Tracking The Terrorist Money Trail
November 16, 2008
International efforts to combat terrorist financing have lost momentum since successes that followed the September 11, 2001, terrorist attacks in the United States. Meanwhile, Al-Qaeda has changed the way it raises and delivers money for terrorist activities -- relying more on private donations or criminal activities like the drug trade and using informal transfer methods outside of the global financial system.
Those are the findings of a new study -- "The Money Trail: Finding, Following, and Freezing Terrorist Finances" -- by experts at the Washington Institute for Near East Policy, in Washington, D.C. RFE/RL correspondent Ron Synovitz spoke about the report with one of its co-authors, Michael Jacobson, who has served as a senior adviser to the U.S. Treasury Department's Office of Terrorism and Financial Intelligence and as counsel on the 9/11 Commission.
RFE/RL: You have spent the last year at the Washington Institute for Near East Policy focusing on the strengths and weaknesses of financial measures to combat international terrorism. What do you see as the most significant findings of your policy paper, "The Money Trail: Finding, Following, and Freezing Terrorist Finances"?
Michael Jacobson: The most important thing to note is that in the period after 9/11, there were a lot of improvements made throughout the world on the efforts to combat terrorist financing by the United States, by the Europeans, in the [Persian] Gulf, and by the private sector. But over the past few years, a lot of these accomplishments have been slipping. For example, the United Nations played a very important role in the few years after 9/11 in improving the international environment.
They were able to pass a few resolutions that were very relevant to combating terrorist financing. And in that period after 9/11, when there was greater international willingness and cooperation on counterterrorism, a lot of countries took steps to improve their own capabilities. As you've gotten further away from 9/11 -- as the threat seems less clear, and along with some specific feelings in foreign governments and in the private sector wondering about the importance of combating terrorist financing -- I think you've seen the international effort slipping.
RFE/RL: Your study mentions increased contributions to Al-Qaeda from "private sources" in countries like Saudi Arabia. Is there any evidence that at least some private donations to Al-Qaeda are linked to the glut of petrodollars in the Mideast from oil prices that topped $150 per barrel earlier this year?
Jacobson: I've never seen any convincing study or assessment done that ties directly the oil funds and oil profits to terrorist financing. Of course, that would be a study that would be difficult to conduct. I worked on the 9/11 Commission and one of the things we were trying to figure out was "Where did Al-Qaeda get the funds for the 9/11 attacks?" We were able to figure out how much the attacks cost -- [about $500,000]. We were able to figure out who in Al-Qaeda provided the funds. But tracking it back further than that was very difficult. And that's after the fact with a lot of relevant information and intelligence in our possession. So it's a difficult area to always track the funds back to the original source.
No Paper Trails
RFE/RL: Why has it become so difficult? Is it because these informal financial transfer mechanisms are being used more -- mechanisms that do not leave paper trails?
Jacobson: That's one of the ironies of the success since 9/11. You've seen as the United States and the Europeans and other governments have cracked down on the use of the formal financial system of banks, you've seen a shift away from banks to terrorists using cash, to terrorists using cash couriers, to terrorists using Hawala and other informal financial-transfer mechanisms. And even on the technologically more sophisticated side, [they are] using things like cell phones to transfer funds. While that is a credit to the international effort, it has also makes it more difficult to track the money. It can become more difficult for the governments to figure out where the money is actually going.
RFE/RL: What kind of policy recommendations does this lead you to make -- not just for the incoming administration of U.S. President-elect Barack Obama, but also for the European Union, the United Nations, or international organizations?
Jacobson: We have a number of policy recommendations in this study, including that countries need to understand why this is an area that should be an important part of the broader counterterrorism effort. There is a need for more of an understanding about what terrorism financing is and why money is so important to terrorist organizations. The United States and its allies have to do a better job explaining, not only to governments but to the private sector, what the threat actually is. There has been a lot of focus in the past since 9/11 on putting rules in place. So a lot of countries have pretty good laws at this point to combat terrorism financing, but they're not actually sure even what they are looking for.
They can tell you all about the great laws that they have in place and the penalties that are available to them now. But the reality is that if you don't know what you are looking for -- if you don't understand terrorist financing -- then you are not going to stop it. One of the things we recommend, now that they have this good rules-based structures in place, is that they have got to shift to more of a risk-based structure. You've got to figure out whether countries are actually stopping it. That would be an important shift.
RFE/RL: Your report mentions Syria and Iran as two countries that are state sponsors of terrorism. But you also describe Iran as a "passive" supporter of Al-Qaeda -- turning a blind eye to terrorist financing or other activity through its territory.
Jacobson: Iran is not a passive supporter. It is a very active supporter of terrorism when it comes to groups like Hizballah and Hamas and Palestinian Islamic Jihad. The passive part comes when it goes to Al-Qaeda. Iran has a very tenuous relationship with Al-Qaeda. It is a balancing act for them. They do not trust each other. They do not really like each other. But I think, at times, enemies of the United States can find things to agree on. And so I think even before 9/11 you've actually seen Iran let Al-Qaeda members go through Iran on the way to Afghanistan and Pakistan and not stamp their passports so they wouldn't have a record of going into Afghanistan and Pakistan. That's more of the passive kind of support that they have provided to Al-Qaeda in the past.
RFE/RL: Let's talk more about Afghanistan and Pakistan. What have you learned about terrorism financing there -- not just from your work on this study, but from all of your experience in counter terrorism financial intelligence in the U.S. Treasury Department and on the 9/11 Commission?
Jacobson: It's shifted since 9/11. As of 9/11, you had Al-Qaeda central -- based in Afghanistan at the time under the Taliban rule. It was really playing a very, very large role in directing plots, and a very large operational role and in funding plots. A lot of the big plots in the 1990s and the 9/11 attacks were directly funded by Al-Qaeda. The operatives would be given large sums of money to carry out the operation. Since 9/11, as Al-Qaeda has been more on the run -- even though they do have a safe haven now -- the funding for operations have not been coming as much from Al-Qaeda core. But a lot of the cells, for example in the United Kingdom and elsewhere, have been raising the funds themselves at this point. So you really have seen a shift from central control of the funding for terrorist cells and terrorist plots.
RFE/RL: You also mention that there has been a shift to criminal activity by local terrorist cells to fund their own activities. Why has that been happening?
Jacobson: The shift to criminal activity has also been a real trend that we have seen since 9/11. For example, on the 9/11 attacks, Al-Qaeda decided they wanted to do everything to keep the operatives off the law enforcement radar. The last thing they wanted was to have them involved in petty criminal activity which could expose them to law enforcement or intelligence attention. As cells are raising the funds themselves instead of receiving the money from Al-Qaeda, a lot of the cells now are focused on how to raise those funds. And the answer has often come to criminal activity. The 2004 Madrid cell that carried out the train attack there raised most of the money for the attack thru the sale of hashish. A cell in the U.K. involved in the 7/7 attack raised money, in part, by defaulting on a bank loan. So there are all sorts of ways that individual cells are now raising money through criminal activity.
RFE/RL: What about reports by the United Nations that the Taliban is increasingly funded by profits from illegal opium-poppy farming in Afghanistan?
Jacobson: The drug trade is one of the major ways that terrorist organizations are making money at this point. One of the reasons for that is the volume of drug trade in the world and the potential profit. That dwarfs the scale of profits available in other types of criminal activity. The Taliban, of course, has been at the forefront of this. They can make money from a lot of different aspects of the drug trade -- guarding safe houses, taxing people as they go through on the [smuggling] routes, or a lot of other aspects of the drug trade.
RFE/RL: Another issue covered in your report is the use of some Islamic charities as a conduit for funds that eventually are used for terrorist activities. What is happening in this area?
Jacobson: Charities have been a problematic area in terms of terrorist financing. Many countries are not eager to take this on because, of course, one of the pillars of Islam is charity. And there is real concern among a lot of governments that if they take action against charities it will look like they are taking action against Islam in general. The United States has been much more aggressive on this front than anyone else. And the U.S. has designated about 45 charities overall [as being linked to terrorist financing.] Other countries, I think aside from the Israelis, have targeted very, very few.
RFE/RL: Your report concludes that the freezing of terrorist financing in the global financial system can not bring an end to terrorism on its own, but rather, can only slow down terrorist activity. Can you explain those findings?
Jacobson: The issue of freezing terrorist financing is what the public sees. This is one of the misunderstood areas of terrorist financing, where the public and the media tend to view the public designations, the public blacklisting and the freezing as the sum total of what is being done in the terrorist financing area. To use that as the metric, I think, is misleading. It has to be coupled with a really aggressive and effective intelligence -- a "following the money approach." Without knowing what is going on, on both sides, I think, makes it hard for the public to judge what is going on. But I think, too often, it is viewed as the sum total of the governmental efforts.
RFE/RL: What about the use of financial centers in the Middle East by terrorist organizations, or by Al-Qaeda sympathizers, to transfer funds around the world for terrorist activities?
Jacobson: One of the difficulties the U.S. has encountered in this area has been in terms of the Gulf countries where they have made a lot of improvements since 9/11 but where a lot of improvements still could be made. There are a few problems in this area. One of them is that a few of the Gulf countries -- like the United Arab Emirates and Qatar and Bahrain -- are very focused on trying to make themselves international financial centers. Obviously, in that respect, it is very important to draw in capital from around the world and be an attractive place for money to come. But at the same time, you've got to make sure that the money coming in is clean and that you've put adequate controls in place to regulate. So I think that has been a hard balance to strike in the Gulf. I don't think they've always gotten it right in that respect.
Copyright (c) 2008. RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave., N.W. Washington DC 20036.
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