6/12/02

THE NEXT PHASE IN THE FINANCIAL WAR ON TERRORISM: CHARITIES, HAWALAS AND TRADE

By Kenneth W. Dam

Kenneth W. Dam is U.S. deputy secretary of the Treasury.


WASHINGTON -- The first phase of the financial front of the war on terrorism was dominated by public designations of terrorists and terrorist supporters and attempts to freeze their accounts. Since Sept. 11, the United States and its coalition partners have publicly designated 210 terrorists or terrorist supporters. We have frozen more than $115 million around the world, and 166 countries and jurisdictions have blocking orders in force.

Though closing the world's financial system to known terrorists and their financiers remains important, we are entering a new phase that targets the transfer of funds outside the mainstream economy.

There are several reasons why public designations and blockings should not be expected to dominate the next phase.

First, public designations are, by their very nature, public. Terrorists learn about them and adapt their behavior accordingly. They will avoid keeping their money in the United States or other financial centers with effective rules and regulations to thwart them. They will use informal methods of moving their money. They may avoid storing value in currency at all, instead preferring commodities like gold or diamonds, converting the commodities to cash only as needed.

Provided the United States and the international community remain vigilant in policing their financial systems, we expect that terrorists increasingly will avoid keeping their
money in large amounts in single accounts in the mainstream financial system. Over time, therefore, public designations will not ''catch'' as much money as they did initially.

Increasingly, governments other than the U.S. are playing a leadership role, often acting privately to stop individuals from donating money to suspect groups and arresting terrorist financiers.

Some governments are taking steps to regulate hawala (informal international money transfer operations) dealers. Hawala systems (in some countries called hundi systems) are efficient, inexpensive, trust-based methods of moving money that do not leave large paper trails.

During a conference on hawalas in the United Arab Emirates on May 15-16, a number of governments agreed to take steps to regulate and monitor hawalas to ensure that they are not abused. For example, the UAE will soon require hawalas to be licensed and regulated, and India is taking steps to crack down on unlicensed money transmitters.

We do not think that banning hawalas altogether is the answer. Hawala dealers provide an important service, transferring money at low cost to populations that are not supported by formal financial services. These benefits must be preserved while at the same time preventing their abuse by terrorists.

Along with hawalas, charities will be the subject of increasing focus. Charity is a central pillar of Islam. Indeed, in many parts of the world charities provide much of the social infrastructure -- orphanages, hospitals and schools. At the same time, there is no denying that some legitimate charities have been penetrated by terrorists or terrorist supporters -- possibly by only a few managerial employees -- who misdirect a portion of the charity's funds for terrorist ends.

There are also organizations primarily created to abuse charitable status for terrorist ends. Some groups threaten not only their targets, but their donors, extracting ''donations'' as ''protection'' against reprisals. The challenge is to prevent terrorists from using charities as a cover for supporting terrorism while ensuring that charitable giving and charitable works continue.

We are pursuing these two goals by freezing the flow of funds through charities that have been corrupted by terrorist supporters and increasing the transparency and oversight of charities around the world.

Thus far, several charities around the world have been identified and their assets frozen -- our joint designation with Saudi Arabia of two regional Al Haramain offices is a good example of what is beginning to occur. Also, we are asking countries, bilaterally and through multilateral bodies, to evaluate their regulatory and enforcement oversight of nonprofits. In addition, we are working to disseminate international best practices for ensuring the accountability of charitable organizations.

Finally, we are calling upon private watchdog groups to continue and expand their important work on ensuring transparency in charitable operations, and to broaden their focus beyond their historical emphasis on fraud and waste to include the threat posed by terrorist abuse of charities.

We are also beginning to make some progress in preventing terrorists from using otherwise legitimate trade in goods and services as a means to funnel money to terrorists. The U.S. Customs Service, for example, uses techniques developed in the drug war to look for movements of goods at abnormal prices. Customs used this technique to support the designations of three Yemen-based honey businesses tied to Osama bin Laden.

In addition to designating businesses linked to terrorism, we also work to ensure that legitimate merchants are able to identify suspicious transactions so that they can report them and take steps to prevent such transactions in the future. We are educating the business community, especially those industries particularly vulnerable to trade-based laundering activity, just as we have done in the drug war through our program to fight the Colombian-based black-market peso exchange.

Is all this activity having an impact?

We know that it is. Al Qaeda is having financial difficulty. We know that some potential donors to terrorists are reluctant to give money for fear of the consequences. We see encouraging signs that the world is erecting regulatory barriers to terrorist financing. Almost daily, we receive word of a new money-laundering law, a new arrest, a new regulation that will make life more difficult for terrorists so that they can be captured or otherwise disrupted.

We can never be 100 percent sure that terrorists are not transferring money one way or another. Doing so would come at too great a cost to the economies of our interdependent world.
Accordingly, just as in the physical war, we must take the battle to the terrorists themselves. That is why we must also seek to disrupt terrorist finances outside of the mainstream financial systems -- in the hawala networks, in corrupted NGOs (non-governmental organizations) and in fraudulent trade patterns.

Unlike the first phase of the financial front on terror, this phase will have to be led mainly by America's coalition partners who are closer to the ground of the world's informal financial networks.


(c) 2002, World Economic Forum/Global Economic Viewpoint. Distributed by the Los Angeles Times Syndicate International, a division of Tribune Media services.
For immediate release (Distributed 6/12/02)

back to index