When the 9/11 Commission issued its final report (PDF) in December 2005, it assigned letter grades to rate the federal government’s progress on its various recommendations. Of the forty-one areas considered, combating terrorist financing received the highest mark, an A-. But as he unveiled the latest revision of his National Strategy for Combating Terrorism, President Bush noted that “al-Qaeda continues to adapt in the face of our global campaign against them.” Sue Eckert, an expert in terrorist finance from Brown University, says in this CFR.org Podcast that the U.S. approach to terrorist finance “has not fundamentally changed” since shortly after 9/11. In order for the United States to continue its success in disrupting clandestine financial networks, she says, it must reevaluate its approach.
The post-9/11 financial actions initiated by the United States and its allies successfully froze some $140 million in terrorist funds. With their traditional sources of support gone, terrorist fundraisers have increasingly turned to illegal activities—such as drug smuggling or peddling counterfeit CDs—to bankroll their sinister work (openDemocracy). The expansive, loosely regulated global financial system offers ample opportunities (Foreign Policy) to launder the money with little fear of getting caught.
The formal financial sector has proven one of the most reliable sources of intelligence regarding terrorist networks. David D. Aufhauser, former chair of the National Security Council’s Committee on Terrorist Financing, told a recent CFR meeting, “The evidence that the financial system coughs up is actually true and correct; it doesn't lie.” Thus, terrorists have tried to carry out their attacks on the cheap to avoid detection. As this Backgrounder explains, experts estimate the July 2005 bombing of London’s mass transit system cost as little as two thousand dollars. Though similar attacks cost as much as twenty times that amount, these remain relatively small sums compared to the half million dollars the 9/11 Commission says al-Qaeda spent on the 2001 plot.
Eckert says it remains unclear whether forcing terrorists to rely on black markets for their funds will make it easier or more difficult to detect their activities. Regardless, most ongoing U.S. efforts to combat terrorist financing remain fixated on official channels. The U.S. Treasury Department is developing a data collection system for cross-border financial transactions, though a CATO Policy Analysis suggests that such data-mining systems only have limited usefulness. Earlier this year, the New York Times revealed the Defense Department and Central Intelligence Agency have requested access to Americans’ financial records as part of their counterterrorism intelligence gathering effort. This move pushes the envelope regarding restrictions (WashPost) against either agency engaging in domestic intelligence gathering.
American officials have long maintained lists of terrorist groups and state sponsors of terrorism. The European Union's own counterterrorism strategy includes maintaining a roster (PDF) of terrorist groups. Nations who directly sponsor terrorism or do business with terrorists face a host of penalties (PDF), such as financial restrictions and arms embargoes. The United States recently ratcheted up its sanctions on Iranian financial institutions it believes support terrorism or Iran’s nuclear program. Some evidence exists to suggest this approach works; a Backgrounder describes how Libya got off the list.