The invisible threat

In an increasingly interconnected world, the threat of financial crime is evolving, with digital developments offering both opportunities and vulnerabilities. One of the key challenges facing global financial systems is the rise of money laundering and terrorist financing, often hidden behind the complex digital infrastructure of modern economies. Although this issue is often recognized, it is not always responded to with sufficient vigilance, especially in regions facing internal conflict and external extremist threats.

A report by the Financial Action Task Force (FATF), released in June 2024, highlights the urgent need for improvements in several countries’ anti-money laundering (AML) and counter-terrorist financing (CFT) measures , including North Korea. Kuwait and India. The more recent evaluation report, published in September 2024, identified critical shortcomings in the Indian framework, such as delays in prosecution, oversight of non-profit organizations (NPOs), and strict supervision of politically exposed persons (PEPs). The FATF acknowledged some progress, but stressed that significant structural changes are essential for countries to align with international standards.

Among the countries scrutinized in the report, North Korea remains a major concern due to its continued evasion of financial regulations, which allows the state to facilitate illegal activities, including financing its nuclear program. While Kuwait is not at the same level of scrutiny as India or North Korea, it still faces regulatory compliance challenges in sectors prone to money laundering.

Another important question outlined in the FATF report is the use of the digital economy to settle illegal activities. The increase in digital transactions and the use of cryptocurrencies has created an environment for money laundering and terrorist financing in many countries. In the absence of strict controls, these platforms can be abused by radical movements. For example, terror groups such as ISIL and Al-Qaeda in India have been found to be exploiting weaknesses in the financial system to raise and transfer cash. The expansion of this terrorist financing footprint poses a direct threat to national security and requires immediate action.

The FATF has also raised concerns in the following areas: the measures applied to PEPs and the Designated Non-Financial Businesses & Professions (DNFBPs), including the gems and jewelery market. These sectors are highly vulnerable to use for money laundering and terrorist financing. The FATF report focuses mainly on the non-compliance of domestic PEPs with regard to their sources of income and beneficial ownership, while calling for better definitions and strengthening of the rules.

These delays are even more damaging to AML/CFT frameworks because they come from the prosecution side. The FATF has specified that Member States should step up efforts to address ongoing money laundering cases and improve responses to other related crimes, such as human trafficking and drug-related crimes. The justice system must work quickly to prevent other cases of financial crimes, but most jurisdictions are plagued by overload of their justice systems, which fuels impunity.

However, internal conflicts and extremism also worsen the position in terms of financial security. The FATF report raises concerns about insurgencies in areas such as Northeast India, where several groups are in a position to effectively mobilize and transfer funds. You see the same in other countries that are struggling with internal unrest. Drug trafficking and cash transactions are still the most common sources of money laundering in the world and this has created a direct link between instability and financial crime.

Strengthening AML/CFT measures is not just a technical requirement, it is a crucial aspect of national security for all countries. As financial crimes continue to evolve, strategies to counter these threats must also evolve. Addressing these challenges head-on is critical to mitigating risks and protecting the integrity of global financial systems in the face of an invisible threat that is growing.