Combating the use of commodities in terror financing

There is a growing recognition in some quarters of the US intelligence community that terrorists use commodities, particularly gemstones, to store their assets and launder money. The FBI, the Department of Defense and the Treasury Department now acknowledge that commodities, including diamonds and tanzanite, are important to the terrorist financial infrastructure. Only the CIA continues to publicly deny that such links exist.1

This shift within the US intelligence community is significant because it is the first step in countering one of the primary financial tools used by Al-Qaeda, Hizbullah and other organisations. The lack of understanding of this facet of terror financing in the aftermath of the attacks on 11 September 2001, which has helped allow Al-Qaeda and other terrorist groups retain access to millions of dollars in assets, translated into a dangerous lack of action.

Several steps can be taken to combat the use of commodities by terrorist financiers. The weapon most often brandished, but one that would be the least effective, is to institute new, sweeping regulations on commodity traders. However, this will simply drive even legitimate businessmen underground or out of business. New regulatory burdens to halt the fraction of illegal activities that benefit terrorists in the diamond industry, the gold trade or hawala transactions would hurt millions of people who make their living in these trades or whose families benefit from them. This is especially true of the hawala system, which primarily benefits millions of families in India and Pakistan who live off the remittances sent through this system by family members working in Saudi Arabia and the Persian Gulf states.

Not all regulatory steps are harmful. The Kimberley Process, a public-private initiative, would make the transfer of ‘blood diamonds’ to market more difficult. But even its most ardent supporters acknowledge that it will not ultimately cut off the flow of illicit diamonds. What the Kimberley Process does is add layers of difficulty for those wishing to abuse the system and install some accountability mechanisms to punish those who do not play by the rules. While such rules are useful pieces of a much larger puzzle, they are not a silver bullet solution. What is really needed are the most difficult and time consuming measures to carry out: building up intelligence-gathering capabilities on the ground in the ‘grey areas’ or ‘stateless areas’ of the world, where the illicit commodity trades flourish and where terrorists have made significant inroads.

These areas include parts of West Africa, much of the Democratic Republic of the Congo (DRC), parts of East Africa and swathes of Southeast Asia. Only specific information gathered at the points of origin in the commodities trade can really help to monitor and decipher how the businesses operate. For example, in Sierra Leone, Liberia, and the DRC, a network of traders, related by family and political ties, have traditionally moved the bulk of the ‘blood diamonds’ for Hizbullah and, more recently, Al-Qaeda.

These kinship networks that are central to this commodity trade need to be mapped and understood as a first step toward defining what action can be taken. It is also essential to understand that these groups, operating in areas of the world where computers and telephone communication is haphazard at best, rely on personal contacts, family ties and couriers for much of their operating structure. Monitoring their communications using advanced technology, while successful against other types of groups, is much less useful in these circumstances.

That such knowledge of diamond-trading kinship networks is lacking is no surprise. At the end of the Cold War, no region of the world suffered more dramatic cuts in the US intelligence architecture than sub-Saharan Africa. More than one-third of the CIA stations were eliminated entirely, and those that remained were left with only minimal staffing. Even as the Clinton administration began increasing funding for intelligence in the late 1990s, the region’s capabilities and budget remained static.2

This meant that the commodity trades, ignored as collection targets, were not understood at all. The FBI and the CIA still focus primarily on bank transactions and wire transfers to track money, and few within those organisations understand commodities networks. This is slowly changing, especially in the Treasury Department, where some expertise is being husbanded.

The lack of intelligence on the ground meant that other related, important trends were missed. The most important one was the growth of Islamic militants, funded by Saudi charities and spread by radical imams, particularly in northern Nigeria and also in Sierra Leone, Guinea and Burkina Faso. These mosques and charities helped to provide the infrastructure necessary to making the region an important financial hub.

For US intelligence agencies to alter their collection and analysis patterns will require investment in time, personnel, and money. It also will require a change in the intelligence culture that is used to focusing on states and state-based challenges rather than amorphous and difficult-to-track commodities in stateless regions.

Enlisting the help of the business community

In an era of limited resources, priorities must be set. This is why recognition of the problem is so fundamental. From such recognition, resources can begin to be allocated. As the capacity to monitor events on the ground is being built, there are other steps that can have an important impact. The most urgent is to begin to work seriously with the commodity industries themselves, which contain a knowledge base that can be tapped into, because many of the important players are not only concerned about terrorists’ use of their commodity. They also want to clean up their image.

While unwilling to act as government agents, many in these business communities are willing to share information and ideas on how to clean up and safeguard particular trades. This is important because these groups are small and know the players. Many are anxious to help put the more disreputable elements out of business.

Nicky Oppenheimer, chairman of the De Beers Group and an important voice in the diamond community, is urging greater vigilance and compliance with whatever new industry regulations are necessary. This is based on his recognition that the terrorist threat is real.

In an unprecedented statement in March, Oppenheimer said that among the greatest challenges facing the diamond and jewellery industry "is the vulnerability of the industry, as with other commodities, to misuse and abuse by criminals and the perpetrators of terror... In a world where our personal security, that of our families and communities, is under real and present threat, we must take notice and take action."3 Much the same is true in the hawala trade. Initial international meetings have opened a dialogue with these businesses that could help develop a few meaningful controls rather than sweeping, costly regulations.

Meaningful pressure must be brought to bear on areas where commodity trades flourish in less-than-transparent fashions. The unregulated, unscrutinised trade in gold, diamonds, and tanzanite must become more transparent. This particularly applies to Dubai, which plays a unique role as hub for all three of these commodities as well as for hawalas.

One of the more successful aspects of combating terror financing - the closure of charities that have helped to finance terrorism and naming the leaders responsible - must continue. The shutting down of the Al Haramain Islamic Foundation in early June was a good example.4

Charities are a vital link in the terrorist financial network, where funds can be used for purchasing commodities or commodities turned into cash. As charities are shut down by authorities, they often reopen almost immediately under new names and continue to operate. Ensuring that they remain truly out of business is vital to cutting off the terror financial lifeline and making the commodity trade less fluid.

Douglas Farah is a senior fellow at the Washington, DC-based Consortium for the Study of Intelligence. He worked as a reporter for the Washington Post for 17 years as a foreign correspondent and member of the investigative staff, and is the author of Blood From Stones: The Secret Financial Network of Terror (Broadway Books)

NOTES

1 See, for example, a letter dated 23 February 2004 from FBI to Congressional leaders, entitled ‘Report regarding alternative financing mechanisms’; Voice of America interview on 3 April 2004 with General Charles Wald, deputy commander of US European Command, responsible for Africa; and a speech by William J Fox, director of the Financial Crimes Enforcement Network, to the World Diamond Council Third Annual Meeting, Dubai, 30 March 2004.

2 Author interviews with intelligence officials. See also Douglas Farah, Blood From Stones: The Secret Financial Network of Terror, (Broadway Books, New York 2004).

3 Address of Nicky Oppenheimer to the World Diamond Council Third Annual Meeting, Dubai, 30 March 2004.

4 Susan Schmidt, ‘To thwart terrorism, Saudis outline controls on charity,’ Washington Post (3 June 2004, pA16).