Supervisory role in combating FT

SUPERVISORY ROLE IN
COMBATING OF
FINANCING OF
TERRORISM
Goce Trajkovski

MONEY LAUNDERING VS. FINANCING OF
TERRORISM
‣Money laundering is used for economic purposes, while
financing of terrorism is used for political purposes
‣Origin of funds in money laundering cases is always illegal,
while origin of finds in financing of terrorism cases may be
legal or illegal
‣Purpose of funds in terrorism financing cases needs to be
under strict surveillance by financial institutions

STAGES OF FINANCING OF TERRORISM
‣Raise of funds through donations, self financing, micro
loans or criminal activities
‣Transfer of funds to terrorists, terrorist organizations or
terrorist cells
‣Use of funds for purchase of weapons, payoffs to terrorists
or financing of expenses of terrorist organizations

SOURCES OF FINANCING OF TERRORISM
‣NPOs, shell companies and VASPs
‣Self financing or donations by terrorist activities’ supporters
‣Criminal activities (smuggling of drugs, human trafficking,
frauds, embezzlements, cyber crime, market manipulation
etc.)
‣Sponsorships by certain countries

CFT FOCAL POINTS
‣Prohibition of transfer of funds to terrorists and terrorist
organizations
‣Many institutions (financial institutions, NPOs etc.) and
many activities (regulation, supervision, reporting etc.) are
involved
‣Cost-benefit analysis (CFT vs. business expenses and
business relationship secrecy)

FATF RECOMMENDATIONS
‣Rec. 5 - Terrorist financing offence
‣Rec. 6 - Targeted financial sanctions related to terrorism
and terrorist financing
‣Rec. 7 - Targeted financial sanctions related to proliferation
‣Rec. 8 - Non-profit organizations

TARGETED FINANCIAL SANCTIONS RELATED TO
TERRORISM AND TERRORIST FINANCING
‣UN Security Council Resolutions for prevention and
suppression of terrorism and terrorist financing
‣Freezing and prohibiting dealing in funds or other assets of
designated persons and entities (beneficial owners included)
‣Freezing of incomes derived from property whose owners
are involved (directly or indirectly) in terrorist activities
‣De-listing, unfreezing and providing access to frozen funds
or other assets (UN ombudsman or EU commission or court
decision that assets were not aimed for TF)

TARGETED FINANCIAL SANCTIONS RELATED TO
PROLIFERATION
‣Adopted by FATF in 2008
‣Similar characteristics with the FATF Rec. 6, but the focus is
on proliferation of weapons for massive destruction
‣Implementation of preventive measures for prohibition of
transfer of money and other financial assets to subjects
involved in proliferation

RESTRICTIVE MEASURES
‣Restrictive measures are introduced towards designated
legal entities or individuals in order to prevent (or limit) their
activities and to persuade or impact on those persons
‣Restrictive measures consist of financial sanctions, trade
sanction, travel bans and flight bans for civil aviation
‣UN and EU sanctions
‣Sanctions’ implementation by financial institutions

SUPERVISORY ACTIVITIES
‣Risk-based supervision
‣Risk assessment
‣Supervisory strategy

RISK-BASED SUPERVISION
‣Risk understanding
oNational, sectoral and entity-level risk assessment
oInherent risk, internal control systems and residual risk
oUpdates (supervisory findings, emerging risks, significant events)
‣Risk mitigation
oSupervisory strategy
oSupervisory tools
oFrequency and focus of supervision
oRemedial actions and sanctions

RISK ASSESSMENT
‣Understanding of TF risk exposure
‣Risk factors (clients, geographic location, products/
services/transactions, channels of distribution)
‣Sector or entity vulnerability to TF
‣Sources of information for risk assessment
‣Prioritization of supervisory activities within the sector

SUPERVISORY STRATEGY
‣Defines objectives for supervision of CFT activities taken by
the financial institutions
‣Addresses TF risks and determines the adequate
supervisory approach
‣Used for creation of annual plans for supervision (12 or 24
months) and action plans for remediation of weaknesses
identified with risk assessment

SUPERVISORY ENGAGEMENT MODEL
‣Defines the scope and frequency of supervisory cycle,
review meetings and risk evaluation questionnaires
‣Higher intensity supervisory measures (e.g. on-site
controls) are used to monitor institutions that are higher risk
‣Other less intensive supervisory measures such as review
meetings and risk evaluation questionnaires can be used for
medium and low risk

THANK YOU FOR YOUR ATTENTION