The role of conflict diamonds and failed states in the terrorist financial structure

After the Al-Qaeda attacks in 1998 on the US embassies in Nairobi, Kenya and Dar-es-Salaam, Tanzania, the Clinton administration froze US$220 million in assets belonging to Afghanistan’s Taliban government and Osama bin Laden, a guest of the rogue regime. Most of the assets were gold reserves on deposit with the US Federal Reserve.1 As it was so costly a loss, and since Al-Qaeda constantly reviews operations to correct the organization’s vulnerabilities, a far-reaching internal review of the terrorist financial structure was undertaken.

Adapting to the US response, Al-Qaeda initiated a systematic withdrawal of its funds from the formal banking sector, where its assets were vulnerable and traceable. The money was shifted into commodities that would hold their value over time. Chief among these were diamonds and tanzanite.2 Gemstones offer several advantages for terrorists. The infrastructure needed to acquire and trade the stones is easy to set up because the commodities are available in states that exercise little control over much of their national territory. Tanzanite is only found in a small corner of Tanzania, where the government has virtually no presence.

The diamond trade that Al-Qaeda tapped into in West Africa was centered in Liberia, where the regime of Charles Taylor controlled diamonds mined by his allies in neighbouring Sierra Leone. The diamond fields in that country were controlled by the rebels of the Revolutionary United Front (RUF).3

Al-Qaeda had long-standing ties to the gemstone trade. Documents and testimony presented during the 2000 trials of convicted terrorists Wadih el Hage and Mohammed Sadeek Odeh show that Al-Qaeda was dealing extensively in diamonds, tanzanite and amethyst even before its US embassy bombings. After the bombings, the organisation’s interest in gemstones accelerated rapidly. Rather than being viewed primarily as a business venture, gemstones (and diamonds in particular) were used as a way to store the value of Al-Qaeda’s financial resources outside the formal financial sector. A premium was placed on acquiring as many stones as possible.

Al-Qaeda was not the only terrorist or criminal group to operate in West Africa. Hizbullah, the Lebanon-based group supported by Syria and Iran, raises millions of dollars a year from the Lebanese business community scattered along the Atlantic coast, most notably in the Ivory Coast.4

Terrorists and criminals chose their commodities well. Diamonds, in common with tanzanite and other gemstones, carry a high value in small bulk yet are easily convertible to cash. The stones cannot be detected by dogs and do not activate metal detectors at airports. Sales of small amounts do not cause dramatic market shifts. For years, terrorist operatives had made extensive use of ‘grey market’ networks in Antwerp and elsewhere to sell millions of dollars’ worth of diamonds, with part of the proceeds going to personal enrichment and some used to keep the RUF and Taylor armed and at war.

Al-Qaeda was moving more aggressively into the diamond trade by early 2001, with the intent of putting their assets beyond the reach of international investigators. Two top Al-Qaeda operatives who were involved in the US embassy bombings and other high profile attacks were sent to Monrovia to set up greatly expedited mining operations, offering to buy all the diamonds the RUF could produce. They lived in a safe house tucked between buildings housing Libyan diplomats and security forces in downtown Monrovia. In this effort, Al-Qaeda leaders, while devoutly Sunni Muslims, showed their willingness and ability to work across religious divides.

The Democratic Republic of Congo, with its host of different armies dividing up the country, coupled with a long history of a rapacious state, is a major financial centre for Hizbullah and other armed groups. Private armies control vast areas of the extensive nation and neither the central government nor intelligence agencies have any clear idea of what transpires outside the capital.

Al-Qaeda and other terrorist organisations use commodities because they are a safe way to store and move resources in ways that are likely to remain undetectable over time unless human intelligence is greatly improved. With few resources being dedicated to the effort to track the commodity trade, the old adage will continue to hold for terrorist groups who use diamonds: "If it’s not broken, don’t fix it."

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, to be published on 4 May by Broadway Books

1 Benjamin, Daniel and Steven Simon, The Sacred Age of Terror, (Random House, New York 2002), p289.

2 Author interviews in Pakistan and United Arab Emirates, February 2002. For a fuller discussion, see: Farah, Douglas, Blood From Stones: The Secret Financial Network of Terror, Broadway Books, (to be published in May 2004).

3 For a more complete discussion of terrorist ties to the diamond and tanzanite trades, see: Farah, Douglas, ‘Report Says Africans Harbored al Qaeda,’ Washington Post 30 December 2002, pA1; and Block, Robert and Pearl, Daniel, ‘Underground Trade: Much Smuggled Gem Called Tanzanite Helps bin Laden Supporters,’ Wall Street Journal 16 November 2001, pA1.

4 For a full discussion of the Lebanese ties to the region, see: Gberie, Lansana, War and Peace in Sierra Leone: Diamonds, Corruption and the Lebanese Connection, The Diamonds and Human Security Project, Occassional Paper 6, Partnership Africa Canada, January 2003.