Following the Money

ANNUAL BUDGET FOR SELECT TERRORIST GROUPS
AND THE U.S. TREASURY DEPARTMENT OFFICE THAT
COMBATS THEM⁶

Terrorist groups have come to count on means and resources that have become increasingly varied and localized.⁷ They generate funding through criminal activities and the abuse of legitimate activities.⁸ Mass volumes of rapid and anonymous money flows and emerging technologies hide the identities and ownership interests of individuals.⁹ These are some of the factors that complicate policymakers’ efforts to detect and disrupt terrorist financing while ensuring the resilience of legitimate financial institutions and channels. Policymakers rely on a variety of tools – financial, diplomatic, and military – to address this global, multifaceted issue of terrorist financing.

How Terrorists Raise, Move, and Use Money

Raising money is a crucial component in sustaining a terrorist organization. Terrorist organizations’ fundraising methods are constantly evolving to take advantage of opportunity and avoid restrictions imposed by governments, intergovernmental organizations, and the international financial system. Some notable fundraising tactics include: kidnapping for ransom, drug trafficking, voluntary private donations, involuntary contributions from the populace, exploitation of natural resources, control of banks, and state sponsorship.

In 2015, President Barack Obama said, “I firmly believe that the United States government paying ransom to terrorists risks endangering more Americans and funding the very terrorism that we’re trying to stop.”¹⁰ These words reflect U.S. government policy against acquiescing to ransom demands. While most governments have a policy against paying ransom for kidnapped citizens, not all adhere to it: Ransom payments to terrorist groups amounted to approximately $165 million between 2008 and 2014.¹¹ Of that amount, al Qaeda and its direct affiliates alone are estimated to have earned $125 million in revenue from kidnappings.¹² One such affiliate, al Qaeda in the Islamic Maghreb (AQIM), is thought to have been paid $91.5 million.¹³ According to the U.S. Department of the Treasury, ISIS acquired up to $45 million of revenue through kidnapping for ransom in 2014.¹⁴

Drug trafficking remains a common and lucrative means of financing terrorism. While estimates vary, a former director of Colombia’s national police force estimated in 2013 that the domestic leftist guerilla group the Revolutionary Armed Forces of Colombia controls about 60 percent of Colombia’s drug trade and earns roughly $1 billion annually from the industry.¹⁵ The Taliban, while not an officially designated foreign terrorist organization, earned an estimated $100 million from the poppy economy between 2011 and 2012.¹⁶ Other groups that engage in the illicit drug trade, according to a Stanford University database on militant groups, include AQIM, Hezbollah, and Tehrik-e Taliban Pakistan.¹⁷

Some governments fund terrorist groups to use them as proxies for actions that cannot be achieved by that government directly. Characterized as the “foremost state sponsor of terrorism” by former Director of National Intelligence James Clapper,¹⁸ Iran has extensively supported a wide range of terrorist groups across the Middle East, arguably as a result of the government’s long-standing animosity toward Israel and its ongoing attempt to expand the Islamic Revolution to other countries.¹⁹

Iran has provided weapons, training, and funding to a number of terrorist groups.²⁰ The primary beneficiary of Iran’s largesse has been the Lebanon-based Shia militant group Hezbollah, which has been a U.S. designated foreign terrorist organization since 1997. Recently, Hezbollah leader Hassan Nasrallah went as far as to attribute all of the organization’s funding to Iran, saying, “We are open about the fact that Hezbollah's budget, its income, its expenses, everything it eats and drinks, its weapons and rockets, are from the Islamic Republic of Iran.”²¹ In addition to giving “hundreds of millions of dollars” to Hezbollah, Iran historically has provided arms, training, and financing to Hamas and other Palestinian terrorist groups, including Palestine Islamic Jihad and the Popular Front for the Liberation of Palestine-General Command.²² Other countries officially designated by the U.S. Department of State as state sponsors of terrorism are Syria and Sudan.

Private donations can be an important source of income and come from a variety of sources. Donors include foreign fighters, wealthy sympathetic individuals, affiliated terror organizations, and individual terrorists and their support networks.²³ Individual terrorists can fund small attacks using their savings, access to credit, or proceeds from businesses they control.²⁴

Seizing control of financial institutions represents a significant potential source of funding that results from capturing territory. According to U.S. estimates, ISIS gained access to over $500 million in cash held in state-owned bank branches over the latter half of 2014.²⁵

When terrorist groups gain control of raw materials, the sale of these resources can provide significant income. These resources can include oil, gas, precious metals, diamonds, timber, charcoal, or wildlife.²⁶ Although airstrikes targeting ISIS-controlled energy infrastructure have put a dent in the profitability of oil smuggling, ISIS allegedly earned up to half of their total revenue from the sale of oil from their territory in 2015.²⁷ Al Shabab reportedly receives the majority of their revenue from illegally taxing and trading charcoal.²⁸ Beyond revenue generated through the sale or taxation of natural resources, foreign companies operating in these territories present an appealing target for extortion or kidnapping for ransom.²⁹

Terrorist organizations also extract involuntary contributions from the local population and diaspora abroad through extortion, taxes, and under the guise of “charitable giving.”³⁰ According to Daniel Glaser, former U.S. Department of Treasury assistant secretary for terrorist financing, ISIS squeezed approximately $350 million per year from the local populace in the territory it controls.³¹ Money is generated from taxes and fees on businesses, utility services, banking withdrawals, individuals transiting ISIS territory with goods, and a protection tax on Christians and other religious minorities.³² Other terrorist organizations known to extort funds from individuals and businesses within their territory include the Kurdistan Workers’ Party, Boko Haram, and Al Shabab.³³

ISIS SOURCES OF REVENUE³⁴

Moving Money

Terrorist organizations have relied on various means to move money, including the banking sector, money value transfer systems, and cash couriers. The Financial Action Task Force (FATF), an intergovernmental body that has developed recommendations that serve as the international standard for combating money laundering and terrorist financing, noted that virtual currencies, prepaid cards, and internet-based payment systems are emerging methods to move money that pose terrorist financing risks.³⁵

The 9/11 attackers used banks in the United States extensively. Hijackers opened accounts in their own names and conducted small transactions that were hidden by billions of dollars flowing through the formal financial sector.³⁶ Before 9/11, al Qaeda relied primarily on hawala and couriers to move money, as well as charities and the international financial system to a lesser extent.³⁷ Hawala, which in Arabic means “transfer,” refers to money transfer mechanisms that exist in the absence of, or in parallel to, conventional banking channels.³⁸ Since 9/11, existing hawala networks have been largely destroyed and al Qaeda has turned to trusted couriers, which has slowed down the group’s movement of money.³⁹ This evolution in the methods employed by al Qaeda to move money is indicative of the confluence of forces acting on terrorist finance – the efforts by authorities to clamp down on it as well as the efforts by terrorists to expand their options.

Using Money

Terrorists and terrorist organizations use funds for specific operations.⁴⁰ The 9/11 attacks are estimated to have cost between $400,000 and $500,000.⁴¹ The operatives spent more than $270,000 in the United States, which covered flight training, cost of living, and travel.42 Other sources of expense included travel to acquire passports and visas, travel to the United States, and costs incurred by the plot leader and facilitators located outside the United States, as well as hijackers who ended up not participating in the attack.⁴³ The 2015 San Bernardino attacks likely cost about $4,500, which accounted for weapons, materials for bombs, and transportation.⁴⁴

COST OF SELECT TERRORIST ATTACKS⁴⁵

While the costs of terrorist attacks vary, they generally tend to be disproportionately low compared to the costs inflicted on the economies in which attacks occur. One estimate of the cost of the 9/11 attacks on the U.S. economy puts the figure at $3.3 trillion, which is about $7 million for every dollar spent by al Qaeda on the attack.⁴⁶ According to early analysis, the Paris attacks cost the French economy an estimated $2.1 billion due to declines in tourism and consumer spending.⁴⁷

COST OF SELECT TERRORIST ATTACKS COMPARED TO ESTIMATES OF IMPACT ON THE AFFECTED COUNTRY'S ECONOMY⁴⁸

Terrorist organizations also use funds to maintain support, recruit members, and promote their ideology. Operatives, some of whom may have dependents and lack other sources of income, may rely on a terrorist organization for their income, training, and travel. Terrorist groups may financially support another cell or network with which they share common ideological or religious views, and use charities and media outlets all in an effort to maintain their organizations.⁴⁹

Some organizations, such as al Qaeda and ISIS, have been known to establish extensive account keeping, accountability, and cost discipline mechanisms to support sophisticated financial operations.⁵⁰ This network model of terrorist financing differs from the lone wolf model, whereby the lone wolf operates without connections to jihadist networks or help from others.⁵¹ The lone wolf requires considerably fewer financial means because the main expense would be the cost of planning and executing attacks, which can be done relatively inexpensively.

Tools to Tackle Terrorist Financing

Terrorist financing is a global, complex issue that necessitates the use of a full range of available tools, such as diplomacy, military operations, and financial measures, to halt it. The mix of tools that policymakers use varies depending on context, and the use of a particular tool may not be appropriate in certain contexts. Nonetheless, methods used to address terrorist financing must evolve in tandem with, and try to stay ahead of, the constant innovations being undertaken by terrorists and terrorist groups. Collaboration and information sharing – within governments, across countries, and between different sectors – are key determinants of the degree to which policymakers are able to detect and disrupt terrorist financing.

Diplomatic Tools

Combating terrorist financing requires coordinated international efforts. As Adam Szubin, then–acting under secretary for terrorism and financial intelligence with the U.S. Department of the Treasury, said in a 2015 speech, “[G]iven the increasing connectedness of the international financial system, [the United States] can’t work alone. Instead, our success often depends on close coordination between the United States and our allies.”⁵² To this effect, the United States engages in both bilateral and multilateral diplomacy to interrupt terrorist organizations’ attempts to raise and move money.

Multilateral initiatives provide important platforms for information sharing, coordination of sanctions, and development of unified international standards for anti-terrorist financing initiatives. Examples include the FATF, the United Nations Security Council (UNSC), and the Counter-ISIL Finance Group (CIFG). As a member of FATF, the United States collaborates with 34 member countries and two regional organizations to develop and promote the implementation of operational, regulatory, and legal measures to combat illicit finance.⁵³ The U.S. Mission to the UN successfully negotiated two UNSC Resolutions on the subject of terrorist financing in 2015.⁵⁴ The Obama administration founded the CIFG in March 2015, and it now has 36 member states and five observer states dedicated to disrupting ISIS’s fundraising methods.⁵⁵ CIFG member states share financial intelligence, engage with their domestic banking sectors to identify activity potentially connected to ISIS, and implement coordinated regulations to deny ISIS funding from abroad.

Bilateral diplomacy plays a vital role in disrupting terrorist financing methods. The U.S. government works directly with certain countries to track and disrupt terrorist cash flows. One such bilateral initiative is the Terrorist Finance Tracking Program (TFTP) between the United States and the European Union. Initiated by the U.S. Department of the Treasury, TFTP allows for transatlantic data sharing on suspected international terrorists and their financing networks.⁵⁶ In order to target ISIS’s energy profits, the United States is working with the Kurdistan Regional Government and Turkey to prevent ISIS oil products from crossing their borders.⁵⁷ Additionally, the United States strongly encourages European countries to refuse to pay ransoms for citizens kidnapped by terrorist groups, which will significantly threaten the funding streams for terrorist organizations like AQIM.⁵⁸

Financial Tools

A number of financial tools have been deployed to combat terrorist financing. According to Daniel Glaser, creating an inhospitable environment for terrorist financing consists of cutting terrorists and terrorist organizations from their sources of revenue and denying them access to the international financial system. These objectives are pursued through enhancing transparency in the financial system as well as enforcing financial controls and improving supervisory regimes.⁵⁹

Efforts to enhance transparency are spearheaded by the FATF. Some standards put forward by the FATF include the “know your customer” principle and reporting of suspicious activities.⁶⁰ Based on information and knowledge that comes to light in a transparent financial system through the efforts of analysts across the U.S. government, financial measures and law enforcement action can be considered. Targeted financial sanctions – unilateral U.S. sanctions and UN sanctions – have become increasingly relied upon to deprive terrorist organizations of funds and make it more costly for them to finance themselves.⁶¹

Executive Order 13224, signed by President George W. Bush shortly after the 9/11 attacks, has been the centerpiece of the government’s efforts to counter terrorist financing.⁶² Under E.O. 13224, the Treasury and State Departments can impose financial sanctions on terrorists, terrorist organizations, and their supporters. Since 2001, over 900 individuals and entities have been designated under this executive order.⁶³ Information exchange and collaboration with international partners and the private sector are of paramount importance to make these financial tools effective.

DESIGNATIONS UNDER THE TERRORISM SANCTIONS AUTHORITY HAVE GROWN EXPONENTIALLY⁶⁴

Military Tools

In some instances, military operations have played a role in countering terrorist financing. According to former Deputy Assistant Secretary Andrew Keller of the U.S. State Department, military airstrikes have proven to be most effective in disrupting ISIS’s revenues despite their atypical role in the suite of tools to counter terrorist financing.⁶⁵

Cutting off ISIS access to financing is one of five lines of effort in the global campaign to defeat the terrorist group.⁶⁶ Coalition military operations have struck ISIS’s economic infrastructure and financial leaders, and have put pressure on the organization’s ability to pay fighters, govern, and attract recruits.⁶⁷ Nearly two dozen bulk cash storage sites have been destroyed by airstrikes, resulting in loss of liquidity by at least tens of millions and up to hundreds of millions of dollars.⁶⁸ Airstrikes have also targeted ISIS’s entire oil supply chain – oil fields, refineries, and tanker trucks – and reduced the group’s oil production by up to 30 percent and their revenue by at least the same amount.⁶⁹ For instance, coalition airstrikes in December 2016 destroyed a fleet of 168 ISIS oil tanker trucks near Palmya, which translates into an estimated lost revenue of more than $2 million.⁷⁰

Since Operation Inherent Resolve, the military operation against ISIS, began on August 8, 2014, the United States has spent $11.9 billion, or $12.8 million per day as of February 28, 2017, on military operations to defeat ISIS.⁷¹ Although military operations do not typically play a prominent role, nor are they usually the first resort, in countering terrorist financing, they can be effective at destroying the physical infrastructure that undergirds terrorist financing operations.

THE MILITARY CAMPAIGN AGAINST ISIS HAS STRUCK THE GROUP'S SOURCES OF REVENUE⁷²

Financing is vital to sustain terrorists and terrorist groups and enable them to carry out their operations. Terrorists and terrorist groups have displayed a remarkable ability to adapt and innovate to meet their financing needs. Although terrorist groups can differ in their sources of – and their ways of moving and using – money, the cost to launch attacks generally pales in comparison to the cost inflicted on the target economy. Terrorist financing is difficult to detect due to the blend of legitimate and criminal activities terrorists engage in. Multiple options exist for policymakers to tackle this issue, and the tools have evolved significantly since 9/11, but disrupting terrorist financing requires constant cultivation and sharing of information, collaboration among numerous actors, and a dedication to refining approaches to stay ahead of learning adversaries.