FATF Report Helps Financial Institutions Better Connect the Dots to Prevent Financing of Racially Motivated Terrorism

Impact of the FATF report on the Financing of Ethnically or Racially Motivated Terrorism¹

The Financial Action Task Force (FATF) completed a milestone report (Report) that examines the financing of ethnically or racially motivated terrorism. This Report, published in June 2021, is the first comprehensive international assessment of how ethnically or racially motivated terrorism is financed and, more specifically, how extreme right-wing groups that may promote ethnically or racially motivated terrorism raise, move, and use funds. The Report identifies challenges in disrupting the financing of extreme right-wing groups and identifies opportunities for further action.

Summary

FATF identified ethnically or racially motivated terrorism financing as a strategic priority area in June 2020 and it sought to strengthen its understanding of the risks associated with this threat. FATF found that extreme right-wing groups are the most significant emerging ethnically or racially motivated terrorism threat.

FATF produced the Report to disseminate important information to public and private stakeholders. Specific objectives include:

1. Increase the understanding of terrorist-financing (TF) risks related to extreme right-wing groups among competent authorities, nongovernmental bodies, the private sector, and the broader public
2. Outline the primary streams of revenue for extreme right-wing actors, by examining how extreme right-wing groups and individuals raise, move, and use funds, as well as the international links between them
3. Highlight the leading trends and methods within ethnically or racially motivated terrorism, in particular the international and transnational aspects of ethnically or racially motivated terrorism
4. Increase awareness of the role that relevant financial institutions (FIs) and nonfinancial businesses can play in detecting suspicious activity and highlight the importance of public-private partnerships in countering TF efforts and tackling these risks
5. Examine key challenges in combating ethnically or racially motivated terrorism, for both operational agencies and other relevant authorities, and nongovernmental actors (including the nonprofit sector and the private sector), and, where possible, expand on how to overcome these challenges

The Report found that self-funded lone actors were the main perpetrators of ethnically or racially motivated terrorism attacks. 

The Report also noted that fundraising of extreme right-wing groups is mainly through legal sources, including membership fees, donations, and private contributions. Extreme right-wing groups rely heavily on spreading their ideology through social media and will raise money through crowdfunding. Extreme right-wing groups that are not listed as terrorist organizations are typically open regarding the purpose of raising funds. Extreme right-wing groups also raise funds through commercial activities, such as organized concerts and merchandise sales, and some rely on criminal activities, such as the sale of drugs and organized crime. 

The Report highlights numerous challenges in tackling the financing of extreme right-wing groups and attacks, including different legal regimes in place for combating ethnically or racially motivated terrorism; few national designations of groups; the difficulty in identifying self-funded lone actors that carry out ethnically or racially motivated terrorism attacks; limited public-private partnerships in place for exchanging financial information related to extreme right-wing groups; and limited information collected for cryptocurrency transactions. In response to these challenges, the Report provides a number of recommendations to enhance data collection and information sharing among public and private stakeholders to identify extreme right-wing group transactions and financing.

Main Sources of Ethnically or Racially Motivated Terrorism or Extreme Right-Wing Group Funding

Self-Funded Lone Actor

Most ethnically or racially motivated terrorism attacks involve a “lone actor” who did not belong to a specific extreme right-wing group or have a stated extreme right-wing group affiliation. These perpetrators used their own sources to finance the attacks, and generally, the amounts spent to conduct an attack were small and paid in cash. These attacks did not involve sophisticated planning or preparation. 

Crowdfunding and Legitimate Activities

Crowdfunding and online commerce allow extreme right-wing groups to collect funds legally and leverage social media to reach a larger audience that shares similar extreme right-wing ideology, going beyond the local community or country. Extreme right-wing  groups also receive funding through membership fees or commercial activities, such as organizing concerts and selling merchandise. Extreme right-wing groups also rely on private foundations, or not-for-profits that are ideologically aligned to the group, or have persons in leadership positions in both the extreme right-wing group and the not-for-profit. 

The designation of an extreme right-wing group as a terrorist entity typically will result in the removal of the extreme right-wing group’s website from Facebook, Instagram, and other social media pages, and has a disruptive impact on an extreme right-wing group’s ability to generate revenue or maintain a bank account. In these cases, the extreme right-wing group may switch to cryptocurrency to move funds.

Criminal Activities

Some of the extreme right-wing groups also rely on criminal activity to raise funds, including robbery, fraud, and drug trafficking. In some instances, extremists used profits from legal activities to acquire weapons or explosive materials potentially for the commission of terrorist actions.

Key Considerations

Different Legislative Regimes²

The Report notes there is no international designation regime for targeting extreme right-wing groups, and only a few jurisdictions have designated extreme right-wing individuals or groups domestically. Some jurisdictions face legal constraints that prohibit them from restricting nonviolent activity associated with hate speech, or extremist rhetoric, or face domestic political challenges in taking action against violent extremist groups that may be affiliated with political parties. Accordingly, the designation of an extreme right-wing group as a terrorist organization, even though operating in multiple jurisdictions, is inconsistent between jurisdictions.³ Extreme right-wing groups designated as a terrorist organization may circumvent domestic restrictions by using its relationships with groups in neighboring countries to arrange fundraising activities.

Growing Transnational Links

The Report identified that extreme right-wing groups have started to share propaganda and organize events in multiple jurisdictions, although the amount of information relating to transnational fundraising is limited. Extreme right-wing groups operating in multiple jurisdictions have posed a challenge to law enforcement or security services, which are used to combat ethnically or racially motivated terrorism and extreme right-wing groups as a domestic threat with few transnational links. 

Recommendations

The Report raises awareness of the increasing threat of ethnically or racially motivated terrorism and extreme right-wing groups to potentially commit acts of violence and terrorism and includes a number of recommendations:

1. Countries should expand public-private information-sharing forums to apply to extreme right-wing groups or networks
2. Countries should increase cooperation with foreign counterparts to strengthen measures to identify and combat ethnically or racially motivated terrorism and extreme right-wing groups
3. Financial institutions and money services businesses can enhance monitoring to identify common traits and fundraising between extreme right-wing groups and listed terrorists
4. Countries should include extreme right-wing threats in their respective national risk assessment process

Considerations

There may be regulatory and privacy concerns that limit the expansion of information sharing with other parties if the extreme right-wing group is not listed as a terrorist organization. In many instances, the existing fundraising for extreme right-wing groups is legitimate, and the extreme right-wing group may not yet be connected to violent acts.

The Report also acknowledges that FATF had received limited information regarding the use of cryptocurrency to finance ethnically or racially motivated terrorism and extreme right-wing groups. Organizations should consider enhancing the blockchain tracing of cryptocurrency transactions involving extreme right-wing groups, and consider transactions involving extreme right-wing group activities as a heightened risk indicator to potentially identify ethnically or racially motivated terrorism financing.

Call to Action

Guidehouse can help organizations enhance detection of ethnically or racially motivated terrorism financing risk, including updating transaction monitoring models, procedures, analytics, and training. 

The Guidehouse team has relevant expertise in many areas, including:

• Anti-money laundering (AML) and anti-terrorist financing
• Analytics
• Machine learning
• Privacy and information sharing
• Sanctions
• Strategic planning
• Risk management
• Executive training

Guidehouse can quickly review and assess your financial crime framework to determine whether it is sound, identify gaps or weaknesses, or conduct training on anti-terrorist financing, and AML and Sanctions compliance. Guidehouse is well-equipped to make an individualized assessment of your unique circumstances and offer innovative advice and solutions for responding to heightened regulatory requirements or desire to follow industry better practices.

^{1Ethnically or Racially Motivated Terrorism Financing, Financial Action Task Force (FATF), Paris, France, June 2021. This Project was led by Germany and the US, with contributions from Argentina, Australia, Canada, China, France, Italy, Norway, Luxembourg, Russia, Sri Lanka, and the United Kingdom.
2 US State Department Country Reports on Terrorism 2019 identified that the threat posed by racially or ethnically motivated terrorism, particularly white supremacist terrorism, remains a serious challenge for the global community, continuing a trend of deadly attacks around the world that began in 2015. https://www.state.gov/wp-content/uploads/2020/06/Country-Reports-on-Terrorism-2019-2.pdf
3 As an example, Proud Boys were identified by US authorities as playing a pivotal role in the insurrection at the Capitol on January 6, 2021. The Proud Boys is a far-right, extremist group known for engaging in violent clashes at political rallies. Canada, on February 3, 2021, was the first country to designate the Proud Boys as a terrorist entity, however the organization has not been similarly designated by US authorities.}