The following policy paper is based upon comments and opinions of CTF-related agencies and stakeholders from the V4 and Western Balkan regions involved in cooperation with GLOBSEC through a series of workshops and reports within a framework of Project CRAAFT (Collaboration, Research and Analysis Against Financing of Terrorism – www.projectcraaft.eu). For more information about GLOBSEC’s project CRAAFT deliverables as well as upcoming events, please contact Magdalena Markiewicz at [email protected]

Terrorist financing is a growing challenge that takes place all around the world. Criminal networks employ ever more complex methods to finance their illegal activities, either through money laundering or using NPOs and other legally-established bodies for money transfers that are meant to sponsor criminal activities.

There is already a vast body of literature and researches existing in the Western European countries on the topic of Counter-terrorist financing (CTF) but the topic is currently only increasing its exposure in Central and Eastern Europe (CEE) and Western Balkans. At the same time, this is precisely the region, where adequate CTF mechanisms and cooperation to fight and prevent the problem is badly needed. Indeed, the current rise of extreme right throughout the CEE countries, as well as the presence of the radical, political Islamist networks operating in the Western Balkans merit placing a large emphasis on the research as well as the development of CTF measures that would address the problem and assure that exchange of expertise as well as cooperation within the region equally on the European level, takes place on a regular basis.

Currently, national bodies, which task themselves with countering terrorist financing in the region as Financial Intelligence Units (FIUs). These are governmental entities that receive analysis and then transfer the information of suspicious transactions provided by either of them, public and private sector or individuals and companies. FIUs can be considered as a bridge connecting a network of diverse entities which report illegal activities over to them. They are the first point of contact that national agencies/companies/persons go to after having observed unusual transactions. Once having gathered relevant data, FIUs hand the information over to the law enforcement agencies within the CTF or anti-money laundering (AML) field.

First FIUs were created in the early 1990s. The years which followed witnessed an exponential growth of their number. In 1995, the Egmont Group of FIUs was established in order to maintain and develop further long-term cooperation amongst these bodies as well as a more regular and extensive exchange of expertise and lessons learnt. Moreover, the Egmont Group tasked itself with ensuring that its FIU members proceeded according to established and agreed-upon standards of modus operandi while interacting and cooperating together.

The overreaching goal of the Egmont Group but also other initiatives in the CTF domain is to create long-term international cooperation between the European FIUs and their international partners dealing with the same tasks. Establishing a durable international network of these CTF/AML bodies working together and exchanging knowledge on a regular basis is still quite of a challenge. It can be explained in a twofold manner. First, due to the political/social/economic and historical context, CTF is a domain that is given varying importance and emphasis depending on a country or a region. As a result, national governments vary in the amount of financing that is transferred to the CTF and AML sector. These disparities can be seen on a national, regional as well as international level. Second, CTF is a domain with structures that are not standardised on an international level. As a result, it is often challenging to connect to an entity in another region of the world that is in charge of the same CTF tasks as do European FIUs. An additional point that often hampers dialogue and cooperation is CTF bodies’ relative reluctance to disclose some of the information or lessons learnt out of fear of sharing sensitive data. This clearly points out the fact that, in order to promote more lasting and regular cooperation, FIUs and other CTF bodies need more extensive training regarding the degree of sharing information that would not breach the national and European law as well as a standardised approach and a structure of operation relating to the CTF field, which would expand on a wider than only a regional level.  The need of ameliorating preparedness of the CTF bodies to cooperate on a European and international level depends on the national authorities’ prioritisation of this area and the subsequent funding, which would cover relevant data gathering, analysing and information sharing mechanisms as well as communication tools and training.  For the desirable transformations to take place, the CTF sector needs a stronger governmental role and leadership, a more extensive engagement of national authorities in CTF and AML practices and education.

In order to promote more regular and standardised cooperation on the European or international level, it is the national authorities who must, first and foremost, start prioritizing the sector so that it can benefit from a more relevant preparedness to CTF, which will then result in the national agencies’ more adequate ability to address these issues with the use of standardized system on a regional, European and international level. Only once FIUs and other CTF/AML bodies are adequately and internally prepared to assume the relevant functions and address them on a larger scale while communicating with their counterparts in other countries can a coordinated response bring lasting fruits and development of mechanisms that could facilitate data sharing between various entities.

The complexity of CTF structure and the diversity of types of FIUs and other bodies that exist within the framework begs for coordination and cooperation. Indeed, depending on the country they operate in, European FIUs have adopted different models reflecting the range of powers and responsibilities they possess as well as their exact position within governmental structures. As an example, in its 2004 publication, the International Monetary Fund has identified 4 types of FIUs. These are the Administrative, Law Enforcement, Judicial and Hybrid. The law enforcement model of FIUs (such as is the case of the Slovakian FIU) is one in which these entities reside within the Ministry of Interior. Advantages of such placement relate to a quicker law enforcement action, more in-depth going analysts’ expertise on CTF crime from a legal perspective and wider access to the information and information exchange networks, such as Europol or Interpol. On the other hand, a common challenge experienced the law enforcement FIUs is hardship in cooperating with police and prosecutors.

The administrative FIUs are ones that reside as units within the Ministry of Finance. The reasoning behind this particular placement is the idea that such a structure would permit FIUS to act as a buffer between law enforcement and reporting bodies. The benefits stemming from this model revolve around the ability to resolve the problem of those amongst the reporting entities that do not possess a lot of hard evidence to place in their Unusual Transaction Reports (UTRs) but are reluctant to forward these documents to the law enforcement directly as they are often afraid to be considered accusers and suffer possible repercussions in case data in their reports doesn’t check out as factual. In such a scenario, administrative FIUs are the first points of contact receiving reports, which allows them to conduct additional research and analysis before forwarding the reports over to law enforcement.

The judicial FIU model is placed within the public prosecutor’s office. This structure is employed in the countries, where it is the public prosecutor’s office that receives reports of suspicious financial activities in the realm of CTF and AML. Judicial models of FIUs are able to proceed to freeze accounts, seize funds, conduct interrogations and investigations, detail suspects and conduct searches. Of course, these actions are being conducted by judicial FIUs in collaboration with the relevant police authorities, acting as entities working under public prosecutor’s orders directly. The judicial FIU model is usually employed by countries with strong banking secrecy laws and regulations.

Lastly, the hybrid model of FIUs combines elements and responsibilities of the other three types.  This model is characterised by having used employees from diverse state agencies, who work in a twofold manner – they act as FIU staff but also continue to hold their responsibilities in the state agencies.

Such diversification of roles, functions and structures permit flexibility but also often hampers regular communication due to the level of complexity. International bodies such as Moneyval (the Committee of Experts on the evaluation of Anti-Money Laundering Measures and the Financing of terrorism) a permanent monitoring body of the Council of Europe, created in 1997 to assess members’ compliance with international standards to CTF and AML, evaluate progress and make relevant recommendations to national authorities or FATF (Financial Action Task Force – an intergovernmental CTF and AML watchdog, whose objectives are to set standards that could adequate prevent and fight these illegal actions), have been in place for years now and provide for an invaluable standard-setters facilitating information exchange. Moreover, the principles of international information exchange between FIUs are already laid out in the Egmont Group’s Principles for Information Exchange Between Financial Intelligence Units for Money Laundering Cases.

As we can see, mechanisms, regulations and principles in regards to CTF and AML sector are already in place to facilitate illegal financial activities and assure cooperation. Also, in general, it has been reported that FIUs from the Visegrad4 region fare quite well in terms of international cooperation. This is mainly due to the fact that they respond quite quickly to foreign FIUs requests and reports as these are considered a priority. Also, information exchange within the region takes place on a regular basis and the quality of reports and data sent between FIUs is usually regarded as one of the high quality. This shows that communication and cooperation on CTF-related activities amongst regional partners, who are already engaging in dialogues on matters other than terrorist financing prevention, is quite effective. The long-term ambition for national governments should, however, not remain only focused on maintaining this relatively high-quality CTF cooperation on a regional partnership level. It should extend to translating the successes in the functioning and cooperating on CTF on a wider, European and then international level. Lessons learnt, successful and challenging experiences by the V4 countries can then be used as a constructive base for more standardized and coordinated cooperation on a European level.