CDI Primer: Terrorist Finances

 
Money Sources

Al Qaeda relies on four main funding sources to finance recruitment, training and operations. They include the inheritances and investments of Osama bin Laden, direct funding from Arab supporters of al Qaeda, contributions through Islamic charitable organizations, and criminal activity. It is the diversity of financial sources and largely informal nature of terrorist funding that make stopping the flow of funds so difficult.

Bin Laden is said to have inherited an estimated $250 million to $300 million from his family in the early 1990s. This money has been invested in bank accounts and a host of legitimate and illegitimate businesses around the world and used to finance al Qaeda and its many corporate subsidiaries. Bin Laden's businesses also serve to hide the movement of money, people, and resources, although some experts estimate that his holdings have shrunk to $30 million.

Arab supporters of al Qaeda supply about $16 million to the network annually. Much of this allegedly comes from wealthy Gulf citizens, especially Saudi bankers and businessmen. On Oct. 18, 2002, U.S. intelligence officials announced they had identified about a dozen such supporters. This was the first time investigators were able to pinpoint the root sources of terrorist financing they had long suspected originated in the Gulf. The Saudi government has been criticized for its unwillingness to cooperate with such investigations. (In fact, resistance is so great the United States has gone to Europe, not the Gulf, for help in freezing the assets of the dozen al Qaeda financiers mentioned above.)

Islamic charities raise billions of dollars each year. Generally, funds are used legitimately for the humanitarian causes these charities support, but some money has been channeled to pay for terrorist activities. For example, one Chicago-based charity, the Benevolence International Foundation, was accused of creating a list of orphans to justify expenses paid to an injured terrorist fighter. Benevolence International was also charged with money laundering when it mixed $1.4 billion wired from a Swiss Bank Account with legitimate donations. Illicit charities have proven difficult for authorities to identify and control as zakat, or the making of charitable contributions, is a Muslim duty. Some governments say they will not interfere with these 'religious' activities without significant proof of wrongdoing.

Criminal activities, such as smuggling, counterfeiting and the narcotics trade, account for another large portion of terrorist funding. For instance, al Qaeda and the Taliban reportedly reaped millions of dollars a year through the production and sale of opium from Afghanistan, according to a recent IISS report. Conversely, others experts such as Rohan Gunaratna, argue that while the Taliban profited from the drug trade, there is little evidence to suggest that al Qaeda did. However, there seems little doubt that other terrorist organizations have financed themselves in this manner. For instance, Hamas apparently has operatives in South America who skim money from drug cartels. Terrorist groups have also been known to use extortion, and it is possible that a number of the wealthy Saudi businessmen recently identified as terrorist backers were blackmailed in this way. In the Philippines, the Abu Sayyaf Group reportedly levy monthly 'revolutionary taxes' from locals to augment money earned through frequent kidnappings for ransom, while in Northern Ireland warring Loyalist and Republican terrorist groups have been known to put aside differences to carve up regions in Belfast for racketeering purposes.

 
Stopping Money Movements

Stopping the movement of money in and out of U.S. and foreign banks and other institutions in the formal financial sector has proved rather easy. Since Sept. 11, 2001, more than 165 countries and jurisdictions have enacted blocking orders against terrorist finances. About $112 million in terrorist assets have been frozen worldwide. $34 million of those assets were captured in the United States, $78 million overseas. These successes were achieved through several new measures that provide investigators with greater powers to take legal action against suspected terrorist finances. They include U.S. President George W. Bush's Executive Order 13224 and UN Security Council Resolutions 1363 and 1390. In addition, more than 80 countries and jurisdictions have devised or enacted new legislation broadening their powers over terrorist funds.

Authorities have also scored several major victories against U.S. arms of charitable organizations linked to terrorism. Operation Green Quest, a coordinated effort linking the best financial investigators from the FBI, the U.S. Customs Service, the IRS and others, has been instrumental in these efforts. Between December 2001 and March 2002, the United States shut down three prominent U.S.-based charities, including the largest domestic funding vehicle for Hamas; and identified at least 10 foreign charities with links to al Qaeda and other terrorist groups. Altogether, $11.5 million in funds were frozen. Authorities are compiling a blacklist to warn potential donors of charities suspected of terrorist involvement.

However, stopping the movement of terrorist finances outside the United States and allied territories can be difficult. Indeed, some countries can be unwilling to confront domestic funding for terrorism. Investigators may be able to identify major culprits, but they lack the authority or political muscle to act against them. Blockages in the formal financial sector in these countries can stem from political resistance or simply a dearth of resources to effectively identify and trace the sources of funding.

In the Middle East, for example, the Gulf Cooperation Council, which includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates, has agreed to be bound by the Financial Action Task Force (FATF) recommendations on money laundering and terrorist financing. Yet, over the past year, few of these countries have enforced these measures. Additionally, Gulf States have often failed to track funds linked to al Qaeda, and have resisted working with foreign enforcement agencies. Saudi Arabia, for instance, continues to deny that its Islamic charities may have contributed to terrorist organizations.

A major complaint from the United Nations is that even when countries do try to stop terrorist financiers they are not unified in their actions. This complaint largely centers on the many official lists of terrorists and their organizations. Claiming legal constraints, some countries will only seek to freeze the assets of UN-designated terrorists, even if they have information about a group or person with links to terrorism not officially named. Meanwhile, other countries maintain different lists than the United Nations. Sometimes this information is not shared, with the result that terrorists may be blocked in one country and allowed free reign in another. Greater cooperation has been called for, especially by the Wolfsberg group, a coalition of some of the world's leading banks.

In Africa, Central Asia and the Caucasus, the problem is due to an extreme lack of financial oversight procedures, laws and institutions, rather than political resistance. Banks in these regions generally operate on a largely informal basis with a staff unequipped to identify money laundering or other suspicious transactions. Political turmoil in these regions, especially in countries like Somalia and Afghanistan, has strengthened the reliance on the informal hawala money remittance systems.

Hawala (Hindi for "in trust") predates modern banking and exists where formal transactions have proven too complicated or expensive. Under the system, brokers in different locations accept to issue loans and pay off one another's debts using unwritten credit arrangements. The transactions are virtually untraceable. They are also one of the major means by which many immigrants to the West send money home. Hawala systems thrive throughout Africa, the Middle East, Central and Southeast Asia.

U.S. and allied authorities are seeking ways to regulate these transactions. Under the USA PATRIOT Act, hawalas operating in the United States are required to register as money services businesses (MSBs). As MSBs they are subject to money laundering rules and required to file Suspicious Activity Reports with federal authorities. Outside the United States, the FATF has asked all countries to impose anti-money laundering requirements on alternative remittance systems. The FATF has threatened to blacklist noncompliant countries and call on member states to implement sanctions.

There are also a number of organizations and measures in place to assist nations to develop stronger financial institutions and monitoring systems. The International Monetary Fund (IMF) and World Bank provide technical assistance to weaker states in an effort to help them improve formal financial institutions. The Egmont Group, an informal organization made up of financial intelligence units from 69 countries, as well as the G7 and G20 countries, are all working on capacity building in nations which are currently unable to identify and control illegal monetary transactions.

Finally, there is the problem of cross-border transfers of cash and other assets. It remains fairly easy to move large quantities of these internationally undetected. Last August, al Qaeda and Taliban financial officers sent large quantities of gold from Pakistan to Sudan. The shipment apparently passed through the United Arab Emirates and Iran un-remarked. With cross-border cash shipments, most countries do not have any reporting requirements, or, as in the United States, only transactions above a certain level (in America this is $10,000) need be reported. Terrorists can avoid these obstacles by sending multiple smaller cash amounts although lots repeated activity of this type may be noticed eventually.

 
Challenges

According to the United Nations, the assets frozen in the early months of the financial war on terror represent only a small fraction of the assets available to al Qaeda. Further, experts say now that the Taliban is gone, al Qaeda has more funds at its disposal to pay for recruitment programs, religious schools and social organizations.

Another effect of the financial war on terror has been the decentralization of al Qaeda and its subsidiaries. Terrorist cells have grown smaller and more autonomous. They have taken charge of their own operations and timetables. More often funding is generated locally through legitimate businesses, extortion, smuggling, drugs and other crimes. The attacks in early October 2002 involving small bands of terrorists carrying out uncomplicated strikes with simple weaponry illustrate this shift.

The combination of decentralized cells operating in all the corners of the world, united by a religion and ideology to commit terror, with the relatively cheap cost of carrying out deadly attacks (according to one estimate, it cost only $500,000 to carry out the attacks on Sept. 11, 2001) is perhaps creating a more pernicious threat to the United States and its allies than ever before. Added to this new dimension are reports that al Qaeda is still capable of carrying out the same kind of large-scale, highly coordinated attacks like those committed Sept. 11, 2002. For the war on terror to be successful, the United States and its allies will have to do more to assist foreign financial institutions to modernize, while convincing or compelling foreign governments to comply with international efforts.

 
Related article: CDI Fact Sheet: Anti-Terrorist Finance Measures

 
Sources

Second Report of the Monitoring Group Established Pursuant to Security Council Resolution 1363(2001) and extended by resolution 1390 (2002), United Nations, Sept. 30, 2002

Contributions by the Department of the Treasury to the Financial War on Terrorism Fact Sheet, United States Treasury Department, September 2002.

Jonathan M. Winer and Trifin J. Roule, "Fighting Terrorist Finance," Survival, vol. 44, no.3, Autumn 2002, pp. 87-104, The International Institute for Strategic Studies.

Douglas Farah, "U.S. Pinpoints Top al Qaeda Financiers: Treasury Official Heads to Europe to Seek Help in Freezing Backers' Assets," The Washington Post, Oct. 18, 2002.

Douglas Farah, "Report Decries Saudi Laxity: U.S. Must Act to Dry Up al Qaeda Funds, Policy Group Says," The Washington Post, Oct. 17, 2002.

Douglas Frantz, "Al Qaeda Evolves Into Looser Network, Experts Say," The New York Times, Oct. 15, 2002.

Eric Lichtblau, "U.S. Indicts Head of Islamic Charity in Qaeda Financing," The New York Times, Oct. 10, 2002.

"Officials: al-Qaeda Still Dangerous," The Associated Press, Oct. 9, 2002.

P. Parameswaran, "IMF, World Bank to Help Nations Track Down Terrorist Funds," Agence France Presse, Sept. 20, 2002.

Douglas Farah, "Al Qaeda Gold Moved to Sudan: Iran, U.A.E. Used as Transit Points," The Washington Post, Sept. 3, 2002.

 

Anthony Keats CDI Research Assisant akeats@cdi.org

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