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Terrorism Funding Prepared by: DCSINT - Emerging Threats Team HQ TRADOC Ft. Monroe, VA 06 February 04 Sources & Methods Unclassified REFERENCES IN THIS.

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Presentation on theme: "Terrorism Funding Prepared by: DCSINT - Emerging Threats Team HQ TRADOC Ft. Monroe, VA 06 February 04 Sources & Methods Unclassified REFERENCES IN THIS."— Presentation transcript:

1 Terrorism Funding Prepared by: DCSINT - Emerging Threats Team HQ TRADOC Ft. Monroe, VA 06 February 04 Sources & Methods Unclassified REFERENCES IN THIS DOCUMENT TO TP525-2-60 REFER TO THE DRAFT TRADOC PAM ENTITLED “THE OPERATIONAL ENVIRONMENT AND THREAT: A VIEW OF THE WORLD TO 2020 AND BEYOND”

2 Introduction Terrorist organizations obtain and transfer finances to operate in numerous ways. This presentation touches on some of the more significant means that funds are obtained and moved to support transnational terrorism in today’s Operational Environment. The topics presented here represent the core sources and methods for terror funding. In the overall world of terror the well of monies is limited only by the terrorists imagination and initiative. No one element is pre-eminent, each has its’ place in the world of terror finance. Zakat The giving of alms for the poor and needy, as prescribed by the Quran. Zakat is the primary means within the Muslim world for terror organizations to “legitimately” receive money. Islamic Banking When conducted as prescribed by the Quran, serves to legitimately facilitate funds collection and disbursal. This is particularly true of Zakat funds. Hawala An informal funds transfer system, is the primary means of distributing smaller sums of money around the world in a safe and record free manner. Money laundering A criminal endeavor by which millions of dollars can be transferred around the world in a single transaction or a series of transactions. Unclassified

3 ZAKAT Zakat is the form of alms given by Muslims for the benefit of the poor or needy and the teaching of Islam. The Quran requires Muslims each year to give 2.5% of the value of their wealth and assets above what they themselves need. Zakat is given by the beginning of the month of Muharram marking the lunar new year. Zakat is one of the Five Pillars of Islam. Zakat is considered the primary method for creating social justice and prosperity in the Muslim world. “Take from their wealth a portion for charity, in order to clean them thereby, and sanctify them.” Unclassified Quran Ukrainian mosque Built with Zakat funds Giving Bread and Milk

4 Saudi Arabia collects Zakat by government agency (similar to our IRS) and distributes to recognized charities. Saudi collections are estimated to exceed $10 Billion. (Saudi Ministry of Finance and National Economy) Most other countries, both Muslim and non-Muslim do not collect or control where Zakat money goes. Charities around the globe are rarely checked or audited by government oversight agencies to see how the monies are spent. The US is a notable exception. The Internet has numerous Islamic charity sites asking believers to pay the Zakat to them promising to apply it on their behalf. The giver of Zakat knows only to whom they gave their money, for what they believe will be the building of schools, mosques and to help the poor. Once given however, the giver has no further control if the funds are diverted or a portion is skimmed off for the purchase of weapons, explosives and operating terror training camps. Zakat Collection and Distribution “If beneficiaries had used assistance for evil acts, that is not our responsibility at all” Prince Salman, Governor of Riyadh, Saudi Arabia, Nov. 2002 Unclassified

5 Islamic Banking Many Muslims send their Zakat through Islamic banks. This process is legal but there is no assurance they have funded a legitimate charity vice a terrorist group. The Islamic banking system has been a mystery to most in the West. Islamic Banks cannot charge interest on loans. This requires that the Islamic Bank make its money on its investments. Western style accounting and auditing practices to monitor and track what those investments truly involve have only recently been implemented and then only under international pressure since the attacks on the US. Zakat funds deposited in Islamic banks are taken off the books and “disappear” because they are not considered part of the banks assets nor its liabilities and are not reported. The bank has served only as a collection agent. The Zakat can then be transferred, without regulation, to worthy charities as directed by the givers, to any worthy recipient or have some or all of it skimmed off to Islamic radicals. Some of the largest Islamic banks have their headquarters in Switzerland. The Swiss banking philosophy and governmental regulation, adds a second layer of secrecy yet gives the banks connectivity with world banking in general. Unclassified

6 Money Movement by Hawala Hawala is the best known Informal Funds Transfer (IFT) system. Interpol estimates India alone to have $680 Billion in transactions annually. The process uses both legal and illegal means to move money in a way that avoids: - Record keeping of transmitters and receivers - Taxes - Customs duties It is secure, trust-based, paperless and generally untraceable. Hawala came into public interest after the 2001 attacks on the US when it was revealed that much of the money funding the attackers was transferred by Hawala. It has no formal limitations on amounts but does have practical limits. It is well suited for terror operations that cost $50-$70K to fund and complete in a short period of time. It is illegal in many countries including the US, yet many banks in both Islamic and Western countries utilize this system. Unclassified Western Union Ad Warning Potential Hawala Users

7 Hawala: The Eastern Western Union Family/Sender Broker Receiver/Family Paperless Untraceable Trust Based Moves in both directions Unclassified Transaction Code (TA) Example of a One way transaction Yehuda Abraham Hawaladar/Broker $ $ TA Code Verbal Interchange (amount, transaction code Generally no money)

8 Hawala When Carried Full Cycle IMF 12/02 Unclassified

9 Money Laundering Money laundering is not just big business, it is global and large scale. International Monetary Fund (IMF) estimates that it accounts for 2 to 5 % of the Worlds GDP (gross domestic product) with a value of as much as 2 trillion US dollars in today’s market. A significant portion of laundered money actually serves as a positive influence in local economies. - It does pay people legitimate salaries even when the business or other entity is only a “legit” cover for other activities. - It even pays taxes when channeled through legitimate businesses. When accomplished through smuggling or other criminal enterprise it pays no taxes, duties or fees. Bottom line – it often pays terrors bills when these groups use laundering as a method to move large sums of money or in related barter/in kind transactions. Unclassified

10 The Flow of Laundered Money Illegal Sources Legitimate Enterprise Shell or Offshore Company or Bank Foreign Entity Corruption Operating expenses Start Up Fees Unclassified £ € Bribes Expenses Revenues

11 Conclusions Terrorists and extremists around the world will continue to use multiple means to transfer monies to operatives. Whether the means are legal or illegal is of no concern so long as the process supports their operations. These four key methods will continue to be exploited as long as government oversight is not present or is ineffective in policing the systems. Zakat is a positive contribution to the Islamic world being abused by those who see it as a means to fund terrors criminal element. Only a small percentage of funds given in compliance with Zakat are intended by a knowing giver for the purpose of terror. That small percentage is enough to allow the spread of terror and end lives around the world. Just the opposite of Zakats’ intended use. Islamic banking must continue to become mainstream in their methodology and accountability in order to be recognized as trustworthy institutions. Failing that, they will remain a secretive grouping that raises suspicions as much as they attract business. Hawala was originally benign in its historical intent but is now consistently misused by those who take advantage of its efficiencies. It will remain as a cultural alternative to regulated banking but certainly will continue to adapt further to accommodate the modern world. The fact that it is being made illegal in more and more countries will not end the practice in the near term. Money laundering will continue to face pressures from authorities. Like Hawala, it will remain as a working part of the criminal enterprise system. Increased regulation in the traditional business environment will make laundering more difficult but will not carry it to extinction. Nations and organizations around the world are becoming more involved in the effort to track the in and out flows of terrors money through legislation and regulation. Regulatory efforts will serve to plug more of the financial holes that terror employs. However, as with all areas of crime, laws and regulations apply to all people and entities in a given jurisdiction but are only implemented and followed by those willing to be regulated. Unclassified

12 Resources / Background Reading International Monetary Fund, Finance & Development, Vol. 39, Number 4, December, 2002 Washington Times, Customs agents smash money-laundering ring, December 20, 2002, www.Buzzle.com, Money Laundering in A Changed World, December 20, 2001www.Buzzle.com hwwa.de/Projekte/IuD_Schwerpunkte/IDSPs/Asia_Gateway/Hawala.htm, April 12, 2002 www.Time.com, A Banking System Built for Terrorism, October 5, 2001www.Time.com New York Daily News, Bust 9/11 Missile Plot, August 13, 2003 www.al-Islam.org/laws/zakat2.html www.z-pub.com/aaa/zakat-def.html The Jewish Week, Diamond Merchant Awaits Bail, Sept. 3, 2003 International Monetary Fund, Hawala, December, 2002. www.imf.orgwww.imf.org Terrorism Financing – Roots and trends of Saudi terrorism financing, A report for the United Nations Security Council by Jean-Charles Brisard, December, 2002 Middle East Review of International Affairs Journal, The Political Economy of Middle East Terrorism, December, 2002 Unclassified


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