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Terrorism and Homeland Security, 9e

CHAPTER 3 Jonathan R. White

Learning Objectives, Part 1

Define money laundering.

Define terrorist financing.

Compare terrorist financing and money laundering.

Describe national and international efforts to control terrorist financing.

Outline financial intelligence gathering and investigative efforts.

Learning Objective, Part 2

Summarize illegal and legal methods of terrorist funding.

Describe networks and systems in informal economies.

Describe the Hawala system.

Summarize views on the political economy of terrorism.

Summarize the debate about narcoterrorism.

Financial Flows

Terrorists need money to run an operation; political violence requires financial backing.

Methods of terrorist financing had changed over time.

The Capone discovery; that is, it developed an organized crime network to finance its operations.

The awareness of the importance of financing began to evolve slowly.

A terrorist operation does not cost a lot of money, but the overall budget for a campaign is quite high.

Money Laundering

Money in laundered in three steps.

Placement involves putting criminal proceeds in the legitimate financial system.

Placement can take place in a single action, such as showing the monetary gains as profits, or it may be laundered through repeated transactions to conceal it origins. This second process is called is called layering.

The final step is Integration. This involves assimilating illegally obtained money in the formal economy and giving funds the appearance of legitimacy.

The Black Market Peso Exchange

In the Peso Exchange, drug dealers sell their products in the United States and accumulate large amounts of U.S. currency.

They sell the money to brokers in Colombia, who pay the dealers in Colombian pesos.

This creates no financial record in the United States.

The money brokers buy consumer goods in Colombia at greatly inflated prices.

Comparing Money Laundering and Terrorist Financing

Financial analysts and economists have begun to question the logic of linking the two concepts. Similarities may come into play when using underground networks because terrorists and criminals move along the same routes.

Roberto Durriue points out that terrorists may need to make the money dirty.

This process involves hiding the legal origin of money used to support terrorism.

Toward a Theory of Terrorist Financing

The quantity of money needed

The need for legitimacy

Security of assets

The sources of income

The ability to control the flow of resources

The simplicity of a group’s financial system

Efforts to Control Terrorist Financing: Regulation and Enforcement

Mistake to equate terrorist financing with money laundering

Some think the United States needs to place more emphasis on terrorist financing.

The joint European and American initiative, the Terrorist Finance Tracking Program (TFTP):

Began as a secret American intelligence gathering program

Eventually emerged as a formal regulatory agency in the European Union

Efforts by the United Nations

United Nations General Assembly adopted the International Convention for the Suppression of the Financing of Terrorism.

Creation of the Financial Action Task Force on Money Laundering (FATF):

Bring the international financial community into harmony by strengthening regulations and introducing more uniform practices.

Critics of FATF

The first has little to do with financing and reverts to the problem of defining terrorism.

Widespread absence of laws allowing the seizure of assets used to support terrorism

Enforcement efforts aimed at underground networks are ineffective and often counterproductive in developing countries.

Critics also have a concern about due process.

Financial Information as an Investigative and Intelligence Tool

Terrorists do not launder money frequently.

It takes relatively little money to launch an individual terrorist operation.

Traditional financial investigations are not effective against terrorists.

But, financial transactions can help provide a comprehensive picture.

Forensic Accounting

It is possible to track terrorists’ money laundering, cash purchases, banking accounts, and stock and business investments.

Tracking money can create better intelligence—criminal intelligence and national security intelligence.

Mapping the financial activities of suspected groups and individuals gives intelligence a comprehensive view.

Financing Modern Terrorism

Criminal enterprises

Drug trade

Conducting illegal business activities under a legal cover

Smuggling money

Identity theft

Security fraud

Extortion

Charitable contributions

Nongovernmental organizations

Banks

Wire transfers

Normal employment

Criminal Methods of Funding and Distribution

Violent activities involve kidnapping, extortion, and robbery.

Carlos Marighella: a campaign of expropriation; that is, robbery.

Terrorists around the world use a variety of criminal methods to raise funds.

Less violent methods include fraud, larceny, smuggling, dealing in contraband, forgery, and counterfeiting.

Legal Methods of Raising Funds

Many terrorist groups engage in legitimate business activities to raise and distribute money.

According to several researchers, charities have been involved in funding terrorism.

Many people who contribute to charities do not know they are supporting terrorist organizations.

Networks and Systems

FBI estimates that the underground economy produces $500 billion per year.

Terrorists not only move funds, but also smuggle stolen goods and contraband.

Globalization terrorism has created opportunities for profits in diamond trade.

Hidden Transfers

Hawala System

Caravan leaders would visit merchants and pay for goods with a promissory note.

When the caravan reached its destination, the leader sold goods and the distributors would pay the caravan leader with promissory notes.

The leader returned home, presented the note, and the local chit dealer paid the debt.

Political Economy of Terrorism

New economy of terrorism produced after the fall of the Soviet Union and subsequent globalization.

ETA tried to gain control of the economy.

They forced Spanish businesses out of the Basque areas of northern Spain.

The Basque region became a failed state.

ETA established an illegitimate economy in a shell state.

Narcoterrorism

Terrorists using either terrorist tactics to support drug operations or drug-trade profits to finance terrorism

Terrorists are involved in the international production and distribution of drugs.

The narcotics trade is one of their primary sources of money.

Drugs and Terrorism

Hezbollah and Hamas use the Latin American drug trade to raise funds.

Islamic groups get most of their money through the drug trade in central and Southeast Asia.

Seven drug trafficking organizations dominate the political landscape in Northern Mexico.

Los Zetas uses Hezbollah to launder drug profits while Hezbollah uses the payoffs from Los Zetas to finance terrorist operations.

Narcoterrorism Controversies

Critics say combining the drug problem with terrorism confuses two different issues.

The 9/11 Commission dismisses that drugs were linked to al Qaeda’s attack.

Saudi money can be traced to violence; the spread of militant Islam is not about drugs.

al Qaeda’s use of heroin to finance the jihad ranges from believable to fantastic.

Chapter Take Aways, Part 1

Terrorist organizations are as complex as any other social organization designed to accomplish a mission.

They are hampered in their effectiveness due to the secret nature of their operations.

Most organizations are designed to either support guerrilla movements or to operate as a terrorist movement.

Chapter Take Aways, Part 2

The former organizations use terrorism selectively while terrorist groups simply terrorize as a strategy.

All groups require funding.

This caused some analyst to focus on the fiscal aspects of terrorism, believing that terrorists used money in the same way as other organized criminals.

Chapter Take Aways, Part 3

Investigations revealed that the money trail in terrorism differs from the flow of funds in other criminal enterprises because special structure of terrorist operations.

It is important to understand the financing of terrorism because it is an important intelligence tool.