Financial Transparency Coalition

In 1998, an article in the Washington Post argued Osama bin Laden was able to “shroud his finances in such secrecy and with so many front companies that American officials acknowledge it could take years to decipher them.”  At the time, U.S. officials understood that the key to bin Laden’s power was wealth—which was extensive as he inherited a substantial sum of money from his prosperous Saudi father.  Yet they were often stymied in their ability to track his or other terrorists’ resources as they did not have the capability to comprehensively track, freeze, and seize assets.

After 9/11 that changed.  One important reason for the turnaround was the increased focus on terrorist financing by officials, academics, and intelligence officers, which resulted in a better understanding of the practice.  Jack Williams, an expert in Law and the Middle East at Georgia State University College, put it this way: “Post 9/11, we’ve learned an awful lot about how terror organizations finance themselves, how they select their targets, the importance financial institutions have for them as a target or for growing their enterprises.”

But more importantly, laws changed.  The USA Patriot Act—besides creating a lot of concern over wiretapping—significantly altered anti-money laundering enforcement by officials in the United States.  Among other advances, the Patriot Act sought to prevent foreign shell banks from having access to the U.S. financial system; encouraged cooperation and information sharing among law enforcement, regulators, and financial institutions; and required financial institutions to establish anti-money laundering programs.  As Tom Cardamone, managing director of Global Financial Integrity put it: “9/11 really focused everybody’s attention on money laundering and terrorist financing and how you get at it. The Patriot Act did that to a great degree.”

But terrorists have adapted, too. They’ve learned how to avoid traditional channels for moving funds. Terrorists use cheap, informal money-transfer methods like hawala swaps and couriers. And organizations like al Qeada, which once had a much stronger centralized core group in Pakistan, has reduced profit-sharing among affiliates in order to avoid detection. Stuart Levey, the former head of the Treasury’s Office of Terrorism and Financial Intelligence, explains “Illicit actors are now savvy to the fact that the formal financial system is quite well-monitored, so they look for other ways, and it’s hard to keep up with that. It’s a bit of a cat-and-mouse game.”

Terrorists have adapted in another way, too. They’re able to use less money to achieve the same results. Loretta Napoleoni, author of Modern Jihad: Tracing the Dollars Behind the Terror Networks, puts it this way: “Five years ago, we had large movement of funds which went through the international financial system. Now we are just talking about four friends who raise £1,000 to stage an attack. The unit cost of terrorist financing has crashed to the floor.” Here are the numbers: the 9/11 attacks probably cost about $500,000. The Madrid bombings of 2004 likely cost no more than $15,000, the failed parcel bomb-plot in 2010 cost only $4,200, and the 2005 attack in London about $2,000.

That doesn’t mean combating terrorist financing has become any less important. Following the money isn’t just important for disrupting terrorist plots, although the 9/11 commission has called it “very effective.” And terrorist groups need money for more than just funding the attacks themselves. Money must be spent for training and recruiting, particularly for new recruits and when specific operations require specialist skills—like piloting planes—training is particularly expensive. Terrorist cells spend significant sums on procuring reliable and secret channels of communication. Most importantly, they must spend money on disseminating their ideology, winning support, and creating social legitimacy. This comes in a variety of forms including propaganda, charitable activities, subsistence living costs for recruits and family members, and payments to terrorists’ surviving family members.

In the end, it all comes back to money.