Three and a half years since 9/11, the world is still
beholden to the belief that it is politics or ideology that
fuels armed struggles worldwide. But an analysis of five
decades of modern terrorism reveals two unexpected and
disconcerting truths: that the engine of the armed struggle is
money, and that the deregulation of finance has allowed terror
networks deeply to penetrate legitimate institutions of the
international financial system.
During the period of decolonisation and cold war after
1945, armed organisations were economically dependent on rich
sponsors – former colonial powers (as with the guerrillas
trained and bankrolled by France in Indochina) or superpowers
(the state-sponsored terror groups funded by the United States
and the Soviet Union to fight wars by proxy on the periphery
of their own spheres of influence). The high cost of this type
of war, and their domestic unpopularity, forced these powers
to resort to a mixture of legal and illegal revenues to
channel money to their favoured clients.
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An International Summit on Democracy,
Terrorism and SecurityM will be held on 8-11 March
2005, sponsored by the Club de Madrid. and the Varsavsky Foundation. Ahead of the
summit, a new openDemocracy debate
– introduced by Chloe Davies, and involving Karin von
Hippel, Mary Kaldor, Roger Scruton, Fares Braizat,
Charles Peña, Fred Halliday, John Hulsman, and David
Elstein – explores how best democratic states and
citizens can respond to terrorism.
To find out more about the Madrid summit visit safe-democracy.org, register to
receive information here – and add your own views to a
developing dialogue!
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A classic example of this was the Reagan administration’s
sponsorship of Contra armed groups fighting against
Nicaragua’s Sandinista government in the 1980s. Amid
widespread political opposition to this United States policy,
the administration secured Congressional approval for a
financial aid package of $24 million (which was used to arm
2,000 Contras). This sum was increased each year until the
eruption of the Iran-Contra scandal in 1986, but it was
still insufficient to meet the high costs of bankrolling the
group.
To bridge the gap, several covert operations were put in
place in parallel with the official pro-Contra campaign. A web
of thousands of people and hundreds of companies and
foundations contributed to the project, defrauding American
taxpayers of billions of dollars. One such operation was an
illegal scheme, in which US weapons acquired by the
CIA were sold to the Islamic Republic of Iran, using Israeli
and Saudi businessmen as brokers, who charged handsome fees.
Iranian payments were channelled through numbered Swiss
accounts controlled by the Contra leadership. American
taxpayers ended up paying for the cost of both legal and
illegal funding in the anti-Sandinista campaign; the heaviest
economic burden of state-sponsored terrorism falls on the
domestic economy of the sponsor.
Terrorism is an expensive business. In the mid-1970s, the
Italian Marxist terror group Brigate Rosse (Red Brigades), had a yearly turnover of
$8-$10 million, equivalent to that of a medium-size north
Italian commercial enterprise. Unlike the cash-generous United
States, the Soviet Union chose to supply its favoured groups
with free training, arms and ammunition. Western European
groups like the Red Brigades and the Baader-Meinhof gang had to raise their own
cash. This required managerial finesse more than military
expertise.
Terror and the “shell-state”
Since the 1970s, the desire of armed organisations to gain
financial independence from their sponsors in the face of the
rising costs of terrorist activity, led them to seek greater
self-sufficiency. For example, Yasser Arafat masterminded the
transition of the Palestine Liberation Organisation from a
state-sponsored to an economically independent armed group by
creating the first model of the “privatisation of terrorism”.
During the Lebanese civil war, Arafat assembled a de facto
Palestinian state held together by a well-developed
socio-economic infrastructure, even in the absence of
self-determination. Over the last thirty years, similar “shell-states” have blossomed in zones of war
and political instability. Colombia, Peru, Chechnya,
Afghanistan, Nepal and now Iraq have become breeding-grounds
for these entities. After terror groups establish military
control over an area, they destroy the existing socio-economic
infrastructure (or what is left of it) and seek to replace it
with the armed groups’ own socio-economic infrastructure, one
designed exclusively to feed the armed struggle. The 2003
attacks against the United Nations and the Red Cross in Iraq,
and the more recent kidnappings
of aid workers, form part of this strategy.
The key to the survival of the shell-state rests upon the
management of its finances, and on its interdependency with
traditional economies. The Palestinian shell-state was run as
if legitimate; for example, a 5% income tax was levied on
Palestinians working abroad, and Arab states where Palestinian
workers resided were held responsible for collecting the tax.
Both legally- and illegally-generated money was invested in
legitimate activities through the international financial
markets.
In 1976, following the legendary bank robbery of the British Bank of the Middle East , Arafat
chartered a flight to Switzerland to invest the PLO’s share of
the loot; the Christian phalange and the Corsican mafia, the
other partners in the robbery, used their shares to buy arms.
CIA estimates are that the PLO’s total wealth in the 1990s was
$8-$14 billion. This suggests that the PLO in this period had
a higher annual gross domestic product (GDP) than Arab
countries like Yemen ($6.5 billion), Bahrain ($6 billion) and
even Jordan ($10.6 billion).
As Palestinian wealth grew, so did its interdependence with
the economy of its neighbour and enemy, Israel. In 1987, the
Israeli finance minister Adi Amorai released a PLO courier who
had been stopped at the Allenby Bridge, the transit point
between Jordan and Israel. The man was carrying a suitcase
with $1 million in cash. Amorai knew that the money would be
exchanged in shekels and spent inside Israel, money
that was badly needed by the Israeli economy.
The globalisation of terrorism
In the 1990s, the further deregulation of international
economic and financial markets gave birth to the globalisation
of terrorism. As barriers came down, armed groups linked up
economically and started to operate more freely across
national borders; the linkages between terrorist-controlled money
and traditional economies became closer.
The business empire of Osama bin Laden, whose profits bankrolled
terror attacks against western interests across the Muslim
world before 9/11, is a striking example of this phenomenon.
His portfolio was truly transnational and highly diversified.
While residing in Sudan, bin Laden acquired 70% of Gum
Arabic Ltd, a company holding a monopoly of gum arabic (80% of
the world supply of this product is used to fix the print in
newspapers, to prevent the solution in soft drinks from
separating, and to create a protective shell around pills and
sweets). By far the largest importer of gum arabic is the US,
which enjoys a special price agreement with the supplier. In
1998, the Clinton administration’s decision to impose economic
sanctions on Sudan was opposed by lobbies representing US
importers of the product. Eventually they convinced the
administration to exclude it from the list of sanctioned
products. Their argument was very simple: the sanctions would
hurt American importers. Why? Because the Sudanese were going
to sell the product to the French, the second largest
importer, who in turn would offer it to the Americans at a
premium.
Terror leaders themselves are well aware of this interpenetration between the terror economy
and the official economy. In the 1990s, Osama bin Laden issued
a fatwa urging his followers to refrain from
attacking Saudi
Arabia. The reason was that revenues from legal oil
industry businesses, run by Saudis who backed al-Qaida, were
needed to consolidate the Islamist revolution. These revenues
found their way into the new economy of terror via legal
donations or dividends. This fatwa was lifted in
spring 2003 when al-Qaida waged its first spectacular attack
inside Saudi Arabia.
Western corporations are also often aware that they are
doing business with groups that are closely linked with the
illegal/terror economy. One way that Islamist armed groups
have funded themselves is via smuggling of electronic products
in Asia. Daniel Pearl, the Wall Street
Journal reporter kidnapped and killed by
Jaish-I-Mohammed (Army of Mohammed) in Pakistan
reported that the Sony corporation used a contraband network
in the continent as a part of its regional strategy.
The dependence of consumers on terror money is evident in
Latin America’s “triborder” region connecting Argentina,
Brazil, and Paraguay. Here, Arabs linked to the Lebanon-based
groups Hamas and Hizbollah run a buoyant money-laundering
business, using drug funds to purchase and smuggle duty-free
products from Central America.
Terror greenbacks
There is also a close connection between the illegal/terror
economy and the United States money supply. Arms, drugs, and
people-smuggling are all cleared in US currency. Since the
primary means of exchange in the US economy is the dollar, in
particular $100 bills, the annual infusion of new US dollars
is a rough indication of the rate of growth of this economy.
Research from the St Louis-based Federal Reserve reveals
that the stock of new dollars issued in the US and permanently
transferred abroad has been steadily rising since the 1960s.
In 2000, as much as two-thirds of the US M1 money supply
(money in circulation) has been removed from the US monetary
system in this way. The amount involved, which does not
include stocks of dollars held by central banks in the form of
reserve currency, is equivalent to $500 billion. If this
assessment is accurate, then the rate of monetary growth of
the illegal/terror economy is higher than that of the US
economy. Indeed, the stock of dollars held abroad is a
considerable source of revenue for the US treasury through seignorage.
The mutual dependence between legal and illegal
economies is so deeply rooted that unilateral measures to
sever them may actually backfire. The Patriot Act, for
example, imposes limits on the operation of non-US banks,
reinforcing existing tax legislation which discriminates
against foreign investors. The resulting perception that
America has become unfriendly to foreign investors has made
the euro appear to many a more secure reserve currency to
“park” capital than the dollar.
The Patriot Act monitors money transfers denominated in
dollars across the world in the effort to curb
money-laundering activities, capital flight and terror
transactions. This may have reduced the flow of illegal and
terror money into the United States. But the absence of
equivalent legislation in Europe means that illegal capital
flows have been diverted there.
Recent currency fluctuations involving the dollar and the
euro may therefore be seen in the light of the shift of
businesses in Asia and Africa, illegal as well as legal,
towards denominating their transactions in euros – avoiding
the restrictions imposed by the Patriot Act. Any attempt to
curb this black economy requires a concerted multilateral
strategy, which will in turn necessitate United States
cooperation rather than confrontation with dollar-holders
around the world.
