Terror Financing

This essay is to answer this question:
How are terror organizations being financed and to what extent is sound information about budgets of terror organizations available for academic research? From a Political Economy of the Middle East course.

Traditionally, terror organizations have been largely funded by states. With the continued globalization and integration of the world economy, this influence has decreased. Whereas some few states, such as Iran and Syria, continue to fund acknowledged terror groups, most terror groups have turned to different forms of financing, essentially funding themselves and their operations by various means.

One of the most common means of financing comes from private donors. Wealthy individuals who either agree with the ideology or cause of the terror groups, or who perhaps actively take part in their cause, donate of their personal fortunes to fund the groups. These types of individuals or others can also act as middlemen or instigators themselves, traveling and gathering money and donations from other donors from around the world to increase the funds that are at the disposal of the terror organization.

Terror groups can use these moneys within regular financing and banking institutions to garner greater funds through means of investment or interest. Interestingly, some such groups actually go to the point of opening accounts in their own names or through the means of front organizations to spread their finances. The use of these accounts has led to nominally honest, non-terror banking organizations being highly involved in the movement of terror finances. Banks, and other financial networks and organizations, for example the Arab Bank, al-Taqwa, and al-Barakat, have been used to transfer these funds extensively around not only the Arab Middle East, but also throughout many other international areas. The system is simple enough with local operatives of the terror group opening bank accounts in their local cities, which then receive funds via transfer from the general terror fund. However, sometimes this legal transfer system can be too easily tracked.

To combat this, many times terror groups, especially in the Middle East, turn to using the traditional Hawala system of money transfer. This is an informal, anonymous money transfer system that is based solely upon trust built up between brokers over generations. In many cases, because it can run slightly cheaper than normal and official channels, migrant workers sending remittances home use this system. But, its anonymous and informal (i.e. non-traceable) nature makes it ideal for terror organizations wishing to transfer money. No records are kept (any of necessity are destroyed when the transaction is finished) and no official money transfer occurs- a broker simple contacts a fellow broker asking him to release so much money to someone who shows up with the correct code, keyword, etc.

But this still leaves the major question, where does the money come from, largely unanswered. Besides personal donations, many terror organizations also rely on legitimate business operations to garner finances. Operatives either gain employment or businesses are created, either as legitimate and workable businesses or simply as fronts, who donate a part of their income or profits to the terror group. In this manner, terror groups can access funds in the form of salaries, government subsidies or other business profits which can be sent via wire or cash transfers into the central account for the group. This type of situation provides for local cover and livelihoods for operatives as well as a means of creating contacts and drumming up support for the group.

Besides legitimate business opportunities, many terror organizations also take part in criminal activities. Authorities have tracked terror money through all kinds of black market operations: mafia-style shakedowns, kidnappings, pirated multimedia sales, drug and arms trafficking, prostitution, fraud, extortion, import-export scams, even diamond smuggling. These types of “fund raisers” are very lucrative and would add much to the terror coffers.

On the other hand, many terror groups have turned to garnering money from sources that are much less criminal and much more humanitarian. Many humanitarian and charitable organizations, which raise money for causes meant to ease human suffering throughout the world, have come under fire for their connections to terror groups. In some cases, they are legitimate, raising funds to for real need but diverting large portions of the money that was raised to financing terror. In other cases, the charity organizations unknowingly contribute to projects that are terror related. Others have acted simply as fronts, hiding behind a fa├žade of charity, while really acting as facilitators for training, arms making and smuggling or other terror related activities.

Sound information about these finances is not largely available for academic purposes. Because the finances themselves are secret, most of the information that is accumulated is known after the fact from investigations. Thus, it is hard for academics (and investigators) to accurately judge the amount of money that is flowing through these channels or to make accurate assessments about where or how it is gained. That being said, it can be assured that there is a large amount of information out there about that money that has been tracked.