Any effort to mitigate the threat of terrorism must account for the economics as well as the politics of the terror trade. Terrorism in the age of globalization, no matter how cost-effective, must find the financing for its operation within the framework of the free-market climate of the global economy. The present estimate of the cost of the 9.11 terror attacks stands at approximately a half million dollars(1); a negligible sum in the world of global finance. The paltriness of this figure is further evidenced by the provision of this funding through various transfers from undisclosed foreign accounts in sums that fall far below the threshold of regulatory awareness.
The aim of this study is to show why the current attempts to curb terrorism by regulatory mechanisms for asset transfer is misdirected. I propose that the level of assets transferred, together with the methods by which these funds often reach their destination belies the conventional wisdom that it is possible to cut the financial lifeline of terrorism. By highlighting the correlation between insufficient economic development and political violence in certain geographic regions I will put forward a model of behavior describing a symbiotic relationship between terror network propagation and poverty. Instead of focusing efforts in the economic sphere towards regulating informal asset transfer, a drive to fund long-term sustainable development and alleviate conditions of poverty holds the most promise for countering the threat of terrorism.
In speaking of the need to support the Marshall Plan, Dean Acheson called for Americans to "Do well by doing good". American efforts at economic aid to rebuild Europe went a long way to ensuring a solid base of support for US efforts during the Cold War. In the light of the new war in which America has declared itself engaged, what better way to engender multilateral support than to offer aid to impoverished regions themselves both suffering and supporting terrorism? Pressure to effect coupled with funding to support sustainable development at a much higher rate than that currently designated by the US would do more than any number of asset transfers regulatory mechanisms to curb terrorism.
I present the hypothesized model of the Al-Qaeda financial network to illustrate the nature of the network framework against which intended regulation is intended to operate. What should be clear from the outset is that even if regulatory mechanisms on transfer of assets were successful, a sufficient number of alternative options to finance are readily available for the terrorists' use to raise the required capital to carry out to realize the demand for terror that exists.
A recent article by the New York Times(2) presented the various facets of the Al-Qaeda operational financing framework . Three main origin points for organization finance were put forward: legitimate business, charitable organization (donations) and illegal activity. Examples of legitimate business provided include a bakery, a cattle-breeding concern, and a construction company. It is important to note that the operation of such institutions as yet unidentified is likely to fall outside the scope of the regulatory mechanisms intended to constrain terrorist asset transfer. Charitable organizations present a political nightmare for regulation. Differentiating the authentic from the somewhat terror affiliated, to the clearly front arrangements for garnering necessary capital is potential boon for the demand side of terrorism while offering little hope of regulation under the supply-side formulation. Illegal activity as a financing mechanism is the only one of the three resources that would potentially be governable or at least controllable to a degree by the proposed regulatory framework. At the same time that this situation would seem to make the case for regulation, the methods by which the funds themselves are transferred presents a very different picture.
Hawala is centuries-old method of asset transfer predominantly employed in South Asia. A large percentage of foreign transfers, usually from immigrant workers outside their home countries to relatives, to Pakistan, Afghanistan, the Central Republics of the Former Soviet Union, and India occur through hawala brokers. The reasons for this include the ease of transfer, the much cheaper cost (there is normally a flat fee as opposed to a percentage charge as employed by traditional asset transfer mechanism such as banks and / or credit unions) and the assurance that the person at the receiving end will be able to easily access the funds sent. Recent talk in the US congress of regulating the hawala trade is a laughable example of how little the mechanisms of terrorist financiers are understood by those intending to control them. Should the hawala trade by regulated, a goal doubtful to be realized, it is likely that the transfer of assets for terrorist operations would find alternative means by which to achieve their goals.
What the structure of Al-Qaeda's economics presents is a nebulous and highly flexible system of financing that is largely self-perpetuating. The requirement of cells to be self-sustaining in target countries suggests that even if regulation could be applied to the third of the resource base whose sphere is presently known, the curtailment of terrorist operations could not be a direct result or even a long-term expectation.
It is useful to imagine terror as an economic good with a high degree of supply elasticity. Supply will decrease given heightened costs for terror action, but only to a point. A complete elimination of the supply of terror demanded is not only impractical, the history of the previous three waves of terrorism indicate it to be an unattainable goal.
If one assumes propaganda to be a critical mechanism by which to catalyze operational financing through donations / contributions, more stringent regulation and pro-active counter-terror operations are counterproductive to the ends of eliminating terrorism. While such measures may in the short-term lessen the supply of terror to the "market", the demand side has not only been ignored, but has possibly been increased by the propaganda value that such measures could potentially provide to terrorist networks. An abrogation of pro-active policies to counter the supply-side of terror is not a viable solution to the issue. At the same time, excessive zeal in prosecuting terrorism, a la the arguably misspoken "crusading" that President Bush has proposed, threatens to offset the gains of supply side terror efforts (regardless of their minimal opportunity for success) with a demand side growth in terror. A compromise between the two extremes, between the "wishful neglect and wasteful exaggeration"(3) of counter-terror policy is necessary. I suggest that this compromise necessitates a demand side approach through development efforts.
The costs in question, while both economic and political, can be seen to negatively impact the supply side of the terror industry exclusively. Essentially, the end result of counter-terror policies can at most be a diminution in the supply of terrorism demanded, not an actual reduction in the demand for terrorism. It is possible to imagine increased counter-terror mechanisms exacerbating the conditions that fuel the demand for terrorist action. In a world with virtually completely efficacious counter-terrorist policy the threat of terror being supplied (terrorist incidents) has not been solved, merely temporarily suppressed. What is needed beyond counter-terror policy aimed at prevention and timely risk-assessment is a policy of anti-terrorism that addresses the root of the problem: demand for terror.
(1) Huban, Mark.. "Special Report Inside Al-Qaeda". Financial Times of London. November 29, 2001. Pg. 10.
(2) Eichenwald, Kurt. "Terror Money Hard to Block, Officials Find". New York Times. Dec 10, 2001.
(3) Ilke, Fred C. "An argument for homeland defense". The Washington Quarterly. Vol. 21 no2. Spring 1998. Pg.9.