Flushed With Funds

Executive Summary

It has reportedly been estimated by the experts of the Monitoring Committee of the UNSecurity Council, which monitors the implementation of the UNSC  Resolution No. 1373, that despite thefreezing/seizure of terrorist funds and other assets worth US $ 112 million since 9/11, Al Qaeda and itsallies in the International Islamic Front still have at their disposal about US $ 300 million. Replenishmentscontinue to flow into their funds. The spate of terrorist incidents since December, 2001, in different partsof the world and the sweeping victories of pro-Al Qaeda and pro-Taliban fundamentalists in the recent Pakistanelections on October 10, 2002, would show  that the terrorists do not as yet feel any shortage of fundsfor any of their activities, underground (acts of terrorism) or overground (political support to theirbackers) .

The failure of the action taken so far by the international community against terroristfunding to make a dent on the capability of Al Qaeda and the other members of the International Islamic Frontto organise acts of terrorism in different parts of the world in quick succession could be attributed to thefollowing reasons:

The continued flow of funds from Pakistan's Inter-Services Intelligence (ISI) to theHarkat-ul-Mujahideen (HUM), the Harkat-ul-Jihad-al-Islami (HUJI), the Lashkar-e-Toiba (LET) and the Jaish-e-Mohammad (JEM) for use in their terrorist operations against India. In view of  the large cashflow into Pakistan since 9/11, the ISI has been channelling more funds to these organisations than in thepast.  

All these organisations, which are members of bin Laden's International Islamic Front, have beenusing part of this increased flow in India and diverting part to fund the activities of the Front in otherparts of the world.  The pan-Islamic and pro-Wahabi members of the Pakistani  religious coalitionhad promised in their election manifesto that if they came to power they would step up assistance to thejihadis in Kashmir, Palestine, Chechnya, the Arakan area of Myanmar and the southern Philippines.  Thisflow is, therefore, likely to increase in the coming months.

The stupendous cash flow into Pakistan since 9/11 would be evident from the fact that Pakistan's foreign exchange reserves have increased five-fold from US $ 1.5 billion to US $ 7.5 billion. Thistorrent of cash flow into Pakistan has been despite the fact that the exports from and foreign investmentflows into Pakistan continue to be sluggish due to feelings of insecurity amongst foreigners. 

While part ofthis increased flow was due to generous debt rescheduling and the resumption of bilateral and multilateraleconomic assistance, part of it  has been due to large-scale movement of money from the overseas accountsof Pakistanis to accounts in Pakistan to escape action against their money by the other countries. 

According to official figures, the  remittances in the first quarter of the current financial year (July,2002 to September,2002) amounted to $1052.89 million as compared with  $340.05 million during thecorresponding period (July-September) of the financial year 2001-2002.  The increase of remittances fromthe US has been spectacular being $330.33 million during July-September 2002 as compared with only $50.09million during the corresponding period of last year. Total remittances from the US were $778.98 millionduring the financial  year 2001-02 as against  only $134.81 million in 2000-2001. 

This is due tonervousness in the overseas Pakistani community in the US that their bank accounts might come in forinvestigation as possible sources of terrorist funding and subjected to freezing under the UN Security CouncilResolution No. 1373.  It has been reported that similar nervousness has caused many Pakistanis havingsecret bank accounts in Switzerland and other places to transfer their money to Pakistan.  If thesetrends are maintained, it is expected that  the value of money transfers  from abroad might reach US$ four billion by June,2003, when the current financial year ends.  

While the whole of these hugetransfers need not necessarily be terrorism-related money, it would be reasonable to assess that aconsiderable portion of this would be.  The Pakistani authorities themselves have been claiming that thisstupendous movement is due to the fact that overseas Pakistanis have been remitting money home through normalbanking channels instead of through the hawala system as in the past due to the improvement in the value ofthe Pakistani rupee which has made informal hawala transfers no longer as attractive as before.

The insincerity of the Pakistani authorities in complying with the provisions of the UNSCResolution No.1373. Before acting against the bank accounts of suspected terrorist organisations figuring inthe US and the UN lists, the ISI tipped them off about the impending action against their accounts, therebyenabling them to remove the bulk of their balances from their identified accounts and re-deposit them in newaccounts under different names.  Thus, the action against terrorist funding in Pakistan was a farce.

The unsettled conditions in Eastern and Southern Afghanistan and the alleged use of theold Afghan warlords and heroin barons by the USA's Central Intelligence Agency (CIA) in its hunt for bin Ladenand other leaders of Al Qaeda have resulted in a slowing down of action against opium cultivation and heroinextraction.  Reports from Afghanistan speak of an increase in opium cultivation and heroin availabilitysince 9/11. Unless the international community takes note of these disturbing developments and actsagainst them vigorously, the terrorists' financial capability is unlikely to be seriously damaged in the nearand medium-term future.

The Text

The Four Ingredients

Motivation, recruits, funds and sanctuaries constitute the four essential ingredients forthe survival of a terrorist organisation and its success in organising acts of terrorism.  Hence, anycounter-terrorism strategy, to be successful, has to focus on depriving the organisation of as many of theseingredients as possible, if not all the four of them.

Of these four ingredients, motivation and sanctuaries are the most important.  Apoorly motivated terrorist organisation would not be successful even if it had all the other three ingredientsand an organisation without sanctuaries cannot operate effectively even if it had an unlimited flow ofwell-motivated recruits and funds.  Many of the ideological terrorist groups of West Europe withered awaywhen the increasing economic prosperity and the disenchantment with Communism resulted in the weakening of themotivation of their cadres.  The international terrorist group led by Carlos disintegrated when thecollapse of the Communist States of East Europe and sustained  Western pressure on its State-sponsors inWest Asia and North Africa deprived its members of sanctuaries from which they could operate.

Funds Funda

The importance of funds arises from the fact that they partly help in the recruitment andmotivation through monetary incentives and partly contribute to  maintaining the morale and motivationthrough the successful planning and execution of acts of terrorism. A continuous lack of success or decreasingsuccess against the State has a negative impact on the motivation and fresh recruitment.  

Funds play animportant role in the recruitment of cadres, in procuring shelter and logistic support from the communityamongst  which the terrorists operate, in acquiring the weapons, explosives, identity documents and othermaterial required for an act of terrorism , for travel etc.  Hence, action to identify the sources offunding, determine the means employed for their transmission and choke off the flow of funds from the sourcesto the organisations and from the organisations to their cadres deputed for carrying out the acts of terrorismhas always received high priority from the States confronted with the scourge of terrorism.

Past Efforts Against Funding Terrorism

The drive to choke off terrorist funding did not start from 9/11. It has been engagingthe attention of the member-States of the United Nations and the INTERPOL for many years. The International Convention for the Suppression of the Financing of Terrorism was a result of this preoccupation. Many domestic anti-terrorism legislative enactments of different countries had as their objective the need toact against the flow of funds to the terrorists.  Illustrative of such domestic legislative enactmentsare  the USA's Antiterrorism and Effective Death Penalty Act (AEDPA) of 1996, the UK's Drug TraffickingAct of 1994 and the Terrorism Act of 2000 etc.  Canada and many other countries had initiated legislativeand investigative action against terrorist funding long before 9/11.

The USA's Antiterrorism and Effective Death Penalty Act of 1996  makes it a criminaloffense for persons subject to U.S. jurisdiction to knowingly contribute funds or other material support togroups that the Secretary of State has designated as Foreign Terrorist Organizations.  The U.S. law alsoallows freezing of the designated group's assets and denial of visas for members as well as leaders ofterrorist organizations.

The UK's DrugTrafficking Act of 1994 and the Terrorism Act of 2000 state that in the caseof drug trafficking and terrorist funding respectively it is a criminal offence for any person who acquiresknowledge or even a suspicion of money laundering in the course of their trade, profession, business, oremployment not to report the knowledge or the  suspicion as soon as it is reasonably practical after theinformation came to his/her attention.  In the case of terrorism, this also applies to funds where thereis a suspicion that they will be used for the purposes of terrorism.  Failure to report in thesecircumstances is punishable on conviction by a maximum of five years' imprisonment, or a fine, or both, andmay also give rise to the offence of money laundering which carries a penalty of fourteen years' imprisonment.

The need for multilateral action against terrorist funding did not suddenly dawn on theinternational community  from 9/11. It was a major point of concern for the community long before 9/11 asevidenced by the action sought to be taken through the UN against the Taliban-controlled Government inAfghanistan for its failure to co-operate with the international community in taking action against Al Qaedaand other terrorist groups operating from its territory.

Double Standards

Despite this realisation of the  need for effective action against terrorist fundingif the scourge of terrorism was to be eliminated, the action actually taken by individual States, either inpursuance of domestic legislation or under the directions of the UN, remained far from effective before 9/11due to the following reasons:

First, the ambivalence and subjectivity, which marked the approach to the problem. Whilethere was a readiness to act against funding which contributed to acts of terrorism against one's ownnationals and interests, a similar readiness was lacking in respect of funding which contributed to acts ofterrorism against the nationals and interests of other countries. Thus, India has long had a grievance againstthe British authorities that the readiness which they displayed in acting against funding for the IrishRepublican Army (IRA) in the 1980s, was lacking in respect of action  against funding for the Sikhterrorist groups in Punjab.

The Sikh places of worship in the UK (gurudwaras) became a major source of fundingfor terrorism in Punjab. While in response to Indian concerns, the Margaret Thatcher Government did bring inmodifications to the Charities Act in order to prevent diversion of the collections made in the gurudwaras,ostensibly for religious or humanitarian purposes, really for financing acts of terrorism against Indiannationals and interests,  their enforcement, in the Indian perception, was unsatisfactory.

Second, the requirement by many countries of strict standards of proof for freezingaccounts suspected to be used, partly or fully, for financing acts of terrorism.  In the 1980s and the1990s, repeated pleas by the Government of India to the Governments of Western countries to freeze accountsheld in their countries by Indian terrorist groups from Punjab and Jammu & Kashmir fell on deaf ears. Manyof those countries demanded that India provide a clear and continuous chain of evidence sustainable before acourt of law  linking money transmitted from an account with a specific act of terrorism before theycould act.  

Indian arguments that if action were to await the completion of the investigation, theterrorists would thin out their identified bank accounts and use the money for assassinations and other actsof terrorism against innocent civilians were rejected with disdain.  After 9/11, the very same countrieshave frozen dozens of suspect accounts merely on the basis of suspicion even before they could collect such acontinuous chain of evidence.  In their eyes, their pre-9/11 arguments which were considered valid whenthe lives threatened were those of mere Indians,lost their validity when the lives of their own citizens werethreatened.Post 911

A tragedy of the nature and magnitude of 9/11 with the loss of thousands of innocentcivilian lives  had to take place before the international community realised that such ambivalence,subjectivity and double standards only played into the hands of terrorists, thereby making the cancer ofterrorism incurable and inoperable.  The UN Security Council Resolution No.1373, the plethora of domesticlegislation in many countries post 9/11, the freezing of dozens of suspect accounts all over the world, thetightening of procedures by banks and other financial institutions in many countries were the welcome outcomeof this realisation.

Intelligence Agencies

Action against terrorist funding, to be effective, has to be directed simultaneously atthe sources of collection of such funding, at the means employed for their transmission and at the ultimateusers of the funds.  In the 1970s, the most important source of terrorist funding was the intelligenceagencies of the States, which sponsored terrorism and used it as an unconventional military weapon againsttheir adversaries for achieving their strategic objective.  

The initial and major source of funding forthe various Palestinian terrorist organisations was the intelligence agencies of West Asian and North Africancountries. The Carlos' organisation could not have become as deadly as it was and lasted for as long as it didbut for the substantial contributions received by it from the intelligence agencies of many West Asian, NorthAfrican and East European countries.  Many of the terrorist organisations active in India have been keptfinancially sustained by Pakistan's Inter-Services Intelligence (ISI) since 1956.

The 1970s also saw the various Palestinian organisations resort to the setting-up ofbusiness companies through which their funds acquired either from the intelligence agencies of sympatheticcountries or illegitimate means could be laundered.  The profits from such companies became an additionalsource of revenue for funding acts of terrorism.  In the 1980s, the Liberation Tigers of Tamil Eelam (LTTE)emulated the Palestinian organisations and set up shipping and other business ventures abroad for launderingtheir illegally acquired money and for augmenting their earnings.

Religion and charities

Places of worship and religious and humanitarian charities became important sources offund collection for financing acts of terrorism since the 1980s and the 1990s when religiously-motivatedterrorism replaced ideologically and ethnically motivated terrorism as the most serious source of violence.There was a mushrooming of dubious charity organisations all over the Islamic world during the 1980s, when theintelligence agencies of the States supporting different Afghan Mujahideen groups encouraged them to startsuch organisations so that they could use them for channelling money in a deniable manner.  

Many of thecharity organisations against whom action had been taken post 9/11 were the outgrowth of the Afghan war of the1980s against the Soviet troops.  A typical example is the Al Rashid Trust of Karachi, which became animportant source of funds for Al Qaeda, the Taliban and the various Pakistani pan-Islamic organisations activeagainst India.

Charity organisations mixed up with terrorism fall into two groups -- those specificallyfounded by terrorist groups through surrogates for using them as front organisations  for fundingterrorism; and those founded by others for genuine charitable purposes, but  manipulated and  usedby terrorist organisations for their own purposes.

Narcotics

Narcotics, particularly heroin, became a major source of terrorist funding during theAfghan war of the 1980s.  It assumed even greater  importance than funding by the intelligenceagencies sponsoring terrorism.