It may seem obvious to some, but reverse money laundering is the opposite of regular money laundering. This means that, rather than spreading out proceeds of crime to disguise them and reduce the chances of being caught, it is legitimate funds that are taken out of regular circulation to be used for criminal activity and/or avoid tax. Whilst laundering attempts to make 'dirty' money appear 'clean', reverse laundering turns 'clean' money 'dirty'.
Reasons for reverse money laundering may include tax avoidance, bribery, and any form of cutting corners when it comes to following the rules in the business world, as well as other criminal activity. Because legitimate funds are used for reverse money laundering, it can mean it's much more difficult to monitor, detect, and prevent than straightforward money laundering.
Terrorist financing is a term used to describe activities that are carried out in order to provide financial support for terrorism. This term is often used to describe a form of reverse money laundering because it works by using legal assets to carry out illegal activities. The 'clean', legal money may come in the form of charitable organisations, as well as legitimate businesses, in order to disguise its intent and allow unthinkable actions to happen.
The cost of terror is high, both in human suffering and monetary expenses. There is the cost of the operation itself, payment for workers, as well as training facilities, communications, and travel. The need for financial resources, as well as the criminal nature of the activity itself, means that terrorists look to legal sources to help fund their illegal plans.
Terrorists can often find funding from states, private individuals, and organisations, taking advantage of the fact that they can find people with the same opinions as them that are willing to donate money towards their cause.
In order to spend their funds, terrorists often need to tap into the financial system to move the funds around and make purchases. This is why financial services institutions within the regulated sector have features and measures in place to monitor suspicious activity.
Cash is very attractive to terrorists (and money launderers in general) because it is completely anonymous and is easy to convert into another resource. Despite this, cash is bulky and difficult to conceal or legitimise for big purchases, meaning that criminals are also limited in their use of it too.
In simple terms, terrorism financing works in three steps:
- Fundraising for terrorist purposes (often through seemingly legitimate sources)
- Moving the funds raised into the terrorist headquarters
- Moving funds from terrorist headquarters to individuals to facilitate actions
Whilst these three steps don't always involve money laundering, laundering or reverse laundering is often utilised to move money around. Terrorists aren't like ordinary criminals in that they don't expect to 'get away' with their crime indefinitely. As such, they are less concerned with money laundering to disguise their acts, and more intent upon laundering/reverse laundering to commit acts, regardless of whether they are eventually caught or not.
It has been revealed now that the 9/11 terrorist attack was fuelled by reverse money laundering. In one case, money from the United Arab Emirates was passed through a New York bank account before being moved into the accounts of the hijackers at another bank in Florida. In another instance, the terrorists actually carried bundles of cash straight into the country. Whatever the source, the money was a result of legitimate sources, but all had a deadly purpose.
The lesson is simple - terrorism and many other criminal acts can be financed with perfectly clean funds. When this happens, reverse money laundering is at work.