GAO-04-163 Terrorist Financing: U.S. Agencies Should ...

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GAO-04-163 Terrorist Financing: U.S. Agencies Should ...

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GAO

November 2003

GAO-04-163

United States General Accountin Office     Report to Congressional Requesters                  

TERRORIST  FINANCING 

U.S. Agencies Should Systematically Assess Terrorists’ Use of Alternative Financing Mechanisms     

  

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      Highlights ofGAO-04-163, a report to congressional requesters

Cutting off terrorists’ funding is essential to deterring terrorist operations. The USA PATRIOT Act expanded the ability of law enforcement and intelligence agencies to access and share financial information regarding terrorist investigations, but terrorists may have adjusted their activities by increasing use of alternative financing mechanisms. GAO was asked to assess (1) the nature of terrorists’ use of key alternative financing mechanisms for earning, moving, and storing terrorists’ assets; (2) what is known about the extent of terrorists’ use of alternative financing mechanisms; and (3) challenges that the U.S. government faces in monitoring terrorists’ use of alternative financing mechanisms.   GAO recommends that (1) the Director of the FBI systematically collect and analyze data concerning terrorists’ use of alternative financing mechanisms; (2) the Secretary of the Treasury and the Attorney General produce the planned report based on up-to-date law enforcement investigations on precious stones and commodities; and (3) the IRS Commissioner establish interim procedures for sharing information on charities with state charity officials. The DOJ did not formally respond to our recommendation. The Treasury agreed to produce the planned report and IRS committed to expedite issuance of procedures. www.gao.gov/cgi-bin/getrpt? GAO-04-163.   To view the full product, including the scope and methodology, click on the link above. For more information, contact Loren Yager at [phone] or [e-mail].

Terrorists use many alternative financing mechanisms to earn, move, and store assets (see table). They earn assets by selling contraband cigarettes and illicit drugs, by misusing charitab le organizations that collect large donations, and by other means. They move funds by concealing their assets through nontransparent mechanis ms such as charities, informal banking systems, and commodities such as precious stones and metals. To store assets, terrorists may choose similar commodities that maintain their value and liquidity.   The extent of terrorists’ use of alternative financing mechanisms is unknown, owing to the criminal nature of terrorists’ use of alternative financing mechanisms and the lack of systematic data collection and analysis of case information. The Federal Bureau of Investigation (FBI) does not systematically collect and analyze data on these mechanisms. Furthermore, the Departments of the Treasury and of Justice have not yet produced a report, required under the 2002 National Money Laundering Strategy, which was to form the basis of a strategy to address how money is moved or value transferred via trade in precious stones and commodities.   In monitoring terrorists’ use of alte rnative financing mechanisms, the U.S. government faces a number of challenges, including accessing ethnically or criminally based terrorist networ ks, targeting high-risk financing mechanisms that the adaptable terrorist s use, and sharing data on charities with state officials. The Internal Re venue Service (IRS) has committed to, but has yet to establish, proce dures for such data sharing.   Examples of Alternative Financing Mechanisms That May Be Used to Earn, Move, and Store Terrorist Assets Alternative financing mechanisms  Earning Moving Storing Trade in commodities      Illicit drugs X  Weapons X    Cigarettes X  Diamonds X  X X  Gold  X X Systems       Charities X  X  Informal banking  X Currency      Bulk cash  X X Sources: GAO analysis based on government, industry, and research sources.

Contents

Letter

Appendix I Appendix II Appendix III Appendix IV

Tables

Figures

 

       

  Results in Brief Background Terrorists Use Various Alternative Financing Mechanisms to Earn, Move, and Store Their Assets Extent of Use of Alternative Financing Mechanisms Is Unknown Key Challenges Impede Monitoring of Terrorists’ Use of Alternative Financing Mechanisms Conclusions Recommendations for Executive Action Agency Comments and Our Evaluation Objectives, Scope, and Methodology   Comments from th e Department of the Treasury GAO Comments Comments from the Internal Revenue Service   GAO Contacts and Staff Acknowledgments GAO Contacts Staff Acknowledgments  

Table 1: Key U.S. Government Entities Responsible for Deterring Terrorist Financing Table 2: Examples of Alternative Financing Mechanisms That May Be Used to Earn, Move, and Store Terrorist Assets  

Figure 1: Hizballah Financiers Earn Assets through Cigarette Smuggling Figure 2: Location of Benevolence International Foundation Offices Worldwide

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Figure 3: Example of Hawala-type Transaction                           Abbreviations ATF Bureau of Alcohol, Tobacco, Firearms, and  Explosives DEA Drug Enforcement Administration DHS Department of Homeland Security DOJ Department of Justice FBI Federal Bureau of Investigation FinCEN Financial Crimes Enforcement Network HAMAS Harakat al-Muqawama al-Islamiya–Islamic  Resistance Movement ICE Bureau of Immigration and Customs Enforcement INTERPOL International Criminal Police Organization IRS Internal Revenue Service OGQ Operation Green Quest TFOS Terrorist Financing Operations Section U.N. United Nations USA PATRIOT Act Uniting and Strengthening America by Providing  Appropriate Tools Required to Intercept and Obstruct  Terrorism Act

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United States General Accounting Office Washington, DC 20548

November 14, 2003 The Honorable Richard J. Durbin Ranking Minority Member Subcommittee on Oversight of Government Management,  the Federal Workforce and the District of Columbia Committee on Governmental Affairs United States Senate The Honorable Charles E. Grassley Chairman Caucus on International Narcotics Control United States Senate U.S. government officials recognize that cutting off terrorists’ funding is an important means of disrupting their operations. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (USA PATRIOT Act), 1 enacted shortly after the terrorist attacks of September 11, 2001, expanded the ability of law enforcement and intelli gence agencies to access and share financial information regarding terror ist investigations. As initial U.S. and foreign government deterrence efforts focused on terrorists’ use of the formal banking or mainstream financ ial system, terrorists may have been forced to increase their use of various alternative financing mechanisms. These mechanisms enable terrorists to earn, move, or store assets and may include a variety of commodities and informal financial systems. You requested that we review what is known about terrorists’ use of alternative financing mechanisms. 2 In response, in this report we assessed (1) the nature of terrorists’ use of key alternative financing mechanisms for earning, moving, and storing terrori sts’ assets; (2) what is known about the extent of terrorists’ use of alternative financing mechanisms; and (3) the challenges that the U.S. government faces in monitoring terrorists’ use

                                                                                                                                     1 Pub. L. No. 107-56 (Oct. 26, 2001). 2  international organizations with the will andTerrorists are individuals who are part of means to target the United States or U.S. interests abroad with violent or dangerous acts calculated to intimidate, coerce, or retalia te against government conduct (see 18 U.S.C. 2331(1), 18 U.S.C. 2332b(g)(5)).

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GAO-04-163 Alternative Financing Mechanisms