What is terrorist financing and how does it differ from money laundering?

Law 75(I)/2019 on combating terrorism makes it an offence to provide or collect funds intentionally, by any means, directly or indirectly, with the intention or knowledge that they will be used, in whole or in part, to commit or contribute to a terrorist offence. The penalty is up to 8 years in prison, a fine of up to €150,000, or both. Where the funds are meant for a terrorist attack, a threat, taking part in or directing a terrorist group, or travel for terrorism, they do not have to be used in the end, and the financer does not have to know which offence they will serve.

The same law also punishes support in any form, including financing, for a terrorist group, a member of one, or a person on the terrorism sanctions lists, where the supporter knows the support will contribute to their terrorist activities. Obliged entities must freeze immediately the funds and economic resources of listed persons and entities and report them to their supervisor, which informs the Ministry of Foreign Affairs; since July 2025 information on frozen funds must also reach the National Sanctions Implementation Unit within two weeks. Failing to freeze can cost an individual up to 8 years in prison, a fine of up to €50,000, or both, and a company up to €500,000.

Suspicions of terrorist financing go to MOKAS, Cyprus's financial intelligence unit, through the same internal reporting route as money laundering.

After the attacks of 11 September 2001, the finance ministers of the G7 called on every country to freeze assets belonging to known terrorists, and the Financial Action Task Force (FATF) held an extraordinary plenary in Washington in October 2001. It issued Special Recommendations on terrorist financing, eight at first and a ninth, on cash couriers, in 2004. Alongside the FATF's Forty Recommendations on money laundering, they became the core international standard against terrorist financing.

In 2012 the FATF merged the special recommendations into a single set of 40 Recommendations. Among them are the terrorist financing offence, targeted financial sanctions against terrorists and protection of non-profit organisations from abuse. Cyprus has criminalised terrorism and its financing and aligned its law with these international and EU standards.

The most basic difference is where the money comes from. Laundering always starts with criminal proceeds; terrorist financing often uses lawful money, such as donations, salaries or business income, so looking only for dirty money will miss it. The motives differ too: profit for launderers, ideology for terrorists. Laundered money goes round in a circle back to the people who started the process, whereas terrorist money moves in a line towards attacks and group activity, often through people unrelated to the original source. Laundering usually involves large, structured amounts and elaborate corporate structures; terrorist financing often involves small, unstructured sums and no group structures at all.

The two share methods. Even clean money has to be disguised so that it cannot be linked to the terrorist group, so financers use the same tools as launderers: structuring, buying monetary instruments, wire transfers and debit or credit cards. Both are attracted to countries with weak AML/CFT controls, and terrorist financers adjust their methods to whatever gaps they find. The stronger a country's controls, the harder it is for them to succeed.