Carrying out a terrorist activity requires funds. This can include funds for the perpetrator/s to travel to the site of the intended event, housing and lodging to scope the site and to purchase weapons or other improvised device to carry out the intended terror inducing event.

The size of the funds required to carry out a terror inducing event and the source to raise such funds depend on the nature and scope of such event or activity. For example an individual, or a lone-wolf, seeking to carry out a terrorist plan may be able to carry out an event small in scope and as such may only require limited funding. In many such cases, a motivated individual may use his/her own funds secured from legitimate or illegitimate sources. In contrast, an organized terrorist group can organize and plan large scale terrorist events, including a series of small scale events in different locations simultaneously or in rapid succession. The organizational and logistical demands of such ventures require larger funding commitment and, as such more sophisticated funding mechanisms. In addition to the costs associated to carry out the actual terror inducing event, such larger organizations need funds to sustain the organization beyond any single terror inducing event. Such organizational costs include recruiting, housing and training of terrorists, supplies, costs associated with disseminating and propagandizing the specific ideologies of the organization, maintaining a communication infrastructure, conducting counter-intelligence operations against law enforcement, legal costs during legal proceedings, costs associated with maintaining secrecy, including funds to bribe corrupt officials etc.

Large terrorist organizations may engage in illegal activity such as drug trafficking, fraud, robbery, extortion and racketeering. Sophisticated organizations may organize on two fronts. On the first front, such organizations may engage in legitimate business and/or even community service, charitable organizations or religious organizations. Meanwhile, the second front will disseminate propaganda materials, recruit bodies and train them, and plan, organize and carry out terrorist activities.

Counter Terrorism Financing is the involvement of BFI (Banks and Financial Institutions), Non-BFIs and DNFBPs (Designated Non Financial Business and Profession)—through legal, regulatory and other authoritative mechanisms, to interdict financing of terrorism related activities and terrorism related organizations.

1. Some well organized groups draw their support from local community or religious/ethnic communities. Hamas and Hezbollah for example are viewed as legitimate organizations in many Arab countries. As such they receive voluntary support from many in such countries.
2. Some groups obtain financing through illicit sources. Depending on local conditions and historical factors, terrorists may fund their operations using funds generated from
   • Smuggling of antiquities, oil, cigarettes, counterfeit goods, diamonds or ivory, among others
   • Drug trafficking, including cultivation and manufacturing of heroin, cocaine etc.
   • Human trafficking
3. Some groups access legitimate sources of funds such as
   • The terrorist group may have a wealthy benefactor who obtained the money legitimately, such as bin Laden who came from a wealthy family
   • The terrorist group may set up and run legitimate businesses such as IRA’s taxi service
4. Self-motivated individual terrorist or a small group of terrorists may utilize personal funds to engage in lone wolf attacks which could be carried out very cheaply. In some cases such funds may even be legitimate government benefits that such individual/s applied to through legitimate channels such as welfare or unemployment funds. According to 2015 Norwegian Defense Research Establishment study: over 90 percent of the jihadist cells in Europe between 1994 and 2013 were self-funded, typically through savings, welfare payments, personal loans or proceeds of petty crime