Wednesday, February 24, 2021

Is COVID-19 a Detriment to Terrorist Financing Despite Regulator Claim?

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Financial regulators and risk advisory firms have sounded the alarm on the COVID-19 pandemic and how it creates an environment rife with new terrorist financing vulnerabilities. Inter-governmental task forces, banks, and law firms alike claim that foreign terrorist organizations (FTOs) have fashioned new schemes to profit from the current health crisis.

Although it is important to remind the financial industry to remain vigilant to possible emerging threats in uncertain times, the warnings issued are overstated. Rather than being a financial benefit, COVID-19 has actually been a detriment to terrorist financing. 

 

Financial regulators and inter-governmental groups contend that COVID-19 has been a boon for terrorist funding, mostly by way of phony non-profit organizations (NPOs). Terrorist organizations often hide their financial activities from authorities under the guise of humanitarian relief operations and fake NPOs, and the United Nations expect similar cover-ups to take place during the COVID-19 crisis. The U.S. Department of the Treasury takes it a step further and envisions terrorists directly hijacking humanitarian organizations delivering assistance to conflict regions and diverting aid to cushion terrorist coffers.  

 

Despite claims that the current health crisis is a catalyst to new forms of terrorist financing, there has been little corroborating evidence. A Council of Europe survey initially proclaimed that “criminals are exploiting the upheaval generated by the crisis,” but later concluded that “the overall level of criminality remained stable or slightly decreased during COVID-19 as a result of restrictions in physical movement and cross-border traveling.” The survey also identified no reported increase in terrorist financing or the abuse of NPOs. 

 

The first reason for the disconnect between regulatory warnings and reality is that speculation on terrorist financing fails to grasp that FTOs function like other organizations and businesses. Just as enterprises of all types have encountered hardships during the health crisis, COVID-19 also negatively impacts FTOs.  

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FTOs, like other organizations across the globe, feel the pinch of the pandemic due to the disruption of global, regional, and international supply chains. These disrupted supply chains cause terrorist groups (especially those operating in remote areas) to struggle for access to food, medicine, weapons, and — most importantly — money.  

 

For example, Islamic State (IS) groups in Indonesia have experienced a recent decrease in donations from terrorist sympathizers, who are facing their own shrinking disposable incomes due to the health crisis and its associated economic downturn. As a result, these IS-affiliated groups have “tightened their belts.” IS sympathizers have prioritized their spending, using their limited earnings on essential items like medicine and food, and not on donating to militant causes.  

 

The second reason why financial realities facing FTOs fail to live up to COVID-19 warnings is due to the regulatory community’s grouping of a variety of criminal and illicit activity under a single banner of money laundering and terrorist financing (ML/TF). COVID-19 has presented a new set of challenges for governments and regulators, which have been exploited by illicit actors. It is unclear, however, that these illicit actors are terrorists

 

Instead, abuse has been connected to financial crimes like fraud, cybercrime, and the misdirection of government assistance funds (i.e. stimulus checks), but not to terrorist financing per se. The regulatory and compliance community often fails to differentiate between illicit funding sources, and prefers to cluster investment scams, organized crime, counterfeiting, etc., all under the ML/TF umbrella. 

 

To be clear, there have been ways that the COVID-19 pandemic has benefited terrorist organizations—just not regarding their financing. In terms of reaching a captive audience and furthering the FTO’s narrative, the health crisis has been a blessing. With a global population largely working from home or currently unemployed, there has been a rise in time spent online, offering terrorists an opportunity to expose a greater number of people to their ideas via propaganda videos, online message boards, and gaming platforms.  

 

In full fairness, there have been some instances of terrorists profiting from the pandemic. In August 2020, the U.S. Department of Homeland Security announced the dismantling of an IS terrorist financing campaign to sell fake personal protective equipment (PPE) and funnel the proceeds back to the terrorist group. Even though law enforcement was able to connect the dots to IS financing, there have been few other instances to show that the coronavirus has led to rampant terrorist financing.  

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Instead, much of the warnings made by global risk advisory firms are sensationalized conjecture or deeply premature. It will not be until months or years after the pandemic that an accurate assessment of the virus’ impact on terrorist financing can be determined. 

 

Today’s health pandemic and its associated economic downturn is much more akin to the Financial Crisis of 2008 than with uncovering a new world of terrorist financing. In 2008, FTOs like Al Qaeda faced “dwindling financial resources” due to a lower “amount of donations received.” Similar to 2008, terrorists today are more likely struggling with daily subsistence, and therefore delaying resources to attack planning and weapons procurements. The regulatory and compliance community would do best to keep this more realistic state of affairs in mind.  

Authors Bio

Zachary Weinberg is a Fellow at the Matthew B. Ridgway Center for International Security Studies at the University of Pittsburgh. He is also a member of the Truman National Security Project. 

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