Terrorism Financing: International Framework, Sources, And Threats

When we refer to terrorism financing, we refer to the way in which terrorists sustain themselves, their operations and their day to day, economically, through monetary and financial instruments of any kind.

By Ignacio F. Ibáñez Ferrándiz

The fight against terrorism financing is one of the most important tools that the international community can use to prevent terrorist acts.  Financing to terrorism is like water to humans: without it, it is impossible to thrive. Even if we do not succeed in completely cutting off the flow of money because of the multiple and complex options available to terrorists, if we are able to limit terrorist funding in order to pressure them into making mistakes the efforts of police and intelligence authorities, or military authorities in conflict zones, will be fruitful. If one is thirsty, his thoughts become clouded with the pressing need to survive. Terrorists are the fiercest enemies of liberty and civilian life, values, and principles that are the foundation of open societies, and that is why in this case, more than ever, the Spanish saying “To the enemy, not even water” should resonate.

However, disassembling this apparently simple network can quickly turn into a nightmare. Heraclitus told us that no man ever steps in the same river twice, for it is not the same river and he is not the same man. The solutions that can help us effectively combat the different sources (methods or typologies) of terrorism financing are intrinsically short-lived due to the changing and rapidly adapting nature of terrorist methods.

For that reason, in the following text I opt for a dynamic and dual approach, which will help us to better understand the field in which we maneuver, and that focuses on the sources of terrorist financing that I consider to currently represent the largest threats.

1- International Legal Framework

When we refer to terrorism financing, we refer to the way in which terrorists sustain themselves, their operations and their day to day, economically, through monetary and financial instruments of any kind.

In the legal sphere, the international community arrived at a consensus in regards to the definition of the crime of terrorism financing through the International Convention for the Suppression of the Financing of Terrorism (1999).[1]  Article 2 states: “[A person commits this crime if they] by any means, directly or indirectly, unlawfully and willfully, provides or collects funds with the intention that they should be used or in the knowledge that they are to be used, in full or in part, in order to carry out [an act of terrorism.]”[2] This treaty is also important from a political point of view as it is the first international treaty of a preventive nature related to terrorism. Those preceding, perhaps with the exception of the Convention of 1997 dealing with bombs,[3] have come about in a reactive manner: for example, a terrorist group hijacked an airplane and the international community decided to draw up a treaty to suppress this criminal conduct. The Convention addressing the financing of terrorism tries for the first time to attack the life line of terrorist groups, its sustenance. In this sense we could also say that it is the first time that the international society takes a legally proactive attitude against terrorism.

However, an international treaty only has legal force in the domestic sphere of a country if it has been signed and ratified by that State. The tragic attacks of September 11, 2001 put into question the effectiveness of the legal framework against the financing of terrorism, when the United Nations Security Council decided to take a step forward and adopt a compulsory resolution (adopted under chapter VII of the Charter of the United Nations) for all the Member States of the organization: resolution 1373 of September 28, 2001.[4] The resolution, despite dealing with other matters relevant to the fight against terrorism such as border controls, begins its decisive section – which shows the importance of the theme – illustrating the necessity of preventing, and suppressing the financing of terrorism, criminalizing it (reproducing almost the same formula of article 2 of the 1999 Convention), freezing without delay funds and related assets related to terrorism, and taking measures against the people and entities that participate in the financing plot.

Although one is tempted to question the level of true effectiveness that these adopted measures have in the international sphere, what’s for certain is that in regards to the fight against terrorism financing, countries have been responsive since 2001, also due – lets not be naïve – to the pressures of certain countries for them to adopt an efficient administrative and legal regime. Ratifications of the Convention of 1999 have been achieved and the provisions included in it have been, with more or less success and fidelity, passed through the legislatures of a considerable number of countries.

These advances have contributed, in a decisive manner, to the financial system itself. Through institutions that have emerged from public and private initiatives (for example, the Financial Action Task Force, and its 40 recommendations on money laundering and 9 special recommendations on the financing of terrorism, or the Egmont Group of Financial Intelligence Units),[5] lists, evaluations, and ratings – formal and informal – have been created in order to assess which countries comply with the legal framework and the international standards against the financing of terrorism. This has served as reference for private and public entities of the entire world to classify whether a certain country has a “healthy” financial system, resulting in a variation of investments according to the diagnosed risks. Without a doubt, this economic factor has contributed to the ruling classes of many countries finding the political will, that in other cases they lack, to carry out politically complex legislative reforms.

2 – Main sources of terrorism financing

In Resolution 1373 itself, the United Nations Security Council warns of the inherent dangers of the established connections between international terrorism and transnational organized crime, drug trafficking, asset laundering, trafficking of arms, and the movement of materials that can serve to create weapons of mass destruction. These connections, evident in real cases like that of the Revolutionary Armed Forces of Colombia (FARC) or the branch of al-Qaeda in Afghanistan, are, as surprising as it may seem, unlikely to be accepted by some States. This can be due to various factors, such as corruption of civil servants in said criminal plots, the importance of the informal economy in different areas of a country, or the lack of human resources and materials to face these threats, among others. However, for terrorists and criminals alike, the advantages of association are evident: terrorist use of routes utilized by drug traffickers and criminal groups in order to illegally cross borders, exchange of arms and intelligence, potential increase in recruitment of terrorists, access to money laundering networks, destabilization of certain zones or countries (which creates a favorable context to undertake illegal activities), increase in the degree of intimidation, diversification of security resources of the State, etc.

In any case, the intent to separate the terrorist phenomenology from other punishable forms that clearly can collaborate in its financing does not do any favors to those of us who consider that the principal good that a State should defend is the right to life and the physical integrity of its citizens. These positions also do not help protect the political notion of a State based on the rule of law, liberty and the defense of private property, as it is undermined if the economic and financial system of a society is permeated by criminal groups.

From this comes the importance of considering the financing of terrorism from a comprehensive, specialized and dynamic perspective. Comparing the laundering of assets terrorism financing illustrates this point well. The technical, legal, and investigative tools related to the laundering of assets have been developed over the course of 30 years, especially since the proliferation of massive drug trafficking in the 1970’s and 1980’s. On the other hand, the fight against terrorism financing is a relatively new field. Nevertheless, both areas maintain significant similarities since both terrorists and criminals attempt to hide the origins and final destinations of funds by using similar techniques. Terrorists need to hide the details of the attack that is being planned, and money launderers need to hide the origins and destination of the funds in order to make illegal money appear to be legal. Therefore, a comprehensive approximation of these blights shows the usefulness of applying the investigative techniques that were successfully developed in the past decades to fight money-laundering in a terrorism financing investigation. This synergy feeds on the existing and vast financial analysis experiences related to laundering, the robust and established relationship between the banking and finance sectors and relevant public authorities, and the contacts and cooperation that is maintained by different countries’ responsible institutions.

But the approximation should be, at the same time, specialized. Money laundering and terrorism financing have three important differences: 1) money laundering has a pecuniary goal, while terrorism has a political one; 2) money laundering implies that the activity generating the money is illegal (therefore it is necessary to “launder” the money before introducing it to the financial system), while terrorists can finance themselves both through legal and illegal sources; and 3) hiding the sources and destination – use of intermediaries, false companies, etc. – the case of laundering tends to be more complex because terrorism financing simply seeks to be able to transmit a sum of money without being discovered. These are the differences, among others, that support the need to legislate terrorism financing as an autonomous offence, and those which should be specifically considered in the investigation and prosecution of this kind of case.

Thirdly, the response to terrorism financing must be dynamic. It is necessary to analyze the different possible origins of the funds in order to be able to effectively combat them. Consequently, we can identify three main sources of terrorism financing: state financing, funds acquired through legal means, and funds acquired through illegal means. Under state financing, we find good examples in countries such as Afghanistan and the ties established between the Taliban and al-Qaeda, or in Syria and Iran in relation to the sponsorship of Hezbollah.  Although at first glance, especially since the invasions of Afghanistan and Iraq, it may appear that this method of terrorism financing is decreasing; there is no shortage of contemporary examples of States that maintain steady support for terrorist groups.[6]

The sources of terrorism financing that result from legal means constitute a litany as extensive as one could imagine since the activity itself is not illegal, rather the (terrorist) destination of the resources generated is. The 1999 convention and UN resolution 1373 establish that the terrorism financing offence should be considered committed regardless of the commission of a terrorist act itself. This is to say that supporting terrorism should be punished under any circumstances, and that this consideration encompasses not only the execution of an attack but also everyday aspects, for example contributing funds to feed or house a terrorist or group of terrorists. Within the legal means frequently utilized by these organizations to get resources, we find the establishment of companies (from gas stations to travel agencies, media and currency exchange), funding from non-profit organizations (with religious, ethnic, charitable, cultural, and other themes and financed through donations, credits, subsidies, and scholarships), investment sources and speculation of the stock market, and even personal savings from salaries legitimately earned. The use of mechanisms to transfer informal capital – remittances – such as those of Hawala,[7] which are not by themselves illegal and can be utilized to transfer money almost without a trace, also stands out. One of the measures that can offer support and sift through and identify which legal means are being used to finance terrorist activities is to establish an efficient early warning system for suspicious transactions. For this it is necessary to set pertinent rules, establish mechanisms to coordinate and exchange information with relevant private entities (banks, remittance companies, financial businesses, professionals – for example lawyers, casinos, auction houses, etc.), and develop integrated investigative systems in the Financial Intelligence Units of each country, which also includes effective cooperation with units from other countries and with other national institutions – for example, the District Attorney and the Police.

Putting these types of measures into practice will also help to detect illegal means that are used to finance terrorist activities. Among these, different forms of especially serious crimes stand out, as mentioned earlier: drug trafficking, arms trafficking, piracy, and human trafficking, to give a few examples, but also other crimes such as the trafficking of jewels, gems, and precious metals, the sale and purchase of stolen luxury cars, kidnappings and robberies, the sale and purchase of fraudulent objects (including travel documents[8]), as well as “white collar” crimes and fraud that use intermediary companies, triangulation of operations, back to back loans, etc.

It is interesting to emphasize some examples that illustrate how these three means and the respective sources of terrorism financing articulate themselves in practice, revealing notable underlying problems: (i) Mohammed Atta , the head of the operative cells that attacked the United States on September 11, 2001, dedicated himself, during his years as a supposed student in Hamburg, to attempting to trade valuable Afghan antiques – provided by the Taliban – to Italy and Germany in order to raise funds for the maintenance of said cells;[9] (ii) the 11-M attacks in Madrid were financed with small amounts of money (“micro-financed”) coming from the barter of relatively small quantities of hashish for explosives, the retail sale of narcotics, and other minor criminal activities; (iii) it is believed that the small sum of money (it is calculated that 500 sterling pounds were sufficient) directly used by the terrorists of the London 7-J attacks[10] in order to carry out the attacks was obtained through savings from their attacker’s own salaries, in other words, through activities that are perfectly legal and extremely difficult to detect.

3 – Non-Profit Organizations, transportation of cash, and the use of the Internet

Upon analyzing and evaluating the different risks that terrorism financing confronts us with, three stand out above the rest: non-profit organizations, the smuggling of cash (and other financial instruments) across borders, and the use of the internet.

Non-profit organizations[11] form part of civil society, which is, according to Tocqueville, a key stability factor of democratic and free societies, a key factor in the checks and balances system, a public and peaceful way in which citizens can express their demands, and one of the means through which individuals can make their voices heard by the government. Therefore, the use of civil society by criminal organizations to attempt to destroy that same society is the best example of terrorists’ betrayal of our most valued principles of coexistence.

The case of “United States v. Holy Land Foundation for Relief and Development,” [12] provides a good example of the use of these organizations for terrorist purposes and of a successful investigation and prosecution.  This non-profit organization had been operating in the United States collecting funds for Hamas for 13 years; the total amount collected was almost 12.5 million dollars.   Upon introducing the legal reform that brought about the creation of lists of organizations considered by the U.S. as terrorist organizations – Hamas being among them – the activities of the Holy Land organization became illegal. Nevertheless, the investigators had to prove – this is the key – that a link existed between the collected funds and the final destination, or Hamas. Through the special investigation and prosecution techniques used in the case—financial, operative (such as sound and video recordings and written records), and judicial (using circumstantial evidences and accusing them of other crimes that they had also committed, such as tax fraud and money laundering, to ensure a successful prosecution)—it was proven that there was a link, which allowed for a conviction and seizure of their assets. As this case illustrates, the biggest challenge—and risk—in relation to non-profit organizations is that the link between those organizations and the final recipient of the money – a terrorist organization – must be proved.

In addition, concerning bulk cash smuggling, there are notable challenges when it comes to proving that the money transported illegally is meant to be used for terrorist purposes, as it could easily be blamed on a simple mistake while completing customs forms. Currently, one sector of international society is deeply concerned with the use of this technique as a way to evade terrorism security systems. The risk lies in that there is practically no trace left behind and that the transportation is relatively simple – despite this, methods vary from inserting the money into toys, household products, tobacco products, sound systems, or cars, among many other things,[13] to very simple methods of taping rolls of money to the body or ingesting them. If we add to this the relatively small cost of preparing and executing a terrorist attack, the risk is palpable.

The risk and the lack of evidence left behind are also important when it comes to terrorists using the internet to raise money. Of special concern are prepaid credit cards (Visa, MasterCard, American Express, etc.) that one can buy and load with certain amounts of cash using the internet, without having to identify oneself. Similarly, several risk analyses point to electronic currencies, such as e-Gold or PayPal, as well as casinos, as possible tools for money laundering and financing of terrorist organizations. The lack of regulation of these types of internet businesses is, obviously, one of its main vulnerabilities. The use of vouchers and lotteries through the internet is also of specific concern. In this sense, there is a recent and paradigmatic example in Spain, in which the web page of the association “Gaztesarea,” which allegedly supported Segui and ETA, used a lottery scheme to raise funds for the terrorists’ entourage. This case also illustrates the use of the image of an elite athlete (surf champion Iker Acero) in order to attract more people to the site and generate more profits (judge Andreu prosecuted Acero, as well as Alberto Martínez Gutiérrez-Barquín and Arkaitz Artola for the crime of collaboration with a terrorist organization).[14]

Conclusion

The general framework and the examples presented in this paper show the difficulties in the investigation and prosecution that these cases bring; the use of informal mechanisms to transfer money, the small quantities that are used and transferred, as well as the frequency and the geographic area that must be considered when it comes to analyzing information, are just some of the many challenges. How can we determine if someone is using their savings or a simple barter to commit a terrorist act? The answer is simple: we can’t.

As previously mentioned, there are still certain technical recommendations that can be extremely useful, such as establishing an early warning system for finance intelligence that focuses on analyzing the frequency, quantity, and direction of financial exchanges. In addition, the promotion of international cooperation, the comprehensive analysis of the different forms of criminal activities, the founding of public-private agreements that encourage the exchange of useful (or executable) information, the promotion of the specialized training in terrorism financing of officials dedicated to persecuting these types of activities (including private sector officials, analysts, Police, prosecutors and judges), and the adoption of domestic laws that are in line with the current legal framework and international standards, would be key elements to efficiently fighting this scourge. In other words, we should aim for a comprehensive, specialized, and dynamic strategy.

Despite insisting on the necessity of considering these recommendations within a flexible context, adaptable to new challenges and threats, these recommendations are not a complete response to the questions raised by terrorism financing.   This can leave an aftertaste of uncertainty and frustration: why put all of these measures in place if we are not going to prevent terrorists from obtaining resources. The answer is that in this case the ends are not the most important, rather the means. Analyzing the problem in a comprehensive manner and putting specialized investigation and prosecution techniques in place to fight terrorism is a decisive effort of great intrinsic value, as the discovery of current and new fund-raising mechanisms used by terrorists and their supporters decisively contributes to a successful investigation. This puts law enforcement and judicial authorities a step ahead, and allows them to unveil terrorist networks, disrupt plots, and have a better understanding of the structure and functioning of these criminal organizations. Perseverance and rigor in the fight against terrorism financing strengthens our preventative ability and therefore, saves lives. Could there be a better argument in its favor?

Ignacio F. Ibáñez Ferrándiz currently works at the Organization of the American States (OAS) in Washington, DC. Prior to this position, he worked for the United Nations Office against Drugs and Crime (UNODC) in Vienna, Austria. He has a Bachelor’s Degree in Law and a Master’s Degree  in International Relations, specializing in Terrorism and International Law. He has studied at the Universidad Complutense and the Universidad San Pablo-CEU (Madrid, Spain), Sorbonne University (Paris, France) and Cambridge University (Cambridge, United Kingdom). He has published a variety of works and articles about law, terrorism, and political science. The opinions expressed in this article are those of the author. All rights reserved.

This article was published by GEES and is reprinted with permission.

NOTES:

[1] International Convention for the Suppression of the Financing of Terrorism (September 12, 1999) – United Nations: http://treaties.un.org/doc/db/Terrorism/english-18-11.pdf
[2] Articles 2 a) and b) specifies:
“a) An act which constitutes an offence within the scope of and as defined in one of
the treaties listed in the annex; [in reference to the 12 treaties regarding the fight against terrorism that existed at the time, of which only 10 deal with penal types] b) Any other act intended to cause death or serious bodily injury to a civilian, or to any other person not taking an active part in the hostilities in a situation of armed conflict, when the purpose of such act, by its nature or context, is to intimidate a population, or to compel a government or an international organization to do or to abstain from doing any act.”
[3] International Convention for the Suppression of Terrorist Bombing(A/RES/52/164 of December 15, 1997) http://treaties.un.org/doc/db/Terrorism/english-18-9.pdf
[4] S/RES/1373 of September 28, 2001. http://daccess-dds-ny.un.org/doc/UNDOC/GEN/N01/557/43/PDF/N0155743.pdf?OpenElement. In relation to the fight against the financing of terrorism it is also worth mentioning the S/RES/1267 (1999) regarding al-Qaeda and the Taliban. In this resolution, also adopted under Chapter VII of the Charter of the United Nations and therefore perentory law, a list (so-called Consolidated List) is established in which the names of individuals and terrorist groups related with al-Qaeda and the Taliban are included. To be included in the list implies a series of sanctions as well as economic and travel restrictions. This list is updated periodically by the Member States of the United Nations Security Council and is distributed internationally. Additionally, Interpol, through a special notification, coordinates with the United Nations for the international persecution of the individuals that are part of the Consolidated List.
[5] Financial Action Group: http://www.fatf-gafi.org/pages/0,2987,en_32250379_32235720_1_1_1_1_1,00.html ; Egmont Group: http://www.egmontgroup.org/
[6] The Wall Street Journal indicated in December 2009 that for more than a year an open case against Iran existed (within the framework of the imposed sanctions and the US specific regulatory framework-laws known as IEEPA and ITR for the ties between Iran and terrorist organizations) in the course of which measures were adopted to freeze more than 2 billion dollars. For more information: http://online.wsj.com/article/SB126057864707988237.html
[7] It is believed that these informal money transfer mechanisms have their origin in ancient China (fei quan, flying money) and that they were later adopted by Arab merchants through the exchanges made thanks to the silk route. In order to avoid theft, instead of carrying quantities of cash, merchants invented a system of compensation that did not require the direct transfer of money.   Other similar mechanisms are the Hundi and the Chop Shop or Chiti. One prominent case in which Hawala was used to finance terrorism is “United States v. Saifullah Anjum Ranhja et al.,” who was convicted (November 4, 2008) for transferring more than 2.2 million dollars through a network of terrorist organizations. Regarding this case: http://www.justice.gov/usao/md/Public-Affairs/press_releases/press07/OperationCash-outCharges45DefendantsinInternationalMoneyLaunderingandBriberySchemes.html
[8] In relation to falsified identity documents and their theft and sale, the “Gebel” case of 2003 stands out. In this case, a cell located in Milan collected more than 500,000 Euros through a network of small legal businesses. Among other public sources, consult: http://www3.varesenews.it/gallarate_malpensa/articolo.php?id=33834 ; http://www.rainews24.rai.it/it/news.php?newsid=38507
[9] Giuseppe Proietti, secretary general of the ministry of culture of Italy, in different speeches since 2005, has made repeated references to these acts, indicating that the German intelligence services have proof to their respect. There are many references, but for a summary consult: http://www.theartnewspaper.com/articles/9/11-hijacker-attempted-to-sell-Afghan-loot/20188
[10] At 8:50 AM on July 7, 2005, three simultaneous attacks took place on the metro, and one hour later an additional attack on a double-decker bus, in the center of London. The terrorist operation was carried out by 3 individuals from Leeds and a fourth from Lutton (Muslims born in the United Kingdom) carrying backpacks full of explosives. The explosive was homemade with a peroxide base, resulting in the low amount of money required to commit the attack. The other significant funds used were for a trip to Pakistan (probably financed by the community.) The attack resulted in 52 deaths and 790 wounded. Outside of the suicide bombers, 3 people were prosecuted and convicted for crimes related to the attacks.
[11] Charity organizations are also included in this section. “Zakat” or “Zadakat” is the practice of legal donation in the Islamic world, of special importance in this context because of two obvious reasons. The famous case of the Benevolence International Foundation (BIF) and the Global Relief Foundation (GRF) can be cited in this context: http://www.ustreas.gov/press/releases/po3553.htm
[12] “United States v. Holy Land Foundation for Relief and Development”. Sentence of November 24, 2008. Documents regarding the case can be found at: http://www.investigativeproject.org/cases.php
[13] In this context, an operation carried out by Colombian, Mexican, and U.S. forces in 2009 stands out. More than 41 million dollars in cash that had been attempted to be transported illegally were seized in the ports of Buenaventura and Manzanillo. http://www.jornada.unam.mx/2009/09/29/index.php?section=politica&article=012n2pol
[14] About this case: http://www.elmundo.es/elmundo/2009/07/31/espana/1249058041.html