One of the first money-related organizations shut down by the United States after September 11 was a family of financial institutions known as Bank al Taqwa. The bank, as reported, was deeply involved in transferring and laundering funds to Al Qaeda operatives.
A few months later, in December 2002, the authorities raided the Chicago offices of a Saudi-based charity, The Benevolence International Foundation. The government agents seized videos, some literature glorifying martyrdom and a large cache of documents revealing that huge funds were missing and that the charity’s officials were involved in “spreading jihad” in Bosnia and Chechnya.
Between these two operations, the US had realized that the war on terror would not be limited to boots on the ground. The finance related laws and a handful of UN resolutions then in place for the suppression of terror financing were clearly inadequate. A new plan required a clear-eyed, ‘all options on the table’ approach to counter the phenomenon of terrorist financing.
It was also determined that many of the charitable and service organizations serving as fronts for international terrorist groups grew out of the network of organizations established to provide funding, material, and recruits to the mujahideen fighting the Soviets in Afghanistan. This practice had continued even after the Soviet war was over. The web of poorly regulated entities empowered terrorist organizations and their splinter groups to act independently with an unchecked flow of funds through shady charities. Osama bin Laden had called it “the Golden Chain.”
Such organizations had relied on hawala or hundi, an informal system of money remittances. As soon as the banking structure tightened its laws and narrowed down the transfer system, terrorist financiers adopted less well-regulated, formal entities like exchange houses or bulk movement of cash under pseudonyms or made-up job descriptions.
The State Department’s Coordinator for Counterterrorism Report in 2002 noted that “terrorist organizations can bore into any legitimate enterprise to try to divert money for illegitimate purposes.” The next targets were charities abusing humanitarian causes and other untrustworthy non-govenrmental organizations. These outfits were using the money donated to them, for humanitarian purposes, to actually fund death and destruction.
These charity groups enjoyed tremendous leeway, as explained to Washington Institute for Near East Policy’s Mathew Levitt by a senior US official. First, the official said, the fraud inherent in the abuse of charities was an egregious abuse of people’s trust and a distortion of the Islamic charitable obligation of zakat. Second, the humanitarian nature of most of these charities and service organizations placed their offices and employees on the ground in conflict zones of particular interest to terrorist organizations without raising undue suspicion. Third, charities provided an outlet not only for raising significant amounts of money, but, even more critically, were ideal vehicles for laundering funds.
It’s was an “especially painful reality that no counterterrorism technique or effort, however extensive, international, or comprehensive, will put an absolute end to such attacks or uproot terrorism,” Levitt later wrote in one of his articles about terrorist financing.
True. And it was this salient fact that made the anti-money laundering efforts much harder.
Combating various forms of illicit finance required constant vigilance and a flexible approach, because the threat was both persistent and ever-changing. So the updated resolutions required almost all the US government departments, UN subsidiaries and almost all other nations to be included in the efforts to fight off money-laundering. One of the watch-dogs known as FATF - the Financial Action Task Force - was given the responsibility to examining money laundering techniques and trends, reviewing the action taken at a national or international level and setting out new measures.
The continued evolution of money laundering techniques led the FATF to revise its standards comprehensively, and according to which it blacklisted Pakistan for a while for not following through. The country feared UN sanctions.
Pakistan’s new Action Plan assured the international partners that State Bank has enforced an anti-money laundering policy to its fullest. FATF issued a statement in February 2015 saying that the country has made significant progress in improving its AML/CFT (Anti-Money Laundering/ Combating the Financing of Terrorism) regime and noted that “Pakistan has established the legal and regulatory framework to meet its commitments in its action plan regarding the strategic deficiencies that the FATF had identified in June 2010.”
The FATF, the Treasury Department and other security-related divisions gather public as well as intelligence-based information to draft and impose legislations outlawing money laundering and enforcing stiffer penalties. Recently, the US warned the Pakistan government to direct the Federal Bank and private banks to close down shady accounts. One of the banned religious organizations had used its charity front to publish an advertisement in a local newspaper asking for money. The account was dealt with immediately, according to a high-profile Pakistani official.
Pakistan still faces many challenges in its tracking system where banned organizations and charity outfits appear with other names and titles. Finance Minister Ishaq Dar admitted last December that the country’s security and law enforcement agencies lack proper training to investigate the financing of terrorist activities. He held a subcommittee meeting, constituted after the APS-Peshawar attack, and asked the meeting participants to propose measures to prevent financing for terrorist organizations. The meeting was told that there wasn’t even a system to maintain data on prosecutions carried out by law enforcement, which could be shared with other agencies.
Dar said that there was a need to promote legal channels for the transfer of money within and from outside the country, adding that “it will help us to completely discourage hawala and hundi system.”
This seems shocking since the SBP had claimed back in 2012 that it had taken measures to check possible financing of terrorist activities and had frozen 128 bank accounts and seized over Rs750 million. According to reports the current government also informed the Senate Standing Committee on Finance in January 2015 that more than one billion rupees worth of accounts of banned organization had been frozen in Pakistan in order to implement the UN resolutions on curbing terrorist financing.
From designating Al Akhtar Trust - a Pakistan based charity allegedly financing al Qaeda - a “terrorist entity” in 2003 to imposing sanctions on Al Furqan Foundation Welfare Trust - another Pakistan based charity accused of financing violent extremism in Afghanistan and Pakistan - in 2015, a close coordination between the US and Pakistan necessitates unabated trust. Its counterterrorism successes are dependent on increased international cooperation, intelligence sharing, and anti-terror legislation, while carrying out operations not just against terrorist groups, but also individuals who donate money or support financially terrorist organizations via different legal or illegal means. Pakistan needs to act more independently and rely less on US pressure to take any action against dubious organizations.
A few months later, in December 2002, the authorities raided the Chicago offices of a Saudi-based charity, The Benevolence International Foundation. The government agents seized videos, some literature glorifying martyrdom and a large cache of documents revealing that huge funds were missing and that the charity’s officials were involved in “spreading jihad” in Bosnia and Chechnya.
Between these two operations, the US had realized that the war on terror would not be limited to boots on the ground. The finance related laws and a handful of UN resolutions then in place for the suppression of terror financing were clearly inadequate. A new plan required a clear-eyed, ‘all options on the table’ approach to counter the phenomenon of terrorist financing.
Charities are ideal vehicles for laundering funds
It was also determined that many of the charitable and service organizations serving as fronts for international terrorist groups grew out of the network of organizations established to provide funding, material, and recruits to the mujahideen fighting the Soviets in Afghanistan. This practice had continued even after the Soviet war was over. The web of poorly regulated entities empowered terrorist organizations and their splinter groups to act independently with an unchecked flow of funds through shady charities. Osama bin Laden had called it “the Golden Chain.”
Such organizations had relied on hawala or hundi, an informal system of money remittances. As soon as the banking structure tightened its laws and narrowed down the transfer system, terrorist financiers adopted less well-regulated, formal entities like exchange houses or bulk movement of cash under pseudonyms or made-up job descriptions.
The State Department’s Coordinator for Counterterrorism Report in 2002 noted that “terrorist organizations can bore into any legitimate enterprise to try to divert money for illegitimate purposes.” The next targets were charities abusing humanitarian causes and other untrustworthy non-govenrmental organizations. These outfits were using the money donated to them, for humanitarian purposes, to actually fund death and destruction.
These charity groups enjoyed tremendous leeway, as explained to Washington Institute for Near East Policy’s Mathew Levitt by a senior US official. First, the official said, the fraud inherent in the abuse of charities was an egregious abuse of people’s trust and a distortion of the Islamic charitable obligation of zakat. Second, the humanitarian nature of most of these charities and service organizations placed their offices and employees on the ground in conflict zones of particular interest to terrorist organizations without raising undue suspicion. Third, charities provided an outlet not only for raising significant amounts of money, but, even more critically, were ideal vehicles for laundering funds.
It’s was an “especially painful reality that no counterterrorism technique or effort, however extensive, international, or comprehensive, will put an absolute end to such attacks or uproot terrorism,” Levitt later wrote in one of his articles about terrorist financing.
True. And it was this salient fact that made the anti-money laundering efforts much harder.
Combating various forms of illicit finance required constant vigilance and a flexible approach, because the threat was both persistent and ever-changing. So the updated resolutions required almost all the US government departments, UN subsidiaries and almost all other nations to be included in the efforts to fight off money-laundering. One of the watch-dogs known as FATF - the Financial Action Task Force - was given the responsibility to examining money laundering techniques and trends, reviewing the action taken at a national or international level and setting out new measures.
Law enforcement agencies lack proper training to investigate the financing of terrorist activities
The continued evolution of money laundering techniques led the FATF to revise its standards comprehensively, and according to which it blacklisted Pakistan for a while for not following through. The country feared UN sanctions.
Pakistan’s new Action Plan assured the international partners that State Bank has enforced an anti-money laundering policy to its fullest. FATF issued a statement in February 2015 saying that the country has made significant progress in improving its AML/CFT (Anti-Money Laundering/ Combating the Financing of Terrorism) regime and noted that “Pakistan has established the legal and regulatory framework to meet its commitments in its action plan regarding the strategic deficiencies that the FATF had identified in June 2010.”
The FATF, the Treasury Department and other security-related divisions gather public as well as intelligence-based information to draft and impose legislations outlawing money laundering and enforcing stiffer penalties. Recently, the US warned the Pakistan government to direct the Federal Bank and private banks to close down shady accounts. One of the banned religious organizations had used its charity front to publish an advertisement in a local newspaper asking for money. The account was dealt with immediately, according to a high-profile Pakistani official.
Pakistan still faces many challenges in its tracking system where banned organizations and charity outfits appear with other names and titles. Finance Minister Ishaq Dar admitted last December that the country’s security and law enforcement agencies lack proper training to investigate the financing of terrorist activities. He held a subcommittee meeting, constituted after the APS-Peshawar attack, and asked the meeting participants to propose measures to prevent financing for terrorist organizations. The meeting was told that there wasn’t even a system to maintain data on prosecutions carried out by law enforcement, which could be shared with other agencies.
Dar said that there was a need to promote legal channels for the transfer of money within and from outside the country, adding that “it will help us to completely discourage hawala and hundi system.”
This seems shocking since the SBP had claimed back in 2012 that it had taken measures to check possible financing of terrorist activities and had frozen 128 bank accounts and seized over Rs750 million. According to reports the current government also informed the Senate Standing Committee on Finance in January 2015 that more than one billion rupees worth of accounts of banned organization had been frozen in Pakistan in order to implement the UN resolutions on curbing terrorist financing.
From designating Al Akhtar Trust - a Pakistan based charity allegedly financing al Qaeda - a “terrorist entity” in 2003 to imposing sanctions on Al Furqan Foundation Welfare Trust - another Pakistan based charity accused of financing violent extremism in Afghanistan and Pakistan - in 2015, a close coordination between the US and Pakistan necessitates unabated trust. Its counterterrorism successes are dependent on increased international cooperation, intelligence sharing, and anti-terror legislation, while carrying out operations not just against terrorist groups, but also individuals who donate money or support financially terrorist organizations via different legal or illegal means. Pakistan needs to act more independently and rely less on US pressure to take any action against dubious organizations.