This book provides an overview of how terrorists and insurgents fund their activities, what these groups do with the revenue they generate, and how this funding can be disrupted. Terrorist financing—defined here as the process of raising, storing and moving funds obtained through legal or illegal means for the purpose of terrorist acts or sustaining the logistical structure of an insurgent organization—is an ongoing game of “cat and mouse.”1 Just as terrorists and insurgents are continually finding ways to adapt to evade law enforcement, security officials tasked with countering the financing of irregular warfare must rely on multiple countermeasures to deny, destroy, defend, detain, and disrupt a range of violent non-state actors. Nation-states and the international community rely on both military and law enforcement, in addition to efforts to build institutional capacity, establish norms, implement policies, and enforce laws as part of a broader combating the financing of terrorism (CFT) framework. This framework includes general crime fighting tools such as wiretaps and electronic surveillance, but also extends to sanctions and the freezing of funds and accounts.
In irregular warfare, violent non-state actors operate across the gray and dark economies and devote their finances to a range of asymmetric capabilities. By tracing the groups’ patterns of financing, this research investigates terrorist and insurgent funding streams as well as the mechanisms in place to counter this funding. Increasingly, the international community has realized the importance of bringing all resources to bear. Rather than attacking terror finance with a single agency, nation-states and allied countries are collaborating to form combined joint interagency task forces (CJIATFs), which call upon the expertise of a diverse set of law enforcement professionals, from intelligence to treasury to legal experts and beyond.
While there is usually a clear distinction between terrorism and insurgency—the former is a tactic, while the latter is a movement—this distinction is not always recognized.2 With the proliferation of research on both topics in the post-9/11 era, this problem became even more acute. Furthermore, discussions of civil war also potentially overlap the insurgency discourse, with distinctions between civil war, guerilla warfare, and insurgency occasionally hinging on a body count threshold (per year or throughout the duration of the conflict), tactics employed (low intensity versus conventional military), the actors involved (state versus non-state, indigenous versus foreign), or other categorical distinctions that might classify conflicts as coups, countercoups, mutinies, insurrections, or other “revolutionary” activities. There is also no clear agreement on what differentiates irregular warfare from asymmetric warfare, or if a difference even exists between the two.3
There are many different ways to analyze terrorism and insurgency and to highlight differences and identify similarities. In their study of the role of airpower in counterinsurgency, Alan Vick et al. highlight the differences between the various targets, operations, and territory between terrorists and insurgents.4 Insurgency is an armed political campaign while terrorism is a form of armed political communication. Insurgency uses mass mobilization by substate actors of a counter-state to challenge a national government for political power. Terrorism, on the other hand, is characterized by the use of violence by substate actors to attack innocent civilians in order to garner attention for their cause. While Vick et al. focus on territorial size, Byman et al. believe that the tactics used to gain and control territory are a more appropriate indication of whether the group is a terrorist or an insurgent group. Historically, several prominent groups—Provisional IRA, Hezbollah, LTTE, African National Congress (ANC)—were consistent practitioners of terrorism but also used a range of other tactics in their effort to control territory.5 O’Neill finds that terrorism is merely a form of warfare in which violence is used primarily on civilians, while insurgent terrorism has a purpose. Unlike the former, the latter is used in the pursuance of a range of objectives, from short-term goals to intermediate and long-term.6
Definitions play a vital role in analysis. However, far too often academics and policymakers get tied up arguing over the definition of a term, rather than what the implications of that term might or might not be. In the end, a circuitous debate transpires amounting to little more than mere semantics. Meanwhile, the problem continues unabated until a more serious attempt at remedying the issue is addressed, with or without ever agreeing upon a single definition of the subject under consideration. At the end of the day, whether or not a group is labeled a terrorist or an insurgent is important because it has direct implications for strategy. Counter-terrorism (CT) is different than counterinsurgency (COIN) and ISIS is not Al-Qaida, just as Hamas is different from Hezbollah. While it is essential to devote the resources necessary to counter non-state actors, it is a fool’s errand to conceive of a grand strategy to combat non-state actors. To the extent that a strategy is formulated, it should be guided by specific principles, but tailored to each group individually in order to follow a nuanced and targeted approach on a case by case basis.
This research presents a comprehensive overview of the post–Cold War challenges associated with globalization, including the proliferation of failed and fragile states,7 the ubiquity of porous borders, and the sanctuary offered by ungoverned/alternatively governed spaces. Moreover, it examines the rise of violent non-state actors in importance on the global security agenda and the struggles of nation-states (in the Westphalian sense) to deal with capacity gaps, functional holes, and legitimacy deficits.8 “While there is ever-increasing literature on policy issues, strategies, and countermeasures, states must first understand their enemies before developing strategies to defeat them,” notes threat finance scholar Michael Freeman.9 This book is an attempt to begin understanding the range of threats, adversaries and enemies that seek to employ the tactics and strategies of terror against an international order firmly opposed to such violence, warfare, and criminality.
ANALYTIC FRAMEWORK AND ORGANIZING CONSTRUCT FOR THE CASE STUDIES
The first part of the framework is concerned with how terrorists and insurgents fund their organizations. To do this, each chapter analyzes what I term the gray economy of terrorist and insurgent groups, which is a combination of licit and illicit activities. The gray economy focuses on diaspora support, charities, fraud, legal businesses,10 and money laundering. In addition to activities that blur the line of legality, insurgents and terrorists also depend on elements of the “dark economy,” primarily focusing on various facets of transnational organized crime, including: human trafficking, narcotics smuggling, gun-running, money laundering, extortion, coercion/intimidation, kidnapping for ransom (KFR), corruption, and cybercrime.
Figure 1.1
Analytic Framework The second part of the framework assesses what these organizations do with the funds gleaned from the gray and dark economies. After all, to conduct successful attacks, insurgents need money. Money is used to pay the salaries of insurgents, purchase weapons and equipment, bribe corrupt officials, provide for the families of killed or captured insurgents and social service provision. There are many sources of financing available to insurgent groups, especially those willing to commit crimes. Sometimes an external state sponsor is instrumental in helping to finance an insurgency, exemplified by the case of Hezbollah in Iran. Other times, as with the Tamil Tigers in Sri Lanka, a diaspora community is responsible for providing significant financial assistance to an insurgent group. Crime, whether drug trafficking, kidnapping, or armed robbery, is yet another avenue available to some insurgents. During the insurgency in Angola, the National Union for the Total Independence of Angola (UNITA) generated between $80 and $150 million a year from diamond smuggling and several other illicit activities.11 Other groups rely on extortion, or “revolutionary taxes,” as evidenced by cases in Peru, Colombia, Uruguay, Spain, Afghanistan, Pakistan, and Northern Ireland, to name just a few.12
The third and final piece of the framework looks at how these groups and their methods can be countered. For example, was the COIN force able to sto
p the insurgents from acquiring critical resources, or did factors like porous borders, sympathetic domestic and diaspora communities, and benevolent state sponsors continuously supply the insurgents with the resources necessary to prolong the insurgency and continue profiting from conflict? Although the United States has attempted to crack down on terror financing through Islamic charities since 9/11, charities linked to terrorist organizations have remained extremely resilient, displaying a penchant for adaptation that constrains the ability of the United States and the international community to make significant headway in this area, despite continued efforts.13
WHAT IS GRAY ECONOMY?
To properly explain what I mean by the term gray economy, I am referring to that combination of licit and illicit activities perpetrated by terrorist and insurgent groups for monetary gain. As a whole, the activities that comprise the gray economy are not entirely illegal. The gray economy encompasses, but is not limited to, diaspora funding, donations made through charities, fraud (including identity theft and cybercrime), legal businesses and front companies, and money laundering. The gray economy borders on the legal economy, interacts with the licit economy and intersects with ordinary business activities. All of this makes it difficult to counter. Diaspora communities do send legitimate remittances back to their countries of origins to help sustain their families. Honest individuals do contribute to a range of charities to help the less fortunate. Of course, funds bound for terrorists and insurgents travel through these same channels, so deciphering which are going to be used for good, and which will be used to kill and maim, is a difficult task for law enforcement and financial institutions. Terrorists and insurgents aim to take advantage of globalization by comingling their money with the voluminous amounts of capital transfers that total over $1 trillion a day.14 Because terrorists and criminals combine their resources and profits with legitimate funds, this makes it difficult to detect where criminal funds end and legitimate funds begin.15
Diaspora Support
Diasporas are immigrant communities established in other countries. As Byman et al. have noted, significant diaspora support for terrorists and insurgents has occurred in every region of the world, with the exception of Latin America. Diaspora communities living abroad have sent support to insurgents in countries like Algeria, Azerbaijan, Egypt, India (Punjab and Kashmir), Indonesia (Aceh), Israel, Lebanon, Russia, Rwanda, Sri Lanka, Turkey, Northern Ireland, and Kosovo, to name just a few.16 More recently, diaspora communities have played a role in insurgencies in Syria, Ukraine, Somalia, and Afghanistan. Several issues complicate counterthreat finance against diaspora movements. Chief among these, though, is that host-nation governments are challenged to discern between non-insurgent immigrants and pro-insurgent activities.17
There are different types of diasporas, including refugees and asylum seekers, migrants (both legal and illegal) comprised of guest workers and students, members of the anti-globalization movement, and organized trans-state ethno-national diasporas.18 It is members of this last group, which can be either established or incipient, that have played the most significant role historically in funding terrorist and insurgent campaigns. In many of the cases discussed throughout this book, diasporas that have resulted from conflicts (e.g., Sri Lanka, Lebanon) are less compromising and serve to both “reinforce and exacerbate the protracted nature of conflicts by endorsing the most militant leaders in the homeland,” which was the case with Prabhakaran and the Liberation Tigers of Tamil Eelam (LTTE) as well as with Nasrallah and Hezbollah.19
Charities
Financing terrorism through charity is a long-favored fund-raising technique, dating back to the Palestine Liberation Organization and the Provisional Irish Republican Army in the 1970s.20 Charities are often, though not always, affiliated with religious support. This support, in turn, can fluctuate with the amount of media coverage of a particular conflict or movement. In Bosnia, Algeria, and Afghanistan, insurgents benefited from considerable support provided through religious charities, whose donations increased in the wake of publicized insurgent military success, or media-focused campaigns depicting civilian suffering in these countries.21 In the ongoing Syrian conflict, charities from Kuwait and Qatar have allegedly funnelied money to Salafist jihadist organizations.22 In what are known as syphoning transactions, funds raised by a nonprofit organization (NPO) are diverted to a terrorist organization for ulterior purposes.23 Still, it is worth highlighting the skepticism that some scholars have in this regard, including Thomas Biersteker, who maintains that there is scant evidence that charities diversion remains a significant source of financing for core Al-Qaida.24
Fraud
Fraud is similar to larceny but defined distinctly as obtaining the property of another through trickery or deception.25 Fraud comes in many forms and more recently identity theft and cybercrime have become popular (and lucrative) forms of fraud favored by criminals, terrorists, and insurgents. Often times, fraud is invisible to the untrained eye, but in fact, fraud is conducted frequently, and often surreptitiously. For terrorists, fraud is becoming a more popular way to raise funds because it is seen as a low-cost, low-risk method. Modern-day terrorists and criminals rely on intellectual property theft and skimming (theft of credit card information through cyber means) or phishing (false electronic mail solicitations to trick an individual into divulging financial information) to provide a high “bang-for-the-buck” ratio, and never involve face-to-face contact with the victims. The need for speed or agility is reduced because deception is prized over stealth.26
Legal Businesses
Legal businesses serve as front companies that allow terrorists and insurgents to conceal and launder the proceeds these groups make from their range of gray and dark activities. Terrorists and insurgents, or those closely connected to them, purchase and operate licit businesses in order to launder profits gained elsewhere through the business to make it seem as if the income was lawfully earned. For terrorists, front companies allow them to remain hidden within business activities while leveraging the funds in their possession to accomplish their objectives.27 The type of business does not necessarily matter—but businesses that deal in high volumes of cash transactions are more conducive for laundering money. In Burma, a situation arose where insurgents involved in drug trafficking were allowed to continue their activities in return for a cessation of violence. The result was that former insurgent drug lords like Lo Hsing Han and Khun Sa were able to invest drug proceeds into the Burmese economy and thus develop hotels, casinos, and various other businesses.28
Money Laundering
Money laundering is not an end in and of itself, but a method that is best conceived of, at least in the context of irregular warfare, as an illicit support activity. Just as terrorists and insurgents have learned to maintain a diverse funding portfolio, they have also acquired an appreciation for a diversification in the way funds are laundered. Terrorists and criminal organizations often launder money through the same channels, as was evidenced by the 2011 case of the Lebanese Canadian Bank, which has been accused of laundering money for a range of nefarious actors spanning South America, West Africa, and the Middle East.29
As a response to the threat posed by terrorists laundering proceeds from criminal activity to fund attacks, the United States has extended the anti-money laundering (AML) control regime beyond banks to include car dealers, casinos, jewelers, pawn shops, insurance companies and certain “corner shop money transmission businesses.”30 Nevertheless, several of the most prominent international banks have been accused of rather egregious (and repeated) violations of the AML/CFT regime in countries where those regimes were previously thought to be effective, thus tempering expectations on progress and highlighting potential differences between the capability to prevent money laundering and the will to do so.31
In a simplified breakdown of money laundering, the act happens according to a three-step process. First, illicitly gained cash (which is generated through the gray or dark economy) is conver
ted to monetary instruments or deposited into financial institution accounts. This is often referred to as placement. Second, the funds are moved through wire transfers, checks, money orders, and so on, into other financial institutions to obscure the original origins. This step is known as layering. Third, and finally, the funds are again moved through wire transfers, checks, money orders, and so forth and used to acquire legitimate assets or fund further activities.32
WHAT IS DARK ECONOMY?
While activities in the gray economy maintain some plausibility in the licit and legal domain, activities that occur in the dark economy are entirely illicit and illegal, with little room for interpretation. These activities usually, involve violence, or at least the threat of violence, and include kidnapping for ransom, armed robbery and theft, trafficking, smuggling and counterfeiting, extortion and protection, and external state support.
Some research suggests that as insurgent groups become more intimately involved with certain aspects of the dark economy (especially drug trafficking), their ideological commitment is enervated in direct relation to an increased interest in purely economic ends.33 But this is not always true. Groups like the Provisional Irish Republican Army (PIRA), the Kurdistan Workers’ Party (PKK), and the LTTE each engaged in forms of organized crime without deviating from their true role as insurgents.34
Both Makarenko’s “model of terrorist-criminal relationships” and Cornell’s “crime-rebellion nexus” suggest that the relationship between insurgency and organized crime should not be conceived of in terms of path analysis, but rather as a sliding scale on which groups can go back and forth between the extremes of crime and ideological insurgency, occupying any number of intermediate stages between these poles along the way.35 The “mutative process” describes insurgents forced into criminality as a function of a dearth of financial support. In other words, some groups reach the conclusion that without the profits they obtain from the drug trade, they will be unable to continue fighting.36
Terrorism, Inc.: The Financing of Terrorism, Insurgency, and Irregular Warfare Page 2
