SHUTTING DOWN TERRORIST FINANCING:
Summary Account By Robert Blum & Gil Marder
A BRIEFING BY DAVID AUFHAUSER
We have become more sophisticated in fighting the unorthodox war on terror. If these conflicts have taught us anything, it is that controlling the financing of terror substantively diminishes, and is instrumental in extinguishing, the threat of terrorism.
The Failure of the UN Oil-for-Food Program
The Iraqi case represents an indictment of the casualness of our approach to issues of finances where terrorism is concerned. In the aftermath of Desert Storm, far-reaching international sanctions were implemented to ensure Iraq would never pose a similar threat in the future.
The sanctions, however, had the perceived effect of harming ordinary Iraqis. To reform the sanctions, leading states conceived and implemented the United Nations oil-for-food program. An apparently simple program, permitting Iraq to barter oil for humanitarian purposes, it initially seemed a great success. More than $10 billion worth of humanitarian care, food, and services were indeed delivered from over 25,000 different distribution centers throughout the country. The program became a staple of Iraqi civilian society and the UN food-rationing card was traded regularly for goods other than food.
The oil-for-food program was, however, designed by bureaucrats rather than businessmen. Integrating himself as an intermediary in the program, Saddam Hussein was, astonishingly, able to skim over $6 billion in cash. By 1999, unchecked by the outside world, he began acting with impunity -- selling oil directly for money outside of the program.
What haunts us today is the knowledge that Saddam took the illicit money and bought prohibited goods, including the wherewithal to arm himself. The purchase of these goods and services led us to a realistic conclusion that Iraq possessed weapons of mass destruction. Thanks to the still unaccounted funds from Saddam's unsanctioned, illicit sale of oil, Iraq is currently the magnet for international jihad, a venue where enemies of the United States of America hope to demonstrate the limits of American power through insurgency.
The Insufficiency of Military Power in Winning the Global War on Terror
After 9/11, the President and the Secretary of the Treasury recognized immediately that, if you could stop terrorist groups' cash flow, you could substantially diminish their whole enterprise.
Seized financial records provide far more reliable information than evidence gathered through intelligence based on treachery, deceit, bribery, and interrogation. Stopping the money trail also yields a double dividend of not only bankrupting terrorists, but also alerting us to and allowing us to preempt potential calamities that are being planned.
The U.S. Treasury now commands a corps of law enforcement, intelligence, military, diplomatic, and financial specialists. Its goal is to allocate good money to good purposes and stop the flow of bad money intended to finance the killing of innocent people.
Exposing the Financiers of Terrorism
We have found that, while a man with a bomb strapped to his back will not be deterred by the threat of jail, his financier is a coward. Bankers love anonymity, so exposing those who finance terrorism is effective. These bankers include merchants and various Muslim charities. Thanks to the wealth of Saudis and that of the subjects of other Persian Gulf countries, great amounts of money flow through these "charities" to Muslims around the world, providing humanitarian services and support for militant Islam.
Distinguishing between finances intended for militant Islam and terror is difficult, but new laws criminalizing individuals and entities that fund terrorist groups have been sanctioned in 90-100 countries. The U.S. government has a major program in place to help developing countries build up resources and sophistication in the forensics of financial accounting.
We also changed certain standards of conduct. A new executive order gives the President authority to freeze the assets of entities, shareholders, offices, and directors through which terrorist money passes. The threat of executive action has been enough, allowing us to gain insight and even access to books and records around the world.
There have been concrete results. Indeed, our efforts are responsible for reducing the cash flow to Al-Qa'ida by two thirds.
Structural Challenges and Changes
The greatest structural difficulty in halting the financing of terrorism and Islamic fundamentalism is that many in the Muslim world use an unrecorded, informal banking system based on trust rather than a formal records of financial transactions. There are just two ways to deal with this system – intelligence or structural macroeconomic change. The latter is more effective and implies creating an economic climate in which people switch to a formal banking system.
One extraordinary example of large-scale structural change took place in Saudi Arabia. Mosques have long collected cash in collection boxes, which then fund militant Islamic entities like Al-Qa'ida. Collection boxes may sound trivial, but 40,000 of them raise significant amounts. These funds are easily diverted. The Saudis noted this threat and recently have banned the collection boxes in mosques.
The war on terror, an unprecedented war against an enemy without geographic conquest in mind, requires more than military power. We must make use of all the elements of our national power in this conflict. Along with military, diplomatic, law enforcement and other intelligence, we must utilize financial experts to discover, expose, and halt those who finance terrorism. Stopping the flow of cash has already done enormous service. If executed well, the campaign against terrorist financing will bring more peace than any army of soldiers.
War & Peace in the Real World
Page Two Page One
Islamist Terrorist Attacks on the U.S.A.
Terrorism & U.S. Homeland Security
Osama bin Laden & the Islamist Declaration of War
Against the U.S.A. & Western Civilization
Islamist International Terrorism &
U.S. Intelligence Agencies
The Middle East & the Problem of Iraq
The Problem of Rogue States:
Iraq as a Case History
U.S. National Security Strategy
The paragraphs above constitute a summary account of the December 11, 2003, briefing presented by David Aufhauser to the Middle East Forum. The summary was written by Robert Blum and Gil Marder, research assistants at the Middle East Forum. The original version of the briefing can be found on the Internet website maintained by the Middle East Forum.
David Aufhauser served as the U.S. Treasury's chief legal advisor and senior policy advisor to the Secretary of the Treasury.
Aufhauser regularly testified before Congress and oversaw its economic sanctions program, financial crime investigations,
and USA Patriot Act regulatory responsibilities. Prior to his post at the Department of the Treasury, he practiced law for over
20 years in Washington, D.C., with the firm of Williams & Connoly, LLP. He spoke to the Middle East Forum in New York on
December 11, 2003.
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