By: Kailey Pickitt, Guest Contributor
Photo Credit: Los Angeles Times
After the attacks on September 11, 2001, President Bush declared that the United States would destroy al-Qa’ida using “every means of diplomacy, every tool of intelligence, every instrument of law enforcement, and every financial influence;”[i] the last of these largely determines the success of a terrorist organization and presents the paramount challenge to US counterterrorism strategy.[ii] Terrorist financial networks, webs of seemingly benevolent sources, including charities, private donors, and front companies, rely on the global movement of inconspicuous amounts of cash. The methods with which the aforementioned entities move funds, notably the hawala, ensure anonymity and effectiveness, particularly in regions that lack established banks, ATMs, and other trackable currency systems. Current measures, including bureaucratic organizations like the Office of Foreign Assets Control (OFAC), enable the United States to freeze both domestic and foreign assets of terrorist organizations. However, challenges posed by hawalas’ perceived legitimacy and uncooperative foreign partners continue to impede US financial intelligence and efforts to effectively prosecute terrorists and their supporters for financial crimes.[iii]
A complex and multifaceted foe, hawalas’ perceived legitimacy by many across the Middle East further complicates efforts to disrupt the networks. Hawalas serve as a wire transfer equivalent throughout Central and South Asia, the Middle East, and North Africa.[iv] Unlike traditional banking systems, money does not move across auditable, electronic pathways; rather, a complex network of human brokers transfer funds through telephone calls, faxes, and currency exchanges, capable of delivery across the world within hours. The absence of legal contracts, detailed records, and identification requirements eliminates the potential for a ‘paper trail;’ this cheap, fast system is free of government regulation and, in some states, considered more reliable than formal banking institutions.[v] Hawalas’ reliability stems from brokers’ sense of honor, as hawalas “exist in extensive family networks based on regional and tribal connections of those who use it.”[vi] Although most hawalas transmit legally obtained funds, many terrorist organizations use them to manage or hide illegal financial transactions. The hawala system gives organizations like al-Qa’ida, and the desolate regions in which they operate, improved financial access and liquidity.
A juxtaposition exists within the hawala community: it enables illicit and terrorist activity worldwide, but is also the financial backbone of many Middle Eastern and Asian economies. Middle Eastern expatriates and immigrants working in the West and across the world are the largest proportion of hawala users, relying on the informal network to send funds to their families.[vii] This population’s distrust of official state banks, coupled with frequently unaffordable fees, leads them to hawala brokers, who typically charge a smaller commission and offer a more competitive exchange rate. In Afghanistan, for example, only ten percent of citizens rely on formal financial mechanisms; hawalas fulfill ninety percent of all transactions in Afghanistan.[viii] Further, development agencies estimate that more than fifty percent of Iraq’s retail traders rely on hawala or similar networks instead of conventional banks.[ix] However, given current penetration and abuse of the hawala system, intelligence and law enforcement agencies routinely target networks as a means to prosecute terrorists. Law enforcement and other regulatory bodies must weigh the costs, benefits, and implications of potential new rules and actions that would affect hawalas.
Apathetic and uncooperative foreign partners, particularly Saudi Arabia, complicate international efforts to police hawala networks and jeopardize the efficacy of international sanctions. Although Saudi Arabia does not openly condone the actions of extremist groups, the country serves as a major hub for Islamic charities, donors, and sponsors, both legitimate and illicit; all rely on the hawala system for some portion of their operations.[x] Substantial commercial infrastructure, an influx of business activity, and historical ideological ties to Sunni Wahhabism, an extremist sect of Islam and the basis of many charities, all discourage Saudi interference in freezing assets and enforcing international sanctions. Further, Saudi Arabia is notorious for limited bank oversight and incompetent money laundering laws.[xi]
The US government has created a number of bureaucratic offices in which to concentrate efforts to combat illegal financial networks, including hawalas. Although founded in December 1950, OFAC in the US Department of the Treasury transformed into the tip of the financial intelligence spear after the September 11 attacks. OFAC’s mission primarily focuses on terminating illicit financial activities of foreign states, terrorist organizations, and individuals that threaten US national security. OFAC’s clout ultimately stems from the power, stability, and reach of US denominated currency; OFAC jurisdiction reaches beyond domestic boundaries, encompassing any individual, organization, or state that utilizes US currency. Many foreign companies choose to maintain bank accounts in US dollars, based on the belief that US banks are among the most stable and least corrupt financial institutions in the world. Terrorist organizations and their affiliates, however, understand that utilizing US currency places them under OFAC’s stringent oversight, empowering the US government with the necessary grounds—under the USA PATRIOT Act—to freeze accounts and halt pending transactions. As a result, illicit organizations actively avoid using the US dollar. OFAC’s surveillance and enforcement forces terrorist organizations to use other forms of currency or underground networks and, consequently, circumvent US government regulations and oversight; ironically, terrorist financing is more difficult to track and counteract today because of OFAC’s success.
In the long term, strengthening the public’s confidence in state banks and encouraging official institutions to lower commissions, fees, and exchange rates will reduce the public’s reliance on the hawala system. Tracking illicit hawala use would present fewer challenges if illegal transactions did not seamlessly blend in with legitimate business dealings. However, financial intelligence challenges are likely to continue as terrorist organizations like al-Qa’ida disperse, create new cells, and use new financial sources and movement methods. Therefore, aggressively pursuing financial networks as they evolve should continue to be a key component in US counterterrorism strategy. Without reliable financial support, terrorist organizations will ultimately lose the ability to recruit new followers, effectively conduct attacks, and promote radical causes.
Kailey Pickitt is a M.A. candidate in the Security Studies Program at Georgetown University, where she concentrates on Terrorism and Substate Violence.
[i] Juan C. Zarate, Treasury’s War (New York: Public Affairs, 2013): 19.
[ii] Je-Yoon Shin, “Combating terrorist financing as part of a complete strategy to defeat ISIL and prevent terrorist attacks,” Speech to Chatham House conference on Countering Terrorist Financing, London, UK, February 8, 2015.
[iii] Patrick D. Buckley and Michael J. Meese, “The Financial Front in the Global War on Terrorism,” Department of Social Sciences, U.S. Military Academy (2001): 10
[iv] Zarate: 93.
[v] Zarate: 94.
[vi] Juan Miguel del Cid Gómez, “A Financial Profile of the Terrorism of Al-Qaeda and its Affiliates,” Perspectives on Terrorism 4, no. 4 (2010), accessed September 30, 2017, http://www.terrorismanalysts.com/pt/index.php/pot/article/view/113/html.
[viii] “Quarterly Report to the United States Congress,” Special Inspector General for Afghanistan Reconstruction (July 30, 2017): 164.
[ix] “Cheap and Trusted.”
[x] Zarate: 68.
[xi] Buckley and Meese: 4.