The Financial Action Task Force ("FATF") has published a new edition of its Comprehensive Update on Terrorist Financing Risks.1 The 2025 update presents a sobering analysis of current terrorist financing ("TF") threats and emerging trends, as well as the effectiveness of approaches implemented by national agencies worldwide. The update also collates guidance for financial institutions on identifying and managing TF risk indicators.
The updated report comes a decade after the previous edition and reveals a number of key themes that will be particularly important to those involved in TF compliance.
Weak enforcement: stopping the rot
The FATF's 4th Round of Mutual Evaluations revealed that 69% of the 194 participating jurisdictions had major or structural deficiencies in effectively investigating, prosecuting and convicting terrorism financing cases. Bearing this in mind, as well as FATF's focus on effectiveness, the Comprehensive Update on Terrorist Financing Risks provides an extensive focus on this criminal activity and how to tackle it.
Among the raft of its recommendations in response to this 'rot' in enforcement, the FATF's report advises the adoption of "coordinated, multilateral responses" to address the transnational dimension of TF risks. The report also recommends the more effective implementation of the FATF Recommendations – standards that apply to national economic sectors, providing measures on, among others, Counter Terrorism Financing ("CTF") addressed to authorities, financial entities, and Designated Non-Financial Businesses and Professions ("DNFBPs") that face greater TF risk – and calls for stronger engagement from sectors that are not covered by the recommendations through methods including "targeted public-private partnerships". Some national governments may seek to implement this suggestion by establishing CTF obligations addressed to economic agents and private sector entities which are not financial institutions or DNFBPs.
As illustrated by the FATF's statistics, national agencies can be slow to implement recommendations such as these, due to competing priorities as well as a lack of incentivisation during gaps between the FATF's evaluations. However, if these recommendations are adopted, private sector stakeholders, particularly in high-risk sectors like social media and messaging platforms, may face increased regulatory scrutiny and/or need to allocate more resources towards collaborating with public sector partners. Likewise, financial institutions, in their roles as intermediaries, enablers or investors, may also find themselves subject to heightened regulatory scrutiny.
The report also advocates for certain beneficial changes. For example, it recommends that the FATF should consider bolstering its support for the private sector through means including "creating a centralised online repository of relevant materials, developing targeted communication strategies, and providing awareness-raising and training activities".
The many changing masks of TF
TF-linked actors are using a wide range of practices to generate, transfer, launder and conceal funds, complicating efforts relating to both compliance and enforcement. TF increasingly involves a combination of illegal activities, including trade and trafficking of natural resources and organised crime activities, such as kidnapping, extortion, human trafficking and drug smuggling. Different types of terrorist actors have different financial needs and, therefore, adapt their "financial management strategies" accordingly. The fact that similar, or equivalent, types of terrorist actors may adopt alternative financing methods to support their needs further complicates the overall outlook. A real-life example of the impact of the increased intersection between TF and other forms of organised crime, is the designation by the US government of eight cartels and transnational criminal organisations as Foreign Terrorist Organisations and Specially Designated Global Terrorists.2
Furthermore, terrorist groups are making use of increasingly sophisticated and decentralised methods for raising and moving funds as they continue to exploit the mainstream international financial system. This underscores how important it is for regulated firms to prioritise TF risks alongside money laundering and proliferation financing risks in their compliance procedures.
The report identifies myriad factors that influence the nature of TF risks, including territorial control, connections to armed conflict, natural resource issues, weak governance, corruption levels, the prevalence of informal financial networks and state sponsorship. The types of terrorist actors involved, such as terrorist organisations of varying scale and individual lone actors, also affect such risks.
In addition to legal entities such as shell companies and trust structures, the FATF report highlights that non-profit organisations ("NPOs") are also being exploited for TF purposes. Terrorist actors are not only abusing legitimate NPOs but also establishing sham organisations as vehicles to further their interests. The FATF cites a 2024 paper produced by the Egmont Group (the global organisation of national Financial Intelligence Units) that identified six methods "prevalent in the abuse of NPOs for TF purposes": fund diversion; affiliation with terrorist entities; abuse of NPO programmes; recruitment support; false representation; and fundraising through social media.
The FATF report further notes that armed conflicts and humanitarian crises are being manipulated for TF purposes, as terrorists divert aid or exploit NPOs for their own purposes.
In addition to raising important concerns for humanitarian groups, this finding presents further issues to consider for firms conducting due diligence activities. Connections to NPOs which otherwise might have been considered relatively low risk may now require closer examination for TF risk indicators or red flags.
As well as exploiting traditional or 'mainstream' financial systems, such as banking and prepaid cards, TF-linked actors are also using e-money systems and informal value transfer systems ("IVTS") which include "shadow" banking services such as hawala.3 IVTS networks enable criminal actors to evade regulatory controls and restrictions whilst avoiding transaction fees. Offering secrecy and a general absence of record keeping, these systems are attractive to such actors. Underpinned by a movement of value, as opposed to a movement of funds, these systems render tracing of involved parties very difficult for law enforcement agencies and firms undertaking due diligence alike. By way of an example, the report presents a real-life case study of Afghanistan-based terrorist network operatives relying on hawaladars to transfer funds internationally and store financial assets on behalf of their wider terrorist group.
Furthermore, some terrorist organisations, or networks, are adopting tech-enabled methods of value transfer, such as blockchain-based systems, to promote their interests. Blockchain technology can also be used to host online crowdfunding campaigns – a popular method used by terrorist actors to reach a number of donors quickly, cheaply and with relative safety.
Many firms have implemented comprehensive anti-money laundering compliance procedures. Unfortunately, many of those same firms have not put in place mandatory counter-terrorism financing measures of the same standard.4 Firms will be familiar with the risk-based requirement to conduct know-your-customer checks in order to verify the identity of any person with whom they enter into a business relationship and to understand a customer's source of wealth and the source of funds being used to facilitate a transaction. The complex and evolving TF typologies delineated in the report emphasise the importance of ensuring that these mechanisms are sufficiently robust and that they properly consider TF risks, as well as money laundering risks. This requires efforts including strengthening the understanding of TF risks, designing specific training on the matter, and ensuring CTF measures are supervised by appropriately skilled teams.
A growing threat from lone wolves
While traditional terrorist group activity remains high, the FATF reports a notable surge in activities pursued by lone, tech-savvy terrorist actors. Many are relatively young, have been radicalised online and are self-funded, employing microfinancing strategies comprised of a combination of legitimate and criminal (including "technology-enabled") sources of funding. Due to the non-descript financial footprints left behind by these actors, detection is often difficult.
This trend appears set to continue, and the report specifically emphasises that "the use of AI by terrorist groups might pose a particular risk in the recruitment and radicalisation of young people."
The report underscores the paramount importance of maintaining robust, up-to-date customer due diligence processes for firms dealing with individual customers. Screening the names of relevant customers – in order to identify the presence of sanctioned individuals, politically exposed persons, prior criminal activity and adverse media – should already constitute a key pillar of such processes. Although detection of lone terrorist actors can prove fundamentally challenging, carefully tailored screening tools and techniques will enable firms to increase the effectiveness of these processes. For example, firms could undertake to review and adapt the keywords used in open-source searches in order to maximise the capture of relevant information.
Valuable guidance
The report concludes by setting out a list of practical TF risk indicators which are drawn from extensive data collated by the FATF from jurisdictions across the globe. Public sector agencies and private sector stakeholders will all find valuable insights here.
There are 25 indicators of potential TF behaviour exhibited by customers set out in Annex A of the report. Although this may at first glance appear overwhelming to overstretched compliance teams, there is nothing here that could not be detected and appropriately addressed by way of comprehensive, up-to-date procedures that are effectively implemented, and monitored or supervised, by well-trained staff. For example, many of the indicators point towards the importance of effective transaction monitoring systems and thorough third-party due diligence processes.
It is clear that the FATF's report highlights the scale and complexity of the TF threats facing the world today. However, it also reveals the many practical ways in which private sector stakeholders, including regulated firms, can contribute towards combating these threats. The implementation of strong TF compliance procedures will not only help fight terrorism but also protect firms from incurring their own civil or criminal liability.
The report can be found on the FATF website.
1 https://www.fatf-gafi.org/content/fatf-gafi/en/publications/Methodsandtrends/comprehensive-update-terrorist-financing-risks-2025.html.
2 See our previous alert on the matter: https://www.whitecase.com/insight-alert/united-states-designates-eight-cartels-and-transnational-criminal-organizations.
3 See our previous article on this topic: https://www.whitecase.com/insight-alert/shadow-financial-system.
4 See the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, as amended; the Terrorism Act 2000; and parts of the Financial Conduct Authority's Handbook.
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