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Executive
Summary
The global fight to disrupt
funding flows to terrorists requires new strategies, cooperation and
painful domestic countermeasures. In
Saudi Arabia the elimination of untraceable cash contributions to
charities, bans on international charity transactions and establishment
of a joint Saudi-American work group has placed new controls over
previously opaque and under-regulated potential funding sources.
While this has shut down many legitimate charities and
inconvenienced needy recipients, the higher goal of preventing terror
remains the key Saudi objective.
In the United States the
primary source of international terror financing continues to be illegal
narcotics and money laundering. Until US law enforcement effectively
combats money laundering, international terror attacks using funds
raised in the US will continue, especially in the Americas.
One milestone in the fight against terror finance in the US will
be how much citizens and corporations begin to perceive and get involved
in domestic countermeasures. Our
own credibility demands that America fight finances of terror groups
targeting not only the US homeland but also innocents abroad.
Patterns
of Global Terrorism
Between
1997 and 2002 17,928 people died in terrorist incidents around the
globe. Of the 4,098 killed
in North America, most perished on a single day in the 9/11 terrorist
attacks. (See Exhibit #1) Post
9/11 efforts in the US to secure the homeland against future attacks
include an intense focus on the sources of financing used by terrorist
groups operating abroad. Attempts
to examine and thwart overseas terrorist financing have led to
complicated questions about how to best approach this global problem.
The 2003 US Money Laundering Strategy points out one difficulty:
terrorism financing tends to involve small amounts of money that
are both hard to detect and do not necessarily depend on an underlying
crime. A more daunting
systemic factor is the natural tendency for all nations to devote more
resources toward disrupting finances of overseas groups targeting their
homeland, rather than applying equal muscle to domestic networks funding
terror abroad.
Exhibit #1 Total International Terror Casualties* by
Region, 1997-2002
(Source: US Office of the
Coordinator for Counterterrorism 2003)
ADD
(*As
classified by the US State Department, international counts differ)
Saudi
Arabia
In the aftermath of the
September 11, 2001 terrorist attacks on the United States, some raised
questions and concerns about whether there is Saudi state or citizen
sponsored support for terrorist groups. Government officials of Saudi Arabia appear not to have any
obvious motive to fund terrorist attacks on a long time ally.
The US justice system initially agrees.
By dismissing claims of a US $1 trillion lawsuit brought by the
families of the victims of 9/11against Prince Sultan bin Abdulaziz
(Saudi Defense Minister and leader of Islamic Affairs) and Prince Turki
al-Faisal (Director of the Saudi Department of General Intelligence) on
November 15, 2003, US District Judge James Robertson ruled that there
was no compelling evidence that either acted as an individual or
“state sponsor” to cause the terrorist attacks on New York or the
Pentagon.
However there is evidence that more controls should have been enacted
prior to 9/11 to cut off potential terrorist funding in Saudi Arabia and
the US. New strategies in
Saudi Arabia focus on the virtue of charitable giving; in the US, it is
the vice of illegal narcotics consumption and laundered money.
While Saudi Arabia appears to be making measurable inroads to
ensure that cash donations to charity are not diverted to terrorists,
laundered cash from the US consumption of illegal narcotics continues to
finance terrorism across the Americas.
Of
Virtue, Charity and Cash Boxes
Prominent Saudis, particularly
religious leaders, generally condemn terrorism. The Grand Mufti of Saudi Arabia and Chairman of the
Senior Ulema, Sheikh ‘Abdul-‘Aziz Âlush on Sept. 15, 2001 stated emphatically, “Hijacking planes, terrorizing innocent people and shedding blood,
constitute a form of injustice that cannot be tolerated by Islam, which
views them as gross crimes and sinful acts..
Any Muslim who is aware of
his teachings of his religion and who adheres to the directives of the
Qur’an and the Sunn’ah will never involve himself in such acts
because they will invoke the anger of God Almighty and lead to harm and
corruption on earth.”
Saudis have had to react to an escalating series of
recent terrorist strikes within the Kingdom, though attacks
against Saudi Arabia are nothing new.
The Ikhwan Bedouins rejected a Saudi drive for modernity in 1928
but were driven back in 1930 by Abdul al Aziz.
In 1979 armed terrorists captured the Grand Mosque of Mecca.
Terrorists dealt a deadly blow to the American compound in Riyadh
in May 2003 killing 30 people, including 9 Americans.
On Nov. 8, 2003 a suicide attack on a Riyadh housing compound
killed another 17. Crown Prince Abdullah clarified the state’s
position, “Innocent citizens and residents were killed or injured,
proving once again that terrorists are criminals and murderers with
total disregard for any Islamic and human values or decency.
They are no different from vicious animals whose only concern is
to shed blood and bring terror.. we specifically warn anyone who tries
to justify these crimes in the name of religion.
And we say that anyone who tried to do so will be considered a
full partner to the terrorists and will share their fate.”
Saudi citizens demanded their rulers arrest and execute the
militant Muslims involved. So
although attacks are nothing new, the mortality, frequency and
increasing devastation of the attacks are driving more effective Saudi
countermeasures.
One new Saudi focus toward
clamping down on terrorist funding is oversight of charitable giving and
cash donations.
One of the five pillars of Islam requires all able Muslims to
make charitable donations. Almsgiving
is called “zakat”, and many Saudis contribute at least 2% of their
annual income to zakat. While
many Saudis exhibit a high level of charitable benevolence, it is not
clear any gave zakat with intent to fund terrorists.
Most assumed that their frequent cash donations, often placed in
metal drop boxes at the entrance of mosques, went toward orphanages,
schools and hospitals. Nevertheless
cash donations made to opaque and sometimes unaccountable charity
operations were a dangerous mix. Compounding the problem is a Saudi
cultural inhibition: inquiring about the motives and operations of a
charity is considered rude, and Saudis normally don’t ask for details.
Charities that changed names, espoused general charitable
purposes, and relied heavily on cash donations found uninquisitive and
generous donors. The
regulation and oversight of charities was fraught with “negligence and
incompetence” according to former Ambassador Chas Freeman.
The post 9/11 charitable
environment changed dramatically as Saudi Arabia imposed sweeping new
rules on donations, charitable operations and financial flows as well as
reforming the banking system. A
Financial Intelligence Unit was established to trace suspected
terrorists, and charity monies are now subject to monitoring and audit
by the newly created High Commission in coordination with the Ministry
of Foreign Affairs. Strict
rules of identification are in place, restrictions on foreign account
openings are enforced and 33 accounts have been frozen in the past year.
Since Saudi Arabia has no income tax, there are fewer financial
records available to law enforcement.
However, the controls over the Saudi financial environment appear
to have dramatically changed. (See exhibit #2)
Exhibit
#2 Pre and Post 9/11 Saudi Financial Controls
(Source: US and Saudi Officials)
ADD
This
change has not come without a cost.
Saudi charities that previously gave money to widows, orphans,
and handicapped children have been devastated: some have seen donations
drop by 50% whereas others have simply shut down.
Donors have been stripped of a means for fulfilling their
religious obligations. But
the measures have received US accolades.
In September 2003, US Treasurer John Snow went to the Middle East
for the International Monetary Fund meeting. After his visit with the
Crown Prince he said, “I’ve got an absolute sense that there are no
holds barred in going after the money and the terrorists.”
David Aufhauser, general counsel of the US Treasury Department
and chairman of the National Security Council policy coordinating
committee on terrorist financing recently outlined increasing Saudi
cooperation. A joint
investigative task force was created after the May 2003 bombings and is
also focused on investigating the November 2003 bombings.
Computer records of al-Qaeda associates arrested in the kingdom
have already helped law enforcement officials uncover terrorist
financing networks across the Gulf.
Saudi domestic police powers of interrogation and compulsory
process are being used to validate US intelligence regarding Saudi
terror financing suspects. Aufhauser’s
stated deadline is precise. The taskforce must achieve tangible
enforcement results, beyond the initial deep cooperation, before March
of 2004.
Staunching
the flow of funding to terrorist groups is a daunting challenge.
Some US observers believe the intense Saudi efforts on the home
front will divert resources from investigating terrorist links beyond
the kingdom.
Unfortunately,
the US cannot credibly charge other nations with prioritizing homeland
security at the expense of cracking down on domestic networks funding
terrorism abroad. The most
glaring example is the seemingly uninterruptible supply of funding
raised in the US for terrorist groups operating in Colombia and other
parts of the Americas.
Proceeds
of Vice: US-Colombian Terror Financing
Armed
guerillas such as the United Revolutionary Armed Forces of Colombia (FARC)
and paramilitaries including the United Self-Defense Forces of Colombia
(AUC) rely heavily on the proceeds of narco-trafficking for financing.
Both groups have been designated as terrorists by the US State
Department. Both are beneficiaries of laundered income from sales of an
estimated 580 tons of cocaine sold annually in the United States.
The laundering of US dollars back into Colombian pesos finances
payrolls, arms and explosives purchases, clandestine operations, and
spectacular attacks against soft civilian targets.
These laundered funds from the original crime of drug trafficking
are used in a second crime against humanity.
For years a key money laundering strategy has been the cash purchase and
exportation of manufactured goods from the United States, particularly
south Florida, to sell at below market prices in Colombia’s vast black
market, known as “San Andresitos”. Attempts
to shut down this channel of terrorist financing were long met with
reluctance and apathy from US law enforcement officials, municipal
governments and corporations. The
case of Roberto Rothstein, an authorized appliance dealer based in
Medellin was one of many businessmen who simply could not compete with
contraband US washing machines and refrigerators sold below market
prices with defaced serial numbers. His
numerous appeals to corporate headquarters and US law enforcement
officials to disrupt and curtail large cash purchases with laundered
funds from authorized appliance distributors in South Florida fell upon
deaf ears. By some
estimates the export of US manufactured goods continues to be used to
launder up to $5 billion a year in illegal narcotics money. New laundering techniques through insurance contracts and
other services are also increasing.
Rothstein ultimately went out of business with a $17 million
dollar loss. However, the Colombian people lost even more.
In 2002 Colombian terrorists groups killed 3,500 in a country with a
population of only 42 million. The
Colombian political leadership was also not immune to acts of terror. On August 7, 2002, new Colombian President Alvaro Uribe’s
inaugural ceremonies in Bogota occurred amidst a FARC mortar attack that
killed 21 Colombians.
Yet
beyond some isolated successes, the US has been almost completely
ineffective over the last decade in stemming the flow of laundered money
to Colombian terrorists. As
US Secretary of Defense Donald Rumsfeld correctly stated in August of
2003 “Colombia is today the number one victim of terrorism”. (See
Exhibit #3) Unfortunately, America is Colombia’s ATM of terror finance.
In America the cash based “underground” accounts for an
estimated 11% of the total US economy.
Unfortunately, US officials have few control points as obvious or
easy to monitor and control as charities or metal donation boxes.
Exhibit
#3 Total International Attacks by Region 1997-2002
(Source: Office of the Coordinator for Counterterrorism 2003)
ADD
New
Strategies for Cutting off Terrorist Funding
9/11 reversed a downward trend
in financial oversight in the US. For
years the US rolled back or simply did not enforce existing rules about
offshore shell bank transactions and other obvious laundering networks
in favor of US-Caribbean “tax competition” and other priorities. After
9/11 the attitude changed and new multi-agency investigative units were
created to track down terrorists’ assets and transmission channels,
block bank accounts, and persuade other countries to identify and block
terrorist funds.
President Bush signed Executive
Order 13244 on September 23, 2001 giving new powers to the Treasury
Department and other agencies. The
Treasury Department recently noted that it had frozen $36.6 million in
terrorist-related assets in the United States and $136.7 million seized
worldwide. 173 countries
have frozen assets, and 315 individuals and organizations have been
listed as terrorists.
However, the scorecard for
actually creating a new domestic infrastructure to stop financial flows
to terrorists reveals that the US effort is proceeding slowly.
(See Exhibit #4) Although the US Treasury and Attorney General
stated in 2003 that manufactures based laundering continues to be a
problem, their strategy prefers to educate importing countries about how
to track suspicious export-import patterns rather than taking the more
efficient action: strident and strict enforcement at home.
Exhibit
#4 US Anti-Terror Financial Controls
(Source: MoneyLaundering.com, September 2003)
ADD
It is not enough for America
only to attempt to cut off finances raised overseas and channeled to
terrorists targeting America. The
US must also take painful steps that bring the fight against terror
financing home, even at the risk of upsetting cultural and business
norms. For the US to speak
with credibility in the global fight against terror financing, it must
become more effective in combating money laundering and terror financed
through the US financial system. Proclamations
and a focus on flows beyond American borders, while politically safe,
are not effective long-term strategies.
Staunching the flow of terror
dollars raised in America will in time indirectly extinguish the fire of
many raging conflicts around the world and ultimately make America
safer. Americans will know
that the battle against terrorism financing has begun in earnest when
“off the books” transactions and laundering are blocked in a
meaningful way within the US. By
demonstrating to the world that it has confronted and eliminated its own
domestic terror financing, the US will be better positioned to insist
that all nations take a zero tolerance approach toward rolling up their
own domestic terror financing networks.
ABOUT THE AUTHORS
Tanya C. Hsu is a senior
analyst of Middle East political economy at the
Institute
for Research: Middle Eastern Policy. Ms. Hsu analyzes the
role of Western States in mediating between the Arab world, the United
States and Europe.
For almost two decades she has
created and facilitated strong connections between Middle Eastern
leaders, diplomats and business men and women. As a senior research
analyst and consultant, she continues an active role to promote
progress, both economic and political, between the region and the United
States.
Ms. Hsu holds an Economics
degree from the University of London. Ms. Hsu's analysis has been
published in the US, Europe and the Middle East, including Al Ahram, and
the Media Monitors Network. She appears on Palestinian, Jordanian and
British television and radio as well as within the United States. Ms Hsu
was an organizer of the 2003 Harvard Symposium "Promoting
Understanding between the Arab World and the U.S.", and serves on
the Board of the Atlanta Chapter of the American-Arab Anti
Discrimination Committee. Ms Hsu worked for ten years as a financial
advisor serving clients in the United Kingdom and United States.
Grant
F. Smith is the Director of the Institute for
Research: Middle Eastern Policy (IRMEP) in
Washington,
D.C.
(
http://www.irmep.org
). Before joining the Institute, Smith served for three years as senior
analyst and later program manager of international research at The
Yankee Group Research, Inc., a
Boston
based research and consulting firm owned by the Reuters PLC group. He
worked closely managing business plan development and financing due
diligence with the International Finance Corporation of the World Bank,
Inter-American Development Bank, and many consortium investors and
corporations on over $3.0 billion in investment projects in over 40
countries.
Preceding
his tenure at Yankee Group, Smith taught graduate level finance and
marketing courses for five years at Colombia's most prestigious business
school, the Colegio de Estudios Superiores de Adminstración (CESA). He
coordinated executive seminars, exchanges, simulations and programs
between CESA and Harvard, Berkeley, and other U.S.
universities. He also served as president of Smith & Sefair Zaher
Ltda., a
Bogota
based technology and management consulting firm. While there, he
consulted clients in the insurance, banking and industrial sectors on
business process improvement, business planning and information systems
technology strategies. Before that, he was marketing manager at American
Express Financial Advisors corporate headquarters.
Smith
received his Master's degree in International Management from the
University
of
St. Thomas
in St. Paul, Minnesota. He
has a B.A. in International Relations from the University
of
Minnesota
and has completed postgraduate certificate work in
information systems at New York
University.
ABOUT IRMEP
The Institute for Research Middle Eastern Policy (IRmep) is a
Washington D.C. based think tank working to research, define,
communicate and promote America's real interests in the Middle
East. Founded in 2002, the Institute became an independent
non-profit IRS recognized tax-exempt organization in 2003. IRmep
promotes the peaceful settlement of regional and international
disputes by returning the U.S. to a higher foreign policy role:
that of a just, secular, and development oriented regional
influence.
IRmep produces research,
publications, commentary, focused policymaker educational events
and research tour programs to the Middle East. The heart of the
IRmep's work is academically, not ideologically, driven research.
The Institute's network of analysts is composed of experienced
university research academics with reviewers in the international
business and diplomatic communities.
The majority
of IRmep's base financial support derives from the donations of
concerned individuals who are alarmed by the current direction and
authors of US regional policies. IRmep also receives industry
support from corporations that have faced increasing barriers in
developing their Middle East consumer and enterprise markets in
the current policy environment.
To access
current research and learn more about America's real interests in
the Middle East, visit http://www.IRmep.org
write us at info@IRmep.org
or call (202) 342-REAL (7325)
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