Countering the Financing of Terrorism

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In 2004, Kofi Annan stated that terrorism was one of the greatest threats to international peace and security of our time.[1] In 2016, that statement still stands. In the past week we have seen attacks in Jakarta, Istanbul, Burkina Faso and of course, the ever-present attacks in the Middle East.

There are many perspectives from I could write about terrorism but I’ve chosen to focus on one counter-terrorism strategies that is considered one of the best means for identification, prevention and capture of terrorists.[2] A key feature of all counter-terrorism strategies was the need to suppress the financing of terrorism.

So here is a brief overview of the some current CFT frameworks, some of the criticisms that have been made against them and recommendations I posed in a recent paper.

In response to 9/11, the United Nations Security Council unanimously passed Resolution 1373.[3] This resolution established comprehensive and broad counter-terrorism strategies. The United States (US) was responsible for drafting Resolution 1373 and before it was passed, President Bush enacted Executive Order 13224 mirroring this resolution.[4] The EO was expanded in the PATRIOT Act.[5]

UNSC Resolution 1373

UNSC Resolution 1373 has been touted as ‚Äúthe most important and comprehensive counter-terrorism measure ever to be adopted by the United Nations‚ÄĚ.[6]¬†This resolution was unanimously passed by the UNSC in an unprecedented three minute meeting the fortnight after 9/11.[7]

US Legislation

President Bush enacted the EO with the powers of national emergency to avoid the process of moving legislation through congress and pass regulatory measures that had been opposed by financial institutions as too costly and invasive.[8] The US Congress passed the PATRIOT Act a month later, building upon the measures set out in the EO. The US CFT legislation granted extensive powers to financial institutions and law enforcement that specifically pertain to foreign persons, and even foreign financial institutions regardless of jurisdiction.[9]

For the war on financing terror to be more successful, States must balance the delicate considerations of strict CFT regulation while ensuring the protection of civil liberties and supporting developing economies.

  1. The CFT frameworks must be amended to meet international human rights obligations.

The need to protect human rights in combatting terrorism is essential to combatting the root causes of terrorism. Human rights abuses perpetuate grievances and conditions that are conducive to the spread of terrorism.[10]

Some specific issues regarding domestic legislation include a failure to uphold the right to due process in freezing assets, and decisions regarding dual-citizenship or confiscating passports.

For the success of CFT frameworks, there must be a shift to a rights based approach to move away from the optional realm of international security into the obligatory realm of rights and moral duties. The international community has repeatedly affirmed the obligation to uphold human rights in countering terrorism;[11] this must not be lost from the discussion on CFT regulation.

  1. Steps must be taken to ensure that CFT regulation does not cause financial institutions to sever relationships with foreign institutions based on unsupported evidence.

The implementation of CFT regulation in developed countries is interrelated to economic downturn in some developing nations.[12] The economic instability of a nation is widely recognised as a root cause of terrorism,[13] and such economic instability is linked to transnational terrorist attacks, which the CFT regulations were created to avoid.[14]

In 2005, the IMF released a report outlining the causal connection between the withdrawal of financial institutions from developing countries as a result of strict CFT legislation. It provided an example of two US banks that were required to terminate relationships with over 550 foreign financial institutions in Eastern Europe, Russia and the Caribbean because of fears those institutions may have been linked to terrorist financing.[15] The US must be able to strengthen relations and legitimate financial partnerships with more foreign institutions, especially those in developing nations.[16] Amendments can and should be made to lessen the arbitrary severance of financial relationships.

  1. The existing CFT agencies must focus on greater cooperation with other counter-terrorism agencies to have a comprehensive framework

Financing of terrorism is the one area where terrorists have to interact with the non-terrorist world and is one ground where the advantage lies with the counter-terrorism efforts.[17] It is essential that the cooperation between agencies is broadened; a failure to do so will see a repeat of past mistakes. For example, a painful footnote to 9/11 is that some of the hijackers’ financial transactions were serious enough to have been reported but that information did not reach the correct authorities or intelligence agencies until after the tragedy.[18]

Terrorist organisations underlying motivations are not cost-benefit calculations and profit maximization.[19]The financing of terrorist organisations is merely a means to the terrorists’ end. The aim of CFT frameworks is not to end terrorism but minimize organisations’ capacity to conduct large scale attacks.

[1] Report of the Secretary General, 2004.

[2] Aufhauser, D., 2003. The Threat of Terrorist Financing. Written Testimony of General Counsel for Department of Treasury before Senate Judiciary Committee: Subcommittee on Terrorism, Technology and Homeland Security. Washington DC: US Senate.

[3] SC Res 1373, 2001.

[4] Executive Order 13224, 37 WCPD 39, 1358.

[5] Uniting and Strengthening America by Providing Appropriate Tools Required to Interrupt and Obstruct Terrorism (USA PATRIOT) Act, 18 USC (2001).

[6] Comras, V., (2010). Flawed Diplomacy: The United Nations and the War on Terrorism. 1st ed. Dulles, Virginia: Potomac Books.

[7] UN News Centre, 2001.

[8] Milligan, J., 2004. Regulatory Avalanche: Tide of New Regulations is Forcing Banks to Build a True Compliance Culture. Banking Strategies, 80(2).

[9] Baldwin, F., 2002. Money Laundering Countermeasures with Primary Focus upon Terrorism and the USA Patriot Act 2001. Journal of Money Laundering Control, 6(2), pp.105-36.

[10] Club de Madrid, Addressing the Causes of Terrorism. The Club of Madrid Series on Democracy and Terrorism. Madrid: International Summit on Democracy and Security, 8-11 March 2005, pp. 7-12.

[11] UN S/PRST/2010/19, 2010.

[12] Bartlett, B., 2002. The Negative Effects of Money Laundering on Economic Development. Economic Research Report prepared for the Asian Development Bank, published in Platypus Magazine, 77, pp. 18-23.

[13] Club de Madrid, Addressing the Causes of Terrorism. The Club of Madrid Series on Democracy and Terrorism. Madrid: International Summit on Democracy and Security, 8-11 March 2005, pp. 7-12.

[14] Blomberg, S., Hess, G.D., & Orphanides, A., 2004. The Macroeconomic Consequences of Terrorism.Journal of Monetary Economics, 51(5). pp.1007-1032.

[15] Johnston, B., & Medelescu, O. (2005). The Impact of Terrorism on Financial Markets. Washington DC: International Monetary Fund.

[16] Sandler, T. & Enders, W., 2008. Economic Consequences of Terrorism in Developed and Developing Countries: An Overview. In Keeder, P., & Loayza, N., eds. Terrorism, Economic Development & Political Openness. Cambridge: Cambridge University Press. pp.14-47.

[17] Barrett, R., 2001. Time to Re-examine Regulation Designed to Counter the Financing of Terrorism.Case Western Reserve Journal of International Law, 41(7). pp.7-18

[18] Levitt, M., 2003. Stemming the Flow of Terrorist Financing: Practical and Conceptual Challenges. The Fletcher Forum of World Affairs. 27(1). pp.59-70.

[19] Serrano, M., 2004. The Political Economy of Terrorism. In J. Boulden & T. Weiss, eds. Terrorism and the UN: Before and After September 11. Bloomington, Indiana: Indiana University Press. pp.198-218.

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