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Terrorist Funding: The Cost of Evil
State Sponsorship, Narcotics, Money Laudering and Charitable Donations
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July 15, 2010
"Money is the lifeline of terrorists' organizations. Today we are asking the world to stop payment," commented President George W. Bush as he publicly declared following September 11, 2001, that the war against al Qaeda financing was as critical as the one against al Qaeda itself. The battle to stop terrorist funding is clearly one of the keys to success in the fight against terrorism: It naturally follows that if we cut off the terrorists' money, their ability to conduct mass casualty attacks would be severely limited, if not halted altogether.
Unfortunately, choking off the flow of money to al Qaeda and affiliated terrorist groups has been challenging, though measurable progress has been made. However, tracking al Qaeda financing has proven a very effective way to locate terrorist operatives and supporters and disrupt terrorist plots. In the wake of 9/11, much has been revealed about the financial support structure of terrorist cells. The 9/11 Commission identified a vast array of methods used by international terrorists to fund their deadly activities. Among these are conventional money laundering, acquisition through drug trafficking, smuggling of bulk cash, trade-based money laundering, use of charities for fundraising, informal money remittance systems such as hawala - the underground funding system used by Islamic terrorist organizations - and state sponsorship, along with many novel forms of criminality. This issue of The Lipman Report® will examine the costs typically incurred by clandestine terrorist groups and examine the wide range of methods that are employed by these entities to pay these costs and to support their organizations and activities.
Terrorist organizations today range from large, state-like organizations such as Hamas and Hezbollah to small decentralized and self-directed networks, such as the al Qaeda-affiliated cells springing up all over the world from Yemen to the United Kingdom. Terrorist financing requirements reflect this diversity, varying greatly between organizations. As in the case of many corporations, terrorist financing is required not just to fund specific operations and attacks, but to meet the broader operational costs of developing and maintaining an organization, while creating an enabling environment to sustain their activities - as al Qaeda successfully accomplished in Afghanistan and Sudan.
Recent investigations and resulting analysis suggest some common themes on how terrorists actually raise and use funds. Not surprisingly, costs of mounting terrorist attacks are often low compared to the damage they yield. Specific attacks involving one or a few people - such as the May 2010 attempted bombing of Times Square by Faisal Shahzad, an American citizen of Pakistani ethnicity who was funded by a Pakistani affiliate of al Qaeda, Tehrik-I-Taliban Pakistan - often require such items as vehicles, improvised bomb making components, maps and surveillance materials.
The relatively low costs of recent terrorist attacks -tactical costs of single operations, not including operational overhead - are illustrated by the following estimates:
| Attack |
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Date |
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Cost |
| London transport system |
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July 7, 2005 |
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$12,000 |
| Madrid train bombings |
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Mar. 11, 2004 |
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$10,000 |
| Istanbul truck bombings |
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Nov. 20, 2003 |
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$40,000 |
| Jakarta hotel bombing |
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Aug. 5, 2003 |
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$30,000 |
| Bali bombings |
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Oct. 12, 2002 |
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$50,000 |
| USS Cole attack |
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Oct. 12, 2000 |
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$10,000 |
| East Africa embassy bombings |
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Aug. 7, 1998 |
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$50,000 |
However, even the smallest operations still cost money - particularly in the poorer areas of Iraq, Pakistan and Somalia where militant groups thrive. The most basic type of attack - a rudimentary attack in Iraq involving a single operative detonating an improvised device or using a firearm - may cost as little as $100. However, although $100 may appear to be a very modest number to us in the West, we need to remember that the typical Pakistani in the Federally Administered Tribal Areas or Somalia earns roughly $650 a year. When one thinks in those terms, the local cost of an individual attack seems infinitely greater. A vehicle used in an attack deploying a vehicle-borne improvised explosive device (VBIED), for example, is a luxury that insurgents in these impoverished areas can never aspire to own for personal use, much less afford to destroy in an attack.
On a larger scale, the cost of the 9/11 attacks has often been estimated at a mere $250,000 to $500,000. The hijackers received funds from facilitators in Germany and the United Arab Emirates, or perhaps directly from Khalid Sheikh Mohamed as they traveled through Pakistan before arriving in the United States. Approximately $300,000 passed through the hijackers' bank accounts in the Americas, $26,000 of which was inexplicably returned to a facilitator in the United Arab Emirates in the days prior to the attack.
In reality, however, the actual cost for the 9/11 operation was considerably higher - a few hundred thousand dollars used for flight training, reconnaissance, transportation and box cutters represent only a small portion of the funds spent by al Qaeda in the planning and execution of the largest terrorist attack on American soil to date. The attacks would not have been possible without the prior development of the group's global infrastructure, which experts estimate costs billions of dollars to grow and maintain. A staggering amount of money was spent on recruitment, training camps, conventional and unconventional weapons, intelligence gathering, various forms of radical Islamist propaganda and other activities.
Whether the cost in question is for a small urban cell, such as Faisal Shahzad, or a large-scale rural insurgency, such as the Taliban in Pakistan, it takes enormous sums of money to maintain the militant organization that engineers and supports attacks. The expense of an individual attack is likely marginal for established groups such as al Qaeda or Tehrik-I-Taliban Pakistan (TTP) in comparison to the enormous operational expenses these mammoth terrorist organizations face. These groups need to establish and maintain the infrastructure required to operate a clandestine militant organization over long periods of time, not just during attacks, but in between attacks as well.
In addition to purchasing materials for a terrorist attack, an organization such as al Qaeda also needs to pay wages to its fighters and provide food and lodging. They need to purchase safe houses, modes of transportation, communications equipment, weapons, munitions, facilities and equipment for training. Stipends are disbursed to the widows and orphans their fighters leave behind. There are additional costs involved in maintaining a professional terrorist group: fraudulent or legitimate identification documents, payment for intelligence assets and pricey technical experts, and bribery of officials. In some places, militant groups such as Hezbollah also pay for social services such as health care and education for the local population as a means of establishing and maintaining local support for the cause. And it is even more costly to operate in an environment where the government is hostile to the organization's cause - additional expenses are incurred to navigate the system, operate in stealth and overcome obstacles and opposition. When added together, the expenses are astronomical.
During the 1970s and 1980s, the primary mode of funding for terrorist organizations was state sponsorship. Funding rebel or insurgent groups to cause problems for a rival is an age-old tool of statecraft, and one that was exercised frequently during the Cold War; as the Arabian proverb states, "The enemy of my enemy is my friend." During this period, the Soviet Union and its partners operated a broad global array of proxy militant groups. The training provided by the Soviet KGB and its allies, the Cuban DGI and the East German Stasi, revolutionized the use of improvised explosive devices in terrorist attacks. Members of the groups these intelligence services funded and trained at camps in Libya, Lebanon and Yemen - such as the German Red Brigades, the Provisional Irish Republican Army, the Japanese Red Army and various Palestinian militant groups - became quite adept at terrorist tactics and the use of explosives. The prevalence of Marxist terrorist groups during the Cold War led some observers to believe that the phenomenon of modern terrorism would die with the fall of the Soviet Union. However, this was unfortunately not the case. While many of the leftist groups supported by the Communist International - or Comintern - fell on hard times and withered away, other more resourceful groups turned to criminal activities such as robbery, extortion, kidnapping and narcotics trafficking.
The most significant force that surfaced in the world during the 1980s while the Soviet Union was devolving is militant Islamism, primarily emanating from Iran and Afghanistan. Although Hezbollah has always been funded by the governments of Iran and Syria, it has since evolved into a complex, entrepreneurial organization with a fundraising network that stretches across the globe and encompasses both legitimate businesses and criminal enterprises. Hezbollah has a well-known presence in the tri-border region of Paraguay, Argentina and Brazil, where it reportedly earns tens of millions of dollars from selling stolen electronic goods, counterfeit luxury items and pirated software, movies and music. Hezbollah also has a very profitable operation in West Africa that deals in "blood diamonds" from places like Sierra Leone and the Republic of the Congo. Cells in Asia procure and ship much of the illegitimate goods and counterfeit items. In the United States, Hezbollah has been involved in distributing counterfeit pharmaceuticals, smuggling prescription drugs, conducting welfare and medical fraud, and stealing and illegally cashing discount coupons. The business empire of this Shiite organization also extends into the narcotics trade, earning a large percentage of the $1 billion in drug money flowing out of Lebanon's Bekaa Valley each year.
Many violent political organizations, such as the Irish Republican Army (IRA), the Liberation Tigers of Tamil Ealam (LTTE), Kurdistan Worker's Party (PKK) and Hamas also have been very successful in raising money covertly. However, while all of these groups have engaged in international financial operations, they have rarely done so on the scale estimated of al Qaeda. Contrary to common belief, recent investigations indicate Osama bin Laden did not have access to any significant amounts of private wealth, particularly after his move from Sudan to Afghanistan - and did not personally fund al Qaeda. Rather, al Qaeda was funded to the tune of $30 million a year by diversions of money from Islamic charities and the use of well-placed financial facilitators who gather money from witting and unwitting donors, primarily in the Gulf region.
Many terrorist organizations - including al Qaeda - attempt to operate legitimate businesses, which generate their own profits and can also be used as a front for money laundering. Ties to terrorism have been found amidst the trade of livestock, fish and leather, and in businesses such as agriculture and construction. Osama bin Laden owned and operated a string of retail honey shops throughout the Middle East and Pakistan. In addition to generating funds, the honey was used to conceal shipments of money and weapons. Other money laundering schemes involve using tainted or ill-gotten money to purchase assets - gold, diamonds, promissory notes, stock certificates, or commercial products that are legal, transportable and transferable. These assets can then be moved legally from one place to another, transferred to a different owner and converted back to cash.
Islamist terrorist groups have access to a unique underground financial system known as hawala. Hawala is not unlike Western Union, except that it is based primarily on trust and involves very little record-keeping. An individual needing money contacts a source, who deposits funds with a broker called a hawaladar. The hawaladar phones an associate in another location, authorizing the disbursement of money to this individual. The hawaladars keep a simple ledger of transactions to settle up with their counterparts as needed.
The Muslim world also has its own banking system, which is often closely linked to the various state governments. This may be the reason why few - if any - terrorist bombings have targeted Islamic financial organizations, even though they would appear to be likely targets of disgruntled radicals. And although Islamist extremists exist in authoritarian state regimes, they rarely attack their own facilities or institutions. They are often given a kind of financial support that can be characterized as "protection money" - as long as the government or financial institutions continue to provide funds for the cause, or resist public access to privileged financial records, they are not targeted.
One of Islam's "five pillars" is the requirement of devout Muslims to donate 2.5 percent of their income to charity. This tithe, called Zakat, is of tremendous humanitarian value, but is also subject to exploitation. Terrorists have abused some legitimate charities with schemes to siphon money from humanitarian purposes and funnel it to terrorism. In a region rife with anti-American and anti-Western sentiment, any intrusive attempts to regulate or disrupt the Zakat could be counter-productive and support charges that the United States is involved in a holy war, increasing hostility in the Muslim world and within the American Muslim community.
Although Saudi Arabia is a nominal American ally in the Middle East and a primary source of Western energy needs, the organizations Saudi Arabia hosts and funds remain key promoters of terrorist ideologies around the world. Saudi donors and unregulated charities have been a major wellspring of financing to extremist and terrorist groups over the past 30 years. Many wealthy Muslims in Saudi Arabia, the Persian Gulf states and elsewhere see the jihadist groups as a way to export their conservative Wahhabi-Salafi strain of Islam, and many believe that their gifts to jihadist groups satisfy the Muslim religious obligation of charity. Additionally, the governments of Saudi Arabia, Sudan, Yemen, Syria, and Pakistan view jihadism as a foreign policy tool. Saudi Arabia, for example, lends support to Islamist religious schools known as madrasses that preach on a worldwide basis against the United States, capitalism and Western values and culture. For years, individuals and charities based in Saudi Arabia have been the most important source of funds for al Qaeda. And for years the Saudi officials have turned a blind eye to this problem.
Since the mid-1990s, al Qaeda's WMD procurement efforts have been managed at the most senior levels. Their WMD modus operandi has been top down, more similar to the structure of the 9/11 planning than to more recent bottom up efforts such as the December 25 attempted bombing of Flight 253 and the attempted Times Square bombing. Al Qaeda concentrated its efforts on nuclear devices when planning the 9/11 attacks, hoping to use such weapons in the United States during an intensified campaign following that operation. Unfortunately, there is no indication that the fundamental objectives that lie behind its WMD intent have changed over time.
Two beautiful plants - the poppy and the coca, the sources of heroin and cocaine - are more valuable than diamonds, emeralds, platinum and gold combined, and played a key role in funding 9/11. Illegal drugs are cheap to make but generate massive profits. The annual drug crop in Afghanistan alone generates $4 billion a year in narcotics trafficking; however, the farmers reportedly only receive $800 million. The remaining sum is siphoned off to corruption and to fund the Taliban and al Qaeda insurgency. Illegal drugs are marketable almost everywhere, and the illicit drug trade is the most reliable source of income in the world - with a demand that is continually on the rise. The production of one kilo of cocaine costs approximately $3,000, while the wholesale price of that same kilo is upwards of $20,000. Cocaine production takes as long as the leaves grow, and in Colombia, Peru, and especially Bolivia, those leaves grow remarkably fast. Opium can be cultivated twice a year in Asia and the Middle East, and at least three to four times a year in Mexico and Colombia because of the tropical climate.
The production of heroin is slightly more expensive than cocaine, but with significantly higher profit margins. It costs about $3,000 to $5,000 to produce a kilo of heroin that will sell for $250,000 to $300,000 wholesale. In general, the drug syndicates keep 80 percent of the revenues. During 2001, the year of the 9/11 attacks, 5,000 metric tons of cocaine sold at a street value of at least $50 billion, while 500 metric tons of heroin generated at least $30 billion during that same timeframe. Heroin production soared in Afghanistan, generating funds for the Taliban and al Qaeda. Few Americans understand the role that the poppy and the coca played in funding 9/11. There is ample evidence that "narcoterrorism" - the use of illicit drugs to advance political purposes and fund terrorism - is a worldwide problem that is not limited to the Taliban and al Qaeda. It includes organizations like Hamas, Hezbollah in Lebanon, the Irish Republican Army (IRA) and more.
The greatest weakness in the efforts to counter terrorist financing lies in the inability to develop effective tracking methods for charitable disbursements, trade-based money laundering and hawalas. Moreover, terrorists transfer money through their ordinary banking system and through shell and front companies, making tracking even more complicated. Financial crime is so widespread that as much as 10 percent of the GDP of countries around the globe is estimated to be laundered funds. Despite heightened initiatives to track terrorist financiers, the vastness and intricacy of the modern financial system means government officials often find themselves looking for the proverbial needle in the haystack.
Terrorism consists of two components: ideology and money. Just as the United States must work to combat the ideology of militant Islam, it must work no less to destroy the flow of money to terrorist organizations. If this is not accomplished, terrorists will continue to be bankrolled by foreign governments, charitable organizations, the exploitation of financial markets, criminal elements sympathetic to their goals, and a number of other sources. The consequences will be dire
The global propagation of Islamic extremism represents a growing threat to the United States. Effectively confronting this threat requires cutting them off at the source - the funding of these organizations that continue to be relentless in the pursuit of their destructive and deadly goals. Criminal organizations, money laundering and illegal drug producers and traffickers are the support systems of these terrorist organizations and must be vigorously fought. Though much has been accomplished to date, initiatives to dismantle terrorist financial networks remain an essential part of the strategy of the decade-long "War on Terror" - but these efforts need to be broadened, intensified and taken global. In the decade since 9/11, there has been an explosion of interest at many levels and from many sources following the flow of money to and from terrorist organizations; currently there are an estimated 51 federal and military organizations tracking terrorist funding, overseen by the Treasury Department. However, an international solution is necessary because terrorist networks transcend national boundaries. Improving international cooperation in battling illegal funding sources is essential, while governments and civilians alike should be more vigilant in ensuring that charitable donations and profits from legitimate businesses are not falling into the wrong hands. The time for urgency is now®.
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