According to a report by Control Risks, a leading political risk analysis company, terrorism financing represents a significant risk for any businesses operating in African economies. To understand how to address these threats, businesses first need to understand the nature of the problem. 

What Is Terrorism Financing and CTF?

The financing of terrorism refers to the flow of capital required by terrorist organizations to buy and maintain weapons and physical assets, recruit and train new members, and plan and coordinate strategies. 

Countering the Financing of Terrorism (CFT) refers to the laws and regulations that are created and implemented to curb the financing of terrorist groups and terrorist activities. By helping to detect, track and monitor transactions linked with terrorist organizations, CFT has also played a direct role in the global fight against terrorism by effectively aiding investigations into terrorist organizations and helping to cut off sources of funding for terrorist groups. 

AML stands for Anti-Money Laundering, while CFT stands for Countering the Financing of Terrorism. Because these two concepts are alike in several ways, they are often grouped together under the umbrella term AML/CFT. 

The evaluation and mitigation of risks associated with terrorist financing may sometimes be overlooked, but this should never be the case – these risks are pressing and have dire consequences for businesses if they are ignored. 

Why CFT is Essential for Businesses 

The risks associated with terrorism financing are fluid and subject to change. While certain regions in the Middle East have seen a reduction in these threats, many regions and jurisdictions across Africa have seen a sharp rise in terrorist activities – groups such as Al Shabaab, Boko Haram and Al-Qaeda continue to establish a foothold on the continent. 

“The need to revise due diligence approaches in sub-Saharan Africa is driven by a security and terrorism risk environment that is at its worst since the turn of the century and deteriorating” – Control Risks.

Regulators must contend with rapidly shifting landscapes and the international threat posed by the modern nature of terrorism. Laws and regulations, typically sluggish in their formulation and imposition, are struggling to address the fluid nature of modern terrorist threats. 

“African theatres of insecurity are also rapidly shifting… As a result, terrorism financing risks are beginning to extend beyond historically high-risk areas” – Control Risks.

As regulators work to create more effective legislation and improve enforcement capacities, businesses will face the challenge of ensuring regulatory compliance in the context of rapidly evolving legal frameworks. 

The Issue of Reputational Risk 

In addition to the challenges posed by regulatory compliance, businesses will also be forced to grapple with reputational risk. 

Simply put, reputational risk is the threat posed to a business by events that have the potential to undermine or destroy a business’s reputation. These may include public scandals and, in the case of terrorism financing, regulatory scandals and indictments resulting from a business breaching legal requirements for AML/CFT-related due diligence obligations.  

Today, companies understand that reputational risks pose some of the greatest threats to a company’s success and profitability. According to a publication by Deloitte, 73% of surveyed board members identified reputational risk as the area where they felt their company was most vulnerable. Furthermore, as noted in a survey conducted by PwC…

“The executives we surveyed consistently ranked reputational harm at or near the top of negative impacts from various forms of economic crime, with public perception (reputation/brand strength, business relations and share price) taking the hardest hit – a level of impact that has increased since 2016.” – PwC.  

The combined threats of breaches in regulatory compliance and reputational risk are too significant for businesses to overlook – a comprehensive risk management program that properly evaluates and mitigates these risks is essential. 

How Can Businesses Mitigate These Risks? 

The unnegotiable, primary goal of all businesses should always be to ensure full regulatory compliance, at the very minimum. This means having a detailed understanding of a country’s financial regulations and ensuring that your operations are fully compliant with them – a complex task if your operations are multinational and span several jurisdictions that have varied regulatory obligations. 

Regardless of the exact region, the vast majority of jurisdictions will require businesses to implement due diligence checks that may include the following: 

• Know Your Customer (KYC): identity verification and data validation checks designed to establish: that an individual exists; whether that individual is exactly who they claim to be; whether that individual is eligible to receive the product or service in question; whether that individual poses a threat of money laundering or other such crime. 
• Ongoing Monitoring: continued monitoring of transactions to scan for suspicious activities that represent a higher risk of illicit activity.
• Enhanced Due Diligence (EDD): a variety of processes that relate to the in-depth verification of information and the assessment of risk, which are deployed in circumstances were standard KYC checks are deemed insufficient to assess and mitigate risks. 
• Beneficial Ownership: processes to establish exactly which individual benefits from the privileges associated with ownership of a legal entity. 

Failure to be compliant with the necessary laws and regulations can lead to strict legal penalties being imposed – harsh fines and even prison sentences can apply, as well as significant losses to market share that can fundamentally damage a business. 

To ensure regulatory compliance, businesses must partner with information verification companies that can provide high-quality yet cost-effective tools to empower the highest standards of information validation. 

Identity Verification, Data Validation and Risk Assessment Services for South Africa 

ThisIsMe is South Africa’s leading provider of digital tools for tasks like enhanced due diligence, KYC, customer due diligence, data validation and risk assessment. Committed to world-class standards for data handling and data privacy, ThisIsMe is proud to be at the forefront of a trust-based and privacy-compliant digital world. To experience our full suite of advanced due diligence services, contact our team here.