countries made a political commitment to combat terrorist financing during the September 2003

meeting in Dubai.

17. Money Laundering and Terrorist Financing—A Global Threat

Bureau for International Narcotics and Law Enforcement Affairs

Department of State

International recognition of, and action against, the threat posed by money laundering continue to
increase. Money laundering poses international and national security threats through corruption
of officials and legal systems, undermines free enterprise by crowding out the private sector, and
threatens the financial stability of countries and the international free flow of capital. Undeniably,
the revenue produced by some narcotics-trafficking organizations can far exceed the funding
available to the law enforcement and security services of some emerging market countries.
Since September 11, 2001, the threat posed by money laundering's closely related corollary,
terrorist financing, has also been more widely recognized. The amount of damage through loss of
life and economic after-effects from a relatively small amount of operational funding can be
devastating. While terrorist financing shares most of the fundamental attributes of money
laundering, and while the legal and regulatory regimes needed to control both are essentially the
same, terrorist financing does exhibit some significant differences.

Money Laundering and Terrorist Financing: Differences and Similarities

Most crime is committed for financial gain. The primary motivation for terrorism, however, is not
financial. While traditional narcotics-traffickers and criminal groups primarily seek monetary gain,
terrorist groups usually seek nonfinancial goals, such as publicity for their cause and political
influence. Ordinarily, criminal activity produces funds and other proceeds that traditional money
launderers must disguise by taking large cash deposits and entering them into the financial
system without detection. Funds that support terrorist activity may come from illicit activity but are
also generated through means such as fundraising through legal nonprofit entities. In fact, a
significant portion of terrorists' funding comes from contributors, some who know the intended
purpose of their contributions and some who do not. Because terrorist operations require
relatively little money (for example, the attacks on the World Trade Center and the Pentagon are
estimated to have cost approximately $500,000), terrorist financiers need to place substantially
fewer funds into the hands of terrorist cells and their members. This is a significantly easier task
than seeking to disguise the large amounts of proceeds generated by criminal and drug kingpins.

Funding Sources

Transnational organized crime groups have long relied on criminal proceeds to fund and expand
their operations, and were pioneers in using corporate structures to commingle funds to disguise
their origin. In particular, it is the terrorists' use of social and religious organizations, and to a
lesser extent, state sponsorship, that differentiates their funding sources from those of traditional
transnational organized criminal groups.

While actual terrorist operations require only comparatively modest funding, international terrorist
groups need significant amounts of money to organize, recruit, train and equip new adherents;
and otherwise support their activities. In addition to direct costs, some terrorist organizations also
fund media campaigns, buy political influence, and undertake social projects that help maintain
membership and attract sympathetic supporters.

Because of these larger organizational costs, terrorists often rely in part on funds gained from
traditional crimes such as kidnapping for ransom, narcotics trafficking, extortion, credit card fraud,
currency and merchandise counterfeiting, and smuggling. In this respect al-Qaida is an anomaly

PRESS CLIPS FOR MARCH 3, 2004 23

laundering guidelines, there is often no control mechanism to assure such compliance or the
implementation of updated anti-money laundering policies.

Like money laundering, terrorist financing represents a potential exploitable vulnerability. In

money laundering, transnational organized crime groups deliberately distance themselves from
the actual crime and the jurisdiction in which it occurs; but they are never far from the eventual
revenue stream. By contrast, funds used to finance terrorist operations are very difficult to track.
Despite this obscurity, by adapting methods used to combat money laundering, such as financial
analysis and investigations, use of task forces, and administrative blocking procedures,
authorities can significantly disrupt the financial networks of terrorists, interdict the potential
movement of terrorists' funds and build a paper trail and base of evidence that helps to identify
and locate the leaders of the terrorist organizations and cells.

Building the capacity of our coalition partners to combat money laundering and terrorist financing
through cooperative efforts, and through training and technical assistance programs, is critical to
our national security. While there are some important differences between how money laundering
and terrorist financing is conducted, in terms of capacity building through training and technical
assistance, there is no appreciable difference. The same measures that are required to establish
a comprehensive anti-money laundering regime—sound legislation and regulations; suspicious
transaction reporting mechanisms; financial intelligence units; on-site supervision of the financial
sector; internal controls; trained financial investigators; legal authorization to utilize special
investigative techniques; modern asset forfeiture and administrative blocking capability; and the
ability to cooperate and share information internationally—are precisely the tools required to
identity, interdict and disrupt terrorist financing.

18. Professions join the hunt for dirty cash

ANDREW PARKER
The Financial Times

The UK's defences against money laundering by sophisticated criminals are about to be
transformed. From today, new regulations come into force that will turn accountants, lawyers,
estate agents and casino operators into the eyes and ears of law enforcement. They must report
on suspected money laundering or risk imprisonment. Next month, auctioneers, car dealers and
jewellers will come under the same disclosure obligations. It is a massive expansion of law
enforcement's sources of information on criminals who launder their ill-gotten gains, because the
disclosure regime has to date been focused on banks and other regulated financial institutions
such as insurers. The National Criminal Intelligence Service, the agency that collects the reports
and then passes relevant information to the police for investigation, expects its workload to
double.

Last year banks and other financial institutions filed almost 95,000 suspicious activity reports to
NCIS. It estimates the number could reach 200,000 this year. Nigel Coles, the NCIS assistant
director who heads its financial intelligence division, says: "The big prize is making it much harder
for criminals, terrorists and money launderers to use the financial system to further their own
ends. The big prize is cleaning up, or making as clean as possible, the financial system."

There is a big risk, however. NCIS could be overwhelmed if accountants and lawyers, fearful of
going to jail, produce hundreds of thousands of suspicious activity reports that are of little or no
value. PwC, the big accounting firm, supports the objective of tackling laundering. But Peter
Wyman, head of professional affairs, says: "NCIS is going to get absolutely swamped with
reports, and will never see the wood for the trees."

Tony Blair, who has taken a strong personal interest in the laundering crackdown, needs to avoid

PRESS CLIPS FOR MARCH 3, 2004 25

 In Liberia and Congo, Afghanistan and Rwanda,
bloody conflicts are more and more often fueled by
arms transported through vast shadowy networks
run by traffickers like the notorious, mysterious and
unstoppable Victor Bout. By Peter Landesman

rmsan
the Israeli men who may or may not have been lis-
tening. Chichakli, who says he speaks Hebrew,
said they were waiting for a phone call to con-
firm a deal for diamonds.
Victor Bout, by most accounts the world's Bout leaned forward. "I woke up after Sept.
11 and found I was second only to Osama." He
largest arms trafficker, had agreed to meet me put his hand on the papers. The truth, he said,
was much bigger than his personal story. "My
in the lounge of the Renaissance Hotel in Moscow, a monolithic post-Soviet struc- clients, the governments," he began. Then, "I
ture populated by third-tier prostitutes and men in dark suits. Bout's older brother, keep my mouth shut."
Sergei, waited with me, as did Richard Chichakli, a Syrian-born naturalized Amer- Later he said, "If I told you everything I'd get
ican citizen who lives in Dallas. Sergei helps run Bout's many air-cargo companies. the red hole right here." He pointed to the mid-
Chichakli, an accountant, calls himself a former business associate of Bout and his dle of his forehead.
"friend and brother." The world of the arms trafficker often feels
As we waited, Chichakli tried to discourage me from pressing Bout about his con- like the script of a bad Hollywood thriller come
nections, suggesting that there were some things I didn't want to know. "They'll put to life. At times you are tempted to laugh at the
you on your knees before they execute you," he said. Then he nodded toward the B-movie dialogue and cloak-and-dagger in-
doorway. "Here he comes. Does he look like the world's largest arms dealer to you?" trigue. But the political and financial stakes are
Bout, who is 36,"«ix feet tall and somewhat expansive in girth, nimbly made his way high. And, as a Western intelligence agent in
through the crowded lounge. He didn't shake my hand as much as grip it, with a firm Moscow told me, this isn't celluloid, and the
nod. Icy blue eyes like chips of glass punctuated a baby face. We sat on one of the dangers are of a much more complicated sort.
lounge's dingy couches, and he placed a thick folder of papers on his lap.
"Look, here is the biggest arms dealer in the world," Chichakli said, half mocking me IN THE SUMMER of 1999, faced with multiple con-
and half mocking Bout. Bout opened his blazer. "I don't see any guns," he said with a flicts in West and Central Africa, the National Se-
shrug. Then Sergei raised his arms. "None here either." (Both spoke excellent Eng- curity Council authorized electronic surveillance
lish.) "Maybe 1 should start an arms-trafficking university and teach a course on U.N. of government and militia leaders in war zones
sanctions busting," Victor Bout said. The brothers looked at each other and laughed.
No one in the lounge seemed to be paying attention to Bout. Behind us sat four
Photograph by Janu-, Hil
Foreign Policy — Five Wars
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The Integrated Gas Major |FP|^«-^™«
er of 2003
National Magazine Award
ch This Issue 02
Clk* Here to Sear
Foreign Policy The Magazine of Global Politics, Economics, and ideas
- FeJBr
The Five Wars of Globalization
The illegal trade in drugs, arms, intellectual property, people, and money is
booming. Like the war on terrorism, the fight to control these illicit markets pits
governments against agile, stateless, and resourceful networks empowered by FORUM
globalization. Governments will continue to lose these wars until they adopt new
Talk about this piece
strategies to deal with a larger, unprecedented struggle that now shapes the
world as much as confrontations between nation-states once did.
By Moises Nairn
The persistence of al Qaeda underscores how hard it is for governments to stamp out stateless,
decentralized networks that move freely, quickly, and stealthily across national borders to engage in terror.
The intense media coverage devoted to the war on terrorism, however, obscures five other similar global
wars that pit governments against agile, well-financed networks of highly dedicated individuals. These are the
fights against the illegal international trade in drugs, arms, intellectual property, people, and money. Religious
zeal or political goals drive terrorists, but the promise of enormous financial gain motivates those who battle
governments in these five wars. Tragically, profit is no less a motivator for murder, mayhem, and global
insecurity than religious fanaticism.
In one form or another, governments have been fighting these five wars for centuries. And losing them.
Indeed, thanks to the changes spurred by globalization over the last decade, their losing streak has become
even more pronounced. To be sure, nation-states have benefited from the information revolution, stronger
political and economic linkages, and the shrinking importance of geographic distance. Unfortunately, criminal
networks have benefited even more. Never fettered by the niceties of sovereignty, they are now increasingly
free of geographic constraints. Moreover, globalization has not only expanded illegal markets and boosted
the size and the resources of criminal networks, it has also imposed more burdens on governments: Tighter
public budgets, decentralization, privatization, deregulation, and a more open environment for international
trade and investment all make the task of fighting global criminals more difficult. Governments are made up
of cumbersome bureaucracies that generally cooperate with difficulty, but drug traffickers, arms dealers, alien
smugglers, counterfeiters, and money launderers have refined networking to a high science, entering into
complex and improbable strategic alliances that span cultures and continents.
Defeating these foes may prove impossible. But the first steps to reversing their recent dramatic gains must
be to recognize the fundamental similarities among the five wars and to treat these conflicts not as law
enforcement problems but as a new global trend that shapes the world as much as confrontations between
nation-states did in the past. Customs officials, police officers, lawyers, and judges alone will never win these
wars. Governments must recruit and deploy more spies, soldiers, diplomats, and economists who understand
how to use incentives and regulations to steer markets away from bad social outcomes. But changing the
skill set of government combatants alone will not end these wars. Their doctrines and institutions also need a
major overhaul.
THE FIVE WARS
Pick up any newspaper anywhere in the world, any day, and you will find news about illegal migrants, drug
busts, smuggled weapons, laundered money, or counterfeit goods. The global nature of these five wars was
unimaginable just a decade ago. The resources—financial, human, institutional, technological—deployed by
the combatants have reached unfathomable orders of magnitude. So have the numbers of victims. The
tactics and tricks of both sides boggle the mind. Yet if you cut through the fog of daily headlines and
orchestrated photo ops, one inescapable truth emerges: The world's governments are fighting a qualitatively
new phenomenon with obsolete tools, inadequate laws, inefficient bureaucratic arrangements, and ineffective
9/22/2003
 The American Society of International Law
The American Society of 'International Law Task Force on Terrorism

Effective Enforcement of International Obligations

to Suppress the Financing of Terror

Mark Kantor

Former partner in the New York firm of

Milbank, Tweed, Hadley & McCloy LLP

September 2002

The Task Force on Terrorism, established by then-ASIL President Arthur Rovine in 2001, is
co-chaired by Ruth Wedgwood, Edward B. Burling Professor of International Law and
Diplomacy and Director of International Law at the Paul H. Nitze School of Advanced
International Studies and Professor of Law at Yale Law School and by Anthony D'Amato,
Leighton Professor of Law, Northwestern University School of Law.