Join us for our free webinar on this topic on 22 February at 12pm, in which we will explore some of the practicalities of terrorist financing compliance.
The Terrorism Act 2000 (TA) makes it an offence to finance terrorism. Terrorism is widely accepted to mean ‘the unlawful use of violence and intimidation, especially against civilians, in the pursuit of political aims’. Those political aims can take many forms, and the unlawful act is not the monopoly of any particular group of activists.
Terrorist financing is 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).
As with the Proceeds of Crime Act 2002 (POCA), all practising solicitors are within scope of the TA. Unlike the Money Laundering Regulations, the TA does not just apply to a defined set of ‘transactional’ legal services, tax advice and ‘trust and company service’ work.
Terrorist financing compliance is a fundamental part of the Anti-money laundering (AML) framework, within which solicitors and law firms operate. The legislation operates hand-in-hand, sharing the similar offences and obligations. POCA and TA effectively mirror each other in certain respects.
Why does POCA and AML get all the attention?
Money laundering is a much broader concept and social menace than terrorist financing. The concept of ‘criminal property’ in the AML world can capture everything from drug barons and human traffickers to benefit cheats, tax evaders and intellectual property thieves.
POCA intentionally creates a wide-ranging definition of the proceeds of crime, encompassing the ill-gotten gains of crime in the UK and overseas (if the ‘criminal act’ in question would have been an offence in the UK).
That makes it a very real and urgent concept for lawyers, who have to remain extremely vigilant. Not least because a breach of POCA can result in a criminal prosecution for the professional enabler.
Terrorist financing, on the other hand, is often a bit of an afterthought. It is rare for law firms to have processes and training resources that specifically focus on terrorism. Why?
There are probably a few legitimate reasons.
Firstly, terrorist acts committed in the UK, although devastating for those caught up in them, have more recently tended towards unsophisticated and ‘lone wolf’-style attacks. These do not require complex fundraising activities – often all that is required to have the desired effect is the unlawful intent and access to household items.
These types of attacks are unlikely to require financing in any meaningful way. Even if a lawyer’s assistance was needed – for example, a would-be terrorist sells their house to fund the purchase of a vehicle with which they intend to commit an attack – it would be almost impossible to detect by the lawyer in most cases.
Secondly, the authorities themselves class legal services as a low risk for terrorist financing. The National risk assessment 2020 states that “there remains no evidence of these services being abused for terrorist financing purposes.”
By comparison, money laundering through legal services (conveyancing, ‘trust and company services’ and the use of client accounts) is classed as a high risk in the same document.
Does that mean it is safe to put terrorist financing to one side?
Of course not. The UK’s national threat level is currently classed as substantial, which means a terrorist attack is likely.
There is a compelling logic that the lack of sophisticated terrorist funding in the UK is a direct consequence of the strong controls in place. Without the cooperation and vigilance of lawyers and other professional gatekeepers, terrorist groups would find it much easier to fund and plan large scale attacks.
The SRA sectoral risk assessment 2021 also notes that “the funding of terrorism can also be facilitated by the same weak controls that allow money laundering to take place”. By putting in place strong AML systems, the profession is also helping the fight against terror. The opposite is also likely true: a complacent law firm identified as having weak controls in place is more likely to be targeted by terrorist groups to raise funds.
Take the use of cash intensive businesses (think nail bars, car washes, barbers, ice-cream vans etc.), which the National risk assessment identifies as a high risk of being involved in terrorist financing. These businesses are therefore directly relevant to lawyers who act for such clients.
“Terrorists are known to raise and store funds in cash, and to physically move cash via hand or through cross-border cash couriers. Cash is also deposited into the financial system and moved through formal banking mechanisms or via money service businesses…
…Cash-intensive businesses continue to be used to clean money. Cash made from criminal activity is documented as legitimate business proceeds and can be placed into company business accounts….
…Terrorists are known to use cash to pay for purchases, including those related to general living expenses as well as those related to attack planning.”
This are of compliance is therefore a regulatory obligation. Law firms regulated by the SRA are required to 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” (2.1 (a) of the Code of Conduct for Firms). That clearly encompasses terrorist financing compliance.
And let us not forget that the main offences under the TA carry heavy criminal penalties, much like POCA. The principal offences, failing to disclose (report) and tipping off are all covered, with sentencing powers up to 14 years.
It is vital on a number of levels therefore, that firms have robust controls in place to ensure they are not used for terrorist financing purposes.