Matthew Levitt & Michael Jacobson. Journal of International Affairs. Fall/Winter 2008, Volume 62 Issue 1.
While mounting an individual terrorist attack costs relatively little, money remains of critical importance for terrorist organizations. Without it, terrorist groups would be incapable of maintaining the broad infrastructure necessary to run an effective organization. Finding means to quickly and securely raise, launder, transfer, store and access funds remains a top priority for all terrorist groups, from al Qaeda and its various globally oriented affiliates to regionally focused groups like Hamas and Hezbollah. Terror finance is also an area of rapid change as terrorist organizations actively seek to evade governmental scrutiny and take advantage of new, emerging technologies. The shift in the nature of the global terrorist threat—from a centralized al Qaeda to a franchise model—has impacted terrorist financing as well.
Until the September 11, 2001 attacks, combating the financing of terrorism (CFT) was not a strategic priority for the U.S. government. In the wake of the September 11 attacks, the United States dramatically increased its focus on combating terrorist financing, designating and freezing the assets of numerous terrorist financiers and support networks, prosecuting individuals and entities for providing material support, as well as increasing its focus on “following the money” as a means of collecting financial intelligence. The U.S. government also made a variety of structural and organizational changes designed to enable it to better address this key threat. The United States was hardly alone in its new focus on terrorist financing, as many other countries followed suit. The European Union (EU) established terrorist blacklists, among other actions, and a number of the Persian Gulf countries put regulatory regimes in place to govern this arena. The private sector’s role—and its importance—in the global efforts to combat terrorist financing also increased. While the United States led the international charge on these issues, two international organizations—the United Nations (UN) and the Financial Action Task Force (FATF)—also deserve credit for the scale of the global response since September 11.
Despite this progress, a number of obstacles remain, handicapping international efforts to combat terror financing. Perhaps most importantly, there are limits to what the United States can accomplish unilaterally in this arena. International cooperation is critical to contending with terror finance in today’s truly global financial system. Maintaining focus and commitment on counterterrorism issues, including CFT, becomes increasingly difficult as September 11 grows more distant. Keeping pace with the rapid changes in how terrorist groups finance themselves is also an uphill struggle for government bureaucracies that, by their nature, are often slow to adapt. The evolution in terrorist financing is particularly challenging for law enforcement and intelligence to follow. Terrorist groups also continue to abuse the charitable sector, a sensitive issue that few governments have been willing to address.
Additionally, in spite of some positive steps taken by the Persian Gulf countries, the region remains a key source of terrorist funds. European efforts in this area also remain uneven. Meanwhile, cracking down on the primary state sponsors of terrorism—Iran and Syria—is complicated by their direct access to the international financial system by virtue of being sovereign states. Terrorists are also still able to use a number of key safe havens for fundraising purposes. Finally, while financial institutions have improved their CFT regimes, they could be doing far more were governments willing and able to better engage with the private sector on these issues.
U.S. CFT Response Post-September 11
Prior to September 11, combating terrorist financing was not a high priority for the U.S. government or the international community. Senior U.S. policymakers were not focused on issues related to terrorist financing, and to the extent that they were, reliable information was often hard to come by, particularly on al Qaeda. The U.S. intelligence community did not have a solid grasp on al Qaeda’s financing. Few resources were devoted to this type of strategic intelligence collection. Compounding this, al Qaeda was a difficult collection target. International counterterrorism cooperation, critical to fighting a transnational enemy, was also often lacking.
Legal and Structural Changes
The counterterrorist financing environment changed dramatically in the wake of the September 11 attacks. The United States responded to the attacks on many fronts—employing an aggressive, multifaceted strategy to combat terrorist financing. On the enforcement front, the United States took action against many organizations and individuals who had been on the government’s radar for years. The U.S. Department of Treasury designated and froze the assets of numerous terrorist financiers and support networks—approximately 460 in all by late 2007. Those designated were from a wide range of terrorist groups, including al Qaeda and its affiliates, as well as Hezbollah, Hamas and the Palestinian Islamic Jihad (PIJ). The U.S. Department of Justice began vigorously using the “material support” statute to prosecute numerous individuals and entities for supporting terrorist organizations.
Beyond enforcement, which remains the aspect of the CFT efforts most visible to the general public, the United States has also improved its financial intelligence capabilities. This effort is in line with the recommendation of the 9/11 Commission Report to engage in “vigorous efforts to track terrorist financing.” Stuart Levey, undersecretary for terrorism and financial intelligence at Treasury, emphasized that “counterterrorism officials place a heavy premium on financial intelligence” in part because “money trails don’t lie.”
The U.S. government also made organizational and structural changes designed to improve its counterterrorist financing capabilities. The Federal Bureau of Investigation (FBI) established a special branch at its headquarters—known as the Terrorist Financing Operations Section—to focus exclusively on these issues and to help direct and coordinate its fifty-six field offices’ terrorist financing investigations. Justice also established an office within its counterterrorism section to handle these issues. Perhaps even more importantly, Treasury, whose enforcement capabilities were nearly eliminated with the 2003 Department of Homeland Security (DHS) reorganization, began to ramp back up. In 2004, Treasury created an Office of Terrorism and Financial Intelligence, headed by an undersecretary, which included a newly formed in-house intelligence arm, the Office of Intelligence and Analysis. These changes at Treasury helped address the two major challenges facing the department prior to September 11: inadequate access to intelligence information in the U.S. government’s possession and inattentive policymakers at senior levels in the department. The Drug Enforcement Agency (DEA) has also assumed a growing role in the U.S. government’s counterterrorism efforts. This is an important development, given the growing ties between Middle East terrorist groups and drug traffickers. In 2006, the DEA officially joined the U.S. intelligence community Since drug traffickers and terrorist groups are also located in many of the same ungoverned locations and use the same facilitation networks, DEA is now better positioned to address both threats, particularly as they overlap.
The International Front
The U.S. government also worked to bolster the role played by international organizations, in particular the UN and FATE In the first few years after September 11, the UN’s so-called “1267 list” was an important component of the international effort to target al Qaeda and its affiliates. By late 2003, almost 300 al Qaeda and Taliban members and entities were on the UN’s terrorist blacklist. All UN members were required to freeze the financial assets and restrict the travel and arms trade of designated entities. While the resolution was originally passed in 1999 in an unsuccessful effort to pressure the Taliban to evict al Qaeda, the fact that al Qaeda and the Taliban were already blacklisted certainly helped the United States build international support for the war in Afghanistan quickly after September 11.
The UN also passed Resolution 1373 in late September 2001, creating a Counterterrorism Committee (CTC) and calling on all countries to improve their capabilities to combat terrorist financing. The international community heeded the UN’s call. By early 2004, 132 countries signed the UN’s Convention for the Suppression of Terrorist Financing and 112 of these countries had ratified it—up from four on September 11, 2001.
The Financial Action Task Force (FATF), a Paris-based, multilateral organization, which seeks to set global standards to combat money laundering and terrorist financing, has also played an important role. Launched by the Group of Seven (G-7) in 1989, FATF now includes thirty-four member countries. In response to the September 11 attacks, FATF added combating terror financing to its mission in October 2001 and put out nine broad “special recommendations” in this area. Requirements include criminalizing terrorism financing, developing a system of freezing terrorist assets and adequately overseeing nonprofit organizations and the informal financial sector, among other measures. While FATF has no enforcement powers, it has had remarkable success in pushing its recommendations. Many countries have incorporated the FATF recommendations against both money laundering and terrorist financing into their regulatory regimes.
The Egmont Group, another multilateral organization whose responsibilities include combating terrorist financing, has also become a player in the international effort. Egmont is the global network of Financial Intelligence Units (FIUs)—the centralized, national agencies responsible for detecting and fighting terrorism financing and money laundering. Egmont was a late arrival to the counterterrorist financing arena, as it was not until 2004 that Egmont revised its definition to require that FIUs specifically focus on terrorism financing. Previously, their primary focus had been criminal activity in the financial arena, particularly money laundering.
Finally, the United States began to recognize the critical role of the private sector in the global efforts to combat terrorist financing. While the private sector in most countries—in line with the Egmont and FATF recommendations—has an obligation to file suspicious activity reports with the government, the number of these reports filed since September 11 has increased exponentially In the United States, these reports have often proven valuable for counterterrorism investigations. According to Patrick O’Brien, assistant secretary for terrorist financing at the U.S. Treasury, there is a 20 percent correlation between Suspicious Activity Reports (SARs) and open FBI investigations. John Pistole, the FBI’s deputy director, stated that in 42 percent of cases in a sampling of FBI investigations, Bank Secrecy Act (BSA) reports were part of the investigative file—giving a sense of how critical this data is in the counterterrorism arena. In the UK, the private sector’s potential value in counterterrorism was illustrated in the wake of the 7 July 2005 transportation attacks in London, when the most critical information in the first few days after the attack came from British banks.
Regional Improvements
In tandem with U.S. efforts, the EU has been one of the leaders in making improvements to its counterterrorism financing regimes. For example, the EU established two terrorist lists—one for al Qaeda/Taliban members and one for other terrorist organizations. All twenty-seven European countries are mandated to freeze the assets of designated entities. In addition, European countries have also created or designated specific government agencies to lead the counterterrorist financing efforts, criminalized terrorist financing and developed systems to freeze assets, among other changes. For example, Spain established the Commission for the Activities of Terrorist Funding, and France now appoints an economic and financial investigating judge to assist the anti-terrorism magistrate in terrorist financing cases.
The EU and its member states have also been active participants in the FATE The European Commission, the EU’s bureaucratic arm, and a number of European countries are among the thrity members of FATE Perhaps as a result, Europe has been among the leaders in implementing FATF’s nine “special recommendations” to combat terrorist financing. All twenty-seven EU member states are also now members of the Egmont group.
The Persian Gulf countries also took many steps in the right direction since September 11, in part as a result of robust U.S. diplomatic engagement on the issue of terror financing. Many of the Gulf countries, including Bahrain, Qatar and the United Arab Emerates (UAE), are trying to establish themselves as major international financial centers, and recognize that terrorism—and terrorist financing more specifically—could put these efforts at risk. The UAE has been at times willing to take on difficult challenges in this area. After September 11, it became clear that al Qaeda had used Dubai both as a transit point for the hijackers traveling onward to the United States, and, more generally, for the trusted hawaladars (brokers of informal, trust-based means of financial transfer) in the country. The UAE was forward-leaning in its attempts to tackle these issues. It opened its books to U.S. investigators looking into whether a UAE-based money remitter, al-Barakat, had ties to al Qaeda.
More recently, the UAE also launched an initiative to try to regulate the many brokers located there. As of May 2008, 369 hawaladars had submitted an application to register with the government and 265 had actually completed the process. In an effort to bring the hawaladars into the open, the UAE also encouraged them to reach out to the government for guidance and promised not to divulge information they supplied about their counterparts in other countries. The UAE has taken some other important steps recently to more closely regulate its business sector. In August 2007, the UAE passed a law allowing it to restrict exports for national security reasons. Soon after, the Emiratis detained a ship bound for Iran to determine whether chemicals on board violated either the UN resolutions or its recently passed export-control law. Although these export-control related actions were taken primarily in response to U.S. pressure to crack down on trade with Iran, the closer scrutiny has had benefits for the UAE’s counterterrorist financing efforts as well.
Kuwait has made some—albeit limited—progress in attempting to crack down on terrorist financing. In September 2006, for example, the government dispatched monitoring teams during Ramadan to ensure that fundraising was not being diverted to terrorist causes. In addition, donations in cash were banned, and charities were prohibited from sending funds abroad without governmental approval.
While the Saudis have been the subject of considerable criticism from the United States, they too have made improvements since the September 11 attacks. Saudi charities are now officially prohibited from sending funds outside of the kingdom after the government recognized that it could not effectively control where the funding was going. The government has also taken the rather far-reaching measure to remove the collection boxes from mosques. There have even been cases where the Saudis engaged in joint designations with the United States on Saudi-based charities—such as the 2002 and 2004 blacklisting of six branch offices of al-Haramain Islamic Foundation. In fact, some bankers in the Persian Gulf outside of Saudi Arabia describe Saudi’s regulatory body—the Saudi Arabian Monetary Authority—as the most effective in the region. The Saudis have also conducted at least several terrorist financing related arrests. According to the then FBI Assistant Director John Pistole, some of these individuals were identified in a joint operation between the FBI and the Saudi Mabahith.
Challenges Remain
Despite the clear progress since September 11 by the United States, its allies and the international community in combating terrorist financing, continued success is far from guaranteed. While many of the limitations have to do with inadequate governmental and international efforts, there are also other, broader factors at play. One major issue relates to the evolution in terrorist financing itself. These rapid changes, attributable in part to U.S. and international CFT efforts as well as broader technological changes, have, at times, made it more difficult for law enforcement and intelligence to stay on top of terrorist financing trends and activities.
With globalization, for example, the volume of funds flowing internationally has increased, often making it harder for government investigators to identify all of the criminal activity, let alone the source of terrorist financing. As a senior UN official lamented, “How do you pick the source of terrorist financing out of the billions of dollars in mortgage fraud?” On the flip side, terrorist cells and organizations are also increasingly turning away from the formal financial sector and using less sophisticated methods such as cash couriers and bulk cash smuggling to transfer funds. Although less efficient from the terrorists’ perspective, they are more difficult for law enforcement to track. Charities and other NGOs changing their names to evade sanctions are often able to stay one step ahead of governments. Other frequently used techniques, such as trade-based money laundering, also present real challenges for governments.
International Cooperation
One key challenge is that there are limits to what the United States can accomplish unilaterally in this arena, and, as a recent National Intelligence Estimate noted, international cooperation is likely to wane as September 11 grows more distant. One problem in this area is that the UN, an organization that played an important role in bolstering international counterterrorist financing efforts in the first few years after September 11, has seen its counterterrorism role greatly diminished since 2004. Over the past several years, the importance of its 1267 list of al Qaeda and Taliban members and affiliates has greatly diminished, as the UN itself has acknowledged. A recent report issued by the UN team responsible for monitoring compliance with resolution 1267 outlined a broad array of problems. Perhaps of greatest concern, the list has grown stagnant, as the volume of names being added has dropped sharply. Currently, only a handful of countries regularly submit names. The monitoring team reported that only five names had been added as of 2007, which is on pace for the lowest annual total since the list was established. Many countries’ records of implementation have also been poor. A 2004 to 2005 study by the World Bank and International Monetary Fund (IMF) found that none of the eighteen countries reviewed was fully compliant with the UN obligations in this area.
The Gulf States
In terms of specific regions, while countries in the Persian Gulf have made some progress in combating terrorist financing, the area is still an important source of terrorist funds. As Treasury Undersecretary Stuart Levey noted in a February 2008 trip to the region, millions of dollars are still being raised in the Gulf and sent to terrorists. In this regard, Saudi Arabia remains a particular challenge. In a June 2007 speech, Treasury Secretary Henry Paulson cautioned that although the Saudis are “very effective at dealing with terrorists within the kingdom,” they “need to do a better job holding people accountable who finance terrorism around the world.” Levey issued a harsher assessment in September 2007, remarking, “If I could somehow snap my fingers and cut off the funding from one country [for terrorism], it would be Saudi Arabia.” Levey also criticized the Saudis for failing to prosecute terrorist financiers and called on the Saudis to treat the financing of terrorism as “real terrorism because it is.”
At times, the Saudis have also moved very slowly in enacting promised changes. The most well-publicized example is the infamous Charities Commission, which would have oversight over all Saudi charities with foreign operations. While the Saudis declared in 2002 that they were creating this commission, at the end of 2007 it was still not in existence. Saudi efforts to establish a Financial Intelligence Unit (FLU) have been both well publicized and openly criticized. In 2005, officials in Riyadh announced the opening of an FIU that was to report to the Ministry of the Interior, staffed by personnel from the Saudi Arabian Monetary Agency and internal security service. Then U.S. Congresswoman Sue Kelly—one-time chair of a House Financial Services subcommittee—described what she discovered about the Saudi FIU during a 2005 trip to the country. Despite being reassured by the Saudis that the unit was operational, she found that it consisted of “an empty floor in a building under construction.”
There are problems with Kuwait’s efforts as well. Although Kuwaiti police and internal security have proven willing to crack down on domestic terrorism over the years, the political and social support enjoyed by the Islamists has made the government tolerant of some preaching and fundraising on behalf of jihadist causes abroad, against both Israel and the United States. Indeed, the State Department’s 2006 report on international terrorism duly noted Kuwait’s “continued reluctance to confront domestic extremists and Kuwaiti supporters of terrorism active in Iraq and Afghanistan.” As in Saudi Arabia, one of the main problems in Kuwait remains the activities of the charitable sector. A March 2007 State Department report noted that terrorist financing in Kuwait “through the misuse of charities continues to be a concern”—perhaps in part because terrorist financing is still not a crime. Several U.S. officials compared Kuwait’s counterterrorism efforts now to Saudi Arabia’s before the May 2003 attack in Riyadh, when the Saudis first realized and acknowledged that they had a serious threat on their hands.
A broader problem throughout the Persian Gulf is that, while many of the countries in the region have put in place robust Anti-Money Laundering and Combating Financing of Terrorism (AML/CFT) regimes, they often lack the capability to effectively implement them. The UAE is a good example of this phenomenon. As one U.S. official noted, the UAE runs well “on the surface” and always attempts to reassure the United States that it has issues under control. However its capabilities are ultimately still limited. The UAE has only two analysts in the Dubai police who are responsible for CFT issues—far too few to cover this area in the Middle East’s leading international financial center. Beyond resource issues, the UAE government is only now learning how to track Internet Protocol addresses and still has only a limited understanding of how to follow the money. Perhaps as a result, the UAE has never convicted anyone for terrorist financing or money laundering. This is quite problematic in a country where, according to the State Department, “the threats of money laundering and terrorist financing are particularly acute.”
The State Department’s 2008 report, assessing AML/CFT efforts around the world, criticizes the UAE, Saudi Arabia and Kuwait for being overly reliant on suspicious activity reports to begin investigations. While these are useful tools, they should hardly be the primary source of leads for investigations. As the State Department notes in discussing Kuwait, law enforcement and customs need to be far more proactive in identifying troublesome behavior. In Qatar, according to one U.S. official, the attitude is often that “a law has been passed, and therefore the problem has been solved.”
In the view of one UAE banker, at least some of the problems with the Persian Gulf AML/CFT regimes relate to the lack of maturation. Europe and the United States have been developing their systems and approaches to tackling these issues for many years now, while the Gulf and Middle Eastern countries are struggling to catch up.
Private Sector Challenges in the Persian Gulf
For the private sector, fulfilling industry-standard “know your customer” obligations is a struggle in many of the Persian Gulf countries. The compliance departments in the Gulf banks are often in a difficult position. They are generally staffed and run by expatriates, often from Western countries. As foreign nationals, there are cultural limitations on what types of questions they can ask from the host country nationals—particularly when the clients or prospective clients are from prominent local families. One compliance official at a UAE bank explained that culturally, as a foreign national, he could not even ask an Emirati client for his wife’s passport information, as this would be deemed too sensitive. If he determined that he needed additional information from an Emirati, he would have to approach one of the senior Emirati officials at the bank request the information. Needless to say, it is often easier to avoid asking the tough questions in this environment.
State Sponsors
The United States and its allies have made little progress in cracking down on the main state sponsors of terrorism—particularly Iran and Syria. While al Qaeda remains the most serious threat to the United States, state sponsors of terrorism, including Iran and Syria, still pose a major counterterrorism challenge. On the Syrian front, while the robust international pressure after the assassination of former Lebanese prime minister Rafiq Hariri clearly had an impact in pushing the Syrians out of Lebanon, U.S. economic pressure itself has had a far smaller impact. As Treasury Assistant Secretary for Terrorist Financing and Financial Crime Patrick O’Brien acknowledged, the United States’ leverage over Syria is constrained by the countries’ limited economic ties, and the fact that Syria is largely a cash economy, not fully integrated into the international financial system. In addition, there is little political will in Syria to crack down on any type of illicit financing. In the State Department’s view, lack of political will likely prevents Syria from taking the necessary steps to “punish terrorist financing, to classify what it sees as legitimate resistance groups as terrorist organizations, or to address the corruption that exists at the highest levels of government and business.”
The U.S.-led effort to pressure Tehran to abandon its nuclear program as well as its support for terrorism has had a considerable success in ramping up the financial pressure. Major global financial institutions—including three major Japanese banks, Switzerland’s Credit Suisse, Germany’s Deutsche Bank and Commerzbank and the UK’s HSBC—have either terminated or dramatically reduced business with Iran. Sanctions have also scared off many foreign investors. Unfortunately, the increased financial costs have yet to persuade Tehran to change course on either front. Iran is still described by the U.S. government as the “most active state sponsor of terrorism,” with a “nine digit line item in its budget” to support terrorist groups and activities. Iran sends hundreds of millions of dollars to various groups each year, including Hezbollah, Hamas and PIJ; the payments to Hezbollah alone are as much as US$200 million annually. Illustrating the extent to which this support is a part of official government policy, Iran has used its state-controlled financial institutions to facilitate the regime’s terrorist financing activities. For example, Bank Saderat—one of the largest state owned banks—has been involved in transferring funds to terrorist groups, including Hezbollah and PIJ.
Europe
The problems in tackling terrorist financing are not limited to the Persian Gulf, however. While individual European countries, such as the UK, have made progress in tackling terrorist financing, the EU’s efforts remain uneven. The EU has been able to effectively target and freeze the assets of entities associated with al Qaeda or the Taliban—at least those already designated by the UN’s 1267 committee. In adherence to the obligations imposed on UN members by Security Council resolutions, any individual or entity designated under Resolution 1267 is automatically added to the EU’s own list of terrorist subjects. Under EU law, all EU member states are then required to freeze the assets of those persons and groups within their jurisdiction.
The EU has been far less successful in its efforts to designate other terrorist groups. Under the EU system, blacklisting terrorists who are not affiliated with al Qaeda or the Taliban requires the unanimity of all twenty-seven member states. This unanimity requirement has prevented the Europeans from taking action against important terrorist organizations. The EU, for instance, has not designated Hezbollah due to French-led opposition, and until 2003, only Hamas’ military wing was on the list.
Europe’s record of implementation is also quite mixed. According to DHS, the vast majority of funds actually seized or frozen in Europe have been done so by a handful of countries. One reason is that countries tend to interpret their EU obligations very differently. While Northern European countries tend to take the directives and develop detailed implementing regulations, some of the countries in Southern Europe, as well as newer members, take these obligations far less seriously As one British lawyer stated, “The British gold plate the EU directives, while many other countries regard them as polite suggestions.” For example, while the UK put out guidelines of several hundred pages for its lawyers, explaining how and when to file suspicious activity reports, the Spanish directive is only two pages long.
Informal Financial Systems
Terrorist cells and organizations are also increasingly using cash couriers and bulk cash smuggling to transfer funds. Although less efficient, these methods are more difficult for law enforcement to track. Trying to urge the Persian Gulf countries, in particular, to regulate cash couriers has been an uphill struggle in a region where carrying bulk cash is a common practice. The Saudis have been particularly reluctant to head down this path. The United States pressured the Saudis to put in place a regulation to govern bringing cash in and out of the country. After some delay, the Saudis finally put a provision on the books. However, the Saudis still had not created the actual form that those meeting these requirements would fill out. It took another push from the United States for the Saudis to take this next step. Even with this rule now in place, its impact will be limited. The Saudis will be unlikely to require Royal Family members to submit to searches; rather, these new powers will likely be targeted largely at foreign nationals. As one U.S. official noted, in discussing Qatar, “It is unrealistic to expect that the government is going to ask the sheikhs how much money they are carrying.” This comment is equally applicable to how the Saudis can be expected to enforce these new rules.
Even where regulations have been put in place by governments throughout the world, the implementation has often been inadequate. This is not merely an international problem. Looking at the United States helps demonstrate how challenging this problem is. Despite the fact that it is now a criminal offense to operate an unlicensed money remitter in the United States, this has hardly solved the problem. The United States estimates that less than 20 percent of the money services bureaus have actually fulfilled the registration requirements.
Charitable Sector
As with the Persian Gulf, the global charitable sector remains vulnerable to terrorist financing. One reason for this, according to FATE is that charities are still subjected to lesser regulatory requirements than other entities, such as financial institutions or private companies. The United States has been largely alone in cracking down on—and providing charities and non-governmental organizations (NGOs) with guidelines to prevent—such abuse. Many other countries have been reluctant to take any steps to tackle this problem, often out of concern that they will appear to be targeting Muslim humanitarian efforts. Countries in the Middle East have been particularly resistant to taking action against charities. Since charity; or zakat, is one of the five pillars of Islam, governments are worried that they will be portrayed as anti-Islamic. In Europe, member states have resisted the European Union’s efforts to develop solutions pushing back against a 2005 EU initiative in this area. EU member states regard this as an issue within their sovereignty, and the charities are resistant to EU oversight as well. For some European countries, regulating charities is more than merely a sensitive issue and raises constitutional issues. For example, in Sweden and Denmark, even the prospect of registering charities triggers constitutional considerations.
Private Sector
While the private sector has improved its CFT regimes, it could be doing much more. There is considerable frustration in the private sector about terrorist financing related issues. A former senior Treasury official now in the private sector explained that the banks are often in a difficult position, given how little information they receive from the government. As a result, the private sector is often not well positioned to decide whether to do business with a particular entity or person. The private sector often relies on reports from private companies, but these reports are often inaccurate, using unreliable sources. Furthermore, the private sector is not allowed by the U.S. government to use a sufficiently risk-based approach in combating terrorist financing. In this official’s view the emphasis is on whether the private sector has checked the right boxes, not on the overarching objective of stopping terrorist financing.
Overall Impact
While the United States and its allies are encountering growing difficulties in their efforts to combat terrorist financing, an examination of the record to date indicates positive results. Speaking before Congress in February 2007, Director of National Intelligence (DNI) Michael McConnell commented that over the previous twelve to eighteen months, the intelligence community noticed that “al Qaeda has had difficulty in raising funds and sustaining themselves.” In early April, Undersecretary of the Treasury Stuart Levey echoed the DNI’s assessment, adding that the government’s efforts to combat terror finance “are more integrated than ever before” and have enabled the government to disrupt or deter some sources of al Qaeda finance and make “significant progress in mapping terrorist networks.”
There are also a variety of anecdotes that seem to clearly illustrate that the U.S. and international efforts are having an effect on the cash supply of a variety of terrorist groups. For example, while there is evidence that the al Qaeda core is resurgent, there is also information that suggests that al Qaeda leadership is increasingly unable to fund itself. In his July 2005 letter to Abu Musab al-Zarqawi, Ayman al-Zawahiri humbly asked the leader of al Qaeda in Iraq (AQI) if he could spare “a payment of approximately one hundred thousand” because “many of the lines have been cut off.”
Similarly, in May 2007, al Qaeda leader in Afghanistan, Shaykh Mustafa Abu al-Yazid (a.k.a. Shaykh Sa’id) highlighted the group’s desperate need for funds:
As for the needs of the Jihad in Afghanistan, the first of them is financial. The Mujahideen of the Taliban number in the thousands, but they lack funds. And there are hundreds wishing to carry out martyrdom-seeking operations, but they can’t find the funds to equip themselves. So funding is the mainstay of Jihad. They also need personnel from their Arab brothers and their brothers from other countries in all spheres: military, scientific, informational and otherwise.… And here we would like to point out that those who perform Jihad with their wealth should be certain to only send the funds to those responsible for finances and no other party, as to do otherwise leads to disunity and differences in the ranks of the Mujahideen.
There are a few more specific examples that illustrate the value of financial intelligence as a counterterrorism tool and demonstrate how the United States and its allies have been able to use financial intelligence to disrupt plots and prevent attacks.
According to Treasury, financial intelligence played an important role in individual operations, such as the investigation that led to the capture of Hambali, Jemaah Islamiya’s operations chief who masterminded the Bali bombings in 2002. Additionally, four different terrorist attacks abroad have been disrupted, according to the FBI, based in part on their investigations of the financial activities of terrorist supporters in the United States. Treasury also reported that a financial intelligence collection program supplied a key piece of evidence confirming the identity of a major Iraqi terrorist facilitator and financier. Meanwhile, British authorities foiled a liquid explosive aviation plot in the summer 2006, thanks in part to critical financial intelligence.
Why Combating Terror Finance Matters
While these anecdotes and examples give a sense of the importance of counterterrorist financing measures, they do not tell the whole story as to why combating terrorist financing is both an effective and wise use of available resources. Although mounting an individual terrorist attack is relatively inexpensive, the cost of maintaining the infrastructure of terrorism is high. Terrorist networks need cash to train, equip and pay operatives, to secure materials and to promote their cause. Eliminating or reducing a cell’s means of raising and transferring funds will significantly degrade that cell’s capabilities. Additionally; by forcing terrorist networks to abandon formal financial channels in favor of informal transfers in smaller denominations, targeted measures have the cumulative effect of making the funds transfer process slower, more cumbersome and less reliable.
It is important to recognize, however, that combating the financing of transnational threats will not, in and of itself, defeat these threats, nor is it intended to do so. Freezing funds will constrict the operating environment for illicit actors and disrupt their activities. Following the money trail will expose donors and operators up and down the financial pipelines of terrorists and insurgents alike. These tools must be part of a broader strategy that leverages all elements of national power to successfully defeat these serious international security threats.
As intelligence agencies improve their capacity to collect and exploit financial intelligence for preemptive action, they are sure to rely on the experience of law enforcement agencies that have long employed financial tools to solve crimes and build prosecutions. With nearly every recent terrorist attack, the post-blast utility of financial investigative tools has been reaffirmed. Financial data provided investigators critical and early leads immediately following the attacks on September 11, as they did following the 7 July attacks in London and the 11 March attacks in Madrid, among others.
But focusing on the financing of transnational threats has other benefits as well:
♦ Deterrent Effect: As difficult as it may be to deter a suicide bomber, terrorist designations can deter non-designated parties, who might otherwise be willing to finance terrorist activity. Major donors inclined to finance extremist causes—who may be heavily involved in business activity throughout the world—may think twice before putting their personal fortunes and their reputations at risk.
♦ Preventive Intelligence: Unlike information derived from human spies or satellite intercepts, which require considerable vetting to determine their authenticity, a financial transfer is a matter of fact. Raising, storing and transferring money leaves a financial trail investigators can follow. Definitively linking people with numbered accounts or specific money hangers is a powerful preemptive tool, often leading authorities to conduits between terrorist organizations and individual cells.
♦ Disruptive Tool: According to the terrorists themselves, while following the money will not stop all terrorist plots or prevent Iranian procurement of all the parts it needs for its weapons programs, it will likely frustrate some of these activities. Back in 1995, captured World Trade Center bomber Ramzi Yousef was flown over the Twin Towers on his way to a New York jail. When an FBI agent pointed out that the towers were still standing, Yousef replied, “They wouldn’t be, if I had enough money and explosives.” At a minimum, it will make it harder for terrorists to travel, procure materials, provide for their own families and radicalize others. Denying terrorists, insurgents and proliferators easy access to financial tools forces them to use more costly, less efficient and often less reliable means of financing.
Conclusion
Despite its relative success in this arena, the United States and its allies cannot afford to grow complacent. Serious challenges have emerged which could threaten the record to date. As governments have cracked down on terrorist financing, the growing number of terrorist cells and organizations has found new ways to raise, store, move and access funds. The evolutionary nature of this threat requires regular and ongoing reassessment to identify potential vulnerabilities and adapt a counterterror finance posture accordingly.
Combating terrorist financing must remain an important component of every country’s counterterrorism strategy, and maintaining international focus and cooperation on this issue is essential. While these are difficult challenges, the potential benefit is significant. Failure to build a truly international counterterror finance regime guarantees that the successes seen in this arena to date will be short-lived. There should be no doubt that if terrorist groups are able to raise, move, store and access funds with relative ease, the threat they pose to the United States and its allies would be dramatically increased.