Suppression Of Terrorist Financing. Hamed Tofangsaz
Like nonprofit organizations, such businesses and front companies can provide other facilities such as access to bank accounts and postal addresses. Furthermore, the right sort of business can provide cover for the purchase and acquisition of explosives and chemicals needed for terrorist attacks.39
Terrorism, in some cases, can also be financed by small amounts of funds, involving family or other noncriminal sources.40 The amount of money to launch small attacks can be acquired by individual terrorists or their supporters “using savings, access to credit or the proceeds of businesses under their control.”41 An example of such financing is the July 7, 2005 attacks on the London transport system. The official report in this regard stated that “there is no evidence of external sources of income. Our best estimates are that the overall cost is less than GBP 8000. The bombs were homemade, that the ingredients used were all readily commercially available and not particularly expensive.”42
To sum up, it should be noted that there is no accurate data or evidence as to whether terrorists rely more on one of these sources than another.43 Resort to any of these sources depends on the type, size, and purposes of groups; the opportunities at hand; and the types of resources needed. For example, Al-Qaeda has at least five financial resources: investments and inheritances of Osama Bin Laden, funding from wealthy Arab supporters, contribution through charities, and income from investments in legal businesses and criminal activities.44
Methods and Means of Moving and Storing Terrorist Funds
The literature on terrorist financing highlights the great “adaptability and opportunism” that terrorists or their supporters exploit to move and store their funds.45 In general, there are three main known methods by which terrorist funds are moved: formal and informal financial systems, physical movement of funds and value, and the international trade system.46
Financial System
The formal financial system is an attractive channel for the financing of terrorism because of the provision of services and products by which terrorists can move their funds, and the “speed and ease” with which funds can be transferred “efficiently and effectively between and within jurisdictions.”47 Money and value operations through formal financial systems enable terrorist financers or terrorists to make an amount of money available to terrorists at another financial institution. The 9/11 Commission Report made clear that “wire or bank to bank transfers” were one of the main tools that Al-Qaeda used to fund the hijackers in the United States.48
Formal financial institutions can also provide cover for terrorists to conduct transactions or conceal the origin of their funds. In the case of Al-Qaeda, it was discovered that Osama Bin Laden, while he lived in Sudan, opened different accounts under fake names in different countries, which guaranteed his privacy.49
In addition to formal financial systems, informal value transfer systems (IVTS) are deployed for financing terrorism. An informal method of money and value transfers refers to a trust-based mechanism through which money is ensured to be transferred to another geographic location by “using a series of informal, and often unlicensed, money exchanges.”50 In this mechanism, there may be no actual movement of cash; instead, value is transferred between two locations. Such financial arrangements, which are very well known in South Asia, the Middle East, and parts of Africa, are known by different names: for example hundi in India, fei chi’ien in China, phoe kuah in Thailand, and hawala in Muslim countries.51 Hawala, for example, operates as follows:
1. [The] Originator gives currency to the Hawaladar [the agent] in Country A.
2. The Hawaladar in Country A provides the Originator with a payment code.
3. The Hawaladar in Country A notifies his counterpart in Country B by phone, fax, or email of the transaction amount to pay the beneficiary, as well as the payment code.
4. The Originator contacts the beneficiary (in Country B) and provides the payment code to him/her.
5. The beneficiary goes to the Hawaladar in Country B, gives [them] the payment code, and picks up the specified [amount] sent.52
Informal methods are attractive to criminals, including terrorists, for their convenience, level of anonymity and rapidity.53 Also, it is a reliable means to transfer money especially in countries with poor, corrupt, or nonexistent banking systems.54 Furthermore, such systems are subject to generally less strict regulatory control. It is reported that Hamas, the Jemaah Islamiya organization, and the Liberation Tigers of Tamil Eelam, as designated terrorist groups, either received or continue to receive funds through hawala.55
Physical Movement of Funds
Terrorists may also use the traditional money laundering method of smuggling cash. Cash smuggling is attractive because smuggled money is completely fungible, anonymous, and more importantly, easy to convert into any other resources needed. Cases highlight that smuggled money can be transported either to where terrorist operations are to take place or to where the cash can be deposited into financial systems with less risk.56
Due to some of the disadvantages of cash smuggling such as difficulties in concealing large quantities of cash or the danger of being detected or having the cash stolen, terrorists and their supporters may use precious metals and stones such as gold and diamonds, antiques or any other expensive items to move and store terrorist funds. While maintaining their value and liquidity, they are easy to conceal and untraceable.57 These items can be converted into cash whenever needed. Al-Qaeda and Hezbollah are believed to have been active in this field.58 Also, it has been reported that donations to the Taliban and Al-Qaeda from Saudi wealthy donors were made in gold.59
Trade System
The international trade system provides an opportunity for perpetrators to transfer value and goods through legitimate trade flows. This is the area in which enormous wealth can cross borders without raising suspicion “as the paperwork and shipments may look completely legitimate to outside inspection.”60 Over- and under-invoicing practices61 are commonly used by launderers to transfer value across borders. It is possible, although it has not been confirmed,62 that terrorists or their supporters also use such methods to finance terrorism. For example, by selling and shipping a commodity at a lower rate than the actual value, a seller, as a terrorist financer, can provide funds for the buyer who sells the products at a higher price and keeps the difference for terrorist purposes.63
Financing of Terrorism and Terrorism Typologies
There are many different categories of terrorism. These categories help to differentiate terrorist groups according to specific criteria related to a specific field.64 On the basis of the strategies that terrorists use to finance their activities, terrorism can be divided into seven groups: state-sponsored, state-sponsoring, shell state, franchise, bundled support, transnational corporation, and lone wolf.65
A state-sponsored group receives substantial supports from a state which seeks particular political or ideological objectives. The state may find numerous ways to support terrorists such as supplying them with false documentation and passports, allowing them to travel safely within the nation or to other countries, and providing them with sanctuary and weapons.66 The autonomy of groups in this category depends on how integrated they are into a particular state’s command and control structures.67 Terrorists may usefully receive support from states as long as that aid does not disturb their independence to pursue their own agendas. However, state sponsors may place requirements on groups for receipt of support in order to guide them in a specific direction. In such a case, in what are called “state-directed groups,”68 the groups exist as long as they are worthwhile for the sponsor states.
A state-sponsoring terrorist group is one that is capable of providing facilities for a state sponsor in return for receiving support from that state.69 For example, the government of Sudan let Al-Qaeda have training camps in Sudan in exchange for money and building infrastructure.70