Social Science Research Council

Organized by the GSC Project on International Law and International Relations

Comments by Lee Wolosky Boies, Schiller & Flexner LLP

Transcript by: ACE Transcription Washington D.C.

Lee Wolosky: I will address principally the Council on Foreign Relations Task Force on Terrorist Financing Report that I was involved in helping to write. And I would like to discuss specifically the description that it offers of the al-Qaeda financial network. To the extent that you've read it, I'm happy to address in the discussion other sections of that report.

I'd like to start, however, with a point, I think a very important conceptual point, or point of departure for understanding these issues, taken from Tom Biersteker's paper. And that is his point concerning financial markets, liberalization, and globalization in the 1990s.

It's critically important in understanding the financial network of al-Qaeda and other international criminal organizations to understand, as Tom writes, that the principal concerns of analysts during the 1990s concern principally how to institutionalize the liberalization process. That is, the liberalization of financial markets and how to figure out ways to address recurring problems of financial market volatility.

Notably, what is not there in Tom's description, because it wasn't there historically, is that there was no concern during that period concerning global governance on issues related to the development of anti-money laundering regimes or the development of financial and regulatory infrastructures that are now in vogue because they are necessary to help combat terrorist financing. And there's a new international awareness of that problem, and focus on it.

In that regard, I think it's relevant to point out that the very same international attributes and trends, globalization, etc., that have contributed to the state of affairs that we now find ourselves in with respect to the lack of international norms and the lack of what some folks call regulatory harmonization, were exploited by the international criminals, terrorist organizations, that we're now seeking to combat. They took advantage of the lack of . . . they took advantage of what Bill Clinton called the dark side of globalization, namely the freer flow of capital and goods and people, and more open borders, that were characteristic of globalization during that period and which are still characteristic of those trends.

And while at the same time, one last trend before I launch into the discussion of the report, is that notwithstanding that fact, notwithstanding the lack of focus on mechanisms to counteract these trends toward financial globalization, there were both at the bilateral and multilateral level, motivated by completely different reasons, a new web of international legal obligations that were designed to address, in part, these problems.

At the bilateral level, really they were to perform multilateral legal assistance treaties, MLATs, and extradition, a new generation of extradition treaties. And at the multilateral level, they took the form of new international legal obligations that resulted from conventions like the 1999 convention for the suppression of the financing of terrorism, and then in 2000, transnational organized crime convention.

With that as the backdrop, I'll address the description offered in the report of the al-Qaeda financial network. And the first point is that unlike other international terrorist organizations, which are state-sponsored terrorist organizations, the al-Qaeda financial network is both financially robust and it's financially self-sufficient.

By self-sufficient, I mean principally it does not rely on states, any particular state, to perpetuate itself and to exist. In fact, in a certain respect, the opposite is true both in Sudan and in Afghanistan, it was the state that relied on al-Qaeda and not al-Qaeda relying on the state for financial support and assistance.

Second, Osama bin Laden himself was not a military leader, was not a religious authority. At his core, he was a financier, stemming back to his work supporting the mujahideen in Afghanistan in the 1980s. And it's really, in my view and it was the view of this task force, that he derives his authority in al-Qaeda principally from his role as a financier and someone who is able to operate and perpetuate a financial network.

The task force concluded that al-Qaeda's financial network continues to exist and support the organization today notwithstanding having been significantly disrupted since September 11, not significantly having been disrupted in certain respects since September 11. And further, that so long as al-Qaeda retains its access to a viable financial network, even if it physically disperses as it appears to be perhaps currently, it will remain a lethal threat to the United States.

The U.S. government has for several years built a comprehensive theory of the case concerning the financial network of al-Qaeda. By which I mean it knows a fair amount through intelligence information, law enforcement information, regulatory information, diplomatic channels, and the information provided by witnesses and informants in connection with law enforcement proceedings about the financial network. Both in its particulars and generally, in terms of the general mechanisms that are used to finance al-Qaeda.

The overriding characteristic of that network, I would maintain, is that it is decentralized, compartmentalized, flexible, and diverse in its methods and its targets in the ways in which it raises funds and the ways in which it moves funds. There's not one big pile of al-Qaeda loot waiting to be discovered and confiscated. If there were, the task of combating terrorist financing would be much simpler. To the contrary, the financial network of al-Qaeda is characterized by layers and redundancies.

Al-Qaeda has operated under the cloak of legitimacy. It's run businesses in parts of the world, many of which have been publicly reported. Honey businesses in Yemen, it operated a web of agribusiness and other businesses in Sudan. It's described somewhat extensively in the 1998 embassy bombing trials, testimony and transcripts from those trials. It's also operated criminal enterprises, both from the petty to the grand. Petty being the common crime that al-Qaeda teaches its operatives to use to sustain themselves once they are set up in self-sufficient cells, to the grand by which a good example is its symbiosis with the heroin trade in Afghanistan.

The most important source of al-Qaeda financial support, however, in my view, is its continuous fundraising activities, which involve a foundation of charities and non-governmental institutions, mosques, web sites, etc. Many of which have been in place helped to finance the mujahideen throughout the 1980s.

It's a network that extends to all corners of the Muslim world. And it includes everyone from wealthy Gulf Arabs to the masses, many of which contribute either knowingly or unknowingly to al-Qaeda through the zakât, which is the Muslim obligation to contribute two and a half percent of one's income to charity. Frequently, those funds are co-mingled and entrusted to a trusted community leader, and that is a system that in some cases has lent itself to abuse.

For years, this task force concluded, individuals and charities based in Saudi Arabia have constituted the primary source of financial support to al-Qaeda, and for years, for the war the Saudis have largely turned a blind eye to that problem. That should hardly be surprising, given the fact that Saudi Arabia possesses the greatest concentration of wealth in the region.

Saudi nationals and charities were previously the most important sources of financial support for the mujahideen. And Saudi nationals have historically constituted a disproportionate percentage of al-Qaeda's membership.

Once al-Qaeda's money is raised in these diverse manners, it is moved internationally through a similarly diverse set of mechanisms starting with the global financial system, the network of banks. And financial institutions that through corresponding banking relationships and other mechanisms extends to all corners of the world, both in highly regulated jurisdictions like the United States. And we've all seen the images of Mohammad Atta withdrawing funds from an ATM in South Portland, Maine, on September 10, to far less regulated jurisdictions, including many in the Middle East that for years have resisted calls by the international community to regulate their financial infrastructures more consistently with international standards.

The al-Qaeda also abuses the Islamic banking system, which is a system of finance that abides by sharia, which prohibits the earning or payment of interest. And it's believed that al-Qaeda uses other Islamic financial services such as insurance or investment management services to hold and transfer assets.

Significantly, al-Qaeda also uses the ancient hawala system, which is an informal system for moving funds which relies on trust among hawaladers, many of whom are related by clan or ethnic affiliation, and which is entirely or almost entirely paperless so it leaves no trails for investigators to follow. It's also not insignificantly unregulated in most parts of the world. And this is an extremely large amount of money that travels through the hawala network. In some cases, more than through the formal financial system, although these things are hard to quantify, but just to give you an example, in Pakistan for instance, government officials estimate that seven billion dollars enters the country each year through the hawala system. And it's unregulated there.

Finally, whenever these formal or informal mechanisms are unavailable, al-Qaeda relies on the oldest method of moving money, which is bulk cash smuggling. This is aided and abetted by a different culture of cash that in the Middle East relies less on credit and by weak border controls in the region. And relatedly, al-Qaeda, as Doug Farah has reported on, uses precious gems and metals as a means of storing and transferring wealth, and the reason why we raise it here is because the mechanism used to move gemstones and precious metals is largely the same for bulk cash smuggling. Namely, it's done through physical transportation.

That largely brings to a close the description offered in this report of the network that's used by al-Qaeda to move and transfer funds. As I indicated at the beginning, there are other aspects of this report which if you've had the opportunity to read the report, I would be happy to address in the discussion section.