Panama, the center for all sorts of money-laundering in Central America, is a good example of how lip service can be paid to the war on terrorism by passing all the appropriate laws. It not only has a special law, which Law 50 added with a special chapter on terrorism (VI) to Title VII of the Second Book of the Penal Code, it also has laws to prohibit terror financing. Chapter VI defines terrorism as "belonging to an unlawful organization whose goal it is to alter constitutional order and public safety", and punishes it with 15-20 years imprisonment. Financial Intelligence Unit (FIU), established by Presidential Directive No. 163 in 2000. It has also signed and ratified most international conventions and treaties on money laundering, including the 40 + 8 FATF recommendations. It has also passed two extensive pieces of domestic legislation, Law #48 (2003) and article 3 of Law 50 (2003), to improve oversight of financial institutions and boost control of financial transactions and operations. Article 264-B goes on to say that those who intentionally finance, fund, hide or transfer money or goods to be used in any of the terrorist acts mentioned before likewise receive 15-20 years in jail.
Peru’s long struggle with the Sendero Luminoso has provided for anti-terrorism legislation. Decree Law No. 25475 of May 1992 (75) punishes the crime of terrorism and Article 2 defines a terrorist as "anyone who carries out acts against the life, physical integrity, health, freedom or security of individuals or against property…or affects the international relations or safety or society or the State." Article 4 of the Decree criminalizes collaboration with terrorists, including securing, collecting or supplying any goods or means or aid to further the goals of a terrorist group. Under this Decree Law, providing economic assistance "for the purpose of financing the activities of terrorist elements or groups shall be punished by a term of imprisonment of not less than 20 years." Laundering of funds from narco-terrorism is also penalized under Article 296-B of the Peruvian Penal Code by life imprisonment. Since 2001, "new laws have been enacted to permit more effective investigation into cases of corruption." These laws may also be used to investigate terrorist actions. Procedural Act No. 27379 provides for special restrictions on individual rights during preliminary investigations. This includes the freezing of assets and the lifting of bank secrecy and tax confidentiality. Supreme Decree No. 084-2001-RE of 2001 ratifies the International Convention for the Suppression of the Financing of Terrorism. Like many other Latin American states, Peru has also created a Financial Intelligence Unit under Law No. 27.693 (2002).
Despite the laws on the books of European and Latin American states, cases pertaining to terror financing are rarely brought to court. To Kantor, this trend suggests that "absent a dramatically different approach, efforts at interdicting flows of terror money could prove even less successful than efforts at interdicting flows of drug money. The sums involved in terrorist operations and terrorist capital expenditures are far smaller than the many billions of dollars spent each year as part of the illegal drug trade" (76). Thus, to make the war on terror count, signatories to the abovementioned national and international legislation must aggressively check all terror-sponsoring regimes, including Saudi Arabia, Syria, Iran and the Palestinian Authority, the same way as the US did the Taliban in Afghanistan.
For its part, the US should try to persuade international financial organizations to withhold financial aid from terror-supporting countries, and to sanction such states as Saudi Arabia, Iran, Indonesia, Sudan, Libya and North Korea. For too long, America’s non-confrontational approach towards "friendly" regimes such as the House of Saud has undermined the safety of its citizens in return for political expediency (77).
Yet even when America is proactive, European states impede transatlantic cooperation on combating terror financing. They argue that new anti-money laundering laws aimed at broadening the US government’s power over the assets of foreign individuals, businesses and financial institutions fall outside the provisions of mutual legal assistance treaties signed between Washington and most European countries. But as Schmahl has argued, "in times of globalization and transnational operation, terrorism can no longer be dealt with solely by means of isolated action but has to be addressed in addition through the cooperation of all States even in criminal prosecution matters." Across Justice and Home Affairs (aka. the "third pillar"), if not across the Atlantic, the new terrorist threat has been a strong impetus for legal cooperation and integration (78). In addition, unilateral U.S. action is bound to be ineffective if alternative financial centers are able to operate outside the reach of U.S. controls (79).
Heraldo Muñoz’s UN Security Council Analytical Support and Sanctions Monitoring Team recently found that changing Al-Qaeda terrorist methodology called for new anti-financing measures. Its August 2004 report stated that "while the sanctions against the financing of terrorism have had some effect, and some millions of dollars in assets have been frozen, there is scope to update them based on how al-Qaeda now raises and transfers its money." While national and international action is said to have decreased Al-Qaeda’s funding, its need for money may have also decreased. The number of people in camps under its control is now much smaller, and it no longer has to pay $10-20 million annually to its Taliban hosts. But Al-Qaeda’s growing popularity has probably increased the flow of money to the organization and its surrogates, thus its need to move new funds around. This growing popularity means that more new sources and new methods are utilized to channel the money, and therefore new regulations are needed to better trace the movement of the funds. Measures to curb the abuse of hawala, cash couriers, and Islamic charities could further slow the movement of terrorist moneys. Reports submitted by UN Member States under resolution 1455 show that a legal basis for freezing Al-Qaeda and related terrorist assets now exists in all but three Member States.
However, the UN Security Council Monitoring Team found the reporting culture of some Member States partially to blame for the poor, nonspecific quality of their reports, and more importantly for their failure to act. States often found it easier to report what had been done politically rather than at the operational level. This prompted the Monitoring Team to suggest a half-baked solution—voluntary visits to those states most at risk from Al-Qaeda infiltration. But since these visits have to be agreed upon by the states in question, the element of surprise and discovery is greatly diminished.
While legislation establishing a legal framework for terror financing countermeasures is a basic prerequisite, it accomplishes little without proper enforcement. Instead, a pervasive lack of cooperation, objectivity and political will allows those who finance terrorism to remain beyond the pale of the law.
Special thanks to Alex Angert, and to Edith Tsouri for the help with the research.
1. "Grassley and Baucus Call for ‘Fundamental Reform’ Within War on Terror Financing." US Senate Committee of Finance. March 29, 2004. www.senate.gov/~finance/press/Gpress/2004/prg032904a.pdf, 1.
2. Stuart A. Levey. Under Secretary, Terrorism and Financial Intelligence U.S. Department of the Treasury. Testimony before the Senate Committee on Banking, and Urban Affairs. September 29, 2004. http://www.treasury.gov/press/releases/js1965.htm
4. "Three Years of Progress in the War on Terror." The White House. October 22, 2004. http://www.whitehouse.gov/news/releases/2004/09/20040911.html
5. Kantor, Mark. "Effective Enforcement of International Obligations to Suppress the Financing of Terror." The American Society of International Law. Task Force on Terrorism. September 2002. http://www.asil.org/taskforce/kantor.pdf, p. 2.
6. Schmahl, Stefanie. ‘Specific Methods of Prosecuting Terrorists in National Law.’ Presented at the Max Planck Society Conference entitled "Terrorism as a Challenge for National and International Law." http://edoc.mpil.de/conference-on-terrorism/present/schmahl.pdf, p. 12-3.
7. S/RES/1526 (2004). http://www.treas.gov/offices/enforcement/ofac/legal/unscrs/1526.pdf
8. Schmahl, p. 3.
9. Schmahl, p. 14.
10. S/RES/1373 (2001).
11. Kantor, p. 6.
12. The projects can be found at http://www.unodc.org/unodc/en/terrorism.html
13. Schmahl, p. 16.
14. "Anti-Terrorist Finance Group Reauthorized for Eight Years." Embassy of Japan. May 14, 2004. http://japan.usembassy.gov/e/p/tp-20040517-03.html
15. Matthew Levitt. "Terror on the UN Payroll?" Peacewatch. No. 475. October 13, 2004.
16. "Israel Arrests 13 UN Employees." UPI. October 5, 2004.
17. Michael Freund. "Canada Refuses to Cut UNRWA Funding." Arutz-7 Israel National News. October 25, 2004. http://www.israelnationalnews.com/news.php3?id=70964
18. Matthew Levitt. "Terror on the UN Payroll?" Peacewatch. No. 475. October 13, 2004.
19. The Terrorism Act (2000): http://www.hmso.gov.uk/acts/acts2000/20000011.htm
20. The Anti-Terrorism, Crime and Security Act (2001): http://www.legislation.hmso.gov.uk/acts/acts2001/20010024.htm
21. The Supreme Court of the Judicature, Court of Appeal (Civil Division), On Appeal from the High Court of Justice, Queen’s Bench Division (Mr. Justice Gray), HQ03X01813 and HQ03X01775. Citation Number  EWCA (Civ) 983. May 11, 2004. Jameel and Another vs. Times Newspapers Limited. http://www.courtservice.gov.uk/judgmentsfiles/j2687/jameel-v-times.htm
22. Michael Mcdonough. "England Orders Terror Group Assets Frozen." Lancaster Online. October 14, 2004. http://www.lancasteronline.com/pages/news/ap/4/britain_terror_assets
23. European Council Regulation 2580/2001. December 27, 2001. http://europa.eu.int/eur-lex/en/archive/2001/l_34420011228en.html
24. A full listing of EU anti-terror legislation.
25. HAMAS relies for its funding on Saudi Arabia.
26. "Managing European Taxpayer’s Money: Supporting the Palestinian Arabs – A Study in Transparency." Funding for Peace Coalition. August 2004.
27. "Managing European Taxpayer’s Money: Supporting the Palestinian Arabs – A Study in Transparency." Funding for Peace Coalition. August 2004, p. 6.
28. http://www.nationalreview.com/comment/ehrenfeld200312100915.asp and Dr. Rachel Ehrenfeld, as interviewed by the Funding for Peace Coalition.
29. Written Question E-2033/04 by Theresa Villiers (PPE-DE) to the Commission and E-2033/04EN Answer given by Mr. Patten on behalf of the Commission. October 20, 2004.
30. Issam Abu Issa, former chairman of the Palestine International Bank. "Arafat’s Swiss Bank Account." Middle East Forum. http://www.meforum.org/article/645#_ftn3
31. "Syria-EU Association Agreement-Signing." SANA: Official Syrian News Agency. October 19, 2004. http://www.sana.org/english/headlines/19%2010/syria3.htm
32. Adopted by the Council on March 6, 2002.
33. Adopted by the Council on May 27, 2002.
34. "International Narcotics Control Strategy Report: Germany." Bureau for International Narcotics and Law Enforcement Affairs. March 2004. http://www.state.gov/g/inl/rls/nrcrpt/2003/vol2/html/29921.htm
35. Section 129a: Formation of Terrorist Organizations.
36. Directive 2001/97/EC of the European Parliament and of the Council of 4 December 2001.
37. Gesetz zur Bekämpfung des international terrorsimus. (Combating Terrorism) Law of 9 Jan 2002 in Bundesgesetzblatt I pg. 361, in force 1 Jan 2002; and Law of 22 Aug 2002 in Bundesgesetzblatt I pg. 3,390, which amends the Criminal Code regarding foreign criminal and terrorist organizations and enables confiscation of property.
38 "International Narcotics Control Strategy Report: Germany." Bureau for International Narcotics and Law Enforcement Affairs. March 2004. http://www.state.gov/g/inl/rls/nrcrpt/2003/vol2/html/29921.htm
39. "Specter Calls for Criminal Prosecution of Financial Contributors to HAMAS." August 6, 2002. http://specter.senate.gov/index.cfm?FuseAction=PressReleases.Detail&PressRelease_id=251&Month=8&Year=2002
40. "Countering Terrorist Financing an International Concern." German Embassy, Washington D.C. May 26, 2004. http://www.germany-info.org/relaunch/business/new/bus_money_laundering_conf.html
41. "Measures taken by the German government to fight international terrorism." The Federal Government of Germany. October 27, 2004. http://www.bundesregierung.de/en/artikel-,10001.623975/Measures-taken-by-the-German-g.htm
42. "International Narcotics Control Strategy Report: Germany." Bureau for International Narcotics and Law Enforcement Affairs. March 2004. http://www.state.gov/g/inl/rls/nrcrpt/2003/vol2/html/29921.htm
43. "Loi n° 96-647 du 22 juillet 1996 art. 1 Journal Officiel du 23 juillet 1996" and "Loi n° 98-467 du 17 juin 1998 art. 84 Journal Officiel du 18 juin 1998" at http://www.legislationline.org/. The Code of Criminal Procedure, sections 706-16–706-25-1, is likewise at http://www.legislationline.org/
44. Loi 647 of 22 Jul 1996 (prevention of terrorism, amending the Criminal Code, Code of Criminal Procedure and Civil Code) in Journal officiel pg. 11,104. This act is embodied in the texts of the various codes, e.g., Criminal Code, sections 421-1–422-5.
45. Charles Duelfer. "Comprehensive Report of the Special Advisor to the DCI on Iraq’s WMD." October 6, 2004. http://www.lib.umich.edu/govdocs/duelfer.html
46. "Riforma della legislazione nazionale del turismo." L. 135/01. Parlamento Italiano. March 29, 2001. http://www.parlamento.it/leggi/elelenum.htm
47. "Conversione in legge, con modificazioni, del decreto-legge 12 ottobre 2001, n. 369, recante misure urgenti per reprimere e contrastare il finanziamento del terrorismo internazionale." L. 431/01. Parlamento Italiano. December 14, 2001. http://www.parlamento.it/leggi/elelenum.htm
48. See www.interno.it
50. "Fact Sheet: Designation of Ten Individuals Tied to an al Qaeda Cell in Italy." U.S. Treasury Office of Public Affairs. March 18, 2004. http://www.treasury.gov/press/releases/reports/js1243factsheet.pdf
51. "U.S. Designates Additional Members of Italian Al Qaeda Cell." Department of the Treasury. June 24, 2004.
52. Dale Fuchs. "Spaniard Says Drugs Financed Train Bombings." International Herald Tribune. April 15, 2004. http://www.iht.com/articles/515273.html
53. Federal law 130-FZ of July 25, 1998 can be found at http://www.fas.org/irp/world/russia/docs/. Federal law 103-FZ of July 24, 2002, Federal law 112-FZ of July 25, 2003 and Federal law 114-FZ of July 25, 2002 can be found in SZRF 2002 no. 30, item 3,028, at www.foreignlawguide.com/ip/flg/ RussiaIntroduction.com
54. Jill Dougherty. "Chechen ‘claims Beslan attack’." CNN.com. September 17, 2004. http://www.cnn.com/2004/WORLD/europe/09/17/russia.beslan/
55. "Ideofact." September 26, 2004. http://www.ideofact.com/archives/000389.html
56. See http://www1.oecd.org/fatf/40Recs_en.htm
57. "Patterns of Global Terrorism, 2003." U.S. State Department. http://usembassy.state.gov/colombia/wwwsft13.shtml
58. "Communiqué of 3+1 Group, December 2003." Inter-American Committee Against Terrorism. http://www.cicte.oas.org/documents.htm
59. According to the GAFI(FATF) report in lavadodedinero.com.
60. "Patterns of Global Terrorism, 2003." U.S. State Department. http://www.state.gov/s/ct/rls/pgtrpt/2003/31640.htm
61. A partial list of legislation concerning the suppression of terrorism financing, money laundering, and freezing assets includes Complementary Act 105 of January 2001, Articles 1, 9; the Code of Criminal Procedure, Decree-Law 3689 of October 1941, Articles 125-144, sections VI, VII; the Constitution of Brazil, Articles 5, 173, 225; the National Security Act, Act 7170 of December 1983, Articles 20, 24; the Penal Code, Article 91; Decrees No. 3267, 3755, 3976, and 4150; Articles 21 and 26 of the Civil Code; Article 66 of Act No. 10406 of the New Civil Code; Act 9532/97, Articles 12, 15; and Act 9790/99, Article 4.
62. Act 9.613 of March 3, 1998. Articles 1, 2, 4, 8, 9, 10, 11, 14 (Amended by PLS-117/2002).
63. COAF (Consejo de Control de actividades financieras) Resolutions No. 01 (1999), No. 03 (1999), No. 04 (1999), No. 05 (1999), No. 08 (1999), No. 09 (2000) approved legislation making the financing of terrorism a crime.
64. "Brazil." International Human Rights Law Institute. October 24, 2004. http://www.law.depaul.edu/institutes_centers/ihrli/_downloads/publications/
65. "Patterns of Global Terrorism, 2003." U.S. State Department. http://usembassy.state.gov/colombia/wwwsft13.shtml
66. Marc Perelman. "Tracking Terror’s Money Trail in Lawless Frontier." The Forward. December 13, 2002. http://www.forward.com/issues/2002/02.12.13/news2.sidebar.html
67. "Commentary: Brazil extradites terror suspect." UPI. November 18, 2003. http://quickstart.clari.net/qs_se/webnews/wed/bb/Ubrazil-terror.RsAC_DNI.html
68. "Patterns of Global Terrorism, 2003." U.S. State Department. http://usembassy.state.gov/colombia/ wwwsft13.shtml
69. This includes the Anti-corruption Statute, Act No. 190: reporting of irregularities; Article 325 of the Penal Code: non-compliance with control mechanisms; Decree No. 1957: reporting of documents linked to money-laundering activities; Financial Institutions Statute, Decree No. 663: reporting of irregularities; Act No. 333, Article 2, paragraph 4: termination of ownership rights; and Article 67 of the Code of Criminal Procedure: freezing of any assets linked to criminal activities, including terrorism.
70. "Colombia." International Human Rights Law Institute. October 24, 2004. www.law.depaul.edu/institutes_centers/ihrli/_downloads/publications/Colombia.pdf
71. Colombian Penal Code, Section 345 – Management of Resources Linked to Terrorist Acts.
73. Marcelo Venegas. "Proyecto de ley que crea la unidad de analysis financiero y modifica el codigo penal en material de lavado de dinero." Comunidad Virtual de Gobernabilidad. http://www.gobernabilidad.cl/modules.php?name=News&file=article&sid=359
74. These include the Federal Organized Crime Act, Article 29; the Federal Penal Code, Articles 40 and 41; and the Federal Code of Criminal Procedure, Article 181. Legislation may be found at www.law.depaul.edu/institutes_centers/ ihrli/_downloads/publications/Mexico.pdf
75. For a comprehensive list of legislation, see www.law.depaul.edu/institutes_centers/ ihrli/_downloads/publications/Peru.pdf
76. Kantor, p. 13.
77. Rachel Ehrenfeld. Funding Evil. Illinois: Bonus Books, 2003, p.176.
78. Schmahl, p. 43.
79. Kantor, p. 15.
This research was made possible by the generous support of the Michael Cherney Foundation.
*Dr, Rachel Ehrenfeld, author of Funding Evil, How Terrorism is Financed– and How to Stop It, is Director of the New York based American Center for Democracy, and a member of the Committee on the Present Danger. This paper was presented at the Jerusalem Summit, Jerusalem, November 27-30, 2004.