Hamas’ designation as a terrorist group by the U.S. Department of State plays a significant role in Business Risk Management, especially in areas affected by terrorism or illicit financial activity. Hamas’s violence in Israel raised global concerns about the financing of terrorists and illegal financial activities. In the aftermath of these developments, officials are expected to thoroughly investigate the financial backing of Hamas and other radical groups in the region, such as Hezbollah.
Therefore, businesses need to evaluate their possible liability concerns. It’s crucial to avoid inadvertently aiding terrorist financing. While terrorist financing primarily operates covertly, it can also lurk in plain sight.
Terrorist organizations employ various tactics to transfer capital, such as:
- Using shell companies to conceal the movement of funds
- Creating fictitious charities to gather donations
- Redirecting aid funds from genuine charities and non-governmental organizations (NGOs)
- Accepting private contributions
- Receiving financial support from state entities
Governments worldwide have endeavored to combat terrorist financing through various means, primarily by enhancing regulation and enforcement. Additionally, international sanctions regimes have been established to reduce the flow of funds to terrorist activities.
Every corporation has a responsibility to avoid money laundering, terrorist financing, and other criminal activities. Inadequate control mechanisms or customer due diligence could unintentionally encourage terrorist financing. This would leave the company open to reputational and legal consequences.
The Hamas Financing Network
Hamas’s extensive financial connections around the world underscore the need for ongoing caution in preventing terrorist funding and illegal money transactions, even in distant locations like the United States.
Hamas funds its activities through various means, such as collecting taxes on goods imported into Gaza, overseeing personal investments of its top leaders, and maintaining a diverse investment portfolio for the organization, worth an estimated $500 million to $1 billion, with assets held in several countries including Turkey, Sudan, Saudi Arabia, Algeria, the United Arab Emirates, and others. Moreover, Hamas receives significant financial and material support from Iran, amounting to over $150 million per year.
Hamas has an extensive global network for raising funds and promoting its cause, which includes the United States. The organization’s presence in the US can be traced back to 1988 with the formation of the Palestine Committee. Over time, this committee has expanded into various groups focused on political advocacy, propaganda, and fundraising initiatives.
The FBI has initiated several inquiries into pro-Hamas efforts in the United States, resulting in the legal action and removal of Hamas members. Despite this, Hamas’s presence in the United States continues to exist, presenting dangers to financial institutions and companies offering financial assistance.
In light of the heightened tensions between Hamas and Israel, the US and other Western nations must exercise caution and ensure they have no links to financially supporting terrorist activities. To prevent unintentional support for such activities, organizations need to establish thorough checks and protocols for compliance. This involves conducting detailed assessments of suppliers to guarantee they have no links to terrorist financing. Through these measures, companies can reduce the risk of unintentionally aiding terrorist groups and safeguard their reputation.
The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has released a warning regarding the organization known as Hamas. Access the notification by following the attached link.
In the aftermath of the October 7 Hamas attack in Israel, the US government has launched various investigations into individuals and organizations suspected of supporting the group within the United States. Furthermore, as Hamas has sympathizers in several countries not directly involved in the conflict between Hamas and Israel, financial institutions worldwide face significant risks.
Who is Vulnerable?
Firms operating in areas with ongoing political instability, conflict zones, and surrounding regions, as well as countries with a high incidence of terrorist and extremist activities, and those with fragile financial and regulatory systems, are disproportionately vulnerable to the risks of terrorist financing and money laundering. This also encompasses countries where the terrorist group may not be actively engaged in attacks but enjoys a degree of popular support among the local population.
Furthermore, certain sectors are more susceptible to risks associated with money laundering and terrorist financing.
- Banking and financial services
- Non-profit organizations and charities
- Businesses dealing with large amounts of cash
- Real estate sector
- Social media platforms
- Precious metals, gemstones, and other valuable natural resources
- Legal and accounting professionals
- Transportation industry
- Hospitality and tourism sector
Financial Firms Are In Danger
International banks and financial institutions have been aiding money laundering and terrorism, so customer due diligence, AML/CFT controls, and compliance are now more important than ever.
In 2015, a lawsuit was filed against Kuveyt Bank from Turkey by the family of a teenager killed by HAMAS, alleging that the bank had provided financial services to organizations linked to the terrorist group. Although the case was not settled in court due to the plaintiff accepting a settlement offer, it highlights the potential consequences for banks of being associated with terrorist financing, both in terms of reputation and finances.
In 2012, HSBC faced allegations from US authorities regarding its involvement in money laundering activities for drug cartels in Colombia and Mexico, as well as terrorist organizations linked to Iran. The bank faced substantial penalties amounting to more than USD 1.9 billion. The scandal had a notable effect on the bank’s operations, resulting in decreased trust from customers and investors. This led to a significant decrease in stock prices and lasting damage to the bank’s image.
The international community has shown significant worry following the discovery of financial organizations such as Kuveyt Bank related to money laundering and funding terrorism. This highlights the increasing significance of conducting detailed assessments on customers and the necessity for robust regulations and adherence to counteract money laundering and terrorism financing. It is essential to enforce these measures to uphold ethical business standards and prevent the serious repercussions of supporting illegal activities.
Preventing Risks Is Preferable To Dealing With Them Once They Arise
The initial step in effectively addressing money laundering and terrorist financing is setting up comprehensive due diligence and compliance systems.
American businesses can ensure vigilance by routinely evaluating customer and supplier vulnerabilities, verifying client backgrounds, and examining regional risks where they conduct operations.
Organizations can consider implementing monitoring systems that identify and alert on questionable or anomalous customer transactions and establish distinct procedures for addressing such activities. Additionally, businesses should ensure they are well-versed in current AML/CFT initiatives and aware of any sanctioned entities, including individuals, companies, and countries. Building collaborative relationships with law enforcement agencies regarding AML/CFT efforts and concerns can also help companies stay ahead of potential risks.