Following Terrorist Funding

By Joseph Straw

“Israeli troops searching a Palestinian office in 2002 found documentation of $545,000 in life insurance payouts to the families of 102 “martyrs.” The money was held by The Arab Bank, based in Jordan, which at that time did business in the United States. After a federal investigation, the bank paid $24 million in fines to the U.S. government and consented not to do business in the country.

As a result of such efforts, the U.S. government has succeeded in eliminating, almost entirely, any potential terrorist financing from its domestic banking market, according to Stephen Kroll, a former Capitol Hill counsel who helped write federal laws targeting the funding.

But as is usually the case in the war on terror, there’s bad news, too. Domestic successes in purging formal financial markets of terrorist links have pushed terrorist financing into a murkier world of informal, albeit legal, Muslim hawala markets and the black markets of the international underworld.

These funding avenues are much harder to monitor and control, and the United States must do a better job of coordinating with foreign governments, either through the United Nations or its international partners, to cut off these other sources of terrorist funding. That was the warning from Kroll and other experts who recently spoke at Washington D.C.’s Hudson Institute.

A related problem is the politically challenging job of defining terrorism legally, then designating terrorist individuals, organizations, and state-sponsors. The U.S. should ask the United Nations to take a lead role in getting international consensus on such definitions, argues Andrew Cochran, a former congressional aide who is now co-editor of The Counterterrorism Blog.

Such a consensus would allow a “name-and-shame” campaign to out companies and countries with ties to terror, an effective means to spur enforcement globally, Cochran said.

However, fellow panelist and former U.S. Rep. Sue W. Kelly, who headed the Congressional Anti-Terrorist Financing Task Force through 2006, disagreed.

Kelly recalled that her efforts to scrutinize regulation of hawalas, pro-terror charities, and cash couriers by U.S. allies in the Persian Gulf region were stymied by the UN’s Executive Branch, which she suggested caved to diplomatic pressure.

The other panelists noted that terrorists don’t just rely on donations; they generate income, much as organized crime groups, through involvement with criminal enterprises. For example, Hezbollah and other terrorist organizations profit from the opium trade based in the Bakaa Valley of Lebanon and Syria, drug trafficking in the Balkans, and the hive of illegal activity in the Tri-Border region of South America where Argentina, Paraguay, and Brazil meet. Funding sources there include the sale of counterfeit goods, and traditional Mafia-style shakedowns of the local populace, the experts said.

Funds are also coming from states that oppose U.S. policies and are hoping to fuel opposition forces around the world. Venezuela’s growing alliance with Iran—already Hezbollah’s top state sponsor—is one example.

The U.S. must also pay close attention to China, not as a state complicit in terror financing but as a magnet for illegal investment because of its explosive economic growth, Cochran said.

“This is an emerging market with a double-digit GDP growth rate, and it’s inevitable that terrorists are going to find their way into the Chinese economy. The Chinese will have to deal with that forthrightly, and with the cooperation of the U.S. and other countries,” Cochran said. (For an opposing view about terrorism in Asia, see “Eastern Inscrutability,” page 48.)

The U.S. government’s efforts to stem the flow of terrorist funds internationally have been hampered by rivalry between the State and Treasury departments, Kelly said. He cited testimony Comptroller General David Walker gave at a congressional hearing on the issue.

Walker testified that in 2005 the State Department denied Treasury agents entry into a country that asked the U.S. to set up a financial intelligence unit. The State Department said it wanted to complete its own assessment first. State Department officials eventually relented, but the Treasury’s arrival in the country “was delayed several months,” Walker said.

Walker’s agency, the U.S. Government Accountability Office, recommended the two agencies draft and sign a “memorandum of agreement” on respective roles and responsibilities. But, said Kelly, they have not done so, instead simply pledging to improve cooperation.



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