The war on terror money

In Saudi Arabia, the government has banned cash contributions in local mosques and removed cash collection boxes for charities from local shopping malls. It surmised some of that money ends up in the hands of terrorist groups.

In Paris, an independent body called the Financial Action Task Force works with its 31-member nations to improve their techniques for ferreting out and eliminating flows of illegal funds to suspect groups.

And across the United States, federal investigators are getting more money and staff to track unusual financial transactions.

These activities are all part of the war on the financial side of terrorism.

Quietly and steadily, nations, police detectives, bankers, accountants, and others are striving to expose and trim back the shadowy networks that fund militant groups around the world. The campaign isn't likely to block all their attacks. Terrorist acts turn out to be relatively cheap to finance. But moves to deny funds to terrorist groups for recruitment and training could impede or limit future assaults. And the money-tracking efforts also sometimes provide leads to these violent groups.

"It's impossible to know what you don't know in the world of terrorist financing," says Lee Wolosky, former director for transnational threats at the White House. But the current effort "has achieved some successes."

Outside financial circles, the war on terror money gets little attention. Its operations are far more likely to involve tracking computerized or paper financial transactions than breaking down doors for raids on stores of arms or explosive materials. Yet it shows some results.

For example, the international coalition built to attack the sources of terrorist financing has frozen and seized approximately $200 million in terror-related funds, says Juan Zarate, head of the Office of Terrorism and Financial Intelligence at the Treasury Department. "Over 170 jurisdictions have issued blocking orders, and we have built a tighter international financial net through which suspect funds may be captured," he told Congress last month.

No one knows completely how effective such action is because, increasingly, terror money flows through nonbanking systems. These are extremely hard to track. The $200 million total is a drop in the bucket, compared to the $500 billion that Loretta Napoleoni, author of "Modern Jihad: Tracing the Dollars Behind the Terror Network," estimates terrorist organizations control.

But that tally may be overblown, other experts say. The United Nations estimates some $200 billion flows through informal banking systems each year. But only a minor part of that is terrorist-related. The World Bank and International Monetary Fund (IMF) pegs the total at tens of billions of dollars. In any case, a crackdown on funding can squeeze terrorists' ability to operate.

In rare instances, it can foil or limit actual plots. In the first attack on the World Trade Center in 1993, terrorists lacked the money to build as big a bomb as they hoped, according to Louis Freeh, former FBI director. They were so short of cash that they tried to recover the deposit fee on the rental truck used to transport the bomb - a move that later helped investigators track them down.

More often, financing attacks is so cheap that they're less likely to be affected by a money squeeze. By one estimate, a suicide attack in Israel costs some $150 in materials. Even a big and well-planned strike, such as the Sept. 11 attack, probably only cost between $300,000 and $500,000, a General Accounting Office report notes. The real expense comes in the personnel and infrastructure needed to support such attacks - and it's here that the international crackdown on funding could have a big impact.

Behind such attacks is an infrastructure "critical for indoctrination, recruitment, training, logistical support, the dissemination of propaganda, and other material support," according to the Treasury's Office of Foreign Assets Control. The sums involved could be millions or tens of millions of dollars, says Mr. Wolosky.

Since a few individuals can provide terrorist groups with big revenues, authorities around the world have teamed up to track them down. For example, Mohammed Ali Hasan al-Moayad, a Yemeni cleric who claimed to have provided $20 million to Al Qaeda, was charged a year ago in Brooklyn, N.Y., arrested in Germany, extradited to the US in November, and is now awaiting trial on charges of material support to terrorist groups.

Donors don't always know that their money is going to terrorist groups. The Bush administration has closed down several charities operating in the US that it claims were front organizations that provided some legitimate support in troubled areas but also funneled money to terrorists. Authorities here and abroad have also shut down businesses that diverted profits to militant groups.

But these charitable and business activities represent only about a third of the money for terror, author Napoleoni argues. The rest comes from criminal activities, mostly drug trading and smuggling.

Last month, an Indian-born US citizen and a Pakistani pleaded guilty in San Diego to federal charges that they sold hashish and heroin in a plot to buy Stinger missiles for Al Qaeda.

Another example: Over a period of four years, US residents linked to Hizbullah, a Lebanese group that fights Israeli occupation of Palestinian land with terrorist actions, netted some $1.5 million by buying cigarettes in low-tax North Carolina and reselling them in high-tax Michigan.

On the international front, terrorism financing is on the top of the agenda at meetings of both the G-7 and the G-20, says the Treasury's Mr. Zarate. The G-7 comprises the seven largest industrial nations, and the G-20 includes these as well as major developing countries. The IMF and World Bank have just expanded their programs on terror financing.

The United Nations Security Council has approved two resolutions, 1372 and 1390, that call for action by member states to combat financing terrorism. Last month, the Security Council's counter- terrorism committee agreed to "revitalize" its work to "fight the worldwide scourge." Some 100 countries have passed new laws to strengthen safeguards against terrorist funding.

But few, if any, governments have taken the steps that Saudi Arabia has after two Al Qaeda-directed attacks in Riyadh and the uncovering of local Al Qaeda cells last year. Prohibiting donations of cash in churches, for instance, would be impossible in democracies. Saudi charities have been reined in too. They can only open bank accounts in Riyadh, cannot use ATM or credit cards against such accounts, and cannot transfer money from these accounts outside Saudi Arabia.

"We are pushing them [the Saudis] both publicly and privately," says Zarate. "We demand real action of our friends."

In testimony to Congress last month, Zarate's text listed page after page of Saudi efforts to stem financial help for extremist groups. In an effort to assure that militant religious extremists cannot provide a justification for terrorism, some 1,200 clerics have been given, as Zarate puts it, a "gentle reeducation."

Seeing the increasing ability of governments to detect their money in the formal banking and mainstream financial system, terrorists have been forced to use various alternative financing mechanisms for earning, moving, and storing their assets, the GAO report notes. These include the use of charities, such as those now restricted by the Saudis, and use of informal banking systems, bulk cash, and commodities, including precious stones and metals that can serve as forms of currency.

Al Qaeda, for example, first set up diamond mining and trading companies during the 1990s in Kenya and Tanzania.

The US, hoping to deal with that problem, offers financial rewards for tips. So far, it has provided "a number of good leads," says Zarate. But the investigations have not proceeded far enough to result in any money actually being handed over to an informant.

Just as the Bush administration was slow to push harder against terrorism before Sept. 11, critics charge, it also didn't step up efforts against terror money.

"I wanted to raise the profile of our efforts to combat terrorist financing, but found little interest," writes Richard Clarke, the former counterterrorism czar for both former President Clinton and Bush, in his controversial new book, "Against All Enemies."

In his book, Clarke writes that the president's economic adviser, Lawrence Lindsay, "had long argued for weakening US anti-money laundering laws in a way that would undercut international standards." And former Treasury Secretary Paul O'Neill "was lukewarm at best toward the multilateral efforts to 'name and shame' foreign money laundering havens."

Wolosky, who worked under Clarke in the National Security Council, confirms the Clarke charges that initially the Bush administration was not alert enough to the terrorist threat. But since Sept. 11, he and some other antiterrorism experts give the administration good marks in fighting terrorist financing.

Others are not so sure. "It's not a high enough priority," says Rep. Jim Davis (D) of Florida. He's calling for the establishment of a director in the White House's National Security Council to coordinate finance-fighting activities of the departments of Treasury, Homeland Security, State, and Defense, as well as the FBI, CIA, and more than a dozen other agencies.

Last July, Davis rounded up 110 other members of the House, including some prominent Republicans, to sign a letter to President Bush calling for the appointment of such a coordinator. The letter got no response, Davis says.

Zarate says there already is coordination in the White House through the president's National Security Adviser, Condoleezza Rice, and an aide, Frances Townsend. Last month, the administration created the Office of Terrorism and Financial Intelligence in the Treasury, directed by Zarate. It has a budget of $54.3 million for fiscal 2005, up 16 percent from 2004.

"It will enhance the precision of our relentless fight to dismantle the terrorists' network of financial and logistical support and disrupt their plans to harm America," Treasury Secretary John Snow said in a prepared statement.