10/27/2017 Stopping Terrorism: Follow the Money | The Heritage Foundation

REPORT Homeland Security

Stopping Terrorism: Follow the Money

September 25, 2001 12 min read

Authors:
John Hulsman, Brett Schaefer and Gerald O'Driscoll

President George W. Bush, in his September 20 speech on terrorism before a joint session of
Congress, vowed that

We will direct every resource at our command--every means of diplomacy, every tool of
intelligence, every instrument of law enforcement, every financial influence and every
necessary weapon of war--to the disruption and defeat of the global terror network.... [E]ither
you are with us, or you are with the terrorists.2

The President made clear that America's arsenal of weapons against terrorism would include
shutting down their avenues of financing and seizing their assets. He understands that
financial support is necessary for terrorists to project their activities from their base of
operations to the United States and other developed nations. Identifying and cutting off
terrorist groups--such as Osama bin Laden's al-Qaeda--from their existing bank accounts and
other sources of financing must be a necessary component of a successful war against
terrorism.

http://www.heritage.org/homeland-security/report/stopping-terrorism-follow-the-money 1/8
10/27/2017 Stopping Terrorism: Follow the Money | The Heritage Foundation

More than a military leader, Osama bin Laden is a modern financier dedicated to supporting
terrorist acts through a complex financial network. A multimillionaire, he utilizes not only his
own resources, but also money that flows in from supporters around the world, rich and poor.
As a sort of diabolical grant maker, he distributes funds to groups that are planning to harm
Western and particularly American interests. Each terrorist act brings in fresh funds.

Get exclusive insider information from Heritage experts delivered straight to your inbox each
week. Subscribe to The Agenda >>

Terrorism is a business the fruits of which are nurtured by these financial flows. Cut off these
flows, and the terrorist's activities will be stunted no matter how fanatical the devotion of their
followers. To defeat terrorism at its base, the United States must:
Determine what countries and institutions are safeguarding bin Laden's fortune and publicly
demand that they freeze his assets or face the consequences.
Increase coordination among those who police financial transactions to detect terrorist group
activities and to prosecute the individuals or banks involved.
Expand the network of mutual legal assistance treaties and implement procedures to ensure
timely and effective international cooperation in the fight against crime and terrorism.
Increase intelligence resources dedicated to infiltrating and monitoring criminal use of
informal money transfer networks.
Financial Links to Terrorism

A key means for combating terrorism is to cut off terrorists from the funds they need to
finance their activities. As clues from the September 11, 2001, terrorist attacks have been
released to the public, it is increasingly evident that the operation was highly sophisticated
and involved years of planning, intelligence, and training. Such an operation was not
conducted on a shoe-string budget. It required large amounts of money for support of covert
agents, bribes, logistics, supplies, and
training.

The group that makes the most extensive use of private funding for terrorist activities is
Osama bin Laden's al-Qaeda. Bin Laden's extensive business interests around the world, most
of which are not listed in his name, are used to transfer and exchange money and financially
support those activities. Bin Laden uses his estimated $300 million in financial assets to fund
the activities of the al-Qaeda network of as many as 3,000 Islamic militants.3 Al-Qaeda also

http://www.heritage.org/homeland-security/report/stopping-terrorism-follow-the-money 2/8
10/27/2017 Stopping Terrorism: Follow the Money | The Heritage Foundation

functions as "the merchant bank for terrorism," financially backing smaller terrorist groups
that target Western countries.4

Terrorists use the global banking system to move funds around the world. This is true whether
terrorists use the system to withdraw cash from automated teller machines or money is
dispatched through correspondent banks and via wire transfers.

The securities industry has also been drawn into the terrorist web. German authorities have
uncovered a set of trades conducted on the German stock exchange that may be connected to
the September 11 attack.5 Certain individuals had sold short their shares of stock in airlines
and insurance companies.

Short-selling is a legitimate activity by which investors who have reason to expect that a
company's share price may fall in the future can sell their shares today. Those investors must
"cover" that sale either by delivering some of their already owned shares to the buyer or by
purchasing shares--presumably at a price lower than that received at the sale--and delivering
these to the buyer. Parties with foreknowledge about the terrorist attacks on New York and
Washington could have sold short before the attacks with the intent of using the earned profits
from their sales to finance future terrorist activities.

However, the United States must not overlook informal financial networks in its efforts to
curb the financial activities of terrorist groups, since these networks can move vast amounts
of funds across borders without using banks or other formal financial agents. One example is
the "hawala" system (Hindi for "in trust") used in Pakistan and India to avoid paying bribes or
taxes when transferring money across borders. The hawala system can be used to transfer
large sums from one country to another without the money's ever crossing borders.

In the hawala system, a money broker (or "hawaladar") collects funds at one end of the
operation in Country A, and another hawaladar in Country B distributes the funds at the other
end. Information on the amount of money and the person for whom it is intended (identified
through a code word or other means) is transferred via e-mail or letter. Because individual
hawaladars are typically small business owners who operate hawala activities on the side,
monetary obligations are generally tracked through a system of chits or verbal agreements
with few written records. Because the system requires complete trust, the two brokers are
often of the same clan. According to the Financial Action Task Force (FATF) of the
Organisation for Economic Co-Operation and Development (OECD),

http://www.heritage.org/homeland-security/report/stopping-terrorism-follow-the-money 3/8
10/27/2017 Stopping Terrorism: Follow the Money | The Heritage Foundation

Hawala remains a significant method for large numbers of businesses of all sizes and
individuals to repatriate funds and purchase gold.... It is favoured because it usually costs less
than moving funds through the banking system, it operates 24 hours per day and every day of
the year, it is virtually completely reliable, and there is minimal paperwork required.6
Cutting Off The Money

Most terrorist activities require foreign funds and financial markets to operate. The reason:
The states that harbor them have deficient legal and economic institutions that preclude the
emergence of functioning economies. The 2001 Index of Economic Freedom, a joint
publication of The Heritage Foundation and The Wall Street Journal, rated Iran, Iraq, and
Syria as "repressed" economies--the worst rating. Sudan's rating was suspended because of a
brutal civil war waged by the government against its own people. Afghanistan was not
included because it lacks a functioning economy.

The United States and other developed nations, then, can impede terrorism by more carefully
policing private domestic and international financial flows that are of a questionable nature in
order to cut terrorists off from their financial lifeblood. In pursuit of this goal, the Bush
Administration should:
Determine what countries and institutions are safeguarding Osama bin Laden's fortune and
publicly demand that they freeze his assets . It is certainly possible that the financial experts at
the Central Intelligence Agency (CIA) and Federal Bureau of Investigation (FBI) will soon
determine the whereabouts of bin Laden's $300 million fortune. Afghanistan's rudimentary
banking system cannot possibly be the primary depository of his banking fortunes or provide
his banking needs.

Once the whereabouts of bin Laden's fortune have been ascertained conclusively, the U.S.
government should publicly demand that the countries and institutions involved immediately
freeze his assets.7 Such a sudden and decisive action would certainly cripple, and could well
lead to the permanent demise of, his terrorist organization. In the era of transnational terrorist
organizations like bin Laden's, these tools become the most effective means of dealing with
cross-state menaces.
Increase coordination in policing financial transactions in order to detect transactions among
terrorist groups, and prosecute banks or individuals that consciously or through their
negligence assist those transfers . Bankers whose institutions are being perverted by terrorists
have a moral responsibility to end the terrorists' use of the banking system. It surely would be
a bank CEO's worst nightmare to discover that he is bin Laden's banker. Banks have a
http://www.heritage.org/homeland-security/report/stopping-terrorism-follow-the-money 4/8
10/27/2017 Stopping Terrorism: Follow the Money | The Heritage Foundation

practical interest in developing their own solution to the problem before Congress imposes a
draconian measure on the industry.
While short-
Of course, even the Therefore, the The United States must diligently
selling is a
most diligent banks United States prosecute and hold liable individuals
legitimate
may unwittingly be must focus on and banks involved in these activities.
financial
used as a conduit for monitoring and Liability creates incentives for bankers
activity used
financial transfers tracing financial to report suspicious transactions as
by
among terrorists. activities of soon as they notice them. Banks and
individuals
Ample information is terrorist groups. bankers who exercise due diligence
to hedge
collected by the The recent should not be held liable when
against
Federal Reserve announcement sophisticated terrorists use their
financial risk
System, the Financial that FinCEN data services in ways they could not
and loss,
Crimes Enforcement will be used by reasonably detect. Banks or individual
creating the
Network (FinCEN) in the new bankers who have been negligent
condition
the U.S. Treasury, and interagency should be punished with stiff civil fines
that causes
banking regulators in Foreign Terrorist (and liability lawsuits initiated by
the share
other countries to stop Asset Tracking government regulators) for the
price to fall
these movements. Center (FTAT) is consequential damages caused by such
is securities
Law enforcement a positive step.8 conduct, up to and including the loss of
fraud. If it
agencies, however, FTAT's express their licenses to conduct banking in the
involves a
have not made purpose will be to United States. The aiding and abetting
heinous
effective use of that locate and disrupt of a terrorist act is itself a terrorist act.
criminal act,
information to terrorist funding If done consciously, such an act should
such as
apprehend the global sources, including be prosecuted criminally to the full
occurred on
criminals who use the finding any links extent of the law, including punitive
September
modern financial between U.S. damage suits and criminal liability for
11, that fraud
system to finance theirfinancial murder.
would
business. institutions and
compound
funding networks.
the felony.
Expand the network of mutual legal assistance treaties and implement procedures to ensure
timely and effective international cooperation in the fight against crime . Law enforcement
officials generally can count on international cooperation because of mutual legal assistance
treaties and other international commitments. Nations traditionally have observed the

http://www.heritage.org/homeland-security/report/stopping-terrorism-follow-the-money 5/8
10/27/2017 Stopping Terrorism: Follow the Money | The Heritage Foundation

principle of "dual criminality," which means that they help each other investigate and
prosecute actions that are against the law in both nations.

Murder, of course, is universally recognized as a crime, so all jurisdictions should cooperate

in the battle to catch and punish the terrorists. Governments should work together to expand
these treaties to cover all jurisdictions and to create procedures that will allow quick
compliance in high-priority cases. They should be prepared to ostracize and punish
jurisdictions that resist by placing them on a watch list of countries, more carefully
scrutinizing financial transactions originating from those countries, and, in extreme cases,
restricting the ability of their financial institutions to conduct financial transactions within the
United States.
Increase intelligence resources dedicated to infiltrating and monitoring criminal use of
informal money transfer networks . Terrorist groups can also transfer money around the world
without using the services of a financial institution by utilizing informal money transferring
networks or alternative remittance systems. Regulating banks and implementing money
laundering laws will have little effect on these informal networks, which function largely
without documentation. Therefore, the United States must dedicate increased human
intelligence resources to combating the use of this system, which is largely immune to
electronic surveillance because of its rudimentary nature, to support terrorist activities.
Conclusion

Terrorists cannot subsist on fanaticism alone. They require financial backing to conduct their
activities. President Bush made clear his understanding of this fact on September 20, when he
told a joint session of Congress that "We will starve terrorists of funding."

In order to fulfill his promise to combat terrorism, America and its allies in the war on
terrorism must cut off terrorist groups from the international financial flows that support
them. This will require greater oversight of formal and informal financial transactions, as well
as pursuing and punishing those who facilitate the financial transfers to terrorists.

Gerald P. O'Driscoll, Jr., Ph.D., is Director of the Center for International Trade and
Economics, Brett D. Schaefer is Jay Kingham Fellow in International Regulatory Affairs in
the Center for International Trade and Economics, and John C. Hulsman, Ph.D., is a Research
Fellow for European Affairs in the Kathryn and Shelby Cullom Davis Institute for
International Studies, at The Heritage Foundation.

http://www.heritage.org/homeland-security/report/stopping-terrorism-follow-the-money 6/8
10/27/2017 Stopping Terrorism: Follow the Money | The Heritage Foundation

1. The authors would like to thank James Phillips, Research Fellow in the Kathryn and Shelby
Cullom Davis Institute for International Studies; Daniel J. Mitchell, McKenna Senior Fellow
in Political Economy in the Thomas A. Roe Institute for Economic Policy Studies; David
John, Senior Policy Analyst for Social Security; and Todd F. Gaziano, Senior Fellow in Legal
Studies, at The Heritage Foundation for their comments and contributions to this paper.

2. President George W. Bush, "Address to a Joint Session of Congress and the American
People," September 20, 2001 (emphasis added). See
http://www.whitehouse.gov/news/releases/2001/09/20010920-8.html .

3. Kenneth Katzman, "Terrorism: Near Eastern Groups and State Sponsors, 2001," CRS
Report for Congress No. RL31119, Congressional Research Service, September 10, 2001, p.
9.

4. Donna Abu-Nasr, "Bin Laden's Financial World Vast," Associated Press, September 18,
2001.

5. James Toedtman and Charles V. Zehren, "Profiting from Terror? Worldwide Probe of Surge
in Trades Days Before Attack," Newsday , September 19, 2001.

6. For more information, see Organisation for Economic Co-Operation and Development
(OECD), "Report on Money Laundering Typologies 1999-2000," Financial Action Task
Force, FATF-XI, February 3, 2000, at http://www.oecd.org/fatf/pdf/TY2000_en.pdf , and Tim
Weiner and David Cay Johnston, "Roadblocks Cited in Efforts to Trace bin Laden's Money,"
The New York Times , September 20, 2001.

7. President Bush took the first steps necessary to accomplish this goal in the United States on
September 24 when he signed an executive order, "Blocking Property and Prohibiting
Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism," that, in
the words of President Bush, "immediately freezes United States financial assets of and
prohibits United States transactions with 27 different entities. They include terrorist
organizations, individual terrorist leaders, a corporation that serves as a front for terrorism,
and several nonprofit organizations.... [T]hey oftentimes use nice-sounding, non-
governmental organizations as fronts for their activities. We have targeted three such NGOs.
We intend to deal with them, just like we intend to deal with others who aid and abet terrorist
organizations. This executive order means that United States banks that have assets of these
groups or individuals must freeze their accounts. And United States citizens or businesses are

http://www.heritage.org/homeland-security/report/stopping-terrorism-follow-the-money 7/8
10/27/2017 Stopping Terrorism: Follow the Money | The Heritage Foundation

prohibited from doing business with them." See remarks by President George Bush,
"President Freezes Terrorists' Assets," Office of the Press Secretary, The White House,
September 24, 2001, at http://www.whitehouse.gov/news/releases/2001/09/20010924-4.html.

8. See Rob Garver, "Launder Strategy Overtaken by Attacks," American Banker , September
20, 2001, at http://www.americanbanker.com/.
Get Inside Information on the Policies Shaping America

Each week, The Heritage Foundation publishes a limited-release newsletter with all of the
latest news and updates on the critical policy issues being discussed on the Hill. Stay in the
know when you sign up today.
First Name:

Last Name:

Email:

Authors
John Hulsman
Former Senior Research Fellow
Brett Schaefer
Jay Kingham Senior Research Fellow in International Regulatory Affairs
Gerald O'Driscoll

http://www.heritage.org/homeland-security/report/stopping-terrorism-follow-the-money 8/8