1. Diversion of Charitable Funds (1)
Diversion of charitable funds – how it works:
The concept of the ‘front company’ will be familiar to anyone who deals with the prevention of money laundering through corporate structures. In the world of terrorist financing, charitable and humanitarian organisations are particularly at risk of being targeted by terrorist financiers and used by them as ‘front’ businesses to disguise the movement of terrorist funds.
At the start, everything is perfectly legal. The charity is a bona fide charity, doing exactly what it says it does. It receives legitimate donations from lots of different sources, often all over the world. The money received is deposited and pooled in the charity’s bank accounts…
….from where it is sent to fund relief projects and other charitable activities around the world. The money is sent to banking outlets in or near the organisation’s projects, from where it is withdrawn often as cash, which is used to pay for the charity’s local needs.
These cash withdrawals are ‘hijacked’ by the terrorists at the point of withdrawal, i.e., the person who goes into the bank to receive the withdrawn money is an impostor acting for the terrorist group who simply poses as a worker for the charity, takes the money and vanishes, channelling the money to the terrorists.
Copyright Lessons Learned Ltd 2016

2. Diversion of Charitable Funds (2)
Key facts
Vulnerability to exploitation: high levels of humanitarian relief work in regions where terrorist activity is also high
Inherent risks: cash distribution of funds at destination makes diversion easier
How it works: diversion of funds by agents at destination or by ‘plants’ working within the ‘host’ organisation
Terrorist financier’s perspective
Convenience – ready-made means for moving money to terrorists’ spheres of operation
Ability to blend terrorist funds with legitimate funds and ‘piggy-back’ on legitimate transactions
Use of third party organisations as a ‘cover’ for the movement of terrorist funds
Key facts
Why should charitable and humanitarian organisations in particular be so vulnerable to exploitation by terrorist groups? The answer is simple; terrorists are frequently at their most active in the world’s relief ‘hot spots’, which means that relief organisations and terrorists are often active in the same geographical areas. The charities and terrorists both need to move funds to the same places, and the terrorists simply use the charities to do it for them.
The fact that these areas often operate a cash economy and that the transferred funds are received in a cash form ready to use makes it that much easier for terrorist impostors to steal and divert the funds to their own causes.
Sometimes the money is ‘hijacked’ before it even reaches its destination via a ‘plant’ within the charity – a member of staff who is a sympathiser or whose co-operation has been obtained under duress, and whose authority is used to order transfers specifically for the benefit of terrorists.
Terrorist financier’s perspective
The fact that charities may operate in the same geographical areas as terrorist groups is clearly very convenient for the terrorists, since the charities’ transactions to that area provide them with a ready-made means to move their money to where it can be used by local operatives.
By ‘piggy-backing’ on the charities’ transactions they can shift their own terrorist funds as well as hi-jacking funds that were originally intended for the charities’ legitimate activities. The fact that they can do all this under the cover of a third party organisation clearly helps with the problem of disguising the true purpose of the funds and the identities of those involved.
Copyright Lessons Learned Ltd 2016

3. Diversion of Charitable Funds (3)
Possible ‘red flags’
Incongruities between the known sources of a charity’s funding and the value of funds deposited into its account or moved through it
Mismatches between the pattern and size of financial transactions and the stated purpose and activity of the charitable organisation
Discrepancies between the known regions where the organisation is active and the destination of transferred funds
Changes in signatories that coincide with changes in the volumes and destination patterns for overseas remittances
Sudden unexplained increases in the frequency of financial transactions and the sums paid in and out of accounts
Transaction features and behaviours shown on this slide are possible indications that terrorist funds are being moved through charity accounts.
Copyright Lessons Learned Ltd 2016