What is terrorist financing?

Terrorist financing includes activities involving funds or other property undertaken for the purpose of financing terrorist activity or making assets available to certain persons, groups, or associations in cases specified by law. It does not concern only the transfer of money. The collection, offering, or provision of various types of assets may also be relevant.

Importantly, assets used for terrorist financing do not have to originate from criminal activity. They may come from entirely legitimate sources. The risk may arise only from their intended use, the recipient, the relationships between the parties, or other circumstances of the transaction. In Poland, the Act on Counteracting Money Laundering and Terrorist Financing refers, in its definition of terrorist financing, to Article 165a of the Criminal Code.

How does Polish law define terrorist financing?

The AML Act does not create a separate, extensive definition of terrorist financing. It provides that terrorist financing should be understood as the act specified in Article 165a of the Criminal Code. The provision covers, among other things, collecting, transferring, or offering means of payment, financial instruments, securities, foreign exchange values, property rights, and other movable or immovable property with the intention of financing the offences specified in Article 165a of the Criminal Code. It also covers certain cases of making such property available to an organised group or association, a person belonging to such a structure, or a person intending to commit a specified offence.

Terrorist financing therefore does not mean only making a transfer to a specific person. Such activities also do not have to concern money itself – the provisions refer more broadly to various types of property and assets. The timing of the activity is also important. It is not necessary to wait until the funds are actually used to commit a specified offence. Their collection, transfer, or offering with the intention referred to in Article 165a of the Criminal Code may already have legal significance.

Where can funds used for terrorist financing come from?

One of the most important differences between terrorist financing and money laundering concerns the origin of the assets. Funds or other assets used for terrorist financing may come from both illegal and legitimate sources.

Legitimate sources may include, for example:

• remuneration;
• savings;
• business income;
• support from other persons;
• funds raised through collections.

Funds may also come from criminal activity, such as fraud, extortion, or other prohibited acts. The legitimate origin of funds does not therefore automatically mean that the purpose for which they are used is legitimate. From an AML/CFT perspective, simply answering the question “where does the money come from?” may be insufficient. Its intended use, the recipient, relationships between the parties, geography, and the broader context of the activity are also relevant.

How does terrorist financing differ from money laundering?

Money laundering and terrorist financing are covered by the same AML/CFT framework, but they are separate phenomena.

	Money laundering	Terrorist financing
Source of assets	linked to a benefit derived from a prohibited act	may be legitimate or illegitimate
Main focus	criminal origin of the assets and actions taken in relation to them	intended use of the assets, the purpose being financed, or the entity to which they are made available
Amount	its significance depends on the context	even small amounts may be relevant
Analysis	among other things, source, flow, owner, and context	among other things, recipient, purpose, relationships, links, and context

In money laundering, the starting point is property derived from a benefit connected with a prohibited act. Actions falling within the scope of the money laundering offence are then taken in relation to that property. In terrorist financing, the situation may look different. The origin of the funds may not itself raise concerns, while the risk may arise from where the assets are sent, to whom they are made available, what purpose they are intended to serve, and what relationships exist between the parties. Terrorist financing should therefore not be treated as a form of money laundering.

How is terrorist financing risk identified?

Identifying terrorist financing risk should not be based on a single signal or solely on the amount of a transaction. An obliged institution analyses available information concerning, among other things, the customer, parties to the transaction, the beneficial owner, geographic directions, the nature of the activity, screening results, and whether the transaction is consistent with the institution’s knowledge of the customer and the relationship.

In practice, relevant factors may include:

• the identity and profile of the customer;
• the recipient and other parties to the transaction;
• relationships between persons and entities;
• the geographic direction of the flow;
• the purpose and nature of the transaction;
• the way in which an account or service is used;
• screening results;
• whether the activity is consistent with the institution’s knowledge of the customer and their business.

A legitimate source of funds does not in itself exclude terrorist financing risk. Likewise, a low transaction value does not automatically mean that the risk is immaterial. A sanctions screening result should also not be treated as an automatic determination.

An alert is a signal for analysis, not a finding of terrorist financing.

Only by combining information about the customer, parties to the transaction, relationships, purpose, geography, and other circumstances can it be assessed whether the situation requires further clarification, escalation, or other actions provided for by applicable regulations and procedures.

Terrorist financing and AML/CFT

Terrorist financing is one of the types of risk addressed by the AML/CFT framework. In practice, obliged institutions use, among other things, risk assessment, information obtained through KYC and KYB processes, beneficial ownership identification, screening, relationship and transaction monitoring, alert analysis, and appropriate escalation for this purpose.

Terrorist financing should not, however, be equated with sanctions screening. Financial sanctions and counter-terrorist financing are related but distinct areas. The absence of a match on a sanctions list does not automatically mean that there is no terrorist financing risk. From the perspective of an obliged institution, it is therefore important to combine available data and signals into a coherent analysis. What matters is not only the origin of the assets, but also their intended use, the recipient, relationships between the parties, and the context of the entire relationship.