Terrorism Financing and State Responses: A Comparative Perspective 9780804768221

Citation preview

TERRORISM

FINANCING

STATE

RESPONSES

AND

EDITED AND

BY JEANNE

HAROLD

A.

K.

GIRALDO

TRINKUNAS

Terrorism Financing and State Responses A Comparative Perspective

STANFORD STANFORD,

UNIVERSITY PRESS CALIFORNIA

2007

Stanford University Press Stanford, California © 2007 by the Board of Trustees of the Leland StanfordJunior University. All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, or in any information storage or retrieval system without the prior written permission of Stanford University Press. Library of Congress Cataloging-in-Publication Data Terrorism financing and state responses: a comparative perspective I edited by Jeanne K Giraldo and Harold A. Trinkunas. P· cm. Includes bibliographical references and index. ISBN 978-o-8047-5565-8 (cloth: alk. paper)ISBN 978-o-8047-5566-5 (pbk.: alk. paper) r. Terrorism-Finance. 2. TerrorismFinance- Prevention- Case studies. 3. Terrorism- Prevention- Cross-cultural studies. I. Giraldo, J eanne K II. Trinkunas, HaroldA. HV6431.T4654 2007 363.325'17-dC22

Typeset by BookMatters in 10h4Janson.

CONTENTS

Acknowledgments

lX

About the Editors and Contributors

xi

Introduction Jeanne K Giraldo and Harold A. Trinkunas PART I:

THE NATURE

AND THE

OF

THE

I

PROBLEM

RESPONSE

1.

The Political Economy of Terrorism Financing Jeanne K Giraldo and Harold A. Trinkunas

2.

Terrorism Financing Mechanisms and Policy Dilemmas Nikos Pasms

2I

3.

Organized Crime and Terrorism John T. Picarelli and Louise I. Shelley

39

4·

Terrorist Organizations' Vulnerabilities and Inefficiencies: A Rational Choice Perspective Jacob N. Shapiro

5·

PART

II:

CASE

STATE

STUDIES

OF TERRORISM

56

72

Warning Indicators and Terrorist Finances Phi! Williams

AND

6.

7

FINANCING

RESPONSES

Financing Mghan Terrorism: Thugs, Drugs, and Creative Movements of Money Thomas H. Johnson

93

7·

Al Qaeda Finances and Funding to Affiliated Groups Victor Comras

115

8.

Hezbollah Finances: Funding the Party of God N1atthew Levitt

134

9·

Arab Government Responses to the Threat of Terrorist Financing Moyara de Moraes Ruehsen

152

10.

Terrorism Financing in Europe Loretta Napoleoni

I I.

Terrorist Financing and Government Responses in East Africa Jessica Piombo

r8s

Terrorist Financing and Government Responses in Southeast Asia Aurel Croissant and Daniel Barlow

203

!2.

13.

14-

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 Anti-Terror Strategy, The 9/11 Commission Report, and Terrorism Financing: Implications for U.S. Policy Makers Raphael Perl

171

231

247

IS.

U.S. and International Responses to Terrorist Financing Arzne L. Clunan

260

16.

Terrorist Financing: Explaining Government Responses Jeanne K Giraldo and Harold A. Trinkunas

282

Notes

297

Index

357

To our families.

ACKNOWLEDGMENTS

This volume is the product of a project that came to fruition with the conference Terrorism Financing and State Responses in Comparative Perspective, held in November 2004 at the Naval Postgraduate School in Monterey, California, with support from the school's Center for Homeland Defense and Security. We thank all of our contributing authors for their hard work and their patience with our questions and requests for clarification. We would also like to thank the conference discussants who helped the authors reformulate their arguments: Davicl Mares, Feroz Khan, Maria Rasmussen, and Alme Marie Baylouny. Our conference coordinator, Surinder Rana, and our managing editor for this project,Jeffrey Larsen, made invaluable contributions by ensuring that the project, the contributors, and the editors stayed on track. We also thank the Center for Civil-Military Relations at the Naval Postgraduate School for providing support for the completion of this volume. Finally, we would also like to underline that the views expressed in this volume are those of the authors, and do not represent those of their employers, the Department of Defense, or the U.S. government.

ix

ABOUT THE EDITORS AND CONTRIBUTORS

EDITORS

JEAN NE K. GIRALDO teaches in the National Security Affairs Department

at the Naval Postgraduate School, where she has headed the Program for Drug Control Strategy and Policy of the Center for Civil-Military Relations. Her recent publications include two chapters in Who Guards the Guardians and How: Democratic Civil-Military Relations (Thomas Bruneau and Scott Tollefson, eds.) and a chapter on transnational crime (co-authored with Harold Trinkunas) in Contemporary Security Studies (Alan Collins, ed.). She is eo-organizer of the project Terrorism Financing and State Responses in a Comparative Perspective, sponsored by the Center for Homeland Defense and Security at the Naval Postgraduate School. She received a National Science Foundation fellowship for her doctoral work in the Department of Government at Harvard University. HAROLD A. TRINKUNAS is an Associate Professor in the Department of

National Security Affairs at the Naval Postgraduate School in Monterey, California. He most recently authored Crafting Civilian Control ofthe Aiilitary in Venezuela: A Comparative Perspective (University of North Carolina Press, zoos). He is also eo-organizer of the project Terrorism Financing and State Responses in a Comparative Perspective, sponsored by the Center for Homeland Defense and Security at the Naval Postgraduate School. He received his PhD in Political Science from Stanford University in 1999.

xi

Xii

ABOUT THE EDITORS AND

C.ONTRIBUTORS

CONTRIBUTORS

DANIEL BARLOW is research associate at the Center for Nonproliferation Studies Terrorism Research Project and at the Department for National Security Affairs at the Naval Postgraduate School. He received his MA in international studies from the Monterey Institute for International Studies. ANNE L. CLUNAN is an Assistant Professor in the Department of National

Security Affairs at the Naval Postgraduate School. She received her PhD in political science from the University of California at Berkeley in December 2001. Her book manuscript, "Constructing National Interests: Russian Identity and the Sources of Security Policy," in which she investigates how and why states, in particular post-Soviet Russia, develop national security interests in times of dramatic change, is under review by Cornell University Press. Anne Clunan is the author of "Constructing Concepts of Identity: Prospects and Pitfalls of a Sociological Approach to World Politics," in Rudra Sil and Eileen Doherty, eds., Beyond Boundaries? Disciplines, Paradigms, and Theoretical Integration in International Studies (Albany: SUNY Press, 2000).

VICTOR COMRAS served in the U.S. foreign service, reaching the rank of

ambassador, and most recently served as one of five international monitors charged with overseeing the implementation of U.N. Security Council measures against al Qaeda and the Taliban. He is an expert in regulatory matters related to homeland and national security, including immigration, trade, investment, and financial and money laundering controls. Mr. Comras is a graduate of Georgetown University and the University of Florida Law School. He also has a master oflaws in international trade law from Harvard Law School. AUREL CROISSANT is a Professor at the University of Heidelberg in

Germany. Dr. Croissant has published more than 50 articles and book chapters on politics in Southeast and East Asia, political theory, political institutions, civil society, and democratization. His most recent books are Southeast Asian Election Year 2004 (Munster and New York: Lit Verlag) and The Politics of Death. Political Violence, Democracy and Power in Southeast Asia (Munster: Lit Verlag), both published in 2005.

A B 0 UT THE

E D IT 0 R S AND

C 0 :--< T RIB UT 0 R S

Xiii

THOMAS H. JOHNSON is a Research Professor at the Naval Postgraduate

School's National Security Affairs Department. He has conducted research on Mghanistan, Central Asia, and terrorism. His most recent publications include "A Hard Day's Night? The United States and the Global War on Terror," withJames Russell, Comparative Strategy 24, no. 2, 2005. His earlier work has appeared in such journals as the American Political Science Review, the Journal of Politics, the Brown Journal of World Affairs, and in numerous edited volumes and scholarly texts. Professor Johnson has taught at the University of Southern California, George Mason University, and the Foreign Service Institute. He is a past recipient of the Charles E. Merriam Award for Outstanding Public Policy Research, from the University of Illinois. MATTHEW LEVITT was Director of Terrorism Studies and Senior Fellow at the Washington Institute for Near East Policy at the time of his contribution to this volume. In November 2005, Dr. Levitt became the Deputy Assistant Secretary for Intelligence and Analysis at the Department of the Treasury. Levitt previously served as an FBI analyst providing tactical and strategic analysis in support of counter-terrorism operations. His special focus has been on fundraising and logistical support networks for Middle East terrorist groups. In addition, he has participated as a team member in a number of crisis situations, including the terrorist threat surrounding the turn of the millennium and the September I I attacks. Levitt holds an MA and PhD in law and diplomacy from Tufts University's Fletcher School of Law and Diplomacy. JOHN L. LOMBARDI is a senior U.S. government analyst, formerly at the

United States Southern Command and now assigned to the Pentagon. He has extensive experience with, and knowledge of, Latin American security and intelligence issues. LORETTA NAPOLEON! is an Italian economist and journalist. She is the

author of Modern Jihad, which traces the money behind global terrorism. She regularly lectures on the economics of terrorism. She has an MPhil in terrorism from the London School of Economics, a PhD in economics from University of Rome, and a master in international relations from Johns Hopkins University.

XiV

ABOUT THE

EDITORS

A:-ID

CONTRIBUTORS

NIKOS PASSAS is Professor of Criminal Justice at Northeastern University. His law degree is from the University of Athens (LLB), his Master's from the University of Paris-Paris II (D.E.A.) and his PhD from the University of Edinburgh Faculty of Law. He is a member of the Athens (Greece) Bar. He specializes in the study of terrorism, white-collar crime, corruption, organized crime, and international and transnational crimes. He is the author of Legislative Guide for the Implementation of the UN Convention against Transnational Organized Crime (2003), Informal Value Transfer Systems and Criminal Organizations: A Study into So-called Underground Banking Networks (r999) and the editor of International Crimes (2003), Upperworld and Underworld in Cross-Border Crime (2002), and Transnational Crime (r999). RAPHAEL PERL is the Senior Analyst for Terrorism Policy with the

Congressional Research Service of the Library of Congress. A graduate of Georgetown University's Foreign Service and Law schools, he is the author of numerous congressional and academic publications, including Terrorism and National Security (Congressional Research Service, 2004), and Ten·orism-Looking Ahead: Issues and Options for Congress (a report prepared for the Permanent Select Committee on Intelligence, r996). JOHN T. PICARELLI is an expert in transnational threats and their impact

on national and homeland security. He is currently a Fellow at TraCCC at American University. Some of his recent publications include "Corruption and the Trafficking in Persons: The Ties That Bind" and "Global Crime Inc," co-authored with Louise Shelley and Chris Corpora, in Marianne Cusimano Love (ed.), Beyond Sovereignty (2nd Edition) and "Information Technologies and Transnational Organized Crime," co-authored with Phil Williams, in Info777Zation Age Anthology, Vol. 11., Dan Papp (ed.). Picarelli completed his doctoral studies at the School of International Service at American University in 2006. JESSICA PIOMBO is an Assistant Professor and Regional Coordinator for

Sub-Saharan Africa in the Department of National Security Affairs at the Naval Postgraduate School, where she teaches courses on African politics, comparative politics, and ethnic politics and conflicts. Piombo is also a research associate at Stanford's Center for Mrican Studies. Her research specializes in democratization and electoral politics, transitional governance,

ABOIJT

THE

EDITORS

AND

CONTRIBUTORS

XV

and ethnic politics and conflict management. She is the editor of Electoral Politics in South Africa: Assessing the First Democratic Decade (with Lia Nijzink, Palgrave Macmillan, zoos), and Interim Governments: Institutional Bridges to Peace and Democracy? (with Karen Guttieri, U.S. Institute of Peace Press, forthcoming). She is also the author of "Political Institutions, Social Demographics and the Decline of Ethnic Mobilization in South Africa, 1994- 1999" (Party Politics, July 2005) and "Opposition Parties and the Voters in South Mrica's 1999 Election" (with Robert Mattes, Democratization, Autumn 2001). She received her PhD from the Massachusetts Institute of Technology in 2003. MOYARA DE MORAES RUEHSEN is an Associate Professor of Inter-

national Policy Studies at the Monterey Institute oflnternational Studies in Monterey, California. She received her MHS, l\1A, and PhD from Johns Hopkins University. Professor Ruehsen has published in a variety of academic journals and other periodicals and is currently serving on the editorial advisory board of Nioney Laundering Alert. DAVID J. SANCHEZ is a United States Navy officer formerly assigned to

United States Southern Command, where he has worked on issues related to terrorism and the Tri-Border region. Lieutenant Sanchez graduated from the Naval Postgraduate School, earning an l\1A in National Security Affairs, with distinction. JACOB N. SHAPIRO is an Organizational Learning Fellow at the Center

for International Security and Cooperation at Stanford University. His research focuses on the role of economic motivations in terrorist organizations. He is a Naval Reserve officer with tours at the Office of Naval Intelligence and the Naval \Varfare Development Command. LOUISE I. SHELLEY is a Professor in the School of International Service

and the School of Public Affairs at American University. She is the founder and director of the Transnational Crime and Corruption Center. She is the author of many books, articles, and book chapters focusing on transnational crime, the links between crime and terrorism, and the crime patterns of formerly socialist countries. She is the recipient of Guggenheim, Fulbright, NEH, IREX, and Kennan Institute fellowships.

XV!

ABOUT

THE

EDITORS

AND

CONTRIBUTORS

PHIL WILLIAMS is Professor of International Security in the Graduate

School of Public and International Affairs at the University of Pittsburgh. Professor Wtlliams has published extensively in the field of international affairs. He has edited or co-edited books on the Carter, Reagan, and Bush presidencies, as well as on classic readings in international relations. During the last ten years his research has focused primarily on transnational organized crime, and he has written articles on various aspects of this subject in Survival, Washington Quarterly, Tbe Bulletin on Narcotics, Temps Strategique, Scientific American, Criminal Organizations, and Cross Border Control.

TERRORISM AND

FINANCING

STATE RESPONSES

Introduction

JEANNE K.

GIRALDO

AND

HAROLD A.

TRINKUNAS

Financial and material resources are correctly perceived as the lifeblood 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 I I, zoo I, 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, this volume provides a comprehensive assessment of the state of our knowledge about the nature of terrorism financing, the evolution of terrorist strategies and government responses, and the effectiveness of both. It develops a political economy framework that sheds new light on the problem, focused 1

2

1:-./TRODUCTION

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. The first choice we make in this volume is to focus on the interests and preferences of individuals within terrorist groups and how they organize to raise, transfer, and spend their funds. This provides an explanation for some of the inexplicable shortcomings we see in terrorist operations, such as the repeated failure of terrorist plots due to lack of financing. It also leads us to challenge the conventional wisdom that emphasizes the efficiency of network-based terrorist organizations. The theoretically informed approach underpinning this volume is particularly important in studying terrorist financing since even the classified data on the topic is fragmentary, and theory allows us to fill in the frequent gaps in the data with informed analysis. This approach also provides new insights on the policies states select to combat transnational Islamic terrorism and why the global effort to coordinate counter-terrorism finance policy is meeting resistance despite the frequent reminders of the threat provided by terrorist attacks in Bali in 2003, Madrid in 2004, and London in 2005. A key premise of the volume is that it is difficult to assess the effectiveness of policies without having a clear understanding of how the policies have actually been implemented in practice and the factors that shape this. Although it has become commonplace to assert that many governments lack the resources and "political will" to counterterrorist financing, the reasons behind this lack of political will have not been clearly articulated-arguably a necessary first step in devising strategies to secure cooperation among U.S. government agencies as well as with their counterparts abroad. Understanding the interests of governments and other affected actors (e.g., the private sector) provides an explanation for policy success and failure that complements the traditional focus on the technical soundness of policies. The second choice we have made in this volume is to take a comparative approach to terrorism financing. The comparison of different terrorist organizations and different state responses across time allows us to identify the sources of variation in both phenomena. We can disaggregate the nature of the terrorist threat and explain why the emerging global jihadi movement is more deadly than previous generations of terrorists. A comparative

INTRODUCTION

3

approach also leads us to better understand how structural factors at the international level explain commonalities in government policies on terrorist financing and how domestic factors explain variation in the ability and willingness of states to respond. The successes and failures of counterterrorism operations, the noisy debates about the appropriate policies to pursue in response to the threat, and the extensive coverage of the issue in academic, journalistic, and policy circles have generated a great deal of new comparative data. There is considerably more open-source material available on a much broader scale than ever before with which to analyze terrorist and counter-terrorist successes and failures. The book is organized in two sections. The first section provides a thematic and theoretical overview of the nature of the threat, surveying our knowledge of terrorist financing sources and applying political economy and rational choice approaches to understanding the internal dynamic of funding networks within terrorist organizations. It also provides a critical analysis of the fund-raising activities and mechanisms of fund transfer employed by terrorists, and the distinctions and commonalities that exist between terrorist and other illegal financial structures, such as those used by organized crime. Finally, it previews the key debates surrounding existing counter-terrorism policy and recommends greater attention to intelligence-based strategies. The second section of the book compares three different types of terrorist organizations: insurgent and state-sponsored terrorist movements in Afghanistan, socially and territorially based terrorist organizations in the case of Hezbollah, and the new terrorist movements exemplified by al Qaeda and its associated organizations. It also conducts a comparative survey of terrorist financing and government responses to the problem in the regions most targeted by global jihadi organizations, which include East Mrica, Europe, Latin America, the Middle East, and Southeast Asia. Here, we explain the obstacles faced even by highly motivated states in successfully countering terrorist finances, particularly in the form of a lack of consensus over appropriate policy responses, the mismatch between policy and outcomes, and the constraints imposed by the international order and domestic political and social actors. Two chapters focus on the response of U.S. and international actors to terrorism financing, highlighting policy debates and attempting to explain shortcomings in the response. The volume concludes with a comparative chapter that assesses similarities and variations in individual government policies.

CHAPTER

ONE

The Political Economy of Terrorism Financing JEANNE K.

GIRALDO AND

HAROLD A. TRINKUNAS

A rash of terrorist attacks in the I 99os, all designed to cause mass casualtiesthe 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. 1 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 7

8

JEA:K:-IE

K.

GIRALDO

AND

HAROLD A.

TRINKUNAS

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." 2 These include the urban, Marxist-Leninist-inspired terrorist groups of the 196os and 197os; the religiously motivated terrorist groups that assumed increasing importance in the 198os 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

THE

POLITICAL

ECO:--:OMY

OF

TERRORISM

FI:-.IA:-