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Terrorists forced to get creative to raise financing

Al-Qaeda and its associates are increasingly turning to counterfeiting and credit card fraud for funds as the war on terrorism squeezes their traditional sources of finance, officials and experts say.

The very success of the global crackdown has made tracking extremists even more difficult, as al-Qaeda operatives shun a global-financial system more tightly regulated after the Sept. 11, 2001, attacks on US landmarks, they warn.

The US Treasury says nearly US$200 million has been frozen in the global war on terrorism, but the bilking of Islamic charities and widespread use of informal networks to transfer cash enables "al-Qaeda-lite" to pursue its lethal attacks.

"There is a criminalization, at local and regional level, of terrorism's money, with the cloning of credit cards, counterfeiting, the trafficking of precious and semi-precious stones," said Roland Jacquard, president of the Paris-based International Terrorism Observatory.

French probes have shown al-Qaeda operatives can rake in up to 15,000 euros (US$17,000) a month in credit card fraud, which is prevalent in Europe and the Gulf. Police believe the 2000 USS Cole attack, in which 17 US servicemen died, cost US$50,000.

Tracfin, the body that monitors money laundering in France, cited in its report last year the case of West African diamonds being sold by a Middle Eastern diamond merchant, the profits going to a group close to Osama bin Laden's al-Qaeda.

Charity abuse

Germany's Finance Ministry warned in a report last month that "new trends have emerged in the financing of terrorism," pointing to the use of "underground banking," non-government organizations and charities to collect funds.

"A drastic fall in the volumes of money frozen worldwide underlines this development," it said, without elaboration.

The Paris-based Financial Action Task Force (FATF), whose guidelines have set the international standard for fighting terrorist financing, says the abuse of charities is one of its most pressing concerns.

"Charitable organizations, in themselves, are not the banks of international terrorism," said Patrick Moulette, FATF executive secretary.

"But the same accounts, in the same organizations, contain money which is donated, either at the outset to finance terrorism, or which is given to an organization and then embezzled by some of its leaders."

Charitable donations in Saudi Arabia alone are estimated at 1 billion riyals (US$270 million) a year, and Arab bankers say that despite improvements, the region still lacks the regulatory means to effectively monitor capital movements.

Financial crackdown

The kingdom, under heavy US pressure to act given that 15 of the Sept. 11 hijackers were Saudi nationals, has since banned charities from sending money abroad without approval.

It has audited 245 domestic charities, frozen their external offices, shut down 12 charities and banned donation boxes at commercial stores and mosques.

"The Saudi authorities have been working hard to disrupt financing of al-Qaeda cells. But you have to realize that Saudi society is still a cash society, so whatever group of individuals go to a wealthy businessman who is a sympathizer, can still get some cash," a Western diplomat said.

In Asia, home to the Jemaah Islamiah militant group behind the Bali bombings last year that killed 202 people, authorities in the Philippines, Indonesia, Hong Kong, Singapore and Thailand have all tightened regulation of the financial sector.

But anti-terrorism experts say the hawala system, a trust-based affordable money transfer method used in Asia, means up to US$1,500 in cash can be transferred anonymously daily.

Terror trials in Indonesia, for example, have shown that most of the bombing operations left very few paper trails and funds were transferred from hand to hand using cash, not only in rupiahs but also in Malaysian and US dollars.

Long haul

Xavier Raufer, a French university professor specializing in criminology and a sharp critic of the US approach to the issue, says bankers, not police, should conduct the hunt.

"It's been a complete failure, so people are losing interest," he said. "Technically it's virtually impossible to follow the financial trail as soon as you reach a place like Bahrain, Riyadh, Jeddah or Dubai."

The absence of strict rules on name structures in the Muslim world, where most of bin Laden's funds are thought hidden, makes normal methods of tracing bank accounts futile, he said.

Nevertheless, David Aufhauser, the US Treasury's general counsel and a key figure in the US anti-terror struggle, believes progress is being made.

"If al-Qaeda's budget was once US$35 million and today it's US$5 million to US$10 million, it's intuitively correct that less mischief is afoot ... We've had a real adverse effect on al-Qaeda specifically and on other terrorist groups," he said.

Legal framework

But Claes Norgren, world head of the FATF, said that unlike the US, his native Sweden and other European countries do not yet have the legal framework to act quickly.

"They must go through the judicial process and the courts, whereas in the US there is operational use of administration sanctions which can more easily deal with the problems from an enforcement perspective."

Two years after the 9/11 attacks, most experts accept that the bulk of al-Qaeda's funds remain secure and that choking them off will take a long time.

"It'll take 20 years to put real control systems in place and change mentalities," Jacquard said. "What's been done has delayed ... the technological progress of al-Qaeda's terrorism. And that's pretty important."
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