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TERRORIST FINANCING

Armed fighters over a background of Syrian, Iraqi, and U.S. currencies and gold ingots, photos by zabelin, Cimmerian, Vitoria Holdings LLC, and johan10/Getty Images

By

Maisah Robinson, PhD

This paper is about terrorist financing done by those who go against the Islamic prohibition against terrorists acts. The paper contains a discussion of the ways in which those who are called terrorists finance their operations. In the narrow definition, terrorism has been association with Muslims, who themselves have been victims of hate crimes and violence. Islam has been wrongly held responsible for the violence perpetrated by a small number of people who call themselves Muslims, and often the actions of violence they inflict are on Muslims. The word ‘jihad’, used to describe what the terrorists are doing, has nothing to do with their acts.  The term ‘jihad’ comes from the root word jahada and means to struggle. Prophet Muhammad (peace be upon him) said that the greatest jihad is to struggle with the insidious suggestions of one’s own soul. Thus, jihad means the inner struggle of striving to submit to Allah and be a virtuous person. Also, jihad means to struggle against injustice. That Muslims force people to submit to Islam is a myth.

Like other religions, Islam allows for armed self-defense, retribution against exploitation, and oppression as mentioned in the Qur’an:

“And why should ye not fight in the cause of God and of

those who, being weak, are ill-treated (and oppressed)? -

Men, women, and children, whose cry is: “Our Lord! Rescue

us from this town, whose people are oppressors; and raise

for us from thee one who will protect; and raise for us from

thee one who will help!” [Al-Qur’an 4:75]

Allah does not condone the killing of innocent people.

“…if any one slew a person - unless it be for murder

or for spreading mischief in the land - it would be

as if he slew the whole people: and if any one saved

a life, it would be as if he saved the life of the whole

people.” [Al-Qur’an 5:32]

Shortly after the September 11 attacks, the U.S. government began focusing on terrorist financing. Investigations revealed that the terrorists had access to approximately $500,000 in the United States to carry out their suicide mission. Numerous federal agencies, such as the Central Intelligence Agency (CIA), Federal Bureau of Investigation FBI, State Department, Internal Revenue Service (IRS), and Treasury and its components, Customs, the Office of Foreign Asset Control (OFAC), and the Financial Crimes Network (FinCEN), are sharing information and working together to address terrorist financing. In addition, many companies involved in businesses that previously were not subject to money laundering reporting requirements are covered by new anti-money laundering regulations.

            The publication of lists of designated groups and persons that, according to facts contained in administrative records compiled for this specific purpose, are conclusively determined to be terrorists. Upon the inclusion of any group or person on these lists, it becomes a crime for anyone subject to United States jurisdiction to engage in financial transactions with that group/persons, even if the transaction itself is not designed to promote terrorism. The list consists of :

 

Al Qaida/Islamic Army

Abu Sayyaf Group

Armed Islamic Group (GIA)

Harakat ul-Mujahidin (HUM)

Al-Jihad (Egyptian Islamic Jihad)

Islamic Movement of Uzbekistan (IMU)

Asbat al-Ansar

Salafist Group for Call and Combat (GSPC)

Libyan Islamic Fighting Group

Al-Itihaad al-Islamiya (AIAI)

Islamic Army of Aden

Usama bin Laden

Muhammad Atif (aka, Subhi Abu Sitta, Abu Hafs Al Masri)

Sayf al-Adl

Shaykh Sai'id (aka, Mustafa Muhammad Ahmad)

Abu Hafs the Mauritanian (aka, Mahfouz Ould al-Walid, Khalid Al-Shanqiti)

Ibn Al-Shaykh al-Libi

Abu Zubaydah (aka, Zayn al-Abidin Muhammad Husayn, Tariq)

Abd al-Hadi al-Iraqi (aka, Abu Abdallah)

Ayman al-Zawahiri

Thirwat Salah Shihata

Tariq Anwar al-Sayyid Ahmad (aka, Fathi, Amr al-Fatih)

Muhammad Salah (aka, Nasr Fahmi Nasr Hasanayn)

Makhtab Al-Khidamat/Al Kifah

Wafa Humanitarian Organization

Al Rashid Trust

Mamoun Darkazanli Import-Export         Company

 (Source: White House News. Executive Order on Terrorist Financing)

Terrorists focus on crimes of opportunity in vulnerable locations worldwide and seek to operate in relative obscurity by taking advantage of close-knit networks of people and nontransparent global industry flows when earning, moving, and storing their assets. To earn assets, they focus on profitable crimes or scams involving commodities such as smuggled cigarettes, counterfeit goods, and illicit drugs and the use of systems such as charitable organizations that collect large sums. To move assets, terrorists use mechanisms that enable them to conceal or launder their assets through nontransparent trade or financial transactions such as charities, informal banking systems, bulk cash, and commodities such as precious stones and metals. To store assets, terrorists may use commodities that are likely to formal banking system. For example, terrorists may use precious stones and metals that serve as effective forms of currency.

Some international terrorist organizations engage in legitimate philanthropic and humanitarian activity for suffering people. This activity is considered the benevolent counterpart to their violent activities and is designed to win the hearts and minds of people in such regions, while they simultaneously kill innocent people through violence elsewhere. Given the nature of many terrorist organizations, it is an insurmountable law enforcement challenge to trace the dollars coming from United States sources, through the Third World financial sector, to their ultimate use in purchasing bombs and bullets. Perhaps more importantly, even if such law enforcement efforts succeeded, it would be even more difficult to establish that the U.S.-based providers specifically knew that the funds were going to the malevolent, rather than humanitarian, purposes of the group. These two factors led to the basis for the current terrorist financing statutory scheme. This scheme contains the provisions that all money is fungible, and the benevolent intent of American donors cannot wash what is inherently a dangerous act–funding overseas groups that kill innocent persons. The funds provided by the humanitarian-minded donor are just as useful to the terrorist organization as the funds provided by persons who intend such funds to be used for violence.

Terrorists earn assets through illicit trade in myriad commodities, such as drugs, weapons, and cigarettes, and systems, such as charities, owing to their profitability. Like other criminals, terrorists can trade any commodity in an illegal fashion, as evidenced by their reported involvement in trading a variety of counterfeit and other goods. However, although terrorists are generally motivated by ideological factors rather than pure profit, terrorists, like other criminals, benefit most from smuggling those commodities with the highest profit margins.

Globally, trafficking in illicit drugs and weapons is a profitable means for terrorists to earn assets. Terrorists have been reportedly involved in trafficking illicit drugs, the most lucrative commodity illegally traded. According to the U.S. State Department’s 2003 International Narcotics Control Strategy Report, this trade is valued in the billions and allows drug traffickers to corrupt government and law enforcement officials worldwide, particularly in countries with weakly enforced laws and regulations where officials are poorly paid. In East Asia, trafficking in drugs and weapons, as well as engaging in organized crime and official corruption, are serious international crimes that terrorist organizations have exploited to finance their operations.

Terrorists have used alternative remittance systems, such as “hawala” or “hundi”, and underground banking; these systems use trusted networks that move funds and settle accounts with little or no paper records. Such systems are prevalent throughout Asia and the Middle East as well as within expatriate communities in other regions.  Usually, a transaction begins with a visit to a hawala broker. The person wanting to send money gives the broker the sum of money to be transferred plus a fee and the name and location of the person he wants the money delivered to. The broker then gives his customer a receipt. The receipts are usually just a bit of paper. The broker then contacts a broker in the recipient's country. The recipient contacts the local hawala broker. While the system may be ancient, hawala brokers routinely use fax machines or the Internet to communicate with other brokers. The broker is given a code with a specific serial number sent to him by his relative. Records are kept only until the transaction is completed. Then they are destroyed. The money does not move, either physically or electronically. Brokers dole out money from the same pool that they take it in. They make money from the fees they charge for the transactions. The system is built on the trust between brokers, a trust built up between generations of hawala brokers.

Some terrorist groups may also use Islamic banks to move funds. Islamic banks operate within Islamic law, which prohibits the payment of interest and certain other activities. They have proliferated throughout Africa, Asia and the Middle East since the mid-1970s. Some of the largest Islamic financial institutions now operate investment houses in Europe and elsewhere. Many of these banks are not subject to a wide range of anti-money laundering regulations and controls normally imposed on secular commercial banks nor do they undergo the regulatory or supervisory scrutiny by bank regulators via periodic bank examinations or inspections. While these banks may voluntarily comply with banking regulations, and in particular, anti-money laundering guidelines, there is often no control mechanism to assure such compliance or the implementation of updated anti-money laundering policies.

Terrorist financing enforcement is an example of strategic over-inclusiveness, where the crimes are based on the recognition of how terrorists behave. The key terrorist financing statute (18 U.S.C. § 2339B) fits within the American counterterrorism enforcement tradition. Because it contains the offenses of conspiracy and attempt, it is a powerful tool in the effort to disrupt terrorist plots before they reach fruition. It is also the closest thing pertaining to the crime of being a terrorist that exists. The financial sources of terrorist financing are prosecuted under the U.S. Code provisions, which criminalize the act of knowingly providing support and engaging in financial transactions with terrorists.

This governmental priority for eliminating terrorist financing resulted in greater scrutiny of corporations, increased governmental demands for information from corporations, and far less tolerance of corporate indifference to money laundering issues. Furthermore, the government will not hesitate to seize funds or to prosecute corporations or individuals for money laundering violations. This new level of inter-agency cooperation is illustrated by the Foreign Terrorist Asset Tracking Center (FTAT). Headed by OFAC, the Center shares and analyzes data provided by participating agencies. Another multi-agency effort is Operation Green Quest. Led by the Customs Service, the group includes the IRS, FBI, OFAC, the Secret Service, the Postal Inspection Service, and the Bureau of Alcohol Tobacco and Firearms. Green Quest uses agents in the participating agencies to investigate terrorist financing.

Since September 11, thousands of search warrants have been served, and records relating to thousands of people and accounts have been subpoenaed. The federal government has created inter-agency working groups to implement the broad objectives of the USA PATRIOT Act of 2001 ("PATRIOT Act") pertaining to money laundering. The PATRIOT Act, Pub.L. 107-56, 115 Stat. 307 (2001) adds and amends certain financial reporting requirements and banking laws. Title III of the Act makes a number of amendments to the anti-money laundering provisions of the Bank Secrecy Act, 31 U.S.C. Sections 5311-5331. These amendments are intended to make it easier to prevent, detect, and prosecute international financing of terrorism.

Regulations in the “Special Information Sharing Procedures to Deter Money Laundering and Terrorist Activity” regulation encourage and permit financial institutions to share confidential financial data (31 C.F.R. pt. 103, sub-part H). Financial institutions may provide such information to other financial institutions if they provide notice to the government before such information is shared. A certification must be provided to FinCEN prior to the exchange of information. It must identify the two entities involved in the exchange of information and certify that the information will not be used for any purpose other than complying with the government's money laundering detection procedures, and that the security and confidentiality of the information will be maintained   (31 C.F.R. Section 103.110). The certification and resulting authorization to share information is valid for one year. Entities that comply with the requirements of these regulations are provided with a safe harbor from liability from individuals or entities for sharing such information (31 C.F.R. Section 103.110 d).

Financial institutions are also permitted to provide financial information to the government in certain situations under the Financial Crimes Enforcement Network FinCEN, the designated point government agency that receives information from other government agencies concerning suspected money launderers and terrorists and provides that information to financial institutions so that suspect accounts and transactions can be checked. Financial institutions are required to search their records regarding the individuals, accounts, or transactions at issue. Entities that provide such information are given immunity from suit by the account holder whose information is provided.

Foreign governments also provide support and coordinate with the United States in the seizing and freezing of assets. The Financial Action Task Force ("FATF") on money laundering, which existed prior to September 11, consists of financial intelligence units from 31 countries, including the United States. In October 2001, the group established eight recommendations regarding the detection of terrorist funding that require member countries to: ratify and implement the United Nations International Convention for the Suppression of the Financing of Terrorism; criminalize the financing of terrorism, terrorist acts and terrorist organizations, and make such crimes predicate acts for money laundering offenses; freeze and confiscate terrorist assets; report suspicious financial transactions linked to terrorism; assist other countries' law enforcement and regulatory authorities in their investigations of terrorist financing;  impose anti-money laundering requirements on business in addition to banks and financial institutions that are involved in alternative remittance systems; strengthen customer identification measures in international and domestic wire transfers; and  ensure that non-profit organizations cannot be misused to finance terrorism (The FATF website).

According to the U.S. Treasury Department, aggressive U.S. engagement with Saudi Arabia to address the threat of terrorist financing has led to arrests of key terrorist financiers, the freezing of assets and new restrictions on the financial activities of charitable organizations. The International Monetary Fund (IMF) and the World Bank agreed to adopt a more comprehensive approach against terrorist financing in recipient countries and provide technical assistance to them to protect their financial system. The two money lending world bodies integrated Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) into their operational work. Technical Assistance (TA) components totaling millions have been included in lending programs for 4 countries consisting of Bangladesh, Guatemala, Honduras, and Pakistan..

In addition to the policy, legal, and law enforcement actions taken by the United States and multilateral organizations, the financial intelligence community has weighed in on terrorist financing. The Financial Crimes Enforcement Network intelligence unit is tasked with being the primary intelligence source for financial information within the United States. It is responsible for maintaining and analyzing “Suspicious Action Reports and Currency Transaction Reports” filed by financial institutions in accordance with the Bank Secrecy Act; it also works with law enforcement, the CIA, and regulatory agencies to assist with intelligence of financial crimes committed within the United States. As a result of the USA PATRIOT Act, the Financial Crimes Enforcement Network has an expanded responsibility in terrorist financing and is now an independent bureau within the Treasury Department. It can share information from multiple agencies and flag separate inquiries by different agencies on a particular individual or account. This is vital, because it opens the doors for financial information sharing between law enforcement agencies and intelligence agencies, responding to the criticism of a lack of across-the-board intelligence sharing before 11 September 2001.

While it is clear that enforcement standards regarding financial transactions are stringent, and that the line between administrative liability and criminal culpability for non-compliance has changed, the long-term implications for corporations are not completely clear. Nevertheless, it is clear that companies involved in acquisitions, sales, mergers and business relationships with companies and individuals located abroad, and companies located in the United States with businesses in other countries, are being held to a higher standard regarding their due diligence before embarking on such a relationship or transaction. The risk of failing to comply to enforcement standards will result in the seizure of assets, business records, and perhaps the resulting distress or failure of the affected business entity.

           

 

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