Terrorism, Inc.: The Financing of Terrorism, Insurgency, and Irregular Warfare
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Highly capable sub-state actors like the PIRA and LTTE are gone, only to be replaced by Al-Qaida, the Taliban, and ISIS. Perhaps even more troubling, terrorist groups like Hamas and Hezbollah have transformed into hybrid organizations that challenge the legitimacy of the state through military means whilst also providing essential social services to their respective constituencies and successfully contesting elections. Some scholars have labeled the rise of non-state actors BlackFor, or Black Force, defined as a “postmodern form of societal cancer,” and “a confederation of illicit non-state actors linked together by means of a network of criminalized and criminal (narco) cities.”33 Components of the BlackFor are likely to be inextricably intertwined with, and indeed aided by, symbiotic relationships with the leadership of corrupt states, although some scholars caution falling victim to hyperbole in affording these actors with more power than they actually yield in reality.
One of the major factors that make non-state actors so dangerous is the use of fictitious, shell, and offshore fiduciary companies, which all pose a challenge to those organizations attempting to regulate business transactions and provide terrorists and insurgents with financial safe havens where they can conceal their funds. Gomez relates the difficulty of companies, funds, entities, or businesses that are registered in an extraterritorial financial center, such as International Business Corporations (IBC) which can be used to construct complex financial structures (the issue here becomes the degree of transparency of beneficial owners). Commenting on these entities, he suggests that “they can be established using bearer shares and do not have to publish accounts. Residents of financial centers can act as fictitious directors or shareholders in order to disguise the genuine directors or owners. These entities are attractive to investors who seek anonymity or wish to carry out their activities beyond the official scrutiny of their national government.”34
In the effort to choke off funding to terrorist and insurgent groups, the U.S. response has been criticized widely as “profoundly state-centered,” which has hampered its overall effectiveness.35 It is precisely this state-centered approach that plagues efforts to collect and analyze high-fidelity intelligence. According to Bunker, one of the main takeaways from U.S. experiences in Iraq and Afghanistan is that “it takes a network to defeat a network.”36 However, as Chad C. Serena argues persuasively, “this overly simplified yet widely accepted view ignores the point of organizational adaptation” because “being a network or acting like a network does not ensure that an organization can or will adapt appropriately to achieve its goals.”37 This finding dovetails nicely with another of Serena’s most poignant observations—an insurgency might not be an insurgency. In essence, this argues for the need to discern between terrorists groups, insurgent organizations, militias, and criminal networks.
When dealing with combating the finances of non-state actors, it is also important to recognize that in certain cases—as with ISIS—the international banking system will be of little help. Instead, the local economies of these groups must be the primary focus and the priority should remain developing the capacity of local and regional actors while also targeting the insurgent group’s financial facilitators and local sources of revenue. By working with interagency partners to cultivate financial intelligence, the United States and its allies can create leverage and shape her adversaries. Again, even if it proves impossible to defeat a group like ISIS, targeting the group’s financing can provide valuable information and intelligence on the group and its broader network, including its organizational structure, alliances, sources of popular support and legitimacy, and technological prowess. This kind of approach is best when used as part of a comprehensive strategy that includes all facets of statecraft, from kinetics to diplomacy.
Particularly in the non-kinetic realm, there are many opportunities for governments to make progress against countering the financing of terrorism and insurgency. Some of the case studies highlighted the importance of establishing committees and task forces specifically designed to work on CFT issues, which often means pulling in resources from across the spectrum of law enforcement, intelligence, the judicial branch, academia, the private sector, and so on. With concrete evidence to draw upon, it is easier to craft, pass, implement and where the political will is present, to enforce the legislation in an effort to designate and proscribe terrorists while freezing and seizing their assets and conducting a more robust financial analysis of the network and its critical nodes.
TERRORISM IS INEXPENSIVE AND INSURGENCY CAN BE TOO, DEPENDING ON A GROUP’S GOALS
Comparatively, terrorism is inexpensive while insurgency requires more funding if a group intends to legitimately challenge the sovereignty of an incumbent regime. As demonstrated in the case studies, groups can survive for long periods of time with a combination of active and passive sponsorship from civilian populations, or through a reliance on petty criminal activities. Terrorist attacks can be inexpensive and funds are easy to move because it is extremely difficult, even in developed countries, to distinguish suspicious or illicit activity from the routine.38 Al-Qaida has responded by raising larger numbers of small donations from a wider array of sources while also moving money in more diverse ways as well.39 Terrorists and insurgents can raise, move, or store funds using bulk cash smuggling, traditional banking, wire transfers, money exchange services, trade-based money laundering, storage with value cards or prepaid instruments, mobile and electronic payments (including via mobile phones), and diversion of funds from charities and nongovernmental organizations.40 Naim reinforces this concern when he declares, “never in the field of human conflict have so few had the potential to do so much damage to so many at so little cost.”41 The following figure demonstrates just how inexpensive terrorist attacks have been over time.
Figure 9.1
Cost of Terrorist Attacks (in US $)43 A study by Emilie Oftedal of the Norwegian Defence Research Establishment (FFI) looked at data on the financing of 40 jihadi cells that have plotted attacks against European targets between 1994 and 2013 and concluded that three-quarters of the plots cost less than $10,000 to plan.42 The 2004 Madrid train bombings killed 191 people and injured another 1,600 in an attack financed primarily by the leader of a small, yet effective drug trafficking network that smuggled hash from Morocco and ecstasy from Holland to Spain.44
While the connection between making money from the illicit trade in illegal narcotics to sustain an insurgent organization is well-documented—Revolutionary Armed Forces of Colombia (FARC), Afghan Taliban, Kurdish Workers’ Party (PKK)—what is less well explored and understood if the use of petty crime to fund small scale attacks in the West. In addition to low-level drug dealing, terrorist attacks can be funded through myriad sectors of both the licit and illicit economy, including the sale of counterfeit clothing, illicit whites (cigarettes), pirated software, DVDs, stolen smartphones, and phone cards. In February 2015, an investigation revealed that a network of over 250 butchers and phone shops in Spain were helping to fund jihadists in Syria.45 This money could just as easily be used to plot and conduct a terrorist attack in Western Europe similar to the Charlie Hebdo attacks in Paris in January 2015. And while that attack was allegedly funded with $20,000 from AQAP, it is easy to see why some terrorists planning similar types of attacks would follow the Madrid model—small sums of money collected over time through the use of somewhat banal criminal activities like drug dealing, various types of fraud and petty theft.46
For myriad reasons, terrorists and insurgent groups are turning to crime to raise funds more than ever before. To be sure, some credit must be given to the success of the CFT in combating terrorists and insurgents’ ability to move money through the formal banking sector and through NGOs. The increasing reliance of terrorists and insurgents on the organized criminal activities of the dark economy is also partly a post-Cold War phenomenon accelerated due to the withdrawal of external state sponsorship, but also a result of the advances of globalization—it is easier now, more so than at an
y point in history, for non-state actors to communicate and cooperate. Terrorist groups are often able to raise the necessary cash by methods that would be extremely difficult to identify as related to terrorism or other serious criminality. Since attacks can be so inexpensive, even if they fail to kill or wound large numbers of individuals, attacks still cost Western nations billions of dollars in security expenditures and fit into the overall narrative of waging economic warfare on the West. But with this increasing reliance on criminal activities comes a new set of risks and in turn, more opportunities for law enforcement and the intelligence community to identify, arrest, and prosecute these individuals or to simply sit back and gather more intelligence about the group, its activities, and overall objectives before moving against it.47 Having to raise cash, resources, and so on, diverts individual and organizational focus, raises profiles, and causes myriad weaknesses. In short, it exposes the group and can create an influence chain (particularly in the case of external sponsors) where those providing resources can be leveraged appropriately.
ALTHOUGH WESTERN NATIONS “PLAY BY DIFFERENT RULES” THAN THEIR ADVERSARIES, MANY LEGAL AVENUES REMAIN VIABLE TO COMBAT THE FINANCING OF TERRORISM, INSURGENCY, AND IW
The essence of irregular or asymmetric warfare is that one side fights in a manner that is unconventional and also enjoys the freedom to operate relatively unconstrained from the laws of war and most widely agreed upon legal strictures governing combat. Just as the behavior of nation-states are constrained in warfare, so too does this regulation extend to combating the financing of terrorism. There is a well-established firewall between the private sector and the government in the United States and many other developed nations. Beyond achieving success, it is believed to be just as critical for the action of nation-states to remain well within the boundaries of mature legal frameworks and to maintain the integrity of the global financial system.
Terrorists and insurgents, on the other hand, are less restricted by laws and borders and thus more capable of working across domains more fluidly and developing hybrid capabilities and relationships with a range of illicit actors and enterprises. For its part, the CFT side is beset by strict rules governing public-private collaboration. One side is agile, while the other is compartmentalized, stove-piped, protective of rice bowls, and at the mercy of temporary freezes in funding due to partisan rancor and legislative cacophony. Nation-states face the uphill battle of making a bureaucracy nimble and proactive, no easy tasks. Closer cooperation between the public and private sector is critical and as Zarate points out, in some cases multinational corporations like Paypal, Amazon, and Mastercard can be swifter and more effective than government bureaucracies in responding to emerging issues.48 The governments of those nations seeking to curb the illicit financing of terrorist and insurgent groups need to view the private sector as an ally, not an adversary, and vice versa. In certain cases, private sector institutions and multinational corporations should be able to leverage the experience of armed services reservists or members of the National Guard. These “weekend warriors” might be bankers, accountants, or software engineers in their everyday lives while also privy to the emerging threats to national security faced by the military on the front lines.
Like most bureaucracies, the effort of nation-states to combat the financing of terrorism can be marked by redundancy, insufficient collaboration and coordination, internal disagreements, and inadequate information sharing. No system is perfect and no single tool provides a silver bullet. Rather than starting from scratch, it is important to improving the money-laundering and anticorruption financial systems that already exist. One area for improvement should be an attempt to be more parsimonious in the reporting of suspicious activity, as suspicious activity reports (SARs) have proliferated exponentially since 9/11, inundating analysts with a deluge of data that is so voluminous to almost be meaningless.49 According to Gomez, “the enforcement of due diligence with bank clients has been helpful in detecting some terrorist operations, although in general reports of suspicious financial transactions made by financial institutions are currently of limited value in actually seizing assets of terrorist organizations.”50 While generating SARs might serve to help protect financial institutions from hefty fines, this practice may actually encourage terrorists to transfer money through the system in hopes of “hiding in plain sight.”
One of the consequences of this new era of financial warfare has been an increase in “de-risking,” which is a phenomenon by which financial firms exit problematic markets where clients are less capable of meeting “know-your-customer” requirements, causing compliance officials to grow concerned about an institution’s reputational risk.51 Several high profile banks—HSBC, Barclays, ING, Standard Chartered and BNP Paribas, to name a few—have already been fined for offenses ranging from money laundering to sanctions-busting.52 But as Tom Keatinge points out, “Money always finds a way to its intended recipient. Restrictive regulations have simply pushed large pools of funds outside formal channels—encouraging criminals and terrorists to finance their activities in the shadows.”53
At its core, one of the main issues from a counter-terrorism perspective is that of intelligence gain/loss (IGL). Put simply, when information about an adversary is disclosed, this alerts adversaries and forces them to change their tactics, techniques, and procedures (TTPs). Restrictions on banks could encourage terrorists to avoid the formal financial system altogether and so the crux of the issue remains, is it better to move against an adversary when an opportunity arises or is it more beneficial to allow the adversary to continue any actions that are traceable and can thus provide even more valuable intelligence on a terrorist or insurgent group’s intentions, to possibly include details of an attack? When banks exit problematic markets and de-risk their operations, what entity fills the void?
For Future Study
This book has examined a range of terrorist and insurgent groups, how those groups raise and move funds, how those funds are spent, and the challenges in combating the financing of these organizations. Yet, despite the in-depth analysis undertaken throughout this book, much work remains to be done.
Now that a sufficient amount of time has passed, it would be valuable to conduct comprehensive assessments of the effectiveness of both the Afghan Threat Finance Cell (ATFC) and the Iraq Threat Finance Cell (ITFC) to gauge how vital these elements are to the war effort.54 Another area that is indispensable to determining progress (or lack thereof) is the improvement of metrics to better understand what has worked, what has not worked, and methods to improve CFT. Relying on a strategy able to leverage metrics is the equivalent of targeted (as opposed to blanket) sanctions—this is smart financial intelligence and there is always room for improvement. As Perl laments, “one potential pitfall plaguing measurements of success is an over-reliance on quantitative data at the expense of its qualitative significance.”55 Indicators could include the successful conviction rate of terrorist sympathizers responsible for supplying money or the level within these networks of those apprehended as a result of financial strictures.56 Eckert and Biersteker suggest that as a starting point, “perhaps we should begin by accepting that there are no definitive metrics by which success or effectiveness can be assessed, but rather a variety of information and indicators that can help paint an overall picture.”57
At the same time, even perfect metrics are useless against a network that has not been properly mapped. Only after developing a comprehensive picture of the network, to include the identification of key nodes, can the network then be probed, disrupted, and monitored. For example, when attempting to analyze a network comprised of terrorists and criminals, the first step might be to develop a list of major transnational smugglers suspected of involvement with the network, which could be accomplished through consultations with law enforcement agencies such as the Drug Enforcement Administration (DEA), Immigrations and Customs Enforcement (ICE), the Customs Border Protection, and myriad open source reporting on transnational criminal
activity.58 From there, an analyst must consider terrorist or insurgent finance as an interaction with value chains by examining how the non-state actor in question accesses, influences, controls or otherwise interacts with flows of value within existing local, regional, or global political economies.59 Tracking funds through an organization can identify key elites, organizational function, and network structure/alliances with states or other insurgent groups as well as shed some light on how these networks operate, how they have evolved over time, and perhaps offer insight on how they are likely to adapt once challenged.60 Moreover, as Shima Keene points out, combating the financing of terrorism and insurgency is about much more than just “following the money” but can prove useful as both a forensic tool and a psychological weapon.61
Staying one step ahead of adaptive adversaries is a challenge. It is difficult to be anticipatory, predictive, and accurate. Prior to 9/11, most money laundering controls were designed to detect narcotics trafficking and large-scale financial fraud. Similarly, with the move toward virtual currencies such as Bitcoin, and the ever-present evolution of anonymous transactions, it is nearly impossible for governments and international bodies like the United Nations to remain current in all possible arenas of information technology and financial transfers. Gomez puts it thusly, “the sheer volume and speed with which sums of money rush through the computer-linked international financial system make watertight CFT measures impossible.”62 However, by providing government agencies with the resources, authorities and manpower necessary to engage in this fight, and by anticipating and preparing for future trends, states and law enforcement agencies can at least adversely impact the ability of terrorists and insurgents to raise funds through the gray and dark economies while working to restrict their operational and organizational capabilities and thus their capacity to do harm.