............Shutting Down Terrorist Financing
..............A briefing by David Aufhauser
David Aufhauser served as the U.S. Treasury's chief legal advisor and senior policy advisor to the secretary. He regularly testified before Congress and oversaw its economic sanctions program, financial crime investigations, and USA Patriot Act regulatory responsibilities. Prior to his post at the Department of the Treasury he practiced law for over 20 years in Washington D.C. with the firm of Williams & Connoly, LLP. He spoke to the Middle East Forum in New York on December 11, 2003.
During my three years as general counsel for the US Treasury, I witnessed four wars: the global war on terror, the conflicts in Afghanistan and Iraq, and the war between Israel and the Palestinians. In all of these, I noted the central role of money.
We have become more sophisticated in fighting the unorthodox war on terror. If these conflicts have taught us anything, it is that controlling the financing of terror substantively diminishes, and is instrumental in extinguishing, the threat of terrorism.
The Failure of the UN Oil-for-Food Program The Iraqi case represents an indictment of the casualness of our approach to issues of finances where terrorism is concerned. In the aftermath of Desert Storm, far-reaching international sanctions were implemented to ensure Iraq would never pose a similar threat in the future.
The sanctions, however, had the perceived effect of harming ordinary Iraqis. To reform the sanctions, leading states conceived and implemented the UN oil-for-food program. An apparently simple program, permitting Iraq to barter oil for humanitarian purposes, it initially seemed a great success. More than $10 billion worth of humanitarian care, food and services were indeed delivered from over 25,000 different distribution centers throughout the country. The program became a staple of Iraqi civilian society and the UN food-rationing card was traded regularly for goods other than food.
The oil-for-food program was, however, designed by bureaucrats rather than businessmen. Integrating himself as an intermediary in the program, Saddam was, astonishingly, able to skim over $6 billion in cash. By 1999, unchecked by the outside world, he began acting with impunity - selling oil directly for money outside of the program.
What haunts us today is the knowledge that Saddam took the illicit money and bought prohibited goods, including the wherewithal to arm himself. The purchase of these goods and services led us to a realistic conclusion that Iraq possessed weapons of mass destruction. Thanks to the still unaccounted funds from Saddam's unsanctioned, illicit sale of oil, Iraq is currently the magnet for international jihad, a venue where enemies of the United States hope to demonstrate the limits of American power through insurgency.
The Insufficiency of Military Power in Winning the Global War on Terror After 9/11, the president and the secretary of the treasury recognized immediately that if you could stop terrorist groups' cash flow you could substantially diminish their whole enterprise.
Seized financial records provide far more reliable information than evidence gathered through intelligence based on treachery, deceit, bribery and interrogation. Stopping the money trail also yields a double dividend of not only bankrupting terrorists, but also alerting us to and allowing us to preempt potential calamities that are being planned.
The U.S. Treasury now commands a corps of law enforcement, intelligence, military, diplomatic and financial specialists. Its goal is to allocate good money to good purposes and stop the flow of bad money intended to finance the killing of innocent people.
Exposing the Financiers of Terrorism We have found that a man with a bomb strapped to his back will not be deterred by the threat of jail – but that his financier is a coward. Bankers love anonymity, so exposing those who finance terrorism is effective. These bankers include merchants and various Muslim charities. Thanks to the wealth of Saudis and the subjects of other Persian Gulf countries, great amounts of money flow through these "charities" to Muslims around the world, providing humanitarian services and support for militant Islam.
Distinguishing between finances intended for militant Islam and terror is difficult but new laws criminalizing individuals and entities that fund terrorist groups have been sanctioned in 90-100 countries. The U.S. government has a major program in place to help developing countries build up resources and sophistication in the forensics of financial accounting.
We also changed certain standards of conduct. A new executive order gives the president authority to freeze the assets of entities, shareholders, offices and directors through which terrorist money passes. The threat of executive action has been enough, allowing us to gain insight and even access to books and records around the world.
There have been concrete results. Indeed, our efforts are responsible for reducing the cash flow to Al-Qaeda by two thirds.
Structural Challenges and Changes The greatest structural difficulty in halting the financing of terrorism and fundamentalism is that many in the Muslim world use an unrecorded, informal banking system based on trust rather than a formal records of financial transactions. There are just two ways to deal with this system – intelligence or structural macroeconomic change. The latter is more effective and implies creating an economic climate in which people switch to a formal banking system.
One extraordinary example of large-scale structural change took place in Saudi Arabia. Mosques have long collected cash in collection boxes which then fund militant Islamic entities like Al-Qaeda. Collection boxes may sound trivial, but 40,000 of them raise significant amounts. These funds are easily diverted. The Saudis noted this threat and recently have banned the collection boxes in mosques.
The war on terror, an unprecedented war against an enemy without geographic conquest in mind, requires more than military power. We must make use of all the elements of our national power in this conflict. Along with military, diplomatic, law enforcement and other intelligence, utilizing financial experts to discover, expose and halt those who finance terrorism. Stopping the flow of cash has already done enormous service. If executed well, the campaign against terrorist financing will bring more peace than any army of soldiers.
Summary account by Robert Blum & Gil Marder, research assistants at the Middle East Forum