Hundreds of pages of elaborate and often confusing rules were created by governments which thereby made banks one of the first lines of defense against terrorists. Bankers were instructed to "know their clients" and to report "suspicious" transactions. How a banker untrained in counterterrorism could recognize a "suspicious transaction" was not explained and was left up to the individual responsible for enforcing these rules in the bank to decide.
The new banking guidelines and regulations were based on the belief that terrorist organizations would use the Western banking system to move large sums of money around. This supposition, however, is proving to be unfounded, and was formulated based only on a few examples of money being sent to some of the 9/11 terrorists by wire transfer using Western banks.
It seems that the ability by terrorist groups to move money across borders will continue despite international, regional, and national efforts to control the hawala networks and to freeze the assets of suspicious organizations.
As law-enforcement agencies are coming to realize, terrorists do not need large sums of money for their activities and -- given the nature of the people involved in terrorism -- they do not use Western institutions for this purpose if at all possible and might instead be resorting to traditional hawalas and money couriers.
A report issued in August 2004 by a team monitoring the implementation of UN sanctions against Al-Qaeda, UN Security Council document S/2004/679 found that the costs of the most damaging terrorist attacks were not extravagant:
-- The simultaneous truck bombings of the United States embassies in Kenya and Tanzania in August 1998 are estimated to have cost less than $50,000;
-- The October 2000 attack on the "USS Cole" in Aden, Yemen, less than $10,000;
-- The Bali, Indonesia, bombings in October 2002, less than $50,000;
-- The 2003 bombing of the Marriott Hotel in Jakarta was about $30,000;
-- The November 2003 attacks in Istanbul cost less than $40,000;
-- The March 2004 attacks in Madrid cost about $10,000.
The London metro bombing on 7 July was also an inexpensive operation by any standards. Most experts place the cost at about $25,000 -- including the flights to Pakistan by three of the bombers prior to the attack.
According to a UN Monitoring team, "There are some 32 international and regional organizations working to establish standards and agree to policies to combat terrorist financing." Despite these efforts, terrorist attacks continue and there seems to be little progress in stopping them: Since the 9/11 terror attacks there have been thousands of acts of terrorism worldwide, according to the U.S. State Department. In 2004 alone the U.S. National Counterterrorism Center listed 651 "significant acts of terrorism."
How, then, are terrorists moving the money to pay for their inexpensive yet seemingly expanding operational needs?
Trust Your Local Hawaladar
Most experts agree that in some cases the money moves through the traditional hawala or hundi system. The hawala is defined by an Interpol report from January 2000 as "an alternative or parallel remittance system. It exists and operates outside of, or parallel to 'traditional' banking or financial channels. It was developed in India, before the introduction of Western banking practices, and is currently a major remittance system used around the world."
The key component of hawala is trust. One of the meanings of the word itself is "trust," and this distinguishes it from other remittance systems. The system is built on the extensive use of family relationships and regional networks. Transfers of money take place based on relationships between members of a network of hawaladars, or hawala dealers, and there is usually no paper trail of transactions.
A report by the World Bank in May found that there were between 500 and 2,000 unregistered hawala dealers just in Afghanistan conducting money transfers between Kabul, Peshawar, Dubai, and London. The report also found that single transactions in excess of $500,000 were not uncommon -- especially between Kabul and Peshawar -- and the system is used extensively by international humanitarian aid agencies to move money and, according to the "Times of India" on 24 May 2003, by the World Bank in Afghanistan to move money to outlying villages.
The World Bank estimates that some $80 billion were remitted via hawalas in 2004.
Controlling The Hawala?
One method suggested by counterterrorism experts to control the hawala system is to register its owners. But according to Interpol, the hawala system itself is considered illegal in Pakistan and India, the two largest users, and it would be somewhat ludicrous to register illegal entities.
Freezing the assets of suspected terrorist organizations and donors to these groups is another method that may help control the flow of money, though is action has also not proven itself yet. According to the UN report cited above (http://www.un.org/docs/sc/committees/1267/1267mg.htm), Yemen, long suspected of being a haven for terrorist groups, has managed to freeze only $31.94 of suspected terrorist assets since September 2001, the UN Monitoring team found. Austria only froze $4,000 while Germany found only $6,000 to freeze. Others have been more successful, however, with the United States initially freezing $29.9 million before later releasing $26.9 million of that amount; the United Kingdom froze $608,000 and Saudi Arabia froze $5.68 million.
The UN Monitoring team report also mentions that couriers could be used by terrorists to carry money from country to country.
It states: "Initial research by the Monitoring Team on this issue has shown that although many [countries] have regulations governing the trans-border movement of currency by individuals, there is no universal standard on the amounts to be declared. Some have different requirements governing residents and non-residents, and distinctions between local and foreign currencies. In some areas, where it is common for most transactions to be conducted in cash, the movement of relatively large amounts is not remarkable and attracts little scrutiny."
It seems, in short, that the ability by terrorist groups to move money across borders will likely continue despite international, regional, and national efforts to control the hawala networks and to freeze the assets of suspicious organizations.