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If RAND Vice President Bruce Hoff- man is right in his aperçu that the Qaeda organization operates like any other multinational corporation, then one way to thwart “terrorist CEO” Osama bin Laden must be to cut his revenues and cash flows. It’s a 21st-cen- tury variant of the taming of Al Capone by nailing him for tax violations.

Bin Laden, who in his early days was a millionaire businessman en- gaged in construction, manufactur- ing, currency trading, import-export, banking, and food processing, now runs multinational actors in 40 to 50 countries worldwide. While the “headquarters” provides broad direc- tion and support, local organizations are tailored to perceived local goals, often using local “employees.” At its apogee, al Qaeda’s remarkably com- plex structure required $35 million revenues in annual revenues to pay for between 20,000 and 60,000 em- ployees in operations spanning the globe–for weapons, logistics, recruit- ment, personnel training, indoctrina- tion, safe havens, and financial sup- port for families of “martyrs.” On top of this came the costs of ostensibly humanitarian efforts–charitable orga- nizations, medical clinics, and schools that administer to local needs to win support and recruits and/or act as fronts for plotting terrorist acts. Even now, with much of its infrastructure

destroyed, its leadership on the run, training camps closed, and no captive governments requiring full subsidiza- tion, al Qaeda probably still requires $5-10 million per year, according to United States Treasury evaluations.

Bin Laden deliberately decentral- ized, compartmentalized, and diversi- fied al Qaeda’s funding. No single pot of al Qaeda money, no single money laundering operation, could be com- promised to the point of destroying the organization. Some of the financ- ing comes from wealth that bin Laden inherited, estimated at between $35 and $250 million, some from his in- vestments in an estimated 80 compa- nies worldwide. Other money comes from drug smuggling, identity fraud, and smuggling of precious stones by front companies. Money has allegedly been transported as bulk cash by plane to Cairo, for example, by camel caravans from Upper Egypt through Sudan, and by boat.

This financial independence has al- lowed al Qaeda to move away from the more traditional model of state- sponsored terrorist organizations. Free from any government control, it can maintain its own infrastructure, training programs, and operations. Because of this, it has tended to oper- ate from failed or dysfunctional states. Indeed, rather than being a state- sponsored terrorist organization, al

The Business of Terror Financially, al Qaeda operates like a multinational corporation by Jodi M. Vittori

Millionaire Osama bin Laden might not seem to face problems of revenues and cash flows in financing al Qaeda terrorism. But like any other multinational corporation, al Qaeda has to manage money efficient- ly in its worldwide operations. One of the ways to thwart terrorist at- tacks, then, is to curb the money laundering and other sources of illicit funds that make bombings possible.

JODI M. VITTORI is a US Air Force officer and former instructor in the political science department of the US Air Force Acad- emy who is being sponsored by the Air Force in her doctoral study at Denver University. As with every arti- cle in this journal, the views expressed here are those of the author alone.

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Qaeda has been a state-sponsoring organization, propping up govern- ments in Sudan and Afghanistan.

Al Qaeda has also been particularly adept at manipulating the interna- tional banking system. Bin Laden once remarked to a Pakistani journal- ist that his financial backers “are as aware of the cracks inside the West- ern financial system as they are of the lines in their hands.” Al Qaeda has routinely used the international fi- nancial banking systems, and millions of dollars in accounts known to be connected with al Qaeda have been frozen since September 11, 2001. But al Qaeda knows all the regulatory weaknesses and loopholes. It has uti- lized the notoriously underregulated regional banking systems of the Mid- dle East, including the United Arab Emirates, Kuwait, Bahrain, and Leba- non, as it frequently used Pakistani banks while it was based in Afghani- stan. Al Qaeda also appears to resort frequently to offshore banking ser- vices known for their strict bank se- crecy, especially those in Liechten- stein and the Bahamas. Additionally, it has used Islamic banking institu- tions that are designed to abide by sharia law, usually have a great degree of autonomy, and are known to com- mingle the funds of many depositors and place them in group investments that preserve the anonymity of ac- counts. Al Qaeda also uses extensively the hawala system of alternative banking, generally centered in Dubai, which is unregulated, anonymous, and very efficient.

Some terrorist organizations even found and fund their own banks, like the ash-Shamal bank in Sudan that was started in large part by bin Laden. Bank at Taqwa, founded in 1988 with significant backing by the Egyptian Muslim Brotherhood, is known to finance and provide lines

of credit to such groups as Algeria’s Armed Islamic Group and al Qaeda. At Taqwa, along with Akida Bank, have been run at various times by two businessmen associated with fi- nancing al Qaeda: Youssef Mustafa Nada and Ahmed Idris Nasreddin. Both of these banks were shell banks, licensed and sharing an address in the Bahamas but with no physical presence there, according to United Nations reports. Bank at Taqwa is unique in not needing the patronage of other groups to operate; it func- tions entirely on its own and avoids the legal financial community. Ac- cording to US Congressional reports, it has branches and other operations in Panama, Kuwait, and elsewhere and exists specifically so that its cli- entele can avoid such legal banking regulations as the filing of US Suspi- cious Activity Reports.

Al Qaeda Funding Al Qaeda typically provides seed money and expertise for larger, more expensive operations like the 9/11 at- tacks, which are estimated to have cost between $200,000 and $500,000. In the case of less expensive actions, however, small cells may be self-finan- cing, using front companies, credit card scams, identity theft, or other means to raise the money they need. In many cases, funding may be a hyb- rid of central funding augmented by local terrorist cells’ assets. Small, self- financing cells are the most difficult to crack, as they generally run small en- terprises to finance their operations. Since these groups and their crimes tend to be quite localized, though, they can often be broken up through more traditional, local law enforcement. In such cases intelligence and analysis provided by national governments to local law enforcement organs can be particularly effective.

In the case of less expensive actions, small cells may be self-financing, using front companies, credit card scams, identity theft, or other means to raise money, fund- ing may also be a hybrid of central funding and local cells’ assets.

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While some of the biggest revenue generators have been closed down, many sources of money are still avail- able to al Qaeda. The US shut down the operations of al Barakaat, a So- mali-based financial conglomerate with close ties to al Qaeda that used to wire $500 million in profits world- wide annually through its central money exchange office in Dubai; al Qaeda allegedly received a 5 percent cut of these profits, or $25 million from this source alone. There has also been a crackdown on shady charities since 9/11–but many of these are still operational, and some that were origi- nally thought to have been closed ap- pear to be back in business. Al Hara- main is still active in Indonesia, and the Ar Rashid trust still operates under new names in Pakistan. The “Jidda Merchants” too–seven mem- bers of an informal group living in Jidda, Saudi Arabia who are friends of bin Laden and helped bankroll his operations–still seem to run substan- tial business empires, along with a network of bank accounts, front com- panies, and relief organizations for al Qaeda. (At least three of the groups profess innocence.)

Besides targeting such fund-raising efforts, law enforcement agencies try to close down money laundering–i.e., the ways al Qaeda moves illicit money and items of value from its sources and turns them into purchasing power for those resources needed to conduct terrorist operations and propaganda campaigns.

Money laundering is generally ac- complished in three phases: place- ment, “layering,” and integration. First, money is moved secretly through loopholes in international financial systems, often through offshore ac- counts. In layering, funds are then redistributed to hide their origins and make them appear legitimate–often by means of a series of financial trans-

actions below the $10,000 limit that mandates a Currency Transaction Re- port in the US. Finally, in integration, funds are invested in legitimate busi- nesses or real estate.

There appear to be five primary av- enues for al Qaeda movement of illicit money and items of monetary value to those units in the organization that need them for operations: the interna- tional banking system; halawa and other informal banking routes; off- shore accounts; bulk cash shipments; and commodities. All of these ways– which are common to all criminal en- terprises trafficking in drugs, arms, or people–are susceptible to interception by law enforcement agencies.

Laundering Money Logistically, terrorists find it hardest to launder money in the United States and Europe, because of bank repor- ting requirements. Al Qaeda therefore has to find ways to distribute large amounts of money in small denomi- nations, or else ensure that banks will not file US Suspicious Activity Re- ports. One way to do this is to use a mix of Western banks, Islamic banks, and, at times, banks owned by bin Laden or his associates.

Al Qaeda is believed to continue to make bulk cash shipments by human and animal couriers over long-estab- lished smuggling routes of drug traf- fickers and arms dealers. Large quan- tities of bulk cash are difficult to con- ceal, however, and if a courier is caught, this could lead to unwelcome investigations into organizational links. Even before the 9/11 attacks, according to Congressional reports, al Qaeda probably began diverting money away from institution-based transfer systems to buy jewelry, real estate, stocks and bonds, vehicles, fur- niture, antiques, and other expensive items that maintain their value and

Money laundering is generally accomplished in three phases: placement, “layer- ing,” and integration. First, money is moved secretly through loopholes in inter- natiional financial systems, often through offshore accounts. In layer- ing, funds are then redistributed to hide their origins and make them appear legitimate. Finally, in integra- tion, funds are invested in legitimate business- es or real estate.

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liquidity. These commodities are then converted to cash only as needed. Gold, for example, one of the most frequently smuggled goods, can be deposited in an account without trig- gering a transaction report, can be melted into untraceable forms, and is easily exchanged on the gold market, particularly in Dubai, the world’s hub of the informal money sector.

Offshore banking systems are also particularly susceptible to use by ter- rorist organizations. Countries like the Cayman Islands, Antigua and Barbuda, Bahrain, Dominica, Grenada, Liech- tenstein, and the Seychelles have strict bank secrecy laws that criminalize the release of customer information, pro- hibit cooperation with international law enforcement agencies, and license banks with neither personnel nor a physical presence in the country. From these, terrorists can then move money into the legitimate international bank- ing system. To give some sense of scale, the UN International Drug Control Program estimates that approximately half of the world’s drug money flows through offshore banks.

Cutting funds to al Qaeda and other terrorist organizations must be an international effort, then, since most assets used by terrorists are not under US control. Here there have been some successes. According to the US Treasury Department, out of $137 million in terrorist funds frozen so far, only $37 million were deposited in the US. Eighty countries have by now set up intelligence units to share information on terrorist financing, and 173 countries have joined in freezing terrorist assets. Many inter- national organizations–most notably the United Nations, but also the In- ternational Monetary Fund, the World Bank, and the Financial Ac- tion Task Force–have been working to halt terrorist financing. Following

the 1997 UN Security Council Reso- lution UNSCR 1267 demanding that the Taliban stop supporting terrorism and extradite bin Laden to a country willing to prosecute him, UNSCR 1333 (2000) required all states to freeze all bin Laden and al Qaeda as- sets, and UNSCR 1373 (September 28, 2001) called on all countries to “freeze without delay” all terrorist assets, criminalize provision of funds to terrorists, and ratify the 1999 In- ternational Convention for the Sup- pression of the Financing of Terror- ism. Most recently, UNSCR 1455 (January 2003) eliminated the previ- ously required annual review of the terrorist asset freeze list.

Shrinking funds globally to mini- mize al Qaeda’s capabilities is not easy, of course. There is no agreed interna- tional definition of terrorism, and one man’s terrorist can still be perceived as another man’s freedom fighter. In the late 1990s US Treasury Department personnel began a dialog with Saudi Interior Ministry officials about “chari- ties” that were funneling money to terrorists. The Saudis argued that Hamas was a legitimate organization and that no one should expect Muslims to stop contributing to insurgents in Chechnya–and they even denied that they had ever heard of some offshoots of al Qaeda like Maktab al Khadamat.

Some Successes Yet there have been some successes. Beginning before the recent rash of terrorist incidents in 2003 in Saudi Arabia, but accelerating rapidly since then, Riyadh has begun placing strict controls on charity accounts and pul- ling charity collection boxes out of retail shops and mosques. This is es- pecially important, as charity provi- ded by Saudis has been a primary source of funding for al Qaeda. The United Arab Emirates, Bahrain,

Shrinking funds globally to minimize al Qaeda’s capabili- ties is not easy. There is no agreed international defini- tion of terrorism, and one man‘s ter- rorist can still be perceived as anoth- er man’s freedom fighter. The Saudis argued that Hamas and various Muslim charities were legit- imate.

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Egypt, and Qatar have also passed anti-money laundering legislation and the Gulf Cooperation Council (GCC) members have agreed to increase over- sight of their banking systems.

On the other hand, the interna- tional community shows a weakening resolve to track down and halt al Qaeda funding, and there are allega- tions that al Qaeda is moving from fi- nancing through charities to heroin as the cash flow has been choked off.

Even the Financial Action Task Force on Money Laundering set up by the Group of Eight in 1989 has two specific weaknesses. First, while it does bring together the primary world financial centers, 33 cooperating states, and international organiza- tions like the United Nations, World Bank, and European Union, it is hard- ly universal. (Nor, even if it were, would all participating states be able to meet the proposed minimum stan- dards for years to come.) Further- more, FATF decisions are made by consensus. As its memberships grows, consensus will become increasingly elusive and could substantially weak- en the effectiveness of the organiza- tion. Still, FATF’s 48 action recom- mendations on banking and interna- tional terrorism have set the de facto standards on money laundering that have now been endorsed by over 130 states, and the Financial Intelligence Units (FIUs) supplied by each state are exchanging information on the latest trends in money laundering.

Working with FATF is the Financial Stability Forum (FSF) Offshore Work- ing Group established by the G8 in 1999. The group promotes informa- tion exchange and international coop- eration in financial supervision. The current “naming and shaming” of countries with weak financial laws is a start, but more must be done to en- sure compliance with accepted bank

standards. Also, alternative economic arrangements must be found for many countries that turned to banking in the first place because they lack other means to finance their governments.

Additionally, much more work needs to be done to strengthen finan- cial laws, particularly within the Eu- ropean Union. Few Suspicious Activ- ity Reports are filed by European banks. Border controls are lax, and the stringent evidentiary standards required by some European legal sys- tems make it exceedingly difficult to block accounts. Moreover, the Euro- pean Union in particular lacks laws to allow the seizure or shutdown of shell companies, businesses, and properties as opposed to simple bank accounts. There are legal difficulties as well when one owner is designated a spon- sor of terror but other owners are not. Finally, European countries have de- voted few resources to tracking and combating the financing of terrorism.

Other regions’ banking systems have even more holes, especially in the Mid- dle East and Southeast Asia. These countries have only recently begun to write more stringent banking laws and to institute controls over charities.

There are many well-founded criti- cisms of the US and of the interna- tional record in trying to block terror- ist money flows–and much skepticism about the effectiveness of this tool, when drug dealers have laundered over a trillion dollars in the past de- cade. But the effort is a crucial step toward containing the overall organi- zation. As Deputy Assistant Treasury Secretary Juan Zarate testified in the Senate, “[O]urs is a long-term mission to save lives by denying the terrorists the funds they need to train, to plan, to travel, to hide, and to attack. By denying these terrorists dollars and yen, we are depriving them of bullets and bombs.”

Much more work needs to be done to strengthen finan- cial laws, particularly within the European Union. Few Suspi- cious Activity Reports are filed by European banks. Border controls are lax, and the strin- gent evidentiary standards required by some European legal systems make it exceedingly diffi- cult to block accounts.

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