The term “terrorist finance” quickly entered public discourse after 9/11. Al Qaeda masterminds exploited the international financial system to send subsistence payments - often surprisingly small - that sustained their terrorist cells before the extremists struck. In response, laws implementing the 9/11 Commission Act recommendations toughened bank reporting rules imposed earlier to combat drug money laundering. The belief was that laws requiring reporting of large currency deposits and wire transfers, enacted to snare Colombian cartel launderers, would work equally well if not better against al Qaeda financiers - after closing what appeared to be glaring loopholes. At least that was the intended outcome.
The underlying assumption that that money laundering techniques perfected by narcotraffickers have been enhanced and taken to new heights by those bankrolling terrorism must be revisited. US and foreign prosecutions for financial crimes suggest that analyzing suspicious bank transactions will lead eventually to interrupt terrorist plots. However, this belief remains only partly validated. Many of the popular techniques for moving money - tracing to the heyday of Colombian narcotrafficking - turn out to be much more primitive than advanced, with the effect that law enforcement and intelligence agencies remain frustrated in their efforts to uncover how terrorist money moves internationally. Sophisticated detection schemes endeavor to detect transactions expected to appear on analytic “radar screens” when offenders have become experts at operating well below the radar.
To understand how the US counterterrorism community shaped its post-9/11 strategy, it is helpful to review the major policy initiative, the USA Patriot Act. That legislation toughened suspicious reporting provisions by adding strict regulations intended to snare errant “mom and pop” money transmitters (formally termed Money Service Businesses (MSB). The most common transfers uncovered included international wires executed by banks (e.g. to fund charitable fronts) and the proliferation of smaller MSB remittances typically used by foreign workers to send funds home. Investigators and analysts also found increases in cross border currency flows, confirming that age old smuggling techniques would fuel law enforcement agencies no more able to seal our borders after 9/11 than before. Smuggled cash, often illegally earned, had become the latest form of contraband even commingling narcotrafficking proceeds with payments shipped to and from terrorist centers and cells.
U.S. law enforcement analytical centers like the Treasury Department’s Financial Crimes Enforcement Network (FINCEN) redefined the problem by adding still more regulatory and reporting requirements on top of earlier ones, confirming that more regulations do not necessarily produce higher compliance levels. Mounting prosecutions demonstrated that full service banks as well as some “mom and pop” MSBs were sending money electronically to benefit questionable charities for the benefit of Hamas and Hezbollah.
As the U.S. understanding of terrorist finance continued to evolve after 9/11, agencies treated the challenge as one of detecting the movement of funds that used the latest technologies, such as Bitcoins and other virtual currency. Apparently missing from the terrorist finance portfolio were ingenious Informal Value Transfer Mechanisms like the "Black Market Peso" market, where funds were essentially debited on one side of a border and credited or paid out on the other. Many IVTS modes like Black Market Peso Exchanges offered features strikingly similar to hawalas. In fact, widespread post 9/11 attention given to hawalas further suggested that terrorists were using financing mechanisms fairly new to US law enforcement, when in fact hawalas and other IVTS modes have been widely exploited by narcotraffickers for decades - black market peso exchanges, for example.
In another scenario, money that funded terrorism for a good while “hid in plain sight”. Specifically, contributions to the Holy Land Foundation, a Hamas affiliate, were moved internationally from the US to Mideast destinations without interference because the funds were represented to be bona fide charitable contributions. Eventual prosecutions documented that the funds were not collected for health and welfare but terrorist support purposes.
Returning again to the lessons learned from the 9/11 attacks, many of the terrorists received small denomination wire transfers for rent, food, and other everyday expenses which were not detected because the amounts were small and the individuals were not then intelligence priorities. Overall, these cases seemed to suggest that terrorists were cherry picking from traditional rather than high technology innovative modes of moving value internationally. The 9/11 Commission report summed it up best:
"[A]l Qaeda funded the hijackers in the United States by three main “unexceptional” means: (1) wire or bank-to-bank transfers from overseas to the United States; (2) hand carrying cash or traveler’s checks into the United States; and (3) debit or credit cards to access funds held in foreign financial institutions. Instead of going through ostensibly weak spots, tax havens, secrecy jurisdictions, or “underground” channels, all of the hijackers used the U.S. banking system to store their funds and facilitate their transactions." [Emphasis added]
Overall, the heavy emphasis that U.S. law enforcement and intelligence agencies placed on high tech money movement may have caused investigators and analysts to aim too high on the sophistication scale. The unfortunate consequence has been that an enormous amount of funds routinely criss-crossed borders in ways so technologically basic that their movement was either not detected or in denominations so small that routine detection modes did not discover them. The correction is simple, calling for closer engagement of agencies like DEA and ICE with experience in bulk cash smuggling and Black Market Peso Exchanges, to work with our intelligence community and the FBI.