Money laundering is the process of concealing the illicit origin of criminal proceeds, while terrorist financing involves the collection or provision of funds for terrorist purposes. In money laundering, the funds always originate from illegal activities, whereas in terrorist financing, funds can come from both legal and illegal sources. The primary goal of those involved in terrorist financing is not necessarily to conceal the source of the money but to hide both the funding activity and the nature of the funded activity.
Similar methods are used for both money laundering and terrorist financing. In both cases, individuals exploit the financial sector illegitimately. The techniques used to launder money and to finance terrorism are often very similar and, in many instances, identical. Therefore, an effective Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT) framework must address both risks: preventing, detecting, and punishing the flow of illegal funds into the financial system, as well as the financing of terrorist individuals, organizations, or activities.
Moreover, AML and CFT strategies converge in their goals: to dismantle criminal or terrorist organizations by targeting their financial activities and using financial trails to identify the various components of these networks. This requires implementing mechanisms to scrutinize financial transactions and detect suspicious transfers or activities.