Terrorism, money laundering, and similar illicit activities are on the rise, as is the creativity and technical sophistication of the criminals who engage in these activities. Combating the Financing of Terrorism (CFT) regulations are constantly being introduced and evolving to meet these changing threats. A strong understanding of CFT guidelines is essential for any business who hopes to protect themselves and their customers, and is particularly important for those in the financial industry.
What is Combating the Financing of Terrorism (CFT)?
Combating the Financing of Terrorism, also known as Counterfinancing of Terrorism, Countering the Financing of Terrorism, or Counter Terrorist Financing, is a set of laws and regulations that aims to restrict terrorist organizations from accessing and using funds.
Terrorist financing can come from illegal sources, such as drug trafficking, kidnapping, or corruption. It can also be knowingly or unknowingly funded by legal sources including businesses, charities, or governments.
CFT laws and regulations help identify and prevent cash flow to individuals or groups involved in terrorist activities. This is an essential step in reducing their ability to profit from these illicit activities or even being able to continue engaging in them.
Why is CFT important?
CFT is an important part of AML procedures for several reasons:
- CFT restricts terrorists’ access to funds. Without financing, these groups are unable to continue their activities. This makes the world a safer place with fewer threats of corruption and violence.
- It helps police and other law officials identify and trace terrorist networks, which can then be appropriately prosecuted.
- CFT regulations enhance the stability of our global economic systems and can minimize terrorism’s impact on the financial sector and beyond. This is because CFT increases the public’s trust in the financial system — and provides confidence that cash is being diverted away from non-productive, harmful activities.
- Carefully following CFT regulations can also benefit your business. In the financial industry, non-compliance can result in heavy penalties, including fines and even prison time. And even where CFT controls aren’t required by law, it can help you earn customers’ loyalty and ensure you’re only doing business with people you can trust.
How does CFT relate to KYC/AML?
Money is often laundered and made to appear legitimate despite its origin from an illegal source. Since a significant portion of financial terrorism is supported through money laundering, CFT and AML (Anti Money Laundering) regulations are very closely linked.
The Financial Action Task Force, or FATF, is responsible for issuing standards around both CFT and AML. The FATF is just one of the national and international bodies that make recommendations to protect businesses and individuals against money laundering.
KYC, or Know Your Customer, is a key part of both CFT and AML. KYC involves determining and verifying the identities of everyone your business works with. This is essential if you want to ensure your customers aren’t involved in illegitimate activities — and that your business isn’t indirectly supporting terrorism or other crimes.
What does CFT look like, and who does it apply to?
At a high level, CFT compliance requires businesses to follow regulations such as:
- Perform due diligence on all customers and implement proper KYC procedures (as well as KYB procedures, as appropriate)
- Identify the origin of customers’ funds
- Report any suspicious transactions for appropriate follow-up and investigation
- Report any cash transaction in excess of $10,000 in the US
CFT, then, doesn’t look all that different from typical KYC processes. It simply takes verification a step further by also assessing the source and use of funds.
These regulations primarily apply to financial institutions. As banks are one of the main channels terrorists attempt to use for funding, it’s mandatory that they implement rigorous CFT policies.
That said, any and all businesses can benefit from appropriate AML and CFT measures. They’re an excellent way to protect yourself, your business, and your customers.
Simplifying CFT with automated KYC
KYC is one of the most important aspects of an effective CFT policy – but when not implemented correctly, it can create a significant strain on both your team and customers. Decrease your manual burden and increase conversions by implementing an automated KYC solution such as Persona.
With Persona, you can create designated risk segments and customized flows to catch fraudulent persons and suspicious transactions without any detriment to legitimate customers.
And since it’s all on one convenient platform, you end up with a seamless and fast process that enables better decision making.
Protect your business with Persona
Combating the Financing of Terrorism is incredibly important for the good of businesses and the good of the world as a whole. But without the right processes in place, it becomes extremely difficult to accurately identify suspicious and illegal transactions.
By using an automated KYC process, CFT will become much more attainable – and you’ll know you’re doing your part to protect your customers and to prevent terrorists from accessing and illegally using funds.
Please consult your attorney around legal requirements to ensure CFT compliance.