TERROR FINANCING AND FINANCIAL COUNTERTERRORISM "Money means a thousand things in a thousand different minds" (H.G. Wells)

TERROR FINANCING AND FINANCIAL COUNTERTERRORISM
"Money means a thousand things in a thousand different minds" (H.G. Wells)

    It's called financial intelligence (FININT), and there have traditionally been two tactics: (1) "follow the money" and use what you find to hunt down or track terrorists; and (2) "dry up the money" in hopes that you can slow down, disrupt, or dismantle terrorist networks.  The two tactics are not mutually exclusive, but involve different strategic objectives.  Pursuit of these objectives pivot around changes in legislation and law, and frequent changes in statutory authorizations are to be expected in this volatile and active area of commerce regulation.  Some laws are strong, but most are weak.  Controls on international money laundering, for example, may be quite strong while regulations are very weak on the worldwide illegal illicit goods trade, like knockoff designer items, sunglasses, and pirated movies.  Each case of terrorist financing presents its own unique problems.  Terrorist financing isn't like an organized crime pattern where the intent is to monopolize a whole industry or two.  Instead, the behavior is more like transnational crime, picking away at every little loophole, lackadaisical law, and money-making opportunity on a country-by-country basis.  Terrorist financing is best described by Madinger (2006), who calls it diabolically clever or fiendishly complex. 

    All things considered, the growing nexus between terrorism and crime may actually be a positive development.  Investigation of terrorist behavior on its own is extraordinarily difficult, particularly in the precursor or indicator stages.  It is easier and far less complicated to investigate criminal activity.  Jacobson & Levitt (2010) point out that while many countries refuse to admit they have a terrorist problem (like the Tri-border area of Argentina, Paraguay, and Brazil), they are more than happy to cooperate with U.N. and U.S. authorities on aggressive crime enforcement.  It is easier to prosecute terrorists for criminal activity than crimes of terrorism, and this has the added benefit of sullying their reputation as "freedom fighters" or righteous dissidents.  In the Tri-border area, and elsewhere, it's easy to make a million dollars by smuggling a suitcase full of drugs, but you've got to find a way to travel across borders with it.

    More insidious is the tendency for international terrorist groups to use the economies of developed nations (like the U.S.) for their financing.  Like how many immigrants see the U.S., terrorists see freewheeling, capitalist, market economies as affording all sorts of opportunities to make money.  This was the subject of a lengthy Congressional Research Service report (O'Neil 2007) which analyzed, among other things, whether terrorist fundraising within the U.S. was primarily for starting up "new" terrorist campaigns or maintaining the longevity of "old" terrorist campaigns.  The results are surprising -- since it turns out (from interview data) that there have been fewer terrorist attacks against the U.S. by terrorist groups who raise funds here simply because they don't want to "bite the hand that feeds them."  This presents an immediate problem for domestic counterterrorism officials because what if a funding source was to get dried up, would the terrorist group then consider attacking us?  The answer, according to interviews with captured terrorists, is yes.  It's ironic that allowing some terrorist financing to operate actually protects a country from terrorism.

    The "follow the money" tactic is standard law enforcement practice designed to produce hard evidence which will stand up in court.  The goal is to prove significant steps were taken toward an ongoing plot.  Mounds of evidence are usually collected.  Data mining is the latest incarnation of this tactic as well as detection of any "sleeper" cells or other leads to follow.  Also, and very important to remember, the money-following tactic works best when it is more important to exploit a source than eliminate a source.  The best use of this tactic is for purposes of setting up a warning system or going after bigger fish.  However, a lot of agencies simply go after the "low hanging fruit" or easy-to-convict cases.  You can usually tell if you've got a piece of low-hanging fruit when the mysterious sources of their legal defense fund disappear.  By contrast, the "big fish" defendants will have a dream team of well-paid lawyers at their disposal.  

    The "dry up" tactic has two very important sub-strategies: to disrupt and/or to dismantle.  Disruption is the kind of thing which is attempted by designating certain individuals or organizations as being associated with terrorism.  Such labeling or "naming and shaming" really only produces a harassing, temporary stopgap which will slow them down a little or raise the cost of doing business.  Fortunately, U.S. law is strong in this area.  For example, the Secretary of State gets to designate groups as FTOs (Foreign Terrorist Organizations) and the President gets to designate individuals under Executive Order 13224.  Dismantling is a slightly different sub-strategy which involves an attempt to put a financial network out of business.  This is often very difficult, if not impossible, to achieve.  Terrorist networks are unusually good at finding a "workaround," but sometimes "following the workaround" is just as valuable as "following the money."  About the best that can hoped for here is decreased lethality of future attacks given some resource depletion (although even that may backfire).  It goes without saying that U.S. authorities almost always try to dismantle any network involving weapons of mass destruction.  

    A third tactic, which Buckley & Meese (2004) like to call a "judicious enforcement" strategy goes by a few other names, such as "go straight to jail" or the well-known (in criminal justice) "overcharging" strategy.  It involves prosecutorial overcharging with the intended purpose of performing "perp walks" for the media and putting as many people in prison for as long as possible using every possible law on the books.  Such prosecutions usually involve predicate crimes, conspiracies, inchoate offenses, and material support offenses.  This seems to be a good socio-legal solution, and in many places, is a variant of the low-hanging fruit strategy, but one which reinforces the perception that everything surrounding terrorist financing is probably illegal anyway.  It has the benefit of giving a lot of agencies good practice at getting their interagency cooperation game together, but is also subject to the many already-known disadvantages of an "overcharging" philosophy.  To cite just a few well-known unintended side effects or consequences from the criminal justice literature, there is: e.g.; noble cause corruption; overzealous prosecution; politics intruding upon policy; cases tried in the media; displacement effects; etc.

    Finally, crime makes up a significant part of the the global economy.  How much is anyone's guess, but Reuter & Truman (2004) conservatively estimate that about 5% of the world economy has criminal origins, and Gardner (2007) notes that terrorist financing is different from regular criminal activity in the following five (5) ways:

• terrorist financing tends to flow more from legitimate sources
• terrorist financing often involves noneconomic motives
• terrorist financing frequently involves lesser amounts of money
• terrorist financing is more geographically dispersed
• terrorist financing requires more resources to combat it

THE TERRORIST PAYROLL

    It is a mistake to assume that terrorist groups stash large sums of money in secret bank accounts.  To go after such bank accounts would amount to a wild-goose chase and reflect a terrible misunderstanding of how terrorist groups are financed.  They do, however, keep large amounts of cash on hand (usually close to central command and a trusted lieutenant who is often designated as General Treasurer).  They move cash in person (via couriers in small cash increments) and are discreet about how they spend it.  Commanders and lieutenants try to set an example by only carrying two weeks worth of money on them at any given time.  The best analysis of how a terrorist group raises money comes from a group of RAND researchers (Bahney et. al. 2010) who had access to the 2006 capture of financial records for al-Qaeda in Iraq.  A portion of their analysis is presented below:

An Analysis of  Terrorist Group Financing

Al-Qaeda in Iraq was a franchise operation of al-Qaeda central, so it received a small amount of seed money to get started, but by 2006 was profitable enough as pictured at left for yearly revenue. The largest category (2.3mil) came from selling high-value stolen goods such as construction equipment, followed by revenue sharing from sectors or other franchises (925K), stolen car sales and other merchandise (546K) and "spoils" (473K) which was essentially blackmail money or "looting" from apostates, and then finally donations from charitable sympathizers (233K).    Major expenses included monthly payments to members, their parents and dependents, and families of imprisoned or deceased members. On average, this amounted to $60 a month. In addition, medical as well as life insurance was provided. A typical attack would include costs for munitions, material, and safe houses, and run about $3000 per attack. Smaller amounts would go toward mail and media costs as well as bribery of local officials.

    The most striking thing about the above analysis is how undercompensated members are for being a terrorist.  The average pay is anywhere from 50% to 75% less than what an average citizen can make.  However, most people don't join terrorist groups for financial reward.  What is remarkable about terrorist compensation are two things: one, the degree to which family members and dependants are cared for (in some cases, even medical service coverage extended to them); and two, the egalitarian nature of job classification, since captured payroll records never indicated any scheme of pay differential by rank, seniority, or skill.  What terrorist groups are good at is moving money around (back and forth between sectors, franchises, and central command), and carrying out a multitude of operations on the cheap.  They seem to have deliberately chosen a financial strategy which allows them to carry out nearly a hundred attacks per month.  And, they seem to be smart enough to conduct donation and blackmail drives in places where they are not carrying out active attacks. 

    In regards to carrying out terrorism "on the cheap," consider that the Hamburg cell of al-Qaeda spent less than $500,000 to plan and execute the Sept. 11 attacks, and even managed to wire back about $26,000 in surplus funds by coming in under budget.  Subsequent al-Qaeda attacks have cost much less.  Terrorist groups copying the al-Qaeda model try to master "cheap terrorism" via lost-cost, self-funded operations.  Jihadists have been caught shopping at drugstores for bomb ingredients which cost no more that fifteen dollars.  The group responsible for the 2004 attacks in Madrid only needed $80,000 to finance their plot (but was in possession of $2.3 million worth of hashish at the time of their attempted arrest-suicide).  The group responsible for the 2005 London bombings carried it off with only $15,000 (and that included airfare to Pakistan and back).  The group in London raised so much money selling drugs and stolen credit cards that one of the bombers was able to leave behind an estate worth $240,000 after blowing up a subway train (and yes, authorities allowed his family to keep the estate).

    Records indicate that the most money any General Treasurer has sent to al-Qaeda central (or some other franschise) at any given time was about $250,000.  Where they keep the rest of the money is up to the Treasurer's discretion, and there are some indications that they use a network of "deputy treasurers" to keep things dispersed in a kind of "stash house" system.  Terrorists rarely keep money in the bank, and in fact, they are more likely to borrow money from a bank than save there.   They are very skilled at using criminal systems to raise money, and they can collect thousands of dollars in a few weeks.  Some are trained to lead ascetic lives, often keeping their day jobs (which terrorist payrolls account for by cutting a members pay if they have an outside job) and appearing to depend on their families for visible support.  They deliberately try to keep things inexpensive, following a simple formula for homemade explosives stuffed into backpacks, shoes, suitcases, or car trunks.  They are inventive at fundraising, always attempting to outflank the laws.  No crime, from common burglary to white collar fraud, is beyond their repertoire.  Terrorists will be as cheap as they have to be, but quick to jump on the chance at any really big "score."

    SOURCES OF TERRORIST FINANCING

    As Koh (2006) points out, terrorists always seem to have need for a ready supply of cash, and they usually finance their activities in one of three ways: criminal activities, donations, and legitimate businesses.  Crime is traditionally the biggest fundraiser for terrorists, especially narcotics crime.  In Columbia, as much as 90% of terrorist activity is funded from drug trafficking.  Despite having reservations about it, al-Qaeda has also been known to use drug trafficking to finance itself, as are many other Islamic groups in Central Asia, the Balkans, Kashmir, the Caucasus, India, Western China, and Southeast Asia.  Drug trafficking is also commonly used by warlords to finance battles and wars.  Narcoterrorism and terrorist financing go hand-in-hand.  Afghanistan is a country of great concern because it accounts for over 70% of the world opium supply.  It is also important to remember that corruption usually follows in the wake of these kinds of criminal activities.  Kochan (2005), for example, tries to tie together the phenomena of terrorist financing and government corruption.  The two most common crimes are as follows:

•  Kidnapping for ransom is a lucrative source of terrorist financing, in fact, extremely lucrative for some groups like Abu Sayyaf (Filipino pirates) and the ETA (Basque Homeland and Liberty).  The average take from kidnapping a foreign scientist is about one million dollars, and there's no way to count all the money terrorists get from insurance companies and multinational corporations every year.
• Tobacco smuggling is often a source of income for terrorists if import/export duties can be evaded, and groups like Hezbollah as well as the IRA have long been involved in this as well as a number of other Islamic groups, and while tobacco might be the number one commodity at present, it could just as well be another commodity next because terrorists, you see, don't believe in buying and selling things via the usual, legitimate outlets.    

    In the eyes of many terrorists, the most prestigious method is credit card fraud.  They seem to take delight in having a capability where computer networks are hacked into and identities are stolen.  Fortunately, not all that many terrorists are smart enough to do this, but the elephant in the room is the threat posed by Russian, Chinese, or German hackers doing their dirty work for them, which, in all fairness, many refuse to do, but for slim reasons having to do with hacker ethics.  Credit card theft can be carried out with or without the use of computers.

    Donations generally account for about half, or 50%, of the money supply that terrorists need.  No one knows for sure, but Islamic groups are believed to have greater recourse to donations.  The Muslim masses around the world make regular donations (zakat, pronounced like sockit) as part of their charitable obligations (2.5% of one's wealth per year), and much of this has been "hijacked" by terrorist groups, at least since the start of the Afghani mujahideen back in the 1980s.  The Taliban in conjunction with al-Qaeda central have always claimed they were the new global Caliph, and accordingly, at least 20% of any profits from their franchise operations should be remitted to AQ-Central in the form of gold, silver, and jewelry.  Interestingly, Islamic banks and sharia finance also usually apply zakat to every transaction they handle, which means that every Islamic bank is, by design, part of the funding of terrorism.  Islamic banking also destroys records after a short time.  Zakat transactions are almost completely untraceable.  Thousands of charitable organizations exist.  Most Islamic charities are nothing more than a "front" for terrorists, and there have been numerous instances of deceptive, so-called "intercharity organizations."  Usually, the most virulent ones either get designated or become the ongoing target of investigations.  Emerson (2006) provides a list of "the seven" which have achieved some degree of notoriety:

• The Holy Land Foundation for Relief and Development
• The Global Relief Foundation
• The Benevolence International Foundation
• Islamic African Relief Agency
• The International Relief Association
• The International Relief Organization
• Mercy International             

The Case of Blessed Relief Foundation

Please understand that one could get sued for saying this, but it is nonetheless important to talk about the case of Sheikh Khalid bin Mahfouz, who was personal banker to the Saudi royal family and head of the National Commercial Bank of Saudi Arabia until he sold it to the Saudi government. He currently lives in a swanky pad in London with an Irish passport and multiple U.S. business connections, including the likes of Thomas Kean, chairman of the 9/11 Commission.  Sheikh Mahfouz's lawyers say that like any business executive, he could not have monitored everything, but it was known that prior to 9/11, his bank was wiring money to a charity set up in his name, the Muwafaq (or "Blessed Relief") Foundation, which in turn transferred millions of dollars to Osama bin Laden.  The U.S. government knew about it, and in October 2001, tried to put a stop to it by calling (not formally designating) "Blessed Relief" an al-Qaeda front that receives funding from wealthy Saudi businessmen.  To this day, the charity hasn't been stopped, and in fact, has more branch offices than before, all suspected of being al-Qaeda headquarters for the production of fake documents as well as the primary source of funding for all those Wahhabi mosques which are popping up all over the U.S.      Why isn't this network dismantled?  The answer is that Shiekh Mahfouz is not only one of the richest men on the planet (even by Saudi standards) but he's well connected with American government officials.  In the summer of 2007, Cambridge Univ. Press took the unusual step of recalling a book about him, entitled Alms For Jihad: Charity And Terrorism In The Islamic World, because it portrayed him negatively.  There is another book that mentions him, called House Of Saud, House Of Bush, and it is tolerated by the Saudis because it portrays President Bush more negatively than the Saudis.

    Legitimate businesses are a versatile tool for terrorists.  The model is, of course, Osama bin Laden, and he had a number of firms scattered worldwide.  Many of those were shut down and sold shortly after 9/11, leaving bin Laden's power resting primarily in his ability to persuade others to invest in him and al-Qaeda.  However, there still remains a murky, shadowy underworld of former, unidentified business partners, associates, and intermediaries who used to work for bin Laden.  For example, besides construction, the bin Laden empire (parts managed by Osama) included extensive real estate holdings in Europe, a big chunk of the Scandinavian forestry industry, a worldwide fishing boat enterprise, and most scary of all, parts of the hospital industry, especially those parts which handle radioactive material.  This would mean that it's fairly easy for al-Qaeda to get material for a dirty bomb.  Even scarier is the threat of bioterrorism.  The bin Laden empire pretty much had a monopoly (70%) on the gum arabic food additive.  Gum arabic comes primarily from the Sudan, and is not only added to many foods, it is practically in every soft drink and on the coating of almost all candy and pills.  It is believed OBL had a number of other businesses, too, but his accountant defected to the Saudi royal family, and little information sharing has occurred on this because the Saudis prefer to think of it as an internal problem of their own.  The Middle East Intelligence Bulletin occasionally runs articles on the amazing extent of the bin Laden empire.  Legitimate businesses typically used by terrorist groups include construction companies, honey shops, tanneries, banks, agricultural commodities growers and brokers, trade businesses, bakeries, restaurants, and bookstores.

LEGISLATION ON TERRORIST FINANCING

    There are nine (9) specific laws which mainly apply, but it should be understood that legislation prior to 2001 was not specifically aimed at terrorist financing.  Instead, it was aimed at money laundering, which was first addressed in 1970.  Money laundering, simply defined, is the process by which "dirty" money (derived from illegal activity) is disguised as "clean" money (legitimate).  The difference between money laundering and terrorist financing is that the latter isn't always from "dirty" sources.  Terrorist financing may involve legally-derived funds.  A good tool for understanding the evolution of law is FinCEN's BSATimeLine (elaborated upon somewhat later), but perhaps more important are the set of indicators that immediately follow and are standard canon or doctrine in financial counterterrorism:

Indicators of Suspicious Financial Activity

1: Account transactions that are inconsistent with past deposits or withdrawals 2: Transactions involving a high volume of incoming or outgoing wire transfers with no logical or apparent purpose that come from, go to, or transit locations of concern (for example, sanctioned countries, noncooperative nations, and sympathizer nations) 3: Unexplainable clearing or negotiation of third-party checks and their deposits in foreign bank accounts 4: Breaking transactions larger than $10,000 into smaller amounts by making multiple deposits or withdrawals or by buying cashier’s checks, money orders, or other monetary instruments to evade reporting requirements 5: Corporate layering (that is, transfers between bank accounts of related entities or charities for no apparent reason) 6: Wire transfers by charitable organizations to companies located in countries known to be bank or tax havens 7: Charitable bank deposits that lack signs of fund-raising activity (for example, lack of small checks or typical donations) 8: Use of multiple accounts to collect funds that are transferred to the same foreign beneficiaries 9: Transactions without logical economic purpose (that is, no link between the activity of the organization and other parties involved in the transaction) 10: Overlapping corporate officers, bank signatories, or other identifiable similarities associated with the same addresses, references, and financial activities 11: Cash-debiting schemes in which deposits in the United States correlate directly with ATM cash withdrawals in countries of concern; reverse transactions of this nature are also suspicious 12: Issuance of checks, money orders, or other financial instruments, often numbered sequentially, to the same or similarly named person or business

    A Timeline of Financial Counterterrorism Legislation

    (1) Bank Secrecy Act (BSA) -- the 1970 foundation of all antimoney laundering law which is actually a set of specific provisions part of the larger Currency and Foreign Transaction Reporting Act (CFTRA).  BSA focuses on record-keeping requirements which enable authorities to trace money trails.  CFTRA contains the criminal and civil penalties for violating the BSA's record-keeping requirements.  The IRS obtains much of its investigatory power under the BSA.  CFTRA also requires financial institutions to file reports (CTRs or Currency Transaction Reports) when transactions exceed $10,000 and another kind of report (SARs or Suspicious Activity Reports) when the transaction is at least $5,000 and there is reason to suspect the transaction.  The SecTreas (Secretary of the Treasury) has the authority to change these amounts at will.

    (2) International Emergency Economic Powers Act (IEEPA) -- a 1977 law which gives the President broad emergency powers to deal with any national emergency which has its source, in whole or part, outside the U.S., and substantially affects the economy of the U.S.   Specific powers mentioned in the act include the ability to freeze assets, prohibit transactions and/or payments, and prohibit any import/export of currency.   However, the language of IEEPA is sufficiently broad to cover non-economic transactions.  John Lindh was convicted of trading with the enemy under this law, and Mohammed Salah was named a specially designated terrorist under it, making it illegal for anyone, even a grocer, to sell him a loaf of bread. 

    (3) Money Laundering Control Act -- this is the 1986 law which is said to have first "criminalized" money laundering by finally coming up with a workable definition ("known to be derived from unlawful activity in order to further or conceal such activity").  It scoped out three types of money laundering: (a) domestic; (b) international; and (c) attempted, such as what might be uncovered in a sting operation.  If the amount involved exceeded $10,000, the government at trial would not need to prove the second part of the definition (that the defendant meant to conceal...), only the first part of the definition (that the defendant knew the money or property was procured via illegal activity).

    (4) Annunzio-Wylie Anti-Money Laundering Act -- this 1992 law increased the penalties on financial institutions for not filing CTRs and SARs.  The SecTreas was given the power to put a bank or credit union into conservatorship, the Office of the Comptroller of the Currency (OCC) was given the power to revoke bank charters, and the FDIC was given the power to terminate insurance.  This Act was also introduced federal penalties for running a money transmittal business without a license (but licensing regulations varied widely by state).

    (5) Money Laundering Suppression Act (MLSA) -- a 1994 set of exemptions which relieved about a third of all banks from CTR reporting requirements because the government didn't have enough regulators to analyze everything.  A set of new agencies were setup to analyze SARs (the FIU model, which stands for Financial Intelligence Units, which have no investigatory powers of their own, and became a widely circulated model worldwide).  In addition, this act clarified the BSA's applicability to tribal gaming establishments (some who thought they were exempt like the ones in Nevada), adding stricter ID procedures for those who open credit accounts and/or use club cards (full casino compliance with SAR reporting would not take place until 2003).  

    (6) Money Laundering and Financial Crimes Strategy Act ("1998 Strategy Act") -- a 1998 law calling for the designation of certain areas as places where money laundering and related financial crimes are extensive or present a substantial risk.  Such areas are called HIFCAs (High Intensity Money Laundering and Related Financial Crime Areas) and in such areas, there is intensive joint investigative task force activity as well as a strong asset forfeiture component.  Some typical HIFCAs are the Northern District of Illinois (Chicago), the Northern District of California (San Francisco), Los Angeles, New York/New Jersey, and San Juan/Puerto Rico.  HIFCAs work closely with closely with the High Intensity Drug Trafficking Areas (HIDTA) and Organized Crime Drug Enforcement Task Forces (OCDETF).

    (7) Title III of the USA PATRIOT Act -- many changes were made in 2001, but the seven most significant ones are as follows.  Title III of this Act made material support for terrorism a predicate offense for money laundering.  The Act allows the SecTreas to order financial institutions to take "special measures" when terrorist financing is suspected regarding record analysis by institution or region.  The Act prohibits offshore banking utilizing "shell" or correspondence accounts where the alleged bank has no presence in their supposed home country.  The Act restricts the "innocent owner" defense under the rules of evidence for national security purposes.  The Act expands forfeiture power of accounts held in foreign banks under certain procedures where an interbank account handles a substitution of funds.  The Act requires all financial institutions to implement anti-money laundering training programs, and to check the IDs of those who open accounts with a government-provided list of known terrorists.  The Act officially makes FinCEN a part of the Treasury Dept. (which had been kind of quasi-governmental like NIPC in the cybercrime realm).

    (8) Suppression of the Financing of Terrorism Convention Implementation Act -- a 2002 law which made it a criminal offense to collect or provide funds to support terrorist activities, or to conceal such fund-raising efforts, regardless of where the offense is committed or citizenship status.  This legislation can be seen as ratifying a piece of 1999 international treaty law known as the U.N. International Convention for the Suppression of the Financing of Terrorism [pdf] which attempted to establish some uniformity, each nation to enforce similar domestic laws and penalties.

    (9) Intelligence Reform and Terrorism Prevention Act (IRTPA) -- a 2004 appropriations measure which throws about $40 million at two things: computer network upgrades for FinCEN; and training programs to enhance data analysis; both aimed toward secure yet effective cross-sharing of BSA-related investigations with law enforcement both downstream and upstream.  The Act also makes Patriot Act changes a permanent part of BSA, requires yearly progress reports to Congress by the SecTreas, and forces a federal examiner who leaves the government to wait a year before working for a financial institution they examined.

THE CHALLENGES

    Despite numerous laws and vast resources brought to bear on the problem, efforts to cripple a terrorist money supply are often hampered by many challenges.  One of those challenges is the diversity of financial resources at the disposal of terrorists.  The terrorist group, al Qaeda, for example, is typical in having at least four main funding sources: (1) the inheritances and investments of Osama bin Laden; (2) funding from Arab supporters; (3) contributions through Islamic charities; and (4) criminal activity.  Regarding #1, back in the early 1990s, bin Laden's wealth was estimated at about $300 million, and today it is estimated at about $30 million, so most of the inherited money was spent on forming al-Qaeda.  Regarding #2, intelligence officials estimate that al Qaeda receives about $16 million a year from wealthy supporters, about a dozen of them, mostly wealthy Gulf citizens and Saudi bankers and businessmen.  Even though U.S. intelligence has been able to pinpoint this, the Saudi government has been unwilling to cooperate in any investigations.  Regarding #3, Islamic charities are the main source, providing untold billions of dollars every year.  In fact, just one transaction alone (a 2002 transaction from Benevolence International Foundation to a Swiss Bank Account) involved $1.5 billion.  Most Arab governments are unwilling to cooperate with anything involving this zakat, or the making of charitable contributions, which they feel is a Muslim religious duty.   Regarding #4, crimes such as smuggling, counterfeiting, and the narcotics trade make up untold millions of dollars every year.  Terrorist groups regularly use extortion to blackmail not only legitimate people, such as bankers and businessmen, but also drug cartels.  For example, the terrorist group Hamas has been successful skimming money from South American drug lords.  In the Philippines, the Abu Sayyaf Group was successful at levying monthly "revolutionary taxes" from locals.  In Northern Ireland, terrorist racketeering is quite common.  Gunaratna (2002) argues that groups like al-Qaeda has a distaste for drug money, while other groups do not. 

    In the Middle East, the Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and UAE) once agreed to be bound by the Financial Action Task Force (FATF) recommendations, but little action has been taken, and the group has moved toward common market objectives now.  Some countries flatly deny that their charity organizations are involved in contributions to terrorist organizations.  Further, many countries do not abide by any U.S. list of designated terrorist organizations, with some preferring to use UN-designated lists, and others using their own self-made lists.  This problem of multiple lists creates information sharing blockages, particularly among banks.  The Wolfsberg group, a coalition of some of the world's leading banks, has called for greater cooperation.  Islamic banking (a highly controversial practice) is regulated by numerous advisory and regulatory organs, such as Shari'i Supervisory Boards, the Islamic Financial Services Board (IFSB), and the Accounting and Auditing Organization for Islamic Institutions (AAOIFI).  In a nutshell, Islamic banking uses legal tricks and word games (such as the "time value of money" as opposed to "interest on borrowed money") to make profit (even though Shari'i law prohibits usury and interest), and then there is the time-honored Saudi tactic of using holding companies to manage property loans (assisted by American law firms like Shearman & Sterling who specialize in shari'i-compatible mortgage instruments involved in the many Saudi holding companies which own tons of mini-malls across America).     

    In Europe, one of the main agencies involved in terrorist finance tracking is SWIFT (Society for Worldwide Interbank Financial Telecommunication).  Following 9/11 and up until around 2009, this Belgium-based agency shared large amounts of its data to counterterrorism authorities.  Privacy concerns in the EU have scaled that back some, but SWIFT data still provides the best way to monitor possible large-scale terrorist financing (along with CHIPS -- Clearing House Interbank Payments System -- which likewise monitors large-scale transactions in the U.S.).  Intelligence agencies as well as cabinet agencies can access these databanks, although since 2010, the EU has put in place certain privacy protections, similar to the ones which limit information sharing about passenger name records (PNRs) -- the information that passengers give to travel agencies and airlines to book flights.  Both the use of bank records and flight records have resulted in some notable successes at stopping the international spread of terrorism. 

    In Africa, Central Asia, and the Caucasus, the problems are somewhat different due to an extreme lack of financial oversight and the frequent political turmoil in the region.  In particular places where state rule has failed, like Somalia, the economy runs almost entirely upon the famous Hawala system (see Wikipedia Entry on Hawala).  This system exists throughout the world for many purposes, but primarily as one of the major means immigrants to the West send money home.  In the U.S., hawala is regulated as a money services business (MSB), but in the rest of the world, it is rare to find it regulated.  Even when banks and normal channels are blocked or monitored, terrorists often resort to old-fashioned methods, such as cross-border, personal travel with loads of cash or other assets.  Border security is not as it should be in many places, thus enabling this, and most nations do not have the same customs limits regarding the amount of cash which can be carried in or out. 

    Terrorists are goldbugs.  They have long ago figured out that putting money in bank accounts, particularly in America or Western Europe, is NOT a good idea, especially if you want to make sure it's available when you want it.  Therefore, a distinct terrorist preference has evolved for untraceable stores of wealth.  DeYoung & Farah (2002) report that even before 9/11, al-Qaeda was trading a lot of cash (fiat currency) for gold, diamonds, tanzanite, and saphires.  Gold and silver are hallmarks of a barter economy, and conversion of worrisome paper currency (which might collapse or lose value) into precious metal commodities is a wise thing to do, especially in difficult and troubled times.  Precious metals and gemstones have long funded guerrilla warfare for decades, but besides traditional gold and silver, here are some other commodities that are appearing as wealth preservation strategies for terrorist groups:

Diamonds, particularly blood or conflict diamonds, fuel insurgencies, spark revolutions, and pay for terrorism, especially in places like Angola and Sierra Leone. Estimated global trade: $9 billion	Rubies, especially the "pigeon blood" ones from Burma (Myanmar) are frequently what military juntas and terrorists use to raise profits. Estimated global trade: $300 million	Coltan, short for columbite-tantalite, is a metallic ore used for making cell phones and mined in the war-ravaged Kivu region of Congo which fuels much bribery and warfare. Estimated global trade: $180 million	Emeralds, especially Columbian ones, are the favorite of drug lords, organized crime groups, and death squads. Estimated global trade: $140 million	Bauxite is used to make the aluminum that goes into everything, and Guinea is the world's primary supplier which military juntas use to enrich themselves and evade sanctions. Estimated global trade: $130 million

A CASE STUDY IN TERRORIST FINANCING

    Abad Elfgeeh, a 51-year old, ice cream store owner in Brooklyn, originally from Yemen, was arrested by authorities in January 2003 following a broad terrorism investigation that began in December 2001.  In February 2006, he was sentenced to 6months to 15 years in federal prison and fined $1.25 million for illegally funneling nearly $22 million overseas from a period between 1995 and 2003.  The route the money took was by way of a JPMorgan Chase bank account to countries all over the world, including Pakistan, Thailand, and Yemen.  One of the recipients, a Yemeni sheikh who boasted of al Qaeda ties, was also caught up with by authorities, extradited, and sentenced to 75 years in prison.  What is significant about this "typical" terrorist financing case is that the sender received less punishment than the receiver.

    At trial, Elfgeeh acknowledged the credibility of a secretly tape-recorded conversation between him and the sheikh where it was clearly apparent they knew they were funding Hamas and al Qaeda.  However, the methods by which the wiretapped conversation was obtained became suspect at trial.  The judge gave Elfgeeh a lesser sentence because the government could not make a strong enough case for conspiring to finance terrorism, and the only offense to stick was the lesser offense of running an illegal money-transmitting business (which normally carries a 19 year minimum).  In his defense, Elfgeeh said he "intended to get a license, but never got around to it."  Via a number of other good legal strategies, his defense was successful at portraying him as a confused person who didn't understand things, and the possible victim of ethnic profiling.  This portrayal, as well as the following rule of evidence, helped him avoid a longer sentence. The rule of evidence is that prosecutors cannot raise the topic of terrorism at trial unless the defense does first in cases where they do not have sufficient evidence to charge somebody with a terrorism-related crime.  Once the wiretap evidence was thrown out, prosecutors were prohibited from even mentioning Hamas or al Qaeda.  It is like that in many terrorism trials. For example, in the 2005 trial of Sami Al-Arian, the court found that thousands of hours of secretly recorded tapes were the equivalent of outrageous government conduct.  In the Elfgeeh case, authorities wanted to also charge Elfgeeh's brother, Ahmed, since telephone intercepts between Ahmed and the sheikh clearly implicated the two in terrorist plots, possibly even the 9/11 plot.  However, as with many cases involving wiretaps, intercepts, and other examples of "outrageous" government conduct -- admittedly a more common trial defense in pre-Patriot Act days -- sufficiency of evidence was not strong enough, and Ahmed was never charged.

    What judges seem to want proof of in terrorist financing cases is ironclad evidence that some specific money (preferably in marked bills) was transferred illegally (without innocent intent) for specific use in funding terrorism (blowing something up).  It may be noted that the collection of evidence at both ends is quite difficult in itself (i.e., money is commingled at both ends), but authorities have concentrated on the middle -- the process of transfer.  Transferring or converting money is, after all, the essence of the crime.  The uncovering of money laundering trails has always been a complex and painstaking task, but what makes it difficult for authorities is that criminals often do everything in their power to make things look like the transfer involves charitable or familial issues. 

    For example, Elfgeeh's ice cream store was a hawala outlet.  Hawala is an informal money-remittance service that operates faster and cheaper than companies like Western Union.  It serves the Muslim world mainly.  It is not feasible to shut down the whole hawala system since families back in home countries would starve.  Yet, terrorist groups such as al-Qaeda have used hawala to transfer funds.  And, it's a lot safer than simple cash-smuggling in today's age of stricter border security.  Currently in the U.S., there are approximately 20,000 hawala outlets in the form of convenience stores, restaurants, and ice cream shops, mostly located in tight-knit ethnic neighborhoods in big cities where everyone speaks Urdu, Arabic, or Hindu.  It's an "informal" system which means that no records are kept -- all that exists are maybe some scribbles of a named recipient, some code words, and the amount.  Here's how it works in detail:

How Hawala Works

Hawala is Arabic for "trust" or "exchange." It has been around for hundreds of years as a remnant of the trade routes used by Silk Road merchants. Similar systems include the South Asian "hundi," the South American "black market peso," the Thai phoe kuan (message houses), and a Chinese informal banking system known as fei ch'ien (flying money). The way it works in the Arab world is often private, with hawala dealers calling, faxing, or emailing other dealers on behalf of customers. Some hawala dealers elect to be designated a hawaladar. This kind of designation is not recognized by most American banks, but is at many overseas banks, especially at the Bank of Dubai.  It lets the banking officials know that sometimes "extra" money is going to be mixed in with traditional store revenues. After accepting a customer's order, the hawaladar contacts a colleague -- often a friend or family member -- in the destination country.  These contacts promise to deliver an equal amount of cash to the named recipient within 24 hours, usually for a small fee.  These contacts and the hawaladar then settle up with one another weeks later, frequently with a complex mix of wire transfers, over invoicing, and/or trade schemes involving commodities, jewelry, or gemstones. Money and valuables are then either kept on hand or "laundered" as business profits.

    The hawala system persists despite many not-so-infrequent scandals.  In 1995, for example, Turkey discovered that doctors and hospitals had set up a payoff scheme using hawala to extort money out of patients awaiting kidney transplants and other surgeries.  In 2000, hawala was found to be involved in an extensive bribery scandal in India where the bribes were used to payoff politicians in support of both immigration papers to the U.S. and funding for militants in Kashmir.  The world's largest bank, Citigroup, has repeatedly been involved in money-laundering scandals involving hawala or hawala-like systems.  Likewise, the Riggs bank (now part of PNC Bank) has been involved, ironic since it was the Washington DC bank which presidents and dictators used for years for their personal accounts.  The 9/11 Commission Report said that the bulk of the funds used to finance the 9/11 attacks were not sent through the hawala system, but rather by inter-bank wire transfer via the SunTrust Bank in Florida.

HAWALA AND AL-BARAKAT

    Several of the captives held in extrajudicial detention in Guantanamo Bay detainment camps are held because they worked for hawalas.  In fact, since 9/11, there has been a moderately effective crackdown on hawala, as well as a few high-profile cases of authorities chastising U.S. banks.  However, there is a second system, often referred to as a modern form of hawala, called Al-Barakat (see Wikipedia Entry on Al-Barakat).  Al-Barakat originates from Somalia, and as if that stateless country were trying to prove something, Al-Barakat (which means "The Blessed" in Arabic) is the closest thing to a formal economy there.  In fact, Al--Barakat is the largest employer in Somalia.  Since 9/11, it has spread to about 40 other countries, including the U.S., especially in Minneapolis, where about half of America's Somali immigrants live.  Al-Barakat differs from Hawala in that the former operates more out in the open, instead of behind ice cream shops.  The offices of brokers tend to look more like telephone shops, which makes sense, since Al-Barakat is a leading phone and Internet provider for much of the Arab world.  Al-Barakat operates more like an "Arab Western Union" where fees (a 2% surcharge) are collected at the point of origin, regular bank wire transfers are involved (usually Bank of America and a Dubai clearinghouse), and officials at Al-Barakat offices attempt to find or notify the intended recipient.

    Clearly, Al-Barakat records and information would make for interesting intelligence, but like hawala, there is no cooperation with authorities and records are shortly destroyed.  Essentially, the system gets by via using the names of "brokers" as "straw" originators and recipients.  The true identities of senders and receivers are secret.  Both American and international authorities have been investigating Al-Barakat for years, and the best that they can do seems to be "black listing" some of the banks involved and the name of Al-Barakat Bank itself.  Four major investigations have taken place since 2003, but none of them have resulting in any convictions.  Blacklisting does, however, result in a "freeze" on assets.  Freezing of assets can be done via international law, or as is more effective, under U.S. Law, per the 2002 National Money Laundering Strategy (NMLS).  NMLS allows disparate agencies of the federal government (primarily Treasury, Justice, and State) to overcome any jurisdictional roadblocks in order to locate and freeze the assets of terrorists, wherever they may be located. 

    NMLS freezes terrorist-related assets on a global scale. The U.S. government has frozen over $35 million in terrorist-related assets since 9/11, and the international community has frozen an additional $78 million. Freezing by itself accomplishes little more than monitoring, but subsequently (and usually), it leads to dismantling.  In terms of enforcing a "freeze," Treasury usually deploys Customs attachés and representatives from Treasury's Office of Foreign Assets Control (OFAC) to facilitate law enforcement cooperation with host countries.  Often, in the wake of a freeze, a host country's legal system is used to press charges and/or make arrests.  However, the U.S. is fortunate in that there is widespread agreement over the mechanism of the "freeze."  Currently, 165 countries allow for such blocking orders and/or the confiscation of property.  Even if a frozen violator is not charged with anything, the action tends to "shake them up" a bit and results in better regulation.

POST-9/11 TRENDS IN TERRORIST FINANCING

    Emerson (2006) has documented the explosion of nontraditional methods since 9/11, and the bottom line is that terrorists have gotten less better at raising vast amounts of sums quickly, but have become much better at moving small amounts of funds around quickly.  Charities are less relied upon than before 9/11, and the following activities constitute the newer trends:

• Organized shoplifting -- and return of merchandise back to stores for refund, then wiring money to the Middle East.  Apparently, terrorist sympathizers have organized retail theft rings targeting merchandise such as health and beauty aids and colognes and perfumes.  One such ring (the Ghali organization) was caught in Texas during 2004 doing just this, with the unusual thing being that this Palestinian group was cooperating with the African American gang group known as the Crips.  Another group in Arizona was caught during 2005 running a fencing operation involving infant formula stolen from warehouses.  Also in 2005, groups in North Carolina and Georgia were caught in a shoplifting retail scam involving over-the-counter medicines. 
• Mosque bookkeeping -- the SAAR Network has, of course, been well known for awhile, SAAR named after Suleiman Abdel Aziz al-Raghi, a wealthy Saudi patron of the Northern Virginia enterprise, and was raided in 2002 during Operation Green Quest (see Customs Overview of OGQ or archives of Site Institute), but what is new is the extent to which mosques around the US are using the same bookkeeping firms that have been used by organized crime groups, white collar crime groups, and/or corporations that have been sanctioned or fined.  Likewise, law firms in the US which have experience in handling "high profile cases" are regularly retained by mosques.
• Drug trafficking -- there has been a linear increase in the ideological statements issued by Islamic terrorist groups, who normally disdain involvement with drugs in any way, toward justifying drug operations as part of Jihad.  In a classic statement of narco-terrorism, one Afghani drug lord in particular, Baz Mohammed, was quoted as saying that not only did the sale of heroin help out the cause of Jihad, but the drug helped kill Americans too. 

    There's more, much more.  For instance, there's Sharia banking in the U.S. and Canada.  About 17 different banks exist in North America (and more are created every year) to provide Sharia-compliant mortgages, insurance, taxi licensing and investment funds to help serve a region's fast-growing Muslim population.  The origin of Islamic banking has its roots in the 1920s, but did not start until the late 1970s due to the inspiration from two founders of terrorist groups: Abul Ala Maududi of the Jamaat-e-Islami in Pakistan and Hassan al-Banna of the Muslim Brotherhood in Egypt.  Sharia banks are most advanced in the country of Pakistan.  They claim don't charge interest, but they do.  With regard to "regions of fast-growning Muslim populations," take the city of Philadelphia, for example, where Muslim musician multi-millionare Kenny Gamble is buying up huge swaths of property and not only relying upon Sharia banks, but getting state and federal money (from the Mayor and Governor) to finance his urban renewal operation to build a large muslim enclave in the city.  Kenny Gamble (better known in Muslim circles as Brother Luqman Abdul Haqq) is best known for hit songs like "Me and Mrs. Jones" and "I'm Gonna Make You Love Me."  His closest friend is H. Rap Brown (better known in Muslim circles as Jamil Al Amin) who is currently serving a life sentence for killing a police officer.  H. Rap Brown had to be transferred to a supermax facility in 2007 on suspicion that he, with his high-profile connections to the outside world, was involved in directed Black Muslim terrorist activities from within prison.  The two men were both unindicted co-conspirators in the 1993 World Trade Center bombing.

• Counterfeiting -- any commodity can be counterfeited, and one of the most interesting groups in this regard is Jammat ul-Fuqra, the suspected-of-terrorism Black Muslim group which, among other things, runs a training camp over in Dover, Tennessee.  They have been exposed repeatedly by folks such as Atlas Shrugs, SATP, and the Northeast Intelligence Network.  In 2007, their New York base of operations was finally busted by the FBI for raising $7 million in a counterfeit clothing scam, generic brake pads, and pirated CDs.  Al-Fuqra has been around a long time.  Back in the 1980s, they were involved with hotel and nightclub bombings.  Interpol says they send their money straight to al-Qaeda, but American authorities say they use it primarily to radicalize black American prisoners.  A closer look at this group might be warranted.

A Close-Up Look at ul-Fuqra

Jamaat ul-Fuqra (JF) or "community of the impoverished" was originally formed in 1980 by a Pakistani cleric, Sheikh Mubarak Ali Gilani, on his first visit to the US. where he became convinced that Islam needed to "purify" itself from Western influence through violence. Gilani was the one Daniel Pearl was attempting to meet before he disappeared in Karachi. JF is loosely structured with certain elements working openly through social service organisations to recruit members, raise money, organise activities and carry out propaganda. Most members ('Jamaats') live on JF premises ('communes') that not-so-loosely resemble terrorist training camps which house from 100 to 300 people. Secrecy is the hallmark of the Jamaats and they are well versed in the use of aliases. Armed members guard their compounds and do not allow outside visitors. A large segment of JF members have been convicted of criminal acts, including murder and fraud.  Their early history (1980-1990) involved some unsolved assassination cases, and their recent history is more along the lines of fraud.  For example, in 1993, the state of Colorado tried to go after JF members who were told to find work in the community and file bogus workers compensation claims. They actively recruit black Americans from prison, and operate under various pseudonyms such as Muslims of America or Quaranic Open University. They are headquartered in Hancock, NY which has a mosque, school house, grocery store and a firing range. Their training camps are suspiciously close to U.S. critical infrastructures. For example, their Hancock, NY site is adjacent to a reservoir which provides drinking water to five NYC boroughs.  Other sites are in Dover, TN; Marion, AL; Augusta, GA; Talihina, OK; York County, SC; Roanoke, VA; Tulane County, CA; and rural Washington State, Colorado, Michigan, and Illinois.

THE FUTURE OF TERRORIST FINANCING

    It seems that terrorist financing is like a hydra with 200 heads.  You cut one off, and it grows two more.  Regulation is a burdensome effort, involving reams and reams of paperwork which ultimately cannot be kept up with.  Freezing of assets, which sometimes leads to regulation, but more often leads to international law enforcement, seems to be a deterrent "that works," for now.  In the meantime, terrorists are busy finding new ways to finance their activities.  Among them are the following:

• Matricular consular -- these are ID cards issued to (illegal) immigrants as a way of allowing them to open accounts at over 100 mainstream banks.  They often substitute for passports.  Forgeries are common. As long as false identity is a commonplace practice, terrorist financing will persist.
• Prepaid debit cards -- these are ATM cards issued by Wal-Marts, department or convenience stores. They can even be purchased over the Internet, and are called stored value cards.  They are rapidly becoming a means of terrorist financing.
• PayPal -- this is the Internet's main way of making online purchases or donations, MoneyBookers being another.  You do not need a credit card to use these services, and they represent a growing and largely unregulated financial services industry  
• Mobile phones -- It hasn't caught on in the U.S. yet, but in many parts of the world, like the Philippines and Ireland, a person can deposit money into a phone account and a text message is sent to the recipient, who can then withdraw the money (using a secret code) from any telephone company office.
• Wi-Fi -- mobile or wireless Internet technology allows some of the best encryption around.  Businesses use VPN, for example, to avoid surveillance, and savvy terrorists do too.
• International partnerships -- when companies like Wells Fargo and Western Union establish agreements with stores like McDonalds and 7-Elevens (two of the fastest growing stores in the world), these wire services will have more worldwide coverage, and the nature of the partnership agreement may pose challenges for regulators and investigators.

INTERNET RESOURCES
A Dissertation on Islamic Banking
Answers.Com Entry on Freezing of Terrorist Assets
Atlas Shrugs Cases of Post-9/11 Terror Financing
CFR Task Force Report 40B: 2004 Update on Global Campaign against Terrorist Financing
DHS Article on Terrorist Financing
Financial Action Task Force Report on Types of Terrorist Money Laundering (pdf)
Financial Action Task Force website
Financial Crimes Enforcement Network (FinCEN)
Interpol Page on Hawala Remittance System
Pictoral Diagram of How Hawala Works
TerroristFinancing.com
The Terror Finance Blog
What is a HIFCA?
Wikipedia Entry on Hawala
Wikipedia Entry on Islamic Banking
Wikipedia Entry on Terrorist Financing
Year 2000 Report on STR Analysis/FIU Units in Foreign Nations (pdf)
Year 2006 State Dept. Report on Foreign Nation Money Laundering Initiatives

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Last updated: Sept. 09, 2012
Not an official webpage of APSU, copyright restrictions apply, see Megalinks in Criminal Justice
O'Connor, T.  (2012). "Terror Financing." MegaLinks in Criminal Justice. Retrieved from http://www.drtomoconnor.com/3440/3440lect03asecure.htm.