Terror Finance and the Transatlantic Relationship

By kind invitation of Ben Wallace MP, the Henry Jackson Society was pleased to be able to host a discussion with Jonathan Schanzer, a former counterterrorism analyst for the Office of Intelligence and Analysis at the US Department of the Treasury. Mr Schanzer explained how terror finance is a critical component of terrorism and one that needs to be countered as much as terrorist ideology before offering remarks on the differences in approach between the Bush and Obama administrations as well as the US and the UK, identifying opportunities, successes and areas requiring improvement. Below is a transcript of the event on January 26, 2010.

I wanted to speak about the transatlantic relationship as it pertains to terror finance. It is an obvious statement, but one cannot carry out terrorist attacks without at least some money. What many people are surprised to learn is that it does not take that much money to carry out an attack. A simple suicide bombing in the West Bank or the Gaza Strip could cost $500 to $1,000, the 9/11 attacks cost in the area of $400,000 and that included for the 19 hijackers: all their travel, and training, the flight schools and the tickets. The fact that it does not take a lot of money to carry out attacks was something that the US Treasury struggled with, not only for the years that I was there but also before and after I had left. In the years that I was there I had the opportunity to work with HM Treasury and from my experience there was excellent cooperation. The office in the UK is quite a bit smaller than the office in the United States where we have a full time unit working on these issues, but I thought that they were excellent at working with us in areas of mutual interest.

My role was targeted financial sanctions geared towards charities or what we call deep- pocket donors, the individuals that would hand over large amounts of money to individuals in the Middle East or Europe. We targeted illicit businesses; we looked at money launderers and any other organisations that may have ties to terrorism.

One of the five pillars of Islam is Zakat, which is tithing or charity, and it has essentially been corrupted by a minority interpretation of the Islamic faith. The US Muslim community numbers about two and a half million people, and following 9/11 there has been a chilling effect whereby there is concern amongst them about giving to charity, which was not the intent. They are scared that if these charities were exposed as having terrorist ties, the investigation could extend into the families and homes where these funds were given.

There are those who would say that the freezing of charities is in essence 'Islamaphobic.' I take great issue with that. The freezing of some Islamic charities is a necessity at the moment because of the corruption that has infiltrated them. When people ask me why the US needs to get involved, I liken it to the banking sector. When you have a failure, even if it is only 10% of corrupt assets, it can be enough to bring down an industry. That is why the US gets involved.

Should governments interferee with charities? Should they make these determinations? In the long term, absolutely not. But in the short- term, it is very necessary to make sure that these corrupted elements are removed from the charitable foundation of Islamic faith.

Some examples of this corruption include The Holy Land Foundation; a charity that was shut down in the early part of this decade, having been found to have ties to Hamas. In 2004 we also shut down a charity called the Islamic African Relief Association, which was an al Qaeda front in the state of Missouri. It also happened to give to Hamas and an Islamist movement based out of Somalia. In 2006 we shut down a charity called Kind Hearts, a Hamas front in Ohio.

These charities did not impact the UK. However, there were other charities and institutions that we worked closely with the UK on, one being the Sanabel Relief Agency and an associated business called Sarah Properties based in London. Together with HM treasury the US treasury froze these assets, as they were tied to the Libyan Islamic Fighting Group, an affiliate of al Qaeda. These are the examples of good coordination. We also worked through the 1267 committee of the United Nations, which essentially enables the entire world to freeze the assets of individuals and charities linked only to al Qaeda and the Taliban, but not to Hezbollah and not to Hamas.

I think that is something that is lacking in the international regime at this point. In the United States we saw the freezing of Hezbollah and Hamas' assets as important, but it was not something that was given priority in the UK or indeed at the UN.

There are also rare moments in the transatlantic relationship where there are disagreements, for example the UK based charity Interpal received considerable interest in the US for its links to Hamas but we did not see the same interest here.

One issue that looms on the horizon is the issue of sanctions against Iran. The United States Congress has been moving forward on the Iran Refined Petroleum Sanctions Act. The goal of these sanctions is to freeze the Iranian oil sector. Iran is a petroleum rich nation but it needs to export a great deal of its oil to get it refined in order for it to be used in automobiles and industry, etc. The US has identified that this is a weakness that can perhaps be exploited. The reason for concern is the marching forward of the Iranian nuclear programme and the support for terrorism that the Iranian regime has been providing since its inception in 1979.

Stuart Levey, the most senior official for terror finance in the United States, describes Iran as the central banker of terrorism. Iran has been linked to the terrorism and insurgency taking place in Iraq and Afghanistan as well as to Hezbollah, Hamas, and Palestinian Islamic Jihad. There have even been some nominal ties to al-Qaeda over the years; we know that a lot of the 9/11 hijackers transited through Iran and there were links that were listed in the 9/11 report that encouraged the United States to investigate further. Although we have not seen anything in open source about this we know that Iran is extremely dangerous and has been using terrorism as a tool of its foreign policy since 1979 and their nuclear programme has everyone extremely concerned.

With the petroleum sanctions initiative on Capital Hill, about three quarters of the House of Representatives endorsed or signed on to the resolution, and 74 of 100 senators also supported it. It has passed the house and is near passage in the senate, it will go to conference where things will be watered down, but the US will almost certainly pass this measure and will sanction the Iranian gasoline sector. The United States will then come to its transatlantic partners and ask for assistance. I don't know the UK's position on the issue, but it is certainly going to be touched by this.

The decoupling of Iran's nuclear aspirations from its sponsoring of terrorism is a challenge for the US. Within the Treasury Department, there are different sections that deal with this problem. You have the targeted financial sanctions that I mentioned, where we go after individuals, charities, and businesses. And if there are links between Iran and Hamas, or Iran and Hezbollah, or Iran and Islamic Jihad, then we are able to designate them.

We also issued an executive order that specifically went after the Iranian Revolutionary Guard Corp (IRGC). The IRGC is the backbone of the Iranian regime. It continues to finance the regime and they are the people responsible for cracking down on the protestors after the rigged June elections.

Then we have the nuclear programme where we have gone after some of the banks and some known individuals. Even though they are decoupled, there is a holistic approach within the Treasury Department and the US government. We see Iran, its nuclear aspirations, its support for terrorism, and its disregard for human rights; all these things are of great concern. There is consensus both within the White House and Congress, and between Democrats and Republicans. Indeed, one of the only things that can be agreed upon right now in a bitterly partisan Washington is that Iran cannot be allowed to continue to do these things. If Iran gets its nuclear programme ,then it can continue to carry out terrorist acts and finance terrorism with impunity, and that is unacceptable. I know that there is no silver bullet; we're going to have to continue to go after these disparate elements of the Iranian regime.

I think some international corporation particularly on the issue of sanctions will help. The idea, of course, is not to punish the Iranian people, but I think there is a realisation that we need to put some financial pressure on the regime even if it is just for a short time until Iran steps back from the nuclear brink.

Our strategy of engagement has failed. For the Obama administration to say that it is going to dissuade Iran from their nuclear programme through talking is naive at best. We need to think about the next step. If we're not going to get the support from the Chinese and the Russians, but possibly get it from our allies in Europe and here in the UK, the next step is to put bilateral sanctions in place. The idea is not to punish the Iranian people, and not to do this for perpetuity. We must at least have a chip at the table, because we have not really done anything to the Iranians that has made them want to come to the table and say 'we understand that we need to talk to you.'

There have been private discussions between US officials and officials of BP who, as a result, willingly stepped away from doing business with Iran. The idea is to make other corporations across the world think twice about working with Iran and to make similar choices. They will either work with the western economy or they will work with Iran, and hopefully they choose the west over Iran. Lloyds of London will almost certainly be affected by this as they insure quite a number of the shipments of refined petroleum by European carriers.

When a public company learns that it is dealing with a company that is tied to Iran and it is demonstrated to them how the money moves through, for instance, the IRGC, or how some of those funds lead to the nuclear programme, this should help the company decide that they no longer want to work with the Iranian oil sector or with an IRGC company. If this is made public, the company would have to answer to its shareholders.

That is not to say that every company is going to acquiesce, or that oil profits wont be diverted to Russia or China, but we are trying to make it harder to work with Iran. If this leads to a reduction in refined oil products going back into Iran, that is a start. Indeed, the more often people have to queue to get oil or gas in Iran, and the more often the middle class grows frustrated with the regime, the more likely we will see what we saw back in June with the protests. This is one tool in the arsenal.

Saudi Arabia is another huge area of concern, and I am greatly frustrated with the efforts that United States has made to curb the financing of terrorism from Saudi Arabia. The lack of action is for one simple reason: we have a very strong alliance with Saudi Arabia over oil. There has been recognition within the United Sates that this needs to come to an end at some point. There are a number of movements that have started in the US that have devoted themselves to ending American dependence on oil and encouraging the development of the electric car or biofuels that might propel us away from gasoline. This is going to be necessary if we are going to rid ourselves of the oil problem which continues to finance terrorism. Every time we fill up a tank anywhere in the world, a portion of that that money goes to Saudi Arabia and Saudi Arabia, in turn, exports that through the propagation of Wahhabism, the radical interpretation of Sunni Islam.

Saudi Arabia has seen that some of this has come back to haunt the country. For example, there was a sharp drop off in the financing of the Hamas organisation after 2003. That was the year that a group by the name of al Qaeda of the Arabia Peninsula, the same group that was responsible for the 'Christmas Day Bomber' of last year, was carrying out attacks against the Saudi regime. The Saudis had been financing terrorism around the world and they began to realise that if you export it, there is going to be an element of it at home. Although the Saudis have curbed funding, it has not stopped entirely.

Three quarters of the mosque network across the United States is funded by Saudi Arabia, and many of them will teach a radical version of Islam that is antithetical to western ideals. They teach that Islam is the last, best, and only religion, and that westerners and Christians are infidels. That is unacceptable; it is a xenophobic interpretation of the faith.

How does one confront Saudi Arabia? Washington continues to weigh these challenges of needing a steady flow of affordable oil with the fact that, every once in a while, another terrorist attack arises from Saudi training, and that the majority of conflicts in the region have some Saudi footprint. I found it frustrating that we did not have ten people working full time on Saudia Arabia in the Treasury Department. It is political sensitivities that ultimately trump what I think is a matter of life and death. Saudi Arabia is going to be the lynch pin for most of the terror financing issues, and that will come down to ending our dependence on oil, and finding a way of no longer using petroleum to fund our economy.

From the briefings that I have had on Afghanistan, I understand that if we destroy the opium we destroy the economy. As a result there has been discussion regarding what the farmers might be able to grow in place of opium and nobody seems to have come up with a good plan. I do not have the answer to the problem, but I believe that the opium trade obviously needs to stop. The opium is taken to Pakistan and from there distributed to the rest of the world. Around 60 or 70 percent of the world's heroin supply comes from the Taliban. This is how they have financed their movement over the years.

The good news is that the Taliban used to be a government, but has now been relegated to what we call an affiliate group. It has shrunk in size and ability to really impact the region, although it does continue to take a toll on British, US, and international forces in Afghanistan. There is some talk of trying to change the Taliban, perhaps pay them off, bring them back into the fold, or turn them into moderates. This is similar to the notion of de-Nazification or de-Baathification. There are strong opinions on both sides of the issue. It is extremely difficult to turn someone away from the Taliban by paying them off.

In Washington there is an argument that there is a Taliban with a capital “T” and one with a lower case “t.” The capital T, it is argued, can not be turned. They are the core and the people who are closely tied to Osama bin laden. Then, they argue there is the lower case t Taliban that are the nominal players and could perhaps be drawn into the Afghan army, or perhaps be convinced to take up another profession. I am not convinced of this. I believe that the ideology that propels the Taliban still appeals even to the lower ranking members of this disparate group and it will be extremely difficult to change their minds. That would require reprogramming, not just de-Talibanisation.

In the early years after 9/11, the United States government published the amount of money it had seized. Iit was in the 100's of millions of dollars – an incredibly effective start for the organisation. Over time, the terrorist organisations and charities became wise to what the US was looking for and was able to hide the funds far better. Also, when there were joint designations through the UN's 1267 committee, there would often be asset flight. One member nation could tip off a charity that a designation was coming, and at the 11th hour, they would move the funds somewhere else so the charity would be shut down but the funds themselves would continue to finance terrorism.

Some senior treasury officials have indicated that the counter- terror finance regime that we have created has already served its purpose. In other words, there is a fear amongst these organisations and we are making them jump through hoops. Ultimately that is all counter terrorism can be. What we try to do is make it harder for terrorists to operate. Indeed, we can only encumber their environment and we can never fully stop their activities.

The system in place is serving as a deterrent. If it was not there, terror financing would go back to what it was. So, in that sense, it has done very well. We have been watching diminishing returns in terms of cold hard cash and there are a lot of naysayers who would argue that the treasury programme is not providing value anymore. True, we are more putting money into it, and getting less money back out. But, ultimately, how do you put a price on lives?

Yemen is of great concern following the Christmas Day plot. In 2004, Abdul Majeed al-Zindani was designated by the US treasury and also by the 1267 committee for his ties to al Qaeda. We also know he has been heavily involved in financing Hamas. He is the dean of al-Iman University in San 'a' and a very popular figure who has been around for quite some time. The Yemeni government does not seem interested in curtailing his activities. They have refused to take his passport, and allow him to continue to operate financially in the country. I would love to see the Yemenis do something, but he may too powerful at this point to lock up.

This underscores some of the problems that we are seeing in Yemen. Prime Minister Gordon Brown talked about the assistance that the UK wants to give to Yemen in order to combat terror. The West can give assistance, but nothing is going to change until the Yemeni government gets serious. There was a period after 9/11 where the Yemeni government tried to do some counter indoctrination. Some of the Jihadi leaders appeared on television to debate against a more moderate sheikh and the moderate Islamic leader was declared the winner at the end of the programme. They also arrested a number of their al Qaeda members with intelligence and perhaps even training from the West. However, by the middle part of this decade we began to see that Yemen was releasing a lot of its high value al Qaeda prisoners on bond. The bond was not money, but rather a promise from the families that they were going to be looking after them. In my view, this is unacceptable.

The Yemeni's have taken a very lackadaisical approach to maintaining their security. Initially there was a great deal of effort put forth, and the same holds for their terror finance issues as well. There is probably more bulk cash smuggling and money laundering going through Yemen than there is the formal financial sector. The Yemenis are going to have to make some difficult decisions, because things may get quiet again, but in the future we will see more and more terrorists coming out of Yemen because of the loose atmosphere and because people can operate freely there. There is also a very lucrative arms market, and this is where al Qaeda gets a lot of its weaponry. So it is a country to keep an eye on.

The efforts that we have made to date are far from perfect, and you will continue to hear how Western governments are doing too much and are too intrusive. I believe that not enough has been done yet. We are going to have to try to strike a very delicate balance as we traverse these challenges to try to stop the ideology that ultimately funds terrorism. There are no easy answers and you will find people howling with disapproval throughout but that doesn't mean it is not a worthy exercise and I hope to see it continue.

Common citizens often give to western charities that are funded into more radical ones. For example a lot of the money going to Palestinian initiatives ultimately goes to the Gaza Strip. Indeed, a lot of the funds going to Relief and Works Agency of the United Nations go to Hamas. This fuels the cycle of violence. Those funds fuel more rocket attacks and more suicide bombings. It comes down to better oversight and making sure you know exactly where you are giving. Every individual needs to do their due diligence to try and determine where those funds are going.

One of the things we struggled with at the Treasury Department – and I'm sure HM Treasury is also struggling with – this is the issue of creating a 'white list,' or a list of charities whom we know are acceptable. The problem in the US is that we cannot endorse one charity over another. Moreover, if the US government announces a list of people that you cannot give to, that will tip off the charities that they are being investigated. The white list would mean that a full audit has happened and that somehow the US has nominal control over where the funds go.

Turkey has been an interesting case, they have grown warmer to the Saudis and their government is growing increasingly Islamist. However, Turkey is also trying to work closely with the United States to an extent, but there have been problems. There are individuals who are on the US Treasury's terror finance list that have been able to operate freely in Turkey. It has been a mixed message coming from the Turkish Government and I think it is a country that is trying to figure out where it stands on a number of issues. In terms of international cooperation on terror finance, they are doing an adequate job.

The Terror Finance and Financial Crimes Division at the Treasury worked through the Financial Action Task Force, which is the international body that is intended to govern international terror finance. Although they have a number of special recommendations there is nothing that the international community must adhere to. The 1267 designations programme is the only one where there is a law in accordance with the United Nations, but it only deals with al Qaeda and the Taliban. It does not deal with any other regional terror issues. FATF has a mutual evaluation which every country goes through every few years, where other member states use the recommendations to look at how much has been accomplished and how much they are doing to try and make an impact on terror finance. However, if a country fails uts evaluation, there are no consequences.

Also every country has a different interpretation of what terrorism is. The United States has clearly designated Hamas and Hezbollah as terrorist organisations, but that is not necessarily a view shared across Europe and certainly not in the Middle East. Do people see Iranian sponsorship of Hamas and Hezbollah as terror finance? We certainly do, but not everybody will. Al-Qaeda and the Taliban are the only examples where every country agrees that these people are not freedom fighters, but in fact terrorists. That is why 1267 has been the only concrete example where we are able to move forward.

In terms of transatlantic cooperation, when the world sees cooperation particularly between the US and the UK, when they see a commonality of purpose across the Atlantic, I think that sends a very clear message that there is determination across the West to stop a problem. The more we see in terms of cooperation between the UK and the US, the better off we're going to be in terms of stemming the tide of terror finance and the proliferation of nuclear regimes and other problems that plague us today.