This paper examines U.S. and international efforts to combat the financing of transnational terrorism in the aftermath of the September 11 attacks. It identifies two principal financing typologies — a legal income model involving a Middle Eastern relief organization and an illegal income model based on cigarette smuggling linked to Hezbollah — and analyzes the legal mechanisms available to prosecute and prevent such activity. The paper evaluates Executive Order 13224, OFAC sanctions programs, and the USA PATRIOT Act, assessing their effectiveness and limitations. It concludes with policy recommendations addressing inter-agency coordination, international cooperation through Financial Intelligence Units (FIUs), and the over-inclusive nature of current counterterrorism financial enforcement, which can inadvertently impede legitimate humanitarian aid and breed further radicalization.
In the aftermath of the September 11 terrorist attacks, the U.S. government and the international community reviewed typologies for the financing of transnational terrorism and examined ways to combat such financing. Unfortunately, evidence indicates that al Qaeda and other terrorist groups apparently affiliated with or inspired by al Qaeda have worked quite economically, using low-budget methods to operate. After reviewing two typologies, this paper discusses applicable legal mechanisms for preventing and prosecuting the financing of transnational terrorist networks and considers proposals for improving the effectiveness of efforts to combat foreign-affinity terrorist financing (Reuter & Truman, 2004; Carter, 2008).
The evolving effects of globalization and the transnational nature of terrorism have combined to create almost limitless possibilities for terrorists looking to finance operations (Sheppard, 2008). One problem with combating terrorist financing is that many forms of terrorism — such as suicide bombings (Cesari, 2009) — require minimal financial resources. Terrorists often self-finance such attacks by working and/or borrowing from their immediate families. In addition, the bulk of the money may come from legitimate or quasi-legitimate sources. Anti-money-laundering laws have a negligible chance of detecting terrorist financing activities under a regulatory framework built for different purposes (Neal, 2008).
Enforcement authorities working to deny potential terrorists access to financial resources must contend with the problem of "fresh faces," especially individuals without criminal records or with legitimate academic credentials. Intelligence agencies often have no information linking these individuals to terrorist organizations or other criminal connections. Considering the dynamic efforts surrounding terrorist groups, the number of new and unknown faces may be very large (Viles, 2011). The absence of knowledge about potential new terrorists, the extremely small amount of resources they use, and the self-generation of funds — including legitimate funds — impose severe limitations on potential legal means to deny such groups or individuals financing (Negroponte, 2010; Cesari, 2009).
According to a State Department report, the Financial Crimes Center (FinCEN) of the U.S. Department of Treasury identified 649 suspicious activity reports (SARs) that seven U.S. depository institutions filed during a three-and-a-half-year period (Sheppard, 2008). These reports involved transactions worth $9 million, including structured cash deposits and deposits of business, payroll, and Social Security benefit checks. Within one or two days of deposits, the funds were transmitted to a company in the Middle East. Thirty-seven individuals were involved in the deposit and wire transfer activity, conducting transactions through 44 accounts on behalf of four businesses (Reuter & Truman, 2004).
Two of the businesses were wire remittance companies. One was described as a relief organization located at the same address as one of the wire remittance businesses. The fourth business, located in the Middle East, was the beneficiary of the wire transfer activity. The majority of the wire transfers went to two accounts in the Middle East, while other transfers were made to accounts at three different banks in foreign locations (Andreas, 2013; Alexander & Musch, 2012). The majority of the transactions (83%) were structured — that is, arranged to fall below the $10,000 threshold that triggers reporting requirements. Deposit amounts ranged from $350 to $636,790, with most deposits falling between $2,000 and $8,000 (Viles, 2011; Cole, 2015).
Individuals or groups often engage in common criminal activities, using the proceeds to fund terrorist groups. In May 2002, two men were convicted in Charlotte, North Carolina, of providing and conspiring to provide material support to the Palestinian group Hezbollah, a designated foreign terrorist organization (Sheppard, 2008). The criminal group engineered an interstate cigarette tax evasion scheme whereby inexpensive cigarettes from North Carolina were transported to Michigan and sold there to avoid the latter state's higher taxes. Profits from the operation were sent to Hezbollah. International law enforcement authorities have discovered that cigarette smuggling networks can produce enormous profits, and cigarette trafficking is often the precursor to other types of contraband smuggling, including weapons and narcotics (Weinberg et al., 2015).
The investigation began when a deputy sheriff working part-time at a large tobacco wholesaler in North Carolina noticed the same individuals repeatedly buying large quantities of cigarettes and driving vehicles with out-of-state license plates. Federal, state, and local authorities began a joint investigation. Surveillance revealed a large-scale cigarette smuggling ring involving tobacco storefront operations in North Carolina to justify the large purchases and bulk sales. Based on the surveillance, authorities obtained search warrants for the subjects' businesses and residences (Negroponte, 2010).
Utilizing the warrants, law enforcement officials seized photos of the subjects counting large amounts of cash, a Hezbollah banner, a Hezbollah propaganda video of suicide bombers, and materials showing the involvement of some suspects with military training and operations. During the searches, law enforcement found a receipt from a Hezbollah leader for money received from the smuggling ring (Cole, 2015). The search also turned up false identification documents and additional evidence showing that the criminal group intended to buy a variety of items for Hezbollah, including night vision devices, radios and receivers, and metal detection devices (Alexander & Musch, 2012).
In the end, 25 individuals were charged with various offenses, including material support to a terrorist organization, money laundering, conspiracy, bank fraud, credit card fraud, and visa entry fraud. The Bureau of Alcohol, Tobacco, and Firearms played a large role during the initial stages of the investigation, while the FBI contributed during the later stages by helping to establish the link to a terrorist organization (Weinberg et al., 2015).
On September 23, 2001, President George W. Bush issued Executive Order 13224, immediately freezing U.S. financial assets of, and prohibiting U.S. transactions with, 27 different entities (Alexander & Musch, 2012). The entities include terrorist organizations, individual terrorist leaders, a corporation serving as a front for terrorism, and several nonprofit organizations (Weinberg et al., 2015). Bush issued Executive Order 13224 under the IEEPA, section 5 of the UN Participation Act of 1945 as amended (Federal Bureau of Investigation, 2003), and section 301 of title 3, U.S. Code. Bush also cited as legal bases UN Security Council Resolution (UNSCR) 1214 of December 8, 1998; UNSCR 1267 of October 15, 1999; UNSCR 1333 of December 19, 2000; and UNSCR 1363 of July 30, 2001, which established a mechanism to monitor the implementation of UNSCR 1333 (Zagaris, 2002; Carter, 2008).
Because many of the groups and individuals operate primarily overseas and hold little money in the United States, the United States has been notifying foreign governments that fail to freeze or block terrorists' access to funds in foreign accounts. The U.S. government has asserted the authority to freeze such a foreign bank's assets and transactions in the United States (Zagaris, 2002). Legally, the executive order authorizes this action by empowering "persons determined by the Secretary of the Treasury, in consultation with the Secretary of State and the Attorney General" to act accordingly (Reuter & Truman, 2004). The following persons are subject to the blocking order:
1. Foreign persons determined by the Secretary of State to have committed, or to pose a significant risk of committing, acts of terrorism that threaten the security of U.S. nationals or the national security, foreign policy, or economy of the United States.
2. Persons determined by the Secretary of the Treasury to be owned or controlled by, or to act for or on behalf of, any persons listed under the Order or otherwise determined to be subject to it (Andreas, 2013; Alexander & Musch, 2012).
3. Persons determined by the Secretary of the Treasury to assist in, sponsor, or provide financial, material, or technological support for, or financial or other services to or in support of, such acts of terrorism or those persons listed under the Order (Zagaris, 2002).
4. Persons determined by the Secretary of the Treasury to be otherwise associated with those persons listed under the Order or determined to be subject to it (Negroponte, 2010).
The executive order's other principal prohibitions include: (1) no transaction or dealing by U.S. persons — including their overseas branches, but not their foreign subsidiaries — or within the United States in blocked property (Federal Bureau of Investigation, 2013); (2) prohibition against U.S. persons or persons in the United States evading or attempting to evade any of the Order's prohibitions (Negroponte, 2010); (3) prohibition against any conspiracy to violate the Order's prohibitions; and (4) prohibition against donations intended to relieve human suffering to persons listed under the Order or determined to be subject to it (Viles, 2011; Cole, 2015).
Practically speaking, the new terrorist sanctions largely overlap with existing U.S. terrorist sanctions administered by OFAC — namely, the Terrorism Sanctions Regulations (31 CFR Part 595) and the Foreign Terrorist Organizations Regulations (31 CFR Part 597) (Federal Bureau of Investigation, 2003). Under the Terrorism Sanctions Regulations, OFAC has blocked the property of persons posing a significant risk of disrupting the Middle East peace process. Under the Foreign Terrorist Organizations Regulations, U.S. financial institutions must block all funds in which foreign terrorist organizations have an interest. Most of the persons listed in President Bush's September 23, 2001, executive order were already designated as specially designated terrorists under Part 595 or as Foreign Terrorist Organizations under Part 597 (Zagaris, 2002).
"OFAC sanctions, SDN lists, and FIU effectiveness assessed"
"Inter-agency coordination, FIUs, and over-inclusive enforcement reforms"
Reuter, Peter, and Edwin M. Truman. (2004). Chasing Dirty Money: The Fight against Money Laundering. Washington, DC: Institute for International Economics.
Sheppard, Ben. (2008). The Psychology of Strategic Terrorism. New York: Routledge.
Viles, Tom. (2011). "Hawala, Hysteria, and Hegemony." Journal of Money Laundering Control 11.
Weinberg, Leonard, Ami Pedahzur, and Arie Perliger, eds. (2015). Political Parties and Terrorist Groups. 2nd ed. New York: Routledge.
Weisman, Jonathan. (2015). "House Passes a Surveillance Bill Not to Bush's Liking." Washington Post, March 15.
Zagaris, Bruce. (2002). "Bush Administration Embarks on New Initiative to Combat Terrorism Financing Amid Broad Criticisms." International Enforcement Law Reporter 18: 491–92.
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