July FinCrime Developments Report

In July 2025, several key reports from global and national bodies, led by the Financial Action Task Force (FATF), painted a clear picture of a rapidly evolving terrorist financing (TF) landscape. The consensus is that terrorist groups are increasingly adaptable, leveraging new technologies, decentralised networks, and the convergence of crime to fund their operations. This requires a more dynamic and collaborative response from both governments and the private sector.

The Global Threat Landscape

The FATF's "Comprehensive Update on Terrorist Financing Risks" underscores that countering terrorist financing remains a major global priority. However, significant weaknesses persist. A review of 194 jurisdictions found that 69% had structural deficiencies in their ability to investigate, prosecute, and convict TF cases effectively.

The nature of the threat is shifting, influenced by several key factors:

• Geographical Epicentre: Sub-Saharan Africa, particularly the Sahel region, is now the global epicentre of terrorism, which directly shapes financing patterns. However, risks persist from established conflict zones like Syria and Afghanistan, where groups like ISIL-K pose a significant threat.

• Key Drivers: The primary enablers of terrorist financing remain weak governance, corruption, porous borders, and the presence of informal or cash-based economies. 34% of national evaluations highlighted informal economies as a key vulnerability.

• Types of Actors: The threat comes from a diverse range of actors.

  • Networked Groups like Al-Qaida and ISIL are using decentralised regional hubs to manage complex cross-border finances. For example, ISIL's al-Karrar office is known to move hundreds of thousands of dollars to operatives across East Africa.

  • Ethnically or Racially Motivated Terrorism (EoRMT) groups often raise funds through overt, legal means like merchandise sales and concerts, making them harder to track.

  • Individual Terrorists and Small Cells, including over 42,000 foreign terrorist fighters (FTFs) who have travelled since 2014, rely on small-value transactions, personal savings, and petty crime, leaving a minimal financial footprint.

Methods and Typologies: A Blended Approach

Terrorists are employing a "blended approach," combining traditional methods with new technologies to raise, move, and manage funds.

Traditional and Criminal Funding

• Cash and Hawala: Cash remains dominant due to its anonymity. It is often moved across borders via smugglers or through Informal Value Transfer Systems (IVTS), like hawala, which are crucial in regions with limited banking.

• Criminal Activities: The line between terrorist financing and organised crime continues to blur. Key criminal revenue streams include:

  • Extortion: Al-Shabaab and ISIL affiliates rely heavily on "taxation" and protection rackets.

  • Kidnapping for Ransom (KFR): A highly profitable tactic, with ransoms in the Sahel reaching up to €183 million for the release of hostages.

  • Exploitation of Natural Resources: Groups generate millions from illicit trade in timber, precious metals, and oil. For instance, ADF is estimated to earn $3 million annually from timber, while ASWJ has reportedly generated $30 million from rubies.

  • Drug Trafficking: A significant revenue source for some groups through direct involvement or by taxing shipments.

The Rise of Digital and Financial Technology

• Cryptoassets: The use of virtual assets is increasing. The UK's National Risk Assessment (NRA) upgraded the ML risk for the crypto sector to high, estimating $1.7-$5.1 billion in illicit crypto transactions are linked to the UK annually. The FATF notes that ISIL-K systematically uses VAs like Bitcoin, Ethereum, and USDT. Meanwhile, the UK's Office of Financial Sanctions Implementation (OFSI) reported that 90% of suspected sanctions breach reports from crypto firms since April 2024 relate to Russia, with firms also exposed to North Korean hackers and Iranian entities like Nobitex.

• FinTech and E-Money: The European Banking Authority (EBA) reports that 70% of competent authorities see high or increasing TF risks in the FinTech sector due to weak controls. Terrorist groups like Al-Shabaab exploit mobile money platforms, with some finance officers holding accounts with limits as high as $100,000.

• AI-Driven Crime: The EBA warns that criminals are now using Artificial Intelligence (AI) to automate fraud, generate fake IDs, and use deep-fakes to bypass customer due diligence (CDD) controls.

Regional Risks and Regulatory Responses

European Union

The EBA's 2025 opinion highlights that while awareness is growing, effectiveness is uneven. Key challenges for the EU include:

• CDD Failures: Despite progress, a staggering 61% of AML/CFT breaches across all sectors are still caused by shortcomings in customer due diligence.

• Sanctions Complexity: The growing number of EU sanctions packages poses significant compliance challenges for firms whose screening tools are often inadequate.

• Crypto Regulation: The complete and consistent implementation of the new MiCA and FTR crypto framework, which came into force at the end of 2024, is seen as critical to closing vulnerabilities in the Crypto Asset Service Provider (CASP) sector.

United Kingdom

The UK's 2025 National Risk Assessment (NRA) rates the overall money laundering risk as high and the terrorist financing threat as "substantial" (meaning an attack is likely).

• Top Threats: Fraud is the most significant predicate offence, with 4.1 million incidents in 2024 (a 33% increase from 2023). Sanctions evasion is also a significantly increased threat, with suspected breach cases rising from 147 in 2021/22 to 396 in 2023/24.

• Sector Risks: The risk level for Electronic Money Institutions (EMIs) and Cryptoasset Service Providers (CASPs) was increased to high. The NRA noted that only 48 of 368 CASP applicants met the FCA's AML standards for registration.

• Terrorist Threats: Islamist terrorism remains the primary threat, accounting for 67% of attacks since 2018, while Extreme Right-Wing Terrorism (ERWT) accounts for 22% of attacks and a quarter of TF investigations.

Suggested Actions

Across the board, the reports call for a more proactive, collaborative, and risk-based approach to combating financial crime.

1. Strengthen the Risk-Based Approach (RBA): The Wolfsberg Group's statement emphasises that financial institutions must move beyond a "tick-box" compliance mindset. Their programs must be proportional to their business, prioritise resources on higher-risk areas, and be demonstrably effective at achieving outcomes.

2. Enhance International Cooperation: The FATF calls for a stronger multilateral response, including prioritising global terrorist designations and improving cross-border information sharing and prosecutions.

3. Close Regulatory Gaps: There's an urgent need to improve the practical implementation of FATF Standards, particularly for MVTS and CASPs. Fully implementing the Travel Rule for virtual assets is a key priority.

4. Engage New Sectors: Regulators must expand outreach to sectors like social media, messaging services, and gaming platforms, which are exploited for fundraising and propaganda.

5. Improve Private Sector Support: Financial institutions need more specific guidance, better intelligence through public-private partnerships, and clear red flag indicators, such as those provided by OFSI for the crypto sector.

6. Safeguard Humanitarian Aid: CFT measures must be implemented in a way that doesn't obstruct or disrupt legitimate humanitarian activities in conflict zones.

   
   

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