Inside the International Terror Market

Review of Terror Incorporated: Tracking the Dollars Behind the Terror Networks
By Loretta Napoleoni (Foreword by Greg Palast)
Seven Sisters Press (2005), 324 pp.

Originally published in England in 2003 under the title Modern Jihad, this updated, comprehensive survey of the means, structure, and qualitative dimensions of terror financing in the global age is a must-read for anyone – and this includes a lot of us – who would like to understand the full ramifications of what it means to be fighting the financial battle of the "war on terror." (For further background, read Ms. Napoleoni's recent interview with me on Balkanalysis.com.)

Indeed, more sobering still than the author's exacting dissection of terrorist financing methods is the provocative thesis that the "new economy of terror," as she calls it, has become so intertwined with the legitimate global economy that to really eradicate the former would mean to do serious damage to the latter. For better or for worse, we are stuck with it.

A renowned Italian economist and journalist, the author holds advanced degrees from the London School of Economics and John Hopkins University, and has worked for the United Nations, the International Monetary Fund, and the European Bank for Reconstruction and Development. She also advises the Department of Homeland Security on terrorism issues. Napoleoni thus speaks from a position of authority, and while there are certain details glossed over too quickly and investigations left unfinished, she is overwhelmingly successful at illustrating the "big picture" – that is, the macroeconomics of a worldwide industry responsible for funding companies, corporations, criminals, and of course, large-scale acts of murder and mayhem.

Structure

Terror Incorporated is divided into three major parts of rather uneven length. The first, which attempts to provide some past context for the turbulence of today, takes a look at how the proxy wars and interventions waged by the U.S. and the USSR during the Cold War devastated large areas of the globe, dramatically increasing the illegal narcotics and weapons businesses, propping up dictatorships and terrorist groups, and generally introducing widespread chaos that could only be partially controlled by the installation of ever more brutal and authoritarian statelets, militias, and overlords. Throughout, both major combatants appeared oblivious to the potential ramifications these covert interventions would have in the future.

In addition to Cold War intrigue, the first part of Terror Incorporated also chronicles the quest of organizations such as the PLO to find economic independence from their foreign minders – and thus be able to conduct war and politics on their own terms. The first part wraps up by outlining the participation of Arab countries, newly enriched by the upsurge in oil prices of the 1970s, in sponsoring terrorist groups throughout the Muslim world.

Part two of the work, "The New Economic Disorder," introduces the key concept of the "state-shell," which refers to semi-autonomous regions in which the rule of law and legitimate government have failed to take root or more often, have been forcibly expelled by criminal interests: "in the state-shell, political integration may even be absent; the state is constructed around the economics of war generated by the armed struggle" (p. 66). South America's cocaine-rich jungles, Palestine, and African countries like Somalia are some of the examples given by the author in this respect.

The significance of such "state-shells," according to Napoleoni, is tremendous: first of all, they provide many of the services to their subjects that a legitimate state would (such as health care, employment, a modicum of security), but serve as free zones for every kind of illicit activity known to man – in the process becoming safe havens and supermarkets for terrorists.

This ambitious section also treats a variety of interconnected themes, all of which have a basis in economic issues. Napoleoni discusses how the magnet of the Afghan jihad and the demise of the Soviet Union, with the resulting impoverishment of the new Central Asian republics, helped both to channel Muslim anger toward terrorist groups and to provide a rationale for wealthy Arab and other Islamic backers to gain an economic foothold in the needy new states – which were just emerging from Communism and thus ripe for a bolstering of the faith.

These observations naturally lead to the next topic, Islamic "financial colonization." Noting that bin Laden's rhetoric against the West is as much driven by economic concerns as religious or moral ones, Napoleoni goes on to detail the ways in which the rules of Islamic banking and the actions of Arab businessmen created during the 1990s a network of mosques and charities throughout the post-Communist Muslim world, which were then exploited by al-Qaeda and other terrorist groups to foment discontent among the poor and disenfranchised, creating a stockpile of future jihadis while also attempting to spread the strict Saudi Wahhabi strain of Islam, and thus fundamentalist mores in a world that has been otherwise globalizing and secularizing.

The third and final part of the work, "The New Economy of Terror," is perhaps the juiciest, laying out in facts and figures the disturbing trends in terror financing that have made it (in collaboration with organized crime) an indispensable part of the global economy; it is literally a "shadow economy" in the sense that where goes legitimate capital, there too goes terrorist capital.

Some of the examples of this intertwinement, which we will discuss further below, are the terrorists' participation in international commerce and the banking industry, as well as Osama bin Laden's former personal interests in African agriculture, which have been used as bargaining chips against American economic interests in the past. The author's conclusion – that the terror economy is growing fast and is both propelled by and imperiling the legitimate global one – introduces the provocative (if unstated) implication that the very act of tackling terrorist financing represents, to some extent, an act of suicide on the part of the "international community" and its institutions.

Finally, Terror Incorporated is followed by two helpful short sections, one that gives a group biography for each of the 59 terrorist/criminal organizations mentioned in the text, and a second that defines key terminology used.

Major State Sponsors: Pakistan and Saudi Arabia

Aside from the active, original participation of the U.S. and the USSR in supporting Islamic terrorist proxies before they were perceived as a threat to Western civilization, the two countries that come in for the most criticism in Terror Incorporated are Pakistan and Saudi Arabia, which have sought to use influence and capital both illegal and legal to spread, respectively, their geostrategic and ideological influence throughout vulnerable Muslim states.

Napoleoni recounts how Pakistan's powerful intelligence service, the ISI, masterminded the shipments of arms and drugs that created a criminal economy in Afghanistan during the Russian occupation. She also details how incredibly corrupt the "pipeline" was, with the Americans, Pakistanis, and Afghans, especially customs and border officials, all taking their cut (chapter 6). Because of such tremendous rates of "taxation" and the cost of running a guerrilla war against the mighty Soviet army, however, massive increases in heroin production was required, along with greater contributions from the ideology-minded Saudis, eager to make their mark on Afghanistan with a fundamentalist state – something they would achieve with the arrival of the Taliban, who filled the vacuum left by the post-Soviet devastation and American disengagement.

According to the author, the crafty ISI never went off the offensive after the Soviet pullout of Afghanistan and the end of American cooperation, but rather took the war to new fronts. According to the author, the goal of establishing a sphere of influence from the Central Asian states to the Caspian Sea led Pakistan's secret service to foment insurrection in Chechnya in 1994, when it began "nurturing" Chechen guerrilla leader Shamil Basayev. He was sent to an Afghan training camp for jihadis, run by the notorious warlord Gulbadin Hekmatyar, a camp set up by the ISI and CIA in the 1980s. The Jordanian mujahedin leader Khattab, who would bring public relations to Chechnya in the form of propaganda video production the next year, was also there.

"The master plan for Islamic insurgency in the Caucasus and Kashmir was drawn up at a meeting held in Mogadishu, Somalia, in 1996 and attended by the ISI and various Islamist armed groups. Osama bin Laden and high-tanking Iranian intelligence officers were also present." (p. 95)

She adds that the subsequent war in Chechnya was expedited by Saudi charities and a mosque network, as well as new organized crime networks with the Russians and the Kosovo Albanians. In the last chapter of part two, "The Mosque Network," Napoleoni argues that the religious expansionism of Saudi Arabia has greatly increased the number of fundamentalist Wahhabi worshippers, around whose ideology modern jihad has crystallized. What makes such groups dangerous in Central Asia, Southeast Asia, and parts of Africa is their desire for recreating medieval caliphates stretching across today's internationally recognized borders – thus envisioning a world of constant upheaval and the advancement of the terror economy.

Interestingly enough, the author claims that not all of the Saudi businessmen funding such ventures are die-hard ideologues – rather, many are the victims of racketeering from bin Laden and his ilk. Their invitations to cater to the faithful imply some unpleasant consequences in the event of noncompliance.

The Role of Islamic Banking and Religious Expansionism

One of the services this book provides is a discussion of the fundamentals of Islamic banking, more specifically known as the Hawala system. Its methods of payment, often faster and cheaper than Western wire services, have made it impossible to regulate. Clearing or balancing the payments is often done in "hard" currencies such as gold. As Napoleoni notes, all transaction records are immediately destroyed, and there is no stipulation that either the sender or receiver be identified. The author cites UN figures in stating that Hawala banking has a $200 billion annual turnover, and adds that "profits come from currency fluctuations and fees on large sums of money, mostly from drugs and arms traffickers, smugglers, or armed groups' illicit money transfers" (p. 128).

The author also devotes attention to another important aspect of Islamic banking: the zakat, a sort of humanitarian 2.5 percent tax that is, in accordance with Islamic law, levied on all transactions. This directive issued directly from the rules of Muhammad himself, whose emphasis on caring for the poor and downtrodden of Muslim society has been honored into the modern age. An example of the scope of the zakat is given by the author, who reveals that the 6,000 members of the Saudi royal family, worth some $600 billion, are responsible for a zakat of $12 billion per year (p. 124).

The remittances of such humanitarian funds to charity groups linked with terrorists continue to go on:

"[T]he Bush administration claims that the core of bin Laden's financing network in Saudi Arabia was masterminded and run by a Saudi businessman, Wael Hamza Jalaidan, based in Jeddah. September 11, 2001 did very little to alter this network. According to a UN report on the financing of al-Qaeda produced in the summer of 2002, the organization has received $16 million from Saudi Arabia since the World Trade Center attacks." (p. 126)

Some Unknowns

While the book is overall authoritative and convincing, by virtue of its synthetic, synoptic scope some details tend to be glossed over. For example, the author implies that the "put options" stock market mystery preceding 9/11 (p. 168) has been solved, and that all of the suspicious activity going on around the world was entirely terrorist-orchestrated. However, the 9/11 Commission claimed (.pdf), truthfully or not, that the frenetic stock market activity in America, at least, was "innocuous." Nevertheless, the author does have some interesting quotes from European bankers and traders, suggesting that "a well-established relationship with futures brokers or stockbrokers" probably helped al-Qaeda-associated front companies to capitalize on price increases in commodities such as gold and oil.

Another slight inaccuracy is that the author tends to overplay the role of Islam in motivating Albanians to fight in 1999 in Kosovo (p. 172), since theirs was primarily a nationalism-driven struggle. Of course, the end result – the almost total destruction of Christian society in Kosovo – is a boon for the deep-pocketed fundamentalists.

Similarly, owing to their necessary brevity, the author's comments on the status of the Pankisi Gorge in Georgia lack proper context. In the context of Chechnya, she mentions that al-Qaeda terrorists had taken refuge in the Gorge (located within Georgia but on the border). However, what she does not mention is that it was, paradoxically, both the U.S. and Russia that stated this in early 2002 – the former wanted to (and did) insert a uniformed military presence into the Caucasus state, while the latter threatened to (but didn't) bomb that same state to push its own interests. Many Georgians have expressed cynicism about the whole terrorist claim in light of these grander objectives of international politics. In the same part of the text (p. 146), the author also seems to have visualized Pankisi and the western Georgian breakaway region of Abkhazia as being much closer together than they actually are.

Some Exceptional Revelations

As could be expected from its comprehensive nature, Terror Incorporated is full of interesting and unusual details that reveal just how pervasive and integrated terrorist financing is with both the legal and illegal economy.

For example, in one hidden corner of the South American landmass, a Wild West border badlands has become a one-stop shop for all manner of international terrorists and criminals, where "members of the IRA, ETA, and FARC are regular visitors." Ciudad del Este, on the Paraguayan border with Argentina and Brazil, "is the hub of a smuggling business that generates over $12 billion per year" (p. 177). In addition to the usual criminals, however, this sleepy town far from the Islamic battle lines has hosted people like Lebanese businessman Ali Khalil Mehri, who funded Hezbollah and agitated for the cause of the "martyrs" with the proceeds of software piracy.

With over 20,000 Muslims in one town in the heart of South America, Ciudad del Este proved a good recruiting grounds for terrorists carrying out attacks on Jewish interests in Argentina. In October 2001, the government froze assets amounting to $22 million "in over 40 accounts used to channel money to various Middle Eastern armed groups." Of course, the Islamists operate in league with the indigenous drug traffickers and money launderers as well (p. 178).

Napoleoni also gives space to detailing how the investments of Arabs and Arab banks are channeled through Western banks, and how the temptation of large-scale cash infusions into such banks has made them reluctant to ask questions regarding the money's provenance. Providing a similar example, she adds that "banks in Florida get a large cut of the money laundered by Latin American drug barons. This money contributes to the U.S. money supply and to Florida's economy" (p. 117). The author also speaks critically of the role of Cyprus as a hub for international money laundering.

Perhaps the most astonishing vignette, however, involves the author's allegation that Osama bin Laden himself, due to a clever personal investment, was able to terrify American industry far more than by blowing up the World Trade Center. While living in Sudan during the mid-1990s, bin Laden acquired interests in various agricultural producers, including the Gum Arabic Company of Khartoum. When in November 1997 President Clinton wanted to slap sanctions on the country for supporting terrorism, a diverse group of American interests objected, from the Newspaper Association of America, National Soft Drinks of America, and the National Food Processors Association to the Grocery Manufacturers of America and the Non-Prescription Drug Manufacturers Association.

Their combined lobbying clout forced the U.S. government to exclude Gum Arabic from the sanctions list. "[T]he consequences of the embargo for U.S. companies would have been disastrous," the author states. "Since importing from Chad or Nigeria was not viable due to the poor quality of the product, American importers would have had to buy gum Arabic from their French competitors at much higher prices" (p. 201).

Devilish Paradoxes

Finally, the devilish paradoxes of terrorism's effect on money laundering are discussed, using the example of the U.S. government's reaction to 9/11 (asset-freezing, a new scrutiny of financial transactions, etc.). According to the author, these activities and the unease they brought to wealthy evildoers worldwide was one of the prime causes in the dollar's decline after Sept. 11; it provoked money launderers from criminal or terrorist organizations to flee to the less regulated Eurozone. At the same time, the author charges that the EU has made itself vulnerable to the acceleration of terrorist finances in its currency with its lack of Europe-wide policing measures such as the U.S. PATRIOT Act, something that makes it harder to track such funds.

It thus appears that whole economies, even large and advanced ones, now have to absorb the shock of terrorist finance in two ways: one, the financial losses accompanying terrorist attacks (in New York, billions were lost); and two, coping with the outflow of capital that accompanies crackdowns.

Nevertheless, despite America's best efforts to fight a financial war on terror, Napoleoni's prognosis is gloomy. Globalization is at war with itself even more than Islam is at war with the West. Through years of experience and after learning from every defeat, the terrorist masterminds have developed antibodies against state control. As soon as one charity is shut down, it springs up again under a different name; when bank accounts are frozen, precautionary assets such as gold or diamonds are moved; when transportation of money becomes impossible, the luxuries of Islamic Hawala banking can be employed. And, as the author discusses in the beginning in reference to the forced non-investigation of Saudi terrorist ties before 9/11, the "special relations" between the U.S. and the world's most dangerous state sponsors assure that at the end of the day, only lip service is being paid to the government's stated commitment to the war on terror.

Ironically, it might be said that even the production and sale of a book such as this, on terrorist financing and how to combat it, is itself a product of the "new economy of terror"; after all, if there were no terrorism, there would be no market.

This is abundantly clear from reading the author's own account of her efforts to get a publisher for the book: "In the late 1990s, I asked my agent to see if there was any interest in a book on the economics of terrorism, but she immediately discouraged me," she says. "In 2000 I approached a top New York agent with the same proposal, which she very politely turned down. Then came September 11, and since then my phone hasn't stopped ringing."

In the end, the sobering conclusions reached in Terror Incorporated: Tracking the Dollars Behind the Terror Networks certainly don't leave much room for optimism about a terror-free future – and even, perhaps, for the relative desirability of one. But one bright spot, at least, is that this book, with its fascinating glimpses into terrorist funding schemes and its provocative theses on the interrelation between the two economies, remains a very stimulating and thought-provoking read. Even if one does not approve of or agree with the "bad guys," what can't be denied is that some of them are very clever indeed.