Combating The Financing Of International Terrorism – Matthew Levitt

Issue 2 | 20 May 2009

Dr Matthew Levitt is a senior fellow and director of The Stein Program on Counterterrorism and Intelligence at The Washington Institute. He is also a lecturer in international relations and strategic studies at Johns Hopkins University’s Paul H. Nitze School of Advanced International Studies (SAIS). An expert in counter-terrorism and counter-insurgency, Matthew Levitt addressed The Sydney Institute on Wednesday 20 May 2009 on the strategic importance of constricting the transfer of funds from and within al-Qaeda terrorist cells.

COMBATING THE FINANCING OF INTERNATIONAL TERRORISM

MATTHEW LEVITT

US and international efforts to combat terrorist financing are a little-understood – and often unappreciated – aspect of the global counterterrorism campaign.

For example, while unilateral or UN terrorist designations are public actions, they constitute only one of a broad set of tools available to governments, international bodies and their private and public-sector partners around the world. Pundits and the press alike show insufficient appreciation for the extent to which public designations are related to other equally productive ways of combating terrorist financing, such as diplomacy, law enforcement, and intelligence collection. Indeed, overt actions like designations and prosecutions are not the sum total of international efforts to combat terrorist financing — they are only the most visible.

Unfortunately, the metrics most often used to assess efforts against terrorist financing – the total amount of money seized and the overall number of designations – are both inadequate and misleading. The Achilles heel of terrorism financiers is not at the fundraising end, but rather at the choke points critical to laundering and transferring funds. It is impossible to “dry the swamp” of funds available for illicit purposes, but by targeting key nodes in the financing network, we can constrict the operating environment to the point that terrorists will not be able to get funds where and when they need them.

The number of overall designations is also misleading. It is not uncommon for a potential designation target to remain unnamed due to diplomatic or intelligence issues, policy considerations, or ongoing investigations. Designation may not be the most appropriate tool for every case of terror financing.

Efforts to combat terror financing may be little understood, but they are both necessary and important. Terrorist groups need money. Although mounting an individual terrorist attack is relatively inexpensive, the cost of maintaining the infrastructure to support terrorist activities is high. Terrorist networks need cash to train, equip, and pay operatives, to secure materials, and to promote their cause. To eliminate or reduce a cell’s means of raising and transferring funds is to significantly degrade that cell’s capabilities. Additionally, by forcing them to abandon formal financial channels in favour of informal transfers in smaller denominations, the use of targeted measures has the cumulative effect of making the funds-transfer process slower, more cumbersome, and less reliable.

Seized al-Qaeda in Iraq (AQI) records, for example, indicate the facilitation network operating in the Sinjar area of western Iraq incurred significant costs related to salaries and family support. Recruiting, training, travelling, planning operations, bribing corrupt officials, and other such activities also cost money. All of these expenses can add up quickly. For example, prior to September 11, al-Qaeda’s annual budget was approximately $30 million, according to the findings of the 9/11 Commission. One of AQI’s branches recorded expenditures of approximately $175,000 over a four month period in 2007 – with about half of this funding going to purchase weapons. This shows further how to eliminate or reduce an organisation’s means of raising and transferring funds is to significantly degrade its capabilities.

Illustrating the importance that al-Qaeda attached to funding-related issues prior to September 11, the organisation had a finance committee and Osama bin Laden himself reportedly paid close attention to financial matters. Sheikh Mustafa Abu al-Yazid (a.k.a. “Sheikh Said”), head of the committee, took his responsibilities very seriously and was notoriously tight fisted with al-Qaeda’s money.

For example, he vetoed an expense for an al-Qaeda member to travel from Afghanistan to Saudi Arabia to obtain a US visa, which the operative was seeking in preparation for the September 11 plot. Bin Laden himself was forced to step in and overrule Sheikh Said (although it is not clear that Said knew about the September 11 plot when he rejected the expense). This careful attitude regarding funds appears to have permeated al-Qaeda even at the operational level. According to the 9/11 Commission, the September 11 hijackers returned their unused funds to an al-Qaeda “facilitator” – approximately $36,000 in all – in the days before the September 11 attacks. Ramzi Binalshib, the Hamburg-based liaison between the hijackers and al-Qaeda leadership, later explained that Mohammed Atta, the tactical leader of the September 11 plot, considered these funds “blessed and honoured”.

AQI brought the same type of focus and bureaucratic approach to handling financial matters as did their better known namesake. AQI put a number of management controls in place to try to ensure that their money was being spent carefully and appropriately. For example, one AQI memo laid out the procedures that its leaders should follow to track the organisation’s financial transactions. Operatives were required to provide signed forms, acknowledging that they had received the money and explaining how it had been spent. Lower-level managers were required to fill out financial statements, which AQI often audited.

Documents seized later by the United States demonstrate AQI managers’ concern when they were unable to account for every dollar in their control. Given this context, the highly detailed nature of the group’s financial records hardly come as a surprise. For example, the Sinjar documents show that the AQI’s border emirate spent $727 on food during a two-month period, in addition to tracking a number of other different subcategories for expenditures, including salaries, weapons, document forgeries, and smuggling costs. Given the operational and security risks associated with maintaining such an extensive paper trail, these details help illustrate the importance that AQI’s senior leaders have attached to the organisation’s financial state.

One of the main ways that terrorist groups raise these much-needed funds is through criminal activity. While lucrative, such acts leave religiously oriented terrorist groups open to charges of hypocrisy. As such, these groups have expended considerable thought and effort toward justifying this activity. For example, Baz Mohammed, a Taliban-linked narcotics kingpin extradited to the United States in 2005, rationalised his group’s involvement in the drug trade, telling members of his organisation that “selling heroin in the U.S. was a ‘jihad’ because they were taking the Americans’ money at the same time the heroin they were paying for was killing them.” Abu Bakir Bashir, the Jemaah Islamiyah (JI) spiritual leader, offered a similar explanation for his organisation’s involvement in jewellery store robberies to help finance operations, stating that “You can take their blood; then why not take their property.”

Issues relating to money have negatively affected terrorist groups in other surprising ways. For example, some terrorists have interpreted inadequate compensation as a sign that they are being treated unfairly. Jamal al-Fadl, one of al-Qaeda’s first operatives, began embezzling funds from the group during its years in Sudan, because of his displeasure with his salary – stealing approximately $100,000 in all. When bin Laden learned of al-Fadl’s actions, he ordered him to repay the money. Al-Fadl repaid about $30,000 before fleeing, fearing retribution if he did not refund the full amount.

Al-Qaeda’s L’Houssaine Kertchou, for another example, became bitter after one of bin Laden’s aides turned down his request for $500 to cover the costs of his wife’s caesarean section. His anger level increased when al-Qaeda covered the expenses for a group of Egyptians who were sent to Yemen to renew their passports. “If I had a gun,” Kertchou later testified, “I would [have shot bin Laden] at that time.”

It is important to recognise, however, that combating the financing of transnational threats will not, in and of itself, defeat these threats – nor is it intended to do so. Freezing funds will constrict the operating environment for illicit actors and disrupt their activities, and following the money trail will expose donors and operators up and down the financial pipelines of terrorists and insurgents alike. But these tools must be part of a broader strategy that leverages all elements of national power to successfully confront and eliminate the international security threats facing us today.

As intelligence agencies improve their capacity to collect and exploit financial intelligence for pre-emptive action, they are sure to rely on the experience of law enforcement agencies, which have long employed financial tools to solve crimes and build cases for prosecution.  With nearly every recent terrorist attack, the post-blast utility of financial investigative tools has been reaffirmed. Financial data provided investigators with critical and early leads immediately following the attacks on September 11, as they did following the 11 March 2004 attacks in Madrid and the 7 July 2005 attacks in London, among others.  Focusing on the financing of transnational threats has other benefits as well:

• Deterrent effect. As difficult as it may be to deter a suicide bomber, terrorist designations can deter non-designated parties, who might otherwise be willing to finance terrorist activity. Major donors inclined to finance extremist causes – who may be heavily involved in business activity throughout the world – may think twice before putting their personal fortunes and their reputations at risk.

• Preventive intelligence. Unlike information derived from human spies or satellite intercepts, which require vetting to determine their authenticity, a financial transfer is a matter of fact. Raising, storing, and transferring money leaves a financial trail investigators can follow. Definitively linking people with numbered accounts or specific money changers is a powerful pre-emptive tool, often leading authorities to conduits between terrorist organisations and individual cells.

• Disruptive tool. According to terrorists themselves, while following the money will not stop all plots, it will likely frustrate some of these activities. Back in 1995, captured World Trade Center bomber Ramzi Yousef was flown over the twin towers on his way to a New York jail. When an FBI agent pointed out that the towers were still standing, Yousef replied, “They wouldn’t be if I had enough money and explosives.”

At a minimum, tracking terrorists’ financial transactions will make it harder for them to travel, procure materials, provide for their own families, and radicalise others. Denying terrorists – as well as insurgents and proliferators – easy access to financial tools forces them to use more costly, less efficient, and often less reliable means of financing.  Keeping financiers on the defensive and denying them the luxury of time and space puts them under stress, deters donors, restricts the flow of funds and helps constrict their operating environment.

With more activities out of the public eye than in it, counterterrorism efforts are, by their very nature, difficult to assess and easy to criticise. But financial measures in particular have proven quite successful, and those who follow the money are increasingly being called on to use their skills and tools against the hardest targets.

Beyond its tactical advantages, combating the financing of terrorist threats presents opportunities in the broader, and no less important, battle of ideas regarding the ideology of radical extremism. Although targeted financial measures are commonly presumed to have negative diplomatic consequences, they also provide an opportunity to clearly relay international intentions. For example, the information made public by the United States and United Nations in the course of designations of individuals, groups and charities found to have funded Lashkar-e-Taibeh, the group responsible for the Mumbai attacks, laid the groundwork not only for effective counterterrorism measures following the attacks in Mumbai but also for a strategic communication strategy that exposed some of Lashkar-e-Taibah’s terrorist facilitation and financing networks.

Following up on terrorist designations with robust public diplomacy initiatives offers a salient opportunity to support international counterterrorism and counter-radicalisation objectives and offer a counter-narrative to the radical global narrative proffered by ideological radicalisers and terrorist recruiters.

While the international community faces some difficult challenges in its efforts to combat terrorist financing, an examination of the record to date indicates positive results. Some of the challenges are products of globalisation and technological improvements.  Globalisation, for example, has led to a dramatic increase in the volume of funds flowing internationally. In 2000, foreign workers sent $113 billion back to their home countries. By 2006, the figure had more than doubled to $255 billion, giving a sense of the scale of the international flows.

Mirroring the broader shift toward the use of technology in global commerce, shifts have occurred in how funds are actually transferred, using new technology. M-payments, where cell phones are utilised to transfer money electronically, are growing in importance, as is the transfer and storage of funds via online entities such as cash-U or e-gold.  Stored Value Cards, which are not subject to any regulation, are another key vulnerability.

In countries where the formal financial sector is less than robust, such as in many African countries, using cell phones is a far more attractive option for transferring funds.  In some cases, terrorists are suspected of using the internet to obtain logistical and financial support for their operations.

Overall, the internet has had a major impact on terrorist financing. It provides a cheap, fast, efficient, and relatively secure means of communication, effectively creating a conveyor belt for self-radicalised foot soldiers who connect and communicate with like-minded radicals through chat rooms and online message boards. For example, a 2006 US government report assessed that “groups of all stripes will increasingly use the Internet to obtain logistical and financial support.” The report noted, more generally, that technology and globalisation have also enabled small groups of alienated people not only to connect but to raise resources for attacks without need for an established terrorist organisation.

Despite these challenges, there are clear signs of success in our collective efforts both to deny terrorists access to funds and to follow the money for intelligence purposes.  Speaking before Congress in February 2008, Director of National Intelligence (DNI) Michael McConnell commented that over the previous 12 to 18 months the US intelligence community noticed that “al-Qaeda has had difficulty in raising funds and sustaining themselves”.

In early April, Undersecretary of the Treasury Stuart Levey echoed the DNI’s assessment, adding that the government’s efforts to combat terrorist financing “are more integrated than ever before” and have enabled the government to disrupt or deter some sources of al-Qaeda finance and make “significant progress mapping terrorist networks”.

Additionally, while there is evidence that the al-Qaeda core is resurgent, funding difficulties may be preventing the organisation from growing even stronger. In his July 2005 letter to Abu Musab al-Zarqawi, Ayman al-Zawahiri humbly asked the leader of al-Qaeda in Iraq (AQI) if he could spare “a payment of approximately one hundred thousand” because “many of the lines have been cut off.” Similarly, in May 2007, al-Qaeda leader in Afghanistan Sheikh Mustafa Abu al-Yazid (Sheikh Said) highlighted the group’s desperate needs for funds:

As for the needs of the Jihad in Afghanistan, the first of them is financial. The Mujahideen of the Taliban number in the thousands, but they lack funds. And there are hundreds wishing to carry out martyrdom-seeking operations, but they can’t find the funds to equip themselves. So funding is the mainstay of Jihad.

Other recent cases suggest al-Qaeda’s senior leadership is indeed lacking funds. Consider a recent case in Bahrain. According to Bahraini investigators, members of an al-Qaeda affiliated cell tried and convicted in Bahraini courts twice delivered funds to al-Qaeda operatives in Afghanistan. The funds appear to have been self-generated, totalled only a few thousand dollars, and were sent not from al-Qaeda leadership to a terrorist cell abroad but from a budding terrorist cell to al-Qaeda leaders in Afghanistan.

In a recent case in Saudi Arabia, a taped message from Ayman al-Zawahiri distributed via cell phones asked for “donations for hundreds of the families of captives and martyrs in Pakistan and Afghanistan”. Saudi authorities subsequently arrested some 56 individuals suspected of belonging to al-Qaeda and using the recording to raise funds.

Investigations in Europe and Asia offer other examples of local cells raising funds for themselves as well as sending funds to Pakistan. In Spain, for example, authorities have seen Pakistani terrorists involved in petty crime through which they not only finance their activities in Spain but also send millions of dollars back home, some of which, it is suspected, finances extremist groups there.

In Singapore, a “self-radicalised” cell leader collected contributions from fellow cell members with the intent of sending the money as a donation to support violent causes abroad.

A lack of funds has frustrated terrorists’ intentions elsewhere as well. Philippine police reported that plans by Abu Sayyaf Group to set off bombs in Manila and target a chemical plant in 2006 were never executed due to a lack of funds. Following the international financial embargo of the Hamas-led government in Gaza, the group acknowledged being broke and lacking funds to pay employees.

Jemaah Islamiyah (JI), al-Qaeda’s Southeast Asian affiliate, has also suffered from major financial setbacks due to the international efforts to combat terrorist financing. According to one study, JI has not received significant external funding since 2003. Not surprisingly, then, the group is facing financial shortfalls. As evidence, in late 2007, JI told members planning to participate in one of the organisation’s projects that they would have to cover their own expenses. Several other cases highlight how the international community has been able to use financial intelligence to disrupt plots and prevent attacks.

• According to the US Treasury Department, financial intelligence played an important role in individual operations, such as the investigation that led to the capture of Hambali (Riduan Isamuddin), the JI operations chief who masterminded the Bali bombings in 2002.

• British authorities foiled the summer 2006 liquid explosive aviation plot thanks in large part to critical financial intelligence.

• Four different terrorist attacks abroad have been disrupted, according to the FBI, based in part on their investigations of the financial activities of terrorist supporters in the United States.

• The US Treasury Department reported that a financial intelligence collection program supplied a key piece of evidence confirming the identity of a major Iraqi terrorist facilitator and financier.

We have undoubtedly made great strides in our counterterrorism efforts in general, and our measures to combat the financing of terrorism in particular, even as we have far to go.

Still, when it comes to financing al-Qaeda, its affiliated franchises and home-grown cells, much has changed even as much has stayed the same. Consider a recently declassified August 1993 intelligence report written by the US State Department’s Bureau of Intelligence and Research. The report describes several trends that remain issues of serious concern today, including some of the same streams of financial support that fund today’s terrorist groups. To the present-day reader, who will digest this 1993 report with an eye toward the conflict in Iraq, perhaps the most disturbing analytical judgment (which could have been pulled out of a current intelligence assessment) is this:

The war-era network of state sponsors and private patrons which continues to support the mujahidin has no rigid structure and no clearly defined command center, but receives guidance from several popular Islamic leaders and financial support from charitable Islamic organizations and wealthy individuals. Key figures who have emerged as the mentors of the mujahidin provide one another with the contacts and conduits needed to keep the militant groups they support in business.

The network circa1993 is not an exact parallel to today’s combination of al-Qaeda operatives and like-minded followers of a virtually networked, leaderless network of terrorists and their supporters. But the 1993 warning about an unstructured network of terrorists moving from their current area of operations to other battlefronts could have been written today.

What remains to be seen is if al-Qaeda’s senior leadership’s lack of funds degrades the core group’s power to control activities and direct operations. Without the power of the purse, would local terrorist cells still need the al-Qaeda core as much as that core would need these cells? According to some experts, part of what drew the GSPC in Algeria into the al-Qaeda fold was the financial dividend offered by such a relationship. Should the current trend continue, it could lead to the further degeneration of the al-Qaeda core and the devolution of al-Qaeda’s organized global insurgency into a more localised – and controllable – terrorist threat.

Toward that end, and in light of recent successes disrupting and deterring al-Qaeda’s financial activity, constricting the terrorist operating environment – with an eye toward al-Qaeda’s financial streams in particular – should remain a strategic priority.