Terrorist Financing, Dynamics of Change

By Dennis Lormel

Terrorist financing characteristics and methodologies constantly evolve due to changing dynamics in world events, such as the global response to terrorism and the ability of terrorists to adapt to the environment. One of the true challenges in dealing with terrorism is the recognition of the "dynamics of change" and understanding that terrorist financing methodologies will continuously evolve with the intent to avoid detection. Developing mechanisms to identify emerging trends, as well as systemic and institutional vulnerabilities, is an important step in disrupting terrorist funding flows. Implementing proactive, detective and preventive strategies, based on forward thinking trend and risk analyses, are the responsibility of both the govenment and private sectors.

Although financial activity that supports terrorism is often simplistic, terrorist financing presents a myriad of complex challenges. By its nature, in most applications, the movement of funds to support terrorism is through legal and undetectable means. We should be mindful that terrorist financing encompasses a wide variety of activities. There are fundraising mechanisms, operational and administrative support mechanisms, and other considerations, which require use of the formal and informal financial systems. This variance is exacerbated by the range of positions and responsibilities individual terrorists and terrorist supporters assume to include leaders, fundraisers, financiers, facilitators, operatives and suicide bombers. Financial requirements and flows for the full gamut of terrorists and terrorist supporters vary according to factors to include their role, location and affiliations.

Terrorist and terrorist financing warning signs are constantly evolving due to changing dynamics in world events, such as the global response to terrorism and the ability of terrorists to adapt to changing dynamics. Like characteristic indicators, warning signs are non-static. For example, in response to the 9/11 terrorist attacks, the U.S. and international community took decisive steps to disrupt and dismantle terrorist groups and their financing. In return, terrorists adapted new methodologies to exploit systemic vulnerabilities. The same cycle was repeated following other significant terrorist activities, most recently in the aftermath of the Madrid bombings of March, 2004.

One of the true challenges in dealing with terrorist financing is the recognition of the dynamics of change and understanding that terrorist and terrorist financing methodologies will constantly change to avoid detection. Developing mechanisms to identify emerging trends should be incorporated into the risk analysis process.

Based on a number of factors, including the international response to terrorism, the number of terrorist arrests and deaths, recruitment practices, emergence of younger terrorists and the regionalization of terrorist groups and affiliations, a new generation of terrorists is taking shape. Individuals committing themselves to jihad tend to be better educated, less experienced, more radical, somewhat autonomous and resilient. They are more engaged in criminal activities or interact to a greater degree with more traditional criminal groups. This new breed is proficient in the exploitation and use of false identification documents.

On a global scale, the same dynamics mentioned above have fostered emerging trends in international terrorism. There has been an increase in overt activity. The threat of radical Islamic extremism is more widespread then ever. There has been an increase in death and injuries resulting from worldwide terrorist acts. Loosely affiliated regional groups have emerged and become more active in light of the international crack down on Al-Qaeda. At the group level, there has been a proliferation in the use of stolen passports and false identification. There has also been an increase in criminal activity as a fundraising mechanism to support operations.

The personal characteristics of terrorists are non-static. Terrorists, especially Al-Qaeda related, are sensitive to investigative and regulatory scrutiny. Their characteristics continuously evolve in an effort to avoid detection. Recently, they have taken on characteristics of individuals more identifiable with western societies. When assessing characteristics, you must consider the evolution of operational dynamics to consider factors to include operatives, targets, financing and communications. Operatives have become more identifiable with their country of operation. Targets have become increasingly soft. The Madrid train bombing is a somber reference. Financing has increasingly centered on criminal activity. This places the operatives at higher risk of detection. Communications have remained more constant. Cell phones were used to trigger the Madrid bombs. Cell phone activity was also used as an investigative tool leading to numerous arrests. Finance and communications are the two major terrorist vulnerabilities and weaknesses.

Government agencies and financial institutions must identify and assess warning signs within their jurisdictions and areas of operation by understanding money laundering, terrorist and terrorist financing risk factors, systemic vulnerabilities, and institutional vulnerabilities. Companies should develop risk/vulnerability matrices and identify countermeasures and control mechanisms to mitigate risks and vulnerabilities. Everyone should remain vigilant in an effort to recognize and deal with suspicious activities.

Indicators to look for can be varied. They should take on greater or lesser significance dependent on risk and vulnerability factors. Numerous sources, to include FinCEN and the Financial Action Task Force (FATF), have published reports and typologies listing money laundering and terrorist financing indicators.

Lessons learned since 9/11 should play a significant role in formulating future detective and preventive measures. First, we must understand vulnerabilities in terms of systemic societal vulnerabilities and areas of vulnerability to terrorist interests. Systemic vulnerabilities represent systemic weaknesses that terrorists and criminal elements, especially fraudsters, exploit in furtherance of their activities. It�s incumbent that individuals and entities responsible for controls recognize such weaknesses and implement mechanisms to minimize such exploitation.

The unfortunate reality is that terrorists will always have access to financing. We cannot be discouraged by this fact and must use every tool in our arsenal to disrupt and minimize funding flows to terrorists. The greater the level of disruption the more difficult it is for terrorists to raise funds and carry out terrorist operations. Like terrorism itself, terrorist financing is not limited to the homeland but is global in scope. In dealing with terrorist financing, all solutions must be considered. Outreach initiatives between government and private sectors within the U.S. and internationally is important in establishing frameworks for cooperation and information sharing.
In view of the combination of law enforcement, regulatory and diplomatic actions taken in the U.S. and internationally, certain of the lucrative funding sources, such as charity and wealthy donors, have significantly diminished. This has resulted in a greater reliance on criminal activities.

Since 9/11, terrorist financing methodologies have been changing. Terrorists rely on two tracks of funding, the formal and informal financial systems. To operate in western society, terrorists must rely more on formal mechanisms. To operate in less advanced financial venues, such as Afghanistan, more informal mechanisms are used. Following 9/11, Al-Qaeda took steps to exploit informal financial structures in the Middle East and Central America, and to use formal facilities on a more limited basis because of the investigative scrutiny and international pressure placed on the formal banking system. As just illustrated, the degree one system is used in preference of the other depends on a number of factors to include culture, sophistication of the banking system in various parts of the world, accessibility, timing, situational considerations, the level of investigative scrutiny and other factors. Whichever system is used, terrorists move funds with the intent to avoid attention and detection.

Al-Qaeda carried out the 9/11 attacks by hijacking four planes and using them in effect as suicide bombs crashing into the World Trade Center, the Pentagon and a field in Pennsylvania. This plan and the 19 hijackers involved, were totally funded by Al-Qaeda, in part, enabling the terrorists to avoid detection. Although one of the darkest events in U.S. history had occurred, the country responded with resolve in a decisive fashion by declaring war on terrorism. This resulted in the dismantlement of the Taliban rule in Afghanistan and serious disruption of Al-Qaeda, by destroying its safe haven in Afghanistan and disrupting its activities in Pakistan. One of the principal Al-Qaeda leaders responsible for masterminding the 9/11 attacks, Khalid Shaikh Mohammed (KSM), was captured in Pakistan, along with other important operatives following an exhaustive manhunt. At the time of his arrest, KSM was considered the most dangerous terrorist in the world.

The resulting fragmentation of Al-Qaeda, caused significant changes in terrorist operational methodologies, such as the emergence of more autonomous extremist regional groups.

On March 11, 2004, Madrid was devastated by a series of train bombings. The Moroccan Islamic Combatant Group (GICM) was responsible for the attack. Unlike other major bombings, the Madrid bombings were not suicide attacks. Bombs were left in backpacks on or near the trains and were detonated by cell phones. The attacks were funded by criminal activities to include drug trafficking. The combination of leaving the bombs on or near the trains and funding through criminal activities made this a higher risk attack for the terrorists than other previous significant attacks. In assessing this attack, investigation has determined that terrorists were assisted by more traditional criminals in execution of the plan. Of all the attacks, Madrid had the most desired impact on society from the terrorists� standpoint. It affected the outcome of national elections in Spain. Terrorists view this as a victory and may become more brazen in other Western countries around election time or in conjunction with other significant events. With respect to the post bombing investigation, Spanish authorities have made significant progress in the investigation and have made over 130 arrests disrupting continued operations by terrorist interests. Coordinated international investigations, particularly in Europe and Africa, have made these disruptions more meaningful.

Again, such investigative focus caused changes in terrorist operational methodologies, to include more specific recruitment of home grown jihadists and the greater proliferation of false identity documents.

The two most significant areas of vulnerability or weakness to terrorists and terrorist organizations are communications and finance. These two areas consistently lead to the disruption and dismantlement of terrorist groups and activities. Although terrorists consistently change their methods of operations and demonstrate adaptability at avoiding detection, they must communicate, and raise and spend money to function. This is where the government and private sectors efforts must exploit the weaknesses of terrorists.

All individuals in the financial community, particularly those responsible for Anti -Money Laundering Programs, Know Your Customer and Customer Identification Programs, and the filing of Suspicious Activity Reports are truly on the front lines of the financial component of the war on terrorism. It is incumbent on all of us to understand this fact and take this responsibility in a serious and vigilant manner. The better the control environment and the more thoroughly suspicious activity is reported, the greater the impact in the disruption and prevention process.

Timely and actionable information sharing initiatives are critically important keys to succeeding in preventing terrorist attacks and diminishing their ability to raise and move funds. There must be continued consistent communications, cooperation and coordination in the interagency and business communities across all lines domestically, as well as internationally. All sectors must develop and maintain strong working relationships. In certain instances this will require establishment of a middle ground to address impediments. Through risk and vulnerability assessments, as well as through other mechanisms, we must continue to identify emerging trends and systemic vulnerabilities. Agencies and institutions must adapt and implement methodologies to counter such trends and vulnerabilities. A final thought is that regular candid operational assessments should be performed in order to sustain the level of scrutiny necessary to disrupt and prevent terrorist activities, and to ensure the most forward thinking deterrent methodologies are developed and effectively employed.

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