International Reports

Dirty Entanglements

by Louise Shelley

Global Terrorism and Organised Crime

Terrorist financing is now heavily reliant on diverse forms of criminal activity and illicit trade. Funding can result from petty crime such as seen in the recent attacks in Western Europe to multi-million dollar financing resulting from the Islamic State’s (IS) oil smuggling. Only multi-faceted approaches can seek to curtail this funding.

Introduction: Funding Global Terrorism

Terrorism in the Cold War period was predominantly funded by states, even referred to as “state-sponsored terrorism”. Yet even in this period there were linkages between crime and terrorism. The funding of terrorism by the drug trade, “narco-terrorism” was a reality in many regions of the world and was particularly pronounced in Latin America, especially with the Sendero Luminoso and the Revolutionary Armed Forces of Colombia(FARC), also known as Fuerzas Armadas Revolucionarias de Colombia in Spanish. Seized data from the FARC reveal that in 2003 its total income was approximately 170 million U.S. dollars with its largest source drug cultivation (46 per cent) followed by extortion (42 per cent).

The rise of al-Qaeda was based on another funding model for terrorism. It was neither primarily state-sponsored nor crime-supported. Rich individuals and supporters from different countries, primarily in the Gulf region, provided financial support. Before 9/11, al-Qaeda’s budget was estimated at 30 to 35 million annually. Osama Bin Laden, coming from a wealthy Saudi family contributed his own resources but he was only one of many to do so. Yet, over time, as funding was not sufficient to meet expenses, al-Qaeda and its affiliates began to engage in criminal activity to supplement their income.

The problems of terrorist funding through crime were aggravated by the enhanced financial controls on the international banking system following 9/11 and the enactment of the Patriot Act in the United States that resulted in greater financial oversight of financial transfers, correspondent banks and greater monitoring of suspicious financial transactions. Consequently, terrorist groups were forced to generate revenues outside the established financial system.

At the present time, there is almost no terrorism in the world that is not funded by criminal activity. The United Nations Security Council, starting in late 2014, has recognised the very important link between terrorism, organised crime and corruption in four separate Resolutions Crime is no longer just a concern of the justice system but a phenomenon – through its links with terrorism – that undermines national, regional and international security.

In contrast, petty and transnational crime are not necessarily linked with terrorism. Rather, the preponderance of transnational crime and illicit trade are not a funding source for terrorism but instead these crimes benefit criminals, corrupt officials and business people who often serve as fronts or facilitators for the criminals. Therefore, finding a terrorist-related crime in the midst of much larger illicit financial flows is sometimes challenging. It can be hard to identify because it is often small-scale or because the illicit is blended with the licit as is the case with oil flowing out of IS-controlled territory.

Regarding IS, it is important to note that the criminal funding that supports ISIS in the Middle East is very different from that which has funded the recent attacks in Europe and the United States. IS in the Middle East requires hundreds of millions of U.S. dollars annually to meet its budget whereas IS-inspired terrorist attacks in the West are low-cost and locally generated. It received a large financial base by taking the cash held in Mosul, a sum estimated at 400 million U.S. dollars. The United States government estimates in 2015 that ISIS was deriving 500 million U.S. dollars annually from illicit oil trade although that sum is believed to have declined as a result of the decline in oil prices and military action. There is evidence of only one financial transfer from the Middle East of 5,000 euros to fund this activity, much less than in the case of the 9/11 attacks. Rather, as has been shown through investigations in Europe, it is small-scale criminal activity in Western Europe that has funded terrorist attacks and provided the operational funds for foreign fighters to join IS.

However, the IS superstructure that recruited and in some cases trained the terrorists who executed the attacks is expensive to maintain. Therefore, IS requires not only large sums for its governance of a vast territory with eight to ten million people and its military operations but also for its efforts to foment terrorism globally.

IS requires large sums for its governance of a vast territory, its military operations and for its efforts to foment terrorism globally.

Although the FARC, at its height, controlled significant territory in Colombia, it did not control as many people nor did it seek to set itself up as a model system of governance. Neither did it seek to inspire terrorism outside its region. In contrast, IS – with its greater financial responsibilities on its territory in addition to its global ambitions – needs to generate more money from criminal activity and illicit trade than any preceding terrorist group. Fortunately, for IS, it controls a region rich in energy resources and has sophisticated personnel capable of arranging the smuggling of the large quantities of oil that it generates. Yet it also has a diversified funding model generating resources from many diverse activities including but not limited to: extortion, kidnapping, human smuggling and trafficking, smuggling of antiquities, smuggling of consumer goods as well as financial fraud. In this respect, ISIS activities epitomise the diversified model of the “business of terrorism”, which will be outlined in the following paragraphs.

Terrorists as Business People

Like business people terrorists seek a product mix, professional services, conduct cost-benefit analyses, employ tax strategies and exploit supply chains. They seek market dominance, strategic alliances, competitive advantage, targets of opportunity and try to employ innovation and technology effectively. They seek ways to obtain access to the best human capital through their global networks. IS illustrates all these concepts but it is only one of many terrorist groups that share these attributes. It is just the most successful of these.

Terrorists are always looking for new ways to fund themselves. In this way, they resemble multi-national businesses that need to diversify to survive in the competitive global economy. To survive, they are proactive and are fluid and flexible, like the most nimble of businesses. We must appreciate their capacity as business people and not just explore their past streams of funding.

Exploiting Comparative Advantages

Terrorists exploit their comparative advantage. Terrorists near natural resources use these commodities to fund their activities, those near weapons stockpiles become weapons traders, and terrorists in border areas tax the cross-border flow of goods. They take advantage of their critical location. For example, al-Qaeda was involved in the diamond trade, particularly in Sierra Leone, Liberia and Tanzania. The FARC and the National Liberation Army (also known as Ejército de Liberación Nacional or ELN) use their territorial control in different regions of Colombia to extort money (approximately 70 million U.S. dollars) and to lead attacks against energy infrastructure, such as has also been seen in Algeria and in territory controlled by IS and Boko Haram. Terrorist and insurgent groups located near populations of elephants sought for their tusks, thus leading to the mass slaughter of these animals and irreversible damage in ecosystems.

Securing Supply Chains

Terrorists share a major concern of legitimate businesses – supply chains – as they need to ensure the safe and timely delivery of goods without disruption. Terrorists are concerned with supply chains for illicit goods, such as narcotic drugs, counterfeit pharmaceuticals, minerals and natural resources and cigarettes or high-value diverted goods, such as oil. They seek to trade goods that generate significant financial resources but do not intersect with the international financial system. They often rely on trade-based money laundering to transmit goods of value.

Terrorists make substantial money by controlling supply chains for delivery of their products, such as drugs, as well as by taxing the smuggling of others that pass through borders or territory that they control. The ability to tax the transit of commodities and people is one key to their financing. IS and al-Nusra, according to a retired high-ranking Jordanian military official, have cease-fires in the afternoon in order that they can extort money from the human smugglers and the refugees departing from the war-torn territory. According to documents obtained from IS, their rate of taxation on goods and services ranges from ten to 30 per cent. They create the conditions that force individuals to migrate and then tax them and benefit from the goods that they are forced to leave behind.

Terrorists make money by trading and by taxing trade passing through territory they control.

Organised crime groups’ extortion of trade has been known for a significant period, which is why they are so deeply involved in ports and the trucking industry. Yet terrorist groups on many different continents also profit from exploiting supply chains and taxing trade. This has been seen for years on the Turkish border as the PKK has taxed everything from cigarettes to oil. These same smuggling routes, as well as many new ones, have been adapted by IS.

Terrorists often generate revenues by taxing the supply chains that move legitimate and illegitimate products across territory they control. Through corruption of officials and application of violence, terrorist groups undermine state presence and bolster their own in key border areas, ports, and other transport hubs. Therefore, they have learned from organised crime the importance of controlling territory and have capitalised on the corporate world’s need to move commodities long distances in the increasingly globalised economy.

Securing Personnel

IS is the first terrorist group to have a global recruitment strategy. It has done this by developing diversified messages for potential recruits in different regions of the world. It uses new technology such as twitter to identify potential jihadists and then follows up with them on online chatrooms and other forms of new media to recruit fighters or women to marry and provide support services to fighters. Its well-developed communications and marketing strategy in some respects mirrors that of legitimate multi-national companies.

Heterogeneity of Businesses

All terrorist groups do not function the same way in business. Cultural, historical and geographic conditions shape their approach to terrorist financing. For example, in the Middle East where trade has been at the heart of the economy since the first recorded language, trade or taxing trade is the major funding source of IS and other groups such as the PKK operating in the region. Trade-based money laundering is an important means to move money. The long-standing growth of drugs in Afghanistan and in the Andes has contributed to a reliance on crop production and drugs when it comes to terrorist financing in these two diverse regions.

Terrorists choose the crimes they will commit not only by profitability and ease of entry into this business sector, but also by the extent of competition in this sphere of criminal activity and the costs of corruption. Yet, determinations of risk of detection and asset loss are also associated with the calculations of the more sophisticated hybrid of criminals and terrorists. Such analyses help explain the rapid rise in antiquities theft and trade because there is a market for these treasures in the Middle East and online. Terrorists exploit their strategic advantages, just as legitimate business people do. Understanding the comparative advantage of a terrorist group within this financing framework is key to determining their sustainability and deriving strategies to deprive them of revenues. Almost every known form of criminal activity has been used to fund terrorism.

Funding Activities

Terrorists use crime as a means to generate needed revenues, to obtain logistical support, and use criminal channels to transfer funds. Criminals provide operational tools, such as falsified documents, new identities and transit across borders to terrorists in need. Criminals can pay off officials, thereby providing terrorists and their commodities safe passage across borders. The criminal support structures can include either petty criminals or developed crime groups, such as the Camorra in Naples. The attacks in France in November were committed, in part, with weapons obtained from the Balkans revealing that the illicit arms trade of the criminal world can be exploited by terrorists. The cost of the attack is estimated at 10,000 U.S. dollars whereas the costs of the attack to France in enhanced security costs, decline of tourism and related businesses in many millions.

Product Mix

Almost every known form of criminal activity has been used to fund terrorism. The choice of criminal activity reflects the geographic location of the group, its human capacity and the profitability of the crime. Crimes are selected based on the ability to evade detection or prosecution, access corrupt officials, and obtain profits. Terrorists prey on ordinary citizens as well as smaller and larger businesses through extortion and kidnapping. They commit fraud against legitimate financial institutions through credit card abuse and other financial manipulation of markets.

Apart from these high-profit and large-scale sources of criminal activity, terrorists and insurgents participate in a diverse range of criminal actions, including ones used by earlier generations of terrorists and guerillas, such as kidnapping, extortion and bank robbery. But they also are at the forefront of technology, relying on credit crime and Internet fraud. ISIS has also acquired personal data of federal workers obtained through cybertheft. They may also use new technologies such as cryptocurrencies (e.g. bitcoin) to move money. The dark web is believed to be used to communicate undetectedly and to sell commodities.

Small-Scale Illicit Trade

The concept of narco-terrorism had meant that counter-threat financing has focused on such large financial generators as the drug trade. But increasingly, smaller-scale illicit trade in commodities such as counterfeit goods, fuel, cigarettes, food, medicine, textiles and clothing are used by terrorists to fund themselves in the United States, Europe, North Africa and the Middle East. Weapons trade, another dual-use crime is particularly prevalent i n North Africa, especially flowing out of Libya. In aggregate, the funding from such activities is substantial, and rivals that of drugs, but entails much lower risk of prosecution.

Increasingly smaller-scale illicit trade in commodities are used by terrorists to fund themselves.

Money generated by illicit trade within the U.S. from the illicit cigarette trade is sent out of the United States to fund terrorist groups in the Middle East. Recent terrorist attacks in Europe, such as the recent train attack between Brussels and Paris, have been perpetrated by terrorists with backgrounds in small-scale illicit trade. One of the Kouachi Brothers who killed the cartoonists of Charlie Hebdo had traded in counterfeit Nike sports shoes and smuggled cigarettes. This phenomenon is not confined to Europe. The New York Police Department (NYPD) is focusing on many smaller scale crimes, including cigarette smuggling and sale of counterfeits that are used by many diverse terrorist groups to fund themselves.

Professional Services

Terrorists, when functioning as criminal entrepreneurs, require a variety of services. They are also aided by the facilitators from the legitimate world such as accountants, bankers, and lawyers that intentionally or inadvertently assist in the perpetration or the funding of terrorism. But they also need corrupt officials and often witting and unwitting facilitators from the corporate world. Corrupt military personnel can serve as suppliers of weapons to criminal and terrorist groups. Therefore, they have multiple forms of interaction with the legitimate economy. They also require professional services from the criminal world as they retain the services of human smugglers and specialists in “non-traceable communications, forgers, and money launderers”. Without hiring this expertise, they cannot make their business function.

As terrorist entrepreneurs, they are always looking for new product lines and seek to learn from regional successes in one area that can be transferred elsewhere. Therefore, the FARC, known as narco-terrorists, are really a much more diversified business that even generated income from the exploitation of hydrocarbons, approximately 19 million U.S. dollars annually. Diversification is as much a key to survival as it has been to the legitimate business world.

Terrorist businessmen share a key concern of their legitimate counterparts – the retention of professional services. These service providers allow them to move their money, bribe needed officials, and obtain falsified documents.

Conclusion: Follow the Money!

The linkages between terrorism, petty crime and organised crime are not uniform but they are omnipresent. Therefore, finding the criminal activity or “following the money” that is linked to terrorism is a significant challenge. But it is an important objective because it can deny terrorists the funding they need to recruit and maintain their operations. Moreover, following the money exposes the composition of terrorist networks making it more possible to disrupt their activity.

This insight has not merited sufficient attention from the counter-terrorism community. The relationship between crime and terrorism requires more than a military strategy because a diversified and often covert global financial network is now supporting terrorism. Moreover, the reliance on trade for the funding of terrorism, a problem, particularly prevalent in the Middle East, suggests that we cannot rely on treasury departments or conventional financial institutions, such as banks, to reveal the funding sources of terrorism. Rather, as the United Nations Security Council has identified in four different Resolutions, we are facing a great diversity of crimes that are funding terrorism in general and IS in particular.

We need police work combined with counter-terrorism activity to help counter the smaller-scale funding of terrorism in Western Europe, the United States and other locales. To counter the larger-scale funding such as that which funds IS, we need an approach that combines the insights of many different sectors of government, multinational organisations, the private sector and civil society. Corporations and business people can more readily identify the anomalies of international trade data that may be indices of illicit trade. Civil society groups can help us understand the illicit markets they observe and where they may be consumers and/or victims of its fraudulent products. Only with a multi-faceted approach to terrorist financing and its relation to criminal activity do we have a hope of stemming its revenue sources.

Louise I. Shelley, Ph.D., is Omer L. and Nancy Hirst Professor of Public Policy and Director of the Terrorism, Transnational Crime and Corruption Center at George Mason University, Arlington, VA.

International Reports
October 13, 2015
Illicit Financial Flows als Entwicklungshindernis (AI 09/2015)