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BLOOD
MONEY
Part 1: Searching for buried treasure
Al-Qaeda differs from
traditional, state-sponsored terrorist groups in one
critical way: it is financially robust. Having developed
multiple sources of support, it is free from the control
of any government and able on its own to maintain its
organizational infrastructure, communications systems,
training programs and operations. As such, it
historically has been able to operate from failed or
dysfunctional states. Indeed, when it was headquartered
in both Sudan and Afghanistan, the al-Qaeda terrorist
organization provided important financial support to its
host states - instead of the other way around.
Building al-Qaeda's financial support network
was Osama bin Laden's foremost accomplishment, and the
primary source of his personal influence. Unlike other
terrorist leaders, he was not a military hero, nor a
religious authority, nor an obvious representative of
the downtrodden and disillusioned. He was a rich
financier, both a scion of one of Saudi Arabia's most
influential families and a challenger to Saudi Arabia's
existing system of governance, distinguished by his
ability to organize an effective network.
He
built al-Qaeda's financial network from the foundation
of a system originally designed to channel resources to
the mujahideen fighting the Soviets. It was that network
that sustained the organization when bin Laden was
forced to move from Saudi Arabia to Sudan, and then
again when al-Qaeda was forced to uproot its
infrastructure and relocate to Afghanistan. Al-Qaeda's
financial network continues to support the organization
today, even after being driven from its Afghan base, and
allows it to maintain its capacity to attack Americans
at home and abroad. As long as al-Qaeda retains access
to a viable financial network, it remains a lethal
threat to the United States.
Thanks to the
leadership of President George W Bush Jr, Congress, and
the hard work of the Bush administration over the last
year, that network has been disrupted. But it has
certainly not been destroyed. And as long as al-Qaeda
retains access to a viable financial network, it remains
a lethal threat to the United States.
Theory of
the case
The US government has for several years
worked to build a comprehensive "theory of the case" on
al-Qaeda's financial network. Through diplomatic,
intelligence, regulatory and law enforcement channels,
the United States has gained information about how
al-Qaeda's funds are raised, from whom and where; how
al-Qaeda's assets are saved, invested, and moved, by
whom and through where; how al-Qaeda's money is
distributed to cells in the field; and how al-Qaeda's
financial network and operations overlap with those of
other Islamic terrorist organizations such as Hamas and
Hezbollah.
Organizationally, al-Qaeda is notably
and deliberately decentralized, compartmentalized,
flexible and diverse in its methods and targets. The
same description applies to its financial network. If
al-Qaeda were financed only by Osama bin Laden's
personal inheritance, or only by a small number of state
sponsors, and if it were only limited in scope to a
small area of the globe, or weren't continuously
replenishing its coffers, the problem would be much
easier to solve. Alas, there is not one big pile of
al-Qaeda's loot somewhere, waiting to be discovered and
confiscated.
Instead, al-Qaeda's financial
network is characterized by layers and redundancies. It
raises money from a variety of sources and moves money
in a variety of manners.
Al-Qaeda has operated
under a cloak of legitimacy-running legitimate
businesses, such as the network of corporations Osama
bin Laden created when he lived in Sudan, or the honey
traders in Yemen that the U.S. government has now
publicly identified as being a part of al-Qaeda's
financial network. Profits earned from these legitimate
businesses are then channeled to terrorist ends.
Al-Qaeda also earns money from a wide range of criminal
enterprises. Some of these have been grand, such as its
symbiotic relationship with the heroin trade in
Afghanistan. Others are petty: for example, local
al-Qaeda cells are encouraged to become relatively
self-sufficient financially and are taught to engage in
crimes such as smuggling, fraud, and even simple theft.
However, the most important source of al-Qaeda's
money is its continuous fundraising efforts. Al-Qaeda's
financial backbone was built from the foundation of
charities, nongovernmental organizations, mosques, web
sites, fundraisers, intermediaries, facilitators and
banks and other financial institutions that helped
finance the mujahideen throughout the 1980s. This
network extended to all corners of the Muslim world. It
included everyone from wealthy Gulf Arabs, who could be
solicited directly to give huge sums themselves, to the
masses, who would make regular charitable donations as
part of their religious obligations, the zakat.
This religious duty-for all Muslims to give at least
2.5 percent of their income to humanitarian causes-is
one of the pillars of Islam. But sadly and cynically,
al-Qaeda and other Islamic terrorist groups have taken
advantage of this enormous source of funds for their own
ends. In many communities, the zakat is often
provided in cash to prominent, trusted community leaders
or institutions, who then commingle and disperse donated
moneys to persons and charities they determine to be
worthy. These widely unregulated, seldom audited, and
generally undocumented practices have allowed
unscrupulous actors such as al-Qaeda to access huge sums
of money over the years.
Today al-Qaeda
continues to raise funds from both direct solicitations
of wealthy supporters and through retail charities.
Some, whose donations go to al-Qaeda, know full well the
terrorist purposes to which their money will be put. In
other cases, donors believe their money will help fund
legitimate humanitarian efforts, but the money is
nonetheless diverted to al-Qaeda. Among those charities
that have already been publicly identified by the US
government as supplying funds to terrorists are the
Afghanistan-based Afghan Support Committee, the
Pakistan-based Al Rashid Trust and Wafa Humanitarian
Organization, the Kuwait-based Revival of Islamic
Heritage Society, the Saudi-based al-Haramain
organization, and the US-based Holy Land Foundation for
Relief and Development. These charities and their
various international branches and affiliates - along
with the many others like them that have not yet been
publicly designated by the authorities or even privately
discovered by intelligence agencies-have operated
internationally, raising, moving and holding their money
in numerous countries simultaneously.
However,
it is worth stating clearly and unambiguously what
official US government spokespersons have not: For
years, individuals and charities based in Saudi Arabia
have been the most important source of funds for
al-Qaeda; and for years, Saudi officials have turned a
blind eye to this problem.
This is hardly
surprising since Saudi Arabia possesses the greatest
concentration of wealth in the region; Saudi nationals
and charities were previously the most important sources
of funds for the mujahideen; Saudi nationals have always
constituted a disproportionate percentage of al-Qaeda's
own membership; and al-Qaeda's political message has
long focused on issues of particular interest to Saudi
nationals, especially those who are disenchanted with
their own government.
Significant funds have
also come from other pockets of wealth in the Arab
world, such as the Gulf states, Egypt,and elsewhere.
Other moneys have been raised in South Asia, Europe, the
Americas (including the United States), Africa and Asia.
Recent reports suggest that al-Qaeda may now be devoting
increased resources to its fundraising activities in
Southeast Asia, which would be a cause of significant
concern. Additionally, in Asia and elsewhere, al-Qaeda
has focused efforts in recent years on expanding its
system of affiliates and surrogate organizations, such
as Laskhar Jihad and Jemaah Islamiyah, many of which
have independent financial support networks.
Once raised in the manners described, al-Qaeda's
money is moved through a similarly diverse set of
mechanisms. The first, and most simple, is the
ubiquitous and highly efficient global financial system,
including the interconnected network of banks and other
financial institutions that undergird the global
economy. For years, al-Qaeda has been particularly
attracted to operating in under-regulated jurisdictions,
places with limited bank supervision, no anti-money
laundering laws, ineffective law enforcement
institutions, and a culture of no-questions-asked bank
secrecy.
To find such jurisdictions, al-Qaeda
did not have to look far. The regional banking centers
of the Middle East - Dubai and other emirates of the
United Arab Emirates (UAE), Kuwait, Bahrain and (in its
day) Lebanon - have each over the years generally
ignored repeated calls by the international community to
build anti-money laundering regimes consistent with
international standards. Similarly, banking systems that
have been major recipients of al-Qaeda's funds - most
notably in Pakistan while the Taliban ruled neighboring
Afghanistan - have also had weak or non-existent
anti-money laundering regimes.
But al-Qaeda did
not limit itself to regional money centers; it also took
advantage of the globalizing financial system to move
its money through banks in virtually every corner of the
world, including offshore jurisdictions long known for
providing bank secrecy. For instance, in the case of
al-Taqwa (a purported international financial services
company now the subject of US and international
sanctions), al-Qaeda moved its funds through accounts in
such familiar havens as Liechtenstein and the Bahamas.
And the United States has not been immune from al-Qaeda
money flows: We have all seen the video of Mohammed Atta
withdrawing funds from an ATM in South Portland, Maine,
on September 10, 2001: funds that were transferred from
accounts run by a senior al-Qaeda operative, Khalid
Sheik Mohammed, in the United Arab Emirates.
Al-Qaeda also abuses the Islamic banking system,
an entirely legitimate form of investment and finance
that abides by sharia, or Islamic law, which prohibits
the earning or payment of interest. Many prominent
Islamic banks operate under loose regulatory oversight,
in part because they are based in jurisdictions without
proper controls, but also because their religious nature
often allows them a greater degree of autonomy owing to
obvious domestic considerations. Islamic banks regularly
commingle funds from depositors to place them within
group investments by fund managers, creating ready
opportunities for anonymous money transfers and
settlement. Moreover, al-Qaeda and other terrorist
groups that use Islam to justify their activities are
also more likely to find willing collaborators within
the Islamic banking system. There is no reason to
believe that al-Qaeda does not find other Islamic
financial services, such as insurance or investment
management services, to be similarly attractive vehicles
for holding and transferring its assets.
Significantly, al-Qaeda also makes good use of
the ancient hawala (or hundi) underground banking
system, which allows money transfer without actual money
movement, or any wire transfer. There is nothing
inherently illegitimate about the hawala system - it
offers critically needed financial services in many
remote corners of the globe, and is used extensively by
millions of law-abiding persons. In Pakistan, for
instance, government officials estimate that US$7
billion enters the country each year through the hawala
system; the true number is likely to be significantly
higher. But its nature also makes it particularly
susceptible to abuse by terrorists and other criminals.
Indeed, the hawala system, long dominated by
South Asians and serving customers throughout the Middle
East, appears custom-made for al-Qaeda. It is a cash
business that leaves behind few, if any, written or
electronic records for use by investigators in following
money trails. It operates out of nondescript storefronts
and countless bazaars and souks. It reaches both small
villages throughout the region and large cities around
the world. It is quick, efficient, reliable and
inexpensive. It draws from a long tradition of providing
anonymous services. It is staffed primarily by members
of families that have been in this business for
generations. And it is almost entirely unregulated
around the world-including in the United States. The
hawala system often interacts with similar
alternative banking systems operating in other parts of
the globe, such as fei ch'ien, phoe kuan, hui k'uan,
ch'iao hui, and nging sing kek.
All
the hawala system needs to operate are a network
of hawaladars, trust and open phone lines. Here is how
it works: customers in one city hand their local
hawaladar some money. That individual then contacts his
counterpart across the world, who in turn distributes
money out of his own resources to the intended
recipient. The volume of transactions flowing through
the system in both directions is such that the two
hawaladars rarely have to worry about settlement. The
trust between and among hawaladars - who are in many
cases related through familial, clan or ethnic
associations - allows them to carry each other's debts
for long periods before finding ways to clear them.
Al-Qaeda also uses its network of businesses and
charities as covers to move its funds. It is believed to
employ traditional over-invoicing schemes to transfer
value from one location to another without attracting
the attention of authorities.
And finally,
whenever these other methods are unavailable, al-Qaeda
can and does rely on the oldest method of moving money:
physically transporting it from one place to another.
Cash smuggling is rampant throughout the Middle East,
abetted by weak border controls and a cash-based culture
very unlike the Western credit- and electronic-based
economy. Al-Qaeda also moves its assets in the form of
precious metals and gemstones, which can be easily and
virtually anonymously transferred to cash in countless
souks across the region. The gold trade and the hawala
system are especially symbiotic, flourishing in the same
locales, and offering complementary services to those
who are looking to move assets across borders. In
physically moving its assets, al-Qaeda also often relies
on traditional smuggling routes and methods used by drug
traffickers, arms dealers, and other organized criminal
groups. According to recent published reports, it may be
using illicit air logistic networks previously used by
the Taliban and various African insurgency movements to
transport gold and other assets.
Al-Qaeda is not
the only terrorist organization to make use of these
fundraising and money transfer mechanisms. Terrorists
the world over have long used charities, for example, to
help raise and move their funds-as the Irish Republican
Army (IRA) did for decades in the United States. Other
Islamic terrorist organizations, Hamas and Hezbollah
specifically, often use the very same methods-and even
the same institutions-to raise and move their money. And
more recently, published reports suggest that al-Qaeda
has formed additional tactical, ad-hoc alliances with
these terrorist organizations to cooperate on money
laundering and other unlawful activities.
Responding to the threat
One of the first
actions taken by the Bush administration in the wake of
the September 11 terrorist attacks was to target
aggressively Islamic terrorism's financial
infrastructure, expanding work begun by the previous
administration. The responses can usefully be divided
into two categories: tactical actions to disrupt
individual nodes in the terrorist financial network, and
strategic initiatives to change the environment within
which terrorists (and other international criminals)
raise and move their funds.
The tactical actions
focused mainly in three areas. First, intelligence
activities, which had previously been a leading
component of US efforts to combat terrorist financing,
were stepped up. Second, unprecedented law enforcement
efforts were made both at home and abroad, made possible
by a newfound degree of cooperation between foreign
intelligence and law enforcement agencies. Third - and
certainly the most visible aspect of the tactical
response - additional public designations under the
International Emergency Economic Powers Act (IEEPA) were
made of persons, businesses and financial institutions
associated with the al-Qaeda financial network, and that
of other terrorist organizations.
These
designations meant that specific terrorist-related
assets in US banks were blocked and that persons subject
to US jurisdiction were barred from doing businesses
with designated organizations and individuals. The
United Nations followed with similar public designations
and UN Security Council Resolution 1390, and many
foreign governments followed with similar blocking
orders.
The sanctions associated with the
designations - and the explicit threat of additional
measures to follow - also provided the US government
with significant leverage to push foreign governments to
investigate or disrupt terrorists' financial networks.
In many cases, when confronted with such leverage,
foreign governments and foreign institutions have taken
actions that they otherwise would not have been willing
to take in respect of suspect organizations, including
their closure or consent to comprehensive on-site audits
by US government personnel.
Further strategic
initiatives were undertaken to help change the
environment that facilitates terrorist financial
networks. These initiatives were undertaken by Congress,
the administration, and the international community.
Congress passed sweeping new anti-money
laundering laws as part of the Patriot Act, many of
which were quickly and diligently implemented by the
Treasury Department. These new laws and regulations
established, among other things, new due diligence,
recordkeeping, and reporting requirements for domestic
financial institutions. The Patriot Act also gave the
government new international anti-money laundering
tools. The centerpiece of these new legal instruments
are the so-called "special measures" enabling the
executive branch to restrict or prohibit access to the
US financial system for states and individual foreign
financial institutions that lack adequate anti-money
laundering controls.
By complicating the access
of such states and institutions to the US financial
system, this powerful new tool was intended to give the
US government additional leverage to persuade foreign
countries and foreign financial institutions to improve
their anti-money laundering regimes and otherwise
cooperate with US efforts to curtail terrorist
financing.
The administration has worked with
the international community to press forward with
various long-term institution-building efforts. These
efforts have included multilateral initiatives through
the UN Counter-Terrorism Committee (CTC), the
International Monetary Fund (IMF), the World Bank and
the Financial Action Task Force (FATF), a 29-member
intergovernmental organization established by the G-7 in
1989 to set international anti-money laundering
standards. Within the UN system, implementation efforts
associated with Security Council Resolutions 1373 and
1377 are helpfully focused on measures intended to
assure the technical ability of member states to comply
with their international obligations relating to the
suppression of terrorist financing.
Some
initiatives, such as the FATF's successful "naming and
shaming" of international money laundering havens, were
up and running before the September 11 attacks. Others
came immediately thereafter. Further multilateral
efforts have recently begun to consider international
best practices for the regulation of charities (under
FATF auspices) and how to bring the hawala system out
from the shadows (initial principles were enunciated in
the Abu Dhabi Declaration on Hawala, dated May 2002).
As a result of these multilateral initiatives, a
number of countries that had serious problems with
terrorist financing have in recent years improved their
anti-money laundering regimes by passing new laws and
issuing new regulations - in many cases for the very
first time. For instance, laws have very recently been
passed by Bahrain (January 2001), Lebanon (April 2001),
the United Arab Emirates (January 2002) and Egypt (May
2002).
But significantly, notwithstanding these
considerable efforts, no international organization has
emerged with the mandate and expertise to direct and
coordinate global efforts to combat a problem that, by
its very nature, requires global responses.
Similarly, no official of the US government has
been provided with the right mandate and authority to
effectively disrupt terrorist financing. Following
September 11, a reinvigorated interagency Policy
Coordination Committee (PCC) on terrorist financing
began operating under the leadership of the Treasury
Department, and this organizational arrangement
continues today. As an institutional matter going
forward, the task force strongly believes that the best
course would be to designate a special assistant to the
president dedicated solely to issues related to
terrorist financing, with the mandate to direct and
coordinate the various diplomatic, law enforcement,
intelligence, regulatory, and policy measures that will
be required to assure a sustained and effective US
response. The task of providing coordination that takes
account of a range of concerns and has the imprimatur of
the president naturally is done best from the White
House rather than from any other agency.
And
finally, the Bush administration recently announced what
appears to be a significant policy departure regarding
these issues. On June 8, 2002, in an on-the-record
speech at the Council on Foreign Relations in New York,
Deputy Secretary of the Treasury Kenneth Dam announced
that US efforts to combat terrorist financing had
entered a "second phase", saying "this new phase will be
dominated by greater leadership by our coalition
partners ... public designations and blockings will not
dominate this new phase".
Tomorrow:
Part 2: Recommendations for effective action
This article comprises excerpts from the
Independent Task Force Report on Terrorist Financing,
copyright 2002, by the Council on Foreign Relations. All
rights reserved.
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