Tracking Southeast Asia’s terror finance
As Islamic State targets the region as its next theater of destruction, authorities are grappling with how to stem its underground cash flows
Counterterrorism experts will link up with financial firms in a bid to cut off Islamic State’s (IS) Southeast Asian cash lifeline at a November summit in Kuala Lumpur, amid mounting evidence that the extremist group’s Middle East coffers are starting to run dry.
Hosted by financial intelligence agencies from Indonesia, Malaysia and Australia, the Counterterrorism Financing meet – given the name Codeathon – aims to develop private-public initiatives to counter the spread of IS following its stunning seizure of Marawi city on the southern Philippine island of Mindanao on May 23.
Banks, financial technology firms, software developers and other specialists already apply anti-money laundering checks, when they exist, to stop funds being transferred to terror suspects.
The problem with such a strategy is that most Southeast Asian nations are struggling to prevent illicit financial transfers within their borders, usually because they lack enabling laws or have a limited enforcement capability. It wouldn’t matter if they did, as little cash intended for terrorists passes through formal channels.
According to the US State Department’s 2017 report on financial crimes, Thailand, Indonesia, Malaysia, the Philippines, Cambodia, Myanmar, Vietnam and Laos are all major money laundering centers.
Iran and Iraq, which are thought to be the source of much IS financing, were also included on the watch list, as were Hong Kong, China, Pakistan, Afghanistan, Turkmenistan, Azerbaijan, Kyrgyz Republic, Uzbekistan, North Korea, Kazakhstan and Timor Leste.
Most funds detected by investigators are small amounts intended for radicalized Southeast Asians – the majority from Indonesia – who have joined IS units in Syria. Money is also coming out of Syria and Iraq for local affiliates, but it may soon become less important.
Studies by the International Center for the Study of Radicalization and Political Violence at King’s College in London indicate that the extremists’ annual income fell by more than half in 2014-16 from US$1.9 billion to US$870 million as battlefield losses cost it territory.
IS is believed to derive most of its Middle East revenues from taxes and fees levied on people under its control and the sale of oil and other natural resources. Kidnappings provide additional income.
“There are no signs yet that the group has created significant new funding streams that would make up for recent losses. With current trends continuing, the Islamic State’s ‘business model’will soon fail,” the report said, noting that IS had lost more than 60% of its mid-2014 territory in Iraq by late 2016 and 30% in Syria.
Indonesia reported that 10 billion rupiah (US$750,000) arrived from abroad to finance terrorism on its soil in 2014-15; funding for the January 2016 attacks in Jakarta is believed to have been directed from an IS foreign terrorist fighter cell based in Syria or Iraq.
But in general Southeast Asian terror cells rely on their own resources to get by, mostly using distribution methods that are nearly untraceable: as mundane as carrying a small wad of banknotes across a border.
A 2016 risk assessment by Australia and its Association of Southeast Asian Nations (Asean) partners found that the main source of terrorism financing in Indonesia, Malaysia, Thailand and Australia is self-funding from legitimate sources.
Non-profit organizations are the second primary source, then fundraising through social media and crowdfunding. Criminal activity is only a big problem in Indonesia and the Philippines, the report said.
The report also acknowledges that self-funding “will remain extremely difficult to detect” because the activities are legal and transactions are often of low value and indistinguishable from normal activities.
Non-profit groups are rated as a medium or high risk in Indonesia, the Philippines, Thailand, Malaysia and Australia, though only a small number are thought to be suspect. Usually these are Islamic charities active near terrorism hotspots that are pressured to divert money from housing, education and other social programs.
Crowdfunding and other online campaigns occur in Indonesia and Malaysia, but have become rare because they leave a clear digital footprint – even though investigators still have difficulty proving the proceeds are earmarked for terrorism purposes.
A shift towards the use of stored value cards that can easily be posted or transported across borders and then redeemed by terrorists also has the financial experts worried.
“The ability of foreign terrorist fighters and terrorist supporters to move funds below cross-border reporting thresholds poses a major challenge for detection,” the 2016 study said.
“Unless border authorities have intelligence and movement alerts related to the traveler, money for terrorism financing can be moved across borders with low risk of detection, even when amounts above the threshold are disclosed.”
Authorities’ recent track record in detecting transactions suspected of having terrorist links has been good, but achieving a legal outcome has proved difficult in countries other than Indonesia.
Malaysia filed 25 Suspicious Transaction Reports (STRs) involving individuals or bank accounts in 2015-16 and imposed 41 financial sanctions, but these produced only one prosecution in the most recent reporting period of 2013-15. Thailand had 24 STRs and applied 28 sanctions for no prosecutions at all in 2012-13.
Indonesia reported 185 STRs, imposed 26 sanctions and made 34 prosecutions in 2013-15. The Philippines filed 53 STRs for 12 sanctions and one prosecution in the same period. Singapore, the regional financial center, filed 205 STRs and notched six prosecutions in 2016 but did not report on sanctions.