Terrorism is an expensive undertaking. Money raised through crime often is not enough to support all of the expenses incurred by the average global terrorist. Terrorists always need cash for airline tickets or weapons purchases. Money for training and recruiting other terrorists, bribing officials, and obtaining false travel documents is also required.
Until September 11, 2001, terrorism did not appear to be a major focus of U.S. policymakers, especially when it came to terrorist financing. The attacks on the World Trade Center and the Pentagon brought this into focus. Policymakers were forced to understand the threat of terrorism as well as the significant role that financing played. In order to effectively fight terrorism financing, policymakers would need to better understand what the United States was doing to eliminate the threat and what still needed to be done.
Definition of Terrorist Financing
Money Laundering
In order to finance illegal activities, terrorists use and manipulate the international financial system to their advantage. In some cases, performing legal transactions using illegally gained funds to "clean" the money may do this. Charities or other legitimate businesses may fall prey to these types of transactions. For example, Osama bin Laden and al-Qaeda funded many of their pre-September 11th activities by using funds that were funneled through legitimate businesses and charities. (Childs, 2005) Because these companies were not inherently illegal, and the process bin Laden used appeared to be legitimate, it was difficult to take action against them.
Criminal Activities
Terrorists often engage in criminal activity to raise money. This causes it to become more difficult to identify which groups are terrorists and which groups are criminal networks. Terrorists are involved in many of the same types of criminal enterprises as other groups such as drug trafficking and weapons smuggling. Terrorists have begun to work closely with drug cartels in Colombia and South/Southeast Asia and small arms dealers in Russia and continue to work closer to dominating the global black market. (Childs, 2005) The billions of dollars al-Qaeda generated through the global opium trade can be seen as an example. (Childs, 2005) (Brisard, 2002) Because they are able to work closely and secretly with these groups, their involvement in these areas has only recently been known.
Internet Banking
The Internet and offshore banking presents a different and perhaps more difficult barrier for law enforcement to overcome. Internet banking allows for rapid and anonymous financial transactions to take place every day. This presents a challenge to law enforcement because tracking these transactions is a logistical nightmare. Hundreds of thousands of transactions by the general public take place daily, and being able to select only those appearing to be illegitimate is next to impossible. (Childs, 2005) Terrorist organizations know their financial activities can remain practically anonymous on the Internet.
Offshore Banking
Offshore banks in places like the Bahamas and the Cayman Islands do not have the same types of banking regulations or laws as the United States. These countries have their own bank secrecy laws that protect account holders from scrutiny. The only time these regulations may be void is when there is overwhelming evidence the account holders are associated with illegal activities. (Childs, 2005) Proving this is very difficult, especially when the burden of proof lies with the accusing country or agency.
Again, the best example of a terrorist organization that has taken advantage of these financial situations is al-Qaeda. This organization is able to hide terror funding behind visible and mostly legitimate businesses. They take advantage of banking, religious donations and modern financial methods such as the Internet. According to Jean-Charles Brisard in his report to the United Nations Security Council in 2002, al-Qaeda is able to "move and raise money, recruit and train operatives, buy arms and carry out terrorist attacks around the world" by taking advantage of the legitimate financial system. (Brisard, 2002)
United States vs. Terrorist Financing
The United States government faces many challenges when attempting to monitor terrorist financing. These include accessibility, adaptability of the terrorist, and competing priorities. It is difficult to access terrorist networks that operate in a nontransparent manner, such as informal banking systems, known as hawala, or other illegitimate activities. Terrorists also have the ability to adapt their financial methods if they discover they are being monitored. Typically once terrorists know that an industry they are using is being watched, they may switch to a different business or network. Finally, competing priorities among various government agencies can hamper efforts to use and enforce applicable U.S. laws and regulations that could prevent terrorist financing. (Yager, 2003) These problems do exist, but do not completely render the U.S. helpless when dealing with this issue.
Interagency Coordination
Several different departments within the U.S. government have begun to work together to combat terrorist financing. This involves the State, Treasury, Homeland Security, and Justice Departments. All of these agencies have developed an understanding of the financial systems, facilitators, and intermediaries that terrorists use to finance their activities. The Treasury Department has coordinated a policy process to examine financial networks. The Department of Justice coordinates investigations and prosecution of the sources of terrorist financing. Relationships with other countries have been developed by the State Department to open communications and plan strategies on how to best defeat the loopholes terrorists exploit. (Wayne, 2003) All of these departments work in conjunction with the Department of Homeland Security to best use the tools the U.S. government has to fight terrorism.
Statutes and Executive Orders
Prior to September 11, 2001, the major terrorist financing statutes used were 18 USC Sections 2339 A (1994) and 2339 B (1996). Terrorist financing became a crime, as well as providing financial to terrorist groups. These also allowed for the investigation and prosecution of terrorist financiers. The Suppression of the Financing of Terrorism Convention Implementation Act (1999) criminalized terrorist financing internationally. Finally, the International Emergency Economic Powers Act provides for the president to determine if an individual or groups was a national security threat and allowed for the prosecution of those who provided financing to these groups. Mainly these people or groups were listed on the Specially Designated Global Terrorist and State Sponsors of Terrorism lists. (Childs, 2005)
Former President George W. Bush worked to improve the United States' ability to destabilize terrorist economic networks following the events of September 11th. Bush issued Executive Order (EO) 13224, allowing for terrorist' assets to be frozen. A correlation would be drawn between the frozen assets and the organization receiving the benefit. These groups would then be designated as a terrorist group. In an article written by David Childs in 2005, by 2003 the assets of 321 entities had been frozen. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001 worked well with EO 13224 to increase the legal authority to disrupt terrorist monetary system. (Yager, 2003)
The USA PATRIOT Act
The USA PATRIOT Act of 2001 increased U.S. law enforcement's capacity to prevent, probe, and prosecute cases of terrorist financing. The PATRIOT Act also extended the designation of "material support" to include all aspects of financing. Greater collaboration between law enforcement and intelligence agencies was a major gain with the passing of the Act. (Childs, 2005) Section 311 of the act specifically empowers the Secretary of the Treasury to determine if a foreign country, financial institution, or a specific transaction can be considered a "primary money laundering concern." If this is the case, the Treasury Department will designate the country or institution as a potential threat to the United States. A variety of regulatory actions may take place to protect the U.S. financial system, including requiring financial institutions in the United States to terminate all relationships with the designee. (Levey, 2006) This action helps to secure the U.S. financial system from potential terrorist activities, as well as protecting other nations from becoming vulnerable to threats.
Financial Action Task Force (FATF)
The Financial Action Task Force (FATF) was developed to combat international money laundering. Many different countries work along with the United States to develop recommendations to stop money laundering. The FATF has advanced special recommendations that focus specifically on terrorist financing. The FATF has assisted several countries to develop their own anti-terrorism financing laws. For example, the FATF helped the Indonesian Parliament to develop and pass changes to its existing anti-money laundering law. The group also assisted the Philippines to pass their own laws to strengthen the country's anti-terrorist financing measures. (Wayne, 2003) The FATF has taken into consideration the needs of the U.S., as well as other countries, in the area of anti-terrorism financing and has strengthened legislation around the world.
Recommendations
Terrorist financing is a complex problem that requires an involved U.S. policy response. The United States' strategy should be enhanced to include two focus areas - asset forfeiture by terrorists, and ending Hawala as a form of informal terrorist financial network. Law enforcement and government agencies should coordinate efforts to investigate those providing funding to terrorists to block their assets. This concept would require the United States to work along side other countries to track terrorist finances and protect worldwide financial institutions.
Asset Forfeiture
At one time in history, terrorists had to rely on local methods of funding their activities. This included using local banks or wealthy individuals who were willing to supply funding for their operations. Tracking those funds was fairly easy, as the banking systems were less sophisticated.
Today, funds can be transferred in and out of an account within mere moments. Funds are made available instantly for terrorists residing in different countries. Tracking and stopping the flow of illegal funds is more difficult with the advent of computer banking. Because of this, governments should be afforded the power to take preventive measures, such as freezing and seizing assets known to be illegal or used for illicit purposes. (Schott, 2006) This is necessary for an effective law enforcement structure to prevent the terrorist economy from existing.
The confiscation of assets is intended to make criminal activities unsuccessful for terrorists and to keep them from procuring funds to commit their crimes. The United States cannot be successful without effective international confiscation laws that can be applied to terrorist groups around the world. Effective enforcement of these laws would require that all countries be able to identify, trace and evaluate funds and property that could be subject to confiscation. (Schott, 2006) Only having the laws on the books is not enough. Each country would have to ensure equilateral enforcement.
The benefits resulting from asset forfeiture not only help to dissuade the terrorists, but also help other countries. The United States distributes the profits from this practice with other nations. According to Eric Green (2007), from "1989 through January 2007, the Justice Department transferred more than $228 million to 35 countries" that assisted the United States in asset forfeiture cases. (Green, 2007) Because the other countries have something to gain by collecting terrorist assets, their governments may be more willing to help the United States with this problem.
Hawala
Hawala, Arabic for transfer or remittance, is an informal system to transfer money. They operate outside normal banking channels and are prominent in Muslim economies and sometimes known as "Islamic Banking." Hawala uses the principle of short term, discounted promissory notes for small amounts of money. The hawala system is in use mainly in Pakistan, India, the Gulf countries and Southern Asia. It is also in use in the United States, but to a lesser degree. Often times it is used to legitimately send money back to friends and relatives in their home countries. (Brisard, 2002)
The brokers that operate hawalas may provide money with a nod or handshake. There is no paper or electronic trail to follow. Many times, these brokers do not operate openly and are difficult to find. Because they have existed for many years and generations, it is difficult for the governments in South Africa and the Middle East to eliminate the system. (Brisard, 2002) Many of the transactions that take place within this system are legitimate, but terrorists take advantage of the informality to launder money and fund activities.
The use of hawalas is of interest to terrorists because they can anonymously move funds. The typical transaction at a hawala involves a smaller sum of cash. This is a benefit to terrorists because they can transfer a smaller amount of money that will generally go undetected by law enforcement or regulatory agencies. However, all of these transactions add up to quite a bit of money. According to David Childs (2005), "billions of dollars are believed to change hands through hawalas each year." Childs states that Pakistan's government has estimated hawala transfers generate approximately "$7 billion per year" into their economy.
Authorities in Muslim countries are reluctant to change or stop the hawala system because it is a major source of income in their countries. By eliminating this informal financial system, the United States would help transactions to be recorded and tracked. Terrorists would not be able to hide under the gray cloud of ambiguous funds and may be able to be detected earlier in the planning stages.
The terrorist attacks on the United States on September 11, 2001, highlighted the need to combat the financing of terrorism and terrorist acts on the part of the United States and the international community. The war against terrorism financing relies on international cooperation. Other countries must work in conjunction with the U.S. to eliminate the various avenues terrorists can exploit to carry out their acts. Challenges will certainly occur as terrorist organizations adapt their economic networks in response to measures taken to counter them. The United States must remain flexible in its counterterrorism policy to ensure that policies and collaborative efforts with other nations are the best methods available to counter terrorism.
