March 20, 2014

TSG IntelBrief: Follow the Money: Private Donors, Kidnapping, and Other Drivers of Terrorist Financing

• Coordinated and consistent efforts to disrupt and deny terrorist use of international banking and financial systems to fund their organizations and operations has been remarkably effective since 2001

• Terrorist groups are adapting to these efforts, still relying on long-time support from rich donors and states while increasing direct appeals—often cloaked as humanitarian giving—on social media, vastly increasing the pool of potential unwitting donors

• Local conditions now increasingly drive collection tactics, with groups such as al-Qaeda in the Islamic Maghreb (AQIM) using kidnapping for ransom to significant effect, with others such as the Islamic State of Iraq and the Levant (ISIS) using oil production and levied taxes in controlled territories

• While an individual terrorist operation might cost very little (especially in terms of cost benefits analysis), it remains expensive to run a terrorist organization with international reach. However, advances in technology and communication continue to lower the costs.

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     Homemade explosives cost very little to make but funding and sustaining an organization capable of using those explosives in an international attack against a prominent target require significant funding. The 2010 plot by al-Qaeda in the Arabian Peninsula (AQAP) to bring down a UPS plane with explosives disguised as printer cartridges only cost $4200, according to the group. But sustaining AQAP at the level where it can plan and carry out such an attack—and sustain itself and recruit new members—cost much more. It is this disparity between the cost of tactics and strategies that creates both challenges and opportunities for counterterrorism officials.

One of the underreported successful counterterrorism tools since 2001 has been the coordinated effort to deny and disrupt terrorist use of international banking and financial systems. Like any organization, a terrorist group can’t survive without funding. Lack of funding eats away at a group’s ability to operate, plan, and pay current expenses. Such impoverishment curtails expansion, driving away new and potential members or supporters. The ability to “follow the money” has long been a vital tool in fighting and mitigating criminal networks whether racketeering, narcotics trafficking or terrorism.

Al-Qaeda core (the original brand, not its numerous spinoffs or franchises) has seen its capabilities relentlessly diminished as its ability to raise funds has been disrupted through use of counterterrorism financial safeguards such as Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) standards that ensure member countries’ financial systems are established and run in a way best suited to detect criminal activity (including non-terrorism-related activity). Due to the success of these efforts, terrorists are finding it much harder to move money through established banking systems. It is a significant global accomplishment.

To that end, terrorist groups are adapting in meaningful ways, using both low-tech hawala transfers and high-tech e-payments. Traditional fundraising efforts such as state support (like Iran with Hizballah Lebanon) and support from private, wealthy donors continues, and is indeed a serious problem, but groups are now using social media for direct charitable appeals to unwitting donors or those simply hesitant to give in more direct ways. Crises such as the Syrian civil war are tragic in countless ways; one being that they create almost an inexhaustible pool of donors looking to help who are preyed upon by groups with less-charitable ideas in mind. Groups such as the Nursra Front and ISIS are making online appeals for financial support, with online payments that are difficult to track.

Terrorist groups using crime to fund themselves is not new—Hizballah smuggled cigarettes and the Afghan Taliban used the opium trade to fund their respective operations. But the current and projected breadth of terror-related criminal activity is new, partly stemming from an increase in lawless territories from which terrorist groups can set up shop. The chaotic conditions across northern Africa, Nigeria, Somalia, Syria, Iraq, Afghanistan, and Pakistan are optimal conditions for these groups. In order to limit exposure to the increased CT financial monitoring, these groups exploit the local circumstances. For example, AQIM finances itself primarily through kidnapping for ransom. It is such a problem that US officials consider it the leading fundraising tool outside of direct support, with groups raising an estimated $120 million through kidnapping for ransom between 2003-2013.

ISIS and Nusra are vying with each other to take control—and exploit—territorial gains in various parts of Syria to improve their financial situations. In oil-producing regions, the groups actually sell oil back to the government they are fighting. They also sell the oil on the black market and garner funding through its transport. In non-oil-producing regions, the groups levy taxes on goods and services, becoming a quasi-government. They must balance the need to raise money with the need to avoid alienating the local population upon whom they depend for support. The amount of money these groups raise is worrisome not just for its escalating impact on the Syrian conflict, but for regional concerns as well.

Though currently not widespread among terror groups accustomed to dealing in hard currency, the use of cyber-currency will need more regulation to ensure adequate safeguards. Some countries, such as Russia, have expressed concerns that terrorist networks will turn to cyber-currencies in order to avoid the scrutiny of traditional financial markets and standards such as AML/CFT. In the new frontier of digital currency, criminal elements may find an efficient and effective haven to avoid detection. It also amplifies their online activities, as the entire process, from appeal to donation, can be masked in various ways, from false IP addresses to encryption. The next phase of terrorist financing is just beginning.



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