Only two weeks after the attacks of September 11th, President George W. Bush addressed the media in the White House Rose Garden and declared “war” on terrorism financing. “Money is the lifeblood of terrorist operations,” he told reporters.[1] “Today, we are asking the world to stop payment.” A few weeks later, the Treasury Department—the agency that would become the weapon of choice of the White House in this new economic conflict—boasted in a press release, “The same talent pool and expertise that brought down Al Capone will now be dedicated to investigating Usama bin Laden and his terrorist network.”[2]
Unfortunately, more than a decade after these pronouncements, it is obvious that the war on terror financing and money laundering has stalled. This is clear even through the lens of the government’s own bottom-line metrics: assets seized and forfeited, successful investigations and prosecutions, and effective sanctions. In fact, the situation has gotten considerably worse of late, as political considerations have progressively displaced or rolled back serious work that has been done to date on draining the financial “swamp” in which terrorists and terror-supporting regimes operate.
Borderless banking and blood money
Money laundering and terrorism financing are global scourges. Those who engage in them constantly adapt their techniques, while law enforcement and intelligence agencies try to catch up. Combating these two species of crime is a complex challenge, due largely to the diversity of methods used.
Both techniques exploit vulnerabilities in the financial system to disguise the movement of funds. Money launderers make their money illegally and try to “clean” it to conceal its origins. Terror financiers make their money legally or illegally and attempt to conceal both its origin and its intended use. In essence, money launderers convert dirty money into clean money, while terror financiers take clean money and make it dirty by funding violent acts.
Only in recent years has the international community begun to realize the enormity of the problem, and to call for establishment of comprehensive AML/CFT regimes (anti-money-laundering/combating the financing of terrorism). At the center of these efforts lie three goals: (1) protecting the integrity of the international financial system; (2) identifying, disrupting and dismantling the financial networks that underpin international criminal and terrorist organizations, and; (3) making it more difficult for criminals and terrorists to profit from their crimes.
It is an axiom within the U.S. law enforcement and intelligence communities that the key to disrupting and dismantling criminal organizations is to “follow the money.” The same is true with terrorism. After the September 11th attacks, officials in the United States and elsewhere came to realize that effectively fighting terrorism financing and money laundering might be one of the best ways to prevent future catastrophic incidents. Unfortunately, many governments have had a difficult time converting this understanding into action.
This is not to say that no progress has been made. Over the past 15 years, a few nations have banded together to create a blueprint for fighting the phenomenon, but many jurisdictions—particularly in the Middle East—refuse to implement it. As a result, they lack the basic controls to ensure that the international financial sector is not exploited by criminals, terrorists and their support networks.
Just as the financial system has become global, so too has the threat posed by tainted money. In confronting this threat, the system is only as strong as its weakest link—or as U.S. Treasury official Daniel Glaser has put it, “laxity in just a few jurisdictions undermines the efforts made by the rest.”[3] Yet most Middle Eastern countries have still not taken even the most basic steps: criminalizing money laundering and terrorism financing, instituting controls in their formal and informal financial sectors, curbing the smuggling of cash, preventing abuse in the trade sector and safeguarding the charitable sector.
The time-tested ways of moving money and disguising its origin are still effective, though each method has vulnerabilities. Criminals and terrorists conduct billions of dollars in transactions each year through four principal means: the formal financial sector (e.g., banks), the informal financial sector (e.g., hawala, a simple broker system based on trust), the trade system (e.g., commodities) and cash smuggling. In recent years, terrorists and their supporters have also perfected the abuse of charities using all of these methods.
The International Monetary Fund has estimated that money laundering accounts for 3–5 percent of the world’s gross domestic product (GDP). According to the World Bank, global GDP was approximately $72.3 trillion in 2007, which would place international money laundering somewhere between $2.17 and $3.61 trillion per year—in other words, potentially larger than the U.S. budget![4] Similarly, the amount of money available to terrorists, while impossible to calculate precisely, is clearly in the billions, if not trillions.
As a new generation of public servants develop the skills necessary to contribute to the war on terrorism financing, the proven tactic of following the money will become more central than ever. At the same time, this task is also becoming increasingly complex due to the skill and ability of adversaries to avoid traditional financial countermeasures. Law enforcement and intelligence officials must learn to understand the sometimes-obscure methodologies employed by terrorist organizations to raise, transfer, and store money—whether these activities stem from al-Qaeda, rogue regimes such as Iran and North Korea, or members of Hezbollah, Hamas or a host of other like-minded organizations.
Building a response
The governments that are most serious about cracking down on illicit actors who hide the movement of their money have taken the lead, creating international organizations whose sole mandate is to combat money laundering and terrorism financing. The most important of these organizations is the Financial Action Task Force (FATF), established by members of the G-7 in 1989. Over the years, FATF has issued a set of standards on effective AML/CFT efforts and created a framework to assess the compliance of individual countries. Although the organization has limited membership and no enforcement capabilities, it has been surprisingly effective on certain fronts.
