As we approach the tenth anniversary of 9/11, the pervasiveness of terrorism globally, including the United States, continues to threaten government, industry, and society worldwide. Often overlooked is the non-ideological fuel feeding this threat; namely, terror financing. Unlike terror incidents, the characteristics of terror financing are often silent or subdued. Purposefully, terror financiers do not try to attract attention to their activities.
The costs of terrorist operations can be quite low relative to their impacts. Among the estimated costs of terrorist attacks include: the twin suicide bombings at the U.S. embassies in Kenya and Tanzania in 1998 ($50,000); September 11 attacks in 2001 ($500,000); Bali attacks in 2002 ($25,000); Madrid attacks in 2004 ($10,000-$15,000); and London attacks in 2005 ($15,000-$20,000). Al Qaeda and al Qaeda-inspired terrorists have bled the West and other regions literary (deaths) and figuratively (money spent combating terrorism) for more than a decade.
Terrorists and their supporters take advantage of opportunities and loopholes in the economic system. By leveraging the economic system they are able to obtain financial, organizational, and operational assistance and tools (such as arms, training, intelligence, radicalization and recruitment activities). Terror financing is needed for specific terrorist operations as well as to maintain a terror organization.
As with any organization, terrorist groups need funding for the sustenance of their leadership and members. Thus, resources are needed to pay, for example: basic necessities (food, shelter, clothing), transportation (movement/methods of attack), weapons (breadth; components), training (professional/academic), base of operations (training camps), documents (passports, driver’s licenses), and sustain terrorist group infrastructure.
Lone wolves and other unaffiliated terrorists have a different resource paradigm. As such individuals generally participate in small terrorist activities on a less frequent basis, their funding needs are relatively limited.
Terrorist Funding Methodologies
Terrorists have used various methodologies to raise resources for their activities. The personal funds of the wealthy, middle class and poor are used. Particularly with lone wolves or independent cadres, personal funds are the principal source of terror finance. Corporate funds that are owned by terror groups and their supporters or a state-sponsor of terror are additional sources of terror financing. For instance, a business owner may voluntarily support a terror group or an affiliated charity using his corporation’s funds.
Terrorist groups have established – directly and indirectly – domestic and international charities aligned along a broad array of groups: ethnic, religious and racial. Terrorist operatives and sympathizers have established such charities. Also, at other charities, individuals may siphon money from the entity to the terror group.
Some terror financing originates from operatives in trading and transferring of commodities (for example, “conflict” diamonds, gold, cocoa). To this end, terrorists have used international trade schemes, including undervaluing or overvaluing goods and services, multiple invoicing, and falsely describing goods and services. Terrorists use websites to sell music, books, T-shirts, emblems, jewelry, publications as well as through the solicitation of online donations and collection of membership dues.
Terrorists have utilized bogus financial instruments and securities fraud to generate funds. Terror groups have been involved in the extortion of government, corporations, small business owners and individuals.
Terror Financing Growth
There are many reasons for contributing to the expansion of terror financing. Globalization – the internationalization of all facets of human activities (political, economic, social, religious, technological) – is a critical factor impacting terror financing. For instance, globalization of business makes it easy to transfer goods and funds in a rapid manner. Markets are open 24/7 encircled with various currencies, financial instruments and equivalencies. Analogously, the breadth of global financial intermediaries allows for easy transfer of funds. In addition, the anonymous nature of money/asset transfer, particularly due to technology (PayPal, Internet payments, gift cards), enables the fast movements of assets. Furthermore, the integration of markets, nation-states and technologies contributes to globalization.
The rapid growth of the Internet and cheap wide-bandwidth international communication contributes to terrorists’ capacity to transfer funds. This makes the transfer of funds simple, speedy, cheap and often anonymous or masking the parties.
Global transportation systems accord rapid and inexpensive mobility to customers, including terrorists, criminals and their abettors. These circumstances aid in the expansion of terror financing.
Nations have difficulties protecting borders from the transfer of people and contraband (weapons, drugs). So it is not surprising that various assets (cash, commodities, and equivalents) cannot be interdicted within countries or across borders.
The highly flexible and adaptive nature of terrorists leads to the expansion of terror financing. Terror finance methodologies constantly change so it is arduous to respond quickly and effectively to this terror instrumentality. The limited capacity to distinguish between traditional crime and terrorism financing contributes to terror financing’s growth as law enforcement and industry often mischaracterize the latter for the former.
The changing nature of terrorism – a trend toward small-scale terror incidents require fewer funds for operations and self-selected terrorists – aids in terror financing efficacy. Fewer funds allow for limited resources to be leveraged broadly.
Failed states make rapid and easy mobility of people and assets facile, all engendering the growth of terror financing. Conflict zones create instability on many fronts, thereby enhancing terror financing.
The prevalence of government and industry corruption, particularly in failed states and conflict zones, contribute to the potency of terror financing. Some government and industry operatives collaborate with terrorists groups openly and secretly, directly and indirectly.
The international criminal/terror drug syndicates make the ease and attractiveness of this funding source quite potent. The growing nexus between organized crime and terrorism contributes to terror financing as activities of both types of groups are out-sourced or mimicked, often paid for by illicit funds. Expanding criminal activities – principally illegal drug trade, human smuggling and cybercrime – provide additional sources and avenues to garner funds and mask their connection to terrorism.
The limited regulation of and transparency in the hawala, hundi and other non-Western money transfer systems enable terrorists to shift funds through these instrumentalities in a relatively facile manner. Likewise, bank secrecy and other corporate privacy issues make ownership behind terrorist funding sources difficult, which aids terrorists in hiding their funds.
Banking compliance costs and high prospective liability make the terror financing issue viewed as problematic and not something financial institutions necessarily want to deal with although they must. One could argue that greater scrutiny of terror financing at banks pushes terror funds to be placed in systems and modes that are more opaque.
Despite the existence of the International Convention for the Suppression of Terror Financing, there exist significant disparities in anti-terror financing frameworks among some countries. Even when legislation in this realm is uniform, its enforcement can often have variance. As such, terrorists exploit the financial systems of nations with weak anti-terror financing paradigms. Similarly, terror financing thrives in countries in which there are government efforts combating terror funding are weak.
Undermining Terrorist Financing
Counter-terror financing activities at government levels include executive, legislative and judicial responses. These efforts take place at national, regional, and international bases. So too, industry, non-governmental organizations, the media, and citizenry contribute to undermining terror financing. As terrorists frequently target businesses globally, it is in industry’s interests to accelerate its efforts against terrorism in general, and terror financing, in particular. However, current and prospective counter terror financing efforts are up against calculating and ever-changing enemies.