Slides from the JBL monthly webinar on 22 Feb 2023. Sign up to our newsletter to receive invitations to more live sessions like this.

1. Jonathon Bray Limited
Terrorist Financing
The forgotten piece of AML compliance
With Jonathon Bray and Rachael Eyre

2. • What is Terrorist financing?
• Money laundering vs Terrorist financing
• Why terrorist financing is overshadowed by
money laundering
• So, is it safe to ignore Terrorist financing?
• Red flags
• Can I go to jail for missing the warning signs
of Terrorist financing?
• What to do if you suspect Terrorist financing
• Training
• Practical tips
• Q&A
Jonathon Bray Limited

3. What is Terrorist financing?
First, let’s define what terrorism is
• Terrorism Act 2000
• The collection of funds (legitimate or not) with the
intention or knowledge that they will be used to finance
terrorist activities (even if they are not actually used for
those purposes)
• Note that we are not necessarily concerned with
‘criminal property’
• Most terrorist groups either collect from the country
they are based in where control resources (e.g. ISIL) or
proceeds of crime
• Difference with money laundering that the funds could
be legitimate – could sell property give monies to
terrorist organisation
* Probably wouldn’t tell their lawyer!
Jonathon Bray Limited

4. What is Terrorism?
• s.1 (1) (2) and (3) Terrorism Act 2000
• use or threat of action where:
*designed to influence the government (inc. international) or
to intimidate the public section of the public, and
*the use or threat is made for the purpose of advancing a
political, religious, racial, or ideological cause
*falls within:
*involves serious violence against a person,
*involves serious damage to property,
*endangers a person’s life, other than that of the
person committing the action,
*creates a serious risk to the health or safety of the
public or a section of the public, or
*is designed seriously to interfere with or seriously
to disrupt an electronic system.
• Doesn’t need to be designed to influence government or public if it
involves the use of firearms or explosives
Jonathon Bray Limited

5. Terrorist
Organisations
Home Office – Proscribed terrorist groups
https://bit.ly/3kpfXmv
• 78 (plus previous NI)
• Al Qa’ida
• Boko Haram
• Hamas
• Hizballah
• ISIL (or ISI or ISIS or DAIsh – Islamic State)
• Liberation Tigers of Tamil Eelam (Tamil Tigers)
• National Action / Scottish Dawn /National
Socialist Anti Capitalist Action
• The Base
Jonathon Bray Limited

6. Money
laundering
vs Terrorist
financing
• AML and Terrorist financing linked - but separate - concepts
• Separate primary legislation (POCA 2002 and TA 2000)
• Shared definitions
• Similar offences
• Mirrored approach
• Offences
• Principal offences (fund-raising; use or possession; arrangements; money laundering)
• Maximum penalty 14 years imprisonment
• Defence can be obtained from NCA, much like an AML DAML
• Failure to disclose
• Reasonable knowledge or suspicion of terrorist financing must be reported to
the NCA
• Maximum penalty 5 years imprisonment
• Privilege may apply and could be a defence
• Tipping off
• Becomes relevant once a suspicious activity report has been made to the NCA
• Maximum penalty 2 years imprisonment
• Limited defences apply
Jonathon Bray Limited

7. Why has Terrorist financing been
overshadowed by AML compliance?
• The recent profile of UK terrorism is largely home-grown, low sophistication
• Relies on criminal intent more than complex fundraising schemes
• Hard to detect
• National Risk Assessment 2020 https://bit.ly/41ig83G
• Legal services are ‘low risk’ for terrorist financing
• Compared to Money laundering generally, which is ‘high risk’ (conveyancing, TCSP, client
accounts)
• SRA Sectoral Risk Assessment 2021 https://bit.ly/41iCzpF
• Largely agrees with National
Jonathon Bray Limited

8. So, is it safe
to ignore
Terrorist
financing…?
No!
• The profile of UK terrorism may become more sophisticated
• The threat level remains ‘Substantial’ - an attack is likely
• Perhaps because of strong controls terrorists find in hard to fundraise in
UK
• Complacency is the enemy
• National Risk Assessment 2020 - cash intensive businesses are ‘high risk’
• Lawyers often act for these clients
• SRA Risk Assessment 2021
• “The funding of terrorism can also be facilitated by the same weak
controls that allow money laundering to take place”
• International lawyers exposed to different risks
• SRA Code of Conduct for Firms 2.1 (a)
• “You have effective governance structures, arrangements, systems
and controls in place that ensure…you comply with all the SRA's
regulatory arrangements, as well as with other regulatory and
legislative requirements, which apply to you.”
• Offences carry hefty criminal penalties
Jonathon Bray Limited

9. Systems and Processes
Jonathon Bray Limited
Policies Controls
Procedures

10. Red flags
• Will be similar to AML red flags - look at:
• Client
• Instructions
• Transaction
• Geography
• Money
• Other parties
• See LSAG Chapter 18 https://bit.ly/3lXa00H
• Specific terrorist financing concerns e.g.:
• Charities and trusts
• Peer to peer lending and crowdfunding
• Crypto-assets
• Property investment schemes
• Professional judgement and ‘Spidey sense’
Jonathon Bray Limited

11. RED FLAGS
Jonathon Bray Limited
High Risk Country –client
or TP established in e.g.
Syria, Cuba, Iran, North
Korea, Iraq*
Source of Funds/
Wealth make sense
Client attitude
PEP/Sanction
Client reluctance to
provide CDD
CDD with a bow on
Illogical company
names
It doesn’t make sense
why this client would
instruct the firm
Pressure to be in a rush
without a clear
obvious reason

12. RED FLAGS
Jonathon Bray Limited
The third party has
criminal or suspicious
associations
Settlements in cash or
direct to TP without
good reason
Third party payments/
instructions with no
connection to the
client
Funds requested to be
sent to a Third Party
Unexpected changes in
instructions – make
sense?
Complex transaction or
unusual/complex
structure
Unusual pattern of
transactions OR has no
apparent economic/
legal purpose
It doesn’t make sense
(inc. commercially)

13. RED FLAGS – Specific Terrorist Funding
Jonathon Bray Limited
Client talks of ideology
Bank statements show
payments to terrorist
organisation
Funds to be sent to a
suspicious third party

14. What to do
if you
suspect
Terrorist
financing
• Failure to disclose offence - up to 5 years imprisonment
• Knowledge or suspicion of terrorist financing:
• ‘Regulated sector’ - internal suspicious activity
report (SAR) to MLRO
• External SAR to NCA
• ‘Unregulated sector’ - (i.e. anyone in their capacity
of trader or employee) report directly to police or
NCA
• Consider whether privilege applies
• Consider whether a ‘DAML’ is needed
• Don’t tip off! - up to 2 years imprisonment
Jonathon Bray Limited

15. Reporting Suspicions –
How to for Staff
Jonathon Bray Limited
Something
doesn’t feel
right
Ask the
client or TP
questions
Still not feel
right?
Talk to the
MLRO
Still not feel
right?
Go back to
MLRO
MLRO may
decide
refuse to
act/make a
SAR or
DAML
Follow
MLRO’s
suggestions
on
questions/
evidence
If you know
there is a red
flag (e.g.
criminal
proceedings)
Talk to the
MLRO and
follow any
instructions
MLRO may
decide refuse to
act/make a SAR
or DAML
Criminal
Offence to
not report.
Once
reported to
MLRO done

16. Training
• Clearly Terrorist financing needs to feature in
broader AML updates
• Myth busting:
• What constitutes terrorism
• Legitimate funds are caught
• Applies to all legal services - doesn’t have to be
‘within scope’ of Money Laundering Regulations
• Looking to achieve awareness and vigilance
• Compliance with policy
• Scenario based case study workshops are effective
• Develop Terrorist financing red flags that apply to
your firm
Jonathon Bray Limited

17. Practical tips
• Consider Terrorist financing risks in your AML compliance systems:
• FWRA
• Client and matter risk assessments
• Policy
• Training
• Sanctions monitoring
• Pay attention to National Risk Assessment and SRA Sectoral Risk
Assessment updates
• Treat cash intensive businesses and small charities as higher risk clients
• Protect your client account - refuse to be used as a bank (3.3 Accounts
Rules)
• Don’t ignore obvious signs e.g. extremist sympathies
Jonathon Bray Limited

18. Jonathon Bray Limited
?

19. • Be aware
• Ensure systems and training
include anti-terrorist
financing aspects
• Rare – but consequences
severe
Jonathon Bray Limited

20. Jonathon Bray Limited

21. Jonathon Bray Limited
Terrorist Financing
The forgotten piece of AML compliance
With Jonathon Bray and Rachael Eyre