Funding terrorism

Trying to starve the terrorists of money is like trying to catch one kind of fish by draining the ocean.

(The 9/11 Commission Report, page 382)Policing: A Journal of Policy and Practice,

One intriguing feature of violence of the modern variety is the ease with which it is perpetrated. Resources seem aplenty and never pose a constraint to its executioners. The question to be asked is while personal vendetta could be financed by the person who stands to gain materially or otherwise, what about violence promoted by a collectivity that professes to stand for a political/religious ideology? Specifically, how is the modern terrorist financed?

This subject evoked feverish attention immediately after 9/11. One does not, however, any longer see great excitement or interest in this regard. This is inexplicable because terrorism remains unabated, and the global escalation in the costs of goods and services must have pushed up the budgets required to orchestrate and execute operations like last Novembers attacks in Mumbai. The logistics involved in that horrific crime were mind-boggling. Identifying, training and equipping 10 young men if there were just 10 and not more as some suspect and ferrying them across the sea must have cost a lot of money. Where did it come from? Finding money and material for terrorism must be a key issue for its sponsors, who are not necessarily flush with cash, especially if they are driven solely by religious fanaticism. This is why one invariably suspects state mechanisms to be behind such adventures.

Ideology is attractive as long as it is described and read on paper. Implementing such ideology costs considerable sums of money, and there are few private organisations or industries that would be willing, except under duress, to chip in because extending a hand for such questionable activities is not only not profitable but is also risky if that hand gets to be detected by law enforcement agencies. Finally, how much does an attack like the one in Mumbai cost? With so much cynicism about costing practices in general, academics tend either to overstate or underestimate terrorist costs. The 9/11 Commission computed the costs for the Al Qaeda attack to be less than $500,000, which by all means was just peanuts even eight years ago. The London underground train and bus explosions of 2005 were estimated to have cost less than $15,000. These are approximate figures.

Expert attention to terrorist finances and associated matters in the recent past has focussed on two major issues. Assuming that terrorists need sizeable amounts of money to execute their diabolic plans an assumption whose logic is not easily disputed and that they have to acquire it through surreptitious means because of close monitoring by law enforcement agencies, how do they go about this job? Secondly, there is growing evidence of terrorist interest in financial markets and all that goes on in such markets. If this is true, how does one account for such an interest and what does a terrorist gain by manipulating the trade in stocks?

The first of the Policing articles Money Talks, Money Walks: The war on terrorist financing in the West is by Donncha Marron of The Robert Gordon University, Aberdeen, United Kingdom. Marron chronicles the various efforts made by the United States and other Western nations since the 1999 United Nations Convention for the Suppression of the Financing of Terrorism, which incidentally confined itself to fund-raising within a country. The concept of transnational terrorism was yet to make its presence felt.

During the months following 9/11, however, focus shifted to international prevention after Al Qaeda was found to be adept at raising funds in various parts of the world and moving them across nations. President George W. Bush was quick to issue the much-talked-about Executive Order 13224, dated September 24, 2001, which authorised the freezing and blocking of some financial assets and transactions. In retrospect, this appeared to be more firefighting rather than problem-solving.

Simultaneous with the globalisation of terrorism that occurred in 2001, one witnessed a glorification of the benefits of the globalisation of trade. Interestingly, the two phenomena appeared to go hand in hand. This is the dilemma that now faces policymakers: Can we halt the nearly irreversible trend of globalised trade just because it makes it easier for terrorists to move men and money? Again, is the evidence on hand sufficient to move forward with crippling anti-trade measures in the belief that this strategy will contain terrorism? This becomes all the more relevant because of the interdependence of nations.

Marron also refers to the debate that questions the wisdom of looking upon terrorists as rational actors who look for every opportunity to make money and have acquired an expertise in managing their finances. There is an interesting myth, one of several associated with Osama bin Laden, that he has expertise in financial affairs, especially in moving money from place to place. Marron therefore advocates moderation and caution in tinkering with the globalisation of trade only with a view to reducing the terrorists capacity to collect funds. This is especially because measures to cut into terrorist finances in a big way are extremely slow to yield results.

Of equal concern is the interest shown by terrorists in acquiring a capacity to disrupt the economic life of an adversary nation. The 1993 World Trade Centre basement explosions followed by the frontal 2001 attack on the Twin Towers showed a morbid desire to destroy the U.S. economy, at least symbolically if not in real terms.

One can perceive the same motive in the attack on two prestigious hotels in Mumbai. The obvious intention was to deal a body blow to what is internationally known as Indias financial capital. As part of this diabolical scheme to disrupt the economic life of adversary nations, some groups are known to have set their eyes on stock markets in order to create as much confusion as possible.

Ironically, allied to this is a desire to make money utilising trends in an unsteady market. National Security Adviser M.K. Narayanan told a Munich conference on security two years ago that there was evidence that terrorists attempted to manipulate the Indian stock market. Not many were willing to buy this at the time. Unexplained fluctuations on a few occasions in the market when the economy was doing well until mid-2008 could possibly be attributed to manoeuvres by terrorist groups or elements close to them. The article in Policing Do terrorists play the market? by Professor Thomas Baumert of Spain raises interesting issues.

A terrorist attack undeniably causes more than a ripple effect on stock exchanges although such an effect may only last for a short time. Interestingly, stock exchanges are not only victims of attacks. They also serve as instruments to make money through insider information, which in this case is not the rise/fall of stock prices but is actually the timing of a terrorist attack that would introduce uncertainties and therefore lead to a drop in share value.

Buying up stocks at low prices around this time and selling them as soon as the market recovers is a practice ascribed to some terrorist groups looking for huge resources.

Baumert believes that speculation on derivatives, by which one can make the maximum profit, is a distinct activity that attracts terrorists. In his view, this possibly took place in the case of 9/11 although the national commission that probed the attack did not unearth any evidence on this. The goings-on in the stock market should therefore not be the concern only of regulatory bodies such as the Securities and Exchange Board of India (SEBI). Anti-terrorist agencies would also greatly benefit from building the expertise required to monitor and interpret such happenings.

There is a chorus of criticism after every terrorist strike that intelligence failed. In its broader context, intelligence should not be confined to the timing of an attack or its mode. It should encompass information on what kind of preparation each group is engaged in well before it launches an offensive. For instance, there is credible information that Al Qaeda no longer uses conventional methods to collect money. A recent study by the Washington Institute for Near East Policy indicates that groups have shifted from formal banking channels to using cash couriers and informal transfers such as hawala transactions. Cellphone transfers of money are also talked about. All this may be speculative but does not appear to be fanciful when we consider the changes that have come about in our own finances.

The moral of the story is that terrorist financing is extremely adaptive, and those that drive it are alert and unbelievably ingenious. The latter look for every opportunity to disrupt normal economic activity, with the twin objectives of bringing about instability in a nations life and seeking financial gains from the instability. There is an apparent paradox here. But then this is how terrorists operate to put monitoring agencies out of gear.