GUIDELINES ON COMPLYING WITH THE LEGISLATION TO PREVENT TERRORIST FINANCING

Transcription

1 1 (10) Basic public services, legal rights and permits 19/04/2017 Supervision of business and industry GUIDELINES ON COMPLYING WITH THE LEGISLATION TO PREVENT TERRORIST FINANCING 1 Purpose of the guidelines The purpose of the guidelines is to help parties subject to the reporting obligation that are supervised by the Regional State Administrative Agency for Southern Finland comply with the legislation which is aimed to combat terrorist financing, and to evaluate in what way the risk of terrorist financing could be seen in their own operations. Parties subject to the reporting obligation refers to those who are subject to the provisions of the Act on Detecting and Preventing Money Laundering and Terrorist Financing (503/2008) (hereafter the money laundering act). The Regional State Administrative Agency for Southern Finland supervises the following parties subject to the reporting obligation under the money laundering act: Currency exchange services Trust and company service providers Credit institutions that are not supervised by the Financial Supervisory Authority such as debt collectors, credit providers, finance providers and providers of guarantees Pawnbrokers Real estate businesses and apartment rental agencies Businesses or professions providing tax advice Businesses or professions performing external accounting functions Businesses or professions providing legal services other than advocates, to the extent that they act on behalf of and for a client in transactions related to o buying, selling, planning or execution of real property and business entities o managing of client money, securities or other assets o opening or management of bank, savings or securities accounts o organisation of contributions for the creation, operation or management of companies. Businesses or professions dealing in goods, to the extent that payments are made in cash in an amount of EUR 15,000 or more, whether the transaction is executed in a single operation or in several operations which are linked

2 2 (10) The Regional State Administrative Agency has drawn up general guidelines for the sectors listed and sector-specific instructions on complying with the money laundering act. The instructions can be found on the Regional State Administrative Agency s web pages using the pathway > Aiheet > Elinkeinot > Rahanpesulain valvonta > Tiedotteet ja ohjeet. This instruction regarding terrorist financing and its prevention complements the instructions referred to above which give more detailed guidelines to complying with the money laundering act. This instruction provides parties subject to the reporting obligation with information when organising monitoring of customer relations as required by the money laundering act and also from the perspective of combating terrorist financing. The instructions cover the following subjects Definition of terrorist financing and starting point for combating it Obligations stipulated by legislation for parties subject to the reporting obligation o Freezing of funds act and sanctions o Money laundering act Different ways of terrorist financing Factors by sector which should be considered when evaluating the risks and probability of terrorist financing 2 Terrorist financing and its prevention Terrorist financing means directing funds for the carrying out of terrorist acts and other financial support for individual terrorists, groups and purposes. Suspicion is focussed on the use the funds are put to, and the funds themselves may be from legal or criminal sources. According to the Criminal Code, the crime of terrorist financing can be committed by someone who directly or indirectly gives or collects funds to finance terrorist acts or who knows that these funds will be used to commit terrorist acts as defined in the Criminal Code. Terrorist financing and financing of a terrorist group while being aware of the nature of the group are punishable independent acts (Criminal Code 34a:5 and 34a:5a) in other words there is no requirement for a the use of the funds to be connected to a particular terrorist act or criminal participation in terrorist activity, so the act of financing itself could result in punishment. Prevention of terrorist financing involves addressing the proceeds of crime and financing channels using the same methods as in combating money laundering. Cutting off funds makes terrorist activity more difficult. At the same time, valuable information about how terrorist operators are organised can be gained which also promotes the combating of terrorism. In combating terrorist financing, attention is focussed on the origin of funds and how the funds are transferred. The definition of terrorist financing covers both the activities that aim to produce a financial gain for terrorists as well as activities that transfer funds with the purpose of strengthening the financial position of terrorist operators and enabling terrorist activity. These activities are seen in the operations of parties subject to the reporting obligation in different ways.

3 3 (10) 3 Fulfilling obligations under the legislation 1) Ways of generating financial gains for terrorist organisations and groups: donations from private supporters exploitation and abuse of associations, organisations and other third sector operators proceeds of criminal business activities such as drug dealing and smuggling Extortion of individual citizens and operators of businesses and exerting economic pressure in areas subject to the influence of terrorist organisations kidnapping to extract a ransom self-funding by terrorist fighters legal business activity. 2) The transfer of funds so they are closer to the parties that plan and organise terrorist operations regularly uses the physical transport of cash transfer of funds in the banking system money transfer services currency exchange services Parties subject to the reporting obligation must be aware of what is meant by freezing funds to combat terrorism and how the legislation regarding freezing of funds could affect their own operation, Be aware of the international system of sanctions in as far as they need to be considered in their own operation, and also be capable of acting as stipulated by the money laundering act in order to prevent terrorist financing Freezing of funds related to terrorism and sanctions Parties subject to the reporting obligation must take notice of the national Frozen Asset List in their operations and the EU s list of anti-terrorist sanctions. How significant the lists are, and that they are monitored in the operations of parties subject to the reporting obligation, varies according to the sector. When evaluating the issue, parties subject to the reporting obligation should form an opinion of the risks related to their own operations. A person may be subject to a freeze of assets under the EU s measures to combat terrorism or under the freezing of funds act (Act on the Freezing of Funds with a View to Combating Terrorism 325/2013). In practice, freezing of funds means that funds may not be released to a person on the frozen asset list. If a party subject to the reporting obligation identifies among his customers a party that is subject to the freezing of assets, the party subject to the reporting obligation must abstain from all operations involving the customer s

4 4 (10) funds that could be regarded as transferring, changing or indirectly releasing 1 funds to the customer subject to the asset freezing decision. Asset freezing decisions under national law in Finland are made by the National Bureau of Investigation (NBI) and it keeps a list of those people who are affected by asset freezing decisions. International sanctions mean economic or other collaborative restrictions imposed on a named party with the purpose of affecting the policy or activity carried out by that party which is regarded as constituting a threat to international peace and security. Sanctions could be financial sanctions put into place to combat terrorism or other financial sanctions intended to freeze funds. Sanctions require the same kind of abstention from measures which would enable the use of funds by the person subject to sanctions as do decisions on freezing funds. Sanctions are based on decisions and decrees of the EU Council which also give effect to the UN Security Council s framework resolutions and the decisions made on the basis of the resolutions by the Security Council or its sanctions committee. If a party subject to the reporting obligation identifies a person or association among his customers that is on the list of frozen assets or the sanctions list, funds may not be released to such people or associations. The Helsinki Enforcement Office must be notified without delay by at the address helsinki.uo(at)oikeus.fi. Funds belonging to a person or association on the list of frozen assets or the sanctions list, must not be released to a third party either without the permission of the authorities. There is a form on the NBI s web pages that can be completed to order a public list of asset freezing decisions by . ttelykeskus/terrorismin_rahoituksen_torjunta The Ministry for Foreign Affairs pages about sanctions have links to current financial sanctions, guidelines on sanctions legislation as well as the opportunity to order a newsletter about changes to and current issues related to sanctions. re=fi-fi Violation of a decision to freeze national assets to combat terrorism and violation of a decision to impose sanctions against terrorism is punishable as a criminal offence under the criminal code (RL 46:1.3). Parties subject to the reporting obligation should remember that movements of funds of a person on the asset freezing or sanctions list are not necessarily linked with terrorist financing or other suspicious business activity. A separate evaluation must always be made as to whether the business operation is 1 The EU Council s guidelines related to the indirect release of funds is available at the following address

5 5 (10) suspicious such that a report should be made to the Financial Intelligence Unit on the suspicion of terrorist financing or money laundering. Preventing terrorist financing in accordance with the money laundering act The Regional State Administrative Agency for Southern Finland s Guidelines to combat money laundering and terrorist financing 11/2014 go through the obligations that parties subject to the reporting obligation have under the money laundering act in detail. The main content and purpose of the legal obligations is to know the customers and their operations and to bring any suspicious activity to the attention of the authorities so they can take the necessary measures. From the perspective of combating terrorism, parties subject to the reporting obligation will comply with their obligations under the money laundering act when they ensure that the risks of terrorist financing from the perspective of their own operations are understood and that they deliberately attempt to reduce them the legal obligations are complied with in knowing customers (identification, verification, obtaining information, etc.) suspicious business activities are noticed and explanations are requested when necessary if the situation requires it, a report on the suspicion of terrorist financing is made to the Financial Intelligence Unit parties subject to the reporting obligation should also remember that the customer should not be informed that a report has been made with regard to suspicion of terrorist financing. If a party subject to the reporting obligation is uncertain how to act when faced with a suspicion, the Financial Intelligence Unit will give advice and instructions if required. Neglect of the duty to know customers and the reporting obligations as well as violating the obligation of confidentiality are subject to a fine under the money laundering act. 4 Ways of financing terrorism The final part of the guidelines deals first with terrorist financing methods in general and after that describes examples of the kinds of factors can arouse suspicions in different sectors of terrorist financing. International collaborative bodies 2 use different kinds of investigations to monitor new ways of terrorist financing and development trends. Cash is still the main payment method used in terrorist financing and the most common form of financial crime is the transporting of cash across state borders. However, terrorist financing methods become continuously more varied with the development of payment tools and new technology. 2 These kinds of bodies include The OECD s Financial Action Task Force (FATF), Interpol, Europol, banks collaborative bodies including the Basel Committee and the Wolfsberg Group as well as the networks of national money laundering investigation centres.

6 6 (10) In its statement in January 2016, the NBI s Financial Intelligence Unit stated that a significant amount of terrorist financing was accounted for by irregular small transfers of money from one country to another. Attention was also paid to associations, which under the apparent shelter of humanitarian activities or for the general good, were in reality channelling money for terrorist use. Control of these kinds of operators and the networks close to them has been tightened particularly when paying state aid or other appropriate discretionary aid and operating grants. The objective is that money from humanitarian or development aid organisations in crisis regions should not, deliberately or unintentionally, end up supporting terrorism. It should be remembered that the obligation under the money laundering act to know the beneficial owner also applies to customers of parties subject to the reporting obligation that operate as associations. The new forms of financing that have been identified recently are: Strategies of terrorist groups controlling geographical areas to obtain financing based on extortion, self-funding of terrorist fighters travelling from abroad to conflict areas and the special features of the funding of small terrorist cells new payment products and services and the use of social media in fund raising. Terrorist organisations and groups that control geographical areas can undertake major operations too to acquire financing. This could include traditional bank robberies and kidnapping for ransom, but also the smuggling of cultural assets as well as the sale of oil and other natural resources. Since the use of the official international banking system is limited for ISIL 3 and other known terrorist organisations, they rely more and more on money transfer and other unofficial ways of transporting money in their operations. Remissions of money to areas that are controlled by terrorist organisations are always suspicious business activities. At the time of writing the guidelines, these risk areas include Afghanistan, Southern Somalia, Iraq and Syria and remissions of money to countries bordering these should be subject to enhanced care. Evaluations of terrorist activity in risk areas follows the international security situation and can change as the situation changes, and this can happen very rapidly. Terrorist fighters travelling from abroad are mainly supported through selffunding and they are not in themselves regarded as a significant source of financing for internationally recognised terrorist groups. As fighters travelling to conflict areas often cover their own travel and subsistence costs they do constitute a significant support to these groups operations and are a significant source of material support. The most significant sources of income for terrorist fighters coming from abroad are their own money and money collected from their support networks. The is generally a question of a person s small income derived from legal sources such as salaries, loans from friends and families, consumer credit and social benefits. The sudden and surprising sale of personal property or goods bought on credit just before travel to a conflict area has also been observed. Funds are taken to the conflict area in whatever way possible, in cash if the sums are small enough not to arouse the interest of border guards or customs 3 An active jihad organisation in the Near East, the abbreviation comes from the words Islamic State in Iraq and the Levant.

7 7 (10) authorities, taken from automated cash dispensers close to the target area or by using money value transfer services, MVTS. Small terrorist cells can organise their activities from somewhere other than conflict areas, and for example the Paris attacks in November 2015 were a demonstration of the destructiveness of their attacks. Small organised units have low costs which are typically financed through the members own income from salary or social benefits. In recent attacks, pre-paid cards have been used to provide money for carrying out the attacks. New payment products and services such as virtual currencies and prepaid cards are becoming common as a method of terrorist financing technology develops, but also to avoid the supervision related to the banking system and the transport of cash. Bitcoin and similar virtual currencies enable the transfer of funds across state borders anonymously and they can also be used directly for buying weapons for example. Internet-based payment services such as PayPal and CashU, which operates in North Africa and the Near East, are also known to have been used for terrorist money raising and transferring funds. The rapid spread of the use of social media as well as the diffusion of internet connections and internet-enabled anonymity have made it possible to spread terrorist propaganda and acquire supporters from around the world in a totally new ways. Community funding campaigns can contact thousands of potential donors, and it may be unclear to the donors who will ultimately receive the money. Charitable and crisis aid organisations can be falsely used in campaigns to attract donations and front companies can even be established which are used to channel funds to terrorist operators. 5 What should attention focus on in a customer's operation? According to the law, parties subject to the reporting obligation must assess the risks of terrorist financing related to their own and their customers operations. Parties subject to the reporting obligation must organise risk management processes and supervision of customers based on a risk assessment. Identification of risks and assessment is essential in order that parties subject to the reporting obligation can organise risk management and monitoring of customers if necessary considering the level of risk, and identify operations that arouse suspicion of terrorist financing. The sector in which the party subject to the reporting obligation operates will affect how they gain information about their customers and their operations. The customer relations of parties subject to the reporting obligation are very different and as a result, business operations regarded as suspicious are different in different sectors and the possibilities of observing connections to risk areas, for example, people on the sanctions list or people who are politically exposed, 4 are different. It must be remembered that suspicion of 4 According to Section 1 of Government Decree 616/2008 a person is considered as politically exposed if that person is a: 1) Head of State, Head of Government, Minister, Vice or Deputy Minister; 2) Member of Parliament; 3) member of the High Court's Constitutional Court or similar legal body whose decisions cannot be appealed except in exceptional circumstances; 4) member of the Court of Auditors and the highest decision making body that audits state finances corresponding to the Finance Inspectorate; 5) member of the Board of the Central Bank ; 6) Ambassador or Chargé d affaires; 7) officer in the armed forces who holds the rank of General at least, or 8) member of the Supervisory Board, Board of Directors or governing body of a wholly state-owned company.

8 8 (10) Currency exchange services Financial services providers Pawnbrokers terrorist financing is generally aroused by the joint effect of several factors and not from one single factor. Currency exchange services exchange currency and the combined effect of several currency exchange transactions on a party subject to the reporting obligation may give rise to a suspicion that the purpose is to use the funds for terrorist financing, for example when it becomes clear that the customer is travelling to an area that is regarded as at risk from the perspective of terrorist financing. Providers of financial services whose operations do not require a permit from the Financial Supervisory Authority are under the supervision of the Regional State Administrative Agency with respect to their compliance with the money laundering act. This includes arranging of various forms of financing (consumer credit, leasing) and debt collection. Finance-related services can be a source of acquiring funds particularly by terrorist fighters travelling to an area of conflict who are self-financed. One illegal way terrorist fighters finance themselves is by taking out several consumer credit loans simultaneously from many credit providers with no intention of repaying them. The following issues can, either on their own or in combination with other factors, give rise to the need to investigate in more detail as to whether there is reason to suspect terrorist financing: - The customer has connections to geographic areas which are known to be at risk from the perspective of terrorism - The customer takes out several loans without making repayment instalments - A bank account in a risk area or in countries in the immediate vicinity into which loans are paid or a similar account from which instalments on loans are paid - Information about the intended use of the loan in the event that this has been asked when making the loan (for example travelling to areas of risk or nearby) - Difficulty in contacting the customer when collecting receivables or information from those close to the person when trying to make contact about them travelling abroad Concerns should also be raised when significant overpayments are made into the pooled account used by the party subject to the reporting obligation and which are then requested to be reimbursed. Attention should be paid to the conditions under which the objects to be pawned are offered, as pawning objects to finance a terrorist fighter s travel to a conflict area is just as effective in raising cash as selling property or taking out consumer loans. That being the case, the observations above regarding finance providers apply, in part, to pawnbrokers too. The object being pawned can sometimes be something that arouses suspicion of terrorist financing. Such objects can be exceptional works of art or valuable

9 9 (10) objects, for example, when there is no reliable explanation regarding their provenance. Real estate businesses and apartment rental agencies From the perspective of the real estate business, the suspicion of terrorist financing may arise for example in a situation where someone wants to sell a property or apartment they own very quickly and possibly at a low price. This kind of situation can be suspicious particularly if it becomes clear that the person is travelling to an area which can be regarded as at risk with regard to terrorist financing. Situations where the seller wants the purchase price paid partly or entirely in cash may, together with other factors, indicate the purpose is for terrorist financing. Payment of the purchase price to certain foreign countries may also give rise to suspicion. It may also be suspicious if the seller has a foreign buyer ready and there is little information available about the foreign buyer or the buyer is located in a country where geographic regions are controlled by terrorist groups or is located in a country in the immediate vicinity of such areas. Providers of tax advice and accounting services Providers of legal services The nature of the operations of businesses or professions providing tax advice or accounting services is such that customers are predominantly permanent and their businesses are known. The nature of the operations in this sector and the professional skills of its practitioners are such that they have a particular ability to identify unusual requests and exceptional movements of money in their customers accounts. Factors indicating terrorist financing could be, for example, payments made to parties that would not be regarded as normal for the company's business. The messages relating to both incoming and outgoing payments may have indicators that the funds are being directed toward terrorist purposes. Particular care should be observed if the company operates in the defence or security industry, for example. Particular attention should also be paid to the accounting records of companies who have business relations in areas at risk of terrorism. As with money laundering, so with respect to terrorist financing an assessment should be made as to how usual it is to use cash. There may be unusually large cash withdrawals and deposits in the customer s company or association operations, and suspicion may also arise in situations where there are no records of cash sales even though the customer company (for example a kiosk or café) could be expected to receive at least some of its takings in cash. The training of legal service providers gives them a particular familiarity with the legislation and the obligations it establishes. Therefore it is easier for them too, to identify possibly suspicious activities. Company structures that aim to conceal the origin of funds and the transfer of funds between different countries can be suspicious. In this sector too, attention should be paid to connections to regions at risk from the perspective of terrorism. Service providers should know the nature of their customers operations or what kinds of activity a company is being established to carry out. Indications, for example, that a company is not intended to be used for real business activity

10 10 (10) can, in combination with other factors, arouse suspicions of both money laundering and terrorist financing. Individual terrorist fighters travelling abroad may also try to organise their financial affairs before they leave so that arrangements are made for the legal entities they control or the property they own to be dealt with as they wish in the event of their death. There may also be details relating to the establishment of associations and foundations which give rise to suspicions of terrorist financing, for example because of the nature of the activity or the beneficiaries of a foundation. Providers of legal services should remember what has been said above regarding taking advantage of operators involved in humanitarian work and the general good in terrorist financing. Goods dealers Goods dealers should remember that the money laundering act applies only to the extent that payments are made in cash in an amount of EUR 15,000 or more, whether the transaction is executed in a single operation or in several linked operations. Suspicion of terrorist financing may arise if it becomes clear during the transaction that the goods being acquired will be transported to an area at risk. When carrying out the transactions for example, it may become clear that the person is buying a car with the intention of driving it to an area at risk or to an area in the immediate vicinity. Defence and security industry products may also be attractive from the perspective of terrorist financing. Even though the money laundering act only applies to dealers in goods who accept cash payments, the freezing of funds act and international sanctions apply irrespective of whether cash is used or whether any funds are accepted or released. It was stated above that groups controlling geographic regions may fund their operations by selling natural resources, especially oil, as well as by selling stolen cultural artefacts. Therefore when goods are bought for cash to sell onwards, particular care should be taken in respect of certain kinds of goods. For example, in antiques and art dealing, as in the case of pawnbroking described above, risky objects are goods that seem to be atypical items and illegally acquired cultural artefacts. Gemstones and precious metals are also included in the zones whose tracks could lead to areas at risk. For example, in a situation where a person approaches a goods dealer with the intention of selling all the movable property he owns then in accordance with a risk assessment, one should also check that releasing funds to such a person is not in breach of freezing of funds obligations.