Ongoing geopolitical tensions and rapid technological evolution are creating favourable conditions for criminals and terrorist organisations. Both benefit from money laundering and terrorist financing; often interlinked, yet subtly different, with the latter receiving less public attention.

Money laundering occurs when funds from criminal activity are ‘scrubbed clean’ before entering legitimate channels such as banks, property or investments. HM Treasury defines terrorist financing as the use, possession or raising of funds or assets for terrorist purposes, or for the benefit of a proscribed organisation. The definition is intentionally broad because terrorist funding can involve both illicit and legitimate mechanisms to raise, transfer and store funds.

It has been reported that billions in Covid‑19 loans and benefits may have inadvertently reached hostile actors. In one clear‑cut case, barbershop owner Tarek Namouz received thousands in bounce‑back loans and transferred them abroad via a money service business to fund terror attacks in Syria. He was convicted of eight counts of terrorist funding under section 17 of the Terrorism Act 2000 and sentenced to 12 years.

How terrorist financing can manifest

The fourth National Risk Assessment (NRA) of Money Laundering and Terrorist Financing 2025 report notes that UK‑based terrorists often fund their lifestyles “through legitimate methods such as a salary, loan or state benefits, or through online donations via payment services or crowdfunding donation‑based platforms,” rather than through fraud or drug trafficking.

Those legal funds can be converted into crypto assets, then back into traditional currency before being sent abroad via payment service providers.

“The main issue of terrorism funding from a legitimate business’s perspective is that it is incredibly hard to spot,” says Kathryn Westmore, Director, Financial Crime and Interim Director, Fraud at UK Finance. “Lone‑wolf attacks require minimal financing, unlike the significant sums behind 9/11.”

Sector exposure to terrorist financing

“Some sectors are at higher risk of getting caught up in terrorism funding than others,” says Westmore. “These include retail banks and payment firms, foreign exchange bureaus and other money services businesses. It’s almost inevitable that terrorism funding will go through these types of businesses.”

Terror financing red flags

Anomalies around transactions

Accountants and bookkeepers are often best placed to spot anomalous corporate inflows or outgoings such as payments to or credit from unverified suppliers based in high-risk jurisdictions and discrepancies between procurement documentation and actual deliveries. Given the small amounts involved with terrorism financing, internal books such as payroll or even petty cash can also be scoured for anomalies.

Geographical links and connections to other entities

Extra vigilance is required around transactions between the company and external entities, either based in government-designated high-risk jurisdictions, or whose location is untraceable or uncertain, or listed proscribed organisations and companies under state sanctions.   

Identity and behaviour concerns

Due to the relatively insignificant amounts of money in transactions and simple processes that can evade scrutiny, more attention must be paid to identification and behavioural inconsistencies.

Identification issues could relate to false or forged documentation, from passports to utility bills. Other red flags could include:

• mismatches between a device’s IP address and physical location;
• entities that are unverifiable against government records;
• regularly updated records such as phone numbers and email addresses; and
• having complex company structures that obscure function and sources of funds.

Behavioural characteristics include unusual account activity, such as a sudden flurry of transactions in an account dormant for an extended period or unusual cash withdrawal patterns. Breaking up cash transactions to remain under the suspicion threshold, rapid wiring of cash soon after receipt or sending funds to locations adjacent to conflict zones could also be a sign that terrorist financing is taking place.

All about the Suspicious Activity Report

If a company suspects any activity that might be linked to terrorism financing – like with money laundering – the next step is to file a Suspicious Activity Report (SAR) to the police.

Under Part 7 of the Proceeds of Crime Act 2002 and the Terrorism Act 2000, regulated companies must report any suspicion of terrorist financing or money laundering. SARs are filed to the National Crime Agency’s secure portal, which holds more than 4.5m SARs, administered by the UK Financial Intelligence Unit.

Prevention measures

“Basic controls remain essential,” says Westmoore. “Name screening, Know Your Customer protocols, and monitoring risk categories such as flagged nationalities, financial transactions and unusual purchases – for example, is a suspect buying an ‘unusual’ amount of nails for acts of terror, or home improvement?”

ICAEW has previously recommended that members read the NRA for considering “the appropriate allocation and prioritisation of resources to counter money laundering and terrorist financing.”

Along with the AASG Risk Outlook, both documents provide detailed information on threats, red flags and indicators for the key risk areas.