THE NEXT PHASE IN THE FINANCIAL WAR ON TERRORISM: CHARITIES, HAWALAS
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
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
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
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
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
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
For immediate release (Distributed 6/12/02)