Middle East Strategy at Harvard

From Matthew Levitt

U.S. and international efforts to combat terrorist financing are a little understood—and often under-appreciated—aspect of the global counterterrorism campaign. With this in mind, soon after rejoining The Washington Institute after serving in the Treasury Department’s Office of Terrorism and Financial Intelligence, Michael Jacobson and I decided that it would be worthwhile to conduct a comprehensive study of this issue. At the Treasury Department Mike had served as senior advisor to the Assistant Secretary for intelligence and analysis; I was Deputy Assistant Secretary for intelligence and analysis.

On our return to academia, we spent well over a year researching and then writing this study. It is based on open source information, including media reports, reports by U.S. and foreign governments and international organizations, congressional testimony, and perhaps most important, our field research and interviews. During the course of our research, we interviewed some seventy-five people, ranging from U.S. and foreign government officials to officials in key international organizations such as the United Nations, International Monetary Fund, and the Financial Action Task Force, as well as academics and financial experts in the private sector. While many of the interviews took place in Washington and New York, we also spent considerable time abroad, including multiple trips to Europe and the Middle East. During one extended research trip to the Persian Gulf, we met with government officials, bankers, and industry and academic experts.

The study not only explains the threat of terrorist financing and the efforts of governments and international organizations to address it, but also assesses the effectiveness of these efforts. We offer, in addition, our thoughts as to what steps the United States could take to improve international efforts in this area. With the Obama administration clearly committed to an “all elements of national power” strategy to deal with threats to U.S. national security, effective non-kinetic tools such as this one are likely to receive more, not less, attention. We hope that this study helps inform the public debate on this important topic, which has not always received the attention it deserves. Better understanding both the threat and our response is critical to determining what role combating terrorist financing should play in our overall counterterrorism efforts and what changes should be made to our current approach to make it still more effective.

Among the issues addressed in this study are:

• Are efforts to combat terror financing an efficient or effective use of our limited resources?
• How significant a role should efforts to combat terror finance play as part of the global counterterrorism campaign?
• How have terrorist shifted their terrorist financing techniques in response to international efforts to combat it and how rapidly is the threat of terror financing evolving?
• What steps have U.S. and international partners taken to combat terrorist financing and what challenges remain?
• How effective have U.S. and international efforts to combat terror financing been? Are there specific signs of success in an area in which progress is often difficult to measure?
• What is the status of terror financing for different groups—like Al Qaeda, Hezbollah and Hamas—that operate in different environments?

Finally, we offer the incoming administration a set or practical recommendations to bolster the international regime in this critically important area.

Overall, the United States and its international partners have enjoyed considerable success in the CFT arena. In December 2005, the 9/11 Commission’s Public Discourse Project (PDP) issued its final report grading U.S. government compliance with the 9/11 Commission’s recommendations. The project gave the government an “A–”—the report’s highest mark—for its “vigorous efforts to combat terrorist financing.” A variety of anecdotes support the PDP’s assessment, suggesting that the CFT efforts are making a difference, not only in constricting the environment for terrorist financing, but also by serving as a valuable intelligence tool for the government. In other words, freezing terrorist funds has proven to be an effective means of disrupting terrorist activity, while following the money has enabled investigators to uncover previously unknown links between terrorist operatives and even thwart attacks.

Combating terrorist financing, we conclude, must remain an important component of every country’s counterterrorism strategy, and maintaining international focus and cooperation on this issue is essential. While the challenges are great, the potential benefits are significant. Similarly, failure to build a truly international regime to counter terrorist financing guarantees that the successes seen in this arena to date will be short-lived. And there should be no doubt that if terrorist groups are able to raise, move, store, and gain access to funds with relative ease, the threat they pose to the United States and its allies will increase dramatically.

The full study is available here as a free download (pdf).