After more than ten years of intense international monitoring and strict sanctions, the ways terrorist organizations raise and move money has changed, witnesses said at a Congressional hearing on May 18, 2012. One witness criticized the one size fits all approach to charities the government has taken, noting that it serves to restrict aid, and called for clearer guidance from the government. Congressional members joined witnesses in calling for updating counter financing of terrorism (CFT) efforts to meet the evolving threats. The hearing, Terrorist Financing Since 9/11: Assessing an Evolving al Qaeda and State Sponsors of Terrorism, was held before the House Homeland Security Subcommittee on Counterterrorism and Intelligence.

Opting out of the formal banking system and forgoing traditional avenues of raising cash, witnesses said terrorist groups like al Qaeda have been able to finance their operations through other methods including trade-based money laundering, cultivating relationships with international criminal networks, and the exploitation of gold and diamonds.
“With more than a decade of CFT experience, now is an opportune time to take stock of what has been accomplished in order to recalibrate U.S. and international efforts to more effectively address the evolving nature of terrorist financing,” said Sue Eckert, a former Assistant Secretary of Commerce and a senior fellow at the Watson Institute specializing in international security issues.
Certain CFT measures, like the freezing of assets and restrictions on money wire transfers, Eckert says, are having far-reaching and unintended consequences. For example, the one size fits all approach to charities taken by the U.S. alienates certain “constituencies and prevents aid from reaching those most in need.” The restrictions on money transfers is supposed to prevent terrorists from moving money, but in places like Minnesota, it is instead rendering the Somalia diaspora “without viable means to transmit money cheaply and efficiently to relatives since there is no functioning banking system in Somalia.” More than a dozen Somali money transfer businesses were forced to stop doing business in late 2011 after banks began refusing service, fearing they might inadvertently violate anti-terror laws.
Improvements to the CFT regime, Eckert says, are needed to successfully adapt to the evolving nature of terror finance. In particular, “special effort must be taken to reaffirm support for charitable giving” and the government should develop and provide clear guidance to charities “clarifying what constitutes financing of terrorism and association…” Additionally, to better understand and assess terrorist financing efforts, she also recommends creating improved standards for evaluating CFT initiatives. “Metrics most commonly associated with terrorist financing – the total number of designations and the amount of money frozen – are inadequate and can be misleading,” she said.
Eckert was joined by Rep. Bennie Thompson (D-MS) who said efforts to disrupt financing to terrorist organizations “should not cause collateral damage to international charitable organizations.” Rep. Patrick Meehan (R-PA), chairperson of the subcommittee, also called for change. “The U.S. government may need to recalibrate some of its tactics …in order to address remaining vulnerabilities in combating terror financing,” he said in his opening statement.
Jonathan Schanzer, a former Treasury Department official, said successful CFT efforts have driven terrorists away from traditional financial streams.  “We are now victims of our own success,” Schanzer said, adding he predicts the bulk of future terrorist finance to come from money laundering and drug trafficking. He criticized the Financial Action Task Force (FATF), the international consortium that sets money laundering and CFT standards around the world, saying “the system is full of holes, and terrorists predictably gravitate to the areas of weakest authority.” Click here to find out What is the Financial Action Task Force and Why Nonprofits Should Care?
Another witness at the hearing, Dennis M. Lormel, President and CEO of DML Associates, LLC, explained why international CFT efforts need to adapt to meet the latest threats. “There is a growing and troubling nexus between transnational criminal organizations, drug cartels and terrorist organizations,” he said. To meet tomorrow’s CTF challenges, Lormel said the U.S. “should develop better feedback mechanisms to financial institutions about “how” terrorists use financial institutions and provide them with typologies that financial institutions could use for transactional monitoring.”
John A. Cassara, a former CIA officer and Treasury Special Agent, described trade-based value transfer as the “new frontier” in international money laundering and counter-terrorist finance. “Trade-based money laundering scams take a wide variety of forms. For example, it could be a simple barter or a commodity-for-commodity exchange. In certain parts of Afghanistan and Pakistan, for example, the going rate for a kilo of heroin is a color television set. Drug warlords exchange one commodity they control (opium) for others that they desire (luxury and sports utility vehicles),” Cassara said.
What other financial threats does Cassara see on the horizon? He identified several, including “pre-paid gift and stored value cards; service-based laundering; mobile payments commonly referred to as “m-payments” or the use of cell phones to store, receive, and transmit money; digital currencies; virtual currencies in the on-line virtual world.”
Due to a busy schedule, the committee only heard speakers’ opening statements and then adjourned the hearing until a later date.