HSPI: The Future of Terrorism Finance

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June 25, 2012

The evolving nature of how terrorists finance their operations makes it important to evaluate the strengths and weaknesses of anti-terror finance strategy. To that end, the June 2012 Issue brief from the Homeland Security Policy Institute, "The Next Decade of Countering Threat Finance:  Risks, Opportunities, and Limitations," identifies where terrorists commonly raise their funds and likely sources of future threats.  

“A risk assessment reveals that many organizations and individuals involved in illicit activity are quite comfortable using the modern financial system,” the report said. Given the volume of legitimate transfers that go through these systems on a daily basis, finding the illicit activity is often like searching for the proverbial needle in a haystack. Add to this rapid technological change associated with delivery of financial services such as mobile phone transfers, prepaid debit cards, and the growth of online transactions, and it is not hard to see why terrorists use these means. “[R]egulatory practices exist to monitor these activities, but financial institutions and government authorities are often overwhelmed by the data streams,”  the report said.

The frontiers of finance also pose unique challenges to counter threat finance. In many instances products and markets are introduced before proper safeguards are established to deny illicit use. “For example, the newly developed carbon trading exchange aimed at promoting environmental conservation was defrauded of millions. It is speculated that some may have gone to fund terrorism,” the report said.
More commonly considered methods of activity, such as the use of hawallahs, are not as high-risk as once presumed. “There is little evidence that terrorists striking the U.S. homeland, with the possible exception of the Time Square bomber Faisal Shahzad, have made significant use of the hawallah system to fund attacks,” the report said.
The report was written by Scott Helfstein, a HSPI Senior Fellow, and Director of Research at the Combating Terrorism Center of the United States Military Academy.