CFT (Combating the Financing of Terrorism)

What Is CFT?

CFT, short for combating the financing of terrorism, is the set of laws, regulations and controls designed to stop individuals and groups from raising, moving, storing or using funds to support terrorist acts or terrorist organizations. It is usually paired with anti-money laundering in the combined term AML/CFT, because the two share many tools: customer due diligence, transaction monitoring, sanctions screening and suspicious activity reporting.

Terrorist financing differs from money laundering in one important way. Money laundering starts with criminal proceeds and tries to make them look legitimate. Terrorist financing can start with entirely legitimate money, such as salaries, donations or business income, and directs it toward a criminal purpose. The focus of CFT is therefore on the destination and use of funds as much as on their origin.

Why CFT Matters

Terrorist attacks can be carried out with modest sums, and financing can be spread across many small, ordinary-looking transactions. This makes detection hard and the cost of failure severe. For financial institutions, CFT failures can lead to:

• Criminal liability where a firm is found to have provided funds or services to a terrorist or designated person.
• Breaches of targeted financial sanctions, which in many jurisdictions apply on a strict basis.
• Regulatory enforcement and loss of correspondent banking relationships.
• Serious reputational damage.

CFT is also a matter of national security, which is why law enforcement and financial intelligence units place high priority on timely reports linked to terrorism.

How Terrorist Financing Works

Sources of Funds

• Legitimate income of individuals involved, including wages and social benefits.
• Donations, sometimes collected under the cover of charitable or community causes.
• Abuse of non-profit organizations, where funds raised for genuine purposes are diverted.
• Criminal activity, such as fraud, smuggling, extortion or kidnapping for ransom.
• State or organizational sponsorship in some cases.

Methods of Movement

• Small transfers through banks, money services businesses or prepaid instruments.
• Informal value transfer systems such as hawala.
• Cash couriers crossing borders.
• Virtual assets, where controls on providers are weak.
• Trade transactions used to disguise value transfer.

Red Flags

• Transfers to or from conflict zones or areas where terrorist groups are active, with no clear business or family rationale.
• Multiple individuals sending funds to the same beneficiary in a high-risk area.
• Charitable organizations with unclear governance, or whose spending does not match their stated mission.
• Sudden liquidation of assets, loans taken with no intent to repay, or purchases of equipment inconsistent with the customer's profile.
• Customer names or associates matching terrorism-related sanctions lists.

Core Elements of a CFT Program

1. Risk assessment. Identify where products, customers, delivery channels and geographies expose the firm to terrorist financing.
2. Sanctions screening. Screen customers, beneficial owners and payment parties against terrorism-related designations and freeze assets where required.
3. Customer due diligence. Understand who the customer is, what they do and the expected pattern of activity.
4. Transaction monitoring. Use scenarios suited to low-value, high-frequency patterns and to geographic risk, not only large-value thresholds.
5. Reporting. File suspicious activity or transaction reports promptly, and follow any specific procedures for terrorism-related suspicions.
6. Training. Ensure staff can recognize terrorist financing indicators, which often look different from classic laundering.

Regulatory Expectations

The international framework rests on the United Nations International Convention for the Suppression of the Financing of Terrorism (1999) and on UN Security Council resolutions, including Resolution 1373 and the sanctions regime established under Resolution 1267, which requires the freezing of assets of designated individuals and entities.

The FATF Recommendations set the global standard. They require countries to criminalize terrorist financing, to implement targeted financial sanctions related to terrorism without delay, and to protect non-profit organizations from abuse using a risk-based approach. FATF has also published guidance and typology reports on terrorist financing risk.

At the regional and national level:

• The EU AML Directives, beginning with Directive (EU) 2015/849, and the EU AML Regulation (EU) 2024/1624 apply to both money laundering and terrorist financing. The EU also maintains its own terrorism-related restrictive measures.
• In the United States, the USA PATRIOT Act strengthened the Bank Secrecy Act regime, and OFAC administers sanctions programs targeting terrorists and their supporters.
• In the UK, the Terrorism Act 2000 creates terrorist financing offenses and reporting duties, alongside the Money Laundering Regulations 2017 and sanctions administered through HM Treasury's Office of Financial Sanctions Implementation.

Common Challenges

• Low values. Individual transactions may fall far below monitoring thresholds.
• Legitimate origin. Clean funds give few of the signals that laundering typologies rely on.
• Charity risk. Firms must manage risk without unfairly cutting off legitimate non-profits, a concern raised in FATF's work on unintended consequences.
• Name matching. Names on terrorism lists may be transliterated in many ways, increasing both missed matches and false positives.

How on8.ai Helps

SmartSanction screens people, companies, vessels, crypto wallets and addresses against sanctions lists, including terrorism-related designations, drawing on 520+ list and registry sources. Matches come with the reasoning behind them, helping analysts resolve transliterated name variants with a clear record of why a hit was confirmed or discounted.

Related Terms

• AML (Anti-Money Laundering)
• FATF (Financial Action Task Force)
• Hawala
• Proliferation Financing
• Watchlist
• Financial Intelligence Unit (FIU)