The exploitation of the global financial crime system
A system designed to tackle the dirty money of drug lords and terrorists, the use of which has been endorsed and encouraged by international bodies and leading nations, has become a favoured tool of state persecution. Those that designed the system must take more muscular responsibility.
Over the last 50 years, from the advent of the Bank Secrecy Act in the US in 1970, via the creation of the Financial Action Task Force in 1989 and its evolving set of recommendations, the USA PATRIOT Act in 2001 and a range of international conventions, including the 2005 UN Convention Against Corruption, countries across the world have built an ever more substantial architecture for combatting illicit finance.
As governments and authorities develop their understanding of how these financial laws and tools can be used against criminals and terrorists, the temptation to use these powers more widely, against their political opponents and against civil society and journalists that investigate their activities or represent beliefs which conflict with their own, has grown. Existing laws are misused; new laws are passed in the name of those global organisations that champion the integrity of the financial system; and institutions such as anti-corruption agencies are weaponised by political leaders to pursue those that oppose them.
The commissioning and misuse of the well-intentioned global mission to tackle dirty money has reached alarming proportions. Large financial centres such as the UK and the US incentivise this abuse via pressure to enforce global standards simultaneously offering services that facilitate those from countries that seek to profit from this exploitation. And this abuse occurs not only in countries that one might consider obvious suspects, but also in democratic countries where the rule of law is being undermined and where the abuse of power is rising.1 We are all familiar with the frustrating impact it has on our own lives when a credit card is declined, when online banking is inaccessible, or when payments we make get inexplicably returned by our bank. Disrupting financial activity can at best impose inconvenience, at worst it can destroy people’s businesses, activities and their lives. This power is not lost on those seeking to target opponents or those that challenge their legitimacy.
This failing is not limited to those countries that seek to commission these standards for their own gain. Countries and regions such as the US, UK and EU – and the international organisations they dominate such as the Financial Action Task Force (FATF), the global financial crime standard setter and watchdog – that urge on the use of these standards are guilty of failing to properly police their implementation.
This essay will therefore take stock of this growing misuse – these sins of commission and omission – and consider how the tide can be reversed.
Sins of Commission
‘Terrorism’ is a powerful word, not only for the images it conjures and the forceful way in which it classifies individuals and groups. It also unleashes a range of national (and international) legal powers that allow countries to take action against those that are classified as such. For example, the designation as ‘terrorist’ by the UN Security Council of individuals or groups (for example those associated with al Qaeda or the Islamic State) requires member states and their private sectors to freeze, without delay, any assets, funds or property held within that jurisdiction. Under UN Security Council Resolution (UNSCR) 1373,2 member states are also required to have in place a range of counter-terrorist financing mechanisms, including criminalising the wilful provision or collection of funds by their nationals or in their territories with ‘the intention that the funds should be used, or in the knowledge that they are to be used, in order to carry out terrorist acts’ and the power to freeze ‘without delay funds and other financial assets or economic resources of persons who commit, or attempt to commit, terrorist acts or participate in or facilitate the commission of terrorist acts’, etc.
UNSCR 1373 was passed 17 days after the 9/11 attacks by al Qaeda on the United States. The motivation behind the Resolution was well-intended given the extent to which finance raised around the globe, and which passed through the international banking system, had supported the planning, preparing and conducting of the attacks.
But such powers are attractive to those in office that are seeking tools with which to undermine and restrict their political opponents. By designating an individual or group as ‘terrorist’ they can trigger a raft of legal and operational actions that at best stymie the financial activities of their opponents and at worst unleash harsh security measures against them, their families and associates.
A recent case of such abuse can be seen in Sri Lanka where, in February this year, under its United Nations Regulations No. 1 of 2012, the government, designated over 300 members of the Tamil diaspora. These regulations were originally issued by the Sri Lankan Minister of Foreign Affairs to bring into national law – as required by the UN and the FATF – the requirements of UNSCR 1373 to designate ‘individuals and entities related to terrorism and terrorist financing in national level’. As the website of the national financial intelligence unit (FIU) notes,3 ‘Accordingly, Institutions are obliged to have measures in place to identify and freeze funds, financial assets or economic resources of such designated persons and entities upon order by the Competent Authority’. Put simply, by criminalising and designating those that oppose the current government, banks and other financial institutions are required to disrupt their financial activity.
A further example can be seen in the actions of the Turkish government which, in December 2020, introduced a Law on Preventing Financing of Proliferation of Weapons of Mass Destruction similarly to comply with UNSCR 1373, a failing that was highlighted by the decennial review of Turkey by the FATF. In that 2019 review, the FATF noted a range of failures (including suggesting that Turkey was using sanctions as a politically motivated tool)4 to comply with the international requirements of UNSCR 1373. Critics of the new law suggest it overreaches, enabling ‘the Interior Ministry to target nongovernmental groups’ legitimate and lawful activities and the right to association of their members’, noting that ‘Turkish prosecutors regularly open terrorism investigations into people for peacefully exercising rights to freedom of expression, assembly, and association, which are protected by the European Convention on Human Rights and Turkey’s own laws’.5
From Africa, the case of Uganda further underscores how financial crime legislation can be abused. Since its most recent FATF evaluation was published in 2016,6 Uganda has been listed by the FATF as a jurisdiction with strategic deficiencies.7 As a result, it has committed to a wide-ranging legislative and operational remediation plan. A number of recent press reports8 have indicated that money-laundering regulations have been used to persecute groups and individuals, in one case for ‘alleged links and “friendliness” to Opposition political parties’.9 Is there a direct link between the pressure applied by the international community via the FATF and these actions? It is hard not to believe so. The FATF’s assessment of countries includes consideration of numbers of prosecutions and asset seizures, so there is a clear incentive for countries to demonstrate action in order to burnish their image. Perhaps reflecting this belief, in its most recent update on Uganda’s progress on its action plan, the FATF made tangential reference to this concern, noting that it is ‘monitoring Uganda’s oversight of the NPO sector’10 and urging Uganda ‘to apply the risk-based approach to supervision of NPOs in line with the FATF Standards’.11 In other words, not to misuse the tools it has introduced in order to address the shortcomings identified by the FATF in its review in 2016 – an admission, of sorts, by the FATF that its standards are being abused.
Across the other side of the continent, activists from civil society had their bank accounts frozen in Nigeria in 2020 as part of the government’s crackdown on the ‘EndSARS’ movement. This movement, that made highly effective use of social media, sought to shed light on and reform the Nigerian police force’s Special Anti-Robbery Squad, a unit with a reputation for extreme brutality.12 Whilst the account freezing was not undertaken in the name of UN or FATF compliance, it is an example of the way in which regimes can use financial measures to target and disrupt legitimate opposition movements and civil society.
Finally, in Europe in 2020, Serbia’s national FIU (the Administration for the Prevention of Money Laundering) launched an investigation into a number of NGOs and individuals that it claimed were suspected of money laundering or financing terrorism. For many, this activity was undertaken purely for the purposes of intimidation and to silence critics of the government.13 In response, and perhaps in recognition of the extent to which pressure from international bodies and other states can incentivise the abuse of international anti-financial crime standards, the European Commission’s Enlargement spokesperson, Ana Pisonero, noted via Twitter at the time that the Commission expected ‘further information from the authorities, including on the selection criteria’ for the investigations that had been launched; and that whilst ‘Fighting money laundering is an important pillar of Serbia’s EU integration’ so too ‘an empowered civil society is a crucial component of any democratic system and should be recognised and treated as such by state institutions’.14 This incident reveals the challenge faced by those that exert pressure on nations to apply FATF Standards and UN Resolutions to ensure that it does not generate unintended consequences.
Operational Misuse on the Rise
Before turning to consider the sins of omission and the way in which leading countries and regions incentivise and legitimise actions such as those reviewed here, one further worrying development should be considered. Central to these cases is often the role of the national FIU. Every country is required by the FATF to establish an FIU that acts as the nerve centre of a nation’s response to financial crime and is a central component of the global anti-financial crime architecture which all countries are required to establish. Their format varies, but, critically, they are the recipients of reports of suspicious activity that banks, other financial institutions and so-called ‘non-financial businesses and professions’ such as lawyers, accountants, real estate agents and any other body that facilitates the movement of funds are obliged to file. As a result, they are repositories of highly sensitive information and their central role in any national financial system accords them considerable power and influence.
In March 2021, those that follow the inner workings of the global anti-financial crime world noted a curious and unprecedented press release from the Egmont Group. Egmont is a group of national FIUs that facilitates information sharing and collaboration between its members to support efforts to investigate and prevent money laundering and terrorist financing. Being a member of Egmont is something that all FIUs strive to achieve as it allows them to connect with the cross-border intelligence sharing mechanism operated by Egmont. The charter15 of Egmont emphasises the requirements of the FATF for FIUs to maintain operational independence and to operate free of undue influence or interference,16 noting specifically that ‘The FIU should be operationally independent and autonomous, meaning that the FIU should have the authority and capacity to carry out its functions freely, including the autonomous decision to analyze, request and/or disseminate specific information’; and, critically that ‘The FIU should be able to obtain and deploy the resources needed to carry out its functions, on an individual or routine basis, free from any undue political, government or industry influence or interference, which might compromise its operational independence’.
Given the highly sensitive and influential information gathering role played by the national FIU in every country around the world, these two criteria are critical – and can be highly damaging if subject to abuse.
Against this background, the statement on allegations of FIUs misusing their powers from the chair of Egmont is alarming. In her statement, she noted that ‘The Egmont Group has been informed of financial intelligence units (FIUs) allegedly misusing the powers conferred to them under their national AML/CFT frameworks. These deeply concerning allegations pertain to FIUs limiting or coercing civil society actors for their work and critiques of current governments in their jurisdictions.’17 Given the cases noted above and the role of FIUs in gathering information on suspicious activity reported by regulated entities, it is not difficult to see why it is tempting for those in authority to abuse their powerful role.
And why might an organisation that maintains a low profile feel it necessary to make such a statement? No specific reasons are given but incidences that contravene Egmont’s membership criteria are certainly on the rise – and not just in countries where such abuses might seem expected. For example, in 2020, the head of the Swiss FIU resigned after less than a year in his role. Shortly afterwards, in a press interview, he accused Switzerland of lacking the necessary political will to combat dirty money, preferring to do the minimum necessary to placate international pressure18 – a sin of omission, if not commission.
Sins of Omission
Thus far, this essay has considered cases where laws, instruments and norms established by the international community have been seized upon and abused by authoritarian regimes to suppress dissent and persecute opponents. The power of these internationally mandated financial tools has proven to be highly effective against those that these regimes would like to see neutered and silenced.
But countries that would – they argue – see themselves as upholding the original and genuine motivations of these measures are also complicit as a result of their failure to police and swiftly react to their abuse.
Countries and regions like the US, UK and the European Union champion the development and deployment of these tools at the UN and the FATF, yet seem reticent – or powerless – to intervene meaningfully when the instruments spawned at their direction are abused.
A further dimension in which leading countries are complicit in the abuse of financial crime powers is in pressing countries to tackle corruption. On the face of it, supporting countries to establish anti-corruption agencies and encouraging them to pursue investigations, confiscations and prosecutions is clearly beneficial. But as with many areas of anti-financial crime activity, these capabilities are prone to abuse by those in control. If anti-corruption agencies are not independent of the government-of-the-day, then all too often their powers are used to persecute opposition figures.
Furthermore, just as the pressure from the FATF provides cover for those countries seeking to legitimise the persecution of NGOs and political opponents, so too the actions of leading nations to designate countries as ‘high-risk’ for money-laundering, beyond those agreed at the international level by the FATF, incentivise the target countries to take heavy-handed action to demonstrate they are responding to the concerns of global powers.19
Finally, the proliferation of financial sanctions regimes, issued by leading economies (notably the US, EU and UK), are open to abuse. Sanctions are often applied subjectively, reflecting political expediency. For example, notable in the recently issued UK global anti-corruption sanctions announcement is the statement that as part of the consideration of designations, the UK government ‘will be further guided by its wider priorities for each individual country, for example on development, trade or security, and how serious corruption may affect these’.20 This suggests a likely selective application of sanctions. Furthermore, in many regimes, those subject to sanctions have little meaningful recourse to challenge their designation. For those seeking to justify their own abuse of such financial powers, the failure of leading nations to operate a fair and transparent system of evidence and appeal arguably emboldens authoritarian regimes in the use of financial measures against opponents.
While it would not be right to lay the blame for the abuse of the global financial crime architecture solely at the door of those leading nations and bodies that promote its use, it is certainly the case that those that design, realise and promote these standards must take much greater responsibility for the abuse of the tools they have spawned.
Reversing the Tide
Legal recourse is, of course, one step that can be taken to reverse the strengthening tide of abuse. However legal action takes time and can leave those that are victims of the misapplication of these standards facing uncertainty for many years. Better would be for greater responsibility to be taken by leading nations to ensure that they do not create an environment that allows abuse to flourish in the first place.
In 2001, following the 9/11 attacks, the FATF brought forward recommendations that aimed to target the financing of terrorism, a feature that was key to the activities of al Qaeda. As part of these recommendations, the FATF drew attention to the vulnerability of NGOs to abuse by terrorist financing. This guidance was broadly drafted, unintentionally covering the entire universe of NGOs, rather than merely those that were genuinely at risk. Once brought into force, this standard had wide-reaching implications, implications that it took the FATF over a decade to acknowledge and begin to address.21 Should the FATF have anticipated the impact its guidelines would have? Certainly it should, or it should have at least put in place a mechanism by which others might assess the impact the new standards might have had and allowed comment on and scrutiny of its plans.
Since that time, the FATF has certainly become far more willing to listen to and engage with criticism and has taken steps to consult outside its immediate membership on proposed new or amended guidelines. So too have some parts of the UN Security Council. For example, in 2009 an Ombudsperson was established to review requests from individuals and groups seeking to be removed from the Islamic State and al Qaeda Security Council sanctions list22 an initiative that those countries that issue unilateral sanctions should likewise follow.
But the unintended consequences of this range of internationally prescribed financial crime measures persist. It is thus welcome that the FATF has recently announced the creation of a new initiative to assess these unintended consequences. In March this year, the FATF Executive Secretary noted that the FATF membership had agreed ‘to a new work stream on the unintended consequences of poorly implemented AML/CFT measures – from financial exclusion to the abuse of counter terrorism measures to suppress civil society – and this work will consider on an ongoing basis how these risks can be better identified and mitigated’. The outcome of this initiative is widely anticipated and must lead to action and identify consequences for those countries that abuse the architecture that the FATF has designed and promotes.
The impact of financial measures on the operations and lives of organisations and individuals can be highly disruptive. It is for this reason that states favour the use of sanctions so vigorously and law enforcement agencies around the world seek to deprive criminals of their ill-gotten gains.
Over 30 years since the FATF was founded in 1989 by the G7, it has become central to the design and implementation of standards that seek – in good faith – to support the strengthening of the integrity of the global financial system. But these tools have proved to be as attractive to those seeking to disrupt and persecute opponents as they are to those seeking their legitimate use. And those that are responsible for their creation have been slow to respond to this abuse.
The FATF is thus central to addressing this abuse and it is high time its 39 members, primarily rich, global North countries, took more muscular responsibility for the actions they have catalysed.
 See for example, Human Rights Watch, ‘Hungary: Bill Seeks to Stifle Independent Groups’, June 2017. Although adjustments to the law were announced in April 2021, serious concerns remain. Human Rights Watch, ‘Hungary’s Scrapping of NGO Law Insufficient to Protect Civil Society’, April 2021.
 United Nations Security Council, ‘Resolution 1373 (2001): Adopted by the Security Council at its 4385th meeting, on 28 September 2001’.
 Financial Intelligence Unit of Sri Lanka, ‘Sanctions Related to Terrorism and Terrorism Financing’, available at http://fiusrilanka.gov.lk/unscr_sanctions_TF.html#1373 (accessed 2 May 2021).
 The FATF, ‘Anti-money laundering and counter-terrorist financing measures. Turkey: Mutual Evaluation Report’, December 2019, p. 93
 Human Rights Watch, ‘Turkey: Draft Law Threatens Civil Society’, December 2020.
 Eastern and Southern Africa Anti-Money Laundering Group, ‘Anti-money laundering and counter-terrorist financing measures: Uganda Mutual Evaluation Report’, April 2016.
 ‘Jurisdictions under Increased Monitoring – February 2021’, the FATF, February 2021.
 ‘Uganda detains leading lawyer for LGBT rights on money-laundering charges’, The Guardian, December 2020.
 ‘Govt accuses 2 NGOs of funding terrorism’, Daily Monitor, December 2020.
 The FATF refers to charities and NGOs as ‘NPOs’ and requires particular attention to be paid to this sector given the connection certain NPOs across the globe have had to the financing of terrorism. This focus on NPOs is – in the view of many – the pretext on which the leadership in a range of countries clamp down on civil society actors that oppose them.
 ‘Jurisdictions under Increased Monitoring – February 2021’, the FATF, February 2021.
 Human Rights Watch, ‘Nigeria: Punitive Financial Moves Against Protesters’, November 2020. A number of accounts were finally unfrozen in February 2021.
 Amnesty International, ‘Serbia: Targeting of journalists and NGOs a blatant act of intimidation’, July 2020.
 @APisoneroECSpox, 29 July 2020, available at https://twitter.com/APisoneroECSpox/status/1288434187398250496?s=20 (accessed 2 May 2021).
 Egmont Group of Financial Intelligence Units Charter, approved by the Egmont Group Heads of Financial Intelligence Units, July 2013 (Revised in September 2018 in Sydney, Australia) https://egmontgroup.org/en/filedepot_download/1658/62 (accessed 2 May 2021).
 The Financial Action Task Force, ‘International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation: The FATF Recommendations’, updated October 2020, p. 103.
 Egmont Group, ‘EG Chair’s Statement on Allegations of FIUs Misusing Their Powers to Combat ML and TF’, March 2020.
 Swissinfo.ch, ‘‘Switzerland failing to tackle money laundering’: Thelesklaf’, September 2020.
 Both the UK and the EU issue lists of high-risk countries that go beyond that agreed at the FATF.
 HM Government, ‘Policy Paper: Global Anti-Corruption Sanctions: Consideration of Designations’, April 2021.
 Financial Action Task Force, ‘Consultation and dialogue with Non-Profit Organisations: Chairman’s Summary’, April 2013, available at https://www.fatf-gafi.org/documents/news/consultationanddialoguewithnon-profitorganisations.html (accessed 2 May 2021).
 United Nations Security Council, ‘Ombudsperson to the ISIL (Da’esh) and Al-Qaida Sanctions Committee’, available at https://www.un.org/securitycouncil/ombudsperson (accessed 2 May 2021).
Tom Keatinge, Director of the Centre for Financial Crime and Security Studies, Royal United Services Institute
Tom Keatinge is the Director of the Centre for Financial Crime and Security Studies at the Royal United Services Institute (RUSI), where his research focuses on matters at the intersection of finance and security, including the use of finance as a tool of intelligence and disruption. He has a Masters in Intelligence and International Security from King’s College London, where his research focused on the effectiveness of the global counterterror finance regime. Prior to joining RUSI in 2014, he was an investment banker for 20 years at J.P. Morgan.