Recently, we observed the sixteenth anniversary of 9/11, recalling the tragic loss of life and the sustained terror threat that still exists. Numerous articles pertaining to the anniversary have been published; however, little has been written from a financial crimes perspective.
In this article, we will recall what was believed to be one of Al Qaeda’s (“AQ”) primary means of funding its operations, discuss the current state of terrorism financing, and take a glimpse at what the future may hold.
It is a common falsehood that Usama Bin Ladin (“UBL”) funded AQ from his private coffers. In reality, AQ’s war chest, according to the 9/11 Commission, pre-and-post 9/11, was believed to be between $25 to $30 million a year. The Commission also approximated UBL’s annual family inheritance to be around $1 million, which was clearly not enough to fully fund AQ’s operating budget.
The actual sources of AQ’s financing are believed to be from charities, crime, legitimate businesses, wealthy financiers, and State sponsorship; however, it is questionable if we will ever truly know. What we do know is that UBL fostered trusted partnerships that offered solutions to facilitate the movement of funds as soon as they could be acquired.
This means that UBL took a concerted effort to partner with trusted networks of people to raise and distribute the necessary funds to support AQ. One of AQ’s biggest hurdles was identifying methods to disperse funds as soon as they were raised. What was perhaps an even a bigger issue was that UBL needed a way to transfer funds to operatives located in remote areas of the world, where banking systems simply did not exist.
To overcome these challenges, one of UBL’s documented partnerships included a network of money remitters with “hawala” like properties. For those not familiar with how a hawala operates, it is an ancient and informal system of transferring money, which predates established banking by thousands of years. Most hawalas are legitimate; however, when exploited, they can effectively conceal the redirection of funds to terror groups. A network of money brokers, or “hawaladars,” provided UBL with paperless banking transactions and enabled the ability to send money without the funds ever crossing borders or being recorded.
The money remitter business, Al Barakaat Exchange LLC (“ABE”), headquartered in Dubai within the United Arab Emirates, is discussed in the 9/11 report, and is described as the principal source of funding, intelligence, and money transfers for AQ. Although ABE was investigated by the Federal Bureau of Investigations (FBI), credible evidence that it was a money laundering instrument never materialized.
In mid-2002, Office of Foreign Assets Control (OFAC) analysts were tasked to demonstrate that each and every ABE individual was intimately involved in the funding of terrorism and that each belonged to an entity that predominantly supported terrorism. There was no such evidence produced, although the OFAC analysts criticized that they were not provided with sufficient access to classified information, as well as being denied information obtained and held by the FBI. Subsequently, the FBI closed the investigation.
Following 9/11, the USA Patriot Act was born, and over the last 16 years, the United States has promulgated other formal legislation for the surveillance, regulation and documentation of financial transactions, expanding the ability to counter terrorism financing. Additional regulations developed over the years also include the institution of programs such as Know Your Customer (“KYC”), Customer Due Diligence (“CDD”), and Enhanced Due Diligence (“EDD”), along with special measures designed to strengthen the Bank Secrecy Act (BSA).
We know that even today, terrorists use a variety of methods to move money. It is believed that there are five common methods, in addition to numerous others, used to finance terrorism: 1) exploitation of formal banking systems, 2) cash couriers, 3) informal money remitter systems (e.g. hawala), 4) false trade invoicing, and 5) high value commodity trading.
We have also learned that several factors are considered by money brokers in formulating the mechanism for movement of funds, such as the overall volume, risk, convenience, simplicity, costs, and the speed with which money is transferred. As we just discussed, UBL was quite aware of the U.S. financial system’s vulnerabilities and how to exploit them.
With all of the initiatives put forth by the U.S. government to combat terrorism financing, can we safely say that we are close to abating terrorism financing? Let us look to the future to see if an answer can be found.
In order to counter something, one must identify the elements that permit its existence. We know that terrorism financing comprises three (3) primary elements that sustain acts of terror—people, their ideologies, and their finances. In the last 16 years, we have learned that it is extraordinarily difficult to sway believers from unsubscribing to radical ideologies, and even more arduous to eliminate all the people who embrace them.
As the future unfolds, it is wise to reflect upon the past. It’s no secret that technology is advancing at light speed with the rise of virtual community platforms, virtual/digital currency, and startups designed to provide encrypted internet-based platforms, all of which present new complexities regarding the detection of nefarious activity, particularly terrorism financing.
With technological advancements and changes in the traditional way of transferring currency, the past has witnessed the rise of cross-border and e-commerce platforms for shopping, leading to a demand for alternative means of currency exchange, all of which can be exploited to finance terrorism. With the sheer speed of transactions allowing for monetary transfers of potentially unlimited sums, terrorist funds can change hands across countries effortlessly and instantaneously.
According to the 9/11 Commission Report, we know that the attacks of 9/11 cost somewhere between $400,000 and $500,000 to execute. But did you know that the last five years of successful terror attacks cost only hundreds of dollars, and in some instances, nothing at all? How has this been possible?
To circumvent what terrorists came to discover as the “tell-tale” signs of terrorism financing that financial institutions were on the lookout for, new cost-effective TTPs came to fruition, such as the use of axes for weapons, use of vehicles to plow into pedestrians, shootings at nightclubs and concerts, or as simple as purchasing a gallon of gas to make a molotov cocktail. Remarkably, the cost of financing terrorism today and in the future is meniscal by comparison to our past.
As we become more and more effective at disrupting terrorism financing, we must not forget that those who perpetuate the heinous crime are simultaneously adapting, exploiting, and evolving the means and methods of moving funds at a faster pace than the U.S. financial system is able to regulate.
Does your financial institution implement measures for advancements in terrorism financing? Just as we have done for multiple financial institutions, our Financial Crimes Advisory practice at AML RightSource can help you create a targeted framework for the identification and prevention of terrorism financing.