In banking, CFT stands for Combating the Financing of Terrorism.
CFT is a critical component of the broader framework known as Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT). This framework is essential for the integrity and security of the global financial system.
Understanding CFT
Combating the Financing of Terrorism involves implementing measures and controls to prevent individuals or groups from using financial systems to fund terrorist activities. Terrorist organizations rely on various methods to raise, move, and use funds, and CFT efforts aim to disrupt these financial flows.
While related to anti-money laundering (AML), CFT focuses specifically on funds intended for terrorism, regardless of their source (which could be legitimate or illicit). AML, conversely, targets funds derived from illegal activities. Both are often addressed together due to overlapping techniques used by criminals and terrorists to move money.
Why is CFT Important in Banking?
Banks are often conduits for financial transactions, making them vulnerable to misuse by those seeking to fund terrorism. Therefore, banks play a vital role in identifying and preventing such activities. Robust CFT measures help banks to:
- Detect Suspicious Activities: Identify transactions and behaviours that might indicate the financing of terrorism.
- Comply with Regulations: Adhere to national and international laws designed to prevent terrorism financing.
- Protect Reputation: Avoid being implicated in terrorism financing, which can severely damage public trust and credibility.
- Contribute to National Security: Help governmental agencies track and intercept funds intended for terrorist acts.
How Banks Implement CFT
Banks employ a range of measures to fulfill their CFT obligations. These often align closely with AML procedures but have specific focuses:
- Customer Due Diligence (CDD) / Know Your Customer (KYC): Understanding the customer's identity, background, and the nature of their transactions to assess risk. Enhanced Due Diligence (EDD) is applied to higher-risk customers.
- Risk Assessment: Evaluating the potential risk posed by customers, products, services, and geographic locations for terrorism financing.
- Transaction Monitoring: Scrutinizing transactions for patterns or anomalies that could indicate terrorism financing, such as unusual volumes, destinations, or parties involved.
- Sanctions Screening: Checking customers and transactions against lists of individuals and entities sanctioned by international bodies or national governments for terrorism ties.
- Suspicious Activity Reporting (SAR) / Suspicious Transaction Reporting (STR): Reporting any transaction or activity suspected of being related to terrorism financing to the relevant authorities.
- Training: Educating employees to recognize potential signs of terrorism financing and follow internal procedures and regulatory requirements.
Key Aspects of CFT in Banking
| Aspect | Description |
|---|---|
| Purpose | Prevent funding of terrorist activities through the financial system. |
| Relation to AML | Often paired with AML (AML/CFT), but CFT focuses on the use of funds for terrorism. |
| Regulatory Basis | Guided by international standards (e.g., FATF Recommendations) and national laws. |
| Bank Responsibility | Implement controls to detect and report suspicious activities. |
| Impact | Protects financial system integrity and national security. |
By implementing these measures, banks contribute significantly to global efforts to combat the financing of terrorism, protecting both their institutions and the wider community.
