism a specific criminal offence,125 Australia introduced a package of national anti-terrorism legislation in March 2002. This was also executed in response to SC Res 1373 (2001) 120 AUSTRAC, ‘Australia Endorses Global Anti-Money Laundering Standards’ (Media Release, E176/03, 8 December 2003). 121 FATF, Third Mutual Evaluation Report on Anti-Money Laundering and Combating the Financing of Terrorism Australia (adopted by FATF 14 October 2005, adopted by APG 4 July 2006) (‘MER 2005 (Australia)’). 122 Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (‘AML/CTF Act’). One of the objects of the AML/CTF Act is to address matters of international concern, including the FATF recommendations. See s 3(3)(a). 123 FATF and APG, Anti-Money Laundering and Counter-Terrorist Financing Measures—Australia, Fourth Round Mutual Evaluation Report (2015) (‘MER 2015 (Australia)’). 124 Criminal Code Act 1995 (Cth). 125 Hon. Daryl Williams MP, ‘Upgrading Australia’s Counter-Terrorism Capabilities’ (Media Release, 18 December 2001); Letter dated 21 December 2001 from the Permanent Mission of Australia to the UN addressed to the Chairman of the UNSC committee established pursuant to SC Res 1373 (2001) concerning counter-terrorism (S/2001/1247) 4.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 25 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 26 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

125

and to implement the Terrorist Financing Convention. The most important statutes in this package were the Security Legislation Amendment (Terrorism) Act 2002,126 which amended or inserted provisions into the Criminal Code Act, and the Suppression of the Financing of Terrorism Act 2002,127 which amended the Charter of the United Nations Act 1945,128 the Extradition Act 1998,129 and the Financial Transaction Reports Act 1988.130 According to the MER 2005 (Australia), Australia had fully implemented the measures stipulated in the Terrorist Financing Convention, except for establishing requirements for financial institutions to adopt customer due diligence measures identifying beneficial owners.131 In addition, Australia appears to have fully implemented all the measures required in SC Res 1267 (1999) and SC Resolution 1373 (2001). The asset-freezing requirements contained in UNSC resolutions are implemented in Australia under the Charter of the United Nations Act and its subsequent regulations.132 Furthermore, the Criminal Code Act was amended by the Criminal Code Amendment (Terrorist Organisations) Act 2004,133 which allows Australia to list terrorist organisations without reference to the list compiled by the 1267 Committee, by giving the Attorney-General the power to determine that a body is a terrorist organisation.134 In its MER 2015 (Australia), Australia was rated ‘largely compliant’ with this recommendation. The main technical deficiencies related to

The other bills in this package were the Suppression of the Financing of Terrorism Bill 2002 (Cth); Criminal Code Amendment (Suppression of Terrorist Bombing) Bill 2002 (Cth); Border Security Code Legislation Amendment Bill 2002 (Cth); Telecommunication Interception Legislation Amendment Bill 2002 (Cth). 127 Suppression of the Financing of Terrorism Act 2002 (Cth). 128 Charter of the United Nations Act 1945 (Cth) (‘Charter of the UN Act’). 129 Extradition Act 1988 (Cth). 130 Financial Transaction Reports Act 1988 (Cth). 131 MER 2005 (Australia), above n 121, 129. Required under art 18 of the Convention. 132 Charter of the United Nations (Dealing with Assets) Regulations 2008 (Cth). These regulations replaced the Charter of the United Nations (Terrorism and Dealings with Assets) Regulations 2002 (Cth). 133 Criminal Code Amendment (Terrorist Organisations) Act 2004 (Cth). 134 MER 2005 (Australia), above n 121, 129–30; Williams, above n 119, 550. 126

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 26 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 27 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

126

Global counter-terrorist financing and soft law

issues with terrorist financing offences. As discussed below, these have been addressed and today Australia is rated as fully compliant.135 (b) Terrorist Financing Offences The Suppression of the Financing of Terrorism Act, which came into force in July 2002, amended a number of existing Acts. The amended Acts include the Criminal Code Act, the Financial Transaction Reports Act, the Mutual Assistance in Criminal Matters Act 1987,136 and the Charter of the United Nations Act. In its amended form, the Criminal Code contains several offences related to the financing of terrorism and criminalises the receipt of funds from, or the making of funds available to, a terrorist organisation, whether directly or indirectly,137 and whether or not the person knows that the organisation is a terrorist organisation. The definition of ‘funds’ in the Criminal Code138 matches the definition found in article 1(1) of the Terrorist Financing Convention, and the Criminal Code extends criminal responsibility to the attempting, aiding or abetting, or incitement of committing an offence, and to conspiracy to commit an offence.139 The Criminal Code also defines terrorist organisations, asserting that these are organisations that directly or indirectly engage in preparing, planning, fostering or assisting in a terrorist activity, irrespective of whether one occurs, or organisations that have been proscribed as terrorist organisations by the Attorney-General.140 In addition, the Criminal Code created another terrorist financing offence, where a maximum penalty of life imprisonment applies when a person is found guilty of intentionally providing funds to, or collecting funds from, a terrorist organisation,141 and the person is reckless as to whether the funds would be used to facilitate or engage in a terrorist act.142 These offences do not require that the funds are actually used to carry out or attempt a terrorist act,143 and the offence is committed even if the terrorist act does not occur. 135 FATF, Australia: 3rd Enhanced Follow-up Report & Technical Compliance Re-Rating (November 2018) 4. 136 Mutual Assistance in Criminal Matters Act 1987 (Cth). 137 Criminal Code Act, s 102.6. 138 Ibid s 100.1. 139 Ibid Pt 2.4. 140 Ibid s 102.1. 141 Ibid s 103.1. 142 Ibid s 103.1(1). 143 Ibid s 103.1(2).

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 27 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 28 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

127

The MER 2005 (Australia) found that although the range of offences and definitions was quite broad, the Australian legislation did not specifically criminalise the collection or provision of funds for an individual terrorist. The Australian authorities noted to the FATF evaluation team that section 103.1 of the Criminal Code refers to recklessness in funds being used not only to engage in a terrorist act, but also to facilitate a terrorist act.144 Therefore, according to Australian authorities, providing or collecting funds, where the person is reckless as to whether they will be used to facilitate a terrorist act, covers “the collection of funds for a terrorist organisation” and “the collection or provision of funds for an individual terrorist”.145 However, the evaluation team did not agree that this sufficiently covered the provisions of the standard, and recommended that Australia specifically criminalise the collection of funds for an individual terrorist. Australia, despite asserting that there was no need to change the Criminal Code, proceeded to implement the FATF recommendation and amended the Criminal Code two months later (in December 2005), explaining that the amendment strengthened the existing terrorist financing offences and confirmed Australia’s commitment to the principles behind the FATF’s Special Recommendations on Terrorist Financing.146 To this, the Security Legislation Review Committee replied that “it is difficult on the above analysis to see how this could [strengthen the existing terrorist financing offences]”.147 It is a direct example of the effectiveness of the FATF that it is hard to see where section 103.2 adds anything of substance over and above section 103.1, “section 103.2 does not capture any conduct not already captured by section 103.1 and is in fact more limited in scope than section 103.1”,148 and “[t]he inclusion of both of these offences might be justified if there was evidence to suggest that it increased national security by enabling law enforcement authorities and prosecutors to pursue those who would otherwise escape prosecution for the financing

MER 2005 (Australia), above n 121, 33. Ibid 17. Anti-Terrorism Bill (No. 2) 2005 (Cth), explanatory memorandum, Sch 3,

144 145 146

item 3. 147 House of Representatives Security Legislation Review Committee, Parliament of Australia, Report of the Security Legislation Review Committee (2006) 160. 148 Bret Walker, ‘Annual Report’ (Independent National Security Legislation Monitor, 7 November 2013) 76.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 28 /

Date: 24/2

JOBNAME: EE3 Goldbarsht PAGE: 29 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

128

Global counter-terrorist financing and soft law

of terrorism”.149 The Independent National Security Legislation Monitor and the Council of Australian Governments recommended in 2013 that section 103.2 be repealed. It is evident that the primary reason for amending the Criminal Code in response to an FATF recommendation (and later at the FATF’s specific request) was not a concern for the CTF regime. As Williams notes, “having … parallel offences in fact only muddies the waters. These offences complicate the domestic terrorist financing regime and make it more difficult for people to understand their legal obligations”.150 Rather, the rationale for amending the Criminal Code was a concern for legislating in accordance with the FATF recommendation. In 2010, the Australian Federal Police established a Terrorism Financing Investigations Unit (‘TFIU’) dedicated to addressing the terrorist financing aspects of all matters identified for consideration of criminal investigation. The TFIU is a multi-agency, multi-jurisdictional team, with representation from the Australian Federal Police, state police, and AUSTRAC, and input from the Australian Intelligence Community. It is based on similar successful groups operating in the UK. The TFIU provides expertise, specialised support, and focused engagement on an Australia-wide basis, with internal and external stakeholders, on all aspects of terrorist financing. In the MER 2015 (Australia), Australia was rated ‘largely compliant’ with this standard. However, after it had demonstrated that the definition of ‘terrorist act’ was not too narrow and that its criminal law concepts of ‘complicity’ and ‘recklessness’ and its targeted financial sanctions regime comply with the standard, and that, through the Criminal Code 1995,151 Australia was already fulfilling the new FATF requirement (from February 2016) to criminalise the financing of the travel of foreign terrorist fighters, Australia was re-rated as compliant.152

149 Andrew Lynch, Nicola McGarrity and George Williams, Inside Australia’s Anti-Terrorism Laws and Trials (New South Publishing, 2015) 67. 150 Ibid. 151 Criminal Code 1995, s 119. See also Counter-Terrorism Legislation Amendment (Foreign Fighters) Bill 2014: Revised Explanatory Memorandum 5, 29 (October 2014) 7, 47. 152 FATF, Australia: 3rd Enhanced Follow-up Report, above n 135, 4.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 29 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 30 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

129

(c) Target Financial Sanctions Related to Terrorism and Terrorism Financing Australia was considered to be ‘largely compliant’ with the freezing of terrorist assets in the MER 2005 (Australia).153 The primary shortcoming detected was the failure of Australian law to explicitly cover funds of terrorists, and those who finance terrorism or terrorist organisations, outside of specific terrorist acts. The Charter of the United Nations Act identifies the Minister of Foreign Affairs as the competent authority to be responsible for designating entities that meet the requirements of the Charter of the United Nations Act.154 The Charter of the United Nations (Sanctions—The Taliban) Regulations 2013155 and the Charter of the United Nations (Sanctions—AlQaida) Regulations 2008156 contain provisions that prohibit dealing with, or making available, assets of designated persons and entities. Designated persons and entities are any persons or entities listed by the UN under SC Res 1267 (1999), SC Res 1988 (2011) and SC Res 1989 (2011).157 In the case of listings under SC Res 1373 (2001), a listing takes effect as soon as the person or entity is listed in the Gazette, which takes place as soon as practicable after the Minister’s decision.158 The definition of a ‘controlled asset’ pertains to an asset of a designated person or entity, and funds derived from an asset owned or controlled, directly or indirectly, by a designated person or entity, or a person acting on behalf of, or at the direction of, a designated person or entity.159 ‘Freezable assets’ are then defined either as assets owned and controlled by a proscribed person or entity, or as ‘listed assets’ (assets listed by the Minister)160 and those derived or generated from those assets, either directly or indirectly.161 Prohibition requirements are outlined in the different regulations for the different designations (Al-Qaida, Taliban, or under SC Res 1373

MER 2005 (Australia), above n 121, 40. Charter of the UN Act, s 15(1) and (2). 155 Charter of the United Nations (Sanctions—The Taliban) Regulations 2013 (Cth) (‘Taliban Regulations’), regs 9 and 10. 156 Charter of the United Nations (Sanctions—Al-Qaida) Regulations 2008 (Cth) (‘Al-Qaida Regulations’), regs 10 and 11. 157 Taliban Regulations, reg 3; Al-Qaida Regulations, reg 4. 158 Charter of the UN Act, s 15(6). 159 Al-Qaida Regulations, reg 4; Taliban Regulations, reg 3. 160 Charter of the UN Act, s 15. 161 Ibid s 14. 153 154

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 30 /

Date: 24/2

JOBNAME: EE3 Goldbarsht PAGE: 31 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

130

Global counter-terrorist financing and soft law

(2001)).162 It is an offence for a person or a body corporate that holds a ‘controlled asset’ (under the Taliban Regulations and the Al-Qaida Regulations) or a ‘freezable asset’ (under the Charter of the United Nations Act) to use or deal with the asset, allow the asset to be used or dealt with, or facilitate the use of, or dealing with, the asset,163 where the use or dealing has not been permitted.164 Since Australia amended its legislation, the MER 2015 (Australia) has deemed Australia to be fully compliant with the FATF’s requirements.165 (d) Suspicious Transaction Reports All financial institutions captured under the cash dealer definition in the Financial Transaction Reports Act166 are subject to the obligations under this act and compliance monitoring by AUSTRAC.167 An STR must be filed if the cash dealer has reasonable grounds to suspect that a transaction “may be relevant to the investigation” of an evasion, or attempted evasion, of taxation law,168 or of an offence against any Commonwealth or territorial law,169 or may assist the enforcement of the proceeds of crime legislation and related regulations.170 The Suppression of the Financing of Terrorism Act 2002 introduced section 16(1A) of the Financial Transaction Reports Act, which sets out the terms of STRs regarding terrorist activities and the financing of terrorism. Therefore, in addition to the abovementioned reporting requirements, a cash dealer must report where they are a party to a transaction and have reasonable grounds to suspect that the transaction is preparatory to the commission of a financing of terrorism offence, or where the information they hold concerning a transaction may be relevant to the investigation, or prosecution, of a person suspected of involvement in a terrorism financing offence.171 162 Al-Qaida Regulations, reg 10; Taliban Regulations, reg 9; Charter of the UN Act, s 21. 163 Al-Qaida Regulations, reg 11; Taliban Regulations, reg 10; Charter of the UN Act, s 20. 164 Al-Qaida Regulations, reg 12; Taliban Regulations, reg 11; Charter of the UN Act, s 22. 165 MER 2015 (Australia), above n 123, 145. 166 Financial Transaction Reports Act, s 3(1). 167 Ibid. 168 Ibid s 16(1)(b)(i). 169 Ibid s 16(1)(b)(ii). 170 Ibid s 16(1)(b)(iii) and (iv). 171 Ibid s 16(1A)(b)(i) and (ii).

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 31 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 32 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

131

While the STR requirements are quite broad, the MER 2005 (Australia) found that there were limitations in the definition of ‘cash dealer’ that do not apply to all financial institutions as defined in the FATF recommendations. In addition, as the reporting obligation pertains to suspected terrorist financing offences, the evaluation team was concerned about the limited scope of terrorist financing offences, as Australia did not, at the time of the report, specifically criminalise the collection or provision of funds for an individual terrorist. Eventually, the MER 2005 (Australia) deemed Australia to be ‘largely compliant’.172 On 12 December 2006, just over a year after the MER 2005 (Australia) was adopted by the FATF, Australia enacted the AML/CTF Act as a legislative response. It was “a major step in bringing Australia in line with international best practice which included standards set by the FATF”173 and, according to the explanatory memorandum to the AntiTerrorism Bill, these changes were inserted “to better implement the requirements of the Financial Action Task Force on Money Laundering’s (FATF’s) Special Recommendations”.174 The objective of the AML/CTF Act was to fulfil Australia’s international obligations, including obligations to combat money laundering and the financing of terrorism, and to address matters of international concern.175 Relevant international obligations include those under SC Res 1267 (1999) and SC Res 1373 (2001),176 and the FATF recommendations are the first international priority.177 The provisions of the Financial Transaction Reports Act were amended and updated in the AML/CTF Act,178 such that the imposition of civil penalties applied for a failure to report up to AU$17 million for a body corporate, and up to AU$3.4 million for an individual. The ‘financing of terrorism’ refers to conduct that amounts to an offence under section 102.6 or Division 103 of the Criminal Code, section 20 or section 21 of MER 2005 (Australia), above n 121, 91. Arun Srivastava, Mark Simpson and Nina Moffat (eds), International Guide to Money Laundering Law and Practice (Bloomsbury, 2013) 255. 174 Explanatory memorandum to the Anti-Terrorism Bill (No. 2) 2005 (Cth) 97, discussing Sch 9 of the bill. 175 AML/CTF Act, s 3(1). 176 Ibid s 3(2). 177 Ibid. 178 Ibid s 41(1). For the purpose of this book, to minimise confusion, I refer to both suspicious matter reports (SMRs) and STRs as STRs, a presentation that was also adopted by the FATF in its MER 2015 (Australia), above n 123, and by AUSTRAC in its Annual Report 2016–17 (2017). 172 173

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 32 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 33 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

132

Global counter-terrorist financing and soft law

the Charter of the United Nations Act, or any corresponding state, territory or foreign offence.179 AUSTRAC, as stated above, is Australia’s CTF (and AML) financing regulator and FIU. It is an independent body and has its own operational resources, including financial budget and staff, which are allocated through the normal governmental processes. Once allocated, there are no specific provisions that would require further approvals from government or partner agencies to obtain and deploy the resources needed to carry out its functions. Most CTF (and AML) agency budgets have been reduced recently as part of broader government-wide budget reductions since the global financial crisis, despite the National Threat Assessment identifying high-risk areas requiring attention. Despite this tighter budgetary backdrop, additional funding has been given to AUSTRAC— including funding for new intelligence systems in 2010. The MER 2015 (Australia) ranked Australia as compliant with the recommendation dealing with suspicious reporting.180 (e) International Cooperation Australia’s mutual legal assistance mechanisms are set out in the Mutual Assistance in Criminal Matters Act 1987.181 Operationally, mutual legal assistance is coordinated under the central authority of the AttorneyGeneral’s Department. Commonwealth, state and territory agencies may seek legal assistance through the Attorney-General’s Department for a range of criminal, regulatory or revenue matters, or may be required to provide such assistance as requested. This involves conducting the various elements of an investigation, including the collection of evidence, taking of statements, and freezing and seizure of criminal assets or proceeds of crime. Statistical data on mutual assistance and other forms of international cooperation are maintained and reported by all relevant competent authorities. In the MER 2005 (Australia), the evaluation team was concerned that the discretion contained in the Mutual Assistance in Criminal Matters Act could be used to refuse certain legal assistance requests involving the collection of funds for terrorist organisations, or the provision/collection of funds involving individual terrorists. The FATF was not satisfied that these aspects were sufficiently covered in

179 180 181

Columns Design XML Ltd

/

AML/CTF Act, s 5. MER 2015 (Australia), above n 123, 166. Mutual Assistance in Criminal Matters Act 1987 (Cth).

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 33 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 34 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

133

terrorist financing offence definitions in Australia182 and therefore rated Australia as being ‘largely compliant’. The Australian government provides technical legal assistance to other countries in order to develop CTF (and AML) arrangements, and supports countries in their efforts to confiscate the financial proceeds of terrorism and other crimes.183 However, it was when Australia finally criminalised the collection or provision of funds for an individual terrorist, fulfilling the FATF’s request, that its FATF ranking improved, with the MER 2015 (Australia) finding Australia to be fully compliant with this standard.184 (f) Money or Value Transfer Services Money or value transfer service operators in Australia must hold an Australian financial services licence in accordance with the provisions of the Corporations Act 2001. However, this does not cover all remittance businesses and there are no general obligations under this Act that such entities be licensed or registered.185 Money or value transfer service operators are subject to the CTF requirements in the Financial Transaction Reports Act, and AUSTRAC has made significant progress in identifying and bringing alternative remittance dealers into the compliance regime. Both alternative remittance dealers and formal money or value transfer service operators in Australia are reporting entities, as stated within the cash dealer definition under the Financial Transaction Reports Act, and are therefore subject to the full range of reporting and record-keeping obligations under that Act. The MER 2005 (Australia) declared that Australia should require all money or value transfer service operators to be licensed or registered. Australia should, according to the report, revise the Financial Transaction Reports Act and subject money or value transfer service operators to comprehensive CTF requirements, as well as requiring them to maintain a current list of their agents and make this available to AUSTRAC. Australia was rated ‘partially compliant’ with this standard, primarily with respect to the licensing of money or value transfer service operators and limitations of the Financial Transaction Reports Act.186 182 183 184 185 186

Columns Design XML Ltd

/

MER 2005 (Australia), above n 121, 133. Department of the Prime Minister and Cabinet, above n 115, 50. MER 2015 (Australia), above n 123, 185. Corporations Act 2001 (Cth), s 911A. MER 2005 (Australia), above n 121, 109.

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 34 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 35 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

134

Global counter-terrorist financing and soft law

Progress was later made through the adoption in 2006 of the AML/ CTF Act, and in 2007 the AML/CTF Rules.187 The AML/CTF Act, which was introduced to deal with alternative remittance, and which brought Australia’s CTF (and AML) regime into accordance with the FATF recommendations,188 provides that a person must not provide a registrable remittance network service or designated remittance service unless they are registered as a remittance network provider, a remittance affiliate of a registered remittance network provider, or an independent remittance dealer.189 Sanctions that can be imposed are two years’ imprisonment, a fine, or both.190 It is up to AUSTRAC to decide to register a person, in accordance with the AML/CTF Act, after considering whether that person would pose a significant terrorist financing (or money laundering) risk should registration be granted.191 According to the MER 2015 (Australia), in the implementation of this standard Australia was ‘largely compliant’.192 (g) Wire Transfers Australia has a mandatory system for submitting reports on all international funds transfer instructions to AUSTRAC. Under the Financial Transaction Reports Act, the reporting obligations for an international funds transfer instruction—which is defined as “an instruction for a transfer of funds that is transmitted into or out of Australia electronically or by telegraph, but does not include an instruction of a prescribed kind”193—require cash dealers to include mandatory information in the reporting of cross-border transfers.194 The Financial Transaction Reports Regulations outline the details that are required for an international funds transfer instruction195 and, where an international funds transfer instruction is sent and reported to AUSTRAC, reporting entities are required to 187 Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (Cth) (No. 1). 188 David Rees, ‘Money Laundering and Terrorism Financing Risks Posed by Alternative Remittance in Australia’ (Research and Public Policy Series Report No. 106, Australian Institute of Criminology, 2010) 64. 189 AML/CTF Act, s 74. 190 Ibid s 74(2). 191 Ibid s 75C. 192 MER 2015 (Australia), above n 123, 161. 193 Financial Transaction Reports Act, s 3. 194 Ibid s 17B. 195 Financial Transaction Reports Regulations 1990 (Cth), regs 2 (definition) and 11AA.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 35 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 36 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

135

report the name and address or the location of the originating customer. There are no minimum thresholds for wire transfers under the Australian system. All international funds transfer instructions, whether incoming or outbound, must be reported to AUSTRAC. However, there are no requirements for any information to be recorded for domestic transfers, and there is no obligation to verify that the sender’s information is accurate and meaningful, or to require that the account number be included. Failure to comply with the reporting requirements of the Financial Transaction Reports Act is a criminal offence, punishable by imprisonment for up to two years, or by a fine.196 Australia was rated in the MER 2005 (Australia) as being ‘non-compliant’ with this wire transfers standard, because it lacked a system for implementing the requirements and it had a reporting obligation only for international wire transfers. Since 2009, Australia has implemented measures intended to solve these shortcomings. Australia now meets the requirements regarding originator information (name, account number, address or identity, and so on), as well as the requirements that originator information be retained with a transfer. However, the legislation does not yet reflect a number of elements of this standard—namely, verification of the accuracy of the information, beneficiary information, intermediary financial institutions, and record keeping. Given that the beneficiary, verification, and targeted financial sanctions elements have not yet been updated in accordance with the standard, Australia was rated in the MER 2015 (Australia) as being ‘partially compliant’. (h) Non-Profit Organisations NPOs in Australia are not required to register or incorporate; however, if an organisation does not incorporate, it will not have a legal identity separate from that of its members and will not be eligible for recognition Financial Transaction Reports Act, s 28. Pursuant to s 31 of the Act, a person commits an offence if the person is a party to cash transactions involving less than AU$10,000 and it would be reasonable to conclude that the person conducted the transactions in a particular manner as to avoid the transactions being reported. In the Ansari case, a currency exchange business operated in Sydney received more than AU$2.5 million. This was done in a ‘structured’ way, with amounts being deposited in lots of less than AU$10,000. The exchange business built up a cash pool, which it then deposited in various accounts in Australia when asked to do so by overseas associates. See Ansari v R [2007] NSWCCA 204 (14 August 2007); Ansari v The Queen [2010] HCA 18 (26 May 2010). 196

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 36 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 37 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

136

Global counter-terrorist financing and soft law

for tax purposes. Australia was rated in the MER 2005 (Australia) as being ‘partially compliant’ with this standard. The main shortcomings noted at the time pertained to a lack of follow-up of NPO sector reviews, and a lack of effective implementation of a system to address terrorist financing-related NPO risks.197 The regulator of the Australian NPO sector, the Australian Charities and Not-for-Profits Commission Act 2012,198 has some information on those NPOs that voluntarily register for tax purposes; however, none of this information pertains to terrorist financing. The primary objectives of the Australian Charities Act are to promote good governance, accountability, and transparency, in order for NPOs to maintain, protect and enhance public trust and confidence in the NPO sector.199 However, these standards only apply to those NPOs that voluntarily register for tax purposes. The Australian Charities Act allows certain NPOs to register voluntarily for tax purposes and, in such cases, the NPOs are expected to register certain information and keep certain records.200 The voluntary registration information includes the charity’s responsible persons—including directors, trustees, administrators and receivers—but excludes information about the purpose and objectives of the stated activities. Medium and large charities that voluntarily register must file annual financial reports and annual information statements, while small charities must simply provide annual information statements.201 Basic religious charities are excluded from the requirement to provide non-financial information, even if registered. Record-keeping requirements pertaining to financial records that explain transactions, financial positions and performance apply only to those that voluntarily register.202 Following the adoption of the revised FATF Recommendations, the MER 2015 (Australia) found Australia to be non-compliant203 with this standard—a poorer rating than that obtained in the MER 2005 (Australia). MER 2005 (Australia), above n 121, 125. Australian Charities and Not-for-profits Commission Act 2012 (Cth) (‘Australian Charities Act’). See also the Charities Act 2013 (Cth), which introduces a statutory definition of ‘charity’, and the explanatory memorandum to the Charities (Consequential Amendments and Transitional Provisions) Bill 2013 (Cth). 199 Australian Charities Act, s 15-5. 200 Ibid s 25(5). 201 Ibid Div 60. 202 Ibid ss 55-5(1)–55-1(4). 203 MER 2015 (Australia), above n 123, 145. 197 198

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 37 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 38 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

137

Since the MER 2015 (Australia), and to improve compliance with the FATF Recommendation, Australia has undertaken a comprehensive risk assessment of its NPO sector. The risk assessment identified the main threats to NPOs, including the diversion of legitimate funds by senior NPO personnel to finance offshore terrorist activity, attempts to infiltrate NPOs by terrorist groups, and the use of online platforms to solicit funds for terrorist purposes.204 To aid in ongoing risk assessment, a multiagency NPO-Risk Working Group has been established to monitor and address the risks posed by higher-risk NPOs.205 Due to Australia’s significantly improved compliance with the FATF standard, where only minor deficiencies remain, and due to the early stages of reviewing the legislative framework and conducting ongoing risk assessment, Australia was re-rated, in the follow-up report, as ‘largely compliant’.206 (i) Cash Couriers According to the Financial Transaction Reports Act, an incoming or outgoing currency transaction report must be completed where currency in an amount exceeding the prescribed threshold of AU$10,000 in value, or its foreign currency equivalent, is transferred into or out of Australia.207 Currency is defined as “the coin and paper money of Australia or of a foreign country that (1) is designated as legal tender; and (2) circulates as, and is customarily used and accepted as, a medium of exchange in the country of issue”.208 This definition does not include the reporting of bearer negotiable instruments. Passengers departing from, and arriving in, Australia must complete either an outgoing or an incoming passenger card, which includes a question pertaining to the transfer of currency.209 Where persons fail to declare, or where they make false declarations, with regard to the reporting obligations of the Financial Transaction Reports Act, they commit an offence punishable, upon conviction, by 204 AUSTRAC, Non-Profit Organisations & Terrorism Financing: Regional Risk Assessment 2017 (2017). 205 AUSTRAC and Australian Charities and Not-for-profits Commission, Australia’s Non-Profit Organisation Sector; Money Laundering/Terrorism Financing—National Risk Assessment 2017 (August 2017). 206 FATF, Australia: 3rd Enhanced Follow-up Report, above n 135, 5. 207 Financial Transaction Reports Act, s 15. 208 Ibid s 3(1). 209 Ibid s 3 (reportable details for purposes of s 15). From 1 July 2017, the paper-based outgoing passenger card was removed. Today, information previously gathered via paper-based outgoing passenger cards is collated from existing government data.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 38 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 39 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

138

Global counter-terrorist financing and soft law

imprisonment for not more than two years and, where persons intentionally make a false or misleading report, the term of imprisonment is up to five years.210 In addition, Australian Federal Police officers working at customs points have the ability to conduct an arrest without warrant, where they have a reasonable belief that a person has committed, or is committing, an offence—including dealing in the proceeds of crime or terrorist financing.211 Australian Federal Police officers also have the ability to search and seize evidentiary material in relation to such offences.212 The Criminal Code provides a range of penalties that may be applied to persons who deal with (including possession of) proceeds of crime, including money or other property derived from the commission of any indictable offence.213 The Code’s provisions also criminalise the possession of money or property where there is a risk that it could become the instrument of a crime. This covers terrorist financing offences, to the extent that terrorist financing is criminalised under Australian law, with penalties including imprisonment for up to 25 years. The Proceeds of Crime Act 2002214 additionally provides powers of confiscation and forfeiture in relation to indictable offences, including offences under the Financial Transaction Reports Act for breaching cross-border cash reporting requirements. Where the source of the currency is suspected of being related to terrorist financing, confiscation can be sought.215 To summarise, Australia has a comprehensive system for reporting cross-border movements of currency to AUSTRAC. Nevertheless, reporting requirements do not extend to bearer negotiable instruments. Therefore, the FATF recommended in the MER 2005 (Australia) that Australian legislation be amended to include incoming and outgoing cross-border transportations of bearer negotiable instruments. It assigned Australia the rating of ‘partially compliant’.216 In response, Australia implemented a combination of declaration (for cash) and disclosure (for bearer negotiable instruments) systems for incoming and outgoing cross-border transportation of currency and bearer negotiable instruments. For cash, whether Australian or foreign, Ibid s 15(6) and s 29(3). Crimes Act 1914 (Cth), s 3W. Criminal Code Act, ss 400.3–400.9, 102.6 and 103.1. 212 Crimes Act 1914 (Cth), s 3ZF. 213 Criminal Code Act, Div 400. 214 Proceeds of Crime Act 2002 (Cth). 215 Ibid s 19. 216 MER 2005 (Australia), above n 121, 64. 210 211

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 39 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 40 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

139

the AML/CTF Act requires a declaration for all physical cross-border movements above the threshold of AU$10,000, whether by travellers or mail and cargo.217 For bearer negotiable instruments, the traveller must, if required to do so by a police or customs officer,218 disclose whether or not they have any bearer negotiable instruments with them, and the amount payable of each, and must produce every bearer negotiable instrument that they have to the officer.219 In the event of a false declaration or failure to disclose, regular law enforcement powers can be implemented.220 If a person fails to make a declaration of currency, there are two types of sanctions available: civil and criminal.221 The AML/CTF Act also provides for imprisonment for ten years or a fine for giving false or misleading information, or producing a false or misleading document, to competent authorities, including customs, the police, and AUSTRAC.222 These provisions apply to information and documents pertaining to the cross-border movement of currency or bearer negotiable instruments. The AML/CTF Act allows these competent authorities to seize physical currency, where there is suspicion that it may afford evidence of a false declaration, or to seize bearer negotiable instruments, where a person has made a false disclosure.223 It is apparent that the amendment to include bearer negotiable instruments is an implementation of the standard, as the definition of bearer negotiable instruments in the AML/CTF Act224 is almost a mirror of the FATF’s definition.225 This change was made in order to better implement FATF recommendations, contained in the MER 2005 (Australia), as explicitly stated in the explanatory memorandum to the

AML/CTF Act, ss 53 and 55. This ‘disclosure when asked’ system enables more targeted use of customs and police resources. For example, officers may request disclosure by particular persons about whom they might already have some relevant intelligence information. See the Anti-Terrorism Bill (No. 2) 2005, explanatory memorandum, item 9. 219 AML/CTF Act, s 53. 220 Ibid s 199 (currency), s 200 (bearer negotiable instruments). 221 Ibid ss 53 and 55. 222 Ibid ss 136 and 137. 223 Ibid ss 199 and 200. 224 Ibid s 17. 225 FATF recommendations, p 110. 217 218

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 40 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 41 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

140

Global counter-terrorist financing and soft law

Anti-Terrorism Bill, and this implementation led to Australia’s rating in 2015 of ‘largely compliant’,226 and later—after Australia’s slightly increased financial penalties were found to be proportionate and its criminal penalty of imprisonment was found to be very high—it was re-ranked as ‘compliant’.227 (j) Summary Australia has introduced new laws and updated previous ones in accordance with the FATF recommendations. It made a rapid legislative response to SC Res 1373 (2001) and has regularly reported to the Counter-Terrorism Committee. Australia has recognised that SC Res 1373 (2001) does not specifically require compliance with the FATF CTF recommendations, and that while SC Res 1617 (2005) strongly urges it, it does not require member states to implement the FATF recommendations.228 Nevertheless, Australia has reported back to the CounterTerrorism Committee that it has fully implemented most of the CTF recommendations, and is reviewing its CTF system with a view to implementing the recommendations in full. Australian legislation for CTF has undergone several amendments since the terrorist attacks in the United States on 11 September 2001. Australia’s CTF regime complies with and is based on the international standards developed by the FATF, in response to FATF requirements, and amendments made to various pieces of legislation were made in order to achieve better implementation of the FATF’s Special Recommendations. When this implementation was criticised by the FATF’s MER 2005 (Australia), new legislation, via the AML/CTF Act, was introduced.

MER 2015 (Australia), above n 123, 139. FATF, Australia: 3rd Enhanced Follow-up Report, above n 135, 3. 228 Letter dated 15 February 2005 from the Permanent Representative of Australia to the United Nations addressed to the Chairman of the CounterTerrorism Committee (S/2005/90) 3; and Letter dated 11 October 2005 from the Permanent Representative of Australia to the United Nations addressed to the Chairman of the Counter-Terrorism Committee (S/2005/671) 3. 226 227

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 41 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 42 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

141

Table 5.3 Summary of Australia rating compliance with FATF Recommendations229 Old Number Recommendations

Old Rating230

Rating231

36

Largely Compliant

Largely Compliant

SR.II: Criminalise terrorist financing

5

Largely Compliant

Largely Compliant

SR.III: Freeze and confiscate terrorist assets

6

Largely Compliant

Compliant

SR.IV: Suspicious transaction reporting

20

Largely Compliant

Compliant

SR.V: International cooperation

37

Largely Compliant

Compliant

SR.VI: Requirements for money/value transfer services

14

Partially Compliant

Largely Compliant

SR.VII: Wire transfer rules

16

Non-Compliant Partially Compliant

SR.I: Implement UN instruments

SR.VIII: Non-profit organisations SR.IX: Cash couriers

New Number

8

Partially Compliant

Non-Compliant

32

Partially Compliant

Largely Compliant

INDIA While India is not a permanent member of the UNSC, it has been a member of the FATF since 2010. It is a financial centre and has been considered a terrorist centre since its first day of independence (15 August 1947). The great political leaders of India—such as Mahatma Gandhi, Indira Gandhi and Rajiv Gandhi—were assassinated by terrorist groups. Between 1 August 2010 and 31 July 2011, more than 1,000 terrorist incidents occurred. The period between 2006 and 2013 saw 229 The ‘Old Number Recommendations’ column refers to the corresponding 2003 FATF recommendation. 230 MER 2005 (Australia), above n 121. 231 MER 2015 (Australia), above n 123.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 42 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 43 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

142

Global counter-terrorist financing and soft law

4,100 different terrorist attacks committed. The primary causes of terrorism in India lie in the dispute of Jammu and Kashmir, border issues with Pakistan, and group tensions between Muslims and Hindus.232 Indian politicians often describe India as ‘the worst victim of terrorist violence in the world’, a claim that was supported by the multiple targets and long duration of the siege in Mumbai in November 2008. Although the attack in Mumbai captured the world’s attention, it was only one example of violence in India, which in 2008 alone endured ten attacks that killed more than 400 people. In that year, in addition to the Mumbai siege—which killed 173 people—there were major bombings in Guwahati in October, which killed 55 people; in Delhi in September, which killed 30 people; and in Ahmedabad in July, which killed 49 people. Previously, large bombings had occurred in Delhi in 2005, killing 59 people; in Mumbai in 2006, killing 209 people; and in Hyderabad in 2007, killing 42 people. In July 2011, a series of bombs exploded in Mumbai that killed 26 people and injured 130 more. In September 2011, a bomb exploded outside the High Court in Delhi, killing 13 and injuring more than 60 people.233 India initially implemented all the international standards relating to TF, except the recommendation relating to NPOs. As detailed below, this non-implementation was later addressed. (a) International Instrument India signed the Terrorist Financing Convention on 8 September 2000 and ratified it on 22 April 2003. The Unlawful Activities (Prevention) Act, 1967,234 as amended, is the main domestic implementing legal instrument. The Unlawful Activities Act deviates from the Terrorist Financing Convention on several points—among them, the criminalisation of the financing of offences falling within the scope of the treaties annexed to the Terrorist Financing Convention was not consistent; not all offences were covered; the Act did not cover the threat to international organisations; and the attempt to finance terrorism was only partially criminalised.235 The FATF recommended, in 2010, that India review its terrorism 232 Alam Khan, Mario Estrada and Zarinah Yusof, ‘Terrorism and India: An Economic Perspective’ (2016) 50(4) Quality and Quantity 1833. 233 Reece Jones, Border Walls: Security and the War on Terror in the United States, India, and Israel (Zed Books, 2012) 54–5, and the citation there. 234 Unlawful Activities (Prevention) Act, 1967 (‘Unlawful Activities Act’). 235 Terrorist Financing Convention, arts 2.1(a), 2.1(b) and 2.4.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 43 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 44 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

143

financing provisions to bring them in line with the relevant conventions, particularly in respect of the criminalisation and implementation of the preventive regime. It rated India ‘partly compliant’.236 Since the adoption of its MER 2010 (India), India has taken measures to improve its compliance with Recommendation 36. The FATF rated the compliance with this recommendation as equivalent to ‘largely compliant’.237 (b) Terrorist Financing Offences The relevant legislation regarding the criminalisation of terrorist financing is the Unlawful Activities Act.238 According to the Act, it is a crime for a person to raise or collect funds, or to provide or attempt to provide funds, directly or indirectly, knowing that such funds are likely to be used by any person or persons to commit a terrorist act, notwithstanding whether or not such funds were actually used for the commission of such act.239 In addition, a person commits an offence of raising funds for a terrorist organisation if that person, with the intention to further the activity of a terrorist organisation, invites another person to provide money or other property, and intends that it should be used, or has reasonable cause to suspect that it might be used, for the purposes of terrorism; or receives money or other property, and intends that it should be used, or has reasonable cause to suspect that it might be used, for the purposes of terrorism; or provides money or other property, and knows, or has reasonable cause to suspect, that it would or might be used for the purposes of terrorism.240 A person who commits the offence of raising funds for a terrorist act is imprisoned for a term of no fewer than five years, but may face imprisonment for life, and a fine.241 Raising funds for a terrorist organisation is punishable with imprisonment for a term not exceeding 14 years, or a fine, or both.242 236 FATF and Asia/Pacific Group on Money Laundering (APG), Mutual Evaluation Report, Anti-Money Laundering and Combating the Financing of Terrorism, India (25 June 2010) (‘MER 2010 (India)’), 228–9, 251. 237 FATF, 8th Follow-Up Report Mutual Evaluation of India (June 2013) 27 (‘8th Follow-Up India’). 238 The Unlawful Activities Act was amended by the Unlawful Activities (Prevention) Amendment Act, 2004 and the Unlawful Activities (Prevention) Amendment Act, 2008. 239 Unlawful Activities Act, s 17. 240 Ibid s 40(1). 241 Ibid s 17. 242 Ibid s 40(2).

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 44 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 45 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

144

Global counter-terrorist financing and soft law

The overarching condition of section 40 of the Unlawful Activities Act is the intent to further the activity of a terrorist organisation, whenever the suspect performs the activity of inviting to provide, receiving, or providing funds for terrorism purposes. Furthermore, the application of section 40 of the Unlawful Activities Act is specifically limited to those organisations that are listed in the Schedule to the Unlawful Activities Act (i.e. SC Res 1267 (1999)) and the domestic terrorist organisations list, established according to Chapter VI of the Unlawful Activities Act. The financing of other terrorist organisations or groups is deemed to be covered by the general section 17 provisions, which refer to the term ‘person’ or ‘persons’—which includes any association or body of individuals.243 The Unlawful Activities Act does not define the term ‘funds’, but contains a definition of ‘property’ that mirrors the definition of ‘funds’ in the Terrorist Financing Convention,244 with the addition of ‘cash and bank account’. The Unlawful Activities Act expressly states that it is irrelevant whether or not the funds were actually used for the commission of terrorist acts. Nor is it necessary that the offence of raising, providing or collecting funds be linked to a particular terrorist act.245 Section 17 only requires knowledge that such funds are likely to be used by the beneficiary to commit a terrorist act. However, this specific knowledge condition excludes the situation where the donor/ provider intends the funds to be used, or knows that they will be used, for non-terrorist purposes, such as family support or personal comfort expenses. The FATF found in the MER 2010 (India) that, although CTF in India is actively pursued—as witnessed by the number of investigations and prosecutions—there are a number of deficiencies that need to be addressed to bring the offence more in line with the relevant international standards and, in doing so, enhance the effectiveness of the CTF system itself: + The sole (intentional or knowing) financing of the offences covered by the treaties annexed to the Terrorist Financing Convention should be criminalised as terrorist financing. + The offence under section 16A of the Unlawful Activities Act of making demands for nuclear material, and so on, should be included in the section 15 list of terrorist acts. 243 244 245

Columns Design XML Ltd

/

General Clauses Act, 1897, s 3. Unlawful Activities Act, s 2(1)(h); Terrorist Financing Convention, art 1. Unlawful Activities Act, s 17.

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 45 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 46 SESS: 5 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

145

+ The terrorist acts under section 15 of the Unlawful Activities Act should also target international organisations. + The attempt to commit the section 17 and section 40 Unlawful Activities Act offences should be fully covered. + The sole wilful financing of terrorist individuals and terrorist organisations should be criminalised. The MER 2010 (India) rated India ‘partly compliant’ with this recommendation.246 Two years after the FATF MER 2010 (India), India amended the Unlawful Activities Act.247 The two deficiencies regarding the treaty offences were addressed through the addition of a subsection to the Unlawful Activities Act stating that “[t]he terrorist act includes an act which constitutes an offence within the scope of, and as defined in any of the treaties specified in the Second Schedule”.248 The proposed Second Schedule to the Unlawful Activities Act includes offences corresponding to all nine treaties annexed to the Terrorist Financing Convention. The updated Unlawful Activities Act now explicitly refers to “an international organisation or intergovernmental organisation or any other person to do or abstain from doing any act”,249 which addresses the deficiency identified in the MER—namely, that terrorist acts under section 15 did not target international organisations. Through the amendments to the Unlawful Activities Act, the attempt to commit the terrorist financing offence also extends to acts of raising or collecting funds. Consequently, the terrorist financing attempt is fully covered.250 To address the specific deficiency regarding the criminalisation of knowing funding of terrorist individuals and terrorist organisations, a description was added: “raising or collecting or providing funds, in any manner for the benefit of, or, to an individual terrorist, terrorist gang or terrorist organisation for the purpose not specifically covered under section 15 shall also be construed as an offence”.251 By adding this explanation, the financing of a terrorist organisation and an individual terrorist for any purpose, as required by the FATF standard, was covered. The number of persons accused of MER 2010 (India), above n 236, 55. Amendments to the Unlawful Activities (Prevention) Act (retrieved 28 December 2012). 248 Ibid s 15(2). 249 Ibid s 15(1)(iii). 250 Ibid s 17. 251 The Unlawful Activities (Prevention) Amendment Act, 2012 (No. 3 of 2013) (as set out above, s 15 contains the different terrorist acts). 246 247

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 46 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 47 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

146

Global counter-terrorist financing and soft law

terrorist financing and the number of cases under investigation increased (470 and 143 respectively in total, from 2006 to 31 March 2013), while the number of persons convicted remained low (five in total over the same period, with no new convictions since April 2011). In addition, there were no cases under trial in 2012.252 To conclude, all technical deficiencies in relation to Recommendation 5 were addressed and India’s level of compliance was found to be equivalent to ‘largely compliant’.253 (c) Target Financial Sanctions Related to Terrorism and Terrorism Financing India has issued the Prevention and Suppression of Terrorism (Implementation of Security Council Resolutions) Order, 2007254 (‘2007 Order’), pursuant to the United Nations (Security Council) Act 1947.255 The provisions in the 2007 Order enable the Indian government to freeze assets pursuant to SC Res 1267 (1999), its successor resolutions, and SC Res 1373 (2001). In view of giving effect to the updated UNSC list, the 2007 Order is amended from time to time. The 2007 Order provides the Central Government with broad powers to prevent and suppress terrorist acts falling within the UNSC resolution. It also contains a Schedule, which lists all persons to whom the 2007 Order applies. Terrorist organisations can also be listed under a separate process in the Schedule to the Unlawful Activities Act, which allows for the freezing, seizing and attachment of their assets. The 2008 amendment to the Unlawful Activities Act includes a provision in the Schedule allowing that all persons designated by the UNSC who have been notified by India under the 2007 Order will be considered a terrorist organisation in India to which the provisions of the Unlawful Activities Act apply. The SC Res 1267 (1999) list is therefore automatically incorporated into the Schedule to the Unlawful Activities Act as soon as the ministries are notified of the new names. In addition, the 2008 amendment to the Unlawful Activities Act has inserted another specific provision in which the Central Government has direct powers to give effect to SC Res 1267 (1999) and SC Res 1373 (2001) and the administrative freezing procedures.256 The Ministry FATF, 8th Follow-Up India, above n 237, 17. Ibid 17. 254 Prevention and Suppression of Terrorism (Implementation of Security Council Resolutions) Order, 2007. 255 United Nations (Security Council) Act, 1947. 256 Unlawful Activities Act, s 51A. 252 253

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 47 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 48 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

147

of Home Affairs issued guidance on 27 August 2009 outlining the procedure for the implementation of this new provision to ensure that freezing would take place without delay and without prior notice to the designated individuals.257 The Unlawful Activities Act deals with the procedure for seizure, attachment and forfeiture of proceeds of terrorism.258 Proceeds of terrorism include “all kinds of properties which have been derived or obtained from commission of any terrorist act or have been acquired through funds traceable to a terrorist act, irrespective of the person in whose name such proceeds are standing or in whose possession they are found, and includes any property which is being used, or is intended to be used, for the purpose of a terrorist organisation or a terrorist gang”.259 The punishment for holding proceeds of terrorism is applicable to the entities listed in the Schedule, but also to unlisted terrorist groups.260 By 2004, three bank accounts had been frozen under the Prevention of Terrorism Act (2002); no money was found in these accounts.261 By 2010, assets with a value of approximately US$850,000 had been seized, with around US$108,000 forfeited.262 In addition, India maintains a list of its own designated terrorist organisations based on section 35 of the Unlawful Activities Act and this list is published in the Schedule attached to the Act. The list currently contains 37 entities as designated terrorist entities, including those individuals or entities mentioned in the 2007 Order issued pursuant to UN Resolutions.263 The MER 2010 (India) determined that, even though since 2007 India has introduced legislation and procedures that enable it to freeze terrorist funds, there still remain some shortcomings. It rated India ‘largely compliant’.264 257 Order F. No. 17015/10/2002-IS-VI. The procedures outlined in relation to SC Res 1267 (1999) equally apply to SC Res 1373 (2001). 258 Unlawful Activities Act, Ch 7. 259 Ibid s 2(1)(g). 260 Ibid s 21; MER 2010 (India), above n 236, 65. 261 See Letter dated 28 May 2004 from the Permanent Representative of India to the United Nations addressed to the Chairman of the Counter-Terrorism Committee (S/2004/451) 11. According to the Indian authorities, terrorist financing in India is mostly conducted through informal channels such as Hawala, drug smuggling and so on. 262 MER 2010 (India), above n 236, 50. 263 Ibid 64; FATF, Terrorist Financing FATF Report to G20 Leaders: Actions Being Taken by the FATF (November 2015) 7. 264 MER 2010 (India), above n 236, 69.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 48 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 49 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

148

Global counter-terrorist financing and soft law

(d) Suspicious Transaction Reports The Prevention of Money Laundering Act, 2002 and the Prevention of Money Laundering Rules265 impose a direct, mandatory obligation on all covered entities to report suspicious transactions to the FIU, regardless of the amount of the transaction.266 The FIU in India has been set up as the central national agency for receiving, processing, analysing and disseminating information relating to suspect financial transactions. It became fully operational in March 2006.267 During the financial year 2009–10, the Indian FIU had an annual budget of about US$10 million, which included provision for the further development and maintenance of the IT program and for hiring legal and other professional experts. The Prevention of Money Laundering Rules were amended, on 12 November 2009, to define “suspicious transaction” to include a transaction that “gives rise to a reasonable ground of suspicion that it may involve the proceeds of an offence specified in the Schedule to the Act, regardless of the value involved”.268 The FATF standard requires STRs for transactions suspected to involve the proceeds of crime without qualification.269 The impact of the prior limitation may have been significantly reduced by the alternative requirements to report. Nevertheless, as a technical matter, these alternative elements of the STR requirement would not necessarily reach all transactions suspected to involve the proceeds of crime. At its face, the language of the STR reporting requirement, covering transactions relating to the financing of the activities of terrorism, requires covered institutions to report suspicious transactions where they suspect, or have reasonable grounds to suspect, that the funds are linked or related to, or are to be used for, terrorism or terrorist acts, or by terrorist organisations, in compliance with the requirements of the

265 Prevention of Money Laundering Rules (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions and Intermediaries) Rules, 2005 (‘Prevention of Money Laundering Rules’). 266 MER 2010 (India), above n 236, 141. 267 Ibid 34, 84; Vivek Chadha, ‘Terrorism Finance: Sources and Trends in India’ (2014) 8(3) Journal of Defence Studies 57. 268 Prevention of Money Laundering Rules, r 2(g)(a). 269 FATF Recommendation 13.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 49 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 50 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

149

international standard.270 While the terrorism financing offence suffers from some limitations, including whether it covers the sole funding of individual terrorists or terrorist organisations, the STR reporting obligation relating to terrorist financing does not expressly reference the legal definition of terrorism under the Unlawful Activities Act. The FATF found that, given the high risk of terrorism and terrorist financing in India, the number of STRs received by the FIU is too low.271 The FATF evaluation team concluded that the Prevention of Money Laundering Act does not apply to commodities futures brokers and there is no definition of “activities of terrorism” in the Act, leaving it to reporting institutions to interpret the scope of the STR requirement with respect to the financing of the activities of terrorist. The FATF also had concerns about the extremely low number of STRs filed in relation to the financing of terrorism, in comparison with India’s vulnerability to terrorism. It gave India the ranking of ‘partly compliant’.272 After the MER 2010 (India), India made amendments to the Prevention of Money Laundering Act, which were enacted by Parliament in December 2012, with brokers now subject to the Act. The Prevention of Money Laundering Rules were amended in June 2010 and an explanation of the definition of STR was added. With regard to terrorist financing, 44 STRs were made in 2007, followed by 133 in 2008 and 14 in 2009. In 2010, 12 reports were made.273 A technical team of the FATF that visited India during April 2011 commended the FIU on its efforts to pick up on the points made in the MER, to monitor the trends in STR filing, and to be proactive in its direct engagement with the reporting institutions. The FIU continued to make progress in the areas of enhanced outreach, which was acknowledged by the FATF in various follow-up reports.274 The year 2015 saw a

Recommendations 13 and 20. Prevention of Money Laundering Rules, r 2(g)(a). 272 MER 2010 (India), above n 236, 153. 273 MER 2010 (India), above n 236, 152. 274 Financial Intelligence Unit–India, Ministry of Finance, Government of India, Annual Report 2013–14 (2014) 22–5; Financial Intelligence Unit-India, Ministry of Finance, Government of India, Annual Report 2014–15 (2015) 12–18; Financial Intelligence Unit-India, Ministry of Finance, Government of India, Annual Report 2015–16 (2016) 11–18. These reports, published by the India FIU, which should provide the relevant information in India, does not differentiate between general STRs and those related solely to terrorist financing. 270 271

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 50 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 51 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

150

Global counter-terrorist financing and soft law

record increase in the number of reports received, processed and disseminated by the FIU. Compared to the previous year, the number of CTRs had doubled. As the deficiencies from the MER 2010 (India) were addressed, and it was concluded that India’s level of compliance with Recommendation 20 is essentially equivalent to ‘largely compliant’.275 (e) International Cooperation The statutory provisions for mutual legal assistance in criminal matters, including terrorist financing, are contained in the Code of Criminal Procedure, 1973, the Extradition Act 1962, and the Prevention of Money Laundering Act. The Code of Criminal Procedure provides for mutual legal assistance regarding identification, seizure or forfeiture of proceeds of crime and assets used in the commission of an offence, including property obtained through proceeds of crime.276 This means that proceeds and instrumentalities used in a financing of terrorism offence are covered. Although there are measures in the laws to provide mutual legal assistance in criminal matters and structured mechanisms for handling such requests, shortcomings still exist when comparing these to the international standard. The FATF suggested, after an on-site visit, that the Indian authorities rectify domestic shortcomings regarding criminalisation, confiscation and provisional measures, which also affect the possibilities to provide mutual legal assistance in coercive actions.277 The FIU of India and the law enforcement agencies can provide a wide range of international cooperation to their foreign counterparts with regard to CTF. Information exchange that takes place through bilateral or multilateral arrangements is based on relevant provisions in the laws and regulations governing the functioning of these institutions. The FIU provides information in response to specific requests received from foreign FIUs, but also forwards information spontaneously, if it considers that this information will be relevant to a foreign FIU. The FIU has the same powers for the processing of information requests from other FIUs as for the analysis of the STRs received. This means that the FIU can search its own databases, search public databases, and obtain information upon request from other competent authorities in India—including law enforcement agencies.278 In the last case, the FIU 275 276 277 278

Columns Design XML Ltd

/

8th Follow-Up India, above n 237, 18. Code of Criminal Procedure, Ch. VIIA. MER 2010 (India), above n 236, 237. Ibid 241.

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 51 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 52 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

151

informs the competent authority about the purpose of its request, as well as on whose behalf the information is being requested. In addition, the powers of the FIU to seek additional information from the reporting entities can be used in relation to specific requests received from foreign counterparts.279 However, financial information is only shared based on mutual reciprocity and confidentiality. The FATF surmised that the Indian authorities should ensure that there are clear and effective gateways and mechanisms in place for the Reserve Bank of India that allow for prompt and constructive exchanges of confidential information with foreign counterparts. It rated India ‘largely compliant’.280 (f) Money or Value Transfer Services Money service businesses and foreign exchange houses, which facilitate cross-border money transfers, are required to be licensed or authorised by the Reserve Bank of India.281 They are subject to routine transaction reporting requirements and must undergo annual inspection by the Reserve Bank for compliance with the Foreign Exchange Act regulations. The list of Indian agents offering money transfer services, including through the normal banking activity, is placed on the Reserve Bank website. The Foreign Exchange Act provides for the imposition of penalties, besides providing for the confiscation of property involved in any contravention of the provisions of the Foreign Exchange Act. However, contravention of provisions of the Foreign Exchange Act is not a criminal offence. With regard to the intended use of such funds, the action against the recipients or transferor of such funds is taken under various Acts—such as the Unlawful Activities Act (as amended), if the funds are meant for financing of terrorism; the Foreign Contribution (Regulation) Act, 2010, if the funds are received as a donation to certain notified bodies outside of banking channels; the Prevention of Money Laundering Act, if the funds are the proceeds of crime relating to scheduled offences; and so on. In such cases, the Hawala operator, as well as the recipient of the funds, is liable for criminal action, as provided in the law.

Prevention of Money Laundering Act, s 13. MER 2010 (India), above n 236, 245. 281 Foreign Exchange Management Act, 1999 (‘Foreign Exchange Act’) and Payment and Settlement Systems Act, 2007. 279 280

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 52 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 53 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

152

Global counter-terrorist financing and soft law

The primary enforcement authority dealing with informal remittances is the Directorate of Enforcement within the Ministry of Finance, based on its specific role regarding the enforcement of the provisions of the Foreign Exchange Act. The Directorate works in close coordination with other agencies—such as the State Police, the Narcotics Control Bureau, Customs, and the Income Tax Department—which are empowered to take appropriate action under the relevant legislation of the country.282 India was rated ‘largely compliant’. (g) Wire Transfers In India, commercial banks, urban cooperative banks, regional rural banks, and state and district-level cooperative banks can conduct domestic wire transfers. The only financial institutions permitted to conduct cross-border wire transfers are banks that qualify as ‘authorised persons’ under the Foreign Exchange Act.283 In addition, India Post, which became subject to the Prevention of Money Laundering Act in June 2009, is authorised to conduct both domestic and cross-border wire transfers.284 The Reserve Bank of India circulars explicitly require ordering institutions to verify the originator’s identity for all cross-border wire transfers, regardless of the amount. In addition, the 12 November 2009 amendments to the Prevention of Money Laundering Rules require covered institutions to verify the identity of the customer carrying out any international money transfer operations, which would include international wire transfers of any amount.285 The November 2009 amendments to the Prevention of Money Laundering Rules obligate covered institutions to verify the customer‘s identity at the time of opening an account or executing any transaction equal to or exceeding the equivalent of US$1,000, whether conducted as a single transaction or as several transactions that appear to be connected. This general customer due diligence provision covers all wire transfers, including domestic wire transfers, and satisfies this element of Recommendation 16. India has established obligations with respect to cross-border wire transfers that appear to largely comply with Recommendation 16. India Post is now governed by the Prevention of Money Laundering Act, correcting a significant scope issue that existed before June 2009 (even

282 283 284 285

Columns Design XML Ltd

/

MER 2010 (India), above n 236, 198. Foreign Exchange Act, s 10. MER 2010 (India), above n 236, 230. Prevention of Money Laundering Rules, r 9(1)(b)(ii).

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 53 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 54 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

153

before India Post became subject to the Prevention of Money Laundering Act, the use of banks to effect these cross-border wire transfers reduced their vulnerability to money laundering and terrorist financing, since banks are subject to obligations with respect to cross-border wire transfers that comply with Recommendation 16). India was rated ‘largely compliant’, as the Prevention of Money Laundering Act did not apply to India Post, which is authorised to conduct both domestic and cross-border wire transfers, until June 2009.286 It seems that India is now compliant with this standard. (h) Non-Profit Organisations The NPO sector plays a vital social role in Indian society, yet India does not maintain a unified database for NPOs. Each registering authority maintains its own database. This includes a range of agencies for a variety of purposes: the Ministry of Home Affairs,287 the Income Tax Department,288 the Registrar of Societies,289 the Charities Commissioner,290 and the Registrar of not-for-profit companies.291 By government estimates, there are approximately two million foreign and domestic NPOs operating in India.292 NPOs seeking tax-exempt status must register under the Income Tax Act, 1961. NPOs that receive funds from outside India must register under the Foreign Contribution (Regulation) Act. India concentrates most of its efforts on tax-exempt NPOs, as well as those receiving foreign contributions, but these NPOs account for only a small number of entities within the sector. Therefore, the FATF recommended, in 2010, that India should: (1)

undertake a comprehensive NPO sector review capturing all relevant data necessary, including the adequacy of domestic laws in the NPO sector; undertake a detailed risk assessment of the sector for terrorist financing;

(2)

286 287 288 289 290 291 292

Columns Design XML Ltd

/

MER 2010 (India), above n 236, 135. Foreign Contribution (Regulation) Act, 1976. Income Tax Act, 1961. Societies Registration Act, 1860. Bombay Public Trust Act, 1950 and other similar state statutes. Companies Act, 2013, s 25. MER 2010 (India), above n 236, 218.

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 54 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 55 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

154

(3)

Global counter-terrorist financing and soft law

undertake comprehensive outreach to the NPO sector with a view to protecting the sector from abuse for terrorist financing, as well as wider outreach in relation to good governance and accountability; ensure that NPOs maintain information on the identity of the persons who own, control or direct their activities, including senior officers, board members and trustees; demonstrate that appropriate measures are in place to sanction violations of oversight measures or rules by NPOs or persons acting on behalf of NPOs, other than those registered under the Income Tax Act and the Foreign Contribution (Regulation) Act; and implement measures to ensure that all NPOs are licensed and/or registered as such and make this new information available to the competent authorities.

(4)

(5)

(6)

India was rated, in the MER 2010 (India), as ‘non-compliant’ with this standard.293 Three years later, with the effect of the MER on India’s CTF made clear, the follow-up report asserted that: (1)

The NPO Sector Assessment Committee had completed its review of the adequacy of domestic laws in the NPO sector and made recommendations to strengthen the domestic laws in this area.294 The specific deficiency identified in the MER 2010 (India) was addressed.295 India had referred to a report drafted by it, which found that the risk posed by the NPO sector is low. However, as India’s focus was on only one part of the NPO sector, this deficiency was only partially addressed.296 The Ministry of Home Affairs had conducted a series of outreach programmes covering four regions in India. India reported that the Ministry of Home Affairs had the intention to conduct similar outreach programmes on a regular basis and, therefore, this deficiency was addressed.

(2)

(3)

MER 2010 (India), above n 236, 221. Report of the Committee of March 2011 and a separate report titled Foreign Contribution and NPOs, adopted 11 April 2011, which were subsequently adopted by the government. 295 8th Follow-Up India, above n 237, 39. 296 Ibid 39–40. 293 294

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 55 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 56 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

(4)

155

Scrutiny guidelines are developed on a yearly basis to ensure that cases involving possible tax evasion are identified. India is of the view that the terrorist financing risk in the NPO sector mainly relates to the receipt of funds from abroad. To be registered or granted permission to receive funds from abroad, the NPO must submit some information (that is, name, name of father or husband, nationality, occupation and address of workplace, post held in the entity, relationship with other members, and address for correspondence). India’s focus is on some parts of the NPO sector only and, as a result, this deficiency is only partially addressed. The Foreign Contribution (Regulation) Act, 1976 was replaced by the Foreign Contribution (Regulation) Act, 2010. The Foreign Contribution (Regulation) Rule, 2011,297 providing for NPOs receiving foreign funds to be regulated in a more efficient manner, came into force on 1 May 2011. Five new positions were created in the monitoring unit of the Foreign Contribution (Regulation) Act to increase its strength. In addition, the Central Board of Taxes was in the process of implementing an online return filing facility. Once fully implemented, information regarding NPOs claiming tax exemption is being regularly uploaded onto the website of the Income Tax Department and is thus publicly available. The majority of NPOs are not registered as such with government agencies, including the tax authorities. India’s report showed that banks have a crucial role in ensuring that the provisions of the Foreign Contribution (Regulation) Act and the Foreign Contribution (Regulation) Rule are not misused.298 Banks are subject to a mandatory disclosure obligation to the government in relation to receipt of a foreign contribution. These actions contribute to focusing the attention of authorities on higher risk NPOs, but it is not clear what percentage of the NPO sector is now registered (consequently, it cannot be determined to what extent this deficiency is addressed).

(5)

(6)

India has clearly made progress with regard to Recommendation 8 and its level of compliance has improved, in accordance with the suggestions

297 298

Columns Design XML Ltd

/

Foreign Contribution (Regulation) Rule, 2011. 8th Follow-Up India, above n 237, 41.

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 56 /

Date: 24/2

JOBNAME: EE3 Goldbarsht PAGE: 57 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

156

Global counter-terrorist financing and soft law

made in the MER 2010 (India). It is considered to be close to ‘largely compliant’.299 (i) Cash Couriers To implement Recommendation 32, India uses a combination of currency declaration forms and a disclosure system. Customs officers are empowered to enforce the restrictions placed by the government on the import and export of currency.300 The declaration and disclosure regimes apply to currency and bearer negotiable instruments carried by incoming persons moving through India’s airports and its land borders. Regarding the import and export of foreign exchange: + Import of foreign exchange into India: There is a general provision in the Foreign Exchange Management (Export and Import of Currency) Regulations, 2000301 that prohibits a person, without the general or special permission of the Reserve Bank of India, to export or send out of India, or to import or bring into India, any foreign currency. However, a person is permitted to send or bring currency into India on the condition that either: (1) the aggregate value of the foreign exchange in the form of currency notes, at any one time, does not exceed US$10,000; or (2) the person makes, on arrival in India, a declaration to the customs authorities in the currency declaration form annexed to the Foreign Exchange Management Regulations.302 + Export of foreign exchange: Contrary to the import of foreign exchange, there is no declaration obligation attached to the export of foreign exchange. A failure to file a currency declaration form upon entry to India will amount to a breach of the Customs Act.303 The discovery of a false declaration will give rise to a power by customs officers to request and obtain further information with regard to the origin of the currency and its intended use.304 In cases

Ibid 42. Foreign Exchange Act, s 38. 301 Foreign Exchange Management (Export and Import of Currency) Regulations, 2000 (‘Foreign Exchange Management Regulations’), cl 5. 302 Ibid cl 6. 303 Customs Act, 1962, s 111 or s 113. 304 Ibid s 107. 299 300

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 57 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 58 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

157

of a suspicion of money laundering or terrorist financing, the customs officers themselves have powers to stop or restrain the currency on the basis of the provisions in the Customs Act.305 Where there is a false declaration or disclosure regarding cross-border transportation of cash and bearer negotiable instruments, the cash and the bearer negotiable instruments are liable for confiscation.306 If the customs officer has reason to believe that goods are liable to confiscation, they may be seized.307 A person who is carrying out a physical cross-border transportation of currency or bearer negotiable instruments that are related to terrorist financing is considered to be holding terrorist funds, which is an offence punishable by a maximum term of life imprisonment, as well as a fine.308 If the person carries the bearer negotiable instruments with the intention of furthering the activity of a terrorist organisation, the offence is punishable with imprisonment for a term not exceeding 14 years, a fine, or both.309 The FATF found, in 2010, that the declaration system is used only in relation to the importation of currency and not for the export of currency from India. In terms of currency declaration forms for the importation of currency, these seem only to be used at international airports. The arrival card for incoming passengers provides the prompt for currency declaration forms; however, the arrival card itself is deficient in terms of guidance. It includes no field for acknowledging the carriage of currency above the threshold and an inadequate guidance note as to the strict legal nature of the requirement to disclose this information. The FATF concludes that India should act to address the deficiencies identified in relation to the implementation of the FATF Recommendation 32. Therefore, in the MER 2010 (India), India was rated ‘partly compliant’.310 After the report, in order to improve its border declaration systems, India developed a tool that allows for the online identification of all currency declaration forms filed by persons carrying currency above the

305 306 307 308 309 310

Columns Design XML Ltd

/

Ibid ss 2(22), 110, 111(d) and 113(d). Ibid ss 111(d) and 113(d). Ibid s 110. Unlawful Activities Act, s 21. Ibid s 40. MER 2010 (India), above n 236, 93.

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 58 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 59 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

158

Global counter-terrorist financing and soft law

threshold limit at international borders, including at land customs stations and at airports. In addition, customs authorities further improved resources for the centralisation of the data collected and for making the data available to law enforcement agencies and India’s FIU. An X-ray baggage inspection system has been installed at various airports, seaports, and land customs stations in the country. Also, the arrival card has been amended to remove the ambiguities regarding the statutory requirement of declaring currency in excess of the prescribed threshold, as well as the sanctions for non-compliance. The new version of the amended arrival card is expected to be used by relevant customs authorities at all cross-border control points. It can be concluded that Indian authorities have clearly taken actions to address the FATF comments from the MER 2010 (India). India has taken several measures to improve its compliance with regard to Recommendation 32. Its level of compliance was rated ‘largely compliant’.311 (j) Summary Since the adoption of the MER 2010 (India), India has focused its attention on strengthening its AML/CTF regime based on a high-level political commitment to the ‘Action Plan to strengthen India’s AML/CTF System’ adopted by the FATF in June 2010. India rectified nearly all of the technical deficiencies identified with respect to the criminalisation of terrorist financing and the implementation of effective confiscation and provisional measures through amendments to the Prevention of Money Laundering Act and the Unlawful Activities Act. The financial services regulators have all issued an extensive range of enforceable circulars, which, together with amendments to the Prevention of Money Laundering Act and the related Prevention of Money Laundering Rules, substantially address the technical deficiencies identified in relation to customer due diligence and other preventive measures. CTF (and AML) compliance monitoring has been introduced for the first time for India Post’s financial services business. The inspection programme commenced in April 2011. With respect to the STR regime, the FIU has further enhanced its outreach programme to provide guidance to the financial sector on its reporting obligations, and has engaged in extensive compliance monitoring.

311

Columns Design XML Ltd

/

8th Follow-Up India, above n 237, 44.

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 59 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 60 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

159

The recent amendments to the Prevention of Money Laundering Act brought several of the designated non-financial businesses and professions within its scope (casinos, real estate agents, dealers in precious metals, and others, but no immediate action is currently planned with respect to lawyers and accountants, whom the Indian authorities consider pose a low risk for money laundering). The first MER of India was adopted on 24 June 2010. India was involved in a regular follow-up process for mutual evaluation processes. However, in the context of its membership application to the FATF, it presented a detailed action plan to improve compliance with the recommendations. The ‘Action Plan to strengthen India’s AML/CTF System’ was amended and subsequently adopted by the June 2010 FATF Plenary. India was given ‘Observer’ status at the FATF in 2006. Its interest in complying with the FATF recommendations was not just due to a concern with facing sanctions for non-compliance. Rather, India wanted to become a member state and was working hard to achieve a fullfledged membership. In 2010, the FATF Plenary decided to grant membership status to India. However, since India had not met all of the FATF membership criteria, the Plenary also decided that India should report to each Plenary on the progress made in the implementation of the Action Plan, and that a technical follow-up visit should take place prior to the June 2011 Plenary. India reported back to the FATF, at least annually, with follow-ups.312 In February 2013, India indicated that it would report to the Plenary again in June 2013 concerning the additional steps taken to address the deficiencies identified in the report, and that it would apply to move from regular follow-up. According to the June 2013 follow-up report on India’s implementation, India had made sufficient progress for all core and key recommendations.313 Consequently, and as a result of India’s compliance, it was removed from the regular follow-up process.

312 In October 2010 (first follow-up report); in February 2011 (second follow-up report); in June 2011 (third follow-up report); in February 2012 (fourth follow-up report); in June 2012 (fifth follow-up report); in October 2012 (sixth follow-up report); and in February 2013 (seventh follow-up report). 313 Sanghamitra Sarma, ‘Financial Action Task Force: An Indian Perspective’ Indian Council of World Affairs (9 August 2016); 8th Follow-Up India, above n 237, 8.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 60 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 61 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

160

Global counter-terrorist financing and soft law

Table 5.4 Summary of India rating compliance with FATF Recommendations314 Old Number Recommendations SR.I: Implement UN instruments SR.II: Criminalise terrorist financing SR.III: Freeze and confiscate terrorist assets SR.IV: Suspicious transaction reporting SR.V: International cooperation SR.VI: Requirements for money/value transfer services SR.VII: Wire transfer rules SR.VIII: Non-profit organisations SR.IX: Cash couriers

New Number 36 5 6 20 37 14 16 8 32

Old Rating315

Rating316

Partially Compliant Partially Compliant Largely Compliant Partially Compliant Largely Compliant Largely Compliant Largely Compliant Non-Compliant

Largely Compliant Largely Compliant Not Applicable317 Largely Compliant Not Applicable Not Applicable Not Applicable Partially Compliant Largely Compliant

Partially Compliant

ISRAEL Israel is not a permanent member of the UNSC, nor was it a member of the FATF until the end of 2018.318 It is a financial centre and considered a terrorist centre, as the State of Israel has been threatened by terrorism since its founding in 1948.319 As a result, it has developed an extensive

The ‘Old Number Recommendations’ column refers to the corresponding 2003 FATF recommendation. 315 MER 2010 (India), above n 236. 316 8th Follow-Up India, above n 237. 317 These FATF recommendations are ‘N/A’, as they received ‘largely compliant’ ratings in the MER and are therefore not investigated in follow-ups. 318 Israel joined as an observer to MONEYVAL (FSRB) in January 2006 and as an observer to the FATF on 19 February 2016. It is also an observer to the Parliamentary Assembly. In December 2018 it joined the FATF as a full member. 319 State of Israel, Report to the Counter-Terrorism Committee pursuant to paragraph 6 of Security Council Resolution 1373 (2001) (31 December 2001) 3. 314

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 61 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 62 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

161

network of government authorities, a body of domestic legislation, a range of practical policies, and an intense commitment to combating terrorism in all forms. Israeli legislation concerning terrorism finds its roots in the days of the British Mandate in Palestine. Faced with resistance, the British government enacted a detailed anti-terrorism law, the Defence (Emergency) Regulation 1945,320 which was intended to apply in a state of emergency.321 After declaring independence in 1948, Israel was confronted with new security challenges. First, it had to combat attacks by both surrounding Arab countries and local Palestinians, who opposed the establishment of the state. Second, it needed to confront Jewish extremist groups that had retained underground methods used against British rule. Acknowledging the danger of these activities, the new Israeli government pursued anti-terrorism measures, the Prevention of Terrorism Ordinance 1948,322 which authorised the government to declare a group a terrorist organisation and to render both membership and support of the group a criminal offence. Analysing the data for Chapter 4 shows that Israel, like the other Western states, implemented all the international standards related to TF, but the Israeli compliance with FATF recommendations did not actually

320 Defence (Emergency) Regulation 1945, Palestine Gazette no. 1442, Supp. No. 2, 1055 (‘Defence Regulations’), primarily reg 85(1)(8), which establishes an offence of fundraising for an unlawful association. 321 In fact, an ‘emergency’ was declared in Israel in May 1948, when the War of Independence was taking place, and has since continued. See Daphne Barak-Erez, ‘Israel’s Anti-Terrorism Law: Past, Present and Future’ in Victor V. Ramraj et al., Global Anti-Terrorism Law and Policy (Cambridge University Press, 2012) 597, 598, 618. For the history of the terrorism laws in Israel, see Clude Klein, ‘On the Three Floors of Legislative Building: Israel’s Legal Arsenal in Its Struggle against Terrorism’ (2005) 27(5) Cardozo Law Review 2223. 322 Prevention of Terrorism Ordinance (1 LSI 76) (‘Prevention of Terrorism Ordinance’). Section 4(d) of the Ordinance provides that a person who gives money or money’s worth for the benefit of a terrorist organisation is guilty of a crime. Section 4(e) and (f) establish as an offence where a person puts a place at the disposal of anyone in order that that place may serve a terrorist organisation or a member of a terrorist organisation, regularly or on one particular occasion, as a place of action, meeting, propaganda or storage (s 4(e)); or puts an article at the disposal of anyone in order that that article may serve a terrorist organisation or a member of a terrorist organisation in carrying out an act on behalf of the terrorist organisation (s 4(f)).

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 62 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 63 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

162

Global counter-terrorist financing and soft law

commence with compliance with the CTF regime. Israel had, in fact, been on the FATF’s Black List since June 2000, due to its absence of AML legislation. This caused Israel to fall short of the FATF standard in the areas of mandatory STR, the criminalisation of money laundering arising from serious crimes, and establishing an FIU.323 Due to the serious systemic problems identified, Israel was listed among NCCTs. The FATF recommended, in accordance with Recommendation 19 (‘Higher-risk countries’), that financial institutions pay special attention to business relations and transactions with persons, including companies and financial institutions, in Israel.324 It was in Israel’s self-interest to comply with the FATF recommendations and to be removed from the Black List. On 2 August 2000, Israel enacted the Prohibition on Money Laundering Law,325 just two months after being listed as an NCCT.326 The Prohibition on Money Laundering Law addresses the crime of money laundering, as well as customer identification, record-keeping, and reporting requirements. The Israel Money Laundering Prohibition Authority was established on 8 January 2002 and functions as an FIU (it was admitted into the Egmont Group in June 2002).327 The FATF subsequently removed Israel from the NCCT list later that month328 and ceased its formal monitoring of the state in October 2003.329 Since that time, Israel has continued to amend the Prohibition on Money Laundering Law in accordance with the standard.330 The legal foundations of Israel’s CTF were established soon after it gained its independence. A major portion of this legal infrastructure was based on British Mandatory legislation that was automatically adopted into Israeli law, intended 323 FATF, Review to Identify Non-Cooperative Countries or Territories: Increasing the Worldwide Effectiveness of Anti-Money Laundering Measures (22 June 2000) 6. 324 Ibid 12. 325 Prohibition on Money Laundering Law (5760-2000) (‘Prohibition on Money Laundering Law’). 326 FATF, above n 323, 10–11. 327 Official Date of Entry to the Egmont Group: 5 June 2002. 328 FATF, Review to Identify Non-Cooperative Countries or Territories: Increasing the Worldwide Effectiveness of Anti-Money Laundering Measures (21 June 2002) 1. 329 FATF, Annual Review of Non-Cooperative Countries or Territories 2004 (2 July 2004) 14. 330 Draft bill for the Prohibition on Money Laundering Law 2009. Almost every change was done ‘according to the FATF recommendation’.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 63 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 64 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

163

primarily for the fight against terrorism at the local level.331 The globalisation of terrorism, the Terrorist Financing Convention, the UNSC resolutions, and the FATF recommendations necessitated a response from the Israeli legislature, which took the form of the Prohibition of Terrorist Financing Law.332 The centrality of terrorism threats in the Israeli context and the aforementioned legislation in the area (scattered and relatively old) motivated Israel to prepare a new anti-terror bill, aimed at reforming and updating current legislation. The Anti-Terror Law 2016333 has fully repealed the Terrorism Ordinance, the Prohibition of Terrorist Financing Law,334 and the Defence Regulations pertaining to the financing of terrorism,335 with effect from November 2016.336 In fact, in contrast to other states, Israel did not introduce an overall reform to its antiterrorism legislation following the attacks of 11 September 2001, as such events were not foreign to the people of Israel. Since the founding of the State of Israel, its citizens have found themselves living their lives, going to school, working and raising families, all in the shadow of terror. The only novel legislation to be introduced was to Israel’s CTF regime—initially with the Prohibition of Terrorist Financing Law in accordance with the FATF’s international standard, and later with the

331 Gilad Noam, ‘The Legal Battle against the Financing of Terrorism in Israel’ (Israeli Democracy Institute, Policy Paper 79, September 2009) iv. 332 Prohibition on Terrorist Financing Law (5765-2004) (‘Prohibition on Terrorist Financing Law’). See also the draft bill to the Prohibition of Terrorist Financing Law (21 July 2003) 552, 569. 333 Anti-Terror Law 2016 (‘Anti-Terror Law’). Amendments to the AntiTerror Law entered into force on 14 February 2018. 334 Ibid ss 73 and 74 cancelled the Terrorism Ordinance and the Prohibition on Terrorist Financing Law (respectively). 335 Ibid s 76(2) cancelled different regulations in the Defence Regulations, specifically with regard to CTF: reg 84(1), which defined a ‘prohibited association’; reg 84(2), which provided the consequences of a declaration of a prohibited association; reg 85, which provided a series of offences relating to a prohibited association; and reg 120, which gave the power, to the Minister of Defence, to forfeit property related to terrorism even without a declaration as a prohibited association. 336 Ibid ss 73, 74 and 76 with regard to the cancellation of regs 84, 85 and 120; according to s 100(b) of the Anti-Terror Law, the cancellation date was delayed to March 2017; for the proposed reforms bill, see Barak-Erez, above n 321, 617–18.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 64 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 65 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

164

Global counter-terrorist financing and soft law

Anti-Terror Law, which repealed the Prohibition of Terrorist Financing Law but kept its provisions. (a) International Instrument Israel signed the Terrorist Financing Convention on 11 July 2000 and ratified it on 10 February 2003. At the time of the adoption of the MER 2008 (Israel),337 Israel was a party to the UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, the UN Convention against Transnational Organised Crime, and the Terrorist Financing Convention. In each relevant sphere, implementing legislation was in place.338 Insofar as FATF Recommendation 36 is concerned, the rating of ‘largely compliant’ was based on a lack of full compliance with SC Res 1267 (1999) and effectiveness concerns, given the recent promulgation of the Prohibition on Terrorist Financing Law.339 Since the MER 2008 (Israel), Israel has amended the Prohibition on Terrorist Financing Law in order to improve its domestic declaration (or listing) mechanism, altered its administrative arrangements, and provided further guidance to obligated entities.340 However, exempting Israeli citizens who are also Israeli residents from the declaration process was inconsistent with

337 MONEYVAL, Detailed Assessment Report on Israel (July 2008) (‘MER 2008 (Israel)’). 338 The Israeli Security Cabinet approved on 24 December 2008 declarations of 35 foreign designated terrorist organisations. All the organisations declared are related to Al Qaeda and the Taliban. As a result, financial institutions in Israel must monitor their clients and transactions and report to the Money Laundering Prohibition Authority any suspicious or unusual transactions in this respect. The declarations are in accordance with the international standards as set by the relevant UNSC resolution and the FATF. The declarations have been approved according to the Prohibition on Terrorist Financing Law and are additional to existing designations of ‘local’ terrorist organisations (such as Hamas and Hezbollah) previously designated under the Defence Regulations and under the Terrorism Ordinance. See MONEYVAL, Israel Progress Report and Written Analysis by the Secretariat of Core Recommendations (14 December 2011) (‘Assessment Report 2011’) 93–5. 339 MER 2008 (Israel), above n 337, 172–3. 340 MONEYVAL, Report on Fourth Assessment Visit (December 2013) (‘MER 2013 (Israel)’) 181.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 65 /

Date: 24/2

JOBNAME: EE3 Goldbarsht PAGE: 66 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

165

international standards.341 Therefore, Israel could not avoid a rating of ‘largely compliant’ in the MER 2013 (Israel).342 Today, in the Anti-Terror Law, a ‘terrorist organisation’ is defined as a listed terrorist organisation or an association of people that commits an act of terror or a serious terror offence, or acts to enable or promote such activities.343 An ‘association of people’ is considered to be a section, branch, faction or institute of the aforementioned groups, which broadens the Prohibition on Terrorist Financing Law definition that failed to address shell organisations.344 There are two declarations of terrorist organisation available. The first is by the Minister of Defence, who can declare a group of people a terrorist organisation if convinced that the criteria is fulfilled.345 The second is by a Committee of Ministers, where a reasonable basis is provided to assume that a said foreign person or association346 is a terrorist organisation, and where this has also been determined by a competent entity outside of Israel.347 The interdiction of the Anti-Terror Law, which entered into force in November 2016, brings Israel into full compliance with this recommendation.348 (b) Terrorist Financing Offences Throughout its history, Israel has sought to address the financing of terrorism through criminal law. It has relied upon various pieces of The Prohibition on Terrorist Financing Law, Ch 2 dealt with declarations that a foreign person is a terrorist activist or that a foreign organisation is a terrorist organisation in accordance with a determination outside of Israel. This way, the Israeli authorities can list a terrorist organisation or person whose acts have no direct connection with Israel according to listing by others. If it is possible to do so, the organisation or person will be listed according to the Israeli laws (the Defence Regulation and the Prevention of Terrorism Ordinance), which give broader administrative tools. See MER 2008 (Israel), above n 337, 182. 342 MER 2013 (Israel), above n 340, 182. 343 Anti-Terror Law, s 2. 344 Prohibition on Terrorist Financing Law, s 1. For a critique of the (then) proposed Anti-Terror Law, see Mordechai Kremnitzer, Yuval Shany, Amir Fuchs, Shiri Krebs, Lina Saba, Yael Cohen, Ido Rosenzweig and Doron Goldbarsht, ‘Position Taken by the Israel Democracy Institute on the Draft Counter-Terrorism Bill’, Israel Democracy Institute (10 February 2014). 345 Anti-Terror Law, s 3. 346 Ibid s 10. 347 Ibid s 11. 348 FATF and MONEYVAL, Anti-Money Laundering and Counter-Terrorist Financing Measures – Israel, Fourth Round Mutual Evaluation Report (‘MER 2018 (Israel)’) 258. 341

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 66 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 67 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

166

Global counter-terrorist financing and soft law

legislation, including the Defence Regulations, the Terrorism Ordinance, the Prohibition on Terrorist Financing Law and the Penal Law (1977).349 The MER 2008 (Israel) concluded that Israel fully observed all essential criteria in Recommendation 5. It rated Israel ‘compliant’,350 as it had criminalised the financing of terrorism, terrorist acts, and terrorist organisations in a manner consistent with international standards. The FATF suggested in the MER 2013 (Israel)351 that Israel consider the impact of including in the Prohibition on Terrorist Financing Law the need to demonstrate that an act of terrorism was committed “in order to influence a matter of policy, ideology or religion”. Israel’s rating was (again) ‘compliant’ with this standard. It should be noted that according to the Anti-Terror Law, an ‘act of terrorism’ may refer to any act that constitutes an offence, or a threat to commit such an offence, provided that certain conditions are met. The general condition is that the act is performed, or threatened to be performed, with a political, ideological, religious or nationalist motive352 (‘nationalist’ is a condition available to include an act of terrorism, an element not specified in the Terrorist Financing Convention). Under the current regime, it is an offence to perform a property transaction with the intention of assisting, advancing or financing the commission of a grave terrorist offence or rewarding its commission, or with the intention of assisting, advancing or financing the activity of a terrorist organisation.353 In addition, it is an offence for any person to provide a service such as shelter, food, vehicles, or any other resource to any person where doing so may ease or facilitate, directly or indirectly, the commission of a terrorist act.354

349 Penal Law 5737-1977, s 148. This section establishes as a criminal offence, punishable by six months’ imprisonment, the payment of membership dues to an unlawful organisation, as defined in that law. Under the general provisions of the Penal Law, the terms of this legislation apply to a citizen or resident of Israel who commits offences outside Israeli territory, or offences that were only partially committed within the territory of the state. See State of Israel, Report to the Counter-Terrorism Committee pursuant to paragraph 6 of Security Council Resolution 1373 (2001) (31 December 2001) 5–6. 350 MER 2008 (Israel), above n 337, 42. 351 MER 2013 (Israel), above n 340, 44. 352 Anti-Terror Law, s 2(a)(1). 353 Ibid s 31(a). 354 Ibid s 25; MER 2018 (Israel), above n 348, 188.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 67 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 68 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

167

(c) Target Financial Sanctions Related to Terrorism and Terrorism Financing Israel was considered to be ‘partly compliant’ for the freezing of terrorist assets in the MER 2008 (Israel).355 The primary shortcoming detected was lack of compliance with SC Res 1267 (1999) and SC Res 1452 (2002), with concerns given the (then) declaration of the Prohibition on Terrorist Financing Regulations.356 It was acknowledged in the Progress Report 2009357 that Israel had, for many years, focused on the freezing and subsequent confiscation of funds used for the financing of terrorism. Indeed, some of the legal instruments available to it dated back to the 1940s, long before the emergence of the UNSC as an actor in this sphere. This legislative base was supplemented in 2005 with the enactment of the Prohibition on Terrorist Financing Law—a primary purpose of which was the enhancement of Israel’s ability to give effect to the detailed provisions of the key UNSC resolutions covered by FATF Recommendation 6. Chapter 2 of the Prohibition on Terrorist Financing Law created a single system within Israel by which to treat those designated by the relevant UNSC committees pursuant to SC Res 1267 (1999) (and successor Resolutions), as well as those listed by foreign states as envisaged by SC Res 1373 (2001), for the purposes of Israeli law. In the period since the Progress Report 2009, Israel has taken various steps, both legislative and administrative, to facilitate enhanced compliance with the UNSC dimensions of Recommendation 6, as this had been identified as an area of relative weakness in the MER 2008 (Israel). On the legislative front, amendments to the Prohibition on Terrorist Financing Law came into force in July 2012.358 One of the primary goals of this exercise was to facilitate the process of domestic declaration by the relevant Committee of Ministers of those listed by the UNSC committee, pursuant to SC Res 1267 (1999) and successor resolutions. According to the original Chapter 2 of the Prohibition on Terrorist Financing Law, the Committee of Ministers had to be presented with ‘a reasonable basis’ upon which to assume that a listed person was a ‘terrorist activist’, or MER 2008 (Israel), above n 337, 50. Ibid 46–50. 357 MONEYVAL, Israel, Progress Report (First 3rd Round Written Progress Report, September 2009) (‘Progress Report 2009’) 34. 358 Prohibition on Terrorist Financing Law, amendment number 4, government decision 569, 376 (17 July 2012). 355 356

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 68 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 69 SESS: 5 OUTPUT: Fri Apr 3 14:57:55 2020

168

Global counter-terrorist financing and soft law

that an association of persons constituted a ‘terrorist organisation’.359 While that evidentiary threshold remains in an SC Res 1373 (2001) context—that is, where the listing has been made by a foreign country—it has been removed for those instances in which action has been taken by the UNSC or a body established under its authority.360 Such situations were to be governed by a different section of the Prohibition on Terrorist Financing Law, which reads as follows: If it has been determined by the Security Council of the United Nations or by some [sic] authorised by it that a foreign person is a person who is a terrorist activist or that a foreign body of persons is a terrorist organisation, then the Committee of Ministers is entitled, subject to the provisions of section (d)(i), to declare that same person a terrorist activist or that same body of persons a terrorist organisation.361

While, as previously noted, the Prohibition on Terrorist Financing Law is no longer in use, identical wording to that in the UNSC declaration, as found in the Anti-Terror Law,362 has been utilised to comply with the FATF standard. Israel amended the Prohibition on Terrorist Financing Law. However, the FATF found that the declaration process does not apply to Israeli citizens who are Israeli residents, and that the current time frame for giving effect to declarations following listings made pursuant to SC Res 1267 (1999) is insufficiently prompt. As noted, Israel conducts, on a regular basis, investigations into terrorist financing. It also launches prosecutions and secures convictions for the same. As of June 2015, the list of designated persons and organisations contained 410 names.363 With regard to financial sanctions, in 2008, €156,433 were frozen and €163,787 were confiscated; in 2009, €298,152 were seized and €1,838 were confiscated; in 2010, €156,050 were seized; in 2011, €30,032 were confiscated and €10,276 were seized; and in 2012, €346,832 were seized and €138,000 were confiscated.364 Prohibition on Terrorist Financing Law, s 2(a)(1). MER 2013 (Israel), above n 340, 49–50. 361 Prohibition on Terrorist Financing Law, s 2(a)(1a). 362 Anti-Terror Law, s 11(a)(3). 363 Ministry of Defence (Israel), Declarations on Activists in Accordance with the Prohibition on Terrorist Financing Law 5765-2004 and the Counter Terrorism Law 2016 (24 June 2015), available at http://www.mod.gov.il/Defenceand-Security/Fighting_terrorism/Pages/default.aspx [accessed 7 March 2018]. 364 MER 2013 (Israel), above n 340, 51. 359 360

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 69 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 70 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

169

The MER 2013 (Israel) thus deemed Israel to be ‘largely compliant’ with the FATF’s requirements.365 Declarations under the Anti-Terror Law may be made by the Committee of Ministers in relation to foreign persons and foreign bodies.366 For example, ‘foreign persons’ excludes Israeli citizens who are Israeli residents.367 Again, the exemption for citizens who are resident in the country constitutes a shortcoming in the efforts of Israel to comply with international standards, which caused Israel to preserve the same rating as before.368 (d) Suspicious Transaction Reports In the MER 2008 (Israel), Israel was rated ‘largely compliant’ with the standard for STR due to three deficiencies:369 (1) section 10(b) of the Prohibition on Terrorist Financing Law required amendment to avoid confusion about the mandatory nature of STRs on terrorist financing to the FIU, as provided for in section 48 of the same law; (2) attempted transactions were not explicitly covered; and (3) the thresholds in the Orders were insufficient.370 The Prohibition on Terrorist Financing Law, the Prohibition on Money Laundering Law,371 and the STR obligations in various Orders constitute a system of mandatory reporting of unusual transactions related to terrorist financing. The competent authority for receiving such reports is the Israeli FIU. As mentioned above, the FIU for Israel is the Money Laundering and Terrorism Financing Prohibition Authority, which became operational on 17 February 2002. On 1 August 2002, its remit was extended to TF. It is an administrative body located within the Ministry of Justice and it performs the typical FIU functions, in that it first receives and centralises financial information disclosed by the reporting entities in the implementation of their preventative CTF (and AML) obligations.372

365 366 367 368 369 370 371

Ibid 52. Anti-Terror Law, s 11. Ibid ss 10(1) and 10(2). MER 2018 (Israel), above n 348, 194. FATF Recommendation 20. Assessment Report 2011, above n 338, 16. Prohibition on Money Laundering Law, s 7. See also Anti-Terror Law,

s 95. 372 Money Laundering and Terrorism Financing Prohibition Authority, Annual Report 2015–16 (2016) 21–2.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 70 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 71 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

170

Global counter-terrorist financing and soft law

The Prohibition on Terrorist Financing Law empowers the Governor of the Bank of Israel and the relevant Ministers to issue Orders for the purpose of enforcing the Law373 to all financial institutions (that is, members of the stock exchange, portfolio managers, insurers and insurance agents, provident funds, money changers, and the Postal Bank).374 The MONEYVAL team found that, to avoid confusion about the mandatory nature of STRs on financing terrorism to the FIU, Israel should remove section 10(b) of the Prohibition on Terrorist Financing Law. In response to the recommendations of the MER 2008 (Israel), Israel made several amendments to its laws and regulations. The Israeli legislature specifically applied the entire AML regime, including the reporting obligations of financial institutions, for an additional purpose: to CTF.375 Therefore, financial institutions are required to report to the Israeli FIU on terrorist financing-related property transactions. There are other statutory provisions that deal with the obligation to report. The Banking Order376 sets forth the obligation to report to the competent authority transactions by a service recipient that appear unusual. In order to assist the banking corporations in doing so, the Order provides a list of instances (including examples of activity) that may be

Prohibition on Terrorist Financing Law, s 48(a). Prohibition on Money Laundering Law, s 3. It should be pointed out that pursuant to ss 9 and 10 of the Prohibition on Terrorist Financing Law, all persons (not only a reporting entity subject to the CTF (and AML) reporting regime) shall report suspicions related to terrorist financing to the Israeli police in order to receive immunity from criminal liability following the instructions of the police. 375 Prohibition on Terrorist Financing Law, s 48. 376 Prohibition on Money Laundering (The Banking Corporations’ Requirement regarding Identification, Reporting, and Record-Keeping for the Prevention of Money Laundering and the Financing of Terrorism) Order (5761–2001), s 9. The Supervisor of the Banks issued a letter (dated 30 August 2004) that provides for an explanation that the word ‘unusual’ is to be construed so that if there is a reason to believe that a connection with money laundering exists, even though banking corporations have neither knowledge nor suspicion of a connection between the activity and the predicate offence, then it should be reported, but it refers only to money laundering. In order to address this gap, on 7 January 2008, the ‘Supervisor of the Banks’ published a clarification that terrorist financing should be added to circular of 30 August 2004 and the wording ‘and terror financing’ should be added after the wording ‘money laundering’, respectively. See Supervisor of the Banks, Letter 2138-06 (30 August 2004) 6. 373 374

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 71 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 72 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

171

deemed to reflect unusual transactions.377 The Stock Exchange Members Order similarly obliges members to report any transactions, or attempted transactions, of service recipients where such transactions appear to be unusual.378 Comparable measures apply to portfolio managers,379 insurers and insurance agents,380 provident funds,381 money service providers,382 and the Postal Bank.383 In order to address the other deficiency identified in the MER Israel (2008), Israel ensured the removal of all thresholds from the (relevant) Orders covering STRs384 and removed section 10(b) of the Prohibition on Terrorist Financing Law, replacing it with a provision declaring that the obligation to report to the Israeli Police does not substitute for a report to the Money Laundering Prohibition Authority.385 In 2008, 42 STRs were made; in 2009, there were 30. In 2010, 47 reports were made, followed by 184 in 2011 and 464 STRs related to terrorist financing in 2012.386 Therefore, the FATF deemed Israel ‘compliant’ with Recommendation 20.387 The Anti-Terror Law specifies that 377 Prohibition on Money Laundering (The Banking Corporations’ Requirement regarding Identification, Reporting, and Record-Keeping for the Prevention of Money Laundering and the Financing of Terrorism) Order (5761–2001), s 9(b). 378 Prohibition of Money Laundering (Obligations of Stock Exchange Members to Identify, Report and Retain Lists for the Purpose of Preventing Money Laundering and Financing Terrorism) (5770-2010), s 13. 379 Prohibition of Money Laundering (Obligations of Portfolio Managers to Identify, Report and Retain Lists for the Purpose of Preventing Money Laundering and Financing Terrorism) (5770-2010), s 10. 380 Prohibition on Money Laundering (Obligations of Identification, Reporting and Keeping of Records by Insurer and Insurance Agent) Order (5762-2001), s 6(C). 381 Prohibition of Money Laundering (Provident Fund and a Company Managing a Provident Fund Requirements Regarding of Identification and Record-Keeping) Order (5762-2001), s 6(10). 382 Prohibition of Money Laundering (The Money Service Providers’ Requirement regarding Identification, Reporting and Record-Keeping for the Prevention of Money Laundering and the Financing of Terrorism) Order (5774– 2014), s 6(a). 383 Prohibition on Money Laundering (Obligations of Identification, Reporting and Keeping Records of the Postal Bank to Prevent Money Laundering and Terrorism Financing) Order (5771-2011), s 12. 384 Assessment Report 2011, above n 338, 17. 385 Ibid 61. 386 MER 2013 (Israel), above n 340, 108. 387 MER 2013 (Israel), above n 340; MER 2018 (Israel), above n 348, 221.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 72 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 73 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

172

Global counter-terrorist financing and soft law

reporting in accordance with that law does not usurp the reporting requirements set out in the Prohibition on Money Laundering Law.388 (e) International Cooperation The ability to cooperate with other states, in an international effort to bring terrorists to justice, is founded in the Extradition Law.389 However, in the realm of CTF, the Prohibition on Money Laundering Law specifically provides for mutual assistance and the exchange of information between the Money Laundering Prohibition Authority and its foreign counterparts: In order to implement this Law, the Prohibition on Financing Terrorism Law, … the competent authority shall be entitled to transfer information stored in the database which it administers to an authority of its kind in another country, and to request information from such an authority … ; the provisions of the Legal Assistance between States Law, 5758-1998 shall apply with regard to this matter.390

The reference to Legal Assistance between States Law391 does not mean that the FIU information exchange must follow the mutual legal assistance procedure. Rather, the Minister of Justice has delegated authority to the head of the FIU to receive requests under the Legal Assistance between States Law, while the Attorney-General has delegated authority to the head of the FIU to submit requests for legal assistance. The Israel FIU consequently acts as a competent authority for the purposes of submitting and receiving requests from other states, in accordance with the provisions of the Legal Assistance between States Law. In addition, the Israeli Police is a member of Interpol and utilises this channel in order to both collect and supply information.

388 Anti-Terror Law, s 33(b). It should be noted that, according to s 34 of the Anti-Terror Law, any person who holds, in that person’s possession or control, a property of a listed terrorist organisation will report to the police when the person receives the property or after the declaration (according to the merits). 389 Extradition Law 1954. In May 2001, an amendment generalised the definition of extraditable offences, thus removing the need for specific inclusion of offences in the Extradition Law and greatly expanding the authority of Israel to cooperate with other states in the areas of international crime and terror. 390 Prohibition on Money Laundering Law, s 30(f). 391 Legal Assistance between States Law (5758-1998).

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 73 /

Date: 24/2

JOBNAME: EE3 Goldbarsht PAGE: 74 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

173

The MER 2008 (Israel) rated Israel ‘largely compliant’ with FATF Recommendation 37.392 It was recommended that Israel review restrictions to FIU access to law enforcement information.393 These restrictions have since been eliminated,394 resulting in an improved ranking of ‘compliant’ for Israel in the MER 2013 (Israel);395 however, due to a minor deficiency (requests for legal assistance can be refused), this rating was lowered to ‘largely compliant’.396 (f) Money or Value Transfer Services According to Israeli legislation, persons who perform money or value transfer services are defined as ‘money services providers’ and are required, under the Prohibition on Money Laundering Law, to be registered with the Registrar of Money Services Providers of the Ministry of Finance and to comply with all requirements set by that law and relevant CTF (and AML) Orders.397 Under the Prohibition on Money Laundering Law provisions, any person providing the following (financial) services is to be considered to be a money services provider: selling or redeeming travellers cheques of any currency type; using financial assets in one country to obtain financial assets in another; currency conversion; discounting cheques, bills of exchange, and promissory notes; discounting services as defined by the Banking (Service to Customer) Law;398 and providing financial assets in return for money.399 Applications for registration are submitted to the Registrar400 and must include the applicant’s identification details, as well as those of the beneficiary, where one exists.401 This information is kept up-to-date and made publicly available.402 In the MER 2008 (Israel), Israel was rated ‘partially compliant’ with respect to this FATF standard,403 due to deficiencies identified affecting 392 393 394 395 396 397 398 399 400 401 402 403

Columns Design XML Ltd

/

MER 2008 (Israel), above n 337, 189. Ibid 54. MER 2013 (Israel), above n 340, 199. Ibid 200. MER 2018 (Israel), above n 348, 260. Prohibition on Money Laundering Law, s 11C. Banking (Service to Customer) Law (5741-1981), s 7A. Prohibition on Money Laundering Law, s 11C(a). Ibid s 11D(a). Ibid s 11D(a)(1)–(4). Ibid s 11K. FATF Recommendation 14.

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 74 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 75 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

174

Global counter-terrorist financing and soft law

the compliance of money value transfers operators with FATF recommendations overall.404 The MER 2013 (Israel) found that the registration procedure for money services providers was well-regulated and has been reinforced by the 2012 amendments to the Prohibition on Money Laundering Law. However, the money services providers sector is often misused by organised crime groups with a strong membership of unregistered persons who operate as money services providers in Israel.405 It was therefore suggested that Israeli authorities strengthen their regulatory measures, in particular those related to wire transfers, and take steps to establish a threshold equivalent to US$5,000 for both domestic and foreign wire transfers.406 According to the MER 2013 (Israel), the implementation of this standard in Israel resulted in a ‘partially compliant’ rating, due to the presence of the same deficiencies found in the MER 2008 (Israel).407 In 2014, Israeli authorities strengthened their regulatory measures with an Order to address the continued deficiencies in the MER 2013 (Israel).408 According to the Order, money services providers are not to perform cross-border wire transfers from or to Israel of sums exceeding approximately US$1,000 without recording, in each of the transfer documents, the information data of the service recipient initiating the transfer.409 This brought Israel into full compliance with this standard.410 (g) Wire Transfers According to the MER 2008 (Israel), Israel was ‘partially compliant’ with this FATF standard,411 due to the following deficiencies: (1) no ‘full’ originator information being required to accompany cross-border wire transfers with the Postal Bank and other relevant non-banking institutions; (2) the threshold of approximately US$10,000 for Postal Bank wire transfers being inconsistent with the requirements of the recommendation, and there existing no requirements for each intermediary and MER 2008 (Israel), above n 337, 189. MER 2013 (Israel), above n 340, 157. 406 Ibid 158. 407 Ibid 161. 408 Prohibition of Money Laundering (The Money Service Providers’ Requirement regarding Identification, Reporting and Record-Keeping for the Prevention of Money Laundering and the Financing of Terrorism) Order (5774–2014). 409 Ibid s 3(b)–(c). 410 MER 2018 (Israel), above n 348, 213. 411 FATF Recommendation 16. 404 405

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 75 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 76 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

175

beneficiary financial institution in the payment chain to ensure that all originator information is transmitted with the transfer; and (3) the absence of a requirement to adopt effective risk-based procedures for identifying and handling wire transfers that are not accompanied by complete originator information.412 While the Postal Order was amended with lower thresholds to achieve consistency with the FATF recommendations,413 the main provision governing money transfers is Directive 411;414 however, as indicated in the MER 2008 (Israel), such a Directive applies only to cross-border wire transfers related to ‘high-risk’ countries. The MER 2013 (Israel) found a need for the inclusion in the CTF (and AML) Order of an obligation, when performing wire transfers and SWIFT messages, to record the details of the service recipient, and Israel was rated in the MER 2013 (Israel) as ‘partially compliant’.415 The amended CTF (and AML) Order, enacted in February 2014, indeed contained this change416 and similar changes were made within other non-banking financial institutions.417 However, even though Israel applies the basic originator and beneficiary requirements for cross-border transfers, it otherwise relies on general Customer Due Diligence (CDD) obligations instead of providing specific requirements for wire transfers, and the rating of partial compliance with this recommendation remains.418

MER 2008 (Israel), above n 337, 189–90. Postal Order, ss 3(j), 3(k) and 11(a)(3), (6) and (7) (amended 21 November 2010). 414 Directive 411, Supervisor of Banks: Proper Conduct of Banking Business (11/16) 411-1 Prevention of Money Laundering and Terrorism Financing, and Customer Identification, s 27. On 24 January 2010, the Bank of Israel amended Directive 411 concerning different issues in accordance with the recommendations. 415 MER 2013 (Israel), above n 340, 93–4. 416 Order on Prohibition on Money Laundering (The Banking Corporations’ Requirement regarding Identification, Reporting and Keeping Records in Banking Institutions to Prevent Money Laundering and Financing Terrorism) (57612001), ss 2(k) and 2(i). 417 Prohibition of Money Laundering (Obligations of Stock Exchange Members to Identify, Report and Retain Lists for the Purpose of Preventing Money Laundering and Financing Terrorism) (5770-2010), s 3(h) and (j); Order on Prohibition on Money Laundering (Obligations of Identification, Reporting and Keeping Records of the Postal Bank to Prevent Money Laundering and Financing Terrorism) (5771–2011), s 3(1). 418 MER 2018 (Israel), above n 348, 217. 412 413

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 76 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 77 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

176

Global counter-terrorist financing and soft law

(h) Non-Profit Organisations In Israel, there are two principal forms of incorporated entities: corporations, which are governed by the Companies Law,419 and amutot (charities), which are governed by the Non-Profit Organisations Law.420 A central database exists for each type of entity, which is overseen by the Israeli Corporations Authority.421 Registration of entities is mandatory and both are obliged to report to the relevant Registrar in the Israeli Corporations Authority any change in ownership or control of companies and, with respect to all corporations, any change in directors and other senior officers. Registry information is open to the public; however, the information on the Registry pertains only to legal ownership and control, rather than to beneficial ownership, is not verified, and is therefore not necessarily reliable. Most NPOs in Israel are governed by the NPO Law and are registered as charities. Their registration with the Registrar of Charities, as well as the notification of any subsequent changes, is mandatory. A small number of NPOs exist as public benefit companies, which are therefore regulated by the Israel Companies Law and registered with the Registrar of Companies. Both of these Registrars are overseen by the Israeli Corporations Authority.422 Israel was considered in the MER 2008 (Israel) as being ‘largely compliant’ with Recommendation 8. The primary shortcomings noted at the time pertained to a lack of evidence to indicate that the law on NPOs was formally reviewed; the absence of a specific outreach programme to raise awareness; a lack of clarity regarding whether detailed domestic and international transaction records are kept; a need for a review of the threshold for identification of significant donors; and the requirement for gateways for international information sharing to be clarified.423 The Israeli Companies Law 1999. Amutot (Non-Profit Organisations) Law (5740-1980) (‘NPO Law’). 421 The Israeli Corporations Authority is the entity in charge of the registration, supervision, enforcement and control of most of the corporations in Israel. It encompasses the business sector, as well as the NPO sector. Another type of incorporated NPO is the Ottoman association. The Ottoman Associations Law was cancelled by the NPO Law, but it continues to apply to existing Ottoman associations that are not registered as Amutot. Government Decision 3662 of 11 March 2018 transfers responsibility for Ottoman Associations to the Minister of Justice and the Corporations Authority. 422 Ibid 23. 423 MER 2008 (Israel), above n 337, 162. 419 420

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 77 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 78 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

177

MER 2013 (Israel) found Israel to be ‘largely compliant’424 with this standard for the very same reasons detailed in the MER 2008 (Israel). In the latest review, it was found that there are mechanisms promoting accountability, integrity and public confidence, but there are no clear policies. The Corporations Authority is proactive, but its overall approach is not risk-based and sanctions are not wholly proportionate.425 (i) Cash Couriers According to the Prohibition on Money Laundering Law, when entering or leaving the State of Israel, a person is obliged to report the amount of money they are carrying if that amount exceeds approximately US$20,000.426 This obligation applies equally to a person bringing money into or taking money out of Israel by mail or any other method,427 with an exception for those entering Israel for the first time on an immigrant’s visa, according to the Law of Return (which gives Jews the right to live in Israel and to gain Israeli citizenship).428 In such a circumstance, individuals must report the importation of approximately US$200,000 or more. A person entering or leaving the Gaza Strip must report the importation of approximately US$2,500.429 The Customs service is the competent authority designated to deal with the cross-border declaration system. For the purposes of implementing and enforcing the relevant provisions of the Prohibition on Money Laundering Law, including cross-border declaration,430 Customs has the power to request additional information, conduct investigations, call upon a suspect or others to provide reports for investigations, apply for search warrants, and seize assets suspected to be offence-related or likely to be used as evidence in judicial proceedings.431 There are two grounds for seizing assets at the border. First, in the case of non-declaration or false declaration, a customs or police officer can seize, without a court order,

MER 2013 (Israel), above n 340, 209. MER 2018 (Israel), above n 348, 202–203. 426 Prohibition on Money Laundering Law, s 9(a) and app 4. 427 Ibid s 9(b). 428 Law of Return (5710-1950). 429 Prohibition of Money Laundering (Amendment to Schedule 4) Order (5772–2013) (17 June 2012). 430 Prohibition on Money Laundering Law, s 9. 431 Ibid s 27. 424 425

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 78 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 79 SESS: 5 OUTPUT: Fri Apr 3 14:57:55 2020

178

Global counter-terrorist financing and soft law

the amount of non-declared money exceeding the reportable sum wherever the reporting obligation has been violated.432 Second, in cases of suspected money laundering or terrorist financing, assets can be seized on suspicion of infringement of the Prohibition on Money Laundering Law (for money laundering) or the Prohibition on Terrorist Financing Law (since cancelled) for terrorist financing.433 Violation of the reporting obligation, by way of either false declaration or failure to declare, is sanctioned criminally,434 or administratively,435 depending upon the circumstances. The MER 2008 (Israel) ranked Israel ‘largely compliant’ after identifying two deficiencies: (1) that the declaration obligation applied only to transporting ‘moneys’—defined as cash, bankers’ drafts, and travellers’ cheques436—while the international standard has a broader application covering all bearer negotiable instruments;437 and (2) for first-time immigrants, under the Law of Return, the minimum threshold of approximately US$200,000 was found to be too high and to be inconsistent with international standards.438 The MER 2013 (Israel) found that not all bearer negotiable instruments were covered and that the declaration threshold remained too high under the immigrant rules, resulting in another rating of ‘largely compliant’.439 The declaration system has been improved following legislative changes to the Prohibition on Money Laundering Law (which came into force on 12 December 2017) and these changes rectify the previously identified deficiencies. Israel now fully meets the standard.440 (j) Summary The Anti-Terror Law consolidates Israel’s legislation on terrorism into one piece of coherent and modern legislation. However, this new legislation relies heavily on pre-existing local CTF legislation that is

432 433 434

Ibid s 11. Ibid ss 8 and 9 (respectively). Ibid s 10. The court can impose imprisonment for up to six months, or a

fine. 435 Ibid ss 13 and 15. Financial sanction committees, established within the Israel Tax Authority, decide on the alleged reporting. 436 Ibid s 1 (Interpretation). 437 MER 2008 (Israel), above n 337, 78–9. 438 Ibid. 439 MER 2013 (Israel), above n 340, 210. 440 MER 2018 (Israel), above n 348, 253.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 79 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 80 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

179

archaic in nature (such as the Defence Regulations and the Terrorism Ordinance). The Anti-Terror Law adopts the previous CTF regime for cases where the terrorist organisation acts in Israel, while, in cases where the terror organisation is ‘foreign’ (that is, acts outside of Israel), it adopts the Prohibition on Terrorist Financing Law, which implemented the FATF recommendations. Israel becomes a full member of the FATF with immediate effect, following the publication of the MER 2018 (Israel). On the occasion of Israel’s membership, FATF President Billingslea said: I congratulate Israel on becoming a FATF member. Israel has undergone a rigorous assessment of its measures to combat money laundering and terrorist financing. During this demanding process, the country demonstrated its commitment to protect the integrity of the financial system. Israel has established a robust anti-money laundering and counter terrorist financing framework that is achieving good results in identifying and responding to the risks the country is facing …441

The influence of the FATF standard on the Israeli legal system is significant. The State of Israel, which has struggled with terrorism since establishing its independence, has enacted and amended legislation dealing with the financing of terrorism, in accordance with the FATF recommendations. Initial legislation focusing on AML in Israel came only after the FATF added Israel to its Black List. Recently, Israel once again tried to avoid compliance by ‘stretching the rope’, so to speak. However, it appears that adoption of the international standard is a question of when rather than if, as, until very recently, there was no legislation in Israel applicable specifically to lawyers in their capacity as such. Lawyers were subject to the same legislation related to money laundering as any other individuals. In the MER 2008 (Israel), it was recommended that the Israeli authorities implement customer due diligence obligations for, among others, lawyers. Nothing was actually implemented, though, and in the MER 2013 (Israel), it was again recommended by the FATF—this time urgently—that Israeli authorities take prompt action to introduce such relevant Orders.442

441 FATF, ‘Israel Becomes a Member of the FATF’ (Media Release, 10 December 2018), available at https://www.fatf-gafi.org/publications/fatfgeneral/ documents/israel-fatf-member.html [accessed 20 September 2019]. 442 MER 2018 (Israel), above n 348, 160.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 80 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 81 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

180

Global counter-terrorist financing and soft law

As of 2 September 2015, three legislative documents, which set forth duties and obligations related to CTF (and AML) and are applicable specifically to lawyers, became effective simultaneously.443 Such legislation brought about dramatic changes to the previous CTF (and AML) regime applicable to lawyers in Israel. The FATF declared that “Israel meets some of the essential CDD criteria for DNFBPs, namely lawyers and accountants”.444 Table 5.5 Summary of Israel rating compliance with FATF Recommendations445 Old Number Recommendations SR.I: Implement UN instruments SR.II: Criminalise terrorist financing SR.III: Freeze and confiscate terrorist assets SR.IV: Suspicious transaction reporting SR.V: International cooperation SR.VI: Requirements for money/value transfer services

New Number

Old Rating446

Rating447

New Rating448

36

Largely Compliant Compliant

Largely Compliant Compliant

Compliant

6

Partially Compliant

Largely Compliant

Largely Compliant

20

Largely Compliant Largely Compliant Partially Compliant

Compliant

Compliant

Compliant

Largely Compliant Compliant

5

37 14

Partially Compliant

Compliant

The documents are Amendment No. 13 to the Prohibition on Money Laundering Law; Prohibition on Money Laundering Order (Obligations of Identification and Records Keeping by Business Service Providers for Avoidance of Money Laundering and Terror Financing), 2014; and Amendment to the Israeli Bar Association Rules (Ethics), 2015. 444 MER 2018 (Israel), above n 348, 223. 445 The ‘Old Number Recommendations’ column refers to the corresponding 2003 FATF recommendation. 446 MER 2008 (Israel), above n 337. 447 MER 2013 (Israel), above n 340. 448 MER 2018 (Israel), above n 348. 443

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 81 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 82 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance Old Number Recommendations SR.VII: Wire transfer rules SR.VIII: Non-profit organisations SR.IX: Cash couriers

181

New Number

Old Rating446

Rating447

New Rating448

16

Partially Compliant

Partially Compliant

Partially Compliant

8

Largely Compliant

Largely Compliant

Largely Compliant

32

Largely Compliant

Largely Compliant

Compliant

MALAYSIA Malaysia is not a permanent member of the UNSC, and was not a member of the FATF during the period examined for this book.449 Malaysia is a financial centre (where it established Labuan with the specific objective of complementing the activities of the domestic financial market in Kuala Lumpur),450 but is not considered a terrorist centre, as acts of terrorism in the country rarely occur. Accordingly, there was no legislation in Malaysia focusing on CTF before the actions implemented by the regime. Malaysia implemented all the international standards, but was one of the states from South East Asia, as seen in Chapter 4, that did not implement the standard dealing with cash couriers. This deficiency, as will be seen below, changed dramatically. Currently, Malaysia does not have any significant, active terrorist groups operating within its borders, and its anti-terrorism law, the Internal Security Act, which allows for the indefinite detention of suspects without trial, is largely credited with keeping terrorist groups at bay. The primary legislation for CTF is the Malaysian Anti-Money Laundering Act 2001, which was passed in 2001 and came into force in Malaysia is a member of the Asia/Pacific Group on Money Laundering, which is an FSRB that follows the guidelines provided by the FATF. It is an observer to the FATF and is working with the FATF to meet the criteria for membership. However, an Asia/Pacific Group on Money Laundering member and an FATF observer cannot legislate or update the recommendation. On 19 February 2016, Malaysia joined as a member to the FATF. 450 Bala Shanmugam et al., ‘Money Laundering in Malaysia’ (2003) 6(4) Journal of Money Laundering Control 373, 374. 449

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 82 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 83 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

182

Global counter-terrorist financing and soft law

January 2002.451 The Act was amended in 2003 to include, for the first time, measures directed at CTF, as recommended by the regime,452 and to conform to the international standard: The changes that have changed the entire system of the international world have concurrently caused the changes to the Malaysian legislation … Subsequently this Act was then amended with special Recommendations on Terrorist Financing …453

The Anti-Money Laundering Act was designed to conform with the Terrorist Financing Convention and FATF recommendations.454 It covers the definition of terrorism financing offences, financial intelligence, reporting obligations, investigative powers, the confiscation regime, and the cross-border declaration regime. (a) International Instrument Malaysia had not become a party to the Terrorist Financing Convention by the time of the on-site visit for the MER 2007 (Malaysia), which took place in February 2007.455 The report recommended that “Malaysia should accede to the UN Convention on the Suppression of the Financing

Anti-Money Laundering and Anti-Terrorism Financing Act 2001 [Act 613] (‘Anti-Money Laundering Act’). This Act follows the FATF recommendations regarding money laundering. For a discussion of money laundering in Malaysia, see Shanmugam et al., above n 450, 375. 452 Anti-Money Laundering (Amendment) Act 2003 [Act A1208] was amended again in 2014 under the Anti-Money Laundering and Anti-Terrorism Financing (Amendment) Act 2014 [Act A1467]. 453 Guru Dhillon, Rusniah Ahmad and Aspalela Rahman, ‘The Viability of Enforcement Mechanisms under Money Laundering and Anti-Terrorism Offences in Malaysia’ (2013) 16(2) Journal of Money Laundering Control 171, 172. See also Aishat Zubair, Umar Oseni and Norhashimah Yasin, ‘Anti-Terrorism Financing Laws in Malaysia: Current Trends and Developments’ (2015) 23(1) IIUM Law Journal 153, 155; Wee Pok, Normah Omar and Milind Sathye, ‘An Evaluation of the Effectiveness of Anti-Money Laundering and Anti-Terrorism Financing Legislation: Perceptions of Bank Compliance Officers in Malaysia’ (2014) 24(4) Australian Accounting Review 394, 396. 454 Zakiah Ahmad, ‘Investigation and Prosecution of Money Laundering Cases in Malaysia’ (2012) 15(4) Journal of Money Laundering Control 421, 422. 455 Asia/Pacific Group on Money Laundering, Mutual Evaluation Report on Malaysia against the FATF 40 Recommendations (2003) and 9 Special Recommendations (25 July 2007) (‘MER 2007 (Malaysia)’). 451

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 83 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 84 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

183

of Terrorism as soon as possible”.456 Malaysia promptly acceded to the Terrorist Financing Convention three months after the visit, on 29 May 2007. It has also made amendments to the Penal Code457 and the Anti-Money Laundering Act in order to incorporate SC Res 1267 (1999) and SC Res 1373 (2001),458 in accordance with the international standard.459 (b) Terrorist Financing Offences In March 2007, four months before the Asia/Pacific Group’s on-site visit, Malaysia enacted the Anti-Money Laundering Act Amendment.460 This legislative package was designed to implement Malaysia’s obligations under the Terrorist Financing Convention in anticipation of ratifying it, something it did two months later; obligations under the Terrorist Financing Convention; and relevant UNSC resolutions.461 Since March 2007, section 3(1) of the Anti-Money Laundering Act has defined ‘terrorism financing offences’ as any offences under specific sections of the Penal Code. These sections created new offences of providing or collecting property for terrorist acts;462 providing financial services for terrorist purposes;463 arranging for the retention or control of terrorist property;464 and dealing with terrorist property.465 These offences and Ibid 193. Penal Code (Amendment) Act 2003 (‘Penal Code’). 458 FATF, Follow-up Response of Malaysia to the Report Submitted to the Counter-Terrorism Committee in pursuance of SC Res 1373 (2001) (30 September 2004) (‘Follow-up response of Malaysia’). 459 FATF Recommendation 36 and SC Res 1373 (2001), para 3(d). 460 Anti-Money Laundering Act Amendment (Suppression of Terrorist Financing Offences and Freezing and Forfeiture of Terrorist Property). Criminalisation of terrorist financing prior to March 2007 was based on offences under s 125A of the Penal Code and s 59 of the Internal Security Act 1960 (which was enacted after Malaysia gained independence from Britain in 1957), which were only able to capture a narrow range of terrorist financing activities. The 2007 Amendment Act extended the Anti-Money Laundering Act to cover terrorism financing. Norhashimah Yasin, ‘Anti-Money Laundering and Counter Financing of Terrorism Regulation of Banking Institution in Malaysia’ (2012) 6(11) Australian Journal of Basic and Applied Sciences 294. 461 MER 2007 (Malaysia), above n 455, 52. 462 Penal Code, s 130N. 463 Ibid s 130O. 464 Ibid s 130P. 465 Ibid s 130Q. 456 457

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 84 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 85 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

184

Global counter-terrorist financing and soft law

their relevant definitions of ‘terrorist’ and ‘terrorist property’466 were drafted in such a way as to make them consistent with article 2 of the Terrorist Financing Convention.467 The sanctions for terrorist financing offences, if the act results in death, are imprisonment for a term of not less than seven years but not exceeding 30 years, and a fine.468 The penalties for offences of acquiring terrorist property are a prison term that may extend to 30 years and a fine, as well as forfeiture of any property so acquired, retained or controlled.469 There were no prosecutions for terrorist financing in Malaysia under previous legislation (that is, prior to March 2007). Since the 2007 amendment, 40 terrorist financing investigations have been opened, 22 of which are ongoing.470 The cases opened between 2010 and 2013 pertain to a range of terrorist groups, while all cases opened in 2014 pertain to ISIL.471 The reasons for an absence of terrorist financing prosecutions appear to be the characteristics of these cases (for example, self-funding, small-scale use of cash), which have dissuaded prosecutors.472 Prosecutions are handled by the Attorney-General’s Chambers following referral by investigative agencies. More recently, Malaysia legislated the Prevention of Terrorism Act 2015.473 The new law provides for the prevention of the commission or support of terrorist acts involving listed terrorist organisations in a foreign country or any part of a foreign country, and for the control of persons engaged in such acts and for related matters. The Prevention of Terrorism Act was enacted as a result of the SC Res 2178 (2014) and the revision of FATF Recommendation 5, which the FATF decided to update after many jurisdictions failed to comply with the UNSC resolution. The Prevention of Terrorism Act follows the FATF Revision of the interpretive note to Recommendation 5. Malaysia also amended the Penal Ibid s 130B. FATF and Asia/Pacific Group on Money Laundering, Anti-Money Laundering and Counter-Terrorist Financing Measures—Malaysia (2015) (‘MER 2015 (Malaysia)’) 155; Follow-up response of Malaysia, above n 458, 4. 468 Penal Code, s 130N(a) and (b). 469 Ibid s 130P. 470 Ahmad, above n 454, 427. 471 FATF, The FATF Recommendations (February 2012, updated October 2016) 131. See Aishat Zubair et al., ‘Anti-Terrorism Financing Laws in Malaysia: Current Trends and Developments’ (2015) 23(1) International Islamic University Malaysia 153, 171. 472 MER 2015 (Malaysia), above n 467, 17. 473 Anti-Money Laundering, Prevention of Terrorism 2015. 466 467

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 85 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 86 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

185

Code474 to criminalise the financing of travel by individuals to a state other than their state of residence or nationality for the purpose of the perpetration, planning or preparation of, or participation in, terrorist acts or the providing or receiving of terrorist training. These amendments bring Malaysia into full compliance with the global standard.475 (c) Target Financial Sanctions Related to Terrorism and Terrorism Financing Prior to March 2007, Malaysia relied upon the use of the Exchange Control Act to freeze the funds of entities listed on the SC Res 1267 (1999) list.476 On receipt of the UN designated list, the Ministry of Foreign Affairs was authorised to instruct Bank Negara Malaysia (the Central Bank of Malaysia) to take action in relation to it. The governor of Bank Negara Malaysia, as the controller of foreign exchange, was authorised to issue circulars to all licensed financial institutions and licensed offshore financial institutions, instructing them to freeze any funds in their custody belonging to listed individuals and entities.477 Using this procedure, for the period between 2003 and the introduction of the new legislation, Bank Negara Malaysia issued a total of 43 circulars to licensed financial institutions, both onshore and offshore, to freeze the accounts of individuals and entities associated with Osama bin Laden, the Taliban and Al-Qaeda. As a result, nine accounts were frozen, involving an amount of approximately US$76,387.478 To implement SC Res 1373 (2001), Malaysia relied upon measures available under existing law to freeze the funds of terrorist entities: the general power of seizure conferred by the Criminal Procedure Code 2012,479 whereby police may seize property found in circumstances that create suspicion that an offence has been committed, and miscellaneous provisions within the Internal Security Act 1960,480 which authorises the Penal Code (Amendment) Act 2015 (Act A1483). FATF, Anti-Money Laundering and Counter-Terrorist Financing Measures—Malaysia, 3rd Enhanced Follow-up Report and Technical Compliance Re-Rating (October 2018) 4 (‘MER 2018 (Malaysia)’). 476 Exchange Control Act 1953. 477 Ibid s 44. See also Note from the Permanent Mission of Malaysia to the United Nations addressed to the Chairman of the Committee (9 July 2003) S/AC.37/2003/(1455)/57, 3. 478 MER 2015 (Malaysia), above n 467, 60. 479 Criminal Procedure Code 2012, s 435. 480 Internal Security Act 1960, s 5(3). 474 475

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 86 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 87 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

186

Global counter-terrorist financing and soft law

freezing of property held by and for ‘quasi-military organisations’ within Malaysia.481 In March 2007, a new section was introduced into the Anti-Money Laundering Act, which was designed to implement Malaysia’s obligations under both SC Res 1267 (1999) and SC Res 1373 (2001).482 The proposed provisions were intended to enable certain entities to be declared, or deemed to be declared, terrorists. Pursuant to such declarations, the property of such persons or entities may be frozen, seized and forfeited in accordance with the Anti-Money Laundering Act. More specifically, in order to implement SC Res 1267 (1999), the new section empowers the Minister of Internal Security, on receipt of the UNSC’s designated list of terrorist entities, to make an order that the named entities are specified entities whose property is to be frozen.483 The procedure for implementing SC Res 1373 (2001) under the Anti-Money Laundering Act is quite similar, in that, when the Minister is satisfied, based on information provided to the Minister by police, that an entity (a) has knowingly committed, attempted to commit, participated in committing, or facilitated the commission of, a terrorist act; or (b) is knowingly acting on behalf of, at the direction of, or in association with, an entity referred to in paragraph (a), the Minister may, by order published in the Gazette, declare the entity to be a specified entity.484 As of October 2015, Malaysia had listed 39 individuals and 18 entities under section 66B. It had frozen assets amounting to approximately 481 The first report Malaysia submitted to the UNSC committee pursuant to para 6 of SC Res 1373 (2001). See S/2002/35 (4 January 2002). 482 Anti-Money Laundering Act, ss 66A–66F; MER 2007 (Malaysia), above n 455, 37. 483 Anti-Money Laundering Act, s 66C. For the Orders, see Anti-Money Laundering and Anti-Terrorism Financing (Security Council Resolutions) (AlQaida and Taliban) Order 2011 (made 4 October 2011), Anti-Money Laundering and Anti-Terrorism Financing (Security Council Resolutions) (Al-Qaida and Taliban) (Amendment) Order 2013 (made 4 June 2013), and Anti-Money Laundering and Anti-Terrorism Financing (Security Council Resolutions) (AlQaida and Taliban) (Amendment) Order 2014 (made 8 September 2014) by the Minister of Home Affairs in exercise of the powers conferred by ss 66C and 66D to the Anti-Money Laundering and Anti-Terrorism Financing Act 2001 [Act 613]. The purpose of this Order is to implement measures under SC Res 1267 (1999) (Order, s 2). 484 Anti-Money Laundering Act, s 66B. Anti-Money Laundering and AntiTerrorism Financing (Declaration of Specified Entities and Reporting Requirements) Order 2014 (made 17 March 2014), by the Minister of Home Affairs in exercise of his powers conferred by ss 66B and 66D of the Anti-Money Laundering and Anti-Terrorism Financing Act 2001 [Act 613].

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 87 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 88 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

187

US$4,029 pursuant to SC Res 1267 (1999), and almost US$358,000 arising from designations made under SC Res 1373 (2001). In 2015, Malaysia was rated fully compliant with this Recommendation.485 (d) Suspicious Transaction Reports The Malaysian FIU was established on 8 August 2001, with 18 staff members divided into the strategic development section, which develops CTF (and AML) policy; the intelligence management section, which receives, analyses and disseminates financial intelligence; and the relationship management section, which oversees training programmes, administrative functions, and liaison with stakeholders. In performing its core functions of receipt, analysis and dissemination of financial intelligence, the FIU is sufficiently funded with an annual budget from Bank Negara Malaysia.486 The Deputy Governor of Bank Negara Malaysia is responsible for the FIU. However, functionally, the head of the FIU has the autonomy and the power to receive, analyse and disseminate financial intelligence. The head of the FIU has control in setting and expending the necessary budgets and other resources. The FIU is operationally independent and autonomous as a separate unit within the Financial Intelligence and Enforcement Department.487 The Anti-Money Laundering Act requires a reporting institution to report promptly to the FIU any transaction where the identity of the persons involved, the transaction itself, or any other circumstances concerning that transaction give any officer or employee of the institution reason to suspect that the transaction involves the proceeds of an unlawful activity.488 The amendments to the Anti-Money Laundering Act that were brought into force in March 2007 broadened the scope of the terrorist offences in the second schedule to the Anti-Money Laundering Act to include terrorist financing, thereby making it a predicate offence for reporting purposes. Nonetheless, the STR obligation under section 14 of the Anti-Money Laundering Act is defined only in terms of those MER 2015 (Malaysia), above n 467, 158. Note from the Permanent Mission of Malaysia to the United Nations addressed to the Chairman of the Counter-Terrorism Committee (17 September 2004) S/2004/778, 11; MER 2015 (Malaysia), above n 467, 7. See also Bank Negara Malaysia website, available at http://amlcft.bnm.gov.my/AMLCFT 02biii.html [accessed 7 March 2018]; MER 2007 (Malaysia), above n 455, 71. 487 MER 2015 (Malaysia), above n 467, 94, 150. 488 Anti-Money Laundering Act, s 14(b). 485 486

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 88 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 89 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

188

Global counter-terrorist financing and soft law

transactions that are suspected to involve the proceeds of an unlawful activity. Since terrorist financing may be supplied by funds derived from perfectly legitimate sources, the scope of section 14 is inadequate, as it fails to extend the obligation to cover transactions suspected of being related generally to terrorist financing. The MER 2007 (Malaysia) highlighted this deficiency and rated Malaysia’s implementation as ‘partially compliant’.489 The September 2014 Anti-Money Laundering Act amendments substantially address this deficiency, and the law now includes the STRs related to terrorist financing independent of an unlawful activity.490 The STR numbers increased following these amendments. From 2011 to 2013, there were 23 STRs; in 2014, there were 127 TF-related STRs.491 Malaysia is now fully complying492 with the international standard.493 (e) International Cooperation Malaysian laws and procedures regarding mutual legal assistance are comprehensive and make cooperation available in relation to all serious offences. The obligations of mutual legal assistance apply to terrorist financing and terrorist offences in the same manner as they do to other serious offences. Two potential impediments are the requirement for dual criminality, even for non-intrusive measures, and the prohibition of requests where the material sought is not considered to be of sufficient import to an investigation.494 Malaysia maintains adequate statistics on requests made and received for mutual assistance, the type of matters to which the requests relate, and the outcomes of such requests. Malaysia has advised the FATF that, of the 48 requests received since 2004, 27 have been fully executed as at 31 December 2006, while the remaining MER 2007 (Malaysia), above n 455, 115. Anti-Money Laundering Act, s 14. 491 MER 2015 (Malaysia), above n 467, 76. As before the 2014 amendments, there were no explicit obligations in the legislation to report suspicions of terrorist financing. The numbers for STRs do not specify how many are related to TF; rather, they are divided into industry groups. With regard to the increasing numbers of STRs in 2014, the Malaysian authorities argued that the rate of TF-related STRs also reflects the fact that TF activities mainly involve cash and self-funding, and that the increase is also a result of increased threats from ISIL. See MER 2015 (Malaysia), above n 467, 50. 492 MER 2015 (Malaysia), above n 467, 175. 493 FATF Recommendation 20. 494 MER 2015 (Malaysia), above n 467, 199. 489 490

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 89 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 90 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

189

21 are in progress, and that 23 of the requests related to money laundering and/or terrorist financing matters. None of these had been refused and 13 had been fully executed.495 Malaysia has a comprehensive mutual legal assistance regime and clear processes with which to make and respond to requests, which is consistent with the international standard.496 (f) Money or Value Transfer Service The MER 2007 (Malaysia) found that large-scale unregulated remittance channels existed, with a continuing need for structures or strategies to support increased uptake of remittance through formal channels. It demonstrated that there was limited implementation of the customer due diligence, record-keeping, and compliance provisions of the Anti-Money Laundering Act, as the Act was not invoked until March 2007 for certain non-bank remittance operators; there was also limited implementation of CTF compliance monitoring and sanctions by Bank Negara Malaysia over remittance operators; and Malaysia had not ensured that all money value transfer service operators were subject to compliance with this FATF recommendation.497 After receiving the MER 2007 (Malaysia), and as a response to it, the Malaysian government introduced a new regulatory regime and re-licensing of the entire money services business, which includes the money value transfer sector, and continuing crackdowns on unlicensed remitters. Today, money value transfer providers in Malaysia are required to issue designated payment instruments, to be approved as a money services business under either the Financial Services Act498 or the Islamic Financial Services Act,499 and to be licensed under the Money Services Business Act500 for remittance services. Persons who conduct money value transfer services without having obtained this approval are subject to imprisonment for a term not exceeding ten years, or a fine, or both.501

495 496 497 498 499 500 501

Ibid. FATF Recommendation 37; SC Res 1373 (2001), para 3(b). FATF Recommendation 14. Financial Services Act 2013, s 11 (‘Financial Services Act’). Islamic Financial Services Act 2013, s 11. Money Services Business Act 2010, s 7. Financial Services Act, s 8(3); Islamic Financial Services Act 2013,

s 8(3).

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 90 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 91 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

190

Global counter-terrorist financing and soft law

In addition, it is an offence for any person to conduct a money services business without a licence.502 Malaysia has undertaken a series of measures to identify illegal money value transfer activity. Between 2012 and 2014, Bank Negara Malaysia conducted on-site surveillance visits to 409 companies, of which 68 were found to be conducing illegal money services business activities.503 In the MER 2015 (Malaysia), Malaysia was deemed ‘fully compliant’ with the international standard. (g) Wire Transfers When assessing the implementation of the international standard in Malaysia, wire transfer rules (in this case, represented only by the FATF)504 prove to be another good example of the regime’s influence. The MER 2007 (Malaysia) noted gaps in the implementation of this standard, with the majority of money services businesses rated ‘largely compliant’. Following publication of this report, Malaysia’s updated sectoral guidelines came to mirror, one after the other, the FATF requirements.505 In particular, paragraphs 18, 19 and 31, which concern CTF, of the applicable guidelines apply to most financial institutions. These paragraphs establish the wire transfer obligations that are applicable to both cross-border506 and domestic wire transfers,507 including for serial and cover payments. The stated objective of the guidelines published by Bank Negara Malaysia specifically highlights their implementation of the FATF recommendation, “in accordance with the provisions of the Anti-Money Laundering and Anti-Terrorism Financing Act 2001 and the FATF 40 Recommendations intended to ensure that reporting institutions understand and comply with the requirements and obligations imposed on them”,508 and specifically declares that FATF principles “become the

Money Services Business Act 2010, s 4(4). MER 2015 (Malaysia), above n 467, 171. 504 FATF Recommendation 16. 505 Financial Intelligence and Enforcement Department, Anti-Money Laundering and Counter Financing of Terrorism—Banking and Deposit-Taking Institutions (028-1) (‘Sectoral guidelines’), para 1.4. See also MER 2015 (Malaysia), above n 467, 173. 506 Sectoral Guidelines, above n 505, ss 18.2.1–18.2.4. 507 Ibid ss 18.2.5–18.2.6. 508 Ibid para 2.1. 502 503

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 91 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 92 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

191

basis upon which the integrity and soundness of the Malaysian financial system must be safeguarded”.509 (h) Non-Profit Organisations Malaysia was rated as ‘partially compliant’ with this standard510 in the MER 2007 (Malaysia), as there was no ongoing strategy to identify and mitigate terrorist financing risks within the NPO sector, limited outreach to the NPO sector by authorities, and no adequate mechanisms for information exchange with foreign counterparts.511 Malaysia is a prime example of the extensive efforts made to regulate charities.512 Since the MER 2007 (Malaysia), Malaysia has worked hard to implement the standard and was deemed by the FATF, in the MER 2015 (Malaysia), to be ‘largely compliant’.513 There are different pieces of legislation that assist, or provide tools for, CTF, via NPOs. For example, the Malaysian Societies Act empowers the Registrar of Societies to enter and search premises and to inspect all documents,514 while the Companies Commission of Malaysia is empowered to enter premises and to search and seize documents under the Companies Act,515 and the Labuan authority can share, publish or disclose information under the Labuan Financial Services Authority Act.516 The FATF, which sets the international standard with regard to CTF and NPOs, found that the government updated the legislation regarding NPOs in Malaysia in order to address the problems detected in the MER 2007 (Malaysia) and that there were some minor gaps,517 which were later revised to demonstrate compliance.518

Ibid para 1.4. FATF Recommendation 8. 511 MER 2007 (Malaysia), above n 455, 188. 512 Aurel Croissant and Daniel Barlow, ‘Following the Money Trail: Terrorist Financing and Government Responses in Southeast Asia’ (2007) 30(2) Studies in Conflict and Terrorism 131. 513 MER 2015 (Malaysia), above n 467, 162. 514 Societies Act 1966, s 63. 515 Companies Act 1965, ss 7(11) and 69A. 516 Labuan Financial Services Authority Act 2010, s 28B. 517 MER 2015 (Malaysia), above n 467, 162. 518 MER 2018 (Malaysia), above n 475. 509 510

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 92 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 93 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

192

Global counter-terrorist financing and soft law

(i) Cash Couriers The MER 2007 (Malaysia) concluded that while Malaysia had a system for completing a cross-border declaration for cash and travellers’ cheques, there were some technical gaps and major weaknesses with the implementation of this international standard.519 The declaration system did not extend to bearer negotiable instruments and the available sanctions for false disclosure were rendered ineffective due to deficiencies in the implementation of the declaration system.520 Malaysia was rated ‘non-compliant’ with this international standard. Malaysia, taking the report seriously, “established a task force on cross border transportation of currency and bearer negotiable instruments to address the only ‘non-compliant’ rating against the FATF Special Recommendation IX on Cash Couriers”.521 Malaysia did so from a compulsion to work in accordance with the international standard (with cash couriers and in general): “we appreciate the opportunity given by the FATF to demonstrate our commitment in ensuring that our AML/CFT regime is effective”.522 The Anti-Money Laundering Act, following the 2014 amendment, requires residents and non-residents to declare incoming and outgoing cross-border movement of currency or bearer negotiable instruments exceeding US$10,000, or its equivalent.523 This covers passenger, postal and cargo streams. The declaration is to be made to Royal Malaysian Customs Department officers, using a prescribed form, at all points of entry and exit in Malaysia. Persons who make a false declaration or disclosure are subject to proportionate and dissuasive sanctions. The Anti-Money Laundering Act imposes a criminal penalty upon conviction of a fine not exceeding approximately US$900,000, or imprisonment for a term not exceeding five years, or both, for the offence of failing to

FATF Recommendation 32. MER 2007 (Malaysia), above n 455, 88. 521 Bank Negara Malaysia, Financial Stability and Payment Systems Report 2007 (2008). 522 Abu Hassan Alshari (then Assistant Governor), Speech to the International Conference on Financial Crime and Terrorism Financing (8 October 2014), available at http://www.bnm.gov.my/index.php?ch=en_press&lang=en& yr=2014 [accessed 12 July 2017]. 523 Anti-Money Laundering Act, ss 28B and 28C. 519 520

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 93 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 94 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

193

make such declaration.524 The offence for making an inaccurate declaration of currency or bearer negotiable instruments on the prescribed form is also punishable under the Customs Act and the criminal sanction for a convicted person is a fine or imprisonment, or both.525 Customs Department officers are able to stop or restrain funds for a reasonable time where there is a failure to declare under the Anti-Money Laundering Act526 or the Customs Act.527 Under the amended AntiMoney Laundering Act, Customs Department officers are authorised to seize funds if there is reason to suspect that they may afford evidence pertaining to the commission of an offence under the Anti-Money Laundering Act.528 The amendments raised Malaysia to the rank of ‘largely compliant’ in the MER 2015 (Malaysia). This ranking was upgraded to ‘compliant’529 after May 2016, when Malaysia established a subcommittee focusing on the implementation and enforcement of crossborder cash and bearer negotiable instruments. This subcommittee includes various national authorities, including the Royal Malaysian Customs Department and the police, in order to ensure TF-related cross-border cooperation. (j) Summary It is evident that Malaysia has updated its laws in accordance with the FATF recommendations. Malaysia therefore appears strongly committed to the regime. In any instance in which the regime has found Malaysia to deviate from the international standard, Malaysia has responded with updates, changes and adaptations. It is clear that the regime has been effective in Malaysia, and that the changes made during the period between the two reports were designed to meet, sometimes accurately, the requirements of the regime.

524 525 526 527 528 529

Columns Design XML Ltd

/

Ibid ss 28B(3) and 28C(2). Customs Act 1967, s 133(1)(a). Anti-Money Laundering Act, s 23(2). Customs Act, ss 134(1)(a) and 133(1)(a). Anti-Money Laundering Act, s 28H. MER 2018 (Malaysia), above n 475, 2.

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 94 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 95 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

194

Global counter-terrorist financing and soft law

Table 5.6 Summary of Malaysia rating compliance with FATF Recommendations530 Old Number Recommendations

Old Rating531

Rating532

36

Largely Compliant

Largely Compliant

SR.II: Criminalise terrorist financing

5

Largely Compliant

Largely Compliant

SR.III: Freeze and confiscate terrorist assets

6

Largely Compliant

Compliant

SR.IV: Suspicious transaction reporting

20

Partially Compliant

Compliant

SR.V: International cooperation

37

Largely Compliant

Largely Compliant

SR.VI: Requirements for money/value transfer services

14

Partially Compliant

Compliant

SR.VII: Wire transfer rules

16

Partially Compliant

Compliant

8

Partially Compliant

Largely Compliant

SR.I: Implement UN instruments

SR.VIII: Non-profit organisations SR.IX: Cash couriers

New Number

32

Non-Compliant Largely Compliant

THAILAND Thailand is not a permanent member of the UNSC and was not a member when SC Res 1267 (1999) and SC Res 1373 (2001) were introduced. Nor is it a member of the FATF and it is not considered a financial centre.533 Thailand has, however, been subject to a large number of terrorist 530 The ‘Old Number Recommendations’ column refers to the corresponding 2003 FATF recommendation. 531 MER 2007 (Malaysia), above n 455. 532 MER 2015 (Malaysia), above n 467. 533 Anti-Money Laundering Office, National Strategy for Combating Money Laundering and the Financing of Terrorism 2010 to 2015 (March 2011) 15 (‘National Strategy 2010–2015’); International Monetary Fund, Thailand: Detailed Assessment Report on Anti-Money Laundering (December 2007) (‘MER 2007 (Thailand)’) 10, 24.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 95 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 96 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

195

incidents, primarily within its southern region.534 Thailand was one of those states in South East Asia that did not implement the international standard relating to wire transfer rules, non-profit organisations, and cash couriers. But, in 2010, the Thai government expressed high-level political commitment to addressing deficiencies that the MER 2007 (Thailand)535 identified in Thailand’s CTF legislation. It reported taking multiple steps to meet the international standard, which it continues to do.536 Thailand’s failure to pass the amended Anti-Money Laundering Act and the draft Anti-Financing of Terrorism Bill prompted the FATF, in February 2012, to downgrade Thailand to its Black List of countries, raising concerns about financial transactions in Thailand. Thailand’s National Strategy for Combating Money Laundering and the Financing of Terrorism 2010–2015 was developed by the Anti-Money Laundering Office—Thailand’s official FIU.537 The strategy called for the legislative enactment of key counter-terrorist finance measures by 31 October 2012; however, political transition delayed the passage of legislation until February 2013.538 In February 2013, the Thai parliament passed the Counter-Terrorism Financing Act, which designated 23 terrorists whom authorities claim are closely monitored. Thai authorities have since continued to work to address the vulnerabilities that the country faces, in order to meet the international standard.539 Thailand, as will be demonstrated below, is a particularly good example of a country that did not want to implement the recommendations at the outset, and which thought that implementation (for example, signing the Terrorist Financing Convention and making some cosmetic 534 Aurel Croissant and Daniel Barlow, ‘Following the Money Trail: Terrorist Financing and Government Responses in Southeast Asia’ in Jeanne K. Giraldo and Harold A. Trinkunas (eds), Terrorism Financing and State Responses: A Comparative Perspective (Stanford University Press, 2007) 203, 206; Aurel Croissant, ‘Unrest in South Thailand: Contours, Causes, and Consequences Since 2001’ (2005) 27(1) Contemporary Southeast Asia 21; Kavi Chongkittavorn, ‘Thailand: International Terrorism and the Muslim South’ (2004) Southeast Asian Affairs 267, 268. 535 MER 2007 (Thailand), above n 533. 536 Asia/Pacific Group on Money Laundering, Anti-money Laundering and Counter-Terrorist Financing Measures—Thailand, Mutual Evaluation Report (December 2017) (‘MER 2017 (Thailand)’). 537 National Strategy 2010–2015, above n 533. 538 United States Department of State, Office of the Coordinator for Counterterrorism, Country Reports on Terrorism 2012—East Asia and Pacific Overview (May 2013). 539 Ibid.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 96 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 97 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

196

Global counter-terrorist financing and soft law

changes to legislation) would satisfy the regime. Therefore, the compliance, involving both legal and practical measures, came only after the FATF began to enforce it. (a) International Instrument Thailand signed the Terrorist Financing Convention on 18 December 2001, in accordance with the international standard540—just four days before it filed its first report with the Committee of the Security Council, under article 6 of SC Res 1373 (2001), in which it highlighted that it was a signatory to the convention.541 It ratified the convention almost three years later, on 24 September 2004. In the MER 2007 (Thailand), it was rated ‘partially compliant’. Ten years later, Thailand was rated ‘largely compliant’ with only minor shortcomings.542 (b) Terrorist Financing Offences On 11 August 2013, the Royal Thai Government made changes to the Thai Criminal Code,543 to include new anti-terrorism provisions in compliance with the FATF recommendations. Thailand promulgated two Royal Decrees concerning counter-terrorism: (1) the Royal Decree on the Amendment of the Criminal Code (2003),544 to criminalise terrorist offences;545 and (2) the Royal Decree on the Amendment of the Protection and Suppression of Money Laundering Act (2003),546 to criminalise terrorism as an offence under the Act.547 The Thai Criminal Code imposes punishment of imprisonment from two to ten years, and a fine of approximately US$1,000 to US$5,000, on any persons who “[c]ollect forces or arms, procure or gather property, give or receive a training FATF Recommendation 36 and SC Res 1373 (2001), para 3(d). Letter dated 26 December 2001 from the Permanent Representative of Thailand to the United Nations addressed to the Chairman of the Security Council Committee established pursuant to SC Res 1373 (2001) concerning counter-terrorism (S/2002/10) 5. 542 MER 2007 (Thailand), above n 533, 256; MER 2017 (Thailand), above n 536, 193. 543 Thai Criminal Code, B.E. 2499 (1956) (‘Thai Criminal Code’). Translation of the Thai Criminal Code from the UN Office on Drugs and Crime. 544 Amendment of the Criminal Code of B.E. 2546 (2003). 545 Ibid ss 135/1 to 135/4. 546 Amendment of the Protection and Suppression of Money Laundry Act of B.E. 2546 (2003). 547 Anti-Money Laundering Act, B.E. 2542 (1999), s 3(8). 540 541

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 97 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 98 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

197

terrorization, prepare any other act or conspire each other to terrorize or commit any offence in a part of plan to terrorize or abet people into a part of terrorization or ones know the terrorists and commit any act to be covered”,548 and any persons who support these offences.549 For the purposes of terrorist financing offences, the definition of ‘terrorist acts’ applies to any act of violence or any exercise aimed to cause danger to life, bodily harm, or a serious impediment to a person’s freedom; any act that causes severe injury to a transportation system, communication system or structure base of public interest; or any act designed to cause injury to any state’s property, any person’s property, or an envelopment likely to cause an important economic injury.550 The definition of terrorist financing offences is not fully consistent with the definition observed by the CTF regime, as it does not extend to the acts that constitute offences within the scope of, and as defined in, the treaties listed in the annex to the Terrorist Financing Convention. Therefore, the MER 2007 (Thailand) found that Thailand must amend the provisions of section 135/2 of the Thai Criminal Code to criminalise the financing of the acts that constitute an offence, consistent with Thailand’s obligations under the international standard. It ranked Thailand ‘partially compliant’.551 The MER 2007 (Thailand) recommended that Thailand should amend the Criminal Code to extend terrorist financing offences to include the collection of funds for individual terrorists or terrorist organisations beyond those situations that were covered; to remove the requirement that the collection of funds be done with the purpose of committing a terrorist act or any offence that is part of a terrorist plan; to fully cover the mere provision or collection of property with the unlawful intention that it be used, or in the knowledge that it is to be used, by a terrorist organisation, or by an individual terrorist; to make more severe the sanctions for legal persons engaging in the financing of terrorism so as to make them proportionate and deterrent; and to require relevant authorities to maintain and update comprehensive statistics on matters relevant to the effectiveness and efficiency of their systems, including statistics on terrorist financing investigations.552 Thailand took some time to make these amendments. They were eventually enacted under the Counter-Terrorism Financing Act of 2013, which was further amended and renamed in December 2016 as the 548 549 550 551 552

Columns Design XML Ltd

/

Thai Criminal Code, para 135/2(2). Ibid para 153/3. Ibid. MER 2007 (Thailand), above n 533, 58. Ibid 52.

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 98 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 99 SESS: 5 OUTPUT: Fri Apr 3 14:57:55 2020

198

Global counter-terrorist financing and soft law

Counter Terrorism Proliferation of Weapons of Mass Destruction Financing Act (‘CTPF Act’) (into which the contents of the Counter-Terrorism Financing Act were largely copied).553 With minor deficiencies still not rectified in the new CTPF Act, Thailand’s rating was improved to ‘largely compliant’.554 (c) Target Financial Sanctions Related to Terrorism and Terrorism Financing On 21 December 1999, the Thai Cabinet resolved, pursuant to SC Res 1267 (1999), to instruct all authorities concerned to comply with the resolution, including freezing transfers of funds and financial resources belonging to the Taliban. To achieve this objective, the Bank of Thailand circulated a note to all commercial banks and financial institutions, requesting their cooperation in complying strictly with the said Cabinet resolution.555 On 16 January 2001, the Thai Cabinet resolved, pursuant to SC Res 1333 (2000), to instruct all authorities concerned to comply with the resolution, including by freezing the transfers of funds and financial resources belonging to Osama bin Laden, as well as to those persons or entities associated with him as identified by the UNSC Committee, including the Al-Qaeda network. On 2 October 2001, just four days after SC Res 1373 (2001) was adopted, the Thai Cabinet resolved, pursuant to the resolution, to instruct all authorities concerned to comply with the resolution and to assign the Council of State to consider relevant domestic laws and regulations and, if necessary, propose amendments thereto in order to implement the resolution in full. On 11 December 2001, the Cabinet approved two draft amendments to the Criminal Code and the Money Laundering Act proposed by the Council of State.556 The draft amendment to the Criminal Code ensured that Thai laws cover the preparation for, aiding and abetting of, and actual commission of, acts of terrorism, as offences. The draft amendment to the Money Laundering Act empowered the Office of Anti-Money Laundering to promptly freeze Counter Terrorism Proliferation of Weapons of Mass Destruction Financing Act, B.E. 2559 (2016) (CTPF Act). 554 MER 2017 (Thailand), above n 536, 138. 555 Letter dated 26 December 2001 from the Permanent Representative of Thailand to the United Nations addressed to the Chairman of the Security Council Committee established pursuant to SC Res 1373 (2001) concerning counter-terrorism (S/2002/10). 556 Ibid 5. 553

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 99 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 100 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

199

the transfer of funds or financial assets of alleged terrorists or terrorist organisations. It appears that Thailand’s response to SC Res 1267 (1999) and SC Res 1373 (2001) was rapid. However, despite all of the legislative acts described above, the MER 2007 (Thailand) ranked Thailand to be ‘partially compliant’ after it was found that there was a lack of comprehensive and effective legal mechanisms with which to ensure that terrorist properties may be subject to freezing without delay, as required under the Terrorist Financing Convention, SC Res 1267 (1999) and SC Res 1373 (2001).557 The assessors recommended that Thailand should, without delay, amend the current legislation or, alternatively, enact new legislation to enable the freezing of terrorist funds or other assets of persons designated under SC Res 1267 (1999) and SC Res 1373 (2001). The Thai government did not initially act as the FATF recommended. When it finally did, the rating was revised to ‘largely compliant’.558 The FATF has identified Thailand as a jurisdiction that has strategic CTF deficiencies in criminalising terrorist financing, and a need to establish and implement adequate procedures to identify and freeze terrorist assets.559 In February 2010, the Minister of Justice of Thailand expressed commitment to the FATF that Thailand would address these CTF deficiencies.560 Since that time, Thailand has indeed demonstrated progress in improving its CTF regime. However, the FATF has determined that CTF deficiencies remain.561 The FATF has since published several updates on Thailand’s implementation of these two recommendations, encouraging Thailand to address its deficiencies and continue the process of implementing its Action Plan.562 In February 2012, the FATF called on its members to consider the risks arising from the deficiencies associated with Thailand, stating: Despite Thailand’s high-level political commitment to work with the FATF and APG to address its strategic AML/CFT deficiencies, Thailand has not made sufficient progress in implementing its action plan, and certain strategic MER 2007 (Thailand), above n 533, 82. MER 2017 (Thailand), above n 536, 142. 559 FATF, Improving Global AML/CFT Compliance: Update On-Going Process February 2010 (18 February 2010). 560 National Strategy 2010–2015, above n 533, 17. 561 FATF, Improving Global AML/CFT Compliance: Update On-Going Process June 2010 (25 June 2010). 562 FATF, Improving Global AML/CFT Compliance: Update On-Going Process October 2010 (19 October 2012); FATF, Improving Global AML/CFT Compliance: On-Going Process February 2011 (25 February 2011). 557 558

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 100 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 101 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

200

Global counter-terrorist financing and soft law

AML/CFT deficiencies remain, although Thailand has faced external difficulties from 2009 to 2011 which significantly impacted the legislative process for the necessary laws and regulations. Thailand has taken steps towards improving its AML/CFT regime, including by substantially completing an AML/CFT risk assessment for its financial sector. Thailand should work on implementing its action plan to address the remaining deficiencies, including by: (1) adequately criminalising terrorist financing (Special Recommendation II); (2) establishing and implementing adequate procedures to identify and freeze terrorist assets (Special Recommendation III).563

In May 2012, the Thai Cabinet gave the green light to the Anti-Money Laundering Bill and the Counter-Terrorism Financing Bill. These bills were then forwarded to the parliament for deliberation. They were: … expected to sail through Parliament this year, which will help lessen hardships the business sector has been going through after Thailand has been put on the high-risk list issued by the anti-money laundering Financial Action Task Force (FATF).564

The FATF closely monitored the implementation of Thailand’s Action Plan and, in October 2012, published another statement encouraging Thailand specifically to enact its draft CTF legislation.565 Finally, on 2 February 2013, two pieces of legislation came into force: the AntiMoney Laundering Act566 and the Counter-Terrorism Financing Act.567 Twenty days later, on 22 February 2013, Thailand was removed from the FATF’s ‘public statement list’: Pursuant to Thailand’s progress in largely addressing its action plan agreed upon with the FATF, Thailand has been removed from the FATF’s Public Statement and identified in this document. Since February 2010, when Thailand made a high-level political commitment to work with the FATF and APG to address its strategic AML/CFT deficiencies, Thailand has made significant progress to improve its AML/CFT regime, including by enacting FATF, Public Statement (16 February 2012). Cabinet has green-lighted Anti-Money Laundering and Counter-Terrorism Financing draft bills: Asia News Monitor (Bangkok), 21 May 2012. 565 FATF, Public Statement (19 October 2012). 566 Anti-Money Laundering Act, B.E. 2556 (2013) (‘Anti-Money Laundering Act’). 567 Counter-Terrorism Financing Act, B.E. 2556 (2013) (‘Counter-Terrorism Financing Act’). On 31 December 2016, the CTPF Act came into force. It has incorporated all the provisions of the Counter-Terrorism Financing Act and repealed the earlier Act. See ss 28–29 of the CTPF Act. 563 564

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 101 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 102 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

201

legislation to adequately criminalise terrorist financing, establishing and implementing adequate procedures to identify and freeze terrorist assets.568

Since June 2013, Thailand has no longer been subject to FATF’s monitoring process under its ongoing global CTF (and AML) compliance process.569 The sequence of events described above clearly demonstrates the influence of the FATF on state legislation that gives effect to the international standard.570 Thailand reported to the Counter-Terrorism Committee within mere days of signing the Terrorist Financing Convention and elaborated on how it was implementing the relevant resolution. However, the implementation did not conform to the requirements, so the FATF monitored Thailand and its legislative progress. When Thailand failed to advance, the FATF threatened to impose sanctions—and in fact did impose them—until the Thai parliament adopted the CounterTerrorism Financing Act in accordance with the FATF recommendations. The Counter-Terrorism Financing Act deals with both types of ‘designated person’: a person designated as a terrorist by a UNSC resolution, and a person listed as a designated person under the Counter-Terrorism Financing Act.571 According to the Counter-Terrorism Financing Act, any person listed as a terrorist by the UNSC will have their name submitted by the Thai Anti-Money Laundering Office to the Minister of Justice to be further entered in the list of designated persons.572 Deletion from the list will be permitted only if there is a UNSC resolution or announcement leading to such removal.573 With regard to designation not carried out by the UNSC, the Counter-Terrorism Financing Act states that, in cases where there is a reasonable suspicion that a person is connected to the financing of terrorism,574 or acts on behalf of, upon instruction of, or 568 FATF, Improving Global AML/CFT Compliance: On-Going Process (22 February 2013). 569 FATF, Improving Global AML/CFT Compliance: On-Going Process (21 June 2013). See also FATF, Public Statement (23 October 2015). 570 FATF Recommendation 6; SC Res 1267 (1999), para 4(b); SC Res 1373 (2001), para 1(c). 571 Counter-Terrorism Financing Act, s 3. 572 Ibid s 4. 573 Ibid. 574 Counter-Terrorism Financing Act, s 3. Terrorism is defined as “the acts constituting an offence of terrorism under the Criminal Code or the criminal acts within the scope of a terrorism-related international convention or protocol to which Thailand is a party or which is recognised by Thailand, whether the acts are committed inside or outside the Kingdom”.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 102 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 103 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

202

Global counter-terrorist financing and soft law

under the control of, such a person, the Anti-Money Laundering Office shall submit the relevant name to the court to seek a judicial order adjudging the person as a designated person.575 The Counter-Terrorism Financing Act established a number of presumptions whereby the court should accept such a designation—namely, where the person is connected to the financing of terrorism, or where the person acts on behalf of, upon instruction of, or under the control of, a designated person.576 The Counter-Terrorism Financing Act states that the list of designated persons (either by UNSC resolutions or by a local designation) shall be published without delay, and that the Anti-Money Laundering Office577 must suspend the property-related actions of the designated persons or of the persons who act on their behalf, upon their instructions or under their control;578 provide to the Anti-Money Laundering Office information concerning the property relating to such suspension;579 and inform the Anti-Money Laundering Office of the current or former clients of the designated persons or the persons conducting or having conducted certain transactions with those designated persons.580 With regard to penalties, the Counter-Terrorism Financing Act states that any person who violates or fails to act in accordance with these duties is liable to a penalty of not more than three years’ imprisonment, or a fine, or both.581 Any person who provides or collects funds, conducts a transaction concerning funds, or carries out any action with the knowledge that the beneficiary is a designated person, or with the intention to allow such funds or action to support any activity of a designated person or terrorist person or organ, is deemed to commit an offence of financing terrorism and shall be liable to imprisonment from two years to ten years, or a fine, or both.582 Since the Counter-Terrorism Financing Act came into force in June 2013, Thai authorities have exercised their power under the Act.583 They had a list, as at November 2015, of 228 individuals and 71 entities whose

575 576 577 578 579 580 581 582 583

Columns Design XML Ltd

/

Ibid Ibid Ibid Ibid Ibid Ibid Ibid Ibid Ibid

s 5. s 5(1) and (2). s 3. s 6(1). s 6(2). s 6(3). s 14. s 16. s 4.

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 103 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 104 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

203

acts constitute terrorism.584 According to the Thai Anti-Money Laundering Office, 83 domestic entities have been proscribed under UNSCR provisions and two persons have been delisted since 2013. As of November 2016, Thailand had been able to freeze approximately US$22,285 in assets owned or controlled by 35 of the abovementioned 83 Thai designated persons.585 (d) Suspicious Transaction Reports The Anti-Money Laundering Act, prior to the amendment of 2013, defined a ‘suspicious transaction’ as a transaction of a differently complicated nature from similar transactions ordinarily made, or a transaction lacking economic feasibility or possibly connected with the commission of a predicate offence.586 The term ‘predicate offence’ refers to an offence “relating to terrorism under the Penal [Criminal] Code”.587 The Criminal Code criminalised certain acts of terrorism and other terrorist-related offences, including financing terrorism in certain circumstances (but not in the case of ‘attempt’),588 but not as comprehensively as required by the FATF recommendations. The MER 2007 (Thailand) found that there were a few changes that Thailand needed to make in order to comply with the international standard. It ranked Thailand ‘partially compliant’.589 Apparently, the Thai authorities wished to comply. The definition of ‘suspicious transaction’ was amended in accordance with the Anti-Money Laundering Act, designed to implement the international standard.590 It included the specific offence of terrorist financing and “an attempt to conduct such a transaction”.591 584 Minister of Justice Order No. 25/2558 (2015), Designation of Persons Listed for Terrorism Involvement under the United Nations Security Council Resolution or Notification (B.E. 2557, 8 August 2014). 585 APG, Anti-Money Laundering and Counter-Terrorist Financing Measures—Thailand Mutual Evaluation Report (December 2017) 8. 586 Counter-Terrorism Financing Act, s 3. 587 Anti-Money Laundering Act 1999, s 3(8). This definition of the predicate offence “relating to terrorism under the Penal Code” was added in accordance with the amendment to the Anti-Money Laundering Act of B.E. 2542 (1999), B.E. 2546 (2003). 588 Thai Criminal Code, s 135. 589 MER 2007 (Thailand), above n 533, 172–3. 590 FATF Recommendation 20. 591 Anti-Money Laundering Act, B.E. 2556 (2013), s 5.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 104 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 105 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

204

Global counter-terrorist financing and soft law

The Anti-Money Laundering Office is not a typical FIU, in that it is not only responsible for collecting, analysing and sharing financial intelligence to support financing terrorism investigations, but also has an expanded role in conducting independent investigations for the civil forfeiture of assets derived from money laundering predicate offences. The Anti-Money Laundering Office is responsible for managing and disposing of assets seized, pursuant to the civil forfeiture provisions of the Anti-Money Laundering Act; responding to foreign FIU requests for assistance; and representing Thailand at international fora relating to the financing of terrorism.592 The MER 2007 (Thailand) report indicated that the amount of reporting was a source of concern. Very few STRs had been sent to the Anti-Money Laundering Office about terrorist financing, despite the domestic terrorism issues faced by Thailand. It was suggested that this might be explained by a lack of guidance issued to financial institutions about how to identify suspicious transactions.593 In 2019, the reporting form could be found on the Anti-Money Laundering Office website,594 along with a detailed explanation of the information required in each field on the form and an outline of the new definition of ‘suspicious transactions’—which now includes the offence of terrorist financing. However, although the number of STRs in the different reports shows an increase in the reporting (in 2013, there were 969; in 2014, 4,718; and in 2015, 16,592),595 they are not divided into STRs that are related to TF and those that are not. (e) International Cooperation The Thai Police is the authority designated to handle mutual legal assistance requests from a policing perspective. The Attorney-General administrates the execution of the request and seeks the Thai Police’s assistance to collect evidence or conduct investigations, pursuant to the Mutual Legal Assistance Act.596 In general, Thailand provides mutual National Strategy 2010–2015, above n 533, 44. MER 2007 (Thailand), above n 533, 171–2. 594 Anti-Money Laundering Office website, available at www.amlo. go.th/index.php/en/aml-cft-laws-policy-measures/2016-06-04-14-58-33 [accessed 1 October 2019] (‘Anti-Money Laundering Office website’). 595 Anti-Money Laundering Office, 2016 Annual Report (2017) 39; AntiMoney Laundering Office, 2015 Annual Report (2016), 36–7; Anti-Money Laundering Office, 2014 Annual Report (2015), 36. 596 MER 2007 (Thailand), above n 533, 257. 592 593

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 105 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 106 SESS: 5 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

205

legal assistance in criminal matters based on the Mutual Assistance in Criminal Matters Act597 and bilateral or multilateral treaties on Mutual Assistance in Criminal Matters. One of the conditions for aiding is that the offence to which the request relates must be punishable under Thai laws, except where Thailand and the requesting state have a mutual assistance treaty that specifies otherwise.598 The Extradition Act 1929599 applied to extradition in relation to terrorist financing. As terrorist financing constitutes a criminal offence under the Thai Criminal Code, the prescribed punishment ranges from 20 years’ imprisonment to death and is an extraditable offence under the Extradition Act. Immediately following the publication of the MER 2007 (Thailand), in which Thailand was rated ‘partially compliant’, Thailand updated the Extradition Act and the Mutual Assistance in Criminal Matters Act to allow for asset-sharing, which was previously a gap in their legal framework, to comply with Recommendation 37. The Thai authorities began to act according to the recommendation, starting with the distribution of a National Strategy600 with the following stated mission: Combating money laundering, its predicate offences as well as terrorism financing and the resulting terrorism by carrying out effective preventative measures, intelligence sharing, enforcement efforts and sanctioning in line with international standards.601

This National Strategy contains a list of actions and a time frame for completion, in order to establish consistency with the international standard,602 as well as a list of the various Thai agencies responsible for the implementation of the Strategy.603 In addition, other requirements have been implemented by the Thai authorities since the publication of the report, which improved the rating of this recommendation to ‘largely compliant’ in 2017:604 the determination of a separate offence of financing terrorism in accordance with the Terrorist Financing Convention (and the FATF’s recommendation); criminalising the attempt to carry out

597 598 599 600 601 602 603 604

Columns Design XML Ltd

/

Mutual Assistance in Criminal Matters Act, B.E. 2535 (1992). Ibid s 9(2). Extradition Act, B.E. 2472 (1929). National Strategy 2010–2015, above n 533. Ibid 5. Ibid 20–42. Ibid 43–7. MER 2017 (Thailand), above n 536, 194.

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 106 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 107 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

206

Global counter-terrorist financing and soft law

the offence; and more. There are other forms of international cooperation that the Thai FIU promotes, such as sharing or exchanging information, via agreements and memoranda of understanding, between competent authorities and their foreign counterparts. By November 2015, Thailand had signed 47 memoranda of understanding with foreign FIUs for the exchange of financial intelligence pertaining to CTF.605 (f) Money or Value Transfer Services Thailand was ranked ‘partially compliant’ in the MER 2007 (Thailand).606 The activity of money or value transfer services in Thailand is governed by the Exchange Control Act 1942.607 According to the Act and regulations,608 a person who operates as a money or value transfer agent must obtain a licence.609 The Ministry of Finance is authorised to issue such licences, while the Bank of Thailand processes the applications and makes recommendations.610 In addition to maintaining a list of authorised money transfer agents, the Bank of Thailand, appointed the ‘competent officer’ under the Exchange Control Act,611 sets principles regarding applicants’ qualifications and requirements for business operation, as well as ensuring compliance with the requirements by monitoring money transfer agents through examination of their transaction records and reports, and inspection of operations at their authorised offices.612 In order to implement the international standard,613 the Bank of Thailand published rules and practices, in which authorised money or value transfer agents are asked to compile evidence of every transaction that included different details. The authorised money or value transfer agents are expected to produce such evidence to customers and keep one

Anti-Money Laundering Office website, above n 594. MER 2007 (Thailand), above n 533, 223. 607 Exchange Control Act, B.E. 2485 (1942) (‘Exchange Control Act’). 608 Ministerial Regulations No. 13, B.E. 2497 (1955); Bank of Thailand, Notification of the Ministry of Finance on Directions of the Minister to Authorized Agents (31 March 2004). 609 Exchange Control Act, s 4. 610 MER 2007 (Thailand), above n 533, 220. 611 Exchange Control Act, s 7. 612 Bank of Thailand, Notification of the Ministry of Finance on Directions of the Minister to Authorized Money Transfer Agents (4 August 2004). 613 FATF Recommendation 14. 605 606

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 107 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 108 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

207

copy at the offices, for no less than five years, for inspection by the Ministry of Finance “to be in line with the international practices”.614 The sanctioning arsenal is broad. Authorised money or value transfer agents who do not comply with the requirements under the Exchange Control Act are liable to a fine, or imprisonment not exceeding three years, or both.615 Also, under the Regulations616 and the Exchange Control Act,617 the Minister of Finance may cancel a money transfer licence if the holder of the licence violates the exchange control laws, rules, regulations, directions and notices, or endangers the exchange system or the public in economic matters. The rationale for the different amendments (the Anti-Money Laundering Act and the Counter-Terrorism Financing Act) can be found in the National Strategy, which explicitly outlines the failures of Thailand under the international standard and states that there is a need to amend the Thai legislation to make all money value transfers in Thailand, as defined by the FATF standard, subject to CTF (and AML) preventative measures requirements.618 (g) Wire Transfers The Anti-Money Laundering Act (1999) required ordering and beneficiary financial institutions to report any wire transfer, domestic or cross-border, with a value equal to or above US$52,800 for cash transactions and US$132,000 for non-cash transactions. Cross-border wire transfers are additionally subject to the regulations of the Exchange Control Officer, which requires financial institutions to arrange for the customer to complete a foreign exchange form for any transaction equal to or above US$20,000.619 These thresholds exceed the US$1,000 threshold in the FATF.620 The MER 2007 (Thailand) asserted that Thailand should amend the Anti-Money Laundering Act to require all financial institutions to keep transaction records and identification data,

614 Bank of Thailand, Notice of the Competent Officer on Rules and Practices regarding the Undertaking of Authorized Money Transfer Agents (No. 2) (1 August 2006). 615 Exchange Control Act, s 8. 616 Ministerial Regulations No. 13, B.E. 2497 (1955), art 5. 617 Exchange Control Act, s 9. 618 National Strategy 2010–2015, above n 533, 24. 619 Notification of the Exchange Control Officer (31 March 2004), cl 44. 620 FATF Recommendation 16.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 108 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 109 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

208

Global counter-terrorist financing and soft law

and should introduce a law, regulation or other enforceable means to regulate wire transfers. It ranked Thailand ‘non-compliant’.621 Again, Thailand has been observed to work towards fixing deficiencies. On 25 August 2011 and later in 2013, all commercial banks were declared by the regulations issued by virtue of the Anti-Money Laundering Act to be required to identify and verify, and maintain copies of, the identities of customers, and to report certain types of transactions as required by law.622 (h) Non-Profit Organisations The most common types of NPOs in Thailand that are subject to registration are foundations and associations. A foundation consists of property set up for public benefit purposes, including for charity, religion, art, science, literature, education or any other public interest with no aim of benefit sharing.623 A foundation is registered under the provisions of the Civil and Commercial Code.624 When applying for registration of a foundation, the founder must submit a written application to the Registrar of the area in which the main office of the foundation is to be situated.625 An association, by contrast, is a juristic group established to conduct non-profit activities sharing the same interest. It must have its own by-laws and be registered under the provisions of the Civil and Commercial Code.626 The assessors of the MER 2007 (Thailand) recommended that Thailand, if it wished to improve upon its rating of ‘non-compliant’,627 should undertake a review of existing laws and regulations that relate to NPOs and can be abused for financing terrorism; carry out outreach with the NPO sector with a view to protecting the sector from financing terrorism abuse; take effective steps to promote supervision and monitoring of those NPOs that account for a significant portion of the financial

MER 2007 (Thailand), above n 533, 161. Bangkok Bank News, ‘Anti-Money Laundering Ministerial Regulations Implemented on 25 August 2011’ (26 August 2011); Ministerial Regulations Prescribing Rules and Procedures for Customer Due Diligence B.E. 2556 (2013). 623 MER 2007 (Thailand), above n 533, 241. 624 Civil and Commercial Code, B.E. 2468 (1925). 625 Ibid ss 110–136. 626 Ibid ss 78–109. 627 MER 2007 (Thailand), above n 533, 250. 621 622

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 109 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 110 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

209

resources under the control of the sector; enact measures requiring NPOs to maintain, and make available to appropriate authorities, records of domestic and international transactions that are sufficiently detailed to verify that funds have been spent in a manner consistent with the purpose and objectives of the organisation; establish effective mechanisms to ensure domestic cooperation and coordination, or information sharing; and designate an official contact point to deal with international requests for information on NPOs.628 The National Strategy specifically calls for enhanced measures to provide for greater transparency and oversight of NPOs, to be consistent with the international standard.629 More specifically, the Strategy calls for the implementation of appropriate licensing procedures, supervision, monitoring and oversight in line with international standards.630 This includes ensuring that the information compiled on the operations of each NPO is publicly available.631 The Bank of Thailand does not have regulations that give it explicit authorisation to control charitable donations; however, the Financial Institutions Business Act632 requires all financial institutions and non-bank service providers to adopt customer due diligence procedures for all clients, and must meet the reporting requirements of the Anti-Money Laundering Act, which include transactions deriving from charitable donations.633 Due to some weaknesses with assessments of the NPO sector and related TF risks, and weaknesses with the range of available sanctions for NPO regulators, Thailand was rated in the MER 2017 (Thailand) to be ‘partially compliant’.634 (i) Cash Couriers According to the MER 2007 (Thailand), Thailand applied no restrictions to the import or export of foreign currency or bearer negotiable instruments; nor did it apply restrictions to the import of domestic currency. It was therefore ranked ‘non-compliant’.635 As a result, there were no

628 629 630 631 632 633 634 635

Columns Design XML Ltd

/

Ibid 249. FATF Recommendation 8. National Strategy 2010–2015, above n 533, 38. Ibid. Financial Institution Business Act, B.E. 2551 (2008). Ibid s 154. MER 2017 (Thailand), above n 536, 149. MER 2007 (Thailand), above n 533, 119.

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 110 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 111 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

210

Global counter-terrorist financing and soft law

declaration or disclosure requirements. The only restrictions concern the export of domestic currency, which is subject to authorisation when the amount exceeds approximately US$1,500, or US$3,000 when travelling to Myanmar, Laos, Malaysia and Cambodia.636 These restrictions are applicable only in the case of currency and do not cover other bearer negotiable instruments, as defined by the FATF. Failure to comply with the authorisation requirements under the restrictions provided for the importation of domestic currency triggers the sanctions provided in the Customs Act,637 which are imprisonment not exceeding ten years, or a fine of up to four times the value of the imported currency, including tax, or both.638 The International Monetary Fund assessors, who used the assessment methodology endorsed by the FATF, recommended that Thailand expand the declaration requirements to all circumstances set forth by Recommendation 32, and extend it also to bearer negotiable instruments (as defined by the international standard); provide Customs authorities with the power to stop currency and bearer negotiable instruments where there is a suspicion of terrorist financing or money laundering; provide customs authorities with the power to freeze and confiscate proceeds of crime and funds related to terrorist financing; make available to the Thai FIU any information obtained through the process of declaration; and establish sanctions in cases of physical cross-border transportation of currency for the purposes of terrorist financing and money laundering.639 One of the measures to improve compliance with this recommendation concerned cash courier reporting and declaration systems. Foreign currency declarations collected at Customs checkpoints are captured in a new electronic reporting system under the Customs Procedure Code (2013), which is linked to the Anti-Money Laundering Office and shared on the day on which the declaration is made. (j) Summary Thailand was assessed against the FATF recommendations in February 2007 by the MER 2007 (Thailand), with a resulting compliance score in

636 637

Ibid 115. Customs Act, B.E. 2469 (1926). Amended by the Customs Act, B.E. 2548

(2005). 638 639

Columns Design XML Ltd

/

Ibid s 27. MER 2007 (Thailand), above n 533, 249.

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 111 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 112 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Examining the level of compliance

211

the CTF recommendations of six ‘partially compliant’ and three ‘noncompliant’ ratings. Furthermore, the MER 2007 (Thailand) contained 147 recommended actions for improving Thailand’s CTF (and AML) regime. Thailand was on its way to being listed in the FATF public statement, which put a financial burden on the Thai economy. To protect its market activity, it was in the self-interest of Thailand to address and implement the recommended actions.640 Thailand drafted a National Strategy and legislated the Anti-Money Laundering Act and the Counter-Terrorism Financing Act, both of which came into force on 2 February 2013. Despite the two new Acts, FATF experts visited Thailand a second time to confirm whether the country had strictly and concretely addressed its deficiencies, and therefore complied with the CTF regime. If the experts were to find that Thailand had not made satisfactory progress to this end, the FATF was to recommend that the country be relisted on the FATF public statement.641 This, however, did not transpire. On 21 June 2013, the FATF published the following statement: The FATF welcomes Thailand’s significant progress in improving its AML/ CFT regime and notes that Thailand has established the legal and regulatory framework to meet its commitments in its Action Plan regarding the strategic deficiencies that the FATF had identified in February 2010. Thailand is therefore no longer subject to FATF’s monitoring process under its on-going global AML/CFT compliance process. Thailand will work with the APG as it continues to address the full range of AML/CFT issues identified in its Mutual Evaluation Report.642

While Thailand did legislate the Anti-Money Laundering Act and the Counter-Terrorism Financing Act, and updated other pieces of legislation, this was not due solely to a desire to protect the Kingdom of Thailand and its people, institutions and economy from terrorists. It appears that the primary reason for implementing the CTF regime was “to bring the country’s entire AML/CFT regime into line with the international standards before the Kingdom is next assessed by the APG”.643

National Strategy 2010–2015, above n 533, 16. FATF, ‘FATF Removes Thailand from Public Statement on Money Laundering/Financing of Terrorism’ (Press Release, 1 May 2013). 642 FATF, High-Risk and Non-Cooperative Jurisdictions—Improving Global AML/CFT Compliance: On-Going Process (21 June 2013) 10. 643 National Strategy 2010–2015, above n 533, 17. 640 641

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 112 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 113 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

212

Global counter-terrorist financing and soft law

Table 5.7 Summary of Thailand rating compliance with FATF Recommendations644 Old Number Recommendations

New Number

SR.I: Implement UN instruments SR.II: Criminalise terrorist financing SR.III: Freeze and confiscate terrorist assets SR.IV: Suspicious transaction reporting SR.V: International cooperation

36

SR.VI: Requirements for money/value transfer services SR.VII: Wire transfer rules

14

SR.VIII: Non-profit organisations SR.IX: Cash couriers

Old Rating645

Rating646

16

Partially Compliant Partially Compliant Partially Compliant Partially Compliant Partially Compliant Partially Compliant Non-Compliant

8

Non-Compliant

32

Non-Compliant

Largely Compliant Largely Compliant Largely Compliant Partially Compliant Largely Compliant Largely Compliant Partially Compliant Partially Compliant Partially Compliant

5 6 20 37

644 The ‘Old Number Recommendations’ column refers to the corresponding 2003 FATF recommendation. 645 MER 2007 (Thailand), above n 533. 646 MER 2017 (Thailand), above n 536.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 05Chapter5

/Pg. Position: 113 /

Date: 17/2

JOBNAME: EE3 Goldbarsht PAGE: 1 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

6. Features of the regime that have led to its high levels of compliance As we have seen, Chapter 2 has explained the need to counter the financing of terrorism and Chapter 3 has introduced the multi-faceted international regime that does so. Chapter 4 and Chapter 5 have demonstrated that not only has the CTF regime achieved high levels of technical implementation, but also that states have generally complied with the regime’s requirements and, despite their non-binding nature, the FATF recommendations have had considerable influence. The FATF has helped to bring all the selected states, despite the different ways in which they have responded to the criteria, into line with both the binding norms and the non-binding norms embodied in the FATF recommendations. It has eventually improved compliance with each and every one of these states. At first, the high levels of compliance appear peculiar, given that the multi-layered character of the CTF regime contains both binding and non-binding norms. In particular, the notion of non-binding norms would lead one to speculate that the rate of implementation and compliance is low. However, in the case of the CTF regime, that does not appear to be the case. This chapter aims to identify some of the reasons for the high level of implementation and compliance with CTF norms. It argues that the unique character of the FATF (its members and FSRBs), the non-binding nature of the recommendations, the multi-layered approach adopted by the FATF, and the compliance mechanism are key factors for the high level of implementation and compliance. The analysis in this chapter distinguishes between three categories: when the FATF CTF recommendations overlap with both the UNSC binding resolution and the Terrorist Financing Convention; when they overlap with only one of the other two pillars; and when they stand alone. Nevertheless, the FATF enforces its recommendations in a manner that is indifferent to the normative source of the recommendation. The recommendations are non-binding norms, so why then did states implement them and why do they comply with the requirements? This examination is based on an analysis of the technical implementation and compliance seen in the case studies, in which it was found that hard law in the form of the Terrorist Financing Convention results in slow 213

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 06Chapter6

/Pg. Position: 1 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 2 SESS: 7 OUTPUT: Fri Apr 3 14:57:55 2020

214

Global counter-terrorist financing and soft law

implementation and low compliance rates when the FATF is not involved. Without intervention by the FATF, the hard law of SC Res 1267 (1999) and SC Res 1373 (2001) also results in low compliance, as states adopt a merely technical approach to implementation. For example, some states reported back to the UNSC Committee with regard to having criminalised the financing of terrorism, but the FATF found that they needed to improve their compliance. In those cases, the FATF undertook follow-up procedures until the requirements were met. The examination also found that those recommendations that could not find leverage in binding norms resulted in relatively low compliance rates. For example, FATF recommendation 8—which deals with cash couriers—was rated as noncompliant in Thailand and Malaysia and partly compliant in Australia and India when examined in each state’s first MER (this was later upgraded due to the FATF compliance mechanism detailed below). In contrast, the FATF recommendations that produced non-binding norms but found leverage in binding norms resulted in high implementation.

THE UNIQUE CHARACTER OF THE FATF As discussed in detail in Chapter 3, the FATF has played a central role in coordinating global CTF efforts. Not an international organisation with legal personality, a constitution, or a basis in treaty law, the FATF is, rather, a loose intergovernmental partnership that promotes harmonised international financial standards and policies.1 It comprises 39 members (37 members are wealthier countries and two are regional organisations).2 The FATF is headquartered at the OECD, but its normative influence extends beyond member states. As stated, the FATF has a powerful influence over the CTF regime. A number of factors account for this. The FATF members include most of the world’s largest economies,3 and so the (non-binding) political commitments made by that small and relatively cohesive group of states have ripple effects across the global economy. By definition, political commitments do not create legally binding obligations, even if they have normative force in the political or moral context. Nonetheless, political commitments are not simply “scraps 1 Ben Saul, ‘The Emerging International Law of Terrorism’ (2010) Indian Yearbook of International Law and Policy 2009 10. 2 After Malaysia joined in February 2016, Israel in December 2018 and Saudi Arabia in June 2019. See FATF, FATF Members and Observers Report (undated). 3 FATF, Annual Report 2000–2001 (June 2001) 3.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 06Chapter6

/Pg. Position: 2 /

Date: 19/3

JOBNAME: EE3 Goldbarsht PAGE: 3 SESS: 5 OUTPUT: Fri Apr 3 14:57:55 2020

Features of the regime that have led to its high levels of compliance

215

of paper”.4 Parties to political commitments impose restraints on their freedom to act as if the agreement did not exist—or, in the words of Henry Kissinger: The fact that many provisions are not by any standard international commitments does not mean, of course, that the United States is morally or politically free to act as if they did not exist. On the contrary, they are important statements of diplomatic policy and they engage the good faith of the United States as long as the circumstances that gave rise to them continue.5

Non-binding political commitments may be terminated more easily than binding commitments (that is, treaties), but that does not obscure the role of the commitments that remain operative. Political commitments serve as alternatives for binding commitments where states cannot (or do not want to) create legally binding obligations. When political commitments involve substance, process or both, states rely on them. When a state undertakes a political commitment, other participating states tailor their conduct accordingly.6 This can explain how a political commitment between FATF’s members created a standard that has become a condition of doing business with non-members. There is thus a powerful commercial incentive for non-members to conform.7

NON-BINDING NATURE OF THE RECOMMENDATIONS Non-binding norms can be deliberately used by non-state actors to influence state behaviour when there is little prospect of successfully

4 Duncan B. Hollis and Joshua J. Newcomer, ‘Political Commitments and the Constitution’ (2008) 49(3) Virginia Journal of International Law 510. 5 The American Secretary of State Henry Kissinger in testimony to the Senate Foreign Relations Committee on the United States Undertakings about the Sinai Disengagement Agreements of 1975. See Oscar Schachter, ‘The Twilight Existence of Nonbinding International Agreements’ (1977) 72(2) American Journal of International Law 296, 303 and footnote 26. 6 Hollis and Newcomer, above n 4, 512; Daniel E. Ho, ‘Compliance and International Soft Law: Why Do Countries Implement the Basle Accord?’ (2002) 5 Journal of International Economic Law 647. 7 Ben Saul, ‘Criminality and Terrorism’ in Ana Maria Salinas De Frias et al. (eds), Counter-Terrorism: International Law and Practice (Oxford University Press, 2012) 153.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 06Chapter6

/Pg. Position: 3 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 4 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

216

Global counter-terrorist financing and soft law

concluding a convention.8 However, in the case of CTF, the Terrorist Financing Convention was already in place when the FATF published its recommendations. Only after the UNSC had ‘legislated’, under Chapter VII, that states must implement the duties under the Terrorist Financing Convention, and only after the FATF had joined the regime, did states comply with this binding norm, which was already in existence. The fact that the FATF recommendations are non-binding in the area of CTF has been a factor in the progress towards harmonising national rules on CTF. The non-binding nature of the recommendations allows the FATF to be highly influential because the recommendations are dynamic and because the FATF provides assistance to low capacity countries. Dynamic Nature of the Recommendations The use of non-binding norms may be the most appropriate way to deal with rapidly changing financial practices and market conditions. Like other financial issues, CTF (and AML) efforts are subject to rapid changes. It is much easier to amend non-binding recommendations—as the FATF did a few times—than agreements that require formal ratification. Technical Assistance to Low Capacity Countries States have diverse legal frameworks and financial systems; they are therefore unlikely to take identical measures to achieve similar substantive results. The recommendations permit countries to implement measures according to their particular circumstances, in contrast to the mandatory detailed obligations often found in a binding document. Full and effective implementation of the recommendations in all countries is one of the fundamental goals of the FATF, as the regime is only as strong as its weakest link. ‘Positive’ recommendations (to take action) cost money to implement, and state capacity may be crucial in achieving compliance. Implementing the FATF standard challenges the capacity of all countries, regardless of their level of economic development. However, low capacity countries share several characteristics that severely constrain their capacity to implement CTF (and AML) measures. These include difficulty in balancing competing priorities for scarce government resources; a severe lack 8 Emily Crawford, Identifying the Enemy: Civilian Participation in Armed Conflict (Oxford University Press, 2015) 215.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 06Chapter6

/Pg. Position: 4 /

Date: 24/2

JOBNAME: EE3 Goldbarsht PAGE: 5 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Features of the regime that have led to its high levels of compliance

217

of resources and skilled workers to implement government programmes; overall weakness in legal institutions; a dominant informal sector and cash-based economy; poor documentation and data retention systems; and a very small financial sector. Therefore, the FATF provides technical assistance to non-members. It has produced guidance that identifies principles, mechanisms and procedures to ensure the implementation of the recommendations in low capacity countries that face difficulties in achieving compliance.9 The FATF guidance takes into account the ‘risk’ profiles of specific countries and the resource constraints that may affect the time it takes to implement the recommendations. It supports those countries in mitigating CTF (and AML) risks in a manner consistent with each country’s specific structural particularities and vulnerabilities. Without altering the commitment to one global standard as established in the recommendations, this guidance enables low capacity countries to take constraints into account as they implement effective CTF (and AML) measures. The guidance helps these countries to ensure consistency between CTF (and AML) measures and the goal of universal access to financial services.10

MULTI-LAYERED RECOMMENDATIONS The UNSC, which is one of the regime’s pillars, holds a unique position among interstate bodies. It is entrusted by the United Nations—an institution with almost universal membership—with maintaining international peace and security. ‘Legislation’ by the UNSC is different from other institutionalised forms of decision-making at the global level.11 First, where states are party to a treaty, one group is able to propose new rules for the membership of the whole. The group in question is a plenary 9 FATF, Guidance on Capacity Building for Mutual Evaluations and Implementation of the FATF Standards within Low Capacity Countries (February 2008) 4. 10 Ibid 349. See also Hennie Bester et al., Implementing FATF Standards in Developing Countries and Financial Inclusion: Findings and Guidelines (FIRST Initiative, 2008). 11 As Dyzenhaus states, citing Szasz, prior to 2001, the practice of the UNSC had generally been to exercise these powers in regard to specific conflicts and situations, but these decisions—because of their particularity and their temporality—did not look legislative in nature. David Dyzenhaus, ‘The Rule of (Administrative) Law in International Law’ (2005) 68 Law and Contemporary Problems 127, 141; Paul C. Szasz, ‘The Security Council Starts Legislating’ (2002) 96 American Journal of International Law 901.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 06Chapter6

/Pg. Position: 5 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 6 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

218

Global counter-terrorist financing and soft law

body representing all the states parties to the treaty. Although the consent of the states parties may in some cases be assumed, members of the treaty have the option to opt out of either the rule or the treaty regime. Therefore, they ultimately cannot be bound without their consent. The UNSC, by contrast, consists of just 15 states, and its five permanent members hold veto power.12 Second, the UNSC does not allow states to opt out of Chapter VII decisions. Third, the current legislative practice by the UNSC was not anticipated when the UN Charter was drawn up. Further, the CTF regime enjoys the support of an infrastructure created specially to monitor implementation.13 Finally, legislation by the UNSC has the potential to dictate all areas of law for all states. Unlike particular treaty regimes—which deal with specific issues, such as trade or environmental protection, or apply only in specific territories—the UNSC has no geographical limits. Depending on its interpretation of article 39, it may also have very few subject matter limits;14 as Professor Roach put it, with regards to SC Res 1373 (2001): “Resolution 1373 constituted a novel form of global legislation imposing permanent and general obligations on all states.”15 Non-binding norms can be used to fill in gaps in hard law or to supplement it. With regards to the FATF, its standards are not in competition with (binding) international legal norms, but rather complement or replicate them. Thus, while terrorist financing is not legally defined in the recommendations, the FATF’s operative understanding of its scope is based on the Terrorist Financing Convention. Further, the recommendations encourage ratification of international treaties, while the FATF’s cooperation with other relevant bodies (such as the UN, the Egmont Group of Financial Intelligence Units, the G20, and other 12 This unbalanced structure ensures that the regime followed by the UNSC will never be at odds with the interests of any state holding veto, and also that it is likely positively to further the interests of these states. 13 Cathleen Powell, ‘The UN, Terrorism and the Rule of Law’ in Victor V Ramraj et al., Global Anti-Terrorism Law and Policy (Cambridge University Press, 2012) 27; José Alvarez, ‘Hegemonic International Law Revisited’ (2003) 97 American Journal of International Law 874; José Alvarez, International Organizations as Law Makers (Oxford University Press, 2005) 127. 14 The Council’s interpretation of art 39 has widened considerably. It has used Ch VII in the absence of obvious threats to the peace, or to achieve goals not related to international peace and security. These include providing humanitarian relief, assisting UN personnel on site, and promoting democracy, See Alvarez, ‘Hegemonic International Law Revisited’, above n 13, 171–3. 15 Kent Roach, The 9/11 Effect: Comparative Counter-Terrorism (Cambridge University Press, 2011) 1.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 06Chapter6

/Pg. Position: 6 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 7 SESS: 5 OUTPUT: Fri Apr 3 14:57:55 2020

Features of the regime that have led to its high levels of compliance

219

financial institutions) helps to strengthen and consolidate global norms on terrorist financing. Thus, countries can implement both sets of measures with one legal or regulatory system, despite the differences that exist between the requirements of each set. 100 90 80 70 60 50 40 30 20 10 0 First Group of Recommendaons — Convenon, UNSC and FATF Rec 36

Rec 5

Second Group of Recommendaons — Convenon and FATF Rec 6

Rec 37

Third Group of Recommendaons — Only FATF Recommendaons

Rec 20

Rec 32

Rec 14

Rec 16

Rec 8

Figure 6.1 Multi-layered implementation of all the Recommendations To present the multi-layered approach, it is worthwhile representing the FATF recommendations in three different groups according to their interaction with the other two pillars of the CTF regime—the Terrorist Financing Convention and the UNSC resolutions. First Group of Recommendations—All the Pillars of the Regime In the first group of recommendations, where all three pillars of the regime are substantially similar and are enforced by the FATF, there is high rate of implementation.16 According to Recommendation 36, countries should take immediate steps to ratify and to implement fully the Terrorist Financing Convention and the UNSC resolutions relating to the prevention and suppression of the financing of terrorist acts—particularly SC Res 1373 (2001), which itself calls upon all states to become parties as soon as possible to all relevant international conventions and protocols relating to terrorism, including the Terrorist Financing Convention. States have, theoretically, the choice of whether or not to join conventions (binding norms), but here the UNSC forces states to join—and later on 16 Recommendations 36 with 87 per cent; 5 with 77 per cent; 6 with 64 per cent; and 37 with 80 per cent.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 06Chapter6

/Pg. Position: 7 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 8 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

220

Global counter-terrorist financing and soft law

the FATF non-binding norm recommended that they do the same. This suggests that while the means may be flexible, a legal commitment to the most basic principle of the regime is viewed as a prerequisite to its success.17 Recommendation 5 directs each country to criminalise the financing of terrorism, terrorist acts and terrorist organisations to ensure that countries have the legal capacity to prosecute and apply criminal sanctions to persons who finance terrorism. According to the FATF, the basis for criminalising terrorist financing should be the Terrorist Financing Convention, where it also says that all states shall adopt measures to establish criminal offences of financing terrorism under their domestic laws.18 SC Res 1373 (2001) also requires that all states criminalise the financing of terrorism.19 Recommendation 6 directs each country to implement measures to freeze funds or other assets of terrorists, those who finance terrorism, and terrorist organisations, in accordance with SC Res 1267 (1999) and SC Res 1373 (2001). The recommendation consists of two obligations. The first requires jurisdictions to implement measures that will freeze or, if appropriate, seize terrorist-related funds or other assets without delay, in accordance with relevant UNSC resolutions. The second obligation is to have measures in place that permit a jurisdiction to seize or confiscate terrorist funds or other assets based on an order or mechanism issued by a competent authority or a court. Also, in accordance with their obligations under the Terrorist Financing Convention, jurisdictions should be able to freeze or, if appropriate, seize any funds or other assets that they identify, detect and verify, in accordance with applicable legal principles, as being used by, allocated for, or being made available to terrorists, those who finance terrorists, or terrorist organisations.20 Recommendation 37 directs that each country should afford another country the greatest possible measure of assistance in connection with criminal, civil enforcement, and administrative investigations, inquiries and proceedings relating to the financing of terrorism, terrorist acts and terrorist organisations. SC Res 1373 (2001) also directs all states to exchange information to prevent the commission of the financing of 17 Compare Beth Simmons, ‘International Efforts against Money Laundering’ in Dinah Shelton (ed.), Commitment and Compliance: The Role of Non-binding Norms in the International Legal System (Oxford University Press, 2003) 262. 18 Terrorist Financing Convention, art 4. 19 SC Res 1373 (2001), para 1(b). 20 Terrorist Financing Convention, art 8(1) and (2).

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 06Chapter6

/Pg. Position: 8 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 9 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Features of the regime that have led to its high levels of compliance

221

terrorism.21 This recommendation also asks countries to take all possible measures to ensure that they do not provide safe havens for individuals charged with the financing of terrorism, terrorist acts or terrorist organisations. It states that countries should have procedures in place to extradite, where possible, such individuals. The Terrorist Financing Convention also directs states parties to prevent safe haven by prosecuting or extraditing offenders.22 All states investigated in the case studies have technically implemented this group of recommendations. As seen in the case studies, the recommendation enjoyed a high rate of compliance. This includes the UK being compliant with all four; Australia being largely compliant with all four, later improving to fully compliant with two; India being largely compliant with one and partly compliant with three, with those three later improving to largely compliant; Israel being compliant with one and largely compliant with three, which after the FATF MER report improved to compliant with all but one; Malaysia being largely compliant with three and partly compliant with one, which later improved to compliant; and Thailand being partly compliant with all the recommendations in this group and later improving to being largely compliant with all four. Second Group of Recommendations—Two Out of Three Pillars When the FATF recommendations overlap only with the Terrorist Financing Convention, it is evident that the implementation rate drops.23 According to Recommendation 20, if financial institutions, or other businesses or entities subject to CTF (and AML) obligations, suspect or have reasonable grounds to suspect that funds are linked or related to, or are to be used for, terrorism or terrorist acts, or by terrorist organisations, they should be required to report promptly their suspicions to the FIU. The Terrorist Financing Convention also directs states to put in place measures requiring financial institutions and other professions involved in financial transactions to pay special attention to unusual or suspicious transactions and to report transactions suspected of stemming from a criminal activity.24 Recommendation 32 states that countries should have measures in place to detect the physical cross-border transportation of currency and bearer negotiable instruments, including a declaration system or other Terrorist Financing Convention, art 3(b). Terrorist Financing Convention, art 10. Recommendations 20 with 61 per cent and 32 with 58 per cent. Terrorist Financing Convention, art 18(1)(b).

21 22 23 24

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 06Chapter6

/Pg. Position: 9 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 10 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

222

Global counter-terrorist financing and soft law

disclosure obligation. Countries should ensure that their competent authorities have the legal authority to stop or restrain currency or bearer negotiable instruments that are suspected to be related to terrorist financing or money laundering, or that are falsely declared or disclosed. Also, the Terrorist Financing Convention dictates that states parties consider feasible measures to detect or monitor the physical cross-border transportation of cash and bearer negotiable instruments, subject to strict safeguards to ensure the proper use of information, and without impeding in any way the freedom of capital movements.25 The rate of technical implementation was less high by comparison to the recommendations in the first group. When looking at the case studies, it was found that the UK was compliant with one recommendation and largely compliant with the other. Australia was largely compliant with one recommendation and partly compliant with the other, which later improved to compliant and largely compliant, respectively. India improved from partly to largely compliant with both recommendations. Israel was largely compliant with both and improved to being compliant for one of the recommendations and, in a later MER, to compliant with the other as well. Malaysia was partly compliant with one and noncompliant with the other, which improved to compliant with one and largely compliant with the other. Thailand was partially compliant with one and non-compliant with the other, which later improved to partially compliant. Third Group of Recommendations—Only One Pillar, the FATF Recommendations When the FATF recommendations stand alone, without leveraging the presence of binding norms, they have the lowest rate of implementation. Nonetheless, it is worth noting that although these recommendations are non-binding norms that are costly to implement, they still achieve implementation by more than half of the states of the world.26 According to Recommendation 14, each country should take measures to ensure that any persons or legal entities that provide a service for the transmission of money or value, including transmission through an informal value (including money) transfer system or network, should be licensed or registered and subject to all the recommendations that apply to banks and non-bank financial institutions. Each country should ensure Terrorist Financing Convention, art 2(b). Recommendations 14 with 55 per cent; 16 with 53 per cent; and 8 with 51 per cent. 25 26

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 06Chapter6

/Pg. Position: 10 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 11 SESS: 6 OUTPUT: Fri Apr 3 14:57:55 2020

Features of the regime that have led to its high levels of compliance

223

that persons or legal entities that carry out such services illegally are subject to administrative, civil or criminal sanctions. The objective of Recommendation 14 is to increase the transparency of payment flows by ensuring that jurisdictions impose consistent counter-terrorist financing measures on all forms of value transfer systems, particularly those traditionally operating outside the conventional financial sector and not currently subject to the FATF recommendations. Recommendation 16 directs all countries to take measures to require financial institutions to include accurate and meaningful originator information (name, address and account number) on funds transfers and related messages that are sent, and to require that the information remains with the transfer or related message through the payment chain. Recommendation 16 was developed with the objectives of preventing terrorists and other criminals from having unfettered access to wire transfers for moving their funds, and of detecting such misuse when it occurs. Further, due to the potential terrorist financing threat posed by small wire transfers, countries should aim for the ability to trace all wire transfers and should minimise thresholds, taking into account the risk of driving transactions underground. According to Recommendation 8, all countries should review the adequacy of laws and regulations that relate to entities that can be abused for the financing of terrorism. NPOs are particularly vulnerable, and all countries should ensure that they cannot be misused. As stated, when the binding norms were not supported by FATF enforcement, implementation was slow (for example, ratifying the Terrorist Financing Convention) and compliance was partial (for example, criminalising the collection of funds for an individual terrorist). When the FATF added its own recommendations that overlapped with and complemented the binding norms, implementation increased and compliance improved. However, when the FATF recommendations stood alone, the compliance rate declined. This decline, as can be seen in the case studies, is temporary—such as the improved compliance with recommendation 14 in Malaysia and Israel (an improvement from ‘partially compliant’ to ‘compliant’), with Recommendation 16 in the UK (an improvement from ‘largely compliant’ to ‘compliant’) or Australia (an improvement from ‘non-compliant’ to ‘partially compliant’), and with Recommendation 8 in India and Thailand (an improvement from ‘non-compliant’ to ‘partially compliant’). When the FATF decides to add its own recommendation, or amend an existing one, and to enforce the new standard, the compliance rate is significantly improved.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 06Chapter6

/Pg. Position: 11 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 12 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

224

Global counter-terrorist financing and soft law

The Multi-Layered Approach in Practice An example of how the multi-layered approach works in practice—with the FATF adopting a binding norm, updating the non-binding FATF recommendations, and securing compliance—is SC Res 2178 (2014). This resolution, which was adopted under Chapter VII, requires member states to criminalise the financing of travel by foreign terrorist fighters for the purposes of terrorism or terrorist training. Following its adoption on 27 September 2014, jurisdictions have introduced new legislation to criminalise this conduct, which was already a criminal offence in 11 jurisdictions. Most jurisdictions did not yet criminalise the financing of travel for the purposes of terrorism or terrorist training: as at November 2015, 73 per cent of jurisdictions had not yet done so.27 Therefore, the FATF has taken urgent action to incorporate the new requirements of SC Res 2178 (2014) into the FATF recommendations. It has revised the interpretive note to Recommendation 5 on the criminal offence of terrorist financing to incorporate the relevant element of SC Res 2178 (2014).28 The FATF believes that the strong mandate from the UNSC and visible support from the UN helps it to put pressure on members to implement the FATF standards effectively, and in this way it can take further action to strengthen measures throughout the FATF global network.29 This clarifies that the recommendation requires countries to criminalise financing the travel of individuals to a state other than their state of residence or nationality for the purpose of perpetrating, planning, preparing or participating in terrorist acts, or providing or receiving terrorist training. The multi-layered approach adopted by the FATF—here, a non-binding norm recommending that states criminalise the financing of travel by foreign terrorist fighters for the purposes of terrorism or terrorist training, alongside existing binding norms—actually led to an improvement in the level of compliance (with the FATF recommendation UNSC, Implementation of Security Council Resolution 2178 (2014) by States Affected by Foreign Terrorist Fighters: A Compilation of Three Reports (S/2015/338; S/2015/683; S/2015/975) (2015). 28 FATF, Report to G20 Leaders—Actions Being Taken by the FATF (November 2015); FATF, Outcomes of the FATF Plenary Meeting (October 2015). 29 Je-Yoon Shin, ‘The Importance of Urgent Action to Implement FATF’s Measures to Counter Terrorist Financing and Help Defeat ISIL’ (address to the Special Session of the United Nations Security Council meeting of Finance Ministers, New York, 17 December 2015), available at www.fatf-gafi.org/ publications/fatfgeneral/documents/importance-urgent-action-to-implement-fatfstandards-counter-terrorist-financing.html [accessed 1 October 2019]. 27

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 06Chapter6

/Pg. Position: 12 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 13 SESS: 6 OUTPUT: Fri Apr 3 14:57:55 2020

Features of the regime that have led to its high levels of compliance

225

and the existing binding norm). This is due to the unique character of the FATF, its norms and the enforcement mechanism—which now includes the revised Recommendation 5, as detailed above.

COMPLIANCE MECHANISMS One of the keys to the success of the regime flows from the attention that the FATF gives to monitoring and assessment. The rules that an international organisation might have in place for regulating members matter little if they lack the capacity to monitor the commitments. Countries that do not want to comply will discount the imposition of sanctions by considering the likelihood of detection.30 The FATF’s well-designed verification procedures—such as the on-site reviews conducted by FATF experts or, for countries beyond the core FATF membership, by FSRBs, along with active input by regulators and market participants—bolster the quality and accuracy of self-reported information. They also help to prevent countries from merely jumping though regulatory hoops and doing the bare minimum to meet the recommendations.31 The findings of the FATF assessment teams are compiled in the published MERs, which describe in detail each jurisdiction’s system and assess and rate its effectiveness. When combined, robust monitoring and stiff sanctions tend to give international financial law something resembling considerable force and thereby induce change. Despite being non-binding recommendations, the FATF’s main legislative products can take on a hard, prescriptive effect. An alternative approach to discipline is through a technique of disparagement commonly referred to as ‘name and shame’. Through this approach, institutional actors do not wait for reputations to gradually coalesce, or leave market participants to make entirely uninformed and independent judgements regarding the value of particular regulations. Instead, they take the initiative themselves: not only is non-compliance 30 Chris Brummer, Soft Law and the Global Financial System (Cambridge University Press, 2012) 172. 31 In a study of compliance with the Basel Core Principles, the World Bank and the International Monetary Fund found that of the 60 countries that had undertaken the Financial Sector Assessment Program reports at the time, 32 were compliant with ten or fewer of the 30 standards involved, and only five were fully compliant with 25 or more. See International Monetary Fund and World Bank, Implementation of the Basel Core Principles (September 2002), available at www.imf.org/external/np/mae/bcore/2002/092302.pdf [accessed 1 October 2019].

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 06Chapter6

/Pg. Position: 13 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 14 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

226

Global counter-terrorist financing and soft law

disclosed to the public, but such disclosure is often supplemented with some form of official opprobrium by the institution. As discussed above (Chapter 4), not all countries have an interest in promoting the recommendations—for example, those that attract capital to their shores by offering secrecy and lax regulatory systems. Of concern to many regulators are so-called ‘offshore financial centres’, which are typically small, low-tax jurisdictions. Because these offshore centres hold few competitive advantages as financial centres other than their light regulatory governance, the adoption of stricter regulations could make them significantly less attractive destinations for foreign investment.32 The name-and-shame strategy was developed, in part, from an approach taken with Turkey in 1996. The FATF saw one of its own members refuse to pass legislation criminalising money laundering, or to adhere to the group’s primary legislation—the recommendations. After nearly five years of negotiation aimed at getting the country to reverse course, the FATF issued a press release that, among other things, called on banks and other financial institutions to scrutinise capital market transactions with Turkish businesses and individuals. In response—just months later—Turkey instituted new money-laundering regulations.33 The theories of compliance do not explain the high level of compliance with the FATF recommendations. It is true that, according to the managerial theory, states are likely to comply with a regime if it is well specified. Resources are then better directed to improve managerial issues (transparency to ensure successful coordination, dispute settlement, and capacity building).34 But, when a state decides not to comply because the norm is contrary to its interests, the managerial theory seems to fail. In the absence of sanctions, according to the theory, the non-compliant state has no incentive to accept a coordinated solution that will limit its behaviour. This, in turn, implies that the regime provides no

32 Compare Naomi Roht-Arriaza, ‘“Soft Law” in a “Hybrid” Organization: The International Organization for Standardization’ in Dinah Shelton (ed.), Commitment and Compliance: The Role of Non-binding Norms in the International Legal System (Oxford University Press, 2003) 263, 264. 33 Ibid 151. Members can be sanctioned for making no effort to implement the recommendations. The mildest sanction is a letter from the President to the country indicating the shortcomings; the hardest sanction is expulsion. 34 Abram Chayes and Antonia H. Chayes, The New Sovereignty: Compliance with International Regulatory Agreements (Harvard University Press, 1995) 135–53, 201–25, 197–201.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 06Chapter6

/Pg. Position: 14 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 15 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Features of the regime that have led to its high levels of compliance

227

incentive to comply.35 The consent theory cannot explain why it prevents states from simply withdrawing their consent.36 In the absence of an ability to commit, a state could withdraw its consent from any convention found to be inconvenient. This theory states that consent creates a binding obligation, but it fails to explain what makes the obligation binding. In the case of the CTF regime, states joined and ratified the Terrorist Financing Convention not because they consented to do so, but because they were obliged by UNSC binding resolutions and non-binding FATF recommendations. The legitimacy theory does not explain why states do or should care about legitimacy; why we see states violating norms with which they had previously complied; why states comply with the FATF soft law recommendations; and, in the case of the CTF regime, why states comply where there are legitimacy concerns. The transnational legal process theory has no explanation of why the regime is so influential. It appears that the theory cannot explain why a legal norm may be respected by one state and ignored by another. It is suggested that the reason for high compliance with the FATF recommendations is the rationality and self-interest of each state. This can be seen in the case of Turkey in this chapter and the case of Russia in Chapter 3, as well as when analysing the case studies and the way in which states respond to the MERs and put their commitments into practice. For example, as we have seen, India reported to the FATF annually in order to gain a full FATF membership; Israel complied in order to be removed from the Black List and later to join as a member; and Thailand was concerned about the possibility of being listed in the FATF public statement. States are concerned about their reputations and about the possibility of facing sanctions for their conduct. Thus, the CTF regime achieves its high level of compliance due to its features and to the multi-layered approach adopted by the FATF.

35 Andrew T. Guzman, ‘A Compliance-Based Theory of International Law’ (2002) 90(6) California Law Review 1823, 1831. 36 John K. Setear, ‘An Iterative Perspective on Treaties: A Synthesis of International Relations Theory and International Law’ (1996) 37(1) Harvard International Law Journal 139, 160.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 06Chapter6

/Pg. Position: 15 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 1 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

7. Conclusion Prior to the establishment of the FATF, the need for consent was a major challenge for CTF (and AML) efforts. States had little incentive to join these efforts, especially those states that benefited from the low standards. The FATF overcame the need for consent by producing soft-law recommendations in a hard-law environment, adopting a multi-layered approach. After giving states time and assistance to comply with its recommendations and boost their legitimacy, the FATF—which includes the world’s largest economies—is able to shut any non-compliant country out of global financial markets. The FATF created an effective system of soft law because it was able to harness powerful incentives for compliance. It devised a form of enforcement that made the costs of noncompliance higher than the benefits.1 With the rise of globalisation, states increasingly find themselves forced, without any real discretion, to rely on transnational non-binding regulations to deal with matters that were previously domestic in nature.2 Compliance with these regulations allows states to fully enjoy the advantages of globalisation3 and to avoid the race to the (regulatory) bottom. With regard to investments,4 environmental issues,5 labour,6

1 Andrew Guzman, ‘The Consent Problem in International Law’ Berkeley Program in Law and Economics, Working Paper Series (2011). 2 Benedict Kingsbury, Nico Krisch and Richard B. Stewart, ‘The Emergence of Global Administrative Law’ (2005) 68(3&4) Law and Contemporary Problems 15. 3 Joel P. Trachtman, ‘International Regulatory Competition, Externalization, and Jurisdiction’ (1993) 34 Harvard International Law Journal 47, 66–7. 4 David Schneiderman, Constitutionalizing Economic Globalization: Investment Rules and Democracy’s Promise (Cambridge University Press, 2008). 5 Daniel C. Esty, ‘Revitalizing Environmental Federalism’ (1996) 95 Michigan Law Review 570, 638. 6 Virginia A. Leary, ‘Workers’ Rights and International Trade: The Social Clause’ in Jagdish N. Bhagwati and Robert E. Hudec (eds), Fair Trade and Harmonization (MIT Press, 1996) 183.

228

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 07Chapter7

/Pg. Position: 1 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 2 SESS: 5 OUTPUT: Fri Apr 3 14:57:55 2020

Conclusion

229

banking7 and health,8 states comply with non-binding regulations in order to avoid serious economic difficulties. Food safety, technical and organisational standards, environmental reporting, and international financial reporting standards9 are all examples of fields that are regulated, to some extent, by soft law. CTF is just another example. Terrorist activity—from small operations to grand showcase attacks— would be stymied dramatically if the organisations responsible could be prevented from accessing funds. Financial sources are therefore an extremely crucial point of attack when attempting to limit terrorism. The basic premise is deceptively simple: smother the source of oxygen and a terror cell will die. Yet a terrorist organisation is rarely a single-cell organism, and the premise is further complicated by the fact that financial sources for any given organisation may be many, and may be global. Terror cells and organisations may derive funding from one or all of the following: governments that support terrorism, individual supporters of terrorism, charities located throughout the world, and international wire transfers of funds between organisations and individuals. Therefore, the financing of terrorism—and any efforts to counter it— generally requires global cooperation at some, if not all, points of origin. CTF at the international level consists of three pillars: the Terrorist Financing Convention, the UNSC and the FATF. It is safe to say that the dominant pillar is in fact an international organisation: the FATF and its powerful non-binding soft-law recommendations, which have been implemented swiftly and uniformly in many countries. This book has presented evidence of compliance with soft law in CTF. It has shown that the compliance level does not change if the state is a permanent member of the UNSC and a member of the FATF (like the UK), if it is a member only of the FATF (like Australia and India), or if it is not a member of either (like Israel, Malaysia and Thailand). Nor 7 Richard Dale, The Regulation of International Banking (WoodheadFaulkner, 1986) 72–85. 8 Sharifah Sekalala, Soft Law and Global Health Problems: Lessons from Responses to HIV/AIDS, Malaria and Tuberculosis (Cambridge University Press, 2018). 9 Richard Falk and Andrew L. Strauss, ‘On the Creation of a Global Peoples Assembly: Legitimacy and the Power of Popular Sovereignty’ (2000) 36(2) Stanford Journal of International Law 191, 212; Lewis Rosman, ‘Public Participation in International Pesticide Regulation: When the Codex Commission Decides, Who Will Listen?’ (1993) 12(2) Virginia Environmental Law Journal 329; Adi Ayal, Oren Perez and Ronen Hareuveny, ‘Science, Politics and Transnational Regulation: Regulatory Scientific Institutions and the Dilemmas of Hybrid Authority’ (2013) 2(1) Transnational Environmental Law 45.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 07Chapter7

/Pg. Position: 2 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 3 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

230

Global counter-terrorist financing and soft law

does it matter whether the state has a terrorist presence (like the UK, Israel, Thailand and India) or not (like Australia and Malaysia), or whether it is a financial centre (like the UK, Australia, Israel, Malaysia and India) or not (like Thailand). Regardless of their varying combinations of these characteristics, all of these states comply, sooner or later, with the FATF recommendations. The multi-layered approach adopted by the FATF is an adaptation of two understandings of compliance with soft law. The first is that the soft law that was adopted pursuant to a widely accepted hard-law agreement may reflect greater commitment and therefore produce better compliance than a new norm in soft-law form that was chosen because there was no agreement on a hard-law text. The second understanding is that in counter-terrorist financing—an area of dynamic change, where states agree that action must be taken without delay—compliance is high, even in the absence of a binding norm.10 The FATF combines these two insights and pushes them further by enforcing all the norms—those that overlap with binding norms and those that stand alone—together, at the same time, without differentiating between them. With regard to their contents, some recommendations are open-ended and others are intrusive. This, theoretically, would limit the state’s efforts to secure compliance, because it may be unsure of the required conduct or may be unwilling to move beyond minimal efforts to implement the perceived norm. The multi-layered approach overcomes this difficulty by combining binding and non-binding norms, with some overlapping—an intrusive binding norm may be enforced by a non-binding recommendation, and an open-ended binding norm may be complemented by a non-binding clarification. The enforcement mechanisms, among them the MERs and the follow-up reports, provide authoritative interpretations and improve compliance as they ‘harden’ the non-binding norm. Monitoring and publicly revealing non-compliance may be the most effective method of inducing compliance.11 Compliance review mechanisms are an intermediate phase in treaty implementation, between domestic application and sanctions for

10 Dinah Shelton (ed.), Commitment and Compliance: The Role of NonBinding Norms in the International Legal System (Oxford University Press, 2003) 14. 11 Carl-August Fleischhauer, ‘Inducing Compliance’ in Christopher C. Joyner and Oscar Schachter (eds), United Nations Legal Order (Cambridge University Press, 1995) 231.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 07Chapter7

/Pg. Position: 3 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 4 SESS: 5 OUTPUT: Fri Apr 3 14:57:55 2020

Conclusion

231

non-compliance. They have a significant impact on the level of compliance because of a state’s expectation of being identified as not complying with a norm. The FATF has great practical influence over the CTF regime in the different states examined. A state’s parliament is unable to resist the pressure to legislate in accordance with FATF recommendations. It is true that the states examined in this study have not always been fully compliant with all of the FATF recommendations (for example, Australia did not do much to implement Recommendation 8, which focuses on NPOs, and Israel still exempts resident Israeli citizens from the declaration system, which is against Recommendations 6 and 36). Some might argue that this proves that states are able to resist the FATF influence. However, as seen in this book, resistance to compliance is temporary. In most cases, the states examined improved their compliance with the recommendations after the first MER and, where applicable, during the period between subsequent MERs, and they continue to do so.12 Legislation within each state has been amended several times since the terrorist attacks of 11 September 2001. States have also introduced new laws and updated previous laws in accordance with the UNSC resolutions and the Terrorist Financing Convention, which are binding norms. They also continue to revise their CTF legislation in accordance with the FATF recommendations. Each state’s CTF regime is based on international standards developed by the FATF in response to FATF requirements. In the case studies in this book, legislative amendments were aimed at achieving better implementation of the FATF’s recommendations. When the legislative response was found by the MERs and the follow-up reports to be inadequate, new legislation and new amendments were introduced— regardless of whether or not the state’s own particular interests were affected. The non-binding nature of the norms and the monitoring mechanism that accompanies them allow the FATF recommendations to be highly influential, even though they were formulated without the formal checks and balances of a hard-law legislative process, and that the unique character of the FATF, its recommendations, and its compliance mechanisms have led states to implement the FATF recommendations. It is most likely that this process will continue. 12 The rating of compliance with FATF recommendations for each state is attached in Appendix B.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 07Chapter7

/Pg. Position: 4 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 5 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

232

Global counter-terrorist financing and soft law

It seems that the explanation for the impressive implementation in CTF stems from three critical elements: (1)

(2) (3)

The multi-layered approach of the FATF, a non-binding norm creator, and its members and partnerships. This allows the FATF to manage and maintain the functional advantages that derive from its limited membership while advancing universal implementation of its recommendations and proactively monitoring compliance and enforcement through evaluations, follow-ups, support and sanctions. The legal basis of traditional binding norms—the Terrorist Financing Convention and the UNSC resolutions under Chapter VII. The fact that FATF complements and leverages the binding norms to support the implementation of all recommendations made by it, in a manner that is indifferent to the normative source of the recommendation.

The causal relationship between the FATF’s enforcement mechanisms and the states’ CTF legislation supports the argument that two legislative fora exist today. The parliament of each state constitutes the formal legislative forum, while in elaborating recommendations the FATF constitutes the legislative forum in a practical sense.

SUGGESTIONS FOR FUTURE RESEARCH The FATF justifies its actions by arguing that the recommendations and the enforcement mechanism reflect the values expressed by the international community on the issues of CTF (and AML). It has stated that its actions are “fully in line with measures elaborated by the international community to protect the global and financial system from money laundering and render it more transparent”.13 Among the sources cited by the FATF as calling for a CTF regime are the Terrorist Financing Convention, which is binding only when properly signed and when ratified by the appropriate internal state organs, and the UNSC resolutions. Indeed, most of the recommendations directly incorporate legal obligations contained in the convention and the resolutions. The FATF thus establishes the legitimacy of its actions by appealing to other

13

Columns Design XML Ltd

/

FATF, Annual Report 2002–2003 (June 2003) para 115.

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 07Chapter7

/Pg. Position: 5 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 6 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

Conclusion

233

sources, which themselves suffer from lack of legitimacy, rather than relying on its own authority.14 An effective response to terrorist financing is essential, as the need to fight terrorism is urgent and the terrorist threat to the international community is grave. In that sense, the CTF regime is welcome. This does not, however, mean that anything is permissible if it is effective in dealing with a present or imminent threat. Not only from the viewpoint of legitimacy, which guarantees long-term effectiveness, but also from that of the rule of law, it is fundamentally important to establish core understandings if international legislation by the regime is destined to become inevitable and if it is to be better implemented. Against this, I have identified four recommendations for further research into this area. This book is limited in scope: it analyses the process of norm creation in the field of CTF and assesses state compliance with these norms. The book also answers the question of how it is that the FATF soft-law recommendations represent the international standard with high rates of compliance. The book examined the features that bring advantages to the CTF regime, such as high levels of state implementation and compliance—even in circumstances where states are not members of the FATF and are dissatisfied with the recommendations. On the other hand, these advantages are offset by questions of legitimacy, which can potentially lead to reluctance to comply and to lower levels of implementation. However, these concerns, which are beyond the scope of this book, raise a much broader discussion of the rule of law; the tension between compliance and legitimate process; the link between lack of legitimacy, the creation of binding norms and compliance; and the effect of the FATF’s lack of accountability to FSRBs. All of these factors potentially reveal interesting findings that may broaden our understanding of the CTF regime. I intentionally exclude the discussion of legitimacy, as this important topic deserves to have its own comprehensive research. Such an analysis should include not just raising questions of legitimacy, but also suggesting solutions. Adopting Global Administrative Law to Improve FATF’s legitimacy Currently, the decisions of the CTF regime, although achieving a high level of compliance, as seen in Chapter 5, suffer to a significant extent from procedural and substantive lapses in relation to the rule of law, such Eyal Benvenisti, ‘“Coalitions of the Willing” and the Evolution of Informal International Law’ (2006) 31 Tel Aviv University Law Faculty Papers 27. 14

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 07Chapter7

/Pg. Position: 6 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 7 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

234

Global counter-terrorist financing and soft law

as difficulties with transparency, participation, reasoned decision, legality, and effective review. Normally, if decisions of the kind handed down by the regime were received at the state level, they would be subject to judicial review and could thereby be rejected or returned for reconsideration. The CTF regime has no such mechanism. These problems raise a genuine concern that if the powers of the regime are not aligned correctly with the rule of law, the unique characteristics that make its compliance mechanisms so effective may be deemed to be too extreme, the rationales and self-interest of states will change, and the costs of non-compliance will not be higher than the benefits. This could lead to a reversal in the trend of state compliance, causing critical damage to the CTF regime as states gradually cease to cooperate with it. One means of addressing these potential problems is to develop more effective and appropriate systems of global administrative law to hold accountable the regime’s decision-making organs and the domestic implementation of its legislation.15 This body of law, unlike domestic administrative law, does not operate within states and, unlike traditional public international law, it does not arise exclusively between nation states. Instead, it operates in a global space occupied by several types of global administration. As we have seen, the CTF regime has now moved from the state arena to the global one, and is managed today through the FATF. The FATF makes decisions that normally would have been reached at the state level, and these decisions affect both the state and the individual. There is a need for further research to focus on the mechanisms to improve the legitimacy of the CTF regime, in both procedural and substantive terms. This research will assess the legitimacy of the regime and the requirement to be held accountable for its decisions. To support this objective, it seems that the decisions ought to be transparent and open to public scrutiny—which, in order to be meaningful, must be accompanied by opportunities for outside participation and comment. 15 This field of ‘Global Administrative Law’ refers to a developing set of norms that govern the various transnational systems of regulation and regulatory cooperation designed to manage globalisation—or, in other words, the concept of global administrative law begins from the twin ideas that much global governance can be understood as administration, and that such administration is often organised and shaped by principles of an administrative law character. See Kingsbury, Krisch and Stewart, above n 2, 16; Sabino Cassese, ‘Administrative Law without the State? The Challenge of Global Regulation’ (2005) 37 New York University Journal of International Law and Politics 663, 688.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 07Chapter7

/Pg. Position: 7 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 8 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

Conclusion

235

The research should answer the question of what is the risk to the CTF regime’s impressive influence if it continues operating without the said features. ‘Input’ and ‘Output’ Legitimacy in the FATF Rule-Making Processes The members of the FATF are wealthier countries that have dominated the formulation of policies and recommendations, while less-developed countries have relatively little, if any influence over outcomes—or voting power.16 Countries that are not members are excluded from any formal participation in the articulation of global CTF standards. This structure presents a serious challenge to legitimacy.17 No single definition of legitimacy exists and its meaning is broad and flexible. However, suffice it to say that scholars largely reduce legitimacy to various categories and that the most dominant approach splits it into two categories: ‘input’ legitimacy, which looks at the consent by the governed; and ‘output’ legitimacy, which focuses on the optimality of the rules that governors produce.18 According to input legitimacy (or government by the people), authority to make societal decisions is legitimated to the extent to which it is given Stavros Gaginis, ‘Three Pathways to Global Standards: Private, Regulator, and Ministry Networks’ (2015) 190(1) American Journal of International Law 1, 52. 17 For a discussion about democratic instrumentalism, pure proceduralist conceptions of democratic legitimacy, and mixed conceptions of democratic legitimacy, see Fabienne Peter, ‘Political Legitimacy’ in Edward N. Zalta (ed.), The Stanford Encyclopedia of Philosophy (Summer 2017) ch 4. See also Thomas M. Franck, The Power of Legitimacy among Nations (Oxford University Press, 1990); Anne-Marie Slaughter, ‘The Power and Legitimacy of Government Networks’ in Alfred Herrhausen (ed.), The Partnership Principle, New Forms of Governance in the 21st Century (Archetype Publications, 2004) 7. 18 See e.g. Joost Pauwelyn, ‘Informal International Lawmaking: Framing the Concept and Research Questions’ in Joost Pauwelyn, Ramses Wessel and Jan Wouters (eds), Informal International Law-Making (Oxford University Press, 2012) 23. See also Anne-Marie Slaughter, ‘Agencies on the Loose? Holding Government Networks Accountable’ in George A. Bermann, Peter L. Lindseth and Matthias Herdegen, Transatlantic Regulatory Cooperation, Legal Problems and Political Prospects (Oxford University Press, 2000) 523; Richard Stewart, ‘Accountability, Participation, and the Problem of Disregard in Global Regulatory Governance’ (2014) 476 New York University Public Law and Legal Theory Working Papers 223. 16

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 07Chapter7

/Pg. Position: 8 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 9 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

236

Global counter-terrorist financing and soft law

or transferred from individuals to elected or selected actors via democratic processes. When decision-makers are selected by the public, they enjoy full authority as representatives. As such, their rule-making is justified and will likely constitute a source of the authentic will of the people. It is therefore more likely that those who are governed will comply with the decisions of their representatives. The output legitimacy (or government for the people) takes a post hoc view to rules promulgated by institutions to determine whether or not they have been effective.19 Although regulators are not elected, their power derives from the operation of political processes: voters elect representatives to participate in legislatures, and the representatives in turn delegate their authority under laws that are blessed by the executive. Under this interpretation of input legitimacy, regulatory power is legitimate because it has been authorised by a higher political and democratic authority—so long as it does not violate the explicit grants of authority provided to it by democratically elected legislatures in relevant statutes and accords. At the international level, rules and standards are the product of chains of delegation: people elect legislature that delegate power to regulators, who then (together with their international counterparts) create organisations responsible for promulgating global standards. In the case of the FATF, however, those who set the standards are the limited number of member states that have no clear responsibilities to any public except that of the member state that they represent. As there is no negotiation process and ratification procedure required, the recommendations do not require the formal blessing of any national elected non-member officials. It is thus, arguably, illegitimate from the perspective of that state. The recommendations affect all countries. States that do not even remotely anticipate or participate in the FATF policymaking process nonetheless have no practical choice but to comply with the recommendations.20 As compliance with these standards becomes in effect mandatory, future research becomes necessary in order to assess Chris Brummer, Soft Law and the Global Financial System (Cambridge University Press, 2012) 177; Pauwelyn, above n 18, 30; Thomas Risse, ‘Transnational Governance and Legitimacy’ in Arthur Benz and Yannis Papadopoulos (eds), Governance and Democracy: Comparing National, European and International Experiences (Routledge, 2006) 179. Fritz Scharpf, ‘Political Democracy in a Capitalist Economy’ in Fritz Scharpf, Governing in Europe: Effective and Democratic? (Oxford University Press, 1999) 7. 20 Gaginis, above n 16, 2. 19

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 07Chapter7

/Pg. Position: 9 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 10 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

Conclusion

237

the effect of allowing increased input for non-member states on the FATF rule-making process, including its legitimacy and the compliance rate. Multi-Layered Approaches to CTF: The Legitimacy Concerns When the UNSC legislates under Chapter VII (for example, SC Res 1373 (2001) or SC Res 1540 (2004)), only 15 members of the UNSC establish, by a majority vote, general hard law that legally binds all 193 members of the UN. The vast majority of member states do not participate in the drafting of the resolutions. Admittedly, by joining the UN, its member states “agree to accept and carry out the decisions of the Security Council”.21 In that sense, it cannot be said that they are bound by that to which they have not consented. However, it may be questioned whether article 25 can be said to naturally extend to the UNSC’s power to enact international legislation.22 In the case of the FATF—whose 39 members legislate globally—the acceptance of the recommendations is even more problematic in terms of legitimacy. In the case of treaties, it may be expected that conflicting interests between states can be ironed out through negotiations, resulting in satisfactorily balanced binding rules. The same cannot be expected of the UNSC legislation, where the five permanent members have a dominant power not only politically but also procedurally.23 If, despite their legally binding nature, the rules are not well implemented or complied with, this may have an adverse effect on the legally binding force of UNSC decisions in general. States are generally free to join or not join a treaty regime, irrespective of their participation in the treaty-making process. With this freedom, they can safeguard their national interest and sovereign rights. However, UNSC legislation does not allow such sovereign freedom: it necessarily binds every UN member state without exception, whether or not the state likes it. Thus, each state’s ultimate sovereign

21 United Nations, Charter of the United Nations, 24 October 1945, 1 UNTS XVI, art 25. 22 For a discussion about the power of the UNSC to trump the treaty-making process, see Keith Harper, ‘Does the United Nations Security Council Have the Competence to Act as Court and Legislature?’ (1994) 27(1) New York University Journal of International Law and Politics 103; Cathleen Powell, ‘The UN, Terrorism and the Rule of Law’ in Victor V. Ramraj et al., Global Anti-Terrorism Law and Policy (Cambridge University Press, 2012) 19. 23 Rafael Domingo, The New Global Law (Cambridge University Press, 2010) 88–9.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 07Chapter7

/Pg. Position: 10 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 11 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

238

Global counter-terrorist financing and soft law

guarantee of not being bound by that to which it has not consented becomes flimsy. These concerns about legitimacy threaten compliance with the resolutions adopted by the FATF and incorporated into its recommendations. Recommendation 5 requires states to criminalise terrorist financing on the basis of the Terrorist Financing Convention, which all states were bound to join after paragraph 3(d) to SC Res 1373 (2001) required them to do so. Similarly, Recommendation 6 directs states to implement targeted financial sanctions regimes to comply with UNSC resolutions relating to the prevention and suppression of terrorism and terrorist financing, including in accordance with SC Res 1267 (1999) and SC Res 1373 (2001). Compliance with the resolutions is monitored by the FATF. The purpose of this further research is to analyse the effect on the implementation and the level of compliance with FATF Recommendations, when taking into account that UNSC resolutions suffer from a lack of legitimacy.24 Nonetheless, the FATF enforces the resolutions side-byside with its own recommendations, without differentiating between the two. CTF via FSRBs and the Accountability Deficit With regard to the FATF membership, there is a high degree of accountability: all FATF decisions are taken in plenary, which is chaired by the President, or in working groups, which are chaired by members of 24 For criticism of SC Res 1267 (1999) (due process standards), see Craig Forcese and Kent Roach, ‘Limping into the Future: The U.N. 1267 Terrorism Listing Process at the Crossroads’ (2010) 42 George Washington International Law Review 217. For criticism of SC Res 1373 (2001) (rule of law), see Powell, above n 22, 32. For SC resolutions that were triggered by the possibility that the entire European Union might refuse to cooperate in listing and complying with binding SC Res 1267 (1999), see SC Res 1617 (2005), which was passed on 29 July 2005, while the Court of First Instance was considering its judgments in the Yusuf and Kadi cases. Security Council resolution 1822 (2008), which was adopted to achieve due process improvements to the UN sanctions regime in the UNSC, was similarly produced during the course of the Grand Chamber proceedings. Security Council resolution 1904 (2009), which introduced the Ombudsperson, was passed in the wake of the Grand Chamber’s firm rejection of listing in its Kadi decision of 3 September 2008. See Yusuf and Al-Barakaat Foundation v Council of the European Union and Commission of the European Communities, Case T-306/01 (filed 10 December 2001); Kadi v Council of the European Union and Commission of the European Communities, Case T-315/01 (21 September 2005).

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 07Chapter7

/Pg. Position: 11 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 12 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

Conclusion

239

country delegations. Other internal controls that assist with accountability can be found in the voting structure, where the decision-making process within the FATF is based on consensus and members must actively work to reach agreement.25 It seems that the FATF is adequately accountable to the governments of the states that are members, and therefore is indirectly accountable to the parliaments of those states. The accountability problem arises when the FATF enforces the recommendations beyond its membership through its FSRBs, or when the FATF imposes sanctions through the International Co-operation Review Group, which analyses high-risk jurisdictions. The FATF nonmember states have no influence over the formulation of the FATF recommendations and no mechanism for holding the designers of the recommendations accountable for their decisions—in terms of both judging whether states have fulfilled their responsibilities, and imposing sections accordingly.26 The initial FATF Forty Recommendations were drafted in a closed session of the FATF that included only the initial 15 members. Likewise, the Special Recommendations on Terrorist Financing were drafted and adopted in the immediate wake of 11 September 2001 by the FATF plenary. Non-members were voiceless in the process of crafting the FATF recommendations. This, according to Slaughter, is one of the central accountability problems confronting trans-governmental networks.27 If all people have a right to have some input in the laws that govern them, and lawmaking moves from the national to the international level, then all states must be involved in that process lest some people’s voices be precluded by the absence of their government representatives in the lawmaking and policymaking process. The same principle should apply to the recommendations when, as soft law norms, they have a coercive effect because of their global application. Even though the FATF has broadened participation through the years, and extended it through the FSRBs, it is still the case that only a limited FATF, Money Laundering, Annual Report 1991–1992 (25 June 1992) 18. Adopting Grant and Keohane’s definition of accountability. See Ruth W. Grant and Robert O. Keohane, ‘Accountability and Abuses of Power in World Politics’ (2005) 99(1) American Political Science Review 29. For general accountability criticism of networks, see Anne-Marie Slaughter, ‘The Accountability of Government Networks’ (2001) 8 Indiana Journal of Global Legal Studies 347, 363. 27 Anne-Marie Slaughter, A New World Order (Princeton University Press, 204) 227. 25 26

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 07Chapter7

/Pg. Position: 12 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 13 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

240

Global counter-terrorist financing and soft law

number of states are setting the recommendations. This research will examine if, when the FATF excludes a government (or many governments), it risks being viewed as an undemocratic institution imposing its will on non-participating (and often democratic) governments,28 and how this deficit affects the compliance with its recommendations.

28 Anne-Marie Slaughter, ‘Global Government Networks, Global Information Agencies, and Disaggregated Democracy’ (2003) 24 Michigan Journal of International Law 1047. This argument provides a specific, detailed instance of the broader debate over the growing role of transnational governance networks in creating international regulation and the potential democratic problems that growth poses.

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 07Chapter7

/Pg. Position: 13 /

Date: 18/2

Columns Design XML Ltd

/ U U

U

Financial centre

Regime enforces its decisions

U

FATF member

Terrorist presence

U

UNSC permanent member

UK

U

U

✘

U

✘

Australia

U

U

U

U

✘

India

U

U

U

✘

✘

Israel

U

U

✘

✘

✘

Malaysia

✘

✘

✘

✘

✘

N/A

U

✘

✘

✘

U

N/A

U

U

✘

✘

U

N/A

U

U

U

✘

U

N/A

U

✘

U

✘

U

N/A

U

✘

U

U

U

N/A

U

✘

✘

U

U

N/A

U

U

✘

U

U

N/A

U

✘

U

✘

✘

Thailand

Appendix A Matrix of comparison including impossible combinations

U

✘

U

U

✘

N/A

U

✘

✘

U

✘

N/A

JOBNAME: EE3 Goldbarsht PAGE: 1 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

241

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 08Appendices

/Pg. Position: 1 /

Date: 18/2

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/ 6

20

37

SR.III: Freeze and confiscate terrorist assets

SR.IV: Suspicious transaction reporting

SR.V: International cooperation

5

36

SR.I: Implement UN instruments

SR.II: Criminalise terrorist financing

New Number

Old Number Recommendations

Division: 08Appendices Compliant

Compliant

Compliant

Compliant

Compliant

Old Rating1

UK

Largely Compliant

Compliant

Largely Compliant

Compliant

Compliant

Rating

Largely Compliant

Largely Compliant

Largely Compliant

Largely Compliant

Largely Compliant

Old Rating2

Compliant

Compliant

Compliant

Largely Compliant

Largely Compliant

Rating3

Australia

Largely Compliant

Largely Compliant

Rating5

Largely Compliant

Partially Compliant

Not Applicable

Largely Compliant

Largely Not Compliant Applicable13

Partially Compliant

Partially Compliant

Old Rating4

India

Largely Compliant

Largely Compliant

Partially Compliant

Compliant

Largely Compliant

Old Rating6

Compliant

Compliant

Largely Compliant

Compliant

Largely Compliant

Rating7

Israel

Largely Compliant

Compliant

Largely Compliant

Compliant

Compliant

New Rating8

Largely Compliant

Partially Compliant

Largely Compliant

Largely Compliant

Largely Compliant

Old Rating9

Largely Compliant

Compliant

Compliant

Largely Compliant

Largely Compliant

Rating10

Malaysia

Partially Compliant

Partially Compliant

Partially Compliant

Partially Compliant

Partially Compliant

Old Rating11

Largely Compliant

Partially Compliant

Largely Compliant

Largely Compliant

Largely Compliant

Rating12

Thailand

Appendix B Rating compliance with FATF Recommendations

JOBNAME: EE3 Goldbarsht PAGE: 2 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

242

/Pg. Position: 1 /

Date: 18/2

Columns Design XML Ltd

/ 16

8

32

SR.VII: Wire transfer rules

SR.VIII: Non-profit organisations

SR.IX: Cash couriers Largely Compliant

Largely Compliant

Partially Compliant

Largely Compliant

Largely Compliant

Compliant

Compliant

Compliant

Partially Compliant

Partially Compliant

NonCompliant

Partially Compliant

Largely Compliant

NonCompliant

Partially Compliant

Largely Compliant

Partially Compliant

NonCompliant

Largely Compliant

Largely Compliant

Largely Compliant

Partially Compliant

Not Applicable

Not Applicable

Largely Compliant

Largely Compliant

Partially Compliant

Partially Compliant

Largely Compliant

Largely Compliant

Partially Compliant

Partially Compliant

Compliant

Largely Compliant

Partially Compliant

Compliant

Largely Compliant Largely Compliant

NonCompliant

Compliant

Compliant

Partially Compliant

Partially Compliant

Partially Compliant

NonCompliant

NonCompliant

NonCompliant

Partially Compliant

Partially Compliant

Partially Compliant

Partially Compliant

Largely Compliant

1 FATF, Third Mutual Evaluation Report: Anti Money Laundering and Combating the Financing of Terrorism—The United Kingdom of Great Britain and Northern Ireland (June 2007). 2 FATF, Third Mutual Evaluation Report on Anti-Money Laundering and Combating the Financing of Terrorism Australia (adopted by FATF 14 October 2005, adopted by APG 4 July 2006). 3 FATF, Anti-Money Laundering and Counter-Terrorist Financing Measures—Australia, Fourth Round Mutual Evaluation Report (2015). 4 FATF, Mutual Evaluation Report, Anti-Money Laundering and Combating the Financing of Terrorism, India (25 June 2010). 5 FATF, 8th Follow-Up Report Mutual Evaluation of India (June 2013). 6 MONEYVAL, Detailed Assessment Report on Israel (July 2008). 7 MONEYVAL, Report on Fourth Assessment Visit (December 2013). 8 FATF–MONEYVAL, Anti-Money Laundering and Counter-Terrorist Financing Measures – Israel, Fourth Round Mutual Evaluation Report, FATF, Paris (2018). 9 Asia/Pacific Group on Money Laundering, Mutual Evaluation Report on Malaysia against the FATF 40 Recommendations (2003) and 9 Special Recommendations (25 July 2007). 10 FATF and Asia/Pacific Group on Money Laundering, Anti-Money Laundering and Counter-Terrorist Financing Measures—Malaysia (2015). 11 International Monetary Fund, Thailand: Detailed Assessment Report on Anti-Money Laundering (December 2007). 12 Asia/Pacific Group on Money Laundering, Anti-money Laundering and Counter-Terrorist Financing Measures—Thailand, Mutual Evaluation Report (December 2017). 13 These FATF recommendations are ‘Not Applicable’, as they received ‘largely compliant’ ratings in the MER and are therefore not investigated in follow-ups.

14

SR.VI: Requirements for money/value transfer services

JOBNAME: EE3 Goldbarsht PAGE: 3 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

243

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 08Appendices

/Pg. Position: 2 /

Date: 24/2

JOBNAME: EE3 Goldbarsht PAGE: 4 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Appendix C List of FATF members (as of July 2019) + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + +

Argentina Australia Austria Belgium Brazil Canada China Denmark European Commission Finland France Germany Greece Gulf Co-operation Council Hong Kong (China) Iceland India Ireland Israel Italy Japan Republic of Korea Luxembourg Malaysia Mexico The Netherlands New Zealand Norway Portugal Russian Federation Saudi Arabia Singapore South Africa 244

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 08Appendices

/Pg. Position: 1 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 5 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Appendices

+ + + + + +

245

Spain Sweden Switzerland Turkey United Kingdom United States

Observer: Indonesia

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 08Appendices

/Pg. Position: 2 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 6 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Appendix D List of FSRBs + Asia/Pacific Group on Money Laundering (APG) + Caribbean Financial Action Task Force (CFATF) + Eurasian Group on combating money laundering and financing of terrorism (EAG) + Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) + Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) + Financial Action Task Force on Money Laundering in Latin America (GAFILAT) + Inter-Governmental Action Group against Money Laundering in West Africa (GIABA) + Middle East and North Africa Financial Action Task Force (MENAFATF) + Task Force against Money Laundering in Central Africa (GABAC)

246

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 08Appendices

/Pg. Position: 1 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 7 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Appendix E List of FATF Observers + African Development Bank + Anti-Money Laundering Liaison Committee of the Franc Zone (CLAB) + Asian Development Bank + Basel Committee on Banking Supervision (BCBS) + Camden Asset Recovery Inter-Agency Network (CARIN) + Egmont Group of Financial Intelligence Units + Eurojust + European Bank for Reconstruction and Development (EBRD) + European Central Bank (ECB) + Europol + Group of International Finance Centre Supervisors (GIFCS) + Inter-American Development Bank (IDB) + International Association of Insurance Supervisors (IAIS) + International Monetary Fund (IMF) + International Organisation of Securities Commissions (IOSCO) + Interpol + Organization of American States – ¶ Inter-American Committee against Terrorism (OAS/CICTE) ¶ Inter-American Drug Abuse Control Commission (OAS/ CICAD) + Organisation for Economic Co-operation and Development (OECD) + Organization for Security and Co-operation in Europe (OSCE) + United Nations – ¶ United Nations Office on Drugs and Crime (UNODC) ¶ United Nations Counter-Terrorism Committee Executive Directorate (UNCTED) ¶ The Al-Qaida Sanctions Committee (1267/1989 Committee) + The World Bank + World Customs Organization (WCO)

247

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 08Appendices

/Pg. Position: 1 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 8 SESS: 3 OUTPUT: Fri Apr 3 14:57:55 2020

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: 08Appendices

/Pg. Position: 2 /

Date: 18/2

JOBNAME: EE3 Goldbarsht PAGE: 1 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

Index Australia CTF Anti-Money Laundering and Counter-Terrorism Financing Act (2006) 124, 131 objective 131 Anti-Money Laundering and Counter-Terrorism Financing Rules (2007) 134 Anti-Terrorism Bill (2005) 139–140 asset-freezing regime 125 AUSTRAC (Australian Transaction Reports and Analysis Centre) 128, 130, 132 Charities and Not-for-Profits Commission Act (2012) 136 objectives 136 Charter of the United Nations (Sanctions—Al-Qaida) Regulations (2008) 129 Charter of the United Nations (Sanctions—the Taliban) Regulations (2013) 129 Charter of the United Nations Act (1945) 125, 129 Crimes (Foreign Incursions and Recruitment) Act (1978) 123 Criminal Code Act 1983 (Northern Territory) 123 Criminal Code Act (1995) 124, 138 amendment 125 definition of funds 126 definition of terrorist 126 sec 103.1 127–8 Criminal Code Amendment (Terrorist Organisations) Act (2004) 125 experience of terrorism 122–3 Extradition Act (1998) 125 FATF compliance 140, 141

asset freezing 129 cash couriers 137–40 financial intelligence unit see AUSTRAC above international cooperation 132–3 MER 2005 (Australia) 124, 125, 127, 129, 131, 132, 133, 135, 136, 138 MER 2015 (Australia) 124, 125–6, 128, 130, 132, 133, 134, 136–7 money/value transfer services 133–4 non-profit organisations 135–7 suspicious transaction reports 130–32 wire transfers 134–5 FATF membership 122 financial centre 122 financial sanctions 129–30 Financial Transaction Reports Act (1988) 125, 130, 133 amendment 131 compliance monitoring 130 definition of currency 137 financing of terrorism in 131–2 police powers under 138 reporting requirements 137 failure to comply with 135, 137–8 wire transfers 134 Financial Transaction Reports Regulations (1990) 134–5 implementation of international standards 125 SC Res 1267 (1999) 125, 129, 131 SC Res 1373 (2001) 124–5, 129, 131 249

Columns Design XML Ltd

/

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: Index

/Pg. Position: 1 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 2 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

250

Global counter-terrorist financing and soft law

SC Res 1988 (2011) 129 SC Res 1989 (2011) 129 Terrorism Financing Investigations Unit (TFIU) 128 Independent National Security Legislation Monitor 128 Mutual Assistance in Criminal Matters Act (1987) 132 NPO-Risk Working Group 137 Proceeds of Crime Act (2002) 138 response to 9/11 attacks 123–4 Security Legislation Amendment (Terrorism) Act (2002) 125 Security Legislation Review Committee 127 signatory to Terrorist Financing Convention 124 Suppression of the Financing of Terrorism Act (2002) 125 amending older legislation 126 sec 16(1A) 130 terrorist financing offences 126–8 binding norms consent creating 227 definition of binding 3 FATF recommendations complementing 11 ICJ Statute 4–5 Terrorist Financing Convention 79, 216, 231 as traditional approach 2 UNSC resolutions 1, 5, 46, 55, 57, 231 see also hard law; Terrorist Financing Convention; UNSC Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism see MONEYVAL compliance 8–9, 81–2, 213, 229–30 case-study comparison matrix 101, 103 framework 100–104

Columns Design XML Ltd

/

selection criteria 101–2, 103 selection principles 100 definition 3 with FATF Recommendation 8 95 Recommendation 14 94 Recommendation 32 97 high levels of 213, 230 mechanisms 225–7 follow-up procedures 214 MERs 14, 66, 231 monitoring and assessment 225 name and shame system 225–6 sanctions 14, 69–70 verification procedures 225 national see individual countries and rationality and self-interest of state 227 review mechanisms 230–31 traditional theories of 8–9 consent 9–10, 227 legitimacy 10, 227 managerial 226–7 managerial model 9 transnational legal process 10–11 see also FATF; implementation; UNSC counter-terrorist financing see CTF CTF before the 9/11 attacks 46 barriers to cooperation 46 not a priority 46, 50 regional conventions 47–8 Terrorist Financing Convention (1996) 48–51 as destined to fail 17–18 effectiveness 80 compliance/implementation/ impact differentiation 80–81 measuring see measuring effectiveness below grounded in logic 45 impact as problematic 83, 84 implementation see implementation international standard 2 measures 45–6 criminalising terrorist financing 100

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: Index

/Pg. Position: 2 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 3 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

Index

practical 100 measuring effectiveness 82–3, 84 compliance 81–2 difficulties of 82–3 through effects of attacks 84 implementation 82, 85 lack of public information 83 through numbers of attacks 82, 83–4 through severity of terrorist campaigns 84 national see individual countries regime 3, 13 Ch VII UNSC resolutions 11 compliance see compliance criminalising terrorist financing 100 development of norms 37 FATF 11, 50, 51 high levels of compliance 213 high levels of technical implementation 213 importance of 15, 37 multi-layered norms in 11 objectives 100 practical measures 100 requirements for success 43 Terrorist Financing Convention 11 as unique 101 UNSC smart sanctions 50, 51 regime implementation see implementation three pillars 11, 37, 44, 79, 80, 219, 229 see also FATF; UNSC; Terrorist Financing Convention definitions 3 Egmont Group of Financial Intelligence Units 61, 69, 114, 162, 218 EU Fourth European Union Anti-Money Laundering Directive (2015) 117

Columns Design XML Ltd

/

251

Regulation EC/1781/2006 (wire transfers) 115–16 Regulation EC/1889/2005 (cash controls) 119 FATF 1–2, 46 anti-money laundering regime 50, 51 compliance mechanisms see compliance, mechanisms compliance see compliance effective use of soft law 228 as enforcement body 14 establishment 57 as global policymaking forum 14 global reach of 78 hard compliance framework 13 influence on CTF regime 214, 231 non-binding political commitments 214–15 soft-law 78–9 international cooperation 218–19 International Co-Operation Review Group (ICRG) 77–9 Black List 78 Dark Grey List 78 Light Grey List 78 referral to 78 mandate 57–8 expanding 58 membership 214 multi-layered approach 11–14, 77, 230 concerns over 237–8 leading to improvements in compliance 224 in practice 224–5 protecting FATF reputation 77 recommendations 217–19 strengthening implementation 98, 213, 232 NCCT initiative 70–72 blacklisting of NCCTs 70 establishment 70 implementation of review recommendations 71–2

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: Index

/Pg. Position: 3 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 4 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

252

Global counter-terrorist financing and soft law

monitoring mechanism 72 objective 70 referrals to 70 regional review groups 70–71 need for consent prior to 228 non-binding norms 14, 79 objectives 58 recommendations see FATF recommendations structure Associate Members 61 Members 60, 61–2 Observers 60 Plenary Group 60 President 59 Secretariat 59–60 Vice-President 59 technical assistance for low-capacity countries 216–17 unique character 214–15 see also Mutual Evaluation Reports; NCCTs FATF recommendations 2, 11, 62–3, 79, 103, 104, 230 compliance levels 67 as ‘crown jewel’ of soft law 62 dynamic nature of 216 encouraging ratification of international treaties 218 enforcement 213, 230–31 by mutual evaluation reports 13, 65 follow-up 65 Forty 62–6 core 64–5, 98 gatekeeper 65–6 Special (40+9 Recommendations) 63–4, 103 implementation 71–2 incorporation of SC Res 2178 (2014) 224 influence of 213 multi-layered 217–19 implementation 219 non-binding norms 213, 215–16 harmonising national rules on CTF 216 positive 216

Columns Design XML Ltd

/

Recommendation 5 220, 224 Recommendation 6 90, 220, 231 Recommendation 8 (NPOs) 5–6, 214, 223, 231 Recommendation 14 94, 222–3 Recommendation 16 (wire transfers) 94, 223 Recommendation 19 72 Recommendation 20 91, 221 Recommendation 32 (cash couriers) 96–7, 221–2 Recommendation 36 86, 219, 231 Recommendation 37 92, 220–21 review and revision 62–3, 64 setting international standard 12 Suspicious Transaction Reports (STRs) 66, 91–2 requirement 148–9 see also compliance; implementation FATF-style regional bodies (FSRBs) 66 endorsing FATF recommendations 78 and MERs 66 see also FATF; mutual evaluation reports Financial Action Task Force see FATF future research 232–3 adoption of global administrative law 233–5 FATF rule-making process 235–7 FSRBs and accountability deficit 238–40 legitimacy concerns of multi-layered approaches 237–8 globalisation 4 advantages of 228–9 of CTF 229 leading to state compliance in CTF 228–9 rise of 228 of terrorism 163

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: Index

/Pg. Position: 4 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 5 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

Index

hard law 6–8 low CTF compliance without FATF 214 positivist view 12 relationist view 12 slow CTF implementation without FATF 213–14 as emergent hard law 7–8 UNSC resolutions see also binding norms; Terrorist Financing Convention; UNSC ICJ Statute art 18 2 art 38(1) 4, 8 only binding on states parties 4 implementation 97–9 critical elements 232 effectiveness 80–84 FATF recommendations 231 first group 219–1 second group 221–2 technical levels of 85, 91, 96, 213, 221, 222 third group 222–3 of international standards 98, 231 regulatory framework 85–6 cash couriers 96–7 criminalisation of terrorist financing 89–90 freezing/confiscation of assets 90–91 high level of 88–9 mutual legal assistance 92–3 non-profit organisations 95–6 suspicious transaction reporting 91–2 UN instruments 86–7 value transfer services 94 wire transfers 94–5 see also FATF India CTF 141–2 Code of Criminal Procedure (1973) 150 experience of terrorism 141–2 Extradition Act (1962) 150 FAFT observer status 159

Columns Design XML Ltd

/

253

FATF compliance 158–9, 160 cash couriers 156–8 Financial Intelligence Unit 148, 149, 150–51, 158 international cooperation 150–51 MER (2010) 57, 142–3, 144–5, 147, 149, 153–4 MER (2013) 154–5 money/value transfer services 151–2 non-profit organisations 153–6 Recommendation 8 155 Recommendation 16 152 Recommendation 32 156 Recommendation 36 143 suspicious transaction reports 148–50 wire transfers 152–3 financial centre with terrorist presence 141 Foreign Contribution (Regulation) Act (2010) 151, 153 Foreign Exchange Management (Export and Import of Currency) Regulations (2000) 156 Foreign Exchange Management Act (1999) 151, 152 sec 10 152 implementation of international standards 142 asset freezing 146–7 financial sanctions 146–7 SC Res 1267 (1999) 144, 146, 167 SC Res 1373 (2001) 146 SC Res 1452 (2002) 167 seizure attachment and forfeiture 147 Income Tax Act (1961), registration of NPOs under 153 member of FATF 141 Ministry of Finance Directorate of Enforcement 152 non-profit organisations registering authorities 153 registration 153

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: Index

/Pg. Position: 5 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 6 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

254

Global counter-terrorist financing and soft law

Prevention and Suppression of Terrorism (Implementation of Security Council Resolutions) Order (2007) 146 Prevention of Money Laundering Act (2002) 148, 150, 151 amendment 149 definition of STR 149 India Post subject to 152–3 Prevention of Money Laundering Rules (2005) 148 amendment 148, 152 definition of suspicious transaction 148 Reserve Bank of India 152 signatory to Terrorist Financing Convention 142 Unlawful Activities (Prevention) Act (1967) 142 amendment 145 Ch VI 144 criminalisation of terrorist financing 142, 143–6 definition of proceeds of terrorism 147 proscribed persons/organisations 146 schedule 144 sec 15 145 sec 17 144 sec 40 144 International Court of Justice see ICJ international norms, implementation of 3, 81, 98–9 see also binding norms; non-binding norms Israel CTF 160 Amutot (Non-Profit Organisations) Law (1980) 176 Anti-Terror Law (2016) 163, 164, 168, 178 declarations under 169 definition of terrorist organisation 165 STR reporting requirement 171–2 Banking (Service to Customer) Law (1981) 173 Banking Order (2001) 170–71

Columns Design XML Ltd

/

Companies Law (1999) 176 cross-border declaration system 177–8 CTF (and AML) Order (2013) 175 declarations of terrorist organisation 165 Defence (Emergency) Regulation (1945) 161 repeal of 163 Directive 411 175 experience of terrorism 160, 161, 163 Extradition Law (1954) 172 FATF compliance 161–2, 178–81 asset freezing 167–9 cash couriers 177–8 on FATF Black List 162, 179 international cooperation 172–3 listed as NCCT 162 MER 2008 (Israel) 164, 166, 167, 169, 170, 173, 174–175, 176–177, 178 MER 2013 (Israel) 165, 166, 169, 173, 174, 175, 178 MER 2018 (Israel) 179 money/value transfer services 173–4 non-profit organisations 176–7 Recommendation 6 167 Recommendation 8 176–7 Recommendation 19 162 Recommendation 20 171 Recommendation 36 164 Recommendation 37 173 suspicious transaction reports 169–72 terrorist financing offences 165–6 wire transfers 174–5 FATF membership 179 financial centre with terrorist presence 160 implementation of international standards financial investigation unit 162, 169 financial sanctions 168 SC Res 1267 (1999) 164, 167, 168

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: Index

/Pg. Position: 6 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 7 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

Index

SC Res 1373 (2001) 168 influence of the FATF standard on 179 Israeli Police is a member of Interpol 172 Legal Assistance between States Law (1998) 172 mandatory reporting of transactions related to terrorist financing 169 Ministry of Finance, Registrar of Money Services Providers 173 Money Laundering and Terrorism Financing Prohibition Authority 162, 169 Penal Law (1977) 166 Postal Order 174–5 Prevention of Terrorism Ordinance (1948) 161 repeal of 163 Progress Report (2009) 167 Prohibition of Money Laundering Order (2014) 174 Prohibition of Terrorist Financing Law (2004) 163, 178 amendment 171 Ch 2 167–8 government powers under 170 repeal of 162, 164 sec 10 169 Prohibition on Money Laundering Law (2000) 162, 173, 177–8 amendment 162 reporting requirement 177 proscribed persons/organisations 168 signatory to Terrorist Financing Convention 164 Stock Exchange Members Order (2010) 171 Malaysia CTF 181 Anti-Money Laundering Act (2001) 181–2, 186, 193 amendment 182, 183, 186, 187, 188

Columns Design XML Ltd

/

255

currency movement declaration requirement 192–3 definition of terrorism financing offences 183 reporting requirements 187 sec 3(1) 183 sec 14 187–8 Bank Negara Malaysia, guidelines 190–91 Companies Act (1965) 191 Companies Commission powers 191 Criminal Procedure Code (2012) 185 Customs Act (1967) 193 Customs Department powers 193 Exchange Control Act (1953) 185 experience of terrorism 181 FATF compliance 193, 194 asset freezing 185–6, 187 cash couriers 192–3 financial sanctions 184, 185–7 international cooperation 188–9 MER 2007 (Malaysia) 182, 188, 189, 190, 191, 192 MER 2015 (Malaysia) 190, 191, 193 money/value transfer services 189–90 non-profit organisations 191 Recommendation 5, 184 suspicious transaction reports 187–8 terrorism financing offences 183–184 wire transfers 190–91 financial centre 181 Financial Services Act (2013) 189 implementation of international standards 161, 181 financial investigation unit 187 SC Res 1267 (1999) 183, 185, 186 SC Res 1373 (2001) 183, 185–6 SC Res 2178 (2014) 184 Internal Security Act (1960) 181, 185–6

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: Index

/Pg. Position: 7 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 8 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

256

Global counter-terrorist financing and soft law

Islamic Financial Services Act (2013) 189 Labuan Financial Services Authority Act (2010) 191 Money Services Business Act (2010) 189 Penal Code 183 criminalisation of travel for terrorist purposes 185 Prevention of Terrorism Act (2015) 184 proscribed persons/organisations 185, 186–7 signatory to Terrorist Financing convention 183 Societies Act (1966) 191 terrorist financing investigations 184 money laundering 37–8, 70 anti- 3, 74, 77 FATF model 50, 51 criminalisation of 64 definition 38–9 and drug trafficking 39–40, 57 FATF definition 39 in Illicit Traffic Convention 38–39 integration 40 layering 40 placement 40 proceeds of criminal activity 32 /terrorist financing link 39–41, 107 see also individual countries; terrorist financing MONEYVAL 170 Mutual Evaluation Reports (MERs) 13, 14, 65, 66–9 and FATF membership 62 analysing compliance levels 67 evolution 68–9 global reach of 66 immediate outcomes 68 measuring CTF effectiveness 67–8 rectifying deficiencies identified in 65 specifying compliance requirements 67 stringency of 66

Columns Design XML Ltd

/

summarising CTF measures 67 see also FATF; individual countries NCCTs countermeasures 72–7 FATF Black List 70, 73–4, 76 FATF Recommendation 19 (due diligence) 72 independent 72–3 FATF initiative 70–72 and implementation of review recommendations 71–2 International Co-Operation Review Group 77–9 monitoring mechanism 72 regional review groups 70–71 small states 75–6 see also FATF recommendations non-binding norms 218 compliance with 2 FATF 14, 50, 79 influence 214–15 implementation 2–3 rarely found in isolation 13–14 see also compliance; implementation; soft law non-cooperative countries and territories see NCCTs OECD supplying FATF Secretariat services 59–60 soft law 2, 6–8 constructivists favouring 12 definition 6, 7 effective use of 228 as emergent hard law 7–8 FATF CTF recommendations 2 as ‘crown jewel’ of 62 as intentionally non-binding arrangements 7 as non-binding 13 non-binding norms as 3 positive aspects of 13 rationale for 7 relationist view 12

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: Index

/Pg. Position: 8 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 9 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

Index

see also FATF; non-binding norms sources of law 4–6 terrorism ambiguity of 17–20 as cheap 22–3 as expression of the struggle between religion and cultures 20 financing see terrorist financing global nature of 45 indirect state support 21 as means of opposing controlling authorities 20 state definitions 18–19 state-perpetrated 21 Terrorist Financing Convention definition 21 working definition 19–20 terrorist financing 15–17 civil wing 26–31 community services 26–7, 28 /military wing connections 27 political funding 27–8 and recruitment 29 supporting military wing 28–9, 30 costs 16, 42–3 counter- see CTF, regime difficulty tracing 36 funds required 22 high levels of 26 Holy Land Foundation case 30 importance of 17, 22–4 methods see terrorist financing methods military wing 24–6 costs 24–5 /money laundering link 39–41 need for comprehensive application of preventive measures 29–30 Terrorist Financing Convention (1999) 1, 11, 12, 13, 21–2, 79, 85 art 1(1) 126 art 2 49–50, 184 criminalising terrorist financing 89–90

Columns Design XML Ltd

/

257

cross-border transportation of currency 96 defining financing terrorism 49–50 defining terrorism 21 freezing and confiscating assets 90 as hard law tool 12 history 48–9 key provisions 11 number of states parties to 57 opened for signature 86 ratifications 86–7 suspicious transaction reporting 91–2 universalisation of 12 see also compliance; implementation terrorist financing methods charitable donations 31, 34–6 importance of prevention 35–6 predominantly Islamist 35 and development of CTF norms 37 distributing funds, money laundering 37–8 informal funds transfer 31, 41–2 proceeds of criminal activity 31, 32–3 proceeds of legitimate activity 31, 34 state sponsorship 31, 33–4 see also money laundering terrorist organisations 23–4 establishing loyalty 28–9 extended networking 36 importance of treating as discrete bodies 29–30, 43–4 inter-relationship between components 36 large-scale 36 spread of teaching 28 terrorist presence 102, 104–5, 141, 160 Thailand CTF 194 Anti-Money Laundering Act (1999) 207 wire transfers reporting requirement 207 Anti-Money Laundering Act (2013) 198–1, 200

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: Index

/Pg. Position: 9 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 10 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

258

Global counter-terrorist financing and soft law

definition of suspicious transaction 203 Anti-Money Laundering Office asset-freezing powers 198–9 as atypical FIU 203 Civil and Commercial Code (1925) 208 Counter Terrorism Proliferation of Weapons of Mass Destruction Financing Act (2016) 198 designated persons under 201 Counter-Terrorism Financing Act (2013) 195, 197–8, 200, 202 Criminal Code 2001 draft amendment 198 Amendment (2013) 196 criminalising terrorism 196–7, 203 definition of terrorist acts 197 sec 135/2 197 Customs Act (1926) 210 Customs Procedure Code (2013) 210 Exchange Control Act 206 sanctions under 207 experience of terrorism 194–5 Extradition Act (1929) 205 FATF compliance 201–2, 210–11, 212 asset freezing 198–9 on Black List 195 cash couriers 209–10 CTF deficiencies, 199–200 financial sanctions 198–203 international cooperation 204–6 MER 2007 (Thailand) 195, 196, 197, 199, 203, 204, 205, 206, 207–8 MER 2017 (Thailand) 209 money/value transfers 206–7 non-profit organisations 208–9 Recommendation 32 210 Recommendation 37 205 removal from Black List 200–201 suspicious transaction reports 203–4 terrorist financing offences 196–8 wire transfers 207–8

Columns Design XML Ltd

/

implementation of international standards 195 financial investigations unit 195 SC Res 1267 (1999) 198, 199 SC Res 1333 (2000) 198 SC Res 1373 (2001) 196, 199 Mutual Assistance in Criminal Matters Act (1992) 205 Mutual Legal Assistance Act (1992) 204–5 National Strategy for Combating Money Laundering and the Financing of Terrorism (2010-2015) 195, 205 oversight of NPOs 209 proscribed persons/organisations 198, 201, 202–3 Royal Decree on the Amendment of the Criminal Code (2003) 196 Royal Decree on the Amendment of the Protection and suppression of Money Laundering Act (2003) 196 signatory to Terrorist Financing Convention 196 UK CTF all crimes approach 113 Anti-Terrorism, Crime, and Security Act (2001) 105, 110 assets frozen under 111 sec 17 118 Counter-Terrorism Act (2008) 111 Counter-Terrorism Committee 105 Crown Prosecution Service Counter-Terrorism Division 108 experience of terrorism 104 FATF compliance 121, 122 cash couriers 119–21 financial intelligence unit see Serious Organised Crime Agency below international cooperation 113–14 MER 2007 (UK) 111 MER 2018 (UK) 111

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: Index

/Pg. Position: 10 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 11 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

Index

money/value transfer services 114–15 non-profit organisations 117–19 Recommendation 6 111 Recommendation 8 118 Recommendation 14 114–15 Recommendation 16 115–17 Recommendation 19 111 Recommendation 29 111–13 Suspicious Activity Report (2014) 112–13 suspicious transaction reports 111–13 wire transfers 115–17 FATF influence 121 FATF membership 104 financial centre with terrorist presence 104–5 HMRC compliance monitoring 114 implementation of international standards 105, 109, 121 EU Regulation EC/1781/2006 115–16 EU Regulation EC/1889/2005 119–20 financial sanctions 109–11 SC Res 1267 (1999) 106 SC Res 1373 (2001) 110 assets frozen 111 Money Laundering Regulations (2007) 114, 115 National Criminal Intelligence Service terrorist finance team 105 National Terrorist Finance Investigation Unit 105, 111 proactive approach 105, 108 successful prosecutions 108–9 Proceeds of Crime Act (2002), assets frozen under 111 Proscribed Organisation Appeal Commission 110 Serious Organised Crime Agency 112 dissemination of financial intelligence 112 international cooperation 112

Columns Design XML Ltd

/

259

receipt and analysis of suspicious transaction reports 112 signatory to Terrorism Financing Convention 106 Terrorism (United Nations Measures) Order (2001) 107, 109 Terrorism (United Nations Measures) Order (2006) 111 Terrorism Act (2000) 105 definition of terrorism 107 fund raising 106 funding arrangement 107 money laundering 107 penalties/sanctions in 107 proscription under 110 sec 18 120 sec 21A 112 use and possession 107 Terrorist Asset-Freezing Act (2010) 111 The Al-Qa’ida and Taliban (United Nations Measures) Order (2002) 107, 109 UNSC permanent membership 104 UN Charter art 25 5 Ch VII 1, 5–6, 51 Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances 38–9, 164 Convention against Transnational Organised Crime 164 Convention for the Suppression of Terrorist Bombings 1 Convention for the Suppression of Unlawful Seizure of Aircraft 1 as counter-terrorist financing organisation 46 Financial Action Task Force see FATF International Convention against the Taking of Hostages 1 International Convention for the Suppression of Acts of Nuclear Terrorism 1

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: Index

/Pg. Position: 11 /

Date: 18/3

JOBNAME: EE3 Goldbarsht PAGE: 12 SESS: 4 OUTPUT: Fri Apr 3 14:57:55 2020

260

Global counter-terrorist financing and soft law

International Convention for the Suppression of the Financing of Terrorism see Terrorist Financing Convention multilateral approaches to terrorist funding 1–2 Security Council see UNSC UNSC 1267 Committee 53 1988 Sanctions Committee 53 activities 56–7 Al-Qaida Sanctions Committee 53–4 Monitoring Team 54 Counter-Terrorism Committee 52, 55–7 establishment 55 mandate 55–6 Counter-Terrorism Committee Executive Directorate 56 first organisation to tackle terrorist funding 51 mandate 52 Resolution 1267 (1999) 1, 12, 53–4, 85 freezing and confiscating assets 90, 129

Columns Design XML Ltd

/

low compliance without FATF 214 Resolution 1333 (2000) 53 Resolution 1373 (2001) 1, 12, 54–5, 85, 87, 129, 218 adoption 86 binding nature of 55 criminalising terrorist financing 89–90 freezing and confiscating assets 90 low compliance without FATF 214 state obligations 54–5 Resolution 1535 (2004) 56 Resolution 1988 (2011) 129 Resolution 1989 (2011) 129 Resolution 2178 (2014) 224 resolutions as hard law tools 12 smart sanctions 50, 51 establishing Black List 51 structure 52 unique position of 217–18 see also binding norms; compliance; hard law; implementation

Job: Goldbarsht-Global_counter-terrorist_financing

/

Division: Index

/Pg. Position: 12 /

Date: 18/3