Al-Qaeda gripes over cash crunch as US hits funding

While drone attacks and covert operations such as the raid
that killed Osama bin Laden get headlines, terrorism relies just as much on
cash as on car bombs. With that in mind, a cadre of intelligence analysts at
the Treasury wage a quiet war to choke off terrorists’ money supplies.

“The financial dimension is critical,” said Daveed
Gartenstein-Ross, a terrorism researcher at the Foundation for Defense of
Democracies in Washington, in a telephone interview.

The Saudi session brought together regional officials
involved in countering money laundering and terrorism. Conducted with the help
of officials from the Treasury and other US agencies, the conference provided
training in financial investigative techniques.

Like the Saudi meeting, many of the efforts to obstruct
terrorist financing draw little public notice, particularly because it is
difficult to show that they may have helped prevent attacks. Still, less money
has been flowing from wealthy Persian Gulf sympathizers to the terrorist
group’s remaining leaders in Pakistan since the Saudis got serious about
terrorism financing in recent years, said a senior US intelligence official,
who spoke on the condition of anonymity because intelligence issues are
classified.

Al-Qaeda’s depleted core in Pakistan has been forced to
economize, said a second US intelligence official, who also spoke on the
condition of anonymity for the same reasons. The anti-financing efforts have
forced terrorist groups to reduce spending on training, recruiting and payments
to terrorists’ surviving family members, he said. The US has detected many more
complaints from al-Qaeda members about money shortages, he said.

By 2009 and 2010, “we were able to say that al-Qaeda was in
its weakest financial condition since 2001,” said David Cohen, the Treasury’s
undersecretary for terrorism and financial intelligence.

To be sure, the effort to stem the financial flows is just
part of a broader struggle. And access to money isn’t always important because
terror plots can cost as little as a few thousand dollars to initiate, as
demonstrated by a parcel-bomb plot in October 2010, which involved
printer-toner cartridges packed with explosives in an failed attempt to bring
down a Yemen-to-Chicago cargo flight.

The May 1 raid by US Navy SEALs on bin Laden’s compound in
Abbottabad, Pakistan, highlighted two prongs of the US fight against
terrorists: military force and financial intelligence. The action yielded
financial records and other intelligence, Cohen said.

 “If I were a donor to
al-Qaeda, I’d be worried about the fact that there were a lot of documents that
were picked up in Abbottabad,” he said in an interview.

Cohen, 48, who oversees the Treasury’s Office of Terrorism
and Financial Intelligence, is the point man in the battle to prevent terrorist
groups from raising, laundering, moving, spending or investing money. The
office has evolved since its 2004 creation to become a crucial element of US
anti-terrorism efforts.

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Since September, Cohen’s office has imposed sanctions or
taken related punitive measures against Iran and Syria, two states designated
by the US as supporters of international terrorism, as well as against members
of al-Qaeda and affiliates.

The office, known as TFI, seeks to “gum up the works” of
terror groups and “isolate bad actors from the international financial system,”
Cohen said.

The Treasury is the only finance or economy ministry that
conducts its own intelligence analysis, he said. Its analysts, working with
intelligence officials from the CIA, the National Security Agency, the State
and Defense Departments and other agencies, are fighting a running battle, one
in which Saudi Arabia’s changed attitude toward fighting terror financing is
important.

The Saudis were half-hearted partners in the aftermath of
the 9/11 attacks on New York and Washington, said the first US intelligence
official, who said they weren’t convinced that Saudi Arabia was an important
source of al-Qaeda’s funds. That attitude changed after Saudi Arabia was the
target of a bombing in 2003 that killed 35 people.

As the Saudis began to crack down on terrorism at home, they
paid more attention to Islamic terror groups’ funding channels, the official
said. In 2010, the highest religious authority in Saudi Arabia issued a fatwa,
an Islamic order with the force of law, against financing terrorism. Last May,
the kingdom for the first time publicly tried detainees suspected of raising
funds for terrorists.

Those actions were “the product of many factors, and a lot
of work on the issue over the course of several years,” said Stuart Levey, 48,
Cohen’s predecessor and the first head of the Treasury’s terrorism office.
“Countries ultimately do things because they think it’s in their own interest
to do them.”

Kuwait and Qatar have been slower to cooperate. Both remain
“permissive environments for extremist fundraising” and Kuwait is the only
country in the Gulf region not to have criminalized terrorist financing, Cohen
said at a conference in Washington to mark the 10th anniversary of the Sept. 11
attacks.

In addition, terrorists have turned to cheap, informal
money-transfer methods that can be hard to penetrate – such as couriers and
Hawala networks, which provide informal channels for moving funds – as the US
and its allies have become better at intercepting international phone calls,
emails, and electronic fund transfers.

“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,” Levey said in an interview. “It’s a bit of a
cat-and-mouse game.”

As the number of al-Qaeda’s financiers has diminished and
money transfers have become more difficult, the group’s affiliates in
sub-Saharan Africa, Yemen and Iraq have been forced to become self-sufficient,
said the second intelligence official, and there’s less profit-sharing going on
among them and the core group in Pakistan.

In sub-Saharan Africa, al-Qaeda in the Islamic Maghreb now
relies heavily on ransom from kidnappings. Al-Qaeda in the Arabian Peninsula,
based in Yemen, supports itself by extorting money in neighborhoods where it’s
taken control, the official said. Somalia’s al-Shabaab controls a third of the
country’s ports, in addition to making money from piracy and local rackets, he
said.

“What concerns me the most, particularly among al-Qaeda
affiliates, is resorting to crime to raise funds, and in particular kidnapping
for ransom,” said Daniel Glaser, the Treasury’s assistant secretary for
terrorist financing.

If a man is known by the company he keeps, Glaser is known
informally at Treasury as the department’s “chief thug” for his zealous
approach to talks with North Korean, Iranian and Syrian officials. He prefers
“missionary from hell,” a nickname that South Korean media gave him in 2009
during talks on Iran and North Korea.

Glaser, 43, has been with the office since its inception,
and he recalls when it had a half-dozen people, compared with 42 today.

“It wasn’t even clear who we reported to,” Glaser said. “We
were basically given a year to prove that the office should exist at all.”

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The office had its watershed moment in 2005, when it
targeted a little-known company in Macau called Banco Delta Asia SARL. The bank
was a front company for the North Korean regime, bolstering Pyongyang’s
finances by laundering money and passing counterfeit US currency, Glaser said.
The US designated it a primary money-laundering concern, and Macau, the former
Portuguese colony, froze about $25 million in funds tied to North Korea.

Glaser and Levey traveled to countries including Vietnam and
Mongolia to explain the situation.

“We never said, ‘Don’t do business with North Korea,’”
Glaser said. “We said, ‘If you want to do legal business with North Korea, go
ahead and do it. And by the way, the line between licit and illicit business
with North Korea is so thin as to be nearly invisible.’”

By early 2006, North Korea was “almost entirely cut off from
the international financial system,” he said.

Glaser spent a decade leading the US delegation to the
Financial Action Task Force, an inter-governmental group that pushes nations to
fight terrorism and money laundering. The task force, which Cohen calls an
“unsung development” in the anti- terror fight, has grown from 16 members in
1991 to about three dozen today, including a half-dozen Persian Gulf states,
Russia and Mexico.

While US financial sanctions, which are now imposed by TFI,
have a mixed record, US officials say the measures directed at al-Qaeda and
Libya have been more successful than those aimed at dousing the nuclear
ambitions of North Korea and Iran. Cohen said financial sanctions contributed
to the demise of Libya’s Muammar Qaddafi regime, which was ousted after months
of fighting by rebels who were backed by a NATO air campaign.

“It was part of the overall pressure,” he said.

The TFI office also targets some of terrorism’s allies,
including money launderers, drug kingpins and people or countries involved in the
proliferation of weapons of mass destruction.

 “Enforcement coupled
with enhanced regulation has strengthened the ability of financial institutions
themselves to be the first line of defense against illicit activity,” said Amit
Sharma, former senior adviser in the TFI office who is now chief of staff at
Mitsubishi UFJ Financial Group Inc.’s US investment banking unit.

“These efforts continue to make it harder for terrorists and
other illicit actors to financially support their efforts, but they remain
innovative and exploit holes where they exist in the financial system,” he said
in an e-mail.

Internet fundraising remains a “huge issue” even with
progress, said Matthew Levitt, a former senior Treasury Department terrorism
and financial intelligence official. Online casinos and other Web-based tools
can be exploited to evade international policing efforts, said Levitt, now
director of the Stein Program on Counterterrorism and Intelligence at the
Washington Institute for Near East Policy.

So far, though, there’s little evidence that terrorists are
using the Internet to raise, launder or move money, said the second US
intelligence official.

Attacking financing is just one aspect of actions necessary
to thwart terrorists, said Paul Pillar, a longtime senior intelligence official
who now teaches at Georgetown University in Washington.

Yemen-based al-Qaeda in the Arabian Peninsula said it spent
only $4,200 for the failed parcel bomb-plot in October 2010. The bomb was found
during a cargo check during a stopover in London after authorities were tipped
off by Saudi intelligence.

“Most terrorist operations that are big enough to get our
attention are pretty cheap,” Pillar said. “And most terrorist organizations
don’t need extensive infrastructures.”