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The Political Economy of Islamic Charities and Terrorist Financing

The Political Economy of Islamic Charities and Terrorist Financing

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The Political Economy of Islamic Charities and Terrorist Financing

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  1. The Political Economy of Islamic Charities and Terrorist Financing • Robert Looney Professor, National Security Affairs Naval Postgraduate School • CENTRA Technology Workshop on Terrorist Financing, Arlington, VA November 29, 2005

  2. Outline -- Main Issues • Introduction: Islamic Charities -- A Political Economy Approach. • Exploitation of Charities by Terrorist Groups. • Factors Likely to Affect Growth of Funding to Islamic Charities. • Case Study of Iraq. • General Problems in Controlling Islamic Charities’ Funding of Terrorism. • Approaches to Future Policy.

  3. Political Economy Approach ToIssues Surrounding Terrorist Financing • Political Economy Approach Focuses on How The Potentially Divergent Interests of The Key Actors in Raising, Distribution and Spending of Funds Might Affect Outcomes. • Also Important are The Institutional Settings in Which Decisions About Financing Are Made – How Do These Affect Outcomes? • Approach Sheds Light on Both The Evolution of Terrorist Diversion of Funds From Islamic Charities As Well As: • The Constraints the Funding Sources Might Impose on Future Terrorist Behavior. • The Constraints on Individual Countries in Controlling the Activities of Islamic Charities.

  4. Introduction: Attractiveness of Islamic Charities to Terrorist Groups • One-fifth of all NGOs Conducting Humanitarian Work Worldwide are Islamic – Active Presence in Every Country with Muslim Population. • Provide Excellent Cover and Global Reach. • Enable Al Qaeda and Like Groups to Radicalize and Mobilize Muslim Communities to Support their Aims. • Organizations Receive and Disburse Several Billion Dollars Per year. • Much Good Will -- Aiding Muslims in Distress is a Religious Duty While Idea of Defending Muslims from Perceived or Actual Persecution Appeals to the Vast Majority of Muslims.

  5. Introduction: Attractiveness Islamic Charities to Terrorist Groups (contd.) • While Most Muslims Make Donations For Charitable Purposes, A High Proportion of Islamic NGOs include Military Aid As Part of Humanitarian Package. • Perhaps One Third Islamic Charities Support Terrorist Groups or Employ Individuals Suspected of Terrorist Connections. • Neither the Authorities Nor Donors Are Easily Able to Determine or Control Ultimate Beneficiaries of Contributions – Especially if Overseas. • Unless There is a Direct and Immediate Threat to Domestic Stability or to Important Foreign Relationships, Governments Unlikely to: • Develop a Framework for Closer Monitoring. • Actively Participate in International Efforts at Regulation.

  6. Overview Charities and the Terrorist Money Trail

  7. Exploitation of Charities (Al Akhtar) • Al Akhtar Trust (Pakistan): • Financed Radicalization of Local Muslim Populations – Madrassas and Mosques. • Bought Good Will for Terrorist Groups Through Employment for Locals – Bread for the Poor. • Direct Financial Support Islamists in Chechnya, Kosovo, Taliban, Kashmir. • Supplied Weapons, Ammunition to Taliban.

  8. Exploitation of Charities (AHF) • Al Haramain Foundation (S. Arabia). • Important for its Size – 50 Countries • Promotes Wahhabi Islam. • Spread of Militant Islamic Doctrine Through Madrassas, Mosques. • Al Qaeda Funding Source as well as other Terrorist Groups. • Post 9/11 Supported Taliban/Terrorism in Afghanistan. • Many Branches Supposedly Closed, Only to Reappear Under Different Names.

  9. Exploitation of Charities (BIF) • Benevolence International (Saudi Arabia) • Fund Raising for the Mujahideen in Afghanistan. • Logistical Support Al Qaeda. • Funded Groups Intending to Kill U.S. Nationals • Funded Efforts to Develop WMD – Obtain Nuclear Weapons. • Perfected “Skimming” (Usually 10% from Charitable Projects) to be Deposited in Al Qaeda Accounts.

  10. Exploitation of Charities (QCS) • Qatar Charitable Society (Qatar) • Terrorists Infiltrated Legitimate Charity and Exploited Funding Base. • Logistical Support to Al Qaeda. • Transferred up to $ 1Million to Chechen Rebels. • Developed Clever Way of Liquidating Charity Bank Accounts into Untraceable Cash in War-Torn States. • Exploited Ambivalent Attitude of Qatari Authorities on Monitoring Use of Funds – Tacitly Encouraged Transfers to Militant Groups in Conflict Areas.

  11. Exploitation of Charities (GRF) • Global Relief Foundation (U.S.) • Provided Money, Assistance and Equipment to Al Qaeda. • Distributed Propaganda of Known Terrorists. • Newsletter Advocated Armed Action Against Groups Perceived to be Un-Islamic. • Illustrates Difficulty in Tracing Charitable Funds Once They Leave U.S.

  12. Exploitation of Charities (IIRO) • The International Islamic Relief Organization (Saudi Arabia). • Support of Al Qaeda Training Camps in Afghanistan Prior to 9/11. • At One Point Used Over 70% of Funds for Weapons. • Conspirator in 1993 World Trade Center Bombing – Plots to Destroy Tunnels and Bridges in New York, Blow-up 12 American Airlines Simultaneously. • Continues to Provide Direct Support to Hammas.

  13. Exploitation of Charities by Al Qaeda – General Patterns • Many Charities Deeply Embedded in the Social and Humanitarian Fabric of Communities they Serve. • Provide Critical Services Not Easily Replaced. • Many Are Victims of Infiltration and Abuse – Others only Fronts to Hide Terrorism Related Financing. • Defenders Often Argue that Support for the Teaching and Preaching of Radical Islamic Theology or Jihadism is not Enough to Link them With Terrorism. • Often Difficult to Establish Necessary Evidence to Support Criminal Activity Against Them. • Legitimate Employment Provided by Charities Offers Terrorists Cover, Livelihood and Useful International Contacts.

  14. Factors Affecting FutureCharity Funding of Terrorism • Growth in Non-U.S. Charity Finances -- • Oil Boom in Gulf Regions. • Effectiveness of Anti-Terrorism Efforts in Formal Banking Finance Sector. • Increasing Natural Disasters. • Increased Scrutiny of U.S. Charities. • Diversion of Funds to Terrorist Groups -- • Political Corruption. • Absence of Effective World-Wide Regulation of Charities. • Muslim Outrage at U.S. Support of Israel, War in Iraq and Afghanistan.

  15. Factors Affecting Future Charity Funding of Terrorism

  16. Supply of Funds to Islamic Charities – Oil Rent Effects • The Surge in Oil Revenues Has Created a Vast Source of Funds for Private and Public Donors to Contribute to Charities. • In 2004 Saudi Arabia Earned 116 $ Billion up 35% from 2003. Expected to Stay at this Level for Several Years. • For Middle East, Net Official Capital Outflows, 5.5 $billion, 2002, 44.6 $billion, 2003, 49.2 $billion 2004 to $61.6 billion 2005 • Private Middle East Capital Outflows, 2-4$ billion, 2002-3, 21 $billion 2004 to 31.2 $billion in 2005.

  17. Diversion of Charitable Funds to Terrorist Groups – Corruption Factor • Corruption Affects the Flow of Funds into and out of Charities. • Regulatory Oversight Often Compromised, Money Laundering, Diversion of Funds to Terrorist Groups Facilitated by Corruption. • Rate of Corruption Extremely High in Middle East and Not Improving. • Out of 145 Countries in 2004: • Saudi Arabia (71), Syria (72), Iran (88), Iraq (129). • Out of 158 Countries in 2005: • Saudi Arabia (70), Syria (71), (Iran (88), Iraq (137). • Corruption in Iraq Has Been A Particular Hindrance in Combating Insurgency/Terrorism in that Country.

  18. Iraq: Sources of Terrorist/Insurgency Finances • External • Islamic Charities. • Former Regime Sources. • Oil Rent-Based Contributions From Private Individuals in Gulf. • Internal • Criminal Activities—Black Market, Kidnappings. • Mosques • Islamic Charities (Diversion from Humanitarian Activity). • Country Currently Experiencing The Most Terrorist Activity.

  19. Charities and Iraqi Dynamic • Extent of Islamic Charity Role In Iraqi Insurgency and Terrorism Difficult to Assess – Many Other Factors Also Contribute: • Massive Unemployment – Failed Expectations: • Failed Economic Policies • Demographic Bulge. • Ba’athist and Military Firings. • Widespread Insecurity • Corruption • Inability of Government to Respond to Problems • Organized Crime, Criminal Activity. • Failed Expectations • Humiliation over Occupation. • Result: Breeding Ground For Terrorism – Easily Exploitable.

  20. Iraq: Factors Facilitating Terrorist Financing -- Corruption • Corruption At All Levels of Government. • Political – Starts at Top, Facilitates Other Types. • Administrative – Incompetence, Lack of Professionalism • Financial – lack of transparency, Fraud, Bribery Easy • Moral – Lack of honesty, Deception Common, Integrity Not Rewarded. • Former Defense Minister Embezzled $500 Million After only 6 Months on the Job. • Much of Former Regime Funding of Insurgency Derived from Corruption.

  21. Iraq: Islamic Charities, Extremism and the Insurgency

  22. General Approach Toward Countering Terrorist Finance in Iraq • Corruption Undermines Efforts At Countering Terrorist Financing. • Massive Amounts of Terrorist Funding Available Due to Oil Boom. • Corruption a Major Source of Popular Dissatisfaction. • At The Present Time Attacking Underlying Problems of Unemployment, Corruption, Providing Security, May be More Effective at Combating Terrorism Than Direct Actions on Islamic Charities. • In the MENA Countries, Political Stability And Increased Economic Freedom Have Proven to Be Most Effective Forces in Combating Corruption. -- Explain 90% of the Differences in Corruption Across the Region.

  23. Summary: General Problems Controlling Islamic Charities • Internationally -- General Reluctance to Act Against Charities – Higher Standard of Proof Demanded. Little U.S. Control Outside U.S. • Terrorist Financial Support Structures are Not Static Adapt in a Variety of Ways Even When Included on the UN List. • Close Branches, Open New Offices, Change Names. • Support terrorists Less Through Direct Contributions Than Through Gray Areas – Employment, Logistic Support, Propaganda.

  24. Summary: General Problems inControlling Islamic Charities (contd.) • Humanitarian Nature of Most Places Their Offices and Employees on the Ground in Conflict Zones of Interest to Terrorist Groups Without Raising Undue Suspicion. • Charities Not Only Raise Significant Amounts of Money but Are Also Ideal Vehicles for Laundering and Transferring Those and Other Funds. • Massive Amounts of Oil Based Funds Available. • Pervasive Corruption in Donor and Recipient Countries Make Regulatory Controls Easy to Circumvent.

  25. Unique Difficulties Associated With Saudi Arabian Charities • Relatively Small Amounts of Money Required for Terrorist Acts Can Easily Pass Unnoticed. • Structure of the Saudi Financial System Makes Financial Transfers Difficult to Trace. Personal Income Records Not Kept for Tax Purposes – Many Citizens Prefer Cash Transactions. • Contributions to Charities are Often Given Anonymously and Donated Funds May be Diverted From Otherwise Legitimate Charities. • Saudi Funding of International Islamic Charities Reportedly Derived from Both Public and Private Sources Often Overlapping – Further Complicating Efforts to Identify Sources and the End Recipients of Donations.

  26. Problems Posed by Globalization • Points Stressed by Moises Naim – Why Governments Have a Hard Time Winning Against Terrorist/Criminal Groups: • Are Not Bound by Geography. • Defy Traditional Notions of Sovereignty. • Pit Governments Against Market Forces. • Pit Bureaucrats Against Networks. • Opens Up Many Opportunities for Terrorist Financing Through Corruption – Criminal Activities. • Greatly Complicates Debates Over Nature of Terrorist Organizations, Dynamics of their Funding and Effectiveness of Government Response • Debates Ongoing Because Open Source Data Does Not Provide Sufficient Grounds for Definitive Answers --

  27. Policy Debates Concerning Charities • Freezing Charity Assets – Advantages. • Denying Terrorists Access to Assets Needed for Further Attacks. • Reducing Inclination of Private Individuals to Contribute to Questionable Charities. • Raising Public Morale. • Freezing Charity Assets -- Disadvantages. • Limited Number of New Freezing Actions in Recent Years. • Need to Gather Actionable Intelligence May Have Undermined Cooperation Do To Limited Convictions. • Hurts Public Sentiment in Middle East – Partners Less Willing to Share Information. • Terrorists Need only Small Amounts of Money for Attacks – Easy to Avoid Triggering Suspicions. • Political Economy Approach Provides Some Insights for Policy.

  28. Political Economy ApproachIslamic Charities and Terrorist Funding • Political Economy Approach Provides Framework For Assessing Issues Associated With Islamic Charities: • Difficulties in International Coordination of Anti-Terror Policies -- Due to Diversity of National Interests. • Why Terrorist Groups Increasingly Exploit Sources of Funds That Do Not Require the Ideological Sympathy or Consent of the Provider – Lessons Constraints on Actions. • Why Terrorists Rely on Variety of More Impersonal and Self Contained Mechanisms Like Diversion of Funds From Charities, Independent Criminal Ventures and Legitimate Business Ventures – Reduces Uncertainty. • Why Islamic Charities and Terrorist Groups May Have a Convergence of Interests -- Radical Islam Spreading and Infiltrating Charities.

  29. Possible Future Policy Approaches • Political Economy Approach Suggests the Need to Develop a Broader- Longer Term Approach Towards Charities: • Expand Policy to Include a Demand/Supply Framework Aimed At Reducing Pool of Potential Contributors to Terrorist Causes. Encourage Those Who Offer Alternatives to Radical Islam. • Adopt An Approach That Views Money as a Tool of Terrorism and a Source of Information to be Studied, Not Just Seized. • Place More Emphasis on International Coalition Building With Much Focus on Diplomacy Rather than on Seizing Assets. • To Combat Corruption – Multilateral Efforts at Economic Reform – WTO Might Be Most Effective – Iran, Saudi Arabia and Many Middle East Countries Not Yet Members.

  30. Possible Future Policy Approaches (contd.) • Giving Matter of State Sponsorship of Terror a Harder Look. To What Degree is Current Focus on Al Qaeda Type Networks Drawing Attention Away from Saudi Arabia, Iran and Syria Directly Funding, or Facilitating Terrorism Through Charities. • Develop More Active Policies. How Might We Assure the Legal Right to Contributors Worldwide To Demand an Accounting of How Charitable Contributions are Used? • How Might the Funding of Militant Madrassas Throughout the World Better Be Discouraged? • Develop Models To Assess How Terrorist Organizations Respond to Shutting Down a Particular Source of Funding Such as a Particular Islamic Charity -- How Can We Anticipate Their Responses?

  31. For Further Reading • Jeanne K. Giraldo and Harold A. Trinkunas, eds. The Political Economy of Terrorist Finance and State Responses: A Comparative Perspective (forthcoming Stanford University Press, 2006). • Robert Looney, “The Business of Insurgency: The Expansion of Iraq’s Shadow Economy,” National Interest, Fall 2005. • Robert Looney, “Profiles of Corruption in the Middle East,” Journal of South Asian and Middle Eastern Studies (Summer 2005). • Rachel Ehrenfeld, Funding Evil (Chicago, Bonus Books, 2003). • Moises Naim, “The Five Wars of Globalization,” Foreign Policy Magazine (January/February 2003). • Matthew Levitt, “The Political Economy of Middle East Terrorism,” Middle East Review of International Affairs,” (December 2002).