Since the Sept. 11, 2001, attacks, al-Qaeda has increasingly turned to local cells that run extremely low-cost operations and generate cash through criminal scams, bypassing the global financial dragnet set up by the United States and Europe.
Although al-Qaeda spent an estimated $500,000 to plan and execute the Sept. 11 attacks, many of the group's bombings and assaults since then in Europe, North Africa and Southeast Asia have cost one-tenth as much, or less.
The cheap plots are evidence that the U.S. government and its allies fundamentally miscalculated in assuming they could defeat the network by hunting for wealthy financiers and freezing bank accounts, according to many U.S. and European counterterrorism officials.
In an ongoing trial here of eight men accused of planning to blow up airliners bound for the United States two years ago, jurors have been told how the accused shopped at drugstores for ingredients to build bombs that would have cost $15 apiece to assemble.
Similarly, the cell responsible for the July 7, 2005, transit bombings in London needed only about $15,000 to finance the entire conspiracy, including the cost of airfare to Pakistan to consult with al-Qaeda supervisors, according to official British government probes.
Investigations into several plots in Europe have shown that operatives were often flush with cash, raising far more than necessary through common criminal rackets such as drug dealing and credit card theft.
Testimony in the trial of the accused airliner plotters has shown that the defendants had enough money to buy a northeast London apartment for $260,000 shortly before their arrest, allegedly so they would have a safe place to mix liquid explosives for their bombs.
One of the July 2005 suicide bombers, a 22-year-old part-time worker at a fish-and-chips shop, left an estate worth $240,000 after he blew up a subway train. Neither his family nor authorities have explained where he got the money.
In Spain, the cell responsible for the March 2004 train bombings in Madrid needed $80,000 to finance the plot, according to Spanish court documents. But they had access to more than $2.3 million worth of hashish and other illegal drugs that they could have sold to raise more money, the documents showed.
Even the 9/11 hijackers wired back about $26,000 in surplus funds to accounts in the Persian Gulf area a few days before the attacks.
Authorities said it is often impossible to monitor fundraising by such cells because they generally keep so little in the bank. Instead of receiving wire transfers or making large deposits that would trigger automatic alerts, they move cash in person and are discreet about how they spend it.
"The groups operating in Europe don't need a lot of money. The cost of operations is very low," said Jean-Louis Bruguiere, a former senior anti-terrorism judge in France who now works as an adviser to the European Union on terrorism financing. "But they are very skilled at obtaining money and using criminal systems to do it. They can collect thousands and thousands of dollars or euros in a few weeks. It is beyond our control."
Law enforcement officials in London said al-Qaeda cells are trained to plot and live on the cheap. Operatives lead ascetic lives, often keeping their day jobs or depending on their families to cover expenses. Above all, they are taught to build bombs that are lethal but crude and inexpensive. Almost every terrorist plot in Europe in recent years has followed a simple formula: homemade explosives stuffed into backpacks, shoes, suitcases or car trunks.
Outflanking the Laws
Thirteen days after the Sept. 11 hijackings, President Bush launched what the White House later described as the "first strike in the war on terrorism." He signed an executive order freezing the assets of 27 individuals and groups suspected of terrorism and forbidding anyone from doing business with them.
"Money is the lifeblood of terrorist operations," Bush said in the Rose Garden. "Today we're asking the world to stop payment."
A month later, Congress and Bush went further by adopting the USA Patriot Act, which required banks to report transactions larger than $10,000 to the Treasury and to check if any of their customers were on a database of suspected terrorists.
By December 2001, the government had frozen $33 million in assets and expanded its terrorism-financing blacklist to 153 names. In a report assessing its progress in the fight against al-Qaeda, the White House declared, "The United States and its allies have been winning the war on the financial front."
The measures, however, have failed to dry up the supply of money available to al-Qaeda and have had no discernible effect in preventing the network from carrying out attacks, according to several counterterrorism officials and experts in the United States and Europe.
Before Sept. 11, 2001, al-Qaeda and its affiliates rarely used the banking system in a manner that might arouse suspicion, officials and experts said. In response to the new anti-terrorism financing laws, the network has became even more cautious, relying on couriers to carry money across borders when necessary, authorities said.
Ibrahim Warde, an adjunct professor at Tufts University and an expert on financial systems in Islamic countries, said the Bush administration and its allies falsely assumed that al-Qaeda had stashed large sums in secret bank accounts.
"It got the entire financial bureaucracy started on a wild-goose chase," said Warde. "There's a complete disconnect between this approach and the underlying reality of how terrorism is funded."
Dennis M. Lormel, a former head of the FBI's Terrorist Financing Operations section, said the laws passed since 2001 have closed some gaps and addressed vulnerabilities that made it easy for al-Qaeda to raise and transfer money.
He said the network has responded quickly. Its cells in Europe and elsewhere now raise money on their own instead of relying on financial transfers from external sources that could be tracked by law enforcement officials.
"Clearly, when you're dealing with groups that are self-funded, you're dealing with a different set of circumstances from when they put these laws in place," said Lormel, now a senior vice president at Corporate Risk International, a Reston-based firm.
"The bad guys, after a while, they realize what we're doing, so they're going to alter how they do business," he added. "Obviously, you're not going to stop them from getting money, and they're going to be able to adapt."
Inventive Fundraising
Al-Qaeda's self-financing cells in Europe have become increasingly creative in their fundraising methods, officials said.
After the July 2005 London transit bombings, police knocked on the door of a sheep farmer in Scotland to inquire about a livestock deal gone sour. The farmer, Blair Duffton, confirmed that he had lost more than $200,000 when he sent several truckloads of sheep to a slaughterhouse in Leeds, England, but never received payment.
The slaughterhouse specialized in halal meat, or food prepared according to Islamic law. Detectives informed Duffton that the person who had stiffed him for the sheep was an associate of Shehzad Tanweer, one of three bombers who had lived in Leeds.
"I almost went bankrupt," Duffton recalled in a telephone interview. "I couldn't believe it when they told me that this might have been connected to terrorism."
British authorities have not commented publicly on the sheep scam or said if any of the proceeds were used to finance the attacks. Three men accused of providing support to the suicide bombers are currently on trial in London.
In Germany, three Arab men were convicted in December on charges of attempting to raise $6.3 million for al-Qaeda by faking a death to collect on nine life insurance policies. In Switzerland and Spain in 2006, authorities broke up a cell that had stolen $2 million worth of computers, cars and home furnishings. Police said the group sold the goods on the black market and had couriers carry the cash, in $2,000 increments, to an al-Qaeda-affiliated network in Algeria.
In Britain, an al-Qaeda operative, Omar Khyam, was caught on a surveillance tape urging some of the July 2005 London suicide bombers to defraud banks and hardware stores by defaulting on loans of less than $25,000.
Khyam said the goal was not just to raise money for operations but to "rip the country apart economically, as well," according to court testimony in April at the trial of the three men accused of providing support to the bombers.
Acting on Khyam's advice, one of the bombers obtained and then defaulted on a $20,000 loan from HSBC Bank. Another secured a $14,000 line of credit from a building supply company.
Given the small scale of such transactions, banks or police would have had little reason to suspect the involvement of terrorists, officials said.
"That's the cleverness of these schemes - to keep it under the radar," said Stephen Swain, former head of Scotland Yard's international counterterrorism unit. "By doing this, they can raise significant amounts of money, fairly quickly, and there's no real way to detect it."
Cracking Down After the Fact
A few weeks after the Sept. 11 attacks, Gordon Brown, then Britain's chancellor of the exchequer, or finance minister, announced a major effort to "crack the code" of terrorist financing. He said Britain would press the entire European Union to hunt for al-Qaeda by combing through the international banking system.
"If fanaticism is the heart of modern terrorism, then finance is its lifeblood," said Brown, who is now Britain's prime minister.
In response to the July 2005 London transit bombings, Brown said the government would freeze the suspects' bank accounts and place additional controls on international financial transfers, even though there was no evidence the cell had received any money from outside sources. "There will be no hiding place for those who finance terrorism," he promised.
Two months after authorities broke up what they said was the plot to bomb transatlantic airliners in August 2006, Brown reiterated that the key to fighting terrorism was to disrupt al-Qaeda's bank accounts. He said Britain would use classified intelligence to freeze assets of people suspected of having links to terrorist groups and would exercise greater control over Islamic charities.
"We will take any necessary steps and find all necessary resources to ensure whether in Iraq, Afghanistan or anywhere else there is no safe haven for terrorists and no hiding place for terrorist finance," Brown said, echoing his 2005 comments.
Britain has frozen assets belonging to 359 individuals and 126 organizations suspected of assisting al-Qaeda, according to a Treasury report released last year. All told, about $2 million has been seized, the Treasury reported.
Yet the government's efforts have had little practical effect, several current and former British counterterrorism officials said. For instance, Britain froze the accounts of 19 suspects in the 2006 transatlantic airliner plot - but only after they were arrested. Officials said most of the accounts contained negligible amounts.
As part of the same investigation, British officials announced an inquiry into the operations of a charity, Crescent Relief, saying that it was suspected of providing money to the cell. Officials with the charity, which was set up to aid earthquake survivors in Pakistan, denied wrongdoing.
Two years later, however, the trial has yielded no public evidence linking the defendants to Crescent Relief. A spokeswoman for Britain's Charity Commission, which regulates nonprofit organizations, said the investigation is continuing but declined to comment further.
Swain, the former Scotland Yard counterterrorism official, said politicians often announce stricter anti-terrorism financing laws after an attack as a public relations measure. He said they do little good in terms of actually preventing terrorism.
"I think there is a realization that they are not that effective," said Swain. "But they need to be seen as doing something to provide reassurance to the public that they're doing something. We're living in a false paradise if you think these things will stop it."
Needles in Haystacks
Some officials defended the anti-terrorism financing laws passed since 2001, saying that al-Qaeda would have a much easier time raising money if the measures weren't in place.
"We mustn't be wooed into the idea that because attacks are costing less and less, that there isn't a need for money, or that it isn't being provided," said Michael Chandler, who headed a United Nations panel that monitored financial sanctions against al-Qaeda and the Taliban from 2001 to 2004. "It's not just the money they need to make the explosive devices. It's the money they need for other things: to support the network, to recruit and to train."
Chandler also acknowledged that al-Qaeda and its affiliates have adapted and are having little difficulty financing their plots.
"Notwithstanding the successes we've had, groups associated or affiliated with al-Qaeda still appear to be able to carry out an attack, as and when they feel so inclined," said Chandler, a former British Army officer and U.N. diplomat, citing the Taliban and cells in Iraq and North Africa. "Either they had the money already when they needed it, or they have no problem getting it."
Law enforcement officials said terrorism-financing controls also make it easier to investigate cells that are under surveillance or after an attack. By retracing suspected plotters' financial footsteps, no matter how small, investigators can map their movements and develop new leads.
Cliff Knuckley, a former chief money-laundering investigator for Scotland Yard, said it's difficult to detect potential terrorist plots just by monitoring cash flows or bank transfers - the basis of many of the anti-terrorism financing laws in place today.
"You're looking for a needle in a haystack, and unfortunately you have a field full of haystacks," said Knuckley.
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