Combatting the financing of terrorism and proliferation

There is no single definition of terrorism accepted by all countries, and each defines the concept in accordance with its own understanding, historical experience and needs.

The word ‘terrorism’ comes from ‘terror’, which is Latin for ‘great fear’. Sowing fear among enemies (government, society or its parts) is one of the methods used by terrorists in achieving their goals.

Defining terrorism is necessary to make it possible to charge individuals for engaging in specific criminal activities. 

In Latvia, terrorism is defined based on the types of activity. Section 79.1 of the Criminal Law describes the actions (use of explosives, use of fire, weapons of mass destructions, mass poisoning, hostage-taking etc.) that, if committed for a certain purpose (scare the public, force a country to do, or to refrain from doing something etc.), are defined as pertaining to terrorism. 

The financing of terrorism is any direct or indirect acquisition or transfer of funding or property obtained in any manner (legally or illegally) with the purpose of using these, or with the knowledge that these will be used, to engage in terrorism, to travel with the intention of terrorism, to join a terrorist group, to organise or lead a terrorist group, to recruit or train people to commit terrorism, or to obtain training in committing terrorism, or to engage in other specific activities. Terrorism financing also means a direct or indirect collection of funds (both legal and criminal) or property obtained by any means, or direct or indirect transfer thereof at the disposal of a terrorist group or an individual terrorist. 

It is important to stress here that terrorism and terrorism financing are interlinked, that there would be no terrorism financing without terrorism, and that terrorists need financing, obtaining it in different ways, which includes legally obtained funds. 

Terrorism financing is one of the activities supporting terrorism. Terrorism financing involves a number of activities whose main purpose is to provide terrorists and/or terrorist organisations with money, financial instruments or property. Terrorism financing does not always only involve obtaining funds. It often includes moving funds (e.g., bank transfers) and physically delivering them to terrorist organisations and to performers of the acts of terrorism. 

There is no significant difference in the way terrorists and criminals use the financial system. Like criminal organisations, terrorist groups seek opportunities for establishing and maintaining a financial infrastructure to support their activities. Various sources of funding and ways to conceal the link between the sources and the terrorist activities are sought for this reason.

One should take into account two main differences between the property (assets) of terrorists, and the property (assets) of criminals:

• the amount of funding necessary to finance an act of terrorism is not always significant (and may often involve just a few euros), and the transactions may not necessitate complex schemes;
• Terrorists and terrorist groups can be financed using legally obtained funding, and determining when such funding is transferred to terrorists is difficult.

Different people with distinct motivations engage in terrorism financing. The following parties are most commonly identified as engaging in terrorism financing:

• radicalised individuals who want to support terrorism;
• representatives of terrorist organisations tasked with obtaining funding;
• intermediaries involved in transferring illegal funding who profit from terrorism financing transactions;
• friends and family members of individuals involved in terrorism who support the activities of these individuals, or want to provide financial support to a specific individual (relatives of terrorists are often defrauded of money);
• persons and organisations that agree to pay a ransom, e.g. for a kidnapped person or group of people.

Terrorism financing takes place over a number of phases: 

Phase one — acquiring funding. Its main purpose is to obtain funding from legal, or illegal sources. 
Phase two — moving the funding. This phase uses various legal and/or illegal mechanisms to transfer the funding obtained to terrorist organisations. The most common ways to transfer money are: 

• bank transfers;
• parallel financial systems, e.g. hawala;
• transfer of money using money transfer agencies;
• cash mules;
• donations (also online);
• crowdfunding projects;
• cryptocurrency transactions etc. 

Phase three — use of the funding. During this phase, the funding is used to support terrorists (in committing, planning and preparing acts of terror, supporting the operation of terrorist organisations, recruiting, training and equipping their members, and other terrorism support activities).

In accordance with Section 79.2 of the Criminal Law, terrorism financing may be punishable by life imprisonment with or without the confiscation of property. 

Measures to prevent the financing of terrorism are usually associated with the introduction of restrictions that affect the entire society (e.g. stricter non-governmental organisation controls, restrictions for credit institutions in transferring money to conflict zones). Because of this, these restrictions must be justified, which is best done via a comprehensive risk assessment that exposes the vulnerabilities of the overall security architecture and proposes the possible solutions. The agencies in charge of this look into local and international experience and the latest terrorism financing types and trends; they identify potential risks and act as the situation requires.

In Latvia, the national terrorism financing risks is assessed to be low (as per National Terrorism Financing and Proliferation Financing Risk Report for 2020– 2022).

This assessment is based on the absence of acts of terrorism, the negligible number of cases where financing of terrorism was suspected, the capacity of competent bodies to monitor the possible cases of radicalisation, and the understanding of these matters by the parties subject to the Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing. The terrorism financing risks typical to the Latvian financial systems are also a factor that reduces the threat of terrorism financing in the country.
 

Factors creating the most significant threat: 

1. The possible joining of Latvian residents to the terrorist groups or their radicalisation. Radicalised persons specifically may become involved in various types of activities supporting terrorism, including financing, thus using the financial system to fund terrorism.
2. The speed, at which transactions are effected in the financial sector, as well as the scope and geographical extent of transactions make it possible to use Latvia for financing terrorism, e.g. if the client is hiding by using a fictitious beneficiary of a company, or if the client conceals transactions in complex schemes involving shell companies. 

The main terrorism financing risks are: 

1. In the event of possible radicalisation of individuals living in Latvia, terrorism financing may take place as self-financing or obtaining funds from family members or relatives. 
2. Possible use of financial services provided by credit institutions and payment institutions for terrorism financing, whereby the acquired financial assets may be used for terrorism financing or to support terrorist organisations, or for self-financing in the case of radicalisation. 
3. Possible use of funds of non-governmental organisations to fund terrorism. Redirection of donations obtained for seemingly legal purposes to terrorist organisations or their members. 
4. Use of the Latvian financial system for making suspicious transfers as a stage of complex transaction chains for terrorism financing abroad.