Financing Terrorism: Money for the Cause
Financing Terrorism: Money for the Cause
Measures to deprive terrorists of their funding must be part of any effort to counter the threat of terrorism. This endeavor is complicated by financial systems, law, and the covert means often used by terrorist groups to gather and distribute money. There are four main sources of terrorist funding: state sponsorship from countries like Iran; contributions from individual supporters; criminal activities, including kidnapping, robbery, smuggling, drug trafficking, fraud, and extortion; and legitimate business activities including manufacturing, import-export, and investment companies.
- In order to move funds around undetected, terrorists use both primitive methods (hawalas or cash smuggling) and sophisticated financial techniques ("shell" banks, electronic fund transfers).
- The al-Qaeda terrorist organization, headed by Osama bin Laden, has established an extremely extensive and sophisticated financial network that operates across the globe.
- There are several ways for countries to diminish terrorists' access to money: seizing the assets of organizations linked to the financing of terrorism, encouraging or requiring financial institutions such as banks to report suspicious transactions and to confirm the identities of their clients, sharing intelligence between countries and assisting other states to control international flows of funds, and monitoring informal banking networks such as hawalas.
- Before September 11, 2001, the United States did not devote significant resources to depriving terrorists of their funding. However, since the terror attacks by al-Qaeda on September 11, the U.S. government has taken the lead in international efforts to dismantle the funding network of al-Qaeda and other terrorist organizations.
On June 25, 2001, two men named Mustafa Ahmed al-Hawsawi and Fayez Rashid Ahmed Hassan al-Qadi Banihammad used cash to open a bank account at a Standard Chartered Bank branch in Dubai, United Arab Emirates (UAE). From July 18 to August 1, al-Hawsawi had Visa and ATM cards sent from the UAE to Florida. On August 22, those same cards were used to withdraw almost US$5,000 in cash. At first glance, these transactions may seem innocuous, the sort of thing tourists visiting friends in the United States might arrange. That is, except for the fact that Banihammad turned out to be one of the hijackers on the plane that crashed into the south tower of the World Trade Center on September 11, 2001.
This example illustrates what intelligence agencies have known for years: the group responsible for the attacks, the al-Qaeda terrorist network, possesses a vast and highly-organized system of financing to maintain the organization and to fund attacks like those of September 11. In fact, a recent report authored by Jean-Charles Brisard estimated that Islamic terror groups receive around $5 billion annually.
Soon after these tragic events, it became clear to the U.S. administration that if the United States was going to cripple this terrorist organization and prevent it from committing further ghastly acts of terrorism, it would be just as important to dis-mantle its financial networks and deprive it of funding resources as to use more direct methods like military strikes. On September 24, 2001, President George W. Bush (2001-) stated that "the American people must understand this war on terrorism will be fought on a variety of fronts, in different ways" and announced "a strike on the financial foundation of the global terror network."
Any terrorist group requires funds to increase in size and scope. The larger the group grows, the more hard currency it needs to cover costs such as travel, the purchase of weapons, the maintenance of offices or safe-houses, and even the more mundane costs of supporting members' everyday expenses. Understanding where terrorists get these funds, how they move them around the world, and how they use them is essential to denying this funding and thus decreasing their capability to perpetrate attacks on innocent civilians.
Sources of Terrorist Funding
The financing methods used by the so-called first generation of modern terrorists, left-wing or nationalist groups like the Palestinian Liberation Organization (PLO) and the Irish Republican Army (IRA), set the groundwork for terrorist financing today. It is estimated that the IRA had a budget in the mid-1990s of roughly $12 million a year. The PLO succeeded during the 1970s in securing an annual income of $1.25 billion, an enormous sum at the time. Even though these groups have at least nominally declared an end to terrorism, terrorism expert Rohan Gunaratna argued in Jane's Intelligence Review in August 2000 that "the strategies and practices they developed to raise and manage funds are being emulated by second-generation terrorist groups" today.
So how do groups like the PLO, IRA, and al-Qaeda manage to acquire such large amounts of money? Terrorist funding is generated by a whole range of activities, which can be divided into four basic types: state sponsorship, individual contributions, criminal activities, and legitimate business activities.
In the past, certain countries have found it desirable for strategic or ideological reasons to assist various sub-national groups with their armed campaigns against a particular government. These countries then become "state sponsors" of such groups, which have included terrorist organizations. State sponsors can provide weapons and training to terrorists or give them a safe haven in their territory. Alternatively, they can simply give money. This is one of the easiest ways a terrorist group can acquire funds.
During the Cold War (which lasted from the end of World War II until the late 1980s), the United States, the Soviet Union, and China all lent support to anti-government movements. For example, the United States supported the Afghan mujahideen against the Soviet Union, the Soviet Union supported the African National Congress in South Africa, and the PLO against Israel. Commentators in the West repeatedly accused the Soviet Union of engaging in an international conspiracy to support terrorist organizations against Western governments. The amount of actual financing provided by the Soviet Union, however, appears to be far less than was often assumed. Reportedly, the Soviet Union more often than not offered support in terms of propaganda but charged money when it came to material assistance. James Adams, in his book The Financing of Terror, points out that "the PLO had to pay cash for every bullet, rocket and tank received from the Soviets since the struggle for Palestinian independence began."
In the 1970s and 1980s one of the most active state sponsors of terrorism was Libya. Fueled by revolutionary fervor, Libyan leader Muammar Qadhafi supported almost every major terrorist organization worldwide after coming to power in 1969, either with money or by other means. Recipients of Qadhafi's largesse included the IRA, ETA (Basque Fatherland and Liberty), the Red Brigades from Italy, the Japanese Red Army, and the Baader-Meinhof Gang in West Germany. Between 1982 and 1987 the IRA allegedly received $3 million in cash and gold bullion from Libya. Qadhafi's financial support for terrorist organizations, always quite capricious, declined after Libya's oil revenues began falling in the 1980s.
After the Iranian Revolution in 1979, the new extremist rulers of that country have sought to export their Islamic revolution to the countries of the Middle East. Part of this strategy has been to supply aid to terrorist groups throughout the region. Iran has been an especially active patron of those groups acting against Israel, lending support to HAMAS, Islamic Jihad, and especially Hizballah, with which Iran has especially strong influence. Iranian financial involvement has been linked to the October 20, 1983, truck bomb attack in Beirut, Lebanon, in which 241 U.S. Marines were killed. Both the truck and the explosives used in the attack were allegedly paid for from a $50,000 check that could only be cashed at the Iranian embassies in Beirut or Damascus. To this day, Iran is viewed as the most enthusiastic state sponsor of terrorism—the U.S. State Department maintains that Iran provides more than $100 million in aid per year to terrorist organizations.
Iraq has also taken on the role of a state sponsor, but not to the same extent as Iran. In March 2002 Iraqi leader Saddam Hussein increased the amount of "reward" money he gives to the families of Palestinian suicide bombers to $25,000 per bomber. In South Asia, India and Pakistan continue to fund terrorist groups in each other's territory.
There are certain disadvantages, however, to a terrorist group relying too heavily on financing from external countries. Significantly, the money may come with strings attached—state sponsors may want a say in the terrorist group's operations in exchange for funding, to such an extent that the terrorists might feel they are working for their sponsor. State sponsors can also sometimes be unreliable sources of income. For example, in 1978, ten Arab states promised $250 million to the PLO in order to fight Israel, but the bulk of this money never arrived. Nonetheless, between 1973 and 1987, the PLO always received at least $100 million a year from Arab countries.
In the 1960s and 1970s most terrorist groups were initially dependent on the support of their patron states. Many groups soon realized that they should not put all their eggs in one basket by remaining totally dependent on state sponsorship. Once they laid down a solid financial base, groups tended to develop other sources of income to sustain their campaigns and become more financially independent.
One source of funds that usually has less strings attached than state sponsorship is the financial contributions of individuals both inside and outside the target country. Most terrorist groups claim to represent a significant population—workers, the Sri Lankan Tamils, Kashmiri Muslims, and so forth. As these populations usually contain some disaffected and sympathetic individuals, terrorists groups can appeal to their "constituents" for monetary support. Even extremist groups with a more obscure ideology are likely to find at least a few sympathizers. A large percentage of the approximately $82 million budget of the Liberation Tigers of Tamil Eelam (LTTE), for instance, is made up of contributions from Tamil expatriates living around the world.
Funds are often channeled to terrorist groups through front organizations that sometimes operate under the pretext of being charities. The motivations of donors to these organizations can not always be taken for granted—at least some of the individual donors do not know that their contributions are funding terrorism. Another factor complicating the issue is that these front organizations may in fact carry out charitable or humanitarian functions, with only a portion of their proceeds being diverted to terrorist groups. Propaganda then becomes a vital tool for terrorists wishing to gather donations, either to directly promote their cause, or to indirectly garner sympathy for the humanitarian work of the front organization.
One of the most interesting historical cases of this type of terrorist funding is that of Noraid (Irish Northern Aid), which was a key source of money for the IRA since the beginning of its modern campaign against the British. Established in 1969 in New York City, Noraid soon possessed branches throughout the United States and in the 1970s raised enough money from sympathetic Americans (many of whom were of Irish descent), to satisfy about half of the IRA's financial requirements. Noraid was not always entirely efficient in its fundraising—in the first six months of 1981 it raised $250,000, of which only $93,000 reached Northern Ireland, with the balance spent on salaries and propaganda within the United States. Due to an FBI inspection into Noraid's connection to arms smuggling, subsequent court cases, and a decrease in U.S. sympathy for the IRA following particularly violent actions, Noraid became a less significant source of funding for the IRA by the mid-1980s. Nonetheless, the IRA has continued to receive about $3.5 million per year from sympathetic organizations since the mid-1990s.
Individual contributions to terrorist organizations are not always voluntary. Coercion is often used by terrorist groups, both domestically in the target state and in diaspora communities. For example, it has been reported that each non-fighter in the Palestinian refugee camps was required to give 5 percent of his or her salary to the PLO as a "tax" during the period when the PLO was widely regarded as a terrorist organization (1970s through early 1990s).
Terrorists engage in violence against civilians and are thus classed as dangerous criminals under most legal systems. It is therefore not surprising that they often resort to other criminal activities in order to fund their activities. Engaging in purely criminal pursuits does, however, reflect badly on the integrity of those terrorists who wish to portray themselves as noble warriors fighting oppression.
Many examples exist of terrorist groups committing robbery to gain large amounts of cash. One of the largest bank robberies of all time occurred when the PLO, a Lebanese Christian militia, and an outside group from Italy cooperated to rob the British Bank of the Middle East's Beirut branch of around $100 million in January 1976. In July 1984 a far-right American group calling itself the Order robbed a Brinks armored truck in California and made off with $3.6 million.
One of the most common crimes undertaken by terrorists is kidnapping. While kidnapping is sometimes used for ideological purposes, in order to exact concessions from a government, groups have often employed kidnapping solely for profit. For people already trained and willing to commit violent acts, kidnapping is an attractive source of funds. There are so many potential victims that law enforcement can not protect all of them. As an added incentive, terrorists often make their deals with emotionally distraught relatives who may be softer negotiators than counterterrorism professionals. In fact, kidnapping by armed groups has become so prevalent in some areas, such as South America, that an entire industry has grown up involving kidnap insurance provided by companies like Lloyds of London and retrieval professionals who handle ransoms and negotiations. This arguably only facilitates and encourages the use of kidnapping as a form of fundraising by these groups, since terrorists may expect their victim to be insured and thus have a regularized avenue for gaining a ransom.
Terrorists sometimes embark on more sophisticated crimes. The IRA, for example, made a lot of money from building fraud, unemployment benefits fraud, extortion of Northern Irish businesses, and exploitation of European subsidies through innovative smuggling operations between Northern Ireland and the Republic of Ireland. The Popular Front for the Liberation of Palestine (PFLP) at one time ran a global forgery network as a source of income. Certain groups have even resorted to human smuggling to fill their coffers.
Legitimate Business Activities
Terrorists also engage in purely legitimate business concerns in order to raise money. This practice is especially difficult for law enforcement agencies to curtail because it is necessary to prove that terrorist organizations are the beneficiaries of such businesses.
In 1970 the PLO established Samed (the Palestinian Martyr's Work Society), which provided funding and set up businesses including factories in Lebanon and elsewhere. In another case the IRA took control of the Belfast taxi business, although it is doubtful whether it intended to operate this at a profit. More recently, terrorist groups have invested in stock markets and other commercial concerns, mostly by using front companies. The IRA and LTTE are reported to have made significant returns on their investments and even to have employed professional accountants. According to James Adams, terrorists "have skillfully turned the capitalist system … to their own advantage."
The Movement of Terrorist Finances
Once terrorists have succeeded in raising funds, they must find ways to keep those funds hidden from various law enforcement and financial regulatory agencies, while still being able to move money around the world to support their operations. This is sometimes achieved through the use of front companies that transfer funds to and between terrorists under the guise of conducting legitimate business. Occasionally, existing financial institutions have commercial or sympathetic ties to terrorist groups and will act as a conduit for terrorist funds, as the Arab Bank did for the PLO for many years.
The use of "shell banks" that have no physical presence can also help terrorists to hide their financial dealings. Offshore "tax havens" established by several countries to help companies avoid paying taxes are also useful in helping money launderers and terrorists avoid detection. Tax havens are usually created by setting up small banks that are not too particular about where the money that is deposited comes from. For example, the tiny Pacific island of Nauru has about 400 offshore banks, all registered to a single government mailbox. Terrorists also make extensive use of hawala, an informal system of moving money which can be used to go below the radar of financial officials (see sidebar).
Terrorist funding operations can be truly global. The Washington Post (October 13, 2001) published a description by an intelligence official of the triple border area between Argentina, Brazil, and Paraguay as "one of the most important financing centers for Islamic terrorists outside the Middle East."
Terrorists may be violent, but they can also be well-educated. Groups have become adept over the years at using the most modern technology to handle all their transactions, including using sophisticated computers to track investments and electronic fund transfers to conduct their international banking operations.
Financial Sophistication and Terrorist Growth
Financing has not always gone smoothly for terrorist organizations. States and donors can be fickle, corruption can set in amongst leaders, and waste and inefficiency can reduce the amount of funds that can actually be used in their campaigns. Nevertheless, it seems that terrorist groups have become more and more adept at gathering funds, from merely being dependent on handouts from sympathetic countries and individuals to actively pursuing a variety of legal and illegal commercial activities.
As terrorist groups have grown, so has their level of financial sophistication in both generating and transferring funds. Cause and effect, however, are unclear. Did the natural growth of terrorist groups require that they diversify their funding sources and adopt more advanced international banking techniques in order to cover expenses? Or did the fact that they embraced a diversity of funding methods and financial tools enable them to grow as organizations and expand their activities? The answer is most likely a little of both. The PLO, for example, had more than enough members to carry out its violent and non-violent activities—what it needed was more money than it was receiving from Arab states. For the Revolutionary Armed Forces of Colombia (FARC), involvement in a separate activity like the drug trade enabled it to expand its operations and support a larger membership.
Recent History and the Future
The Funding of al-Qaeda
The September 11 attacks brought about renewed interest in the subject of the financing of terrorism, especially in light of the well-developed financial networks of the perpetrators, the al-Qaeda group. Al-Qaeda has utilized all the types of funding sources described previously, as well as a variety of methods of managing and moving these funds.
To begin with, al-Qaeda's infamous leader, Osama bin Laden, has played an important part in its financial development. In 1996, the U.S. State Department, in its Patterns of Global Terrorism report, described bin Laden as "one of the most significant financial sponsors of Islamic extremist activities in the world today." He graduated from King Abdul Aziz University's management and economics department. In a Los Angeles Times article (August 22, 1998), Jack Nelson quoted a "well-placed Saudi source" that described bin Laden as "highly intelligent, one who knows how to operate in the world of finance." After the Soviet invasion of Afghanistan in 1979 bin Laden helped establish a worldwide network to finance young Arab volunteers entering the conflict to fight against the Soviets.
Much has been made of bin Laden's personal fortune (he comes from a wealthy Saudi family whose assets may go as high as US$5 billion), with Western intelligence agencies estimating his inheritance at between US$280 and $300 million. Other reports, however, put his personal wealth much lower, stating that he only received aroundUS$27 million prior to being disowned by his family in 1993. Whatever the true size of his personal finances, these funds on their own were probably insufficient to develop and sustain al-Qaeda's large infrastructure over the last decade. That is where the other sources of al-Qaeda's funds come in.
State sponsorship does not seem to constitute a large proportion of al-Qaeda's finances. While the Taliban certainly harbored bin Laden and al-Qaeda, there is no evidence that the Taliban gave al-Qaeda significant amounts of money (if anything the relationship probably worked the other way around). There have been rumors of Iran, Iraq, and even Pakistan supporting either al-Qaeda or some of its constituent groups, but no concrete evidence of this has yet been presented.
Bin Laden has a lot of experience raising funds from his time spent assisting the Afghan mujahideen in the 1980s. Al-Qaeda has a Finance Committee that is responsible for satisfying the organization's financial needs. Al-Qaeda receives a large amount of funds from wealthy Islamic donors throughout the world, some of whom are high-level government officials. Another major funding source that has received prominence since September 11 is the channeling of individual contributions to al-Qaeda through several Muslim charities, done either with or without the knowledge of the contributors. U.S. Treasury officials have linked relief groups such as al-Wafa Humanitarian Organization (based in Afghanistan), Human Concern International (based in Canada), the Muwafaq Foundation (based in Saudi Arabia), and the Rabita Trust to al-Qaeda. Al-Qaeda also controls branches of some charitable organizations, such as the International Islamic Relief Organization (IIRO), whose Philippines branch is run by bin Laden's brother-in-law.
Al-Qaeda has not participated in as many illegal fund-raising activities as groups like the IRA. However, individual al-Qaeda cells have been known to generate their own finances through criminal enterprises such as credit card fraud. Al-Qaeda has also allegedly benefited handsomely by becoming involved in the opium trade and smuggling heroin out of Afghanistan.
Al-Qaeda and Osama bin Laden have been linked to a wide variety of legitimate commercial enterprises, ranging from operating a fishing business in Mombasa, Kenya, to a honey enterprise in Yemen. (See chart above for a list of some of these companies.) During his stay in Sudan bin Laden was deeply involved in the country's economy, in activities such as construction, agriculture and raw materials exports. Al-Qaeda even has links with global financial institutions. The al-Shamal Bank, for example, was allegedly set up with a $50 million investment by bin Laden in 1995, and has been implicated in making funds available for the attacks on the U.S. embassies in Kenya and Tanzania in 1998. In some cases, however, there may have been reasons for establishing these commercial enterprises other than making a profit. Some of the businesses were situated in strategic locations, and there are suggestions that certain of the al-Qaeda-owned farms doubled as terrorist training camps. Observers have suggested that many of the Sudanese projects were undertaken more for political reasons—to maintain good relations with his hosts in the Sudanese government—than for their profitability. In an interview in 1996 bin Laden himself admitted to having lost over $150 million from his businesses in Sudan.
It is one thing for al-Qaeda to raise these vast sums of money; it is quite another to be able to move them around the world and use them without drawing the attention of law enforcement officials. One avenue they have used is friendly banks like al-Shamal or the al-Taqwa financial network. Another method that has drawn much attention recently is the use of informal money transfer systems such as hawala. On occasion, even the most primitive of methods can be used—terrorist members can simply put cash in a suitcase and smuggle it across national borders. The distribution of al-Qaeda funds has apparently been managed by an exiled Saudi businessman named Sheik Mohammad Hussein al-Almadi and the Afghan-based Abu Zubayda, who was recently captured by U.S. authorities.
Most available evidence, however, shows that the actual operational cells of al-Qaeda do not always receive much funding—both the embassy bombings and the USS Cole attacks were carried out on shoe-string budgets. The September 11 hijackers stayed in cheap hotels and used free Internet services at the local library. Al-Qaeda operatives have been known to resort to petty crime to support themselves. The reason for this apparent miserliness at the operational level remains unclear. It could be an indication of limitations on al-Qaeda's finances, or merely a decision by its leaders to encourage self-sufficiency on the part of its terrorist cells.
Nevertheless, al-Qaeda has been able to grow as an organization and stage several high-profile attacks against American interests. During the 1990s al-Qaeda's accounts funded everything from the purchase of cars and explosives to financing hotel accommodation and safe houses.
Prospects for Curtailing the Financing of Terrorism
There are a number of measures both domestic and international that have been developed to halt, or at the very least reduce, the flow of money to terrorists. But the complex, shadowy web of terrorist financial networks presents a host of roadblocks to this effort.
Cooperation between law enforcement, intelligence, and other regulatory agencies is imperative when confronting the multi-faceted sources of terrorist funding. This needs to occur both within countries and internationally. As Kenneth Dam, a deputy secretary in the U.S. Treasury Department, put it, "You can't bomb a terrorist's bank account on foreign soil, so cooperation is extremely critical." This means that in order to combat a source of terrorist financing like the drug trade, both anti-narcotics agencies such as the Drug Enforcement Agency and counter-terrorism agencies need to work closely together.
The main vehicle for international cooperation against terrorist financing is the International Convention for the Suppression of the Financing of Terrorism, which was passed by the United Nations General Assembly on December 9, 1999. The Convention notes that "the number and seriousness of acts of international terrorism depends on the financing that terrorists may obtain" and exhorts states to identify and block (or seize) any funds connected with the commission of terrorist acts. Nations are also encouraged to cooperate with each other. Article 18 of the Convention contains guidelines for measures states should employ to curtail terrorist financing, including supervising money-transmission agencies, preventing the smuggling of funds across borders, and requiring banks to report suspicious transactions and identify their customers. Although the Convention opened for signature in January 2000, relatively few countries had both signed and ratified it by September 11, 2001. After the September 11 attacks several countries rushed to sign and ratify the Convention, bringing the number of countries who have done so above the 22 needed for the Convention to enter into force. The Convention therefore became international law on April 10, 2002. The United States has signed but has not yet ratified the Convention. It has, however, indicated its willingness to do so.
Many of the existing bodies that are now being drafted into the effort to stamp out terrorist funding were initially developed to tackle the laundering of drug money and other receipts of criminal activities. The Financial Action Task Force (FATF) was set up by the then G-7 countries more than ten years ago primarily to put a stop to money laundering. Money laundering differs from terrorist funding in that it forms only part of the terrorist financing picture. Money laundering focuses on the proceeds of illicit activities, which are often much easier to detect than the legitimate sources of income that also contribute to the funding of terrorism. It is especially important for financial regulators to bear this in mind when they try to use tools such as the FATF to combat terrorist funding. Much attention has also been given to shutting down offshore tax havens. While this is certainly a necessary step, it must be remembered that much terrorist financing is conducted through traditional financial centers like London and New York.
The effort to curtailing terrorist financing also requires the assistance of the private financial sector. It is one thing for countries to make laws governing bank behavior; it is another matter entirely to convince banks and other financial institutions to do this efficiently and enthusiastically, especially when doing so will increase paperwork and business costs. In the past many banks have done the minimum necessary to avoid censure from financial regulators, although in the wake of September 11 this attitude will most likely change. The difficulty of gaining full cooperation from banks is compounded by the system of correspondent banking, in which a number of banks—often from different countries—do business with each other. This system is only as strong as the weakest link in the chain of banks. Any precautions to prevent the flow of money to terrorists are worthless if even one bank does not comply with the regulations. Governments therefore need to put a great deal of effort into monitoring the banking sector's compliance with regulations and ensuring its cooperation in the fight against terrorism.
Even when banks are willing to help, the vagueness of many regulations and the volume of international financial transactions complicate the efforts of regulators. It may sound like a good idea, for example, to require all banks to report "suspicious transactions," but these are rarely well defined, so banks are often unsure of exactly what they are supposed to report. Also, due to the massive amount of transactions internationally, U.S. authorities receive about 150,000 reports of suspicious transactions from banks each year, far too many to investigate individually. Financial regulations need to be carefully designed and clearly spelled out to yield a manageable set of anomalies. Otherwise the funding activities of terrorists will likely continue to be lost in the "background noise" of international commerce.
But these tighter regulations themselves can have negative (if unintended) political, social, and economic consequences. For example, peeking into individual accounts may lead to protests that civil liberties, especially the right to privacy, are being infringed upon. If financial regulators and counterterrorism experts restrict the search for suspicious transactions to a certain geographical region or ethnic group, they may be accused of racial profiling. Also, recent U.S. actions aimed at shutting down Barakat, a company that engaged in transferring money as a hawala to Somalia, has resulted in criticism that many innocent Somalis will now no longer be able to send money back home and that this could drive more people into the hands of Islamic extremists.
A precise sense of balance must be maintained in implementing all of the above measures. If regulations become too restrictive to the financial sector, international commerce could be obstructed, leading to adverse consequences for global economic growth. In that case, terrorists would have dealt a far more severe blow to the world's population than any single explosive. This should be kept in mind by overzealous counterterrorism officials as they craft their policies.
What is Currently Being Done?
Unfortunately, international efforts to stem the flow of funds to terrorist organizations were weak, and in some cases non-existent, prior to September 11. Lack of coordination and delays in implementing regulations were common. Within the United States, Osama bin Laden's name did not even appear on a Treasury Department's list of terrorists whose assets should be seized until after the August 1998 embassy bombings; Treasury officials claim this was because the intelligence agencies did not want to tip bin Laden off (which intelligence agencies have denied). In 1994 the Treasury Department was authorized by the U.S. Congress to require registration of hawala dealers, but foot-dragging in the implementation of these regulations meant that they were not scheduled to go into effect until the end of 2001—too late to affect the financing of attacks like September 11.
The George W. Bush administration also initially rejected the efforts of the FATF to clamp down on offshore banking centers. Reports criticized the Treasury Department's Office of Foreign Asset control for being seriously understaffed. In terms of international cooperation, performance was equally disappointing. Many states did not even sign, let alone ratify, the United Nations Convention on the Suppression of Terrorist Financing before September 11, 2001.
The attacks on September 11, however, seem to have propelled the world into action. The United States quickly made countering terrorist financing one of the pillars of its "war on terrorism." Shortly after the attacks, on September 24, 2001, President Bush issued the Executive Order on Terrorist Financing, enabling the Treasury Department to block the assets of various organizations and individuals associated with the financing of terrorism. The Executive Order also blocks donations to this same list of organizations and individuals, which includes certain Islamic charities. On October 26, 2001, the Patriot Act, designed to counter many aspects of terrorism, became law in the United States. Included in this act were provisions to increase the amount of information sharing between intelligence and law enforcement agencies with respect to the financing of terrorism and provisions requiring securities brokers to file suspicious activity reports.
A broad range of other measures have been instituted. A special interagency task force called the Foreign Assets Tracking Center has been established to uncover terrorist assets. The Bush administration has increased the budget of the Treasury Department's Office of Foreign Assets Control, partly to provide for the development of a terrorist finance database. The U.S. Customs Service has established a financial anti-terrorism task force known as Operation GREEN QUEST, which the U.S. describes in its December 19, 2001, Report to the United Nations Counterterrorism Committee as being formed "to identify, disrupt, and dismantle the financial infrastructure of terrorist organizations." A new public-private partnership of 34 organizations known as the Intercept Forum has been formed in the United States and is working to stop the flow of funds to terrorist organizations. At last the U.S. government now has the power to clamp down on at least some aspects of terrorist financing, for example by prohibiting U.S. banks from dealing with foreign shell banks and keeping a close eye on hawalas and other informal financial networks.
As part of its crackdown on organizations linked to terrorism, the United States and its allies have frozen the accounts of Barakat, the Somali-based business group that Paul O'Neill, the U.S. Treasury Secretary, has called the "quartermasters of terror." Treasury officials estimate that Barakat could have siphoned off enough funds from its hawala transactions to supply $15 million to $20 million to terrorist organizations per year. U.S. officials, however, have been accused of acting without sufficient proof.
On the international front, a number of countries including Germany, the Philippines, Canada, the United Kingdom, Kuwait, UAE, South Korea, and Japan have instituted measures to combat terrorist financing. On September 28, 2001, the United Nations Security Council passed Resolution 1373 under Chapter VII of the UN Charter (making it binding on all member states), which includes a requirement for all members to prevent the financing of terrorism. On October 31, the FATF, the primary international group working against money laundering, extended its scope to include the financing of terrorism. The FATF agreed to a set of Special Recommendations on Terrorist Financing and a plan to implement them, even though it is only an advisory body.
These efforts seem to be yielding some results. A report issued in February 2002 stated that in the U.S.-led campaign against terrorist financing since September 11, 149 countries had seized assets worth a total of US$104 million. Unfortunately, this probably represents only a drop in the ocean of the total sum of money possessed by terrorists around the world.
Something common to all terrorist groups up until now is that they require income for basic activities such as recruiting and supporting members, evading their opponents, and conducting attacks. As James Adams has observed, "In the progression from fringe radicals to recognized terrorists, all groups first have to acquire some income." Originally reliant almost completely on state sponsorship, terrorist groups soon learned to diversify their funding sources, so that today terrorist organizations like al-Qaeda use a broad range of sources to raise the funds they need. Al-Qaeda in turn funds many of its sub-groups and affiliated organizations, all of this activity creating a complex web of financial transactions.
Up until recently the world's counterterrorist campaigners have devoted the bulk of their energies towards active measures such as capturing terrorists or reacting to attacks. This has hampered efforts against the financing of terrorism, especially in the United States, and has resulted in what the Financial Times (October 6, 2001) has called a "failure to enforce laws already on the books." The heinous attacks on the World Trade Center and Pentagon in September 2001 provided a catalyst for correcting this. President Bush has declared his determination to "starve the terrorists of their funding" (September 24, 2001). After the passage of UN Resolution 1373, various domestic laws, and especially the Convention for the Suppression of the Financing of Terrorism, the United States may even be willing to place sanctions on countries that don't comply with new regulations.
There will be many difficulties in stopping the flow of funds to and between terrorists. Some of these concern the practicalities of implementing regulations, as described above. Others may be more fundamental. One must not lose sight of the fact that terrorists like Osama bin Laden have shown themselves to be eminently adaptable—even if existing sources of funding are stopped, terrorists may turn to alternative means of financing, methods that have not yet even been considered. It must therefore be realized that terrorist financing is something of a "moving target" and counterterrorist efforts need to focus not only on current funding sources, but also on where the terrorists will get their money from next.
There is also the sobering thought that terrorist attacks seem to require less and less funding. Even one of Adams' "fringe radicals" is today capable of causing a large amount of destruction with surprisingly little resources, as shown by Timothy McVeigh and his simple yet effective attack on the Oklahoma City federal building. Perhaps, as their funding sources dry up, terrorists will merely make do with fewer resources. The more money they have though, the more freedom of movement they will enjoy and the greater the likelihood that they will gain access to more formidable capabilities like weapons of mass destruction. Therefore, although the fight to rein in terrorist financing is only one element in the broader struggle against terrorism, it is a vital one that must be pursued with the utmost vigor.
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Gary A. Ackerman
1960s Almost all terrorists come from either left-wing or nationalist revolutionary movements. Terroristorganizations are generally small and poorlyfunded. They are mostly dependent on state sponsorship for funding and resources.
1970s Terrorist organizations diversify their funding sources, branching into a host of illegal activities, including bank robbery. The proportion of fundingfrom sympathetic individuals increases, althoughstate sponsorship from countries like Libya continues to be an important source of funding. The PLOand IRA are among the groups that establish commercial enterprises as a means of making money.
January 1976 The PLO participates in one of the largest bank robberies of all time.
1980s The Iranian revolution of 1979 leads to Iran becoming the most active sponsor of Middle Easternterrorist groups, a position it retains to this day.Osama bin Laden gains a great deal of experiencein raising money for the Islamic mujahideen inAfghanistan during their conflict with the SovietUnion. Terrorist groups such as FARC in Colombiabecome involved in narcotics trafficking in order toraise money.
July 1984 A right-wing American group called the Order robs an armored truck of $3.6 million.
1990s Osama bin Laden builds a worldwide terrorist network and develops a wide range of fundingsources, including charity organizations, legitimatebusinesses and drug smuggling.
December 9, 1999 The International Convention for theSuppression of the Financing of Terrorism opens forsignature.
September 11, 2001 Al-Qaeda terrorists attack the WorldTrade Center and Pentagon using hijacked planes. The death toll is in the thousands.
September 24, 2001 U.S. president George W. Bush issues the Executive Order on Terrorist Financing, enabling the United States Treasury Department toblock the assets of various organizations and individuals associated with the financing of terrorism.
September 28, 2001 The United Nations Security Council passes Resolution 1373, which includes a requirement for all members to prevent the financingof terrorism.
October 26, 2001 The USA Patriot Act becomes law in the United States. It contains several measures designed to combat the financing of terrorism.
April 10, 2002 The International Convention for theSuppression of the Financing of Terrorism becomesinternational law.
Hawala is the name given to an informal or "under-ground" system of moving money from place to place (as opposed to the international banking system, which is the formal method of conducting global transactions). The word "hawala" is derived form an Arabic word meaning "to transform" and is used in the sense of transferring or remitting money.
Hawala is used extensively by ordinary people to send money to or from different countries, especially those in South Asia, the Middle East, Africa, and North America. Transactions are often cheaper and faster than regular bank transfers and can be the only way to transfer money in countries where the formal banking system is unreliable or non-existent. The anonymous nature of hawala also makes it attractive to money-launderers, arms dealers, drug-traffickers, and terrorists. The IRA, ETA, and South American drug lords use similar systems. The hawala system has allegedly been used both to send cash funds to al-Qaeda and to distribute cash from bin Laden to other parts of the al-Qaeda network.
How hawala usually works:
- Hawala is based on trust and reputation. In our example, let us assume that the customer (whether a construction worker sending money back to his family or a terrorist moving his funds) is sending $5,000 from New York City to the town of Quetta in Pakistan.
- A customer hands the cash over to a hawala agent in New York and tells the agent where and to whom he wants the money sent. These hawala agencies are often housed in small, inconspicuous rooms, perhaps in the back of another store.
- The agent charges a small fee and gives the customer a password.
- The customer tells his friend or relative in Quetta (the recipient) the password.
- Meanwhile, the hawala agent in New York then contacts a hawala agent in Quetta by telephone, fax, or e-mail and arranges for the agent in Quetta to give the equivalent of $5,000 in Pakistani currency to the person who presents the password.
- The recipient picks up the cash from the hawala agent in Pakistan a few days later.
- The hawala agent in Quetta adds this amount to what the New York agent owes him or subtracts the amount from what he owes the New York dealer. The two hawala agents balance their accounts every now and again (perhaps by smuggling diamonds). There is reportedly little cheating because of the likelihood of a violent reaction from other parties.
- Hawala agents make their money from the fees they charge and from changes in currency exchange rates.
- The most important feature of the hawala system is that it is a cash system that leaves no paper trail and protects the identity of those who use it.
Commercial Enterprises Reported as Being Owned, Managed By, or Linked to al-Qaedaand Osama Bin Laden
- Wadi al-Aqiq Company—holding company
- Ladin International—import/export
- Taba Investment—global stock market and currency company
- Althemar al-Mubaraka—agribusiness
- Al Hijra Construction—built the Thaadi Road (1,200 km) from Khartoum to Port Sudan, also new airport at Port Sudan
- International al-Ikhlar Co.—manufactured sweets and honey in Kameen
- Bank of Zoological Resources—produced genes for making cattle hybrids
- Kasalla agriculture facility—produced hybrids for commercial produce
- Happ tannery in Khartoum—produced leather
- Blessed Fruits—exported fruits and vegetables
- Soba and Damazine Farms—produced white corn, peanuts, sunflower, and wheat
- Qudarat Transport—trucking company
- Al Hamati Sweets—bakery
- Al-Nur Honey Press
- Al-Shifa Honey Press
• Ariana Afghan Airlines
Export products (originating company names not specified):
- Ostriches and sheepdogs—Kenya
- Lemons, olives, raisins, hazelnuts, almonds—Tajikistan
- Lapis lazuli—Uganda
Terrorism and the Drug Trade
During the televised airing of the 2002 Superbowl in the United States, an advertising campaign was launched that asked "Where do terrorists get their money?" and answers "If you buy drugs, some of it might come from you."
The commercials have received criticism from some quarters for drawing tenuous conclusions. What is the real connection is between terrorism and drugs?
- Almost all major terrorist organizations rely on the trafficking of illegal narcotics to raise funds. This is accomplished by either providing protection for drug dealers or trafficking in drugs themselves.
- Terrorist groups involved in drug trafficking include Sendero Luminoso in Peru, Hizballah in Lebanon's Bekaa Valley, and the PKK (Kurdish Worker's Party) of Turkey who distribute heroin in Europe.
- The huge profits involved in the drug trade are an important source of funding for many groups. In Colombia, the Revolutionary Armed Forces of Colombia (FARC) and the National Liberation Army (ELN) are together believed to make between $600 and $900 million a year from "taxes" imposed on the drug cartels. In fact, drug trafficking may have put these groups on the map. FARC evolved from a struggling guerrilla movement in the 1970s with fewer than 100 fighters to having about 2,050 people under arms by 1984, arguably as a direct result of income gained from the drug trade.
- Even in the United States, extremist groups have used drugs to raise funds, mainly by producing and/or selling methamphetamines and marijuana.
This evidence suggests that the drug trade does indeed constitute a significant source of funds for terrorists and that the advertising campaign is more accurate than many people realize.