What are CFT and FATF in banking?

CFT is an acronym for Combating the Financing of Terrorism (CFT). Financing terrorism means providing financial support to terrorist or terrorist organizations intended to achieve political, religious, or ideological goals through violence and the threat of violence against civilians. The flow of funds may reach those terrorists from legitimate religious or cultural organizations or it may reach them through illegal sources like drug trafficking. Such illegal money takes the shape of legal money through money laundering. Therefore, money laundering and terrorism financing are often linked. Whenever law enforcement authorities can detect and prevent money laundering activities, such prevention concurrently cuts the major source of funds being used to finance acts of terror. Thus, combating money laundering is important to CFT. Since it involves funds for committing a crime as against the funds derived from crime, terrorist financing is also referred to as ‘reverse money laundering’.

The Financial Action Task Force (FATF), was set up in 1989 on the initiative of the G7 countries summit in Paris, to develop policies to combat money laundering. In 2001 the purpose expanded to act on terrorism financing and the financing of proliferation of weapons of mass destruction. All members of FATF are expected to upgrade their laws, regulations, and enforcement efforts, including through Financial Intelligence Units (FIUs) and cross-border sharing of information for CFT purposes. The FATF black-list (Non- co-operative countries and territories (NCCT) list) mechanism was used to coerce countries to bring about change. All these efforts have brought about a huge change to global CFT regulations and have ushered in a new era of information sharing. India is a full-fledged member of the Financial Action Task Force (FATF).

FTFs are now considered one of the main forms of material support to terrorist groups. This report sets out the funding needs, sources, and methods of FTFs and the challenges associated with combatting them. New technologies have also introduced new terrorist financing vulnerabilities.

The issue of FTFs is not a new phenomenon, but the recent scale of the issue to the conflict in Syria and Iraq is disturbing. FTFs are now considered one of the main forms of material support to terrorist groups. The terrorist financing risks identified in the FATF’s 2008 FATF Terrorist Financing Typologies Report, while still evolving, are as relevant today, as they were back then. However, developments since 2008 have created new terrorist financing risks.
This report sets out the funding needs, sources, and methods of FTFs and the challenges associated with combatting them.

New technologies have also introduced new terrorist financing vulnerabilities. The broad reach and anonymity associated with social media and new payment methods could make these attractive tools for terrorists and terrorist organisations to use in their financial activities.

All terrorists and terrorist groups, particularly large terrorist organisations, will require a financial management strategy to allow them to obtain, move, store, and use their assets. Understanding these financial management strategies is essential in developing effective measures to counter terrorist financing.

FATF’s 2008 FATF Terrorist Financing Typologies Report is not a comprehensive study but rather, aims to provide a snapshot of current terrorist financing risks to raise awareness among FATF members and the private sector. Many of the issues raised in this report require further in-depth research.

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