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Fight against Terrorist Financing: exchanging information, transparency and traceability of financial transactions
After the Madrid attacks of 2004, the European Union is strengthening all aspects of its fight against terrorism, including the fight against financing of terrorist attacks and of terrorist networks. The Commission aims to prevent such financing in three ways: improved cooperation in the exchange of information, enhanced traceability of financial transactions, and greater transparency of legal entities.
Communication from the Commission to the Council and European Parliament of 20 October 2004 on the prevention of and the fight against terrorist financing through measures to improve the exchange of information, to strengthen transparency and enhance the traceability of financial transactions [COM(2004) 700 - Official Journal C 14 of 20 January 2005].
In its Declaration on Combating Terrorism of 29 March 2004, the European Council committed Member States to do everything within their power "to reduce the access of terrorists to financial and other economic resources".
This Communication considers what further measures may be effective in tackling terrorist financing. In order to ensure that terrorist financiers operate in a hostile environment, we must not only apply anti-money-laundering techniques to the detection of terrorist financing but also invest in additional measures.
One course of action would be to make financial transactions and legal entities more transparent in order to make it harder for terrorists to raise money. In addition, tracking financial and other transactions is an effective means of locating terrorists and their supporters and disrupting terrorist activity. We must also foster closer cooperation and enhanced mechanisms for information exchange at national, EU and international levels both among competent authorities and between competent authorities and the private sector.
Exchanging and analysing information
As regards sharing information between competent authorities, there is a need to implement cooperation and exchange structures encompassing fiscal authorities, financial oversight bodies, the Justice Department, the intelligence community, law enforcement authorities and authorities in charge of administrative freezing. All services involved, including Europol and Eurojust, should be required to exchange information on terrorist offences, as provided for by the Proposal for a Council Decision annexed to the Communication on Terrorism COM(2004) 221.
The FIU.NET network, funded by the Member States and the Commission with the task of establishing a computer network for the exchange of intelligence among Financial Intelligence Units (FIUs), will become an important element in facilitating the sharing of intelligence. Joint Investigation Teams must be further promoted in cross-border investigations of terrorist financing.
Cooperation between authorities and the private sector also has an important role to play in the fight against the financing of terrorism. A possible means of ensuring information is exchanged between the two sides is to give FIUs full access to dedicated databases located in and under the control of the financial community. High-level contacts could also be established and maintained between law enforcement agencies specialised in terrorism and private sector representatives.
Traceability of financial transactions
Four courses of action should be followed in order to follow money trails backwards to the person providing finance and forwards to terrorist cells:
- prioritising financial investigation, if necessary by promoting the designation or establishment of national bodies dedicated to the identification, tracing, freezing and confiscation of terrorist (and other criminal) assets which may combine investigative, fiscal and legal skills;
- implementing the draft Regulation on payer information accompanying funds transfers as soon as possible after it has been adopted;
- improving the visibility of transactions performed outside the formal financial system, e.g. cash payments, by means of the Regulation on the prevention of money laundering by means of customs co-operation [COM(2002) 328] and other acts;
- better identification of clients' identity by establishing common minimum standards regarding data entry for financial institutions or by means of an electronic database of sample EU identity documents for law enforcement and the private sector.
Transparency of legal entities and the non-profit sector
The absence of international standards in key mechanisms used in global financial transactions, including international business companies, trusts and offshore funding vehicles creates a degree of financial opacity of real advantage to those financing terrorism. This is also true for the non-profit sector. Introducing mechanisms for the disqualification of individuals or firms convicted of offences related to terrorism or organised crime would help to highlight such unlawful use of the private sector.
Other existing measures, if improved, could also contribute to the fight against terrorist financing. For instance:
- Council Position 2001/931/CFSP and Regulation (EC) No 2580/2001, which allow the freezing of terrorist assets;
- the use of CEPOL (European Police College) to ensure financial investigators are properly trained;
- initiatives regarding anti-terrorism research (the "Group of Personalities" established by the Commission in 2003 recommended a European Security Research Programme [ESRP] be set up from 2007);
- the European Union's foreign policy on eliminating tax havens.
Background: combating the financing of terrorism
This Commission Communication is one of a series of four Communications putting forward solutions to priority issues identified at the Brussels European Council of 18 June 2004 in the Revised EU plan of action on combating terrorism , namely:
- preventing terrorist attacks and managing their consequences;
- protecting critical infrastructures.
The Council's plan of action on combating terrorism stresses the need to adopt measures to prevent the financing of terrorism.
The European Union's Strategy on combating the financing of terrorism was presented in December 2004. This document, which was drawn up on the basis of joint proposals from the Commission and the Secretary-General/High Representative for the Common Foreign and Security Policy (CFSP), documents the steps already taken in this field and gives a list of recommendations to enhance the EU's action.