FATF’s 2025 Report on Terrorist Financing Risks

GS 3 – Internal Security

Context:

The Financial Action Task Force (FATF), in its 2025 update, highlights growing trends in the use of digital tools by terrorists to plan, finance, and execute attacks in India and across the globe.

Highlights of the Report

Emerging Threats in Digital Terror Financing

• Use of E-Commerce & Digital Platforms:
  Terrorists are using online platforms (like Amazon) to purchase materials clandestinely.
  Example: The Pulwama attacker acquired aluminium powder via Amazon.
• Cryptocurrency & Blockchain:
  Unregulated crypto assets and anonymous transactions through blockchain technology hinder tracing of funds.
  Groups like ISIS leverage this for covert financing.
• Virtual Private Networks (VPNs):
  VPNs and encrypted messaging platforms help conceal communication and location.
  Example: The Gorakhnath attacker used PayPal and VPNs to finance ISIL activities.
• Crowdfunding Under False Pretexts:
  Fundraising through disguised social causes diverts donations toward radicalization and arms procurement.
• Trade-Based Financing:
  Over/under-invoicing through online storefronts helps launder money and shift funds without detection.

Geographical Hotspots & Systemic Loopholes

• High-Risk Regions Identified:
  South Asia, West Africa, the Sahel region, and the Middle East are noted as vulnerable.
• Lack of Oversight:
  Weak Know Your Customer (KYC), Anti-Money Laundering (AML), and Counter-Terror Financing (CTF) frameworks persist globally.

India-Specific Insights

• India was cited as a significant case study in the misuse of fintech tools in attacks like Pulwama and Gorakhnath.
• Localised acts by radicalised individuals—funded via online tools—are becoming more frequent.

Challenges in Countering Digital Terrorism

• Cross-Border Complexity:
  Multi-jurisdictional transactions hinder law enforcement efforts and delay legal action.
• Dark Web Utilization:
  Terrorists operate through hidden channels to evade surveillance.
• Inadequate KYC Procedures:
  Many digital platforms lack robust identity verification, enabling misuse.
• Rapid Tech Evolution:
  Terror groups adapt to new tools faster than regulation can keep up.
• Data Localisation Issues:
  When data is stored in foreign jurisdictions, access for investigation becomes challenging.

Recommended Measures

• Stronger Digital KYC Norms:
  Enforce strict verification across online wallets, crypto exchanges, and e-commerce platforms.
• Real-Time Monitoring Systems:
  Use AI/ML to detect unusual transactions, suspicious keywords, or purchase patterns.
• International Cooperation:
  Establish Mutual Legal Assistance Treaties (MLATs) for cross-border data exchange.
• Crypto Regulations:
  Mandate that crypto exchanges report red-flag transactions and maintain records for auditing.
• Accountability of Digital Platforms:
  E-commerce platforms must monitor purchases of sensitive materials and verify the credibility of sellers.