Can Bankers Fight Terrorism?

More than a decade and a half after the 9/11 attacks, Peter Neumann argues, “the war on terrorist financing has failed” (“Don’t Follow the Money,” July/August 2017). He contends that although the effort to cut terrorists off from the global financial system has crimped business and hampered humanitarian aid, “there is no evidence that it has ever thwarted a terrorist campaign.” “Governments,” he concludes, “should overhaul their approach to countering terrorist funding, shifting their focus away from the financial sector.”

That is bad advice. It is true that financial tools cannot solve the threat of terrorism. But they are not meant to. Rather, they are intended to form part of a broader strategy to confront a variety of international threats. Neumann argues that such a comprehensive approach is indeed necessary, but he claims that governments have yet to adopt one, writing, “In most countries, the responsibility for choking off terrorists’ funds lies with finance ministries, which are disconnected from broader counterterrorism strategies.” In fact, much of the integration he calls for has already happened. Take the finances of the Islamic State (also known as ISIS). Neumann argues that they have decreased not so much as a result of financial measures but largely thanks to military action against the group’s oil infrastructure and cash depots and the loss of its territory in Iraq and Syria. What he fails to appreciate is that private-sector financial data, gleaned by finance ministries and shared with the U.S. military and U.S. law enforcement agencies, have helped identify financial targets for those military strikes. Today, banks run financial intelligence units, which in several cases have provided “that missing piece of the puzzle to identify someone here or abroad who is planning or supporting plans to attack our interests,” as Gerald Roberts, then the section chief of the Terrorist Financing Operations Section of the FBI’s Counterterrorism Division, told a forum at the Washington Institute for Near East Policy in 2015.

Neumann also wrongly assumes that sanctions make up the bulk of measures to counter terrorist financing and that the best way to measure their impact is to tally up the number of entities designated or the amount of funds frozen. In fact, sanctions are only one weapon in a large armory. Not every terrorist funder that comes across the U.S. government’s radar is sanctioned; in many cases, it is more useful to share that information with partner governments and allow them to act. Although governments aim to freeze terrorists’ funds, they know that they will never bankrupt terrorism, because, as Neumann notes, terrorists have too many ways to raise, move, launder, and access funds. Instead, sanctions aim to disrupt terrorists’ financial networks and deter rich terrorist sympathizers who have business interests they would rather not put at risk from funding terrorists. 

At the least, denying terrorists easy access to financial tools forces them to use more costly and less reliable means of fundraising, making their lives far more difficult. In 2006, for example, the jihadist militant group Abu Sayyaf was reportedly unable to carry out plans to bomb targets in Manila due to a lack of funds. And in 2007, following the outing of several of al Qaeda’s deep-pocketed donors and the ways in which the group used charities to move its funds, Mustafa Abu al-Yazid, al Qaeda’s finance chief, lamented the group’s money problems in a propaganda video, arguing that the primary need for jihad in Afghanistan was financial. “There are hundreds wishing to carry out martyrdom-seeking operations, but they can’t find the funds to equip themselves,” he said. “So funding is the mainstay of jihad.”

Neumann also errs by focusing only on attempts to disrupt terrorist financing and ignoring a far more powerful tool: using financial data to gather intelligence. As the 9/11 Commission’s report concluded, “Expect less from trying to dry up terrorist money and more from following the money for intelligence, as a tool to hunt terrorists, understand their networks, and disrupt their operations.” Following the money allows governments to map out the links between known terrorist operatives and supporters and to identify new ones. 

Indeed, financial intelligence has provided valuable information in several high-profile investigations. In 2003, transactions between a person suspected of belonging to al Qaeda and a previously unknown figure in Southeast Asia allowed the U.S. government to track down Riduan Isamuddin, believed to be the mastermind of the 2002 Bali bombing, which killed 202 people. In 2006, authorities in the United Kingdom helped thwart a plot to blow up several aircraft with liquid explosives by tracking large transfers of money disguised as earthquake relief from a British-based Islamic charity to the three suspected bombers. And in 2007, financial intelligence contributed to the arrest of three al Qaeda affiliates who were plotting attacks in Germany.

Neumann insists that financial measures are particularly ineffective at preventing the kinds of cheap, self-funded attacks that have recently become common in Europe. But such attacks often cost more than meets the eye, and because even the cheapest attack is not free, when terrorists are frozen out of their bank accounts, they have to resort to riskier tactics. Consider the case of Ismail Issa, an ISIS operative arrested while traveling from Germany to Syria in 2013. The group had sent him with cash to shop for supplies rather than wiring money to an operative already in the country, because it had become too difficult for ISIS members to transfer money without it being picked up by the authorities. In many cases, the jihadists had grown so worried that their transactions were being monitored that they were too scared to collect the funds. Even when terrorists do manage to carry out an attack, financial intelligence can play an important role in the subsequent investigation—as was the case, according to the U.S. Treasury Department, with the 2013 Boston Marathon bombing, the January 2015 shooting at the offices of the French magazine Charlie Hebdo, and the November 2015 attacks in Paris.

Neumann argues that in the age of ISIS, the ways terrorists finance their operations simply don’t lend themselves to the traditional tools used to fight terrorist financing. He suggests that governments rely too heavily on UN Security Council resolutions, for example. But those resolutions demonstrate international resolve and can provide cover for local officials to act when it would otherwise be too politically risky. In the Persian Gulf, for example, some of al Qaeda’s funders have family or tribal ties to governments and ruling families, so international backing has been necessary for officials to move against them. 

There is no doubt that ISIS has created a unique challenge. But the group’s ability to take territory was a function not of any particular financial prowess but of the breakdown of the rule of law in parts of Syria and northwestern Iraq. As Neumann notes, terrorist organizations are in some ways better resourced than they were before 9/11. But that is a result not of the failure of efforts to crack down on terrorist financing but of the proliferation of ungoverned places. These trends call for governments to work even harder to understand terrorists’ financial structures and to design sophisticated ways of countering them. 

Neumann is right to highlight the heavy burden that regulations designed to combat money laundering and terrorist financing place on financial institutions. He is also correct that governments need to do a better job of balancing competing priorities, such as delivering humanitarian aid while preventing terrorists from abusing charities to raise, launder, and move money. More progress can and should be made. But the solution is not to throw the baby out with the bath water.

MATTHEW LEVITT is Director of the Stein Program on Counterterrorism and Intelligence at the Washington Institute for Near East Policy. From 2005 to 2007, he served as Deputy Assistant Secretary for Intelligence and Analysis at the U.S. Treasury Department.

KATHERINE BAUER is Blumenstein-Katz Family Fellow at the Washington Institute. From 2011 to 2013, she served as Assistant Director in the Office of Terrorist Financing and Financial Crimes at the U.S. Treasury Department.

MONEY TALKS

Peter Neumann paints an incomplete picture of the ways in which the United States and its partners have used financial tools to fight terrorism, crime, and corruption since 9/11. He underestimates the vital role of financial intelligence in detecting, analyzing, and dismantling dangerous networks. And he overlooks important progress in cooperation among countries, U.S. government agencies, and the private sector. 

Although measures to counter terrorist financing will not by themselves eradicate terrorism, they play a significant role. Terrorist organizations have to recruit and train fighters, buy weapons and equipment, bribe corrupt officials, wage propaganda campaigns, and plan and carry out operations. These activities cost money, so understanding how groups raise, store, move, and spend that money has helped bring terrorists to justice and deter others from harboring them or funding or joining their organizations. In the campaign to defeat ISIS, for example, U.S. forces have exploited financial intelligence, killing top financial officers and destroying several cash warehouses, helping debilitate the group.

The ways in which terrorists finance their operations have certainly changed since 9/11, but the strategy that the Bush administration developed in response to the 9/11 attacks remains relevant. That approach was based on three pillars: analyzing how an attack was financed in order to prevent copycats; working to bring terrorist financers and facilitators to justice in the United States and abroad; and designating, sanctioning, and freezing the assets of terrorist organizations. Neumann points out that little money has been blocked, but freezing assets represents just one part of a larger strategy. Neumann also discounts the notable deterrent effect that sanctions have had on potential terrorist financers. Al Qaeda operatives from Afghanistan to Iraq, including al Qaeda in Iraq’s late leader Abu Musab al-Zarqawi, have complained about increased difficulty in raising funds, financing terrorist operations, paying foreign fighters, and supporting their networks. 

In recent years, the boundary between terrorist groups and other organized criminal networks has blurred, as terrorist organizations such as Hezbollah, the al Qaeda–aligned Haqqani network in Afghanistan, and ISIS have grown more reliant on crime to generate revenue. As a result, officials combating terrorism have turned to financial tools originally designed to fight international crime. The counter-ISIS coalition, for example, has worked with the private sector to use its anti-smuggling experience to prevent ISIS from selling the antiquities it loots from ancient sites in Iraq and Syria, once a major source of the group’s funding. Banks and other private-sector organizations have adopted crime-fighting analytic tools and techniques to better identify bad actors and trends in terrorist financing. They then report suspicious activity to government agencies, which fuse that information with law enforcement and intelligence data. 

Neumann also points to the high costs that efforts to counter terrorist financing have imposed on the private sector, but a great deal of progress has already been made on that front. Governments have begun to work more closely with financial institutions to mitigate the costs of regulations on the financial sector, while gathering as much data as possible. Groups such as the Association of Certified Financial Crime Specialists, the Association of Certified Anti-Money Laundering Specialists, and the Financial Intelligence and Information Sharing Working Group regularly bring together banking executives and government experts to share information on the most recent trends in terrorist financing and money laundering. And initiatives such as the annual Public-Private Analytic Exchange Program, convened by the U.S. Office of the Director of National Intelligence and the U.S. Department of Homeland Security, encourage cooperation on such issues as virtual currencies and methods of money laundering. The public and private sectors are further working together to better understand how innovations in financial technology, such as Bitcoin, blockchain, mobile banking, and machine learning, will affect future legal and illegal financial flows. As these examples demonstrate, Neumann is wrong to suggest that efforts to counter terrorist financing have failed. It would be a grave mistake for industry, law enforcement, intelligence agencies, and the international community to give up this crucial tool. 

DANIELLE CAMNER LINDHOLM is Managing Director of Roaring Fork Strategies and Co-Chair of the American Bar Association’s National Security Committee. CELINA B. REALUYO is Professor of Practice at the William J. Perry Center for Hemispheric Defense Studies at the National Defense University. From 2002 to 2006, she served as Director of Counterterrorism Finance Programs at the U.S. State Department.

CASHING IN

Peter Neumann is right to point out that efforts to counter terrorist financing focus too much on the international banking sector and to call for a more comprehensive approach. But he is wrong to imply that controls on the international financial system have failed to curb terrorism. It is true that these measures do little to prevent imminent attacks, but the ability to track terrorists and their associated networks through the financial system forms an important part of investigations after the fact. And these measures act as a useful deterrent to potential funders of terrorism and throw sand in the wheels of large terrorist organizations. And the same financial requirements also help mitigate other international threats, such as corruption and organized crime. 

There is room for improvement, however. Western governments should end their excessive focus on just the banking system and begin knitting together disparate sets of rules, regulations, and international norms—covering everything from banking to natural resources to antiquities—into a comprehensive system for fighting all kinds of illicit financing.

Unfortunately, the Trump administration has gone in the wrong direction on this issue. Since January, the U.S. government has rolled back important transparency and accountability mechanisms, many of which were designed to tackle other global problems but which also affect terrorist financing. In February, President Donald Trump signed legislation that sent a Securities and Exchange Commission rule on oil, gas, and mining transparency back to the drawing board. This will limit the transparency of the flows of money from oil, gas, and mining firms to governments, making it easier for corrupt politicians and their cronies to use the cash to illicitly fund anything from extravagant lifestyles to terrorism. The SEC has also watered down an important regulation requiring U.S. companies to assess whether minerals bought through certain supply chains are funding conflict or human rights abuses. And the U.S. Department of the Interior has refused to take the steps needed for the United States to become a full member of the Extractive Industries Transparency Initiative. Although none of these steps alone would end terrorist financing, enhancing transparency is crucial to hampering all manner of illicit financial activities.

If the United States is serious about preventing terrorist financing, it should work to replace the current international focus on specific areas or threats with a broader approach, combining the various transparency, accountability, and due-diligence mechanisms that cover a wide range of businesses, including banking, trade in some natural resources, and wildlife trafficking. The goal should be to minimize the ability of terrorists and criminals to easily acquire or move money or goods, regardless of the sectors in which they operate. Doing so will require governments, the private sector, law enforcement, and civil society to balance the need for risk assessment, due diligence, and transparency against the need for privacy and practicality, while minimizing the effects of rules and regulations on legitimate trade and financial flows. Neumann is right that the war on terrorist financing has not lived up to its promises, but it has done some good. If the international community stops focusing on just a few issues, such as banks and cash, and instead concentrates on stitching the various transparency and accountability mechanisms together and filling the gaps between them, then it will be far more successful. 

JODI VITTORI is an Adjunct Assistant Professor in the Department of Government at Georgetown University.

NEUMANN REPLIES

BANK ON IT

As my critics write, efforts to counter terrorist financing have certainly had some successes. But these respondents fail to address the more fundamental questions that my article raised. Do the examples they cite represent a wider pattern? Why is there no systematic data on the effectiveness of the current approach? Is the enormous bureaucracy that has been created in the name of countering terrorist financing, a bureaucracy that has imposed billions of dollars of costs on governments and the private sector, justified by its results? What else could have been done with all that time, effort, and money? And to what extent does success in deterring terrorists from using the formal banking system simply push them into the informal sector, where their activities are even more difficult to uncover?

Although several of my critics worked on these issues as government officials, none of them offers any systematic data to show that the current strategy works. This epitomizes the entire approach, which has relied on the instinctive appeal of following the money, while remaining sufficiently obscure to escape the scrutiny to which other parts of the war on terrorism have, eventually, been subjected. There has been virtually no public debate over combating terrorist financing, nor is there any academic literature on the subject beyond case studies of individual groups and terrorists. Discussions, where they exist, revolve around anecdotes, making it difficult to test wider assumptions and judge the effectiveness of the overall approach.

After my article was published, several current and former intelligence officials contacted me to echo my conclusions. “I agree with more or less every word,” wrote the former head of a Western intelligence agency, who recalled: “When in the service, I could never see the point of quite a lot of terrorist finance work.” He insisted that financial intelligence—the use of financial information to track suspects or establish connections between known and unknown terrorists—could be “valuable” and “evidentially helpful,” especially after an attack. But along with others who contacted me, he made it clear that financial intelligence, as he understood it, had little to do with the massive efforts to find needles in haystacks that constitute much of the fight against terrorist financing.

Finally, the current strategy offers no answer to the rise of cheap attacks. Banks and other financial institutions cannot monitor every $100 transaction or notice every time someone with a potentially suspicious background rents a truck. Yet because countering terrorist financing remains the job of treasuries and finance ministries, governments will keep looking in the wrong places. As the saying goes, “If all you have is a hammer, everything looks like a nail.” As long as these ministries are in charge, that will not change.