Strategy for combating terrorism financing

Dr Moyara Ruehsen

Academic Director of the Terrorism Research and Education Program, Monterey Institute of International Studies California. Dr Ruehsen is an expert on illicit marketing and smuggling with particular focus on the Middle East. The following is based on her lecture in New Delhi organized by IPCS US government efforts in combating terrorism suffer from lack of ad-equate institutional as well as human capital.

The institutional set up includes only one unit within the Treasury Dept called the Financial Crime Enforcement Network - the US financial intelligence unit; one unit within the Federal Bureau of Investigation (FBI), one in the Central Intelligence Agency (CIA), one in the National Security Council (NSC) and one in the State Department.
Coupled with this, some of the top officials are found to be changing their positions on an average every two years which results in lack of continuity while many are transferring to other jobs creating a deficit of skilled experienced officials.

In addition, law enforcement agencies in the US are ill-equipped to deal with cross-cultural links in organized crime, for instance, the FBI in their fight against Chinese organized crime had just one person in their entire force who could speak Chinese.

The best work in this area is being done by the private sector in the financial service industry. This is primarily because the private sector is concerned about liability, for they do not want to face the enormous fine being imposed on them for not doing their due diligence. Since 9/11, the private sector is more vigilant about learning about their customers and monitoring their activities.
Methods of terrorism financing

There are persistent areas of concern which are not being addressed such as monitoring of charity work, bulk cash smuggling - which according to reports largely funded the Iraq insurgency - and false trade invoicing.

False trade invoicing, which has been used by hawala operators to balance their account sheets for a long time, is now being used for organized crime. It is the easiest mechanism of movement of cash, albeit the most neglected one.

Reports on 9/11 reveal that over invoicing between honey importing companies in the Middle East, particularly Kuwait and Yemen, and the US constituted one of the main source of funding of the 9/11 attacks.

Accordingly, the recorded value of honey exported from the US was found to be much higher than the actual value. The names of these companies are on the terrorism fact list on the internet because of their suspicious transactions. The US Department of Commerce however started to take note of these suspicious transactions only recently.

Another source of money laundering is the deduction of money in the form of zaqat by Islamic banks particularly in the Middle East. For instance, it was found that banks in Abu Dhabi automatically deduct a two and a half percentage of money of the account holder without their knowing what the zaqat will be used for.

Yet, another source is private money being donated by philanthropic millionaires around the world who empathize with the Wahabi ideology and who are donating money directly to the madrassas in Pakistan or to groups like Lashkar-e-Taiba operating in Kashmir from Pakistan.

Legalizing hawala operators could be a possible method of countering terrorism financing. India presents a unique case for it is the only country in which hawala transactions are illegal, where as in the rest of the world they are legal so long as the hawala operator is licensed and/or registered. The rationale behind allowing them to operate with a license is so that the law enforcement authority can keep track of these transactions and monitor them. This approach was endorsed by many countries in the Abu Dhabi Declaration.

Another measure for combating terrorism financing is through the setting up of Trade Transparency Units (TTU) in which US is leading the way. A TTU not only monitors commercial transactions, but also uses computer software to pull out all suspicious transactions including under and over invoicing. As of now, the US is focused on South America.

Indo-US cooperation

The reason behind the limited nature of Indo-US cooperation in this field is the close alliance between Pakistan and the US. The US sponsored the development of Pakistan's financial intelligence unit. It also sponsored Pakistan's membership to the Egmont group - a coalition of 101 countries that have a well-established financial intelligence unit in order to share information on various methods of terrorism financing such as money laundering et al.

India's efforts

India has made efforts to strengthen its anti-money laundering laws but two probable measures might help to improve it further: one, joining the Egmont organization that would serve to strengthen India's investigative efforts by reducing chances of investigation being hampered because of lack of shared information between nations; two, setting up of a TTU in India that will help to monitor commercial transactions.

The following are excerpts from the debate generated by Dr Moyara Ruehsen's remarks:

• The proposition of legalizing hawala operators is not feasible in the case of India considering the difficulty in distinguishing between trade transactions for profiteering purposes and those for terrorist activity, the sheer volume of transactions being carried out in India, and the strict banking rules already in place.

• Since terrorism activity is not very capital-intensive, defeating terrorism through financial channels may prove to be futile. A glaring example of this is that of Osama bin laden personally funding terrorist activities in the initial years. Therefore, tracking the use of technology may be a better technique.

• Unless the US takes deliberate measures as a matter of strategy to do something about its relation with Pakistan, there is limited scope for Indo-US cooperation. Another concern is the proliferation of weapons from the US to nations like Pakistan purportedly for fighting the militants, but which in turn finds their way to terrorist organizations. Therefore, American talk and efforts against terrorism are rendered ineffective given the fact that it itself is facilitating the passage of weapons to smaller groups engaged in militant activities.

Dr Moyara Ruehsen's lecture and the debate thereon were recorded by Devyani Srivastava, Research Assistant, IPCS.


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