Defeating Terrorism Through Financial Regulation

In the midst of the search for new concepts in countering terrorism and preventing violent extremism, the financial lifeline of terrorist networks is in the focus. No terrorist organisation, neither al-Shabaab nor Daesh (ISIS) or Boko Haram is able to operate without resources, including money.

As with most regular armed groups, fighters have to be paid and equipment needs to be purchased. If the group aims at controlling territory, then, financial cushions are even more important. While putting the focus on illicit financial flows, it is important to manage expectations.

As with all financial transactions in the shadows, illicit financial supply for terror networks are opaque and mostly undocumented (unregistered). Not unlike the work of organised crime, filtering illicit financial flows to terrorist networks is a work of sisyphean dimensions, hardly wielding the expected results. Nevertheless, the Financial Action Task Force of the United Nations, UN Security Council Resolutions 2,195 (2014), UN Sanction mechanisms and other instruments are in place, actively defying the illicit transactions.

In trying to control the flow of finance to terrorist groups, it is useful to differentiate the various channels. Like any armed opposition, terrorist organisations have supporters who sponsor their operations. Direct financial transactions through mobile or laundered money are hard to trace, yet tracking money through the banking system is possible.

Terrorist organsiations are sometimes part of organised crimes networks and generate money through the smuggling of contraband, drugs, diamonds, ivory, human trafficking, arms trafficking and kidnapping for ransom. These networks are large and well-connected, but can be internationally traced through global oversight organisations. Yet, enforcement of laws is difficult.

Income generated by terrorist organisations by raising taxes, collecting fees on road blocks or engaging in trade is well-documented. Groups who can collect taxes normally also control the territory which makes any sort of law enforcement difficult.

In order to engage in a successful counter strategy on illicit financing of terrorist activities, differences in structure and local ties of each the groups are of importance. To exemplify this, Somalia and the jihadist group al-Shabaab could be examined to show the difficulties in tracing illicit flows despite all the efforts.

Terrorist organisations in Africa have a number of factors in common, however, their local origins and specificities should not be overlooked. As a general rule, most of these groups feed in local conflicts in combination with extremely weak (Somalia) or neglecting states (Northeastern Nigeria, Sahel). Local grievances, marginalisation and the lack of access to power and resources are drivers to almost all conflicts.

The moral legitimization for the use of violence in jihadist ideology along with forced recruitment are additional factors explaining the growing number of followers of jihadist movements. But the followers and actors of a jihadist organisations, such as al-Shabaab or Boko Haram, are different and hence instruments to de-radicalize need to be tailored to these differences. Somali followers of al-Shabaab might be intrigued by the payment – apparently 500 dollars are paid per month by al-Shabaab for its fighters – while for Diaspora and foreign fighters, the global jihad and the ability to revenge the perceived war against Muslims are drivers to join. The ability to provide for one’s family is not only a different mobiliser than the goal to erect a Caliphate, but also requires different instruments to counter violent extremism.

The example of al-Shabaab shows the complexity of any response to violent extremism. ‘Following the money’ appears as a direct yet non-violent response which hits as hard as a military operation, but does not target bystanders and civilians. However, as in the case of Somalia, these lines are shifting. A comprehensive approach is needed, taking into consideration between the different actors, the political environment as well as the limitations of military, economic or legal instruments separately.

Even if illicit financial supply lines are investigated and proved, it requires a functioning state apparatus, independent judiciary, sustainable economy and strong societies to stop these supply lines. None of these is currently available in Somalia, for example.

Jihadist organisations such as al-Shabaab do not publish their budgets, their financial support or their tax-revenue. Yet, just like a government, al-Shabaab does collect taxes. The reports of the UN Monitoring Group on Eritrea & Somalia, established to follow the link between al-Shabaab and the Eritrean government, show in 2011 – at the height of their operations – a revenue of 70 million dollars to 100 million dollars for al-Shabaab. In comparison, the 2011 gross domestic product (GDP) of Somalia was roughly 68 million dollars.

Allegedly al-Shabaab extorts 10pc from humanitarian organisations. They tax more than 4,000 businesses operating on the Baccarat market. Piracy tax was estimated to be 15pc to 20pc and then there is the income from road blocks and taxation for livestock trade. Moreover al-Shabaab is collecting money through charities, via the Internet, through friendly organisations, such as al-Hijra Youth Centre in Kenya, according to the UN.

Al-Shabaab is also involved in the sugar trade to Kenya, was leading the charcoal trade from Somalia to the Gulf, had revenues collected from Somali pirates and was given direct donations by individuals from the Gulf. However, only one Quatari-based supporter, channeling 250,000 dollars, is in the US Treasury’s designation order. In addition to this, al-Shabaab is accused of being involved in the ivory trade from the Central African Republic (CAR), South Sudan and Kenya as well as in smuggling of contraband from the Far East to East Africa. The UN Monitoring Group alleged that until 2011 al-Shabaab commanders were involved in the arms trade with Eritrea, with roughly 40,000 dollars to 60,000 dollars monthly channeled through Eritrean embassies in the region as well. Chatham House reports have raised the alert to a multimillion dollar shadow business on the Gulf of Aden, including smuggling, trafficking and money laundering.

Lastly, the amount of remittances from the Somali Diaspora to Somalia is estimated to be 1.4 billion dollars annually. How much of this is directly wired to al-Shabaab or sent to relatives who extort taxes in al-Shabaab controlled territory cannot be established. And it should not be forgotten that there is the money taken from the official budget of the Somali government by corrupt civil servants and those who are government as well as al-Shabaab. With a government heading the corruption indices and sub-national powers acting outside of the central state legislation, the Somali political culture is hardly an archetype of accountable financial management. But compared to many economies in the region, al-Shabaab is flexible, diversified and quickly adapting to a changing environment.

The difficulties with illicit financial support of terrorist activities are manifold; the opaqueness of the transactions is enabled by the inter-weave of jihadists in all aspects of politics, economy, trade, security and society at large. International cooperation and exchange of information are crucial. However, given the absence of an infrastructure of governmental financial institutions, including a financial intelligence unit (FIU), enforcement is not very likely.

There are, however, possibilities to tackle the flow of finances for terrorist operations through Financial Intelligence (FININT) and the Financial Action Task Force (FATF). These instruments are expedient to follow the money through the data gathering of the financial service industry. To dry out the financial cushion of al-Shabaab, and other terrorist organisations, the approach would have to be much more diversified, taking into consideration their diversified business model as well as the real existing grievances driving people to support the organisations.


By Annette Weber
Annette Weber (PhD) is senior fellow at the German Institute on International & Security Affairs. This commentary is published under a collaborative project of Fortune, Vita/Afronline and African newspapers.

Published on May 10,2016 [ Vol 17 ,No 836]



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