Terror Financing – as a Consequence of Free Movement of Capital

Camilla Rotevatn Knutsen & Iris Hadzimahovic

Student thesis: Master thesis

Abstract

The object of this thesis is to investigate whether the new rules regarding beneficial ownership and the associated register, are helpful in the fight against terror financing. Most of the recent terror attacks on the European Union had tracks, as far as the financial aspect goes, to the European Union, which indicated that they were financed by European citizens/companies. The assumption is that the reason for the increase in terror finance is that the free movement of capital has created a loophole for the terrorist to be able to finance terrorism through complicated corporate structure. The flow of capital in the European Union is extensive, and for that reason alone, it is practically impossible to track all transactions and thereby find those responsible for financing terror. To try and accommodate this problem, the European Union initiated the new rules in the fourth anti-money laundering directive which is currently being implemented into Danish law. This directive and the Danish bill-proposal include rules regarding the identification of the beneficial owners and the associated register. However after analyzing the rules it seems clear that the wordings of the definitions are vague and unclear. In connection to the requirement for registration of beneficial owners, it is clear that there is a large amount of responsibility on the companies, as they are responsible for the registration. The lack of control in regards to the registration is likewise a potential problem. The thesis also aims to prove that financing of terrorism is a negative externality due the reduction in transactions costs, as a result of the free movement of capital. This in turn creates a large overflow of damaging behavior in society and the social benefit decreases, which it neither in the interest of Denmark nor the European Union. On the other hand, the free movement of capital has resulted in many positive economic effects as well, since the allocation of capital is efficient. It is necessary to consider which is more important; protect the society against terror or preserve the free movement of capital. It can be concluded, that in order to protect the society against terror, there is a need for clearer regulation on this area. One idea is a larger amount of control of the transactions or register, or to further streamline the rules within the European Union by adopting a more strict regulation. Whether this is a way to prevent financing of terrorism is difficult to say, but there is improvement to be made for the regulation to become optimal.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2017
Number of pages116
SupervisorsSøren Sandfeld Jakobsen & Kalle Johannes Rose