The Global Effort to Regulate the Financing of Terrorism

Presentation to ISODARCOAndalo, Italy

January 14, 2005

Thomas J. BierstekerWatson Institute for International Studies

Brown University

Introduction

This afternoon, I would like to speak about the global effort to regulate the financing of terrorism – a subject that involves contemporary international politics, regulatory policy, regime formation, and global cooperation. It is an issue that engages policy-makers and scholars alike.

What I would like to do is discuss:

1. The priority given to curtailing access to finance for groups utilizing terrorism after 911.

2. What we know about the financing of global terrorism3. How the world has responded to the challenges of terrorist financing 4. How effective the effort has been to date.5. Conclude with some comments on costs, benefits, and policy

recommendations going forward.

The priority given to curtailing access to finance for groups utilizing terrorism after 911.

In the immediate aftermath of the 9/11 attacks, the Bush Administration told the American public that it would not mount a traditional effort in its “war” against terrorism.

The campaign would be a protracted affair, and it would need to invoke non-traditional methods, institutions, and resources, including an effort to freeze and suppress both the raising and the movement of funds that could be used to support acts of global terrorism.

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As President George W. Bush declared on September 24, 2001,

We will direct every resource at our command to win the war against terrorists, every means of diplomacy, every tool of intelligence, every instrument of law enforcement, every financial influence. We will starve the terrorists of funding, turn them against each other, rout them out of their safe hiding places, and bring them to justice.

Why try to suppress terrorist financing?

First, limiting the resources available to groups using terrorism may prevent some attacks or at least can reduce the impact of attacks that cannot be prevented by degrading the capability of groups intent on committing acts of terrorism.

For example, former FBI director Louis J. Freeh noted how the 1993 attack on the World Trade Center took place earlier than planned and was less devastating than intended by Ramzi Yusef, the convicted mastermind of the attack, because of the group's limited financial resources.

Second, the imposition of effective regulatory financial controls can have a positive deterrent effect.

Once the provision of financial resources to groups engaging in acts of terrorism has been criminalized, and contributors to charitable organizations become aware of the potential diversion of their funds, there is a positive incentive for individual contributors either [a] to reduce their level of giving or [b] at least be more careful to ensure that the proceeds of their contributions are not diverted for terrorist purposes.

Third, financial controls can provide invaluable assistance in the reconstruction of events after a terrorist attack, the identification of additional members of the group utilizing terrorism and its supporters, and a better understanding of its modus operandi and organization.

It was financial information that helped law enforcement establish the first links between the hijackers and other conspirators involved in the September 11 attacks.

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Financial controls, therefore, perform preventive, deterrent, investigative, and analytical functions, which are vital for both theoretical and policy purposes.

They are also useful politically. They give the appearance of doing something about a potentially intractable problem.

What do we know about the financing of Global Terrorism?

1. It doesn’t take a large amount of funds to commit an act of terrorism.

September 11 – according to the 911 Commission monograph on TF,

The plot cost al Qaeda somewhere in the range of $400,000–500,000, of which approximately $300,000 passed through the hijackers’ bank accounts in the United States. [page 3]

Bali Bombing in 2002 – according to US sources: $50,000-74,000, paid for out of a $130,000 transfer from al-Qaida to Jemiah al-Islamiyah, the Indonesian based group.

Istanbul bombings in 2003: $40,000

1998 Africa Embassy bombings: $30,000 - $50,000

1993 First WTC Bombing: $18,000; Reportedly, the conspirators, were able to fund the operation themselves from criminal activities such as check and credit card fraud, and through donations raised from a local charity.

2004 Madrid: around $10,000 (operational costs only); raising money by peddling hashish and Ecstasy and allegedly stuffing stolen dynamite and shrapnel into backpacks at a decrepit rural cottage with no electricity or running water.

The relatively low cost of operations has prompted some [former US Attorney Mary Jo White] to argue, that because terrorist acts are so “alarmingly inexpensive” that finding, freezing and seizing assets is absolutely critical. "Every dollar matters."

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While the same finding prompts some others to suggest that it is an impossibly hopeless task.

Personally closer to the first assessment, though I do not want to underestimate the difficulties involved.

I say this because the 1993 attack on the World Trade Centre illustrates just how important money can be in these cases, at an operational level.

In 1995 Ramzi Yousef, the confessed organizer of the operation, admitted that the terrorists had wanted to build a bigger bomb but were not able to, due to lack of funds.

A key break in the investigation came because the terrorists attempted to recover a deposit fee they paid on a rented truck used to transport the bomb.

In spite of the relatively low cost of committing acts of terrorism, it is important to note that actual terrorist operations use only a small portion of the funds that terrorist organizations require for their support infrastructure such as recruitment, indoctrination, training, logistical support, the dissemination of propaganda, political activities, and other material support

Australian Commonwealth Director of Public Prosecutions, Damian Bugg, estimates “that al Qaeda spends about 10% of its income on operational costs. The other 90% goes on the cost of administering and maintaining the organization, including the cost of operating training camps and maintaining an international network of cells. So called ‘sleepers’ must also cost significant sums to establish and maintain.”

According to the “Terrorism Financing: Roots and Trends of Saudi Terrorism financing Report,” prepared for President of UN Security Council, Dec 19, 2002:

Al-Qaida clearly distinguishes in various documents, including its training manuals, between “organizational funds” and “operational funds.”

In the final analysis, while the operational costs of terrorism may be low (from $10,000 for multiple bomb attacks on trains and subways to $500,000 for the destruction of two skyscrapers), the total cost of a terrorist attack is believed to be much higher (up to 10x) due to the requirements of

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recruiting, training, indoctrination, living expenses, disseminating information, etc.

Even if we accept those figures, as Donald Rumsfeld has lamented, it costs them millions, while it costs us billions. It is an asymmetric response to an asymmetric threat.

2. There are a variety of different methods for raising, moving, and storing funds (and it is important to distinguish between them).

Al-Qaeda poses a new kind of security threat.

It is not a threat emanating from another state or from a terrorist organization located within a state.

It is a threat from a non-state actor, a transnational organization or movement, using tactics of terrorism and operating on a global scale.

Although there are some similarities, the threat from al-Qaeda is qualitatively different from either state terrorism or terrorism emanating from within, directed against, and largely contained within, a single state (such as the LTTE in Sri Lanka or the FARC in Colombia).

Al-Qaeda is a global, complex, transnational, networked phenomenon, with a capacity to inflict harm and impose costs on people and institutions across the planet.

Efforts to counter it effectively will require a networked, multilateral response.

It is an extremely complex and difficult project.

However it is not an impossible one, and the technology, if not always the political will to employ it, is available.

What do we know about al-Qaeda and its financial network?

(Drawn from the Council on Foreign Relations Task Force report, on which I served)

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AQ is notably and deliberately decentralized, compartmentalized, flexible and diverse in all of its operations, including financial

Not just based on bin Laden’s personal wealth; indeed, it appears largely depleted (though was significant at the outset, in the early and mid-1990s)

Its financial network is characterized by layers and redundancies

Raises funds from a variety of sources and moves it in a variety of different ways

It has changed its structure, recruitment, and operating modalities, over time – in ways that have significance for the raising, moving, storing, and utilizing of financial resources.

Raising funds

AQ often has operated under a cloak of legitimacy – running legitimate businesses, such as bin Laden’s businesses in Sudan or the honey traders in Yemen – profits are channeled to terrorist ends

AQ also operates criminal enterprises; some large, and some small: some cells are reputed to be self-supporting, and engage in smuggling, fraud and theft

Most important source of financial support – at least up to and immediately following 9-11 was from continuous fundraising efforts that date back to the methods established to support the mujahadeen in the 1980s: charities, NGOs, mosques, web sites, special fundraisers, intermediaries, facilitators, and direct solicitations

Zakat contributions are widely unregulated, seldom audited, often co-mingled with other funds, and can be skimmed off for other purposes

Some giving to AQ is willful (such as the Afghan Support Committee, the Pakistani Al Rashid Trust and Wafa Humanitarian Organization, the Kuwaiti Revival of Islamic Heritage, the Saudi al Haramain organization, and the US-based Holy Land Corporation); but some is not, and funds can be diverted without their donors knowledge

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Most of the fundraising has taken place in the wealthier Islamic countries, and Saudi Arabia has long had a very special relationship with AQ (funding, recruitment, issue definition); though in recent years, AQ has been expanded its relationships with organizations like Jemaah Islamiyah (or JI), that have their own financial support networks; and more recently, with groups operating in Iraq.

Moving funds

Global financial system is used: note finding of 911 Commission report that $300K passed through US banking system.

Also, under or un-regulated havens (with limited bank supervision, limited anti-money laundering laws, ineffective law enforcement, and/or a culture of bank secrecy) – historically places like Dubai, the UAE, Kuwait, Bahrain, and Lebanon and moving funds into equally unregulated places like Pakistan or Afghanistan under the Taliban

Through correspondent banking relationships, and moving funds through off-shore European havens like Liechtenstein and Austria (or the Cayman Islands or the Bahamas), these places have access to any location on the globe

The Islamic banking and financial system has also been used and generally tends to be less well regulated than the global financial system

Hawala system; like the Islamic banking system, perfectly legitimate – but it is not regulated formally and are also similar to and inter-linked with systems for Chinese, Thai, and other informal transfers.

Transfer pricing mechanisms – long utilized by TNCs trying to get funds out of countries with restrictive currency controls – can also be used

Trade diversion schemes

Old fashioned smuggling – of cash, precious metals, and gemstones – using the same routes and methods employed by drug traffickers, arms dealers, and TCOs

Use of smuggling appears to have been on the rise during the past 3 years.

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Storing funds

Cash

Family members, friends and close allies as safe havens; (London Times correspondent Nicholas Fielding stresses the importance of family networks).

Gemstones (note Douglas Farah’s argument re: the diamond market after the US first froze AQ funds in US financial institutions following the embassy bombings)

Ad hoc arrangements with other terrorist organizations and possibly with criminal organizations

3. The social organization of different groups using terrorism (hierarchical versus networked or dispersed) can have important consequences for how they raise and move funds.

Jessica Stern, author of Terror in the Name of God, argues in our forthcoming book, Financing Global Terrorism, that different organizational forms of terrorism – ranging from hierarchical, commander-cadre terrorist organizations (like al-Qaeda was between 1996 and 2001) to virtual, networked, de-centered organizations (like radical anti-abortionists or the Aryan Nation in the US) – have significant implications for the internal workings of terrorist groups – including their mission, decision-making procedures, recruitment strategies, and their financing.

Hierarchical organizations have separate divisions responsible for the raising and moving of funds and draw on diversified sources to secure their operations (diversion of funds from charitable giving, legitimate businesses).

Virtual, decentralized networks rely more heavily on individual contributions made through the Internet.

There is widespread sentiment – reflected in the recent work of Rohan Gunaratna – that al Qaeda has morphed from a hierarchical organization into a networked movement since 9-11.

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In between these two are a variety of different organizational forms associated with national self-determination movements interested in control over a discrete territorial space. Those that have succeeded to force the state out of major portions of territory – the Tamils in Sri Lanka or the FARC in Colombia – operate more like states and obtain most of their revenues from forms of taxes (on trade or from extortion of those seeking protection from potential kidnappings).

4. Groups have changed their methods of raising and moving funds over time, probably in response to regulatory efforts; they have increasingly moved out of formal financial sector institutions and into illicit activities and the grey economy.

There is greater reliance today on the use of decentralized petty crime (self-help systems) to support the operations of semi-autonomous cells.

This eliminates the need to move and store large amounts of funds.

Credit card fraud has been one way for cells operating in Europe and the US to finance themselves.

As we learned from the Madrid bombings, small-scale drug trafficking, and the fraudulent sale of petty goods were also used as sources of local financing for the operation.

As formal sector channels have increasingly been closed down, groups using terrorism have increasingly moved their assets out of formal sector financial institutions.

Some are suspected to have used IVTS (hawalas) for transfers of funds; others have resorted to traditional cash smuggling; Douglas Farah argues that gemstones from the conflict zones of West Africa have been used both to store and to transfer value; still others have speculated that there are linkages to organized crime (as British investigators charged following the recent – August 2004 – arrests in London..

How has the world responded to the challenges of terrorist financing?

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In the broadest sense, there has been a global export of an American regulatory approach designed to suppress the ability of groups to finance terror through formal sector channels.

The Scope of international activities following September 11

Overnight, the political will that had been absent to make targeted financial sanctions effective materialized.

Developments within the United Nations:

Resulted in unanimous passage of UNSC Resolution 1373 in September 2001 (subsequent resolutions 1377, 1456, and 1535)

UNSCR 1373 was extraordinary in breadth and scope of requirements mandatory on all States (under Chapter VII) to deny support for terrorists, including preventing the financing of terrorism prior to the commitment of an act of terrorism and the legal ability to freeze funds expeditiously

It was an unprecedented statement of international community’s political will to restrict terrorist financing in manner previously unimaginable.

Established CTC, with innovative and novel procedures requiring States to report on actions taken to implement 1373 – unique, innovative in that it established an interactive, dynamic monitoring process with States to ensure accountability and improve their ability to restrict terrorist finances.

Previously, states tended to report to UN that they were complying “to the best of their ability.”

CTC introduced mandatory reporting requirements on states; responses to specific questions; invitations to ambassadors to meet with CTC to elaborate on their reports; an innovative, interactive process of reporting.

All reports were translated and posted on the UN’s website. (You can read the reports at www.UN.org.)

CTC focused on building 1) legal bases to address financing, freeze assets, and 2) administrative mechanisms to suppress financing, including addressing charities, IVTS, hawalas, etc.

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UNSCR 1373 also called upon countries to sign and ratify the UN Convention on Terrorist Financing.

Lack of capacity for many states to implement 1373 became readily apparent, so CTC began technical assistance program (through resolution 1377), and coordinated bilateral offers of assistance, as well as international, regional & sub-regional organizations involved with counter-terrorism efforts

While the CTC momentum slowed in late 2003, the Security Council adopted new measures (UNSCR 1535) in March 2004 to “revitalize” the CTC as the primary mechanism to assist States in combating terrorist financing, creating the CTED.

The UN Al-Qaida Sanctions Committee (1267 Committee, November 1999) maintains the list of individuals and groups accused of supporting or engaging in acts of terrorism.

Over time, it has expanded the list of terrorist entities against which all States are required to restrict financing.

The 1267 Committee has steadily improved the quality of information on designated individuals, groups, and their financial supporters, as well as developed innovative measures for the de-listing of falsely named individuals.

During 2003 and 2004 the 1267 Committee increased its oversight and monitoring of States’ implementation and enforcement efforts, enhancing its reporting and evaluations procedures (modeling them in part on the innovative procedures developed by the 1373 CTC).

1373 medium to long-term, strategic

1267 short to intermediate term, tactical

More recently, in October of 2004, following the Beslan (Russia) tragedy, the UNSC passed UNSCR 1566 that renews and reinvigorates its efforts against terrorism, contains elements of a definition of terrorism, establishes a call and basis for the creation of an expanded list of individuals and groups

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using terrorism, and establishes a continuing committee to monitor both efforts.

Other international efforts:

The Financial Action Task Force (FATF) has played an important role in responding to 9/11 by promulgating its Eight Special Recommendations Against Terrorist Financing, (including ratifying the Convention; criminalizing terrorist financing; freezing and confiscating assets; introducing suspicious transactions reports (STRs), Know-Your-Customer provisions, etc.).

It has also developed a methodology for assessing compliance with the 8 Recommendations, and issued guidance for financial institutions in detecting terrorist financing, as well as developing best practices concerning of freezing of terrorist assets, alternative remittances, and non-profit organizations.

Responding to criticisms of encouraging “cosmetic compliance” (whereby legal and administrative measures look good on paper, but little is done to follow-through on implementation and enforcement) the FATF is refocusing its efforts to ensure more effective implementation.

In collaboration with the FATF, the International Monetary Fund and World Bank have assessed 41 countries’ compliance with anti-money laundering and countering terrorist financing (AML/CTF) standards in a pilot program.

Results indicate that while many jurisdictions were doing a good job in countering money laundering, some were lagging behind in measures to deter terrorist financing.

In April 2004, the IMF and World Bank agreed to continue the assessments as part of its ongoing Financial Sector Assessment Program (FSAP) and Reports on the Observance of Standards and Codes (ROSCs), but to adopt a more comprehensive and integrated approach to conducting assessments.

Regional & other efforts:

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Cooperation on terrorist financing has become a permanent part of the agendas of regional organizations such as the EU, APEC, ASEAN, GCC, OAS, OSCE and the African Union.

In the aftermath of the March 11, 2004 terrorist attacks in Madrid, the EU adopted a Terrorism Action Plan, including new proposals to strengthen the fight against terrorist financing through enhanced customs controls on cash movements, establishment of an electronic database of all targeted persons and entities, and possible modification of the procedures requiring unanimity for revisions of the list of terrorist organizations/assets.

APEC also established a Counter-Terrorism Action Plan, with a specific check-list of measures and timeframe for members to halt the financing of terrorism.

The G-8 established a Counter Terrorism Action Group (CTAG) at the Evian Summit in June 2003 to assist the CTC in coordinating capacity building assistance.

While the CTAG falls short of forming a new international organization, it represents a potentially significant effort by donor nations to supplement the UN’s capacity building initiatives.

Egmont and Wolfsberg refocus from AML to CTF

An international regime in formation

If these trends continue, they could provide the basis for a form of global governance in this critically important arena, and, as one international banker recently commented at a conference on countering terrorism, “in ten year’s time, we may look back on this period as the beginning of a major change in the institutions, operations, and procedures of the entire global financial system.”

We could be seeing the emergence of a nascent global regime, with new rules, norms, principles, and decision-making procedures in the issue area of the suppression of finance for global terrorism.

How effective has the effort been to date?

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Preliminary Assessment of Effectiveness:

Too early to say for sure how effective CTC and other efforts will be, but there are indications of progress and changes in countries’ legal and administrative procedures to restrict terrorist financing

Based on a preliminary assessment of the data available (primarily from an examination of reports from countries in Europe, North America, the Middle East, and East Asia), there is strong evidence to suggest that the UN process has made significant progress in criminalizing terrorist financing (legal framework) and improving financial administrative capacity in Member States.

Evidence of Change at the Global level

Reporting

With regard to reporting, every one of the 191 Member States of the United Nations has filed reports on their compliance with counter-terrorist resolutions to the CTC.

This, in itself, is an extraordinary achievement.

Most states have filed more than one report, and the majority of the reports submitted follow the detailed structure laid out by the Counter Terrorism Committee.

There is also evidence that both the quality of reporting and progress on criminalizing terrorist finance have improved over time.

In the first round of reports submitted to the CTC in late 2001 and early 2002, many states argued that they already had sufficient legal instruments to criminalize the funding of terrorist activity, arguing that they were using anti-money laundering legislation to meet their legal obligations to criminalize terrorist financing.

Reviews of second round reports to the CTC (completed 12/31/02) suggest that as the dialogue between Member States and the CTC proceeded, States

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began to move beyond reliance on anti-money laundering legislation and promulgate new laws specific to terrorist financing.

In its parallel multilateral effort to monitor implementation, the FATF reports that more than 120 countries in the world have participated in one of its self-assessment processes to compare their current practices against FATF standards embodied in its eight special recommendations on terrorist financing.

It uses these self-assessments to identify countries for priority technical assistance from the World Bank, IMF, and the UN.

International Conventions

In September 2001, only four countries had ratified the 1999 International Convention for the Suppression of the Financing of Terrorism; by the end of April 2004, that number had increased to 117 States.

In September 2001, fewer than a dozen states had signed all twelve conventions on international terrorism. By July 2003, that number had grown to more than forty.

Requests for Technical Assistance

UN Security Council resolution 1377 (2001) invited States to seek assistance with implementation and called on Member States to assist each other to implement the resolution fully.

Ambassador Curtis Ward, Advisor on Technical Assistance to the CTC, stated, ‘Forty-seven States indicated in their first reports (2001 and 2002) that they needed assistance to implement resolution’.

By the end of 2003, more than 160 States had requested or received capacity building assistance from the CTC.

The number grew as more States reach a clearer understanding of what is expected of them.

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According to Ward, the greatest needs for assistance appear to be in drafting anti-terrorism law and in developing banking and financial law and regulations.

The World Bank reported receiving more than 100 requests from countries to help build capacity to fight money laundering and terrorist financing.

The CTC has facilitated terrorist financing assistance in legislative drafting, support to banking supervisory bodies, and establishment of FIUs in almost 60 countries, with 89 countries participating in workshops; training in countering terrorist financing has been provided to 71 countries thus far.

Bilateral Cooperation between the United States and individual countries has also increased.

Intensive efforts with Saudi Arabia, in the form of enhanced intelligence and law enforcement cooperation, and the UAE on informal transfer systems have strengthened and reinforced capacity to address terrorist financing.

Evidence of Change at the National Level

Legal framework

With regard to legal changes, most countries have shown progress on criminalizing the willful collection of funds for terrorism and providing a legal basis for the expeditious freezing of the funds of terrorist groups and individuals.

New legislation has either been adopted or is formally under review in most countries.

Ambassador Curtis Ward, the CTC’s Advisor on Technical Assistance, reports that every State has had to adopt new legislation in order to meet fully all of the requirements of resolution 1373.

Anti-money laundering rules have been tightened, and as indicated above, more countries are beginning to recognize – in part from the CTC policy dialogues – that anti-money laundering regulations are not sufficient to suppress terrorist financing.

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States need to be able to identify and freeze terrorist funds upon decision of competent authorities, without judicial process -- therefore often need new legal provisions.

Administrative Infrastructure

Most states report changes in administrative infrastructure to deal with terrorist financing, with many forming FIUs or intra-governmental mechanisms to address issues for the first time.

In its effort to support the establishment of an administrative infrastructure to implement counter-terrorism measures, the CTC has appointed an assistance team to dispatch information about common standards and best practices, and it has established a Directory of Assistance on its web site.

It is not clear how many states have utilized this resource to date, but CTC assistance teams, in bilateral consultations with different states, evaluate gaps in administrative capacity and facilitate assistance from willing donors.

Most countries have identified an implementing agency or intra-governmental mechanism for administering controls on terrorist financing, and nearly all have identified central contact points for the CTC.

Regulatory Measures

There is evidence that banks and financial institutions have been notified about new regulations in most countries.

Many countries have introduced new reporting requirements for banks and financial institutions, especially suspicious transaction reports; formal audits have been used less frequently, however.

Few have pursued measures to regulate charities, other than registration of charities with government officials; although Saudi Arabia announced an ambitious program for monitoring the activities of all charities operating in the Kingdom.

Similarly, most states report limited actions with informal value transfer systems (some denying they exist) other than licensing or registration

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EU members tend to be the most prone to conduct audits, investigations into charitable organizations, and special measures for high-risk (off-shore) centers under their jurisdiction.

Until 2002, virtually no one, with the exception of the UAE, had any measures for the regulation of informal money transfer systems or hawalas.

The Saudis claimed that hawalas did not operate in the country and that every financial institution was under the administrative mandate of the Saudi Monetary Authority.

More recently, however, the US federal government has registered well over 16,000 money service businesses.

Australian officials have pursued similar measures, and Hong Kong has been described by Australian regulators as ‘setting the standard’ in this area.

Pakistan and the UAE have also introduced new legislation regarding the operations of hawalas.

Enforcement

$112.2 million was frozen in the first few months immediately after 11 September 2001.

(But those initial figures may be inflated, since they appear to have included funds frozen under UNSCR 1267, going back to November of 1999.)

There is not much evidence of significant additional funds frozen beyond that total.

An October 2003 United States Treasury progress report indicated that 1,439 accounts, containing more than $136.7 million in assets, had been frozen worldwide and that “countless millions in additional funds have been prevented from flowing to terrorists as a result of international actions to disrupt terrorist financing networks, deter donors, and secure the world financial system.” US Assistant Treasury Secretary, Juan Zarate, raised that figure to $147 earlier this week (January 10, 2005) in a presentation he gave at the UN.

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Of the $147+ million in assets of terrorist organizations blocked as of January 2005, $36 million has been frozen by the United States and $98 million by other countries (approximately $24m by Switzerland, $11.9m by the UK, $5.5m by Saudi Arabia, and an undisclosed amount by the UAE).

The UN’s 1267 Committee estimate somewhat lower amounts.

Only 21 of the 83 countries reporting to the 1267 Committee indicate that they had frozen any assets.

The total amount affected by these freezing actions comes to approximately US $75 million.

Pakistan, Saudi Arabia, Switzerland, Turkey and the United States alone account for about $70 million of that amount.  

A significant part of the assets involved funds attributed to the Taliban, and they have subsequently been returned to the new Government of Afghanistan.  

No countries gave any indication of having frozen any tangible assets such as businesses or property.

Eleven of the reporting States, which had indicated the presence of Al-Qaida-related cells in their countries, provided no indication that any assets had been frozen.

Some states mention investigations being pursued or underway, but few have new evidence of concrete success.

Many still assert that their financial system is not susceptible to misuse by terrorists.

Prosecutions have been pursued, especially in the United States, Germany, Indonesia, and the UK, but few have thus far resulted in the freezing of additional funds.

There has been some extraterritorial application of the USA PATRIOT Act (actions against correspondent accounts in Israel, Oman, Taiwan, India, and

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Belize) that have allegedly resulted in the seizure of an additional $2 million, but federal judges have sealed the records on most of them.

There is virtually no evidence of the suspension of any banking licenses.

But there have been convictions in the United States for ‘material support’.

To date, only the United States and the European Union have developed their own lists of groups and individuals legally identified as terrorists, while most other countries rely instead on the lists provided by the UN.

Summary assessment:

There have been important changes in policy introduced throughout the world, from Europe and Russia to traditional off-shore locations like Bahrain and Hong Kong.

There have been important expressions of a global willingness to do something about terrorist finances, even if material progress to date has been relatively modest.

The jury remains out as to how effective these changes will be in the long-run.

But more events like Bali, Istanbul, Morocco, Riyadh, the Madrid bombings, Russia (Beslan), and Jakarta serve to underscore the threat that terrorism represents to all States, not just the US, and serve to propel the effort forward.

In the final analysis, however, we need to recognize, as the 911 Commission monograph of TF stated, completely choking off the money to al Qaeda is “essentially impossible.”

Costs of the Global Effort to Regulate the Financing of Terrorism

There are important points of resistance to the global effort:

1. Human rights issues and concerns about the listing process

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2. Questions from the private sector about the relative costs and benefits of the effort; analytically they are correct – it is difficult to know if and when these state regulatory efforts are effective.

3. Decline in charitable giving to the Islamic world

Other challenges:

Lack of full implementation in many states (either due to capacity or will)

Continued problem of an absence of parallel implementation (particularly evident with regard to listing)

However, this differs from the targeted financial sanctions regime in that the nascent regime to suppress terrorist financing has made a significant effort to provide training to enhance the capacity of States to implement its core elements.

Benefits and Positive externalities

1. $147m has been denied to groups and individuals interested in committing acts of terrorism.

2. The effort facilitates intelligence gathering for agencies monitoring the structure of networks utilizing terror as an instrument (“following the money…”):

3. Other potential externalities:

Once established, the improvements in state capacity facilitated by the global effort to restrict the access to finance of groups utilizing terrorism can result in other benefits to the global governance of the international political and economic systems.

a. They can be used to monitor and limit abuses from potential tax evasion.

b. They can strengthen the existing anti-money laundering (AML) efforts.

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c. They can be used to pursue funds transferred abroad by corrupt political leaders.

d. They can enhance state institutional capacity in more general terms, contributing to institutional development.

Policy issues, debates, recommendations

Internal administrative changes underway within the UN – both new resolution and formation of a secretariat (the CTED) to support CTC – “revitalization effort”

Debate about whether to create a single new institutional entity (an IAEA for terrorist financing) or embed the regime within existing institutional structures

Multilateral efforts require additional resources to be effective.

The problem of “reporting fatigue” on the part of developing countries

A more systematic analysis of implementation and enforcement measures by countries is necessary, as well as a more concerted effort, including additional resources for capacity building initiatives within States.

Assessment of the costs and benefits of a regulatory approach (the effort is more likely to yield political advantages – by giving the appearance of doing something – than it is to prove materially crippling to al Qaeda)

The limitation of the “one size fits all” model – as the list of individuals and groups using terrorism is expanded by the UN, the complexity in terms of differences in raising, moving, storing, and using funds by different groups and movements is likely to make the regulatory effort more difficult; different instruments require different regulatory responses, not a “one size fits all” model.

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