On March 11, the world was again shocked by a terrorist attack that brutally targeted civilians and devastated the infrastructure of an important city. The impact of the attack on Madrid also shocked the world's financial markets and prompted a number of new initiatives to halt terrorist financing.
As president of the Financial Action Task Force and chairman of the Basel Committee on Banking Supervision, we are fully committed to this global action against terror. After the attacks on New York and Washington on September 11 2001, the FATF developed international standards for effective action against terrorist financing. The Basel committee, for its part, worked to strengthen due diligence standards for banks in monitoring the activities of their customers. Taken together, these initiatives have been of great importance in combating terrorism. But more needs to be done.
The FATF has now embarked on a new push to drive terrorists out of the financial system by strangling their funding sources. Its efforts are based on two principal strategies. The first is to improve regulation and supervision of informal payment mechanisms, such as alternative remittance systems, and of non-profit organisations, notably charities. We also see the need for governments to review and develop further legislation and standards on terrorist financing to ensure their continuing relevance - in particular on the issue of cash couriers and their role in financing terrorism.
The second step follows the call by theGroup of Seven finance ministers in Dubai last September to improve co-operation and information-sharing - both within individual countries and across national borders, among law enforcement agencies, supervisory authorities, financial intelligence units and other operational arms. Different agencies often see a small part of the jigsaw but the pieces need to be joined together to form a coherent pattern.
After the event, it is easy to identify failures in information-sharing efforts. This is why the FATF has developed a model for a cross-border early warning system that could serve as a framework for information-sharing on alternative remittance systems among the various agencies and bodies concerned.
There is also an urgent need for the private sector to become more closely involved in efforts to isolate terrorist networks. Just as more effort is needed to combat money-laundering, countering the financing of terrorism requires excellent relationships and co-operation with the private sector, especially as far as detection and prevention are concerned.
The Basel Committee's objective has been to ensure that banks do not accept new customers without verifying their identity through robust "know your customer" policies. It is often a challenge to establish the beneficiary behind certain professional disguises but the effort has to be made if banks are to avoid becoming easy channels for terrorist funding. In addition, banks have to understand their customers' account profiles in order to identify and report suspicious transactions to the competent authorities. They also need to be able to respond to inquiries by law enforcement agencies about their business dealings with named account-holders. This requires an ability to search their global customer data bases. These "know your customer" policies are complemented by the Basel Committee's work on parallel banks and shell banks, which aims to avoid fraudulent use of structures that may impair effective supervision.
In order effectively to combat terrorism and terrorist financing, it is important to work closely with countries that have experienced terrorism first-hand. Responding to this need, a wide range of jurisdictions participated in a special seminar on terrorist financing held in February by the FATF. That meeting came after the Group of Seven Dubai meeting kicked off this new campaign with a political commitment by participants to combat terrorist financing. Countries that attended the seminar included Algeria, Bahrain, China, Egypt, India, Indonesia, Kuwait, Malaysia, Morocco, Pakistan, the Philippines, Saudi Arabia and the United Arab Emirates.
The FATF plans to expand its dialogue with non-members as part of its enhanced effort to reach out to a broader international community, including those countries that attended the seminars on terrorist financing in Dubai and in Paris.
It is clear that cutting off the finance is a crucial element in the fight against terrorism. If we can choke off the terrorists' money supply, they will be severely handicapped. The clear objective of both of our organisations is to make sure this scourge of civilised society will never find a haven in the global banking system.
Claes Norgren is chairman of the Competition Authority of Sweden and president of the Financial Action Task Force; Jaime Caruana is governor of the Bank of Spain and chairman of the Basel Committee on Banking Supervision
