Terrorists may exploit stimulus: FATF report
In a report released last week, the Financial Action Task Force (FATF) cautioned that terrorists and criminals will use this economic downturn to move to new cash-incentive and high-liquidity lines of business in developing countries.
The global money-laundering and terrorist financing watchdog has warned that the stimulus measures and international financial assistance announced by various countries to mitigate the economic impact of the Covid-19 pandemic are likely to be exploited by terrorists and criminals by posing as genuine businesses seeking assistance.
In a report released last week, the Financial Action Task Force (FATF) cautioned that terrorists and criminals will use this economic downturn to move to new cash-incentive and high-liquidity lines of business in developing countries – both for laundering of proceeds as well as funding their terror operations.
“In an economic downturn, criminals may seek to invest in real estate or troubled businesses to generate cash and mask illicit proceeds. Criminal groups can also introduce illicit proceeds into the financial system by restructuring existing loans and lines of credit. In addition, corporate insolvency proceedings can free up illicit cash contained in businesses whilst masking the funds’ origins,” FATF said in the first such report since the pandemic forced worldwide shutdowns in February-March this year.
The report said FATF members have highlighted that tax evasion and related crimes may increase as individuals and companies facing economic difficulties look to reduce their fiscal burdens.
Many countries are reporting an overall increase in cash withdrawals, which FATF said is likely to be used by criminals/terrorists to cover their illicit funds with “redeposit funds” when the markets stabilise. “Banknotes can be used to purchase safe-haven assets (e.g. gold), which are less easily traceable,” the report said.
It added some of the countries have also reported an increase in fund-raising scams involving criminals, who have posed as international organisations or charities and circulated emails requesting donations for Covid-19 related fund-raising campaign (purportedly for research, victims and/or products).
The FATF said the health crisis is also impacting the abilities of governments and private sectors in implementing anti-money laundering measure as well as international cooperation.
Formal cooperation, such as mutual legal assistance and extraditions, are already impacted by the crisis due to limitation or suspension of court operations, and the delayed execution of orders caused by travel restrictions.
The anti-money laundering/counter-terror financing (AML/CFT) on-site inspections have been postponed or substituted with desk-based inspections.
Pakistan last month got a four-month reprieve for meeting a deadline set by the FATF to counter terror financing as the multilateral watchdog announced a temporary suspension of its activities because of the Covid-19 crisis.
Several countries, according to report, have even suspended their decisions to impose monetary penalties on the violators.
In fact, some Financial Intelligence Units in lower capacity countries are either significantly “reducing their operations” or even “shutting down completely”, the report said. There are also reports of delay or postponement of prosecutions due to the suspension of trials and hearings.
“There are reports that diversion of law enforcement and security resources to Covid-19 responses in high-risk, poorly resourced countries, may embolden terrorists and terrorist financiers in their activities,” the FATF said.
While banks worldwide are trying to follow anti-money laundering measures, several countries have flagged an increased activity in non-banking sectors like insurance, online gambling, precious metals, and stones and securities amid a decreased activity in others like real estate and casinos.
The movement of migrant workers in various countries, including India, will particularly cause disruption for the money value transfer service sector due to confinement measures and company shutdowns, (the report said?).
“Should the current economic situation further deteriorate, there is a risk that financial institutions may re-prioritize their AML/CFL efforts and focus on broader prudential and stability measures,” the FATF said.
