CIAO DATE: 02/02

The Financial War Against Terrorism

Reyko Huang

Center for Defense Information

Updated Jan. 10, 2002

The U.S.-led war on terrorism began, in part, with a concerted financial strike on Osama bin Laden and al Qaeda. As Bush moved to freeze terrorist assets within the United States, he also urged nations around the world to follow suit. Below are details of the war in the realm of terrorist assets and finances.

How assets are "frozen"

On Sept. 24, Bush issued Executive Order 13224 freezing the U.S. assets and blocking the U.S. transactions of terrorists and those that support them.  ₁   The order prohibits financial transactions with 27 organizations and individuals the administration has identified as committing or supporting acts of terrorism. On Oct. 12, the administration designated an additional 39 entities to the list, including those on the FBI's most-wanted terrorists list. Following the order on Sept. 24, the Treasury Department's Office of Foreign Assets Control (OFAC) issued a statement asking some 5,000 U.S. banks to immediately halt transactions of all entities on Bush's list and provide federal investigators with any information they had on those entities, thereby ensuring that all of terrorists' assets in the United States are "frozen."

The executive order:

• Allows the Treasury to freeze U.S. assets and block U.S. transactions of any person or institution associated with terrorists;
• Identifies and outlaws charitable organizations that funnel money to terrorists;
• Expands the coverage of existing executive orders (see "Precedents of Bush's Executive Order, below) from terrorism in the Middle East or terrorist acts by the Taliban to global terrorism;
• Broadens the targeted groups to include all those "associated with" designated terrorist groups; and
• Expands the Treasury's power to suspend a foreign bank's business in the United States if that bank fails to cooperate with Washington. The Department can block U.S. assets of, and deny access to U.S. markets to, those noncompliant foreign banks.

How the OFAC creates its list of financial supporters of terrorism

The CIA, FBI and DIA (Defense Intelligence Agency) send names of suspect individuals and groups to the Treasury Department, which then submits the names to an extensive database of dubious financial transactions. The database compares the incoming names to existing files and identifies any matches.

The Department's database contains some 14 million entries yearly. Of those, 12 million are Cash Transaction Reports, a notification the Department receives from banks every time a $10,000 cash transaction occurs. The other 2 million are Suspicious Activity Reports, which cover large non-cash money movements via money orders or wire transfers.

The CIA, FBI and DIA deliberately leave many accounts off the freeze list so that further leads on terrorists' funds may be found by monitoring their movements.

Effects of Bush's executive order

As of Dec. 4, more than $27.7 million in Taliban and al Qaeda assets have been frozen in the United States, and other countries have blocked over $33 million.

Currently, 1,111 accounts are under review in the United States.

Precedents of Bush's executive order

The Clinton administration enacted three executive orders similar to Bush's Sept. 24 order freezing terrorists' assets. Executive Order 12947, signed in January 1995, seized assets from those deemed detrimental to the Middle East peace process. ₂   Executive Order 13099, signed in August 1998, prohibited any transaction in the United States carried out by any group on the Treasury's "Specifically Designated Terrorists" list. ₃   This order did not have any clear effects, as bin Laden evidently did not have assets in the United States at the time. The most recent order came in July 1999 in response to attacks on American embassies in Kenya and Tanzania. EO 13129 prohibited financial transactions involving the Taliban, ₄   and led to the freezing of $254 million in Taliban assets in the United States.

For security reasons, the OAFC does not disclose details on the sources of the $254 million seized, except to say that it was under Taliban control. It is also known that $1.7 million was seized offshore and, according to the National Security Council, it included $500,000 from an Afghan airline. With trade between the United States and the Taliban-controlled parts of Afghanistan totaling merely $24 million prior to the 1998 sanctions on the country, questions about the source of the frozen assets remain largely unanswered.

Operation Green Quest

Launched on Oct. 25, 2001 by the Treasury Department, Operation Green Quest serves the Treasury's broader mission to "deny terrorist groups access to the international financial system, to impair the ability of terrorists to fundraise, and to expose, isolate and incapacitate the financial networks of terrorists."

Specifically, the goal of the multi-agency financial enforcement operation is "to augment existing counter-terrorist efforts by bringing the full scope of the government's financial expertise to bear against systems, individuals, and organizations that serve as sources of terrorist funding" (U.S. Department of the Treasury). The initiative mobilizes five government organizations into action: U.S. Customs, Internal Revenue Service (IRS), Financial Crimes Enforcement Network, Office of Foreign Assets and Control (an inter-agency group recently created by the Treasury), and the Secret Service.

Operation Green Quest's parallelism with Operation Enduring Freedom reflects the importance of the financial front in the war against terrorism and the Bush administration's recognition that blocking terrorists' funding will be a protracted mission.

In a major move since the launching of the operation, on Nov. 7 Bush moved to block the assets of an additional 62 organizations and individuals associated Al Barakaat and Al Taqwa. These two financial networks are accused of having links to al Qaeda and Osama bin Laden (see hawalas, below).

In response to the suicide bombings in Israel over the weekend of Dec. 1, 2001, Bush ordered the freezing of assets of three financial groups suspected of supporting the Palestinian organization Hamas. The Holy Land Foundation for Relief and Development, based in Richardson, Texas, is the largest Muslim charity in the United States. The other two groups are al Aqsa International Bank and Beit El-Mal Holdings Company, both based in Gaza and the West Bank. Hamas itself was placed on the list of terrorist organizations subject to EO 13224 on Nov. 2, 2001.

On Dec. 26, 2001, U.S. Secretary of State Colin Powell effectively "banned" Pakistan-based Lashkar e-Tayiba and Jaish e-Mohammed by designating them as "foreign terrorist organizations." These organizations had already been placed by Bush on the list of entities whose assets have been frozen due to their association with bin Laden and al Qaeda.

Coinciding with the marking of the 100th day of the war on terrorism, Bush on Dec. 20, 2001, announced the blocking of assets of Umma Tameer-e-Nau (UTN), an organization founded by Pakistani nuclear scientists and accused of supplying information to bin Laden and the Taliban; three key leaders of UTN; and Lashkar-e-Tayyiba (LET, aka Army of the Righteous), an anti-India insurgent group in Kashmir. Neither the UTN nor the LET has assets in the United States, however, making the enforcement of this order dependent on cooperation from Pakistan and other countries.

On Jan. 9, the Treasury Department again added two organizations and two individuals to the asset freeze list, bringing the total number of entities on the list to 168. The Afghan Support Committee is located in Peshawar, Pakistan, and Jalalabad, Afghanistan. The Revival of Islamic Heritage Society's offices in Pakistan and Afghanistan were designated on the list. The two individuals are Abu Bakr al Jaziri of Peshawar, and Abd al Mushin al Libi.

A note on lists of "terrorist organizations"

The U.S. government maintains several lists of terrorists, each of which are under different orders and restrictions.

The newest list, released by the State Department on Dec. 6, is a"terrorist exclusion list," the entities under which are subject todeportation or denial of visas by authorities: http://www.state.gov/r/pa/prs/ps/2001/index.cfm?docid=6695

The State Department also maintains a list of "foreign terroristorganizations" (FTOs) that come under annual review: http://www.state.gov/s/ct/rls/rpt/fto/2001/index.cfm?docid=5258  ₅   

The Treasury Department keeps an ever-expanding list of Specially DesignatedGlobal Terrorists (SDGTs), which is incorporated in the list of SpeciallyDesignated Nationals and Blocked Persons (SDN list). SDGTs are subject to rigidfinancial controls in the United States and by UN member countries. The"other named terrorist entities" are not subject to legal measures.For a complete and updated list, see: http://www.ustreas.gov/terrorism.html.

The FBI maintains a list of Most Wanted Terrorists: http://www.fbi.gov/mostwant/terrorists/fugitives.htm.In addition, the FBI has produced a list of 19 individuals identified ashijackers aboard the planes that crashed on Sept. 11: http://www.fbi.gov/pressrel/pressrel01/091401hj.htm.

Sources of bin Laden's funding

Osama bin Laden is believed to rely on three principal sources to finance his terrorist network and its activities: personal inheritances and investments; funding from Arab supporters of al Qaeda; and charitable contributions from Islamic organizations. Bin Laden is believed to have exhausted most of his own money, however, and is thus likely depending on the latter two sources.

1) Personal investments.Osama bin Laden is the son of a billionaire Saudi construction magnate with close ties to the country's royalty. Bin Laden inherited an estimated $250-300 million from his family in the early 1990s, which he has invested in a range of businesses or placed in bank accounts around the world.

According to the FBI, bin Laden manages a portfolio of legitimate businesses across North Africa, Middle East, Europe and Asia. While in Sudan between 1991 and 1996, he reaped profits from a holding company called Wadi al Aqiq, which acted as an umbrella for a number of businesses. He is linked to agriculture, construction, transportation and investment firms in Sudan, and is also known to have contributed directly to the government in Khartoum. According to the State Department, he aided the Sudanese government by undertaking civil infrastructure development projects, such as the building of a major highway from Khartoum to Port Sudan, and generated income and support from these projects and from wealthy politicians involved.

The Islamic Cultural Institute in Milan is considered the nucleus of the al Qaeda network in Europe. The institute is believed to have had direct involvement in the bombing of U.S. embassies in 1998. Sources say a company named Arketa in Cyprus also helped launder money for bin Laden by moving funds between its subsidiaries and foreign banks it used. In addition to bolstering bin Laden's funds, these businesses provided cover for movements of soldiers and funds, and procurement of weapons and chemicals within the al Qaeda network.

Furthermore, bin Laden is believed to own investments in Mauritius, Singapore, Malaysia, the Philippines, and possibly Panama. He holds bank accounts in Hong Kong, Malaysia, Vienna, Dubai and London. Hundreds of millions of dollars are secured in real estate in Paris, London and the CÙte d'Azur.

2) Arab supporters.According to reliable sources, about $16 million is funneled every year from the Arab world to bin Laden's terrorist network. Some of this money is in mainstream institutions in the Gulf, and Saudi Arabia froze bin Laden's assets after the 1998 embassy bombings in Africa. Most of the amount, however, is believed to be unofficial support from wealthy Arabs in Saudi Arabia — some of whom were probably blackmailed — who either sympathize with bin Laden's cause or seek protection from terrorist activities in their countries.

3) Charity organizations.Islamic charities collect billions of dollars a year, and much of it is used for the benevolent causes the charities openly support. Some of the donations, however, are covertly handed over to Islamic terrorists and fighters by sympathizers with control of the charities' funds. Gulf Arab governments' abilities to review the activities of charity organizations are often hampered not only because they must respect members' religious sensibilities, but also because most of these charities are legitimate and often well respected. In Indonesia and Malaysia, the thousands of Islamic charities in operation are believed to have played a vital role in stabilizing citizens' economic situations amidst the Asian economic crisis. American backlash is another hurdle in the crackdown on charities. U.S. authorities have maintained a secret list of suspect charity organizations around the world, but have been reluctant to make it public due to the sensitivities involved.

Money movements through hawalas

In addition to the complex amalgam of individuals, companies, bureaucrats and governments that contribute funds to bin Laden, U.S. efforts to trace terrorists' money is further confounded by the fact that many of the financial transactions are done in such a way that they leave nothing to be traced. Al Qaeda relies heavily on hawala (meaning "in trust" in Hindi), a paperless financial dealing system operated on the basis of trust among money brokers. In hawala activities, brokers advance funds to depositors on a nod or a handshake, leaving no paper or electronic trails. Those involved often operate from a back of a store or, in remote areas, may not even have an "office" from which to conduct transactions. Brokers are known to use telephones to communicate, but the scarcity of other evidences make the usefulness of tracking phone calls virtually nil. Furthermore, hawala's generations of existence throughout South Asia and the Middle East make it difficult for foreign authorities to eradicate the arcane system.

According to experts, hawalas have existed in the United States since the 1980s. The number of outlets in the country is unknown, but six or seven hawalas are operating in the Washington-Baltimore area alone. Most clients are immigrants who use the system — which often transfers money faster than regular banks — for the legitimate purpose of sending money to relatives and friends abroad. Some users, however, exploit the system to launder money obtained or intended for illegal activity. Drug dealers have relied on hawala to send profits of drug sales from the United States, often to arms dealers abroad.

In a major step in the administration's attempts to uproot suspicious hawala networks, the Treasury Department on Nov. 7, 2001, launched a round of domestic raids to shut down two hawalas, Al Barakaat and Al Taqwa, both believed to be funneling millions of dollars from the United States to abroad to support terrorist activities. In addition to the placement of 62 people and groups associated with the two organizations on the asset freeze list, FBI and U.S. Customs agents raided the two networks' offices in Alexandria and Falls Church, Virginia; Minneapolis, Minnesota; Boston, Massachusetts; Seattle, Washington; and Columbus, Ohio.

The founder of Al Barakaat, Shaykh Ahmed Nur Jimale, is believed to be an associate of bin Laden who invested in and is still an owner of the organization. Al Barakaat is a financial, telecommunications and construction group headquartered in Dubai and operating largely out of Somalia. It was founded in 1989 and operates in 40 countries around the world. It transfers about $140 million a year in remittances, 80 percent of which goes to Somalia, while the rest goes to Somali refugees living in other African countries, according to the organization. The Treasury Department said the raids on Nov. 7 resulted in the blocking of approximately $971,000 in Al Barakaat assets.

Al Taqwa, an association of offshore banks and money management firms with offices in Switzerland, Italy, Liechtenstein and the Bahamas, is believed to provide investment advice and cash transfer mechanisms to al Qaeda and other radical Islamic organizations. It is owned by Youssef Nada, a naturalized Italian citizen.

As it ordered the raiding of U.S. domestic offices, the Bush administration asked nine countries — Switzerland, Somalia, the Bahamas, Liechtenstein, Sweden, Canada, Austria, Italy and the United Arab Emirates — to crack down and freeze Al Barakaat and Al Taqwa assets.

The new anti-terrorism legislation passed in October requires hawalas to register with the Treasury Department by the end of the year and, like banks, report suspicious activities such as unusually large cash transfer to authorities.

International cooperation in freezing terrorists' assets

With al Qaeda funds believed to be dispersed mainly outside the United States, international participation is indispensable in choking off bin Laden's money supply. Nearly three months the Sept. 11 attacks, 196 countries have expressed support for U.S. efforts to block terrorist assets, and 142 countries have put blocking orders in force. Others have requested U.S. assistance in enforcing legal or regulatory measures to choke of terrorist funds.

The UN Security Council passed a resolution on Sept. 28, 2001 (UNSCR 1373) that requires all member nations to deny safe haven to terrorists and freeze assets and economic resources of those involved in terrorism. As of early January 2002, the UN Counter-Terrorism Committee has received reports from 117 countries regarding their response to the resolution.

The 29-member Financial Action Task Force, an international anti-money laundering group, expanded its mission to include measures to combat terrorist financing. At its meeting in late October 2001, it outlined eight new standards aimed at crippling terrorist groups.

The G-8 nations developed an action plan to combat the financing of terrorism at their meeting on Oct. 6. The plan calls on all countries to freeze terrorist assets and establish information-sharing financial intelligence units and mechanisms to track the assets. They have also agreed to provide technical assistance to countries seeking to implement UNSCR 1373.

The G-20 nations adopted an "action plan on terrorist financing" on Nov. 17, and agreed to freeze terrorist assets. The plan calls for public postings of lists of terrorist with frozen assets, and for the maintaining of financial intelligence units in each country.

The European Union has also urged all 15 member states to freeze assets of those on the list. Britain announced on Nov. 8 that it had frozen $102.5 million of suspected terrorists' assets in 38 accounts. In Germany, 214 banks accounts containing more than $3.8 million have been frozen. The Turkish government on Nov. 24 froze company shares belonging to Yasin al-Qadi, a Saudi businessman suspected of helping fund al Qaeda. Italy's Economy Ministry said on Nov. 9 that it has frozen a total of 20 bank accounts, and is scrutinizing movements in an additional 94 accounts. Liechtenstein announced the same day that it had frozen five accounts linked to the Al Taqua network.

Even in the Gulf, the region from which bin Laden and other terrorists secured much of their funding, countries have expressed a willingness to participate in efforts to control terrorist finances. Saudi Arabia and its partners in the Gulf Cooperation Council agreed to freeze the assets of organizations on Bush's expanded freeze list, and procedures are underway. The United Arab Emirates claims to have seized assets and records of Al Barakaat.

Egypt, however, declared it is not obliged to follow U.S. orders regarding terrorist assets. It reiterated commitment to UN Security Council resolutions, but has yet to take action on UN resolutions regarding terrorist funds. Lebanon, Iran and Syria have refused to label the Palestinian group Hezbollah (Party of God), one of the organizations on the U.S. and UN freeze list, as a terrorist group, thus rejecting the international freeze order on the organization.

Footnotes:

Note 1:   Executive Order 13224: Blocking Property and Prohibiting Transactions with Persons who Commit, Threaten to Commit, or Support Terrorism. Issued Sept. 24, 2001. http://www.nara.gov/fedreg/eo2001b.html. Back.

Note 2:   Executive Order 12947: Prohibiting Transactions with Terrorists Who Threaten to Disrupt the Middle East Peace Process. Issued Jan. 23, 1995. http://www.nara.gov/fedreg/eo1995.html. Back.

Note 3:   Executive Order 13099 is an amendment to EO 12947. Issued Aug. 20, 1998. http://www.nara.gov/fedreg/eo1998.html. Back.

Note 4:   Executive Order 13129: "Blocking Property and Prohibiting Transactions With the Taliban." Issued July 4, 1999. http://www.nara.gov/fedreg/eo1999.html. Back.

Note 5:   This list does not include Lashkar e-Tayyiba and Jaish e-Mohammed, which were added to the list on Dec. 26, 2001. Back.

 

By Reyko Huang
CDI Research Analyst
rhuang@cdi.org