Terrorism Financing and State Responses: A Comparative Perspective - Softcover

Softcover

ISBN 10: 0804755663 ISBN 13: 9780804755665

Publisher: Stanford University Press, 2007

Synopsis

Financial and material resources are correctly perceived as the life blood of terrorist operations, and governments have determined that fighting the financial infrastructure of terrorist organizations is the key to their defeat. Since the attacks of September 11, 2001, a good deal has been learned about sources and mechanisms used to finance the “new” terrorism, which is religiously motivated and exponentially more deadly than previous generations of terrorist organizations. New policies have been devised to combat the threat and existing policies have been enacted with greater vigor than ever before. Five years into the battle against terrorist financing, it is time to take stock of the emerging literature on terrorist financing, cut through a number of myths that have developed around the issue, and assess the current policy debates. Through a series of thematic chapters and organizational and regional case studies—examining terrorist organizations such as Al Qaeda and Hezbollah, and regions such as East Africa, Europe, Latin America, the Middle East, and South East Asia—the authors provide a comprehensive assessment of the state of our knowledge about the nature of terrorism financing, and the evolution and effectiveness of terrorist strategies and government responses. This volume focuses on the preferences of major actors within terrorist networks and government agencies and the domestic and international contexts in which they make decisions and execute their strategies. It argues that both terrorism financing and government responses face problems of coordination, oversight, and information asymmetries that render them vulnerable to disruption.

About this title

About the Author

Jeanne K. Giraldo is Lecturer in the National Security Affairs Department at the Naval Postgraduate School. Harold A. Trinkunas is Associate Professor in the National Security Affairs Department at the Naval Postgraduate School. He most recently authored Crafting Civilian Control of the Military in Venezuela: A Comparative Perspective (2005).

From the Inside Flap

Financial and material resources are correctly perceived as the life blood of terrorist operations, and governments have determined that fighting the financial infrastructure of terrorist organizations is the key to their defeat. Since the attacks of September 11, 2001, a good deal has been learned about sources and mechanisms used to finance the “new” terrorism, which is religiously motivated and exponentially more deadly than previous generations of terrorist organizations. New policies have been devised to combat the threat and existing policies have been enacted with greater vigor than ever before. Five years into the battle against terrorist financing, it is time to take stock of the emerging literature on terrorist financing, cut through a number of myths that have developed around the issue, and assess the current policy debates.

Through a series of thematic chapters and organizational and regional case studies—examining terrorist organizations such as Al Qaeda and Hezbollah, and regions such as East Africa, Europe, Latin America, the Middle East, and South East Asia—the authors provide a comprehensive assessment of the state of our knowledge about the nature of terrorism financing, and the evolution and effectiveness of terrorist strategies and government responses. This volume focuses on the preferences of major actors within terrorist networks and government agencies and the domestic and international contexts in which they make decisions and execute their strategies. It argues that both terrorism financing and government responses face problems of coordination, oversight, and information asymmetries that render them vulnerable to disruption.

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Terrorism Financing and State Responses

A Comparative Perspective

STANFORD UNIVERSITY PRESS

Copyright © 2007 Board of Trustees of the Leland Stanford Junior University
All right reserved.
ISBN: 978-0-8047-5566-5

Contents

Acknowledgments...........................................................................................................................................................................................ixAbout the Editors and Contributors........................................................................................................................................................................xiIntroduction Jeanne K. Giraldo and Harold A. Trinkunas...................................................................................................................................................1PART I: THE NATURE OF THE PROBLEM AND THE RESPONSE1. The Political Economy of Terrorism Financing Jeanne K. Giraldo and Harold A. Trinkunas................................................................................................................72. Terrorism Financing Mechanisms and Policy Dilemmas Nikos Passas.......................................................................................................................................213. Organized Crime and Terrorism John T. Picarelli and Louise I. Shelley.................................................................................................................................394. Terrorist Organizations' Vulnerabilities and Inefficiencies: A Rational Choice Perspective Jacob N. Shapiro...........................................................................................565. Warning Indicators and Terrorist Finances Phil Williams...............................................................................................................................................72PART II: Case Studies of Terrorism financing and State Responses6. Financing Afghan Terrorism: Thugs, Drugs, and Creative Movements of Money Thomas H. Johnson...........................................................................................................937. Al Qaeda Finances and Funding to Affiliated Groups Victor Comras......................................................................................................................................1158. Hezbollah Finances: Funding the Party of God Matthew Levitt...........................................................................................................................................1349. Arab Government Responses to the Threat of Terrorist Financing Moyara de Moraes Ruehsen...............................................................................................................15210. Terrorism Financing in Europe Loretta Napoleoni......................................................................................................................................................17111. Terrorist Financing and Government Responses in East Africa Jessica Piombo...........................................................................................................................18512. Terrorist Financing and Government Responses in Southeast Asia Aurel Croissant and Daniel Barlow.....................................................................................................20313. Terrorist Financing and the Tri-Border Area of South America: The Challenge of Effective Governmental Response in a Permissive Environment John L. Lombardi and David J. Sanchez.....................23114. Anti-Terror Strategy, The 9/11 Commission Report, and Terrorism Financing: Implications for U.S. Policy Makers Raphael Perl..........................................................................24715. U.S. and International Responses to Terrorist Financing Anne L. Clunan...............................................................................................................................26016. Terrorist Financing: Explaining Government Responses Jeanne K. Giraldo and Harold A. Trinkunas.......................................................................................................282Notes.....................................................................................................................................................................................................297Index.....................................................................................................................................................................................................357

Chapter One

The Political Economy of Terrorism Financing

JEANNE K. GIRALDO AND HAROLD A. TRINKUNAS

A rash of terrorist attacks in the 1990s, all designed to cause mass casualties-the February 1993 bombing of the World Trade Center, the March 1995 sarin gas attack in the Tokyo subway, the April 1995 bombing of the federal building in Oklahoma City-seemed to signal the arrival on the scene of a new and more deadly kind of terrorism. Observers often cited the religious fundamentalism of the "new terrorists," who exhibited a degree of fanaticism apparently beyond reason or mercy, to explain their willingness to engage in attacks of unprecedented lethality. In this chapter we argue that the growing deadliness of the "new terrorism," however merciless, is actually the product of terrorists' reasoned response to loosening constraints on their behavior caused by changes in funding sources. In fact, what is new about terrorism writ large by the end of the twentieth century-and not just for the religiously motivated groups identified as part of the "new terrorism"-is the diversification of the sources of funding upon which they rely and the declining importance of state and popular support within their funding portfolios.

This chapter sketches key trends in terrorism financing over the past few decades, arguing that the acceleration of globalization and an apparent increase in the incidence of poor governance, state failure, and ungoverned areas explain the dominance of a "new" financial model in which terrorists rely increasingly upon their own licit and illicit enterprises for their funding. The chapter also develops a political economy framework, which analyzes the interests of actors within terrorist organizations and those external to the group who form part of the terrorist financial support network, to shed light on the way in which funding sources can shape the behavior of terrorist groups. A political economy framework also leads us to explore key vulnerabilities within the terrorist organization created by potentially conflicting preferences among terrorist leaders, financial middlemen, and operatives. This approach calls into question standard accounts of the efficiency and robustness of network-based terrorist organizations and the new financing model.

While terrorist organizations that depend on state sponsorship or societal support have historically faced limits on what activities are acceptable, "new terrorist" organizations such as al Qaeda and a wide variety of other self-sufficient groups find themselves increasingly able to operate free from such constraints. This approach thus provides an alternative to conventional religion-centered explanations for the increased lethality of Islamist terrorism. It also helps explain the increasing brutality of many non-religious terrorist groups as well. Using the political economy framework to understand the challenges of driving a wedge between terrorists and their funding sources under the new financing model helps us explain why counterterrorism financing (CTF) policies have assumed a higher profile within broader counter-terrorism efforts since the turn of the century.

Trends in Terrorism Financing

The fund-raising methods of a wide range of groups are most often lumped together under the general rubric of "terrorism financing." These include the urban, Marxist-Leninist-inspired terrorist groups of the 1960s and 1970s; the religiously motivated terrorist groups that assumed increasing importance in the 1980s and 1990s; and insurgent groups, variously motivated by religion, ideology, or ethnicity. To the extent that these groups all use violence against non-combatants to achieve a political goal, they are rightly understood as terrorists. However, this delineation glosses over some important differences between the groups that are relevant to understanding how funding sources influence behavior. Insurgencies are typically territorially based organizations that field an army in an effort to create an alternative system of government. The need to sustain thousands of fighters, buy weaponry, and potentially provide social services to the population whose support the organization may be trying to win creates great financial demands on insurgent groups. By contrast, terrorists spend much less on operations, and their budget for training camps and personnel is likely to be less than that of insurgent groups. In addition, insurgent control of territory creates opportunities for taxing the population and activities under the group's control, mechanisms less likely to be available to terrorists.

Notwithstanding these differences, scholars and policy makers overwhelmingly agree that the end of the Cold War marked a watershed moment in the nature of terrorist finances. During the Cold War, terrorists were said to be heavily dependent on state sponsors for their funding, but they became increasingly self-sufficient during the 1990s, relying instead on crime and other self-financing methods. Two factors related to the Cold War are usually cited to explain this shift in funding sources. First, the end of the superpower rivalry reduced the incentives for Washington and Moscow to fund proxies in pursuing their ideological and geopolitical goals. Second, other state sponsors of terrorism (like Libya and Syria) faced a less polarized international environment, in which countries were more willing and able to take concerted action against terrorism and its sponsors. While there is a great deal of truth to this standard interpretation, it understates the importance of non-state sources of funds for terrorists prior to the end of the Cold War and exaggerates the importance of the end of the Cold War in accounting for the changes that were apparent in terrorism financing by the 1990s.

The overall flow of hard cash to terrorists was undoubtedly greater during the Cold War than after it, especially if insurgent groups engaged in so-called superpower proxy wars (such as those in Afghanistan, El Salvador, and Nicaragua) are included in the tally. In addition to the funding provided by the superpowers, oil-rich regimes began pumping large sums of money into the terrorist financial system; the regimes included most notably Libya, led by Colonel Muammar al Gaddafi, beginning in the 1970s, and Iran under Ayatollah Khomeini, beginning in the 1980s. States also sometimes supported terrorists (most often insurgents) operating in neighboring countries to generate geopolitical pressure, both before and after the Cold War. The reduction in U.S., Soviet, and Libyan support for terrorism by the 1990s is in and of itself enough to explain a sharp decline in the role of states in providing financial support for terrorism.

More questionable, however, is the accompanying claim that the terrorist shift to self-financing was driven by a drying up of funds associated with the end of the Cold War. Many of the urban, Marxist-Leninist groups of the 1960s and 1970s relied on various criminal activities-particularly kidnapping, robbery, and extortion-to supplement their state funding. Some organizations, like the Fuerzas Armadas Revolucionarias de Colombia (FARC) in Colombia or Shining Path in Peru, never received significant amounts of funds from state sponsors and relied instead on drug trafficking for their revenues. Others, like the Irish Republican Army (IRA) or the Liberation Tigers of Tamil Eelam (LTTE), received infusions of cash from state sponsors at critical periods in their development but experienced the withdrawal of these funds prior to the end of the Cold War. This loss was not crippling for the IRA and LTTE because they could draw on already well-developed alternative revenue streams from organized crime and donations from the Irish and Tamil diasporas. Still others, like the Palestine Liberation Organization (PLO), diversified their funding sources long before the end of the Cold War in order to reduce their dependence on fickle state sponsors. Even Hezbollah, which receives approximately $100 million a year in support from Iran, has cultivated the Lebanese diaspora as a means of support and relied on extortion and crime in the Tri-Border Area of South America to supplement their state funding. Therefore, terrorist organizations-either out of a desire to maximize their revenue or an understanding that state sponsors are often fickle (or both)-cultivate multiple sources of income if at all possible, regardless of levels of state funding. Terrorism financing is driven more by the availability of opportunities than by a shortfall in revenues from state sponsors.

More importantly, the end of the Cold War was a significant turning point in the history of terrorist finance because it simultaneously eliminated the last barriers to globalization and it led to a proliferation of failed states and ungoverned regions. Globalization allowed terrorist organizations to take full advantage of a highly integrated international financial system, ever greater options for moving personnel, and ever greater ease of communication through the internet and cellular and satellite telephony. Globalization made it easier to mount terrorist operations as well as to conduct terrorist financial affairs. While illicit revenue sources for terrorists were somewhat limited in the 1960s and 1970s, increasing levels of globalization by the 1980s created new opportunities to derive funding from crime as well as to draw on sympathetic diaspora communities for support. The breakdown of states in the Horn of Africa, the Balkans, Central Asia, and the emergence of ungoverned regions in many parts of the world proved another boon to terrorists. Failed states and misgoverned regions provided cover for terrorist infrastructure, easier access to lucrative criminal enterprises such as arms and drug smuggling and trafficking in persons, and zones where government responses and countermeasures became more difficult.

Analysts took greater note of the trend towards alternative funding mechanisms with the emergence of al Qaeda and related groups in the 1990s. For the most part, these religiously motivated, transnational terrorists did not serve a specific geopolitical interest, and hence were unlikely to receive state sponsorship. Although al Qaeda might cooperate with groups that had a specific national goal (e.g., the liberation of Afghanistan), self-sufficiency and independence were seen as the defining characteristics of the "new terrorism." Lacking a national or ethnic constituency, they did not rely on a particular domestic or diaspora community for financial support.

The portrait of terrorism financing that has emerged since the September 2001 attacks on the United States is of a formal and informal global financial system that terrorists can manipulate with ease. Diverse and dispersed sources of funding and methods of transferring funds are exploited by equally decentralized and flexible terrorist networks that can easily shift from one means to another in response to efforts to thwart their activities. Not only al Qaeda and al Qaeda-inspired groups but also most contemporary terrorist organizations increasingly exploit sources of funds that do not require the ideological sympathy or consent of the provider. Instead, terrorists rely on a variety of more impersonal and self-contained mechanisms such as independent criminal ventures, diversion of funds from charities, and licit businesses. The implications of this increased self-sufficiency are explored in the following section.

The Political Economy of Funding Sources: Lessening of Constraints?

A political economy approach to terrorism financing focuses on how the potentially divergent interests of the key actors engaged in the raising, distribution, and spending of funds-and the institutional settings in which decisions about financing are made-might affect outcomes. Insights into the divergent interests involved in the fund-raising process crop up periodically in the terrorism literature; here they are further developed to shed new light on the evolution of terrorist fund-raising practices and the constraints that particular funding sources might impose on terrorist behavior.

Often the source of funds for a terrorist network-whether it be a state, a population, or an allied criminal organization-does not have interests that coincide neatly with those of the terrorists. Sometimes, these divergent interests present an opportunity for government policy makers to drive a wedge between the terrorists and their funding sources, or, as has more often been the case, circumstances may create a breach that limits the availability of funds. Even if the diverging preferences do not lead to a falling out, terrorists may find that the sensibilities of their sponsors constrain their behavior. In the past, policy makers had been able to take some comfort in the notion that state and popular sources of funding for terrorists were often more moderate than the organizations themselves and had a broader range of interests that encouraged them to set limits on the lethality of terrorism. Today, the diversity of terrorist funding sources increases their independence of action, which is of particular concern to policy makers.

States have long had geopolitical (and other) motives to provide financial support to terrorist groups operating within the territories of their rivals. Despite their shared interest in destabilizing certain regimes, terrorists and states may part ways on the particulars of how this should be done. Often, states view terrorists as loose cannons whose actions may be counterproductive for the state sponsor. Terrorist pursuit of a diversified funding portfolio is therefore a rational course of action since state sponsors are often willing to sacrifice the terrorists' non-negotiable goal of destabilization if it begins to undermine the pursuit of other national interests. States seem to be particularly unreliable sponsors if there are multiple terrorist groups in a particular area whom they might choose to support, as Thomas Johnson points out in chapter 6 on Afghanistan. By contrast, if financial patronage of a group is public knowledge and important domestic constituencies of the state sponsor support a terrorist organization, the state will find it much harder to withdraw its support in response to changing circumstances. If it is too costly to withdraw its sponsorship, a state may seek to modify the agenda of the receiving organization so that its behavior does not reflect negatively on the state in international circles.

Historically, terrorists (particularly insurgents) have also relied on popular support for their funding needs. These payments may take the form of voluntary contributions, taxes rendered in return for services provided by the insurgency, or extortion. When there is a limited convergence of interests between the terrorists and the targeted party, extortion must be used to secure payment. Terrorists run a protection racket, threatening violence against individuals or their property unless a sum is paid. While many victims of extortion have little choice but to pay, others will resist if they have the means. This imposes a certain ceiling on fund-raising efforts, and excessive taxation can potentially create a backlash against the terrorist group. For example, large companies in Northern Ireland seem to be in a better position than small, local businesses in resisting extortion attempts from Protestant paramilitaries. In Colombia, landowners faced with FARC extortion attempts had the choice of paying the insurgents, leaving their land, or forming self-defense groups in an effort to thwart the FARC. Over time, the capacity of landowners to resist these efforts increased, not only as a result of military collusion with paramilitaries but also because well-armed and well-financed drug traffickers bought up most of the land in rural areas where FARC had a presence. In this case, extortion efforts backfired on a massive scale, as paramilitaries launched offensives against the FARC, not only to cleanse their own local areas but to rid the entire country of a guerrilla presence.

(Continues...)

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Edition details

• Publisher: Stanford University Press
• Publication date: 2007
• Language: English
• ISBN 10: 0804755663
• ISBN 13: 9780804755665
• Binding: Paperback
• Edition number: 1
• Number of pages: 384
• Editor: Trinkunas Harold A.