Terrorism Funding

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					                         Terrorism Funding

                          Sources & Methods



                                            Prepared by:
                                  DCSINT - Emerging Threats Team
                                            HQ TRADOC
                                           Ft. Monroe, VA
REFERENCES IN THIS DOCUMENT TO
TP525-2-60 REFER TO THE DRAFT TRADOC
PAM ENTITLED “THE OPERATIONAL
ENVIRONMENT AND THREAT: A VIEW OF
                                          06 February 04
THE WORLD TO 2020 AND BEYOND”               Unclassified
                                 Introduction
Terrorist organizations obtain and transfer finances to operate in numerous ways.

This presentation touches on some of the more significant means that funds are
obtained and moved to support transnational terrorism in today’s Operational
Environment.
The topics presented here represent the core sources and methods for terror
funding. In the overall world of terror the well of monies is limited only by the
terrorists imagination and initiative. No one element is pre-eminent, each has its’
place in the world of terror finance.

Zakat The giving of alms for the poor and needy, as prescribed by the Quran.
Zakat is the primary means within the Muslim world for terror organizations to
“legitimately” receive money.

Islamic Banking When conducted as prescribed by the Quran, serves to
legitimately facilitate funds collection and disbursal. This is particularly true of
Zakat funds.

Hawala An informal funds transfer system, is the primary means of distributing
smaller sums of money around the world in a safe and record free manner.

Money laundering A criminal endeavor by which millions of dollars can be
transferred around the world in a single transaction or a series of transactions.
                                 Unclassified
                                         ZAKAT
                        “Take from their wealth a portion for charity,
                     in order to clean them thereby, and sanctify them.”
                                                                    Quran


                            •   Zakat is the form of alms given by Muslims for the
                                benefit of the poor or needy and the teaching of
                                Islam.


Giving Bread and Milk
                            •   The Quran requires Muslims each year to give
                                2.5% of the value of their wealth and assets above
                                what they themselves need.

                            •   Zakat is given by the beginning of the month of
                                Muharram marking the lunar new year.

                            •   Zakat is one of the Five Pillars of Islam. Zakat is
Ukrainian mosque
Built with Zakat funds          considered the primary method for creating social
                                justice and prosperity in the Muslim world.

                                          Unclassified
                   Zakat Collection and Distribution
• Saudi Arabia collects Zakat by government agency (similar to our IRS) and
distributes to recognized charities. Saudi collections are estimated to exceed $10
Billion. (Saudi Ministry of Finance and National Economy)

• Most other countries, both Muslim and non-Muslim do not collect or control where
Zakat money goes.

• Charities around the globe are rarely checked or audited by government oversight
agencies to see how the monies are spent. The US is a notable exception.

• The Internet has numerous Islamic charity sites asking believers to pay the Zakat
to them promising to apply it on their behalf.

• The giver of Zakat knows only to whom they gave their money, for what they
believe will be the building of schools, mosques and to help the poor. Once given
however, the giver has no further control if the funds are diverted or a portion is
skimmed off for the purchase of weapons, explosives and operating terror training
camps.

                “If beneficiaries had used assistance for evil acts,
                 that is not our responsibility at all”
                Prince Salman, Governor of Riyadh, Saudi Arabia, Nov. 2002

                                         Unclassified
                            Islamic Banking

•   Many Muslims send their Zakat through Islamic banks. This process is legal
    but there is no assurance they have funded a legitimate charity vice a
    terrorist group.

•   The Islamic banking system has been a mystery to most in the West. Islamic
    Banks cannot charge interest on loans. This requires that the Islamic Bank
    make its money on its investments. Western style accounting and auditing
    practices to monitor and track what those investments truly involve have
    only recently been implemented and then only under international pressure
    since the attacks on the US.

•   Zakat funds deposited in Islamic banks are taken off the books and
    “disappear” because they are not considered part of the banks assets nor its
    liabilities and are not reported. The bank has served only as a collection
    agent. The Zakat can then be transferred, without regulation, to worthy
    charities as directed by the givers, to any worthy recipient or have some or
    all of it skimmed off to Islamic radicals.

•   Some of the largest Islamic banks have their headquarters in Switzerland.
    The Swiss banking philosophy and governmental regulation, adds a second
    layer of secrecy yet gives the banks connectivity with world banking in
    general.




                                 Unclassified
                         Money Movement by Hawala

•   Hawala is the best known Informal Funds Transfer (IFT)
    system. Interpol estimates India alone to have $680
    Billion in transactions annually.
•   The process uses both legal and illegal means to move
    money in a way that avoids:
    - Record keeping of transmitters and receivers
    - Taxes
    - Customs duties
•   It is secure, trust-based, paperless and generally
    untraceable.
•   Hawala came into public interest after the 2001 attacks on
    the US when it was revealed that much of the money
    funding the attackers was transferred by Hawala.
•   It has no formal limitations on amounts but does have
    practical limits. It is well suited for terror operations that
    cost $50-$70K to fund and complete in a short period of
    time.
•   It is illegal in many countries including the US, yet many
    banks in both Islamic and Western countries utilize this
    system.
                                                                     Western Union Ad Warning
                                                                      Potential Hawala Users

                                         Unclassified
                Hawala: The Eastern Western Union
                    Example of a One way transaction

Family/Sender
                   $
                       Broker
                                                              Yehuda Abraham
                                                              Hawaladar/Broker
                                Verbal Interchange
                                 (amount, transaction code
                                   Generally no money)
Paperless


  Untraceable                                                Broker
                                                                       $
      Moves in both directions
                                                                  Receiver/Family
            Trust Based


                                  Unclassified
Hawala When Carried Full Cycle




                                 IMF 12/02


           Unclassified
                           Money Laundering




•   Money laundering is not just big business, it is global and large scale.

•   International Monetary Fund (IMF) estimates that it accounts for 2 to 5 % of
    the Worlds GDP (gross domestic product) with a value of as much as 2
    trillion US dollars in today’s market.

•   A significant portion of laundered money actually serves as a positive
    influence in local economies.
          - It does pay people legitimate salaries even when the business or
            other entity is only a “legit” cover for other activities.
          - It even pays taxes when channeled through legitimate
            businesses.

•   When accomplished through smuggling or other criminal enterprise it pays
    no taxes, duties or fees.

•   Bottom line – it often pays terrors bills when these groups use laundering as
    a method to move large sums of money or in related barter/in kind
    transactions.

                                    Unclassified
                  The Flow of Laundered Money



                       Legitimate Enterprise




                                            €
Illegal Sources


                   £
                                                Foreign Entity




Expenses                  Shell or Offshore
Revenues                  Company or Bank
                             Unclassified
                                       Conclusions
    Terrorists and extremists around the world will continue to use multiple means to transfer monies
    to operatives. Whether the means are legal or illegal is of no concern so long as the process
    supports their operations.

    These four key methods will continue to be exploited as long as government oversight is not
    present or is ineffective in policing the systems.

•   Zakat is a positive contribution to the Islamic world being abused by those who see it as a means to
    fund terrors criminal element. Only a small percentage of funds given in compliance with Zakat are
    intended by a knowing giver for the purpose of terror. That small percentage is enough to allow the
    spread of terror and end lives around the world. Just the opposite of Zakats’ intended use.

•   Islamic banking must continue to become mainstream in their methodology and accountability in
    order to be recognized as trustworthy institutions. Failing that, they will remain a secretive
    grouping that raises suspicions as much as they attract business.

•   Hawala was originally benign in its historical intent but is now consistently misused by those who
    take advantage of its efficiencies. It will remain as a cultural alternative to regulated banking but
    certainly will continue to adapt further to accommodate the modern world. The fact that it is being
    made illegal in more and more countries will not end the practice in the near term.

•   Money laundering will continue to face pressures from authorities. Like Hawala, it will remain as a
    working part of the criminal enterprise system. Increased regulation in the traditional business
    environment will make laundering more difficult but will not carry it to extinction.

•   Nations and organizations around the world are becoming more involved in the effort to track the in
    and out flows of terrors money through legislation and regulation. Regulatory efforts will serve to
    plug more of the financial holes that terror employs. However, as with all areas of crime, laws and
    regulations apply to all people and entities in a given jurisdiction but are only implemented and
    followed by those willing to be regulated.




                                             Unclassified
                Resources / Background Reading

•   International Monetary Fund, Finance & Development, Vol. 39, Number 4, December, 2002
•   Washington Times, Customs agents smash money-laundering ring, December 20, 2002,
•   www.Buzzle.com , Money Laundering in A Changed World, December 20, 2001
•   hwwa.de/Projekte/IuD_Schwerpunkte/IDSPs/Asia_Gateway/Hawala.htm , April 12, 2002
•   www.Time.com , A Banking System Built for Terrorism, October 5, 2001
•   New York Daily News, Bust 9/11 Missile Plot, August 13, 2003
•   www.al-Islam.org/laws/zakat2.html
•   www.z-pub.com/aaa/zakat-def.html
•   The Jewish Week, Diamond Merchant Awaits Bail, Sept. 3, 2003
•   International Monetary Fund, Hawala, December , 2002. www.imf.org
•   Terrorism Financing – Roots and trends of Saudi terrorism financing, A report for the
    United Nations Security Council by Jean-Charles Brisard, December, 2002
•   Middle East Review of International Affairs Journal, The Political Economy of Middle East
    Terrorism, December, 2002




                                        Unclassified