Waging war on terror funds
Planning and committing acts of terrorism can be inexpensive. A fuel-oil or animal feed bomb costs little in financial terms but can have devastating effects, while, at the other end of the scale, the attacks of 11 September 2001 were estimated to have cost between US$400,000 and US$500,000 to launch and took years to plan.
This relative cheapness makes the job of the forensic accountants and dozens of bodies responsible for anti-terrorist financing much harder. It also makes the more than US$141 million seized by governments around the world in the war against terrorism since September 2001 - of which US$37 million was seized in the US - appear an impressive sum.
The seizure of funds has had little effect, however, judging by the attacks in Madrid, Central Asia and the Far East.1 It is also worth noting that Bill Clinton’s US government froze US$220 million in assets belonging to the Afghan Taliban and Osama bin Laden after the attacks on the US embassies in Kenya and Tanzania in 1998.
The main difficulty with tracking and preventing terrorist financing is that it merges into the much more widespread criminal money laundering. But unlike drug trafficking and gun-running, terrorist financing typically involves routine transactions without large sums of money involved.
John Bryne, a senior lawyer with the American Bankers Association, sums up the difficulty: "Terrorist financing is not money laundering. It is not close to money laundering. We need names. If you [the government] tell us what charity to look for, then we can help you."2
Work to cater for the specific problems of anti-terrorist financing is being undertaken. One such body is the Financial Action Task Force (FATF), a global organisation originally set up to deal with anti-money laundering, but since 11 September providing states and companies with recommendations to monitor and warn authorities about suspicious or alleged terrorist financing transactions.
The FATF issues and monitors implementation of its standards and, from the end of 2004, will carry out reviews of the standards, following the example of the International Monetary Fund and World Bank.
The task force draws up a list of non-co-operative countries and territories (NCCTs) that have failed to pass or implement sufficiently rigorous laws against money laundering or terrorist financing. Financial institutions must pay stricter attention when dealing with organisations from these NCCTs.
The following countries are on the list of NCCTs:
"The strategy of the FATF is to broaden anti-money laundering laws to cover terrorist financing issues," says Patrick Moulette, executive secretary of the FATF. "This has now happened from June 2003 with the updating of the 40 recommendations, where we have tried to include references to terrorist financing each time, such as in ‘know your customer’ and reporting regulations. Clearly, however, this is not enough.
"Terrorists use other channels, such as Hawala and other alternative remittance systems and informal organisations, such as non-profit bodies, and cash couriers," Moulette adds. "This is the second part of the FATF role, to tackle these areas outside the formal regulated system. We are working on cash couriers at the moment, for example."3
Terrorists are known to use this alternative system to finance operations and move money, as Douglas Farah, a senior fellow at the Washington, DC-based Consortium for the Study of Intelligence and author of Blood From Stones: The Secret Financial Network of Terror, has pointed out.4
Farah says that after the 1998 freezing of Al-Qaeda funds by the US government, the terrorist organisation withdrew its other funds from the formal banking system and into commodities, such as diamonds and tanzanite.
Gemstones are a high-value, low-weight store of money with extensive grey markets, often sourced from countries where the state has little control over its territory, such as the Democratic Republic of Congo, Tanzania or Liberia.
It is not just Al-Qaeda that uses such financing. Hizbullah, the Lebanon-based organisation, raises money from expatriate businessmen in Africa while the Provisional IRA received funding from organisations in the US for its campaign to remove the UK government from Northern Ireland from the 1960s.
Moulette says that failed states are hard to deal with. "They are really difficult as [they] require political commitment and need a good legal and state system."
As a result, FATF-style regional bodies are slowest to be formed in Western Africa, the Middle East, North Africa and Central Asia – the very areas where the need is greatest.
As well as these poorly governed states being targeted by terrorists for their natural resources, or in order to be hidden from authorities, some Islamic charities are promoting extreme forms of their faith to the local populations - Cambodia is a prime example.
Saudi Arabia has, however, started to crack down on terrorist financing, especially after the 2003 attacks in Riyadh that led to a block on all overseas aid. Saudi Arabia said in June that it would disband all existing charitable entities and committees operating abroad, including the Al Haramain Islamic Foundation that operated in Cambodia and spent US$50 million a year on humanitarian projects around the world. Instead a single, government-appointed body, the Saudi National Commission for Relief and Charitable Work Abroad, would administer the more than US$100 million that Saudi Arabia disburses in overseas aid.
Doubts remain as to the Saudis’ commitment, since no charges for terrorist financing have yet been brought.5 However, co-operation is growing between Riyadh and the international community, which reflects intensified international co-operation. For instance, the Philippines, which has been battling Jemaah Islamiyah, helped the UK to repatriate US$718,957.83 from 19 bank accounts connected to unlawful activity in the first half of the year.6
More than 100 countries have strengthened existing anti-terrorist financing laws or established new ones, according to the US Treasury Department’s Office of Intelligence and Analysis. Freezing orders are in place in 147 countries.7
Bill Fox, director of the US Treasury Department’s Financial Crimes Enforcement Network, says: "The amount of money out there is a little bit of a red herring in some respects. I think we are correctly focused on choking off money or using the money trail to locate and capture the bad guys."8
"Following terrorist financing is one piece of the puzzle, along with intelligence and law enforcement," Moulette adds. "You cannot, clearly, prevent terrorism by a financial crackdown but it can make a difference."
But as the report into the 11 September attacks notes, targeting the movement of terrorists could be at least as powerful as the effort devoted to terrorist finance. This reflects both the difficulty faced by authorities in tracking or curtailing terrorists through their use of money and the underlying problem that the causes of terrorism are not usually finance-related.
James Mawson previously served as an International Editor at the Financial Times, and continues to write for both the Independent on Sunday business section and the Financial Times
REFERENCES:
1 New York Sun, 30 July 2004.
2 Ellen Kelleher, ‘The law that outlaws banks’, Financial Times.
3 Interview with author.
4 Book published by Broadway Books; see also ‘The role of conflict diamonds and failed states in the terrorist financial structure’, RUSI/Jane’s Homeland Security & Resilience Monitor, April 2004 (pp12-13).
5 International Enforcement Law Report, August 2004.
6 Asia Africa Intelligence Wire, 31 July 2004.
7 New York Sun, op cit.
8 Jeannine Aversa, Associated Press, 26 July.