«Strategic Insights is a monthly electronic journal produced by the Center for Contemporary Conflict at the Naval Postgraduate School in Monterey, ...»
The Mirage of Terrorist Financing: The Case of Islamic Charities
Strategic Insights, Volume V, Issue 3 (March 2006)
by Robert Looney
Strategic Insights is a monthly electronic journal produced by the Center for Contemporary
Conflict at the Naval Postgraduate School in Monterey, California. The views expressed here are
those of the author(s) and do not necessarily represent the views of NPS, the Department of
Defense, or the U.S. Government.
For a PDF version of this article, click here.
“We operate every day with the knowledge that our enemies are changing based on how we change.”—Tom Ridge, Secretary of Homeland Security, March 31, 2004 “Bin Laden understood better than most of the volunteers the extent to which the continuation and eventual success of the jihad in Afghanistan depended on an increasingly complex, almost worldwide organization. This organization included a financial support network that came to be known as the 'Golden Chain put together mainly by financiers in Saudi Arabia and the Persian Gulf States. Donations flowed through charities or other nongovernmental organizations (NGOs).” —The 9/11 Commission Report Introduction Despite the concerted efforts of Western intelligence agencies, considerable mystery and intrigue cloaks the financing of contemporary terrorist organizations, especially those originating in the Middle East. The case of al Qaeda is typical. We know more today than we did three years ago about that organization’s financial methods and structure, but we have not identified much about its sources of supply and funding. Similarly, much of what we think we know may only be conjecture, or as the quotation from Tom Ridge above suggests—obsolete. The same gap in our knowledge applied to an even greater extent to many of the lesser known but equally violent terrorist groups throughout the region.
An often cited estimate places al Qaeda spending at around $30 million per year to sustain itself in the period preceding 9/11. “But it is even less clear what al Qaeda needs or expends today.
And we still do not know with any precision just how much money al Qaeda raises, or how its funds are allocated.”  What we do know with some degree of certainty is that terrorist groups such as al Qaeda have traditionally relied on Islamic charities for much of their funding.” The same is true for many like-minded terrorist groups throughout the Middle East.
The crux of the matter in combating the exploitation of Islamic charities by terrorist organizations comes down to the fact that the act of charity forms a very important part of Muslim law and tradition. There is a recognized religious duty in the Muslim world to donate a set portion of one's earnings or assets to religious or charitable purposes (Zakat), and additionally, to support charitable works through voluntary deeds or contributions (Sadaqah).
In countries having no established income tax system (for example, Saudi Arabia or the United Arab Emirates), the Zakat substitutes as the principal source of funding for religious, social and humanitarian organizations. Funds are collected by the government, local mosques or religious centers. Sadaqah contributions are made directly to established Islamic charities. Because both Zakat and Sadaqah are viewed as personal religious responsibilities, there has traditionally been little or no government oversight of these activities. Donations in large measure remain anonymous. Both conditions combined with the often opaque financial and operating structure of Islamic charities provide an ideal environment for exploitation by terrorist groups.
Charitable organizations are also attractive targets for terrorist organizations because of the reluctance on the part of many countries to rigorously scrutinize their activities. Often with limited information, authorities are put in the awkward position of being pressured to discern between legitimate charity organizations and activities, those organizations that are unknowingly used by terrorists to divert funds, and others deliberately engaged in supporting terrorist groups. Leaders of the latter organizations often raise funds both from individuals purposely seeking to fund terrorist groups as well as from innocent contributors unwitting of the group’s links to terrorists. The sections below examine the exploitation of charities by terrorist groups. In what ways do terrorist groups exploit these organizations? Is this exploitation likely to increase? If so what forms might it take? Are existing policies sufficient to combat these developments? If not, how might the United States and other like-minded countries counter the evolving methods terrorists use to advance their cause through the exploitation of charities?
Issues Surrounding Islamic Charities
The primary function of Islamic charities is to provide basic goods and services to communities in a manner deemed consistent with the values and teachings of Islam. This includes medical services through local clinics and hospitals, K-12 schools, universities and colleges, orphanages, vocational training centers, subsidies for poor families, and other grassroots activities. Islamic charities also collect donations to help Muslims outside their own country in places such as the Palestinian territories, Bosnia, Chechnya, and Kashmir.
Donations of this type have created problems for law enforcement in the war on terrorism because of the difficulty of determining whether money collected for a particular cause (helping the Palestinians rebuild their cities after the recent Israeli incursions, for example) is actually used for the originally specified purpose. In this sense diverting money through charities to terrorist organizations differs fundamentally from that of money laundering: The criminal phenomenon of money laundering can be described in practical terms. In the case of terrorist financing through the exploitation of charities, however, only the theory is clear: it is the reverse of money laundering. While money laundering is concerned with laundering assets of illegal origin and bringing them back into legal economic circulation, charity-based financing of terrorism is concerned with using legal assets for an illegal activity, namely terrorist attacks. In other words, with money laundering the illegal activity can be located at the beginning of the process whereas in terrorism financing the entire process is reversed.
Governments in the Middle East have shown great creativity and resourcefulness at preventing charities from raising money to overthrow them, but they are far less effective in making sure that money is not "redirected" once it leaves the country.
In some cases, Islamic charities have explicitly raised money for causes that threaten current U.S.
government policy. Many Muslims, for example, especially those in the Middle East, view movements such as Hamas and Hizballah as national liberation movements, not terrorist organizations. As a result, Islamic charities have solicited funds for what they term "resistance to the Israeli occupation."
But Hamas and Hizballah are fundamentally different from al-Qaeda. They are nationalist Islamic movements that operate hospitals and schools, oversee charities, and run in local elections. AlQaeda, on the other hand, is a transnational revolutionary movement. Few Islamic charities publicly call for donations to groups like al-Qaeda. Even al-Qaeda fronts do not openly request money for violent activities. Instead, they seek donations for general charitable calls and only later siphon the money to terrorist operations.
The vast majority of Islamic charities, however, represents moderate Islamic interests and seeks to implement the Quranic injunction to help others in need. In a sense, Islamic charities provide Muslims with an opportunity to put into practice the commands of God and fulfill their duties as Muslims. In this sense they are central in demonstrating that "Islam is the solution" (a common Islamist campaign slogan) to a myriad of widespread social ills. Islamic charities provide a visible example of how Islam can be put to work to improve society and alleviate socioeconomic stagnation in the Muslim world.
Charity Exploitation by Terrorist Groups
Following the September 11 attacks, U.S. and allied counterterrorism agencies turned their scrutiny to Muslim charities—resulting in the eventual closures of several. For some of the reasons noted above, these have been difficult cases for the government. In large part this stems from the fact that the Islamic charities fall into two categories: those that have had their funds unknowingly diverted and those that have been corrupted and act as fronts. Several conceptual problems arise in assessing the extent to which Islamic charities have been exploited by terrorist groups. Clearly the direct financial support of terrorist groups and their operations are clear-cut cases. On the other hand money is quiet fungible and some charity organizers are adept at creating gray areas.
A good example of this gray area is the Muslim World League (MWL) founded by Saudi Arabia in Mecca in 1962. The Saudi government provided the MWL with generous funding and charged it with the support and propagation of Wahhabi Islam. In turn the MWL supported institutions outside of Saudi Arabia, especially in Afghanistan, Pakistan, Southeast Asia and the Middle East.
The organization also became active in Europe–including countries of the former Soviet Union– and North America.
Saudi public and private support for these activities has been estimated at over $75 billion during the last four decades. Many experts have drawn a link between this conversion effort and the rise in appeal of al Qaeda throughout the Muslim world. The line from Wahhabism to jihadism is a very thin one that is easily crossed, both religiously and intellectually. A not so gray area, but still one not falling in the category of direct support to terrorist groups is illustrated by the Holy Land Foundation for Relief and Development. This charity based in Texas raised $13 million in the United States in 2000 claiming that the money it solicited went to care for needy Palestinians, although evidence shows that Hamas used some of the money that the Foundation raised to support suicide bombers and their families. It is usually difficult to prove that a charity actually was founded with the intention of supporting terrorist groups, or that officials knowingly did so. As a result, counterterrorism officials and many Muslim donors are left virtually grasping at straws and seeking novel ways at overcoming the fungibility problem—halting the flow of money to the direct or indirect support of terrorist groups. Investigators have few tools to help them distinguish between legitimate and illegitimate organizations, but some clues—such as the charity's national origins—can be helpful. Though certainly not fool-proof, another possible starting point for identifying unscrupulous charities is to search for those that are issues-based, rather than more general, charitable organizations. For example, a group whose ideological purpose is to donate monies to the plight of the Palestinian people is far more likely to funnel money to Hamas, simply on the strength of its more intimate relationship with the region and groups involved with the same issue, than a group with a more global focus—such as the Islamic Circle of North America, which has provided relief to people in Sudan, Bangladesh, Ethiopia and to victims of Hurricane Francis. That is not to say that issuesbased groups are corrupt and general charities are not, but it is one possible indicator that law enforcement agencies can monitor. Accountants and financial investigators also can watch for anomalies. For instance, if an issuespecific charity donates a disproportionate amount to a seemingly unrelated issue or group, it likely would raise red flags for an investigator. Other anomalies in giving patterns could include new areas of concern for a general-purpose charity, signs that a U.S.-based charity is ignoring local causes in favor of funding trans-national relief efforts, or an organization that is recruiting volunteers to act on its behalf outside the group's traditional—either geographic and ideological— area of responsibility. This method of monitoring—recommended by the Financial Action Task Force on Money Laundering and adopted by the United Nations—has resulted in several arrests.
Clearly, however, clues are not proof of any illegal behavior. When it comes to charities suspected of terrorist involvement, at what point can a series of independent actions be said to indicate coordinated and malevolent intent? And if they do in fact indicate such intent, what should be done about it? In all cases, further investigation would be needed in order to support the case for an arrest warrant or subpoena that eventually could be used to put the charity out of business.
As a way of organization, the main sources of terrorist funding are outlined in Figure 1. Here charities are assumed to play a key role, with funds also derived from legitimate businesses and fraudulent/criminal activi ties.
Al-Qaeda has no doubt been the most successful of the terrorist organizations at exploiting Islamic charities and non governmental organizations. NGOs. The organization has penetrated several hundred madrassas (Islamic schools), mosques, and NGOs engaged in Islamic education, promotion of human rights, and health and relief projects. These Islamic NGOS form a visible part of a much larger invisible network. As the sections above show, the infiltration of these groups by al-Qaeda and its associates poses both a significant threat to Islamic NGOs and at the same time one of the main challenges facing the security and intelligence community in combating terrorism.
Before coming under increased scrutiny prior to 9/11, al-Qaeda either established or infiltrated Islamic NGOs for four principal reasons:
• One-fifth of all NGOs conducting humanitarian work world-wide are Islamic. Such charities have established an active presence in every country in the world with a sizeable Muslim population. In addition to providing excellent cover and global reach, Islamic NGOs enable al-Qaeda to radicalize and mobilize Muslim communities to support its aims.