Within the analytical environment aimed at combating financial crime, the term ML/TF — acronym for money laundering and terrorist financing — is very frequently used to refer to a "package" of problems that should be addressed jointly. And indeed, this approach makes considerable sense. Not only because most countries issue regulations that treat them, once again, as a single package, but also because both phenomena share many common elements.
Both are crimes that exploit the structure of the formal economy — financial and non-financial — to move funds or assets. In practice, for both money laundering and terrorist financing, these funds or assets are typically moved through bank transactions, shell companies, tax havens that provide operational opacity, complex corporate structures, the use of nominees, or — especially in countries with low levels of financial inclusion, such as ours — through an endless series of cash-based operations.
Likewise, another argument linked to the previous point is the striking similarity among the potential channels through which such operations are carried out: banks, notaries, real estate agencies, virtual asset service providers, savings cooperatives, money remitters, insurance companies, among others. At first glance, the sectors exposed to both crimes are almost identical.
A third factor — also explaining why many national legal frameworks choose to implement systems to prevent and combat "ML/TF" — is the existence of a set of international standards that have historically addressed both phenomena within a single framework. In this regard, the role of the FATF stands out, and until relatively recently, its 40 Recommendations to combat ML/TF have served as the main body of international standards that promote — and in many countries determine almost verbatim — the fight against these crimes.
The FATF and its 40 Recommendations
However, there are very marked differences between both phenomena that must be clearly understood by decision-makers within the State as well as by private sector entities. The first, and most evident, is the purpose. While money laundering seeks to give a legal appearance to funds of illicit origin — such as those derived from illegal mining, drug trafficking, or extortion — terrorist financing primarily aims to provide support to terrorist acts, terrorists, or terrorist organizations. Whereas in the former the focus lies on concealing the origin of the funds, regardless of the path they take, in the latter the main emphasis is on the final destination of those resources and on enabling or facilitating the materialization of a terrorist act.
In money laundering the flow of funds is circular, as they tend to end up back in the hands of those who generated them once they have been "laundered." In terrorist financing the flow is linear, prioritizing the ultimate purpose of the funds.
A second key difference concerns the possible origin of the funds. As noted above, in money laundering the origin of the funds or assets will always be illicit — that is, derived from crimes such as drug trafficking, human trafficking, or illegal logging. In terrorist financing, however, this is not always the case. While case studies have identified a close, almost symbiotic relationship between traditional criminal organizations and terrorist groups — such as Hezbollah, which uses money obtained through extortion and kidnappings as one of its main funding sources — this is not necessarily universal. In terrorist financing, a potential source of funds may be individuals who sympathize with a terrorist cause and who, through foundations or donations, contribute money obtained from salaries or other fully lawful activities.
Finally, another factor that differentiates money laundering and terrorist financing — of particular importance for those seeking to design risk mitigation measures — is the nature and scale of the transactions. While money laundering schemes typically involve significant amounts, given that the objective is to clean (often very large) criminal proceeds, terrorist financing may rely on relatively small sums. It is worth recalling that attacks as well known and devastating as those of September 11 in the United States were financed with a relatively small amount of money (around USD 500,000) compared to the millions and millions moved by illicit financial flows. This adds an additional layer of complexity when designing preventive measures aimed at detecting suspicious transactions linked to terrorist financing.
In conclusion, for anyone involved — whether from the public sector or the private sector — in combating these financial crimes, both the similarities and the differences must always be kept in mind. Although regulations and international standards address ML/TF as a single package, differentiated strategies are necessary. Looking back, experience shows that having "special" measures to address terrorist financing — such as those promoted by the FATF at the beginning of the century, prior to their unification into a single set of AML/CFT recommendations — has paradoxically proven more effective in practice than applying global or uniform approaches to both financial crimes.
And proliferation financing? Well, that story is for another Intelligence Note 😉.