FINANCING OF COMBATANTS IN ASYMMETRIC CONFLICTS
Prof. h.c. Stephan U. Breu, DBA, Certified Fiduciary with Federal Diploma of Higher Education, Secretary General of the Swiss Centre for International Humanitarian Law, and Chairman of the Advisory Board, East West Bridge Switzerland
(e-mail: info@breu.com)
Abstract :
Identifying the flow of financing of asymmetric combatants especially in fourth-generation warfare proves to be very demanding. Whereas « traditional » banking channels might be possible to control to a certain extent (i.e. SWIFT transfers), fund transfers through charitable organisations or state sponsoring of terrorism are much more difficult to monitor. Knowing the potential for law-enforcement and intelligence agencies to monitor SWIFT activities and other electronic means of transfer, other parallel remittance systems (Hawala) have taken a much more important role in financing combatants in asymmetric conflicts. In future the anonymity and minimal documentation of such transfers will be even surpassed by the possible use of cryptocurrencies.
The financing systems of combatants in asymmetric confilcts demonstrates a flexible and adaptive approach. But as all these channels are mostly used for legal transfers between legitimate partners, any heavy regime of new regulations would make all transactions costlier and less convenient. Such negative economic impact is opposing the need of monitoring the financing of asymmetric opponent groups. To solve this situation, the focus should lie on the attempts to make the risk of detection of such transfers higher for the parties involved. Without interfering too strongly with the financing channels, this process asks for improved compliance and cooperation on all levels and capacity. With the increasing importance of cryptocurrencies, a completely new field of complex problems is arising through the implied anonymity and complexity or sheer impossibility to track transfers in the dark net. As regulations in this new financial market will be difficult to enforce, it is necessary to establish international cooperation and capacity building to implement some possibilities for law-enforcement and intelligence entities to monitor the illegal flows of capital.
Key Words :
Financing, regulations, compliance, hawala, cryptocurrencies,
Introduction :
The threat level within our European and International societies has changed dramatically after the 9/11 attack and the following military interventions mainly led by the American Security Apparatus and its « War on Terror ». So we could observe the emerging of new terrorist organisations like the « Islamic State of Iraq and the Levant » which, with its goal to establish a « Caliphate » as a state-like organisation, asked for enormous financial sources to support its massive operational activities in different regions in the Middle East. The revenues1 of the Islamic State in the year of 2016 are estimated around $870m2. The Islamic State can be seen as a good example to try to understand the mechanism and new developments in financing combatants in asymmetric conflicts.
Accessing financial resources for ISIL and similar organisations is getting more and more difficult as programs like the « Terrorist Finance Tracking Program -TFTP » 3 of the United States Government are monitoring bank-to-bank transactions e.g. SWIFT-transactions very closely. More difficult to monitor are covered transfers between and through non-profit organizations which cannot be assigned directly to any combatant organisation or its sympathizers. Also parallel remittance systems (Hawala) have developed which are also not monitored easily through any government agency. A very modern way of transferring financial means are offered by different new cryptocurrencies which makes it nearly impossible to follow the financial flow of such funding.
In this paper, I do not want to look further into financing of international para-military and mercenary organizations that are mainly used by the established global players to have asymmetric influence in different hot spots worldwide as these organizations do normally not have any problem getting their « expenses » financed through official channels.
Financing Donations by or through Non-Profit Organizations
The history of financing international terrorist groups is a long one. Charitable contributions are a historical part of Muslim solidarity and as such are also a core pillar of the Muslim faith. A lot of the established charitable and service organizations serving such groups and their sympathizers grew out of the support for Mujahedeen organizations to fight the Soviet Army in Afghanistan. Intensive efforts from the international community has raised awareness of such actions but there is still a long way to go. As most of the international active Non-Profit Organizations are not involved in any dubious activities it is very demanding finding the real « Black Sheeps » as it is very easy to establish new schemes for covering the financing activities of asymmetric combatants. Also the charity sector is sometimes abused by terrorists in order to fund-raise through unsuspecting communities who do not have the abilities to control the end up of their donations properly. The 2014 Financial Action Task Force (FATF) report round that NPOs most at risk of being misused are “those engaged in service activities which are operating in close proximity to an active terrorist threat” and those “that send funds to counterpart or correspondent NPOs located in or close to where terrorists operate”. 4 In the United Kingdom there have been a number of incidents with connections between terrorists organizations and NPOs. For example three men were “convicted of terrorism offences in the UK fraudulently posed as volunteers for Muslim Aid, one of the largest British Muslim NGO’s, collecting up to £14,000 from the public”5.
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4 FATF –Emerging Terrorist Financing Risks
http://www.fatf-gafi.org/media/fatf/documents/reports/Emerging-Terrorist-Financing-Risks.pdf
5 The Guardian, March 5, 2015 – “Banks block charity donations over terrorism funding fears https://www.theguardian.com/society/2015/mar/05/banks-block-charity-donations-over-terrorism-funding-fears
In the Netherlands there has been found large bulks of cash sent to Syria6 and French individuals have been charged with collecting EURO 60,000 to 100,000 for terrorist activities7. Any monitoring regulations should be kept in a focus of not decreasing the potential volume of legitimate transfers as well as not making transfers less convenient, more complex, slower or even costlier. Such restrictions would disturb the legitimate activities of the majorities of bona fide NGO’s engaged in organizing civil society’s support for development of humankind. Onerous restrictions would even affect the international money transfer system sustainably causing problems for international trade. Existing regulations for banks and financial institutions and FATF-styled regional bodies6 have shown a certain effect in decreasing the flow of finances to asymmetric combatants but due to insufficient coordination and non-compliance to international regulations by some highly exposed high-risk institutions there is still a considerable part of financing organized through NGO’s. And as noted recently by UK authorities, de-risking by withdrawing bank services to charities may mean “charitable funds may go underground, increasingly transacted in cash, or moved off-shore via cash couriers or alternative remittance systems.” 8
The Strategy of the OSCE on countering financing of terrorism is guided by the United Nations Global Counter-Terrorism Strategy which calls for the implementation of the international standards embodied in the Forty Recommendations on Money-Laundering and Nine Special Recommendations on Terrorist Financing of the Financial Action Task Force, recognizing that States may require assistance in implementing them and encourages international co-operation in this regard. 9
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6 FATF – International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation
http://www.fatf-gafi.org/media/fatf/documents/recommendations/pdfs/FATF_Recommendations.pdf
7 Dan Bilefsky “Charity in France Is Accused of Being a Front for Financing Terrorism in Syria” published in The New York Times, December 4, 2014ATF – International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation https://www.nytimes.com/2014/12/05/world/charity-in-france-is-accused-of-being-a-front-for-financing-terrorism-in-syria.html?mcubz=1
8 HM Treasury/HM Home Office, UK national risk assessment of money laundering and terrorist financing (October 2015) https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/468210/UK_NRA_October_2015_final_web.pdf
9 Thomas Wuchte, OSCE Head on Anti-Terrorism Issues, Presentation at the meeting of the OSCE Security Committee in July 2013
A comprehensive conclusion of the OSCE as a solid background and reference to understanding of the risk, disseminating good practices and supporting the implementation of global and regional commitments to fight all forms of terrorism financing can be found in the report “To Protect and Prevent: Outcomes of a Global Dialogue to Counter Terrorist Abuse of the Nonprofit Sector” published by CGCC Center on Global Counterterrorism Cooperation. 10
As these transactions from NPOs are recorded in the international financial system there is at least a chance to make the risk of discovery higher for the parties involved. However, in addition to regulations and monitoring, the heightened awareness of this problem by the civil society must be increased and easy reporting of suspicious practices and information should be implemented.
Financing through Informal Transfer Systems (often referred as Hawala)
Hawala, meaning “transfer” or “trust” in Arabic, is deeply rooted in the Arabic, African and South Asia community for centuries. It is also known as “hundi”, “xawala”, “phei kwan” or “fei qian” in different areas. It is an effective value transfer system outside the traditional banking and financial channels and remittance systems. Basically it is a system that is less expensive, swifter, more reliable, more convenient and less bureaucratic than formal remittance systems. The whole system is based on trust for the involved brokers called “Hawaladars”, whose business survival depends on their reputation. As a system based on national, ethnic and family relations it depends more on absolute trust between the parties involved than on legal documents. Hawala has also been called “The Working Man’s Bitcoin” 11 in the past. Using cash couriers to transfer cash money may be challenging for transferring higher amounts or may lack speed and ask for considerable strategic planning. Nevertheless it can be seen as the « simplest and oldest way of moving value » 12 .
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10 CGCC Center on Global Counterterrorism Cooperation “To Protect and Prevent: Outcomes of a Global Dialogue to Counter Terrorist Abuse of the Nonprofit Sector” published in June 2013
http://globalcenter.org/wp-content/uploads/2013/06/CGCC_Prevent-Protect-Report_pgs.pdf
11 Alex Mayyasi “Hawala: The Working Man’s Bitcoin”published in Priceonomics in February 2014: “It’s an alternative monetary system that operates largely outside government control, avoids large transaction fees by circumventing banks, and has associations with money laundering and the illegal drug trade.”
12 Nikos Passas, “Informal Value Transfer Systems, Terrorism and Money Laundering,” report to the National Institute of Justice, 2003
The schemes for cash couriers vary from very easy to very complex depending on the number of couriers involved and borders to cross but in general asymmetric combatants tend to involve only trusted persons to increase security for the transfer. For these reasons, it is particularly difficult for law and security agencies to monitor or track such transfers. As long as the transfer and information are forwarded person-to-person there are not any footmarks in the international transfer system and no track history so transactions can only be blocked at handing over or trough controls of subjects at border crossings or routine controls. Even the increased awareness of civil society cannot really have a major impact on such transactions as an integral part of various informal transfer systems worldwide is that often they have strong ethnic, religious and traditional ties and work through large ethnic diasporas. These informal transfer systems have been existing since the early medieval period in Europe or even before this time in India13. As such it is still the preferred way of sending money to families for a lot of immigrants and foreign workers. Most of the people using these systems are not doing it for any dubious reason but use it as the most convenient way to support the families at home as the systems per se are not illegal. But The Report of the Norwegian Defence Research Establishment (FFI) from 2015 names Hawala or other informal value transfer systems a popular method of transferring money for terrorism14. Most Hawala systems are also considerable cheaper than the modern remittance systems that are charging up to 9 % of the amount transferred. There are no contracts which also makes it impossible to take any hawaladars to court if any problems occur as there are only scribbled records of the hawaladars. As most transfers are not registered we can only estimate the amounts transferred through these systems and the part that is used to finance asymmetric combatants and their sympathizers.
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13 Patrick M. Jost and Harjit Singh Sandhu, “The hawala alternative remittance system and its role in money laundering” published by Interpol General Secretariat, Lyon, January 2000 says “Hawala predates 'traditional' or 'western' banking (the first 'western bank' in India was the Bank of Hindustan, established in Calcutta around 1770). Prior to this, the operations of “sarafs” and “potedars”, who were primarily moneychangers (and essentially the predecessors of the hawaladars discussed in this paper) were a fundamental component of the commercial and financial infrastructures.”
http://www.nmta.us/assets/docs/hawala.pdf
14 Oftedal Emilie, “The financing of jihadi terrorist cells in Europe” published by Norwegian Defence Research Establishment (FFI) in January 2015 says: “While the hawala system is rarely used to transfer money within a small terrorist cell or within Europe, for example, it has been a popular method of transferring funds from European jihadi cells to terror groups abroad.”
http://www.ffi.no/no/Rapporter/14-02234.pdf
To increase the security risk of discovery of dubious transfers is particularly becoming difficult in a time where we tend to open our borders for the free crossing of goods, people and capital. To identify suspicious individuals at check points or border crossings would ask for a highly risk-orientated and deep co-operation between international security agencies and organizations exchanging information on on-going observations and operations which of course is not in the ethos of some of these organizations.
Given the underground profile of these systems also the FATF-recommendations regarding combating alternative remittances to regulate and license Hawaladars might not really help to identify the misuse of the system as asymmetric combatants will try to use unofficial unregistered Hawaladars of their trust to undergo monitoring and discovery.
Financing through Cryptocurrencies
A very new development in financing asymmetric combatants is financing through the use of Cryptocurrencies or Virtual Currencies. It might be right that this channel of financing is not – yet – widely used by dubious organisations. But considering the increasing pressure on the existing financing channels it might well be very tempting to sidestep to this opportunity. So the European Banking Authority classified the terrorist use of Cryptocurrencies as a high priority risk15. But to become a major source of financing some major disadvantages of Cryptocurrencies need to be reduced. First of all, any transfer in cryptocurrencies is relatively time-consuming today. But new concepts of cryptocurrencies offering faster transfer and higher security and anonymity are on the way. Secondly, the acceptance of digital cash is not very well developed in the areas where the headquarters of most asymmetric combatants and terrorist organizations are, and also internet access is often slow and unreliable.
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15 EBA European Banking Authority “EBA Opinion on Virtual Currencies” published by EBA in July 2014 states on page 33 “Criminals or terrorists use the VC remittance systems and accounts for financing purposes (C03): The risk arises because, as a means of payment, VC schemes are not confined to, and are accepted across, jurisdictional borders. VC transactions require nothing more than internet access, the VC infrastructure is often spread across globe, making it difficult to intercept transactions, and VC transactions tend not to be reversible. The priority of the risk is high..”
https://www.eba.europa.eu/documents/10180/657547/EBA-Op-2014-08+Opinion+on+Virtual+Currencies.pdf
But also here we see a sustainable development of infrastructure and increasing acceptance of virtual currencies worldwide. Today it might be difficult to buy guns or explosives with virtual currencies but given the developments in « Dark Net » it might soon be quite different. Third, it is still challenging to transfer higher amounts through the cryptocurrencies systems today. But if cryptocurrencies are used to cover costs for financing basic supplies of smaller cells of asymmetric combatants or terrorists detecting such transactions might nearly be impossible. According to the Norwegian Defence Research Establishment Report from 2014 75 % of the jihadi plots studied in Europe between 1994-2013 cost less than USD 10’000 to execute. 16 Also notice that as of January 2017 that the Anti-Money Laundering/Counter-Terrorist Finance Agency of Indonesia has published the first public allegation of terrorists using cryptocurrencies. 17
On the other hand, this example shows that security and anonymity has not yet reached a level that would make cryptocurrencies a priority choice of asymmetric combatants and terrorist organizations. Most cryptocurrencies rely on public ledger – i.e. blockchain – and it has shown that law enforcement agencies have a number of ways to uncover participants in dubious transfers. As the cryptographic addresses of the sender and the recipient are recorded, with enough investigative resources the true identities can be uncovered. But there a new Cryptocurrencies like “Monero” which offer a much higher anonymity than Bitcoin as market leader and are getting a bigger share of the worldwide market. And compared to traditional transfer methods, Cryptocurrency transfers offer a decisive economic advantage as they show very low transmitting costs18.
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16 Oftedal Emilie, “The financing of jihadi terrorist cells in Europe” published by Norwegian Defence Research Establishment (FFI) Januar 2015
http://www.ffi.no/no/Rapporter/14-02234.pdf
17 According to Indonesian Security Agencies a suspected member of ISIL was sending Bitcoins to fellow members to avoid using the formal financal system
https://www.wsj.com/articles/bitcoin-paypal-used-to-finance-terrorism-indonesian-agency-says-1483964198
18 Schweizerische Eidgenossenschaft, “Federal Council report on virtual currencies in response to the Schwaab and Weibel postulates” published June 2014 https://www.news.admin.ch/NSBSubscriber/message/attachments/35355.pdf
Since May 2017 a US congressional subcommittee is developing a bill to study the use of digital currencies by terrorist19.
Maybe the most important reason why asymmetric combatants and terrorists have not yet used Cryptocurrencies on a wider scale it that they still do not need to do so. The other models for transfers and financing are still too easy to use and readily available so there is no need today to invest heavily in new, complicated techniques. But for sure the work of Security and Law Enforcement Agencies will become more challenging in the near future with new cybercurrencies with deeper security and anonymity levels and through use of the Dark Net.
Conclusion
In general, it can be said that the challenges for Security and Law Enforcement Agencies to monitor and discover illegitimate transfers from peer-to-peer is increasing more and more. All regulations and recommendations regarding such transfers have to bear in mind that all the financial systems described here are mainly used by innocent people and are having a positive influence on economic growth and stability.
Therefore, any regulations have to avoid making the use of these systems unnecessarily more complicated, more time consuming or more expensive so as not to damage the economic development or civil society engagement at a whole. And finally such strategy could push the existing systems more underground as they are essential for millions of people and families and this would make them even more difficult to monitor.
Technically, it has to be an increased focus on more deep co-operation between international security and law enforcement organizations like advocated by the United Nations Counter-Terrorism Committee Executive Directorate (CTED) not only aiming to freeze terrorist’s assets but also to identify suspects and enable purposeful search for targeted suspects and controls in the internet and at check-points at airports and border crossings.
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19 115th Congress 1st Session Miss Kathleen Rice from New York introduced the following bill to direct the Under Secretary of Homeland Security for Intelligence and Analysis to develop and disseminate a threat assessment regarding terrorist use of virtual currency. This Act may be cited as the “Homeland Security Assessment of Terrorists Use of Virtual Currencies Act”.
Especially the capacities of the Cyber Investigators will have to be sustainably increased regarding the potential developments of Cryptocurrencies and the inherent difficulties to regulate such.
Also, the awareness of the Civil Society and the Management of Non-Profit-Organisations should be increased and there should be easy accessible reporting points for suspicious activities. There is a strong need for an ongoing dialogue among stakeholders to share perspectives and build consensus to prevent terrorist abuse. All stakeholders are aware of the problem but there is a significant need for capacity building regarding all parties involved.
Finally any regulations and standards have to be internationally coordinated and have to stay flexible to react on any development of these remittance systems which asks for ongoing international analysis and monitoring of evolution and market changes.
References :
1. Bilefsky Dan and de la Baume Maia, “Charity in France Is Accused of Being a Front for Financing Terrorism in Syria”, The New York Times Dec 4, 2014
https://www.nytimes.com/2014/12/05/world/charity-in-france-is-accused-of-being-a-front-for-financing-terrorism-in-syria.html?mcubz=1
2. Carlisle David, „Cryptocurrencies and Terrorist Financing: A Risk, But Hold the Panic“ published 2017 by Royal United Services Institute (RUSI)
https://rusi.org/commentary/cryptocurrencies-and-terrorist-financing-risk-hold-panic
3. CGCC Center on Global Counterterrorism Cooperation “To Protect and Prevent – Outcomes of a Global Dialogue to Counter Terrorist Abuse of the Nonprofit Sector” published June 2013
http://globalcenter.org/wp-content/uploads/2013/06/CGCC_Prevent-Protect-Report_pgs.pdf
4. EBA European Banking Authority, “EBA Opinion on Virtual Currencies” published by EBA in July 2014
https://www.eba.europa.eu/documents/10180/657547/EBA-Op-2014-08+Opinion+on+Virtual+Currencies.pdf
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7. Financial Action Task Force (FATF) on „Financing of the Terrorist Organisation Islamic State in Iraq and the Levant (ISIL) published in February 2015. http://www.fatf-gafi.org/media/fatf/documents/reports/Financing-of-the-terrorist-organisation-ISIL.pdf
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https://www.cnas.org/publications/reports/terrorist-use-of-virtual-currencies
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12. HM Treasury and Home Office – UK national risk assessment of money laundering and terrorist financing – October 2015
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/468210/UK_NRA_October_2015_final_web.pdf
13. International Centre for the Study of Radicalisation and Political Violence (ICSR), King’s College London, on „Caliphate in Decline: An Estimate of Islamic State’s Financial Fortunes“ published in 2017. http://icsr.info/wp-content/uploads/2017/02/ICSR-Report-Caliphate-in-Decline-An-Estimate-of-Islamic-States-Financial-Fortunes.pdf
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https://www.rand.org/blog/2017/04/are-terrorists-using-cryptocurrencies.html
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https://www.eisf.eu/news/counter-terrorist-financing-and-humanitarian-security-2/
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https://priceonomics.com/hawala-the-working-mans-bitcoin/
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http://www.osce.org/secretariat/103953?download=true