Financial Transparency Coalition

Since the attempted bombing of Northwest flight 253 on Christmas day, there’s been a lot of chatter about Yemen.  In case you don’t know, this is because the bomber was allegedly trained and equipped by an arm of al-Qaeda in Yemen.   Joe Lieberman has called the country “tomorrow’s war” on terror and Stephen Colbert has noted the letters in Yemen, rearranged, spell “ENEMY.”

Yemen is a startling example of how illicit financial flows are not just an obstacle to development, but also pose a stark danger to national security worldwide.

Yemen has had a volitile history.  Until as late as 1991 the land was occupied by two countries, South Yemen (People’s Democratic Republic of Yemen) and North Yemen (Yemen Arabic Republic), although the countries had approved a future union twenty years before in 1971.  Unification did not end hostility between the North and South,  however, and a civil war broke out in May 1994.  The war ended only a few months later, but tensions between groups remain today.  The current political landscape in Yemen is bleak: Southern leaders continue to call for secession, a Shiite tribal revolt is now raging in the North, and the country ranks 18^th on the Fund for Peace’s 2009 Failed States Index.  These conditions have made Yemen ripe for terrorist groups, who are now taking root.  In fact, the U.S. government believes there are as many as 100-300 al-Qeada operatives in Yemen, perhaps including some senior officials.

Rampant corruption has not only aggravated the bleak economic outlook for Yemen (the country is one of the poorest in the world, with an average yearly income of $2,500), but has also fed fury among an already frustrated population.  Abdul-Ghani al-Iryani, a USAID specialist on Yemen, notes that smuggling of diesel costs the nation as much as the country’s “total budgets for health and education combined.”  And Yemen ranks a dismal 154 out of 180 countries on Transparency International’s corruption index.

Corruption worsens instability, and instability makes money laundering and drug profits easy access points for terrorist financing.  Yemen offers all these amenities and more.

Terrorist organizations–including al-Qeada, Hezbollah, and Hamas–are largely funded through the proceeds of drug production, as well as donations, which are laundered through charities and front organizations.  A U.S. Drug Enforcement Administration (DEA) investigation into a pseudoephedrine smuggling scam in the American Midwest led investigators to Yemen, where proceeds were pouring into bank accounts tied to Hezbollah.  The use and production of khat (or qat)—a stimulant that is banned in the U.S.—is so widespread in Yemen that up to 40% of the country’s water supply goes toward irrigating its leaves.  The drug is smuggled from Yemen into East Africa and then into the United States, with profits laundered through hawala networks (informal money exchanges, one form of illicit financial flows).  Many officials believe proceeds of the drug then flow to terrorist organizations.

Front organizations provide another level of funding.  Hamas, for example, uses charities like al-Aqsa International Foundation to conceal fundraising activities.  The head of this organization, who was eventually arrested in Germany and extradited to the United States, had set up his offices in Yemen.   Though Yemen has passed anti-money laundering legislation, its Anti-Money Laundering Information Unit (AMLIU) is understaffed with only a few employees, has no database, and is not networked internally.  The US State Department notes, “The lack of capacity hampers any attempt by the AMLIU to control illicit activity in the formal financial sector.”

It all comes back to money.  Money is the life blood of any organization—whether that organization is the U.S. government, the Red Cross, or al-Qaeda.  And to confront the totality of fighting terrorism, we must take on the economic ties of those organizations.  We must take on the dirty money.