Hawala System a Financing Strategy of Global Terrorism

Hawala System a Financing Strategy of Global Terrorism

by Ir. Ade Muhammad, M.Han

Introduction
“For money is the oxygen of terrorism. Without the means to raise and move money around the world terrorists cannot function” ( Collin Powell, US. Secretary of State)[1].

On May 1st 2011, secret operation named Operation Neptune Spear of elite US Navy Seal Team VI (and some sources report also with Delta Force) has conducted to take the Geronimo or known as no 1 Terrorist Osama Bin Laden in Bilal Town, Abotabad, in Pakistan territory. this Operation were noted as a major success of Global War on Terror since 9/11. 

Even so, the Al Qaeda still exist and still having controlled of their financial resources network. 

The focuses of this paper are trying to study and analyze the financial strategy of terrorist in Southeast Asia.

Money, we all needs money including the terrorist groups to fund its organization as well their operation.  We are focusing the study of Al Qaeda correlating to Jemaah Islamiyah in Southeast Asia in funding aspect.

And this vital study are very imminent because the nature and the difficulties of tracking it. For instances, United States under Executive Order 13244 in January 2003, as of September 2003, only $136.7 million in Al Qaeda-linked assets had been frozen[2]. Meanwhile estimated “total transaction” in Al Qaeda network US$ 30,000,000 per year[3].

We trying coverage about system of funding, the correlation between hierarchy of the group with the spending, overall system of raising fund, the subsystem of the raising fund, the discipline of storing and flowing the funding, the conclusion and in the end our recommendation. We present this paper with graphics and will be presented also in graphic based presentation. We hope that makes us easier to comprehend this issue.

Why they need money ?

They need funding to run the organization and the operation or mission. The needs for money could be categorized in the cost pyramid.

The organizational cost are include to finance; (see figure 1) maintain cells/enlarge cells, maintain infrastructure, training & travel, build false identities & procure false documentation, settle the safe houses, provide job/salaries (social cost), support families / relatives of prisoners (shahids).

the operational cost include; planning, preparation of the operation (making bomb, IED etc) and the operation.

But there are other hypotheses, from the comprehensive understanding that the terror funding not only used in “the terror domain” but also used in the 3 overlap domain. The Political Domain, Education Domain (such as suspected rouged pesantren) and “Military Operation”Domain (Terror Ops). This hypothesis is known as “Integrated Teamwork of Islamic Fundamentalist” (see figure 2).[4]

The hierarchy of the group correlated with spending/asset

On the tip of the pyramid of terror has shown the great of “cost” and asset. Estimated by the CIA about US $ 30 million per year to sustain all its operation before 9/11[1].  The operation it self not contribute a lot’s of money, for instance for 9/11 “show” the cost of plan and conducting, only between US $ 400,000- 500,000 (see figure 3).

Meanwhile the cost needed related to lower hierarchy such as Jema’ah Islamiyah getting cheaper. Hambali the head of JI operation, known possessed about US $ 500,000 and JI in Indonesia received some Rp1.35 billion from Al Qaeda since 1996[2]. And to running the Bomb Bali the JI only require no more than US $ 50,000.[3]

The lower group who inspired by Al Qaeda, are lower than that. Even though there was no report so far on their action, but the scholar, intelligences community and the international strongly believe their exist. As matter of time and opportunity for the Al Qaeda wannabe to show their fangs.

The System of Raising Fund

Mainly there are 4 entry point for the raising fund into the islamic terrorist group (see figure 4).

The sponsor. The state such as Iran, Syria, Sudan, North Korea or used to be Libya[1]. In the middle east, many organization got their funding from country through out the history. From Black September, Fatah to present HAMAS and Hezbollah had been received huge amount of fund from these sponsor countries. But now in the Southeast Asian case, this could be rare for Islamic Terrorist Group.   

The charity. This is correlated to Islamic tradition and law. Muslims are expected to donate 2.5 per cent of their net revenue to charity, known as zakat and the other charity from the member to the organization known as infaq.

 "In many communities, the zakat is often provided in cash to prominent, trusted community leaders or institutions, who then commingle and disperse the donated moneys to persons and charities they determine to be worthy." This practice is unregulated, unaudited, and thus leads to terrible abuse by groups such as Al Qaeda. There are some 300 private charities in Saudi Arabia alone, including 20 established by Saudi intelligence to fund the Afghan Mujiheddin that send upwards of US$6 billion a year to Islamic causes abroad. It is estimated that US$1.6 million per day is donated by wealthy Saudis alone. The four most important Saudi charities are the Islamic International Relief Organization (IIRO), which is part of the Muslim World League, a fully Saudi state-funded organization whose assets were frozen by the U.S. Treasury; the Al Haramain Islamic Foundation, also based in Saudi Arabia; Medical Emergency Relief Charity (MERC); and the World Assembly of Muslim Youth. The President of the World Assembly of Muslim Youth is Sheikh Saleh al-Sheikh, the Saudi Minister of Islamic Affairs. More disturbing, a Canadian intelligence report concluded that Saudi charities alone were funnelling between US$1--2 million annually to Al Qaeda's coffers[2]. 

The contribution. Specially, in the case of Middle East in the era before ‘90, the fund used to be received by the various company contribution (company not own by them, based on the symphaty for the cause). But now it is very difficult for one legitimate company to openly contribute the terrorist organization. But the contribution by individual remain active under zakat and infaq system. In Indonesian case of JI related to the religious conflict of Ambon, the contribution from Chinesse company were successfully collected through their fund raising campaign (Chinesse community in Indonesia, fear Radical Islam groups)[3], in various big city in Indonesia. Eventhough not clear about the amount they managed to collect.

The business. There are two ways, legal or illegal business. For legal business, not only expected to become the legal “cash engine”, but also to be able to purchase material needed for the organization and their operation. The good example of that company start by Konsojaya. Established in 1994, was a trading company that ostensibly exported Malaysian palm oil to Afghanistan and imported honey from Sudan and Yemen. The firm was capitalized with 100,000 ringgit, and 5,998 of its 6,000 shares were controlled by Wali Khan Amin Shah and Medhat Abdul Salam Shabana. Konsojaya’s original board of directors also included Hambali and his wife, Noralwizah Lee Binti Abdullah (a subsequent five-member board did not include Hambali or his wife). The company played an important role in Ramzi Yousef and Khalid Sheikh Mohammed’s Oplan Bojinka as a front for moving money and purchasing chemicals and equipment for bomb-making. Ramzi Yousef and Wali Khan Amin  Shah established another shell company, the Bermuda Trading Company, in 1994 as a cover to import chemicals for bomb-making. Then also Infocus Technology was established in July 1995, also by Yazid Sufaat. The company was partially owned by his wife. Infocus Technology hired Zacarias Moussaoui, alleged to be the 20^th September 11 hijacker, as a marketing consultant and was able to get him a visa to the United States. Infocus was to have paid Moussaoui a lump sum of $35,000 and a monthly stipend of $2,500 to cover his flight training in the United States. Sufaat has told Malaysian investigators that the money was never actually paid, but there is no evidence that this is the case.

Another front company was Secure Valley, established in October 1996. Little is known about the purpose or operations of this general trading company, but it had many of the same boards of directors as the other three JI-linked firms.

In addition to these, there were several other JI-linked front companies. Zulkifli (Zulkepli) Marzuki, according to Canadian intelligence, owned a security company in Kuala Lumpur called MNZ Associates (sometimes referred to as MNZ Management Services) in which many key meetings took place.104 Zulkifli co-owned MNZ with Mohamad Nasir Ismail, who was arrested in January 2002 under Malaysia’s Internal Security Act. Marzuki was a trained accountant, and MNZ Associates did the auditing for most JI/Al Qaeda front companies in Malaysia, including Infocus Technology and Green Laboratory Medicine. (MNZ Associates changed hands in January 2003 and is now named Wan Ali Jaafar Associates.) [4].

The illegal business of Islamic Terrorist Group including ; Opium farm in the Opium Belt at Afghanistan,  correlated with arm trading and smugglings (Narco-Terrorism), Hawala System (Informal Value Transfer System/ Alternative Remittance System) and  Internet Scams.

Works of Hawala System: basically an underground banking system and personal couriers (carrying cash, gold, or gems) to transfer funds across borders almost without trace. Like the principle if we transfer money through Money Gram to for instances our friend in US. We give our money to Money Gram Indonesia, then Money Gram US will pay our friend with their money first. Later on MG US will charge MG Indonesia with bill, and MG Indonesia will settle the payment through payment. The differences is in the Hawala system all payment made in cash through money man or courier. Other modus operandi is for using the fake transaction. In the diagram shown very clearly about this modus operandi[5].

The advantage of Hawala system are :

·                     Faster and cheaper than conventional banking system.

·                     Function at all level of money laundering – placement, layering and integration.

·                     No need to open bank account – no paper trail

·                     Serves remote location in Asia

·                     Reliable and secure – receipts usually no names.

That’s the basic system and to operate to transfer fund they follow the next procedure.

In the figure 6. Hawala System – Under pricing shown that, if Al Qaeda in Afganistan would like to send the money to JI network in Indonesia let say US$ 100,000.

1. Al Qaeda give the money to Hawalar in Pakistan US$ 100,000
2. Hawalar Pakistan will purchase a saleable goods such as Computer, valued US$ 150,000
3. After purchased, Hawalar Pakistan will export this Computer to Indonesia with the Declared invoice US$ 50,000
4. Hawalar Indonesia will received this Computer package and sells it for normal price US $ 150,000

after that Hawalar Indonesia split the Money, first give Indonesian JI US$ 100,000 and then send back “payment” to Pakistan of US$ 50,000.

Then the figure 7. Hawala System – overvoicing is if the situation other wise. If the JI would like to send Al Qaeda money, let say US $ 100,000 but the Hawalar Pakistan still need to export to Indonesia (to maintain the consistency of cover business).

1. First JI give Hawalar Indonesia the money US $ 100,000.
2. Then Hawalar Indonesia request to Hawalar Pakistan to import “Computer” to Indonesia. Hawalar Pakistan will purchase Computer in the value of US$ 50,000
3. Then Computer will be shipped to Indonesia and Declared invoice of US$ 150,000
4. Hawala Indonesia receives the Computer and sells it for US$ 50,000. then send the money US$ 150,000 to Hawala Pakistan.

After received the money, Hawala split the money, US$ 50,000 as their original money and US$ 100,000 to Al Qaeda.

Fund discipline of the terrorist group

Basically they used two method first using money laundry techniques and second they always flow by cash. To hide from the authority’s detection in the financial system.

Money Laundry and Reverse Money Laundry. When they got the profit from the illegal business sources such as opium or smuggling, they have to make that money innocent in the eyes of financial system. They have to laundry that “dirty money” to become “clean money”.

The techniques of laundry money start from the placement to the fund manager. Then the fund manager will do the layering process (example : store money in the bank and borrow the money from the bank, and do it again the process or playing in the stock market with several different names etc) after the layering process, then the integration. To integrate the money that already has been clean by the process. Then the money in that new place are the clean money ready to use. This could be done in the opposite way.

Flow by cash not transfer. According to regional intelligence officials, that year, the JI received Rp250 million, Rp400 million in 1997 and Rp700 million in 2000 (roughly US$40,000 and US$70,000 respectively). Omar al-Faruq testified to transferring US$200,000 to the JI's Indonesian cell after 2000.

Sheik Abu Abdullah al-Emarati, an alias of Osama bin Laden, was also involved in funding JI operations. He purportedly gave US$74,000 to Omar al-Faruq to purchase three tons of explosives for JI operations. The Bali attack likewise was funded by US$35,000 transferred by Wan Min Wan Mat, believed to be an important JI treasurer in Malaysia, to Mukhlas and Imam Samudra, the leading perpetrators in the Bali bombings.
A Jordanian man, Hadi Yousef al-Ghoul was arrested in his home west of Manila, Philippines, on 27 December 2001. Police officials contended that "Al-Ghoul is a member of one of the terrorist cells in the Philippines assigned to carry out a string of bombings in Metro Manila", but more importantly, he was seen as a mid-level Al Qaeda money man, who provided cash to locally-based Jemaah Islamiya operatives to whom he was believed to be financially supporting.

Mohammed Mansour Jabarah, a Canadian-Kuwaiti Al Qaeda operative, was dispatched to Southeast Asia in 2001 with some US$10,000 in seed money provided by Khalid Sheikh Mohammed, Al Qaeda's chief of operations. To conduct operations against U.S. targets in Singapore and Manila, Jabarah was given US$30,000 in three US$10,000 instalments in November 2001 from a man he identified as Al Qaeda's main money man in Malaysia. Jabarah was the primary conduit for Al Qaeda funds to Fathur Rohman al-Ghozi, the head of JI operations in the Philippines, who was responsible for purchasing TNT for operations in Manila and Singapore. When Jabarah left Singapore for Kuala Lumpur and later Thailand when he was on the run, the Canadian Security and Intelligence Service interrogation report states that he relied on infusions of cash from Al Qaeda operatives based in the region.

Conclusion of the analysis

This task could be the hardest part in Counterterrorism. Because the logistic and money supply still flowing until now, with few little success to freeze those money. So far it is very difficult to detect and most likely impossible to shut down.

This black funding phenomenon grows very good in the corrupt country such as Indonesia. Another challenge also in the weak linkage between the interagency network in Indonesia (not integrated) and other agency in Southeast Asia. 

Recomendation

“The sun is the best disinfectant” (Winston Churchill)

“Unity makes us strong, disintegrate makes us weak” (Indonesian credo on United in Difference).

Those two philosophies would be the best answer available to this critical phenomenon.

We need more transparency; every thing in “black” and “dark” area should be open to public. Any suspicious action will be emerged easily with the transparency principle.

Counterterrorism would need integrated work, strong interagency coordination from the intelligence unit to the custom. The close relationship between states in Southeast Asia would be the best manner to deal with this clear and present danger.

Only with two principles, the threat would be likely detect earlier and easier to counter or maybe if we lucky enough, to launch preemptive-strike against the network of terror. 

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[1] State Sponsor of Terrorism, US Departement of State, released by the office of the Coordinator for Counterterrorism, April 26^th 2006

[2] Funding terrorism in Southeast Asia: the financial network of Al Qaeda and Jemaah Islamiya. http://goliath.ecnext.com/coms2/gi_0199-3159694/Funding-terrorism-in-Southeast-Asia.html

[3] Personal communication, Ade Muhammad by the various source of Indonesian Chinesse businessmen 2005.

[4] Pg 36, VOLUME 14, NUMBER 5, December 2003, NBR Analysis Funding Terrorism in Southeast Asia: The Financial Network of Al Qaeda and Jemaah Islamiyah Zachary Abuza

[5] Pg.19, 20 Terrorism and its Financial Background, Cranfield University, Tom Maley

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[1] Pg 7, Source : 9/11 Comission Report, Terrorism and its Financial Background, Cranfield University, Tom Maley

[2] According to Malaysian and Singaporean intelligence reports, Funding terrorism in Southeast Asia: the financial network of Al Qaeda and Jemaah Islamiya. http://goliath.ecnext.com/coms2/gi_0199-3159694/Funding-terrorism-in-Southeast-Asia.html

[3] Pg. 4, VOLUME 14, NUMBER 5, December 2003, NBR Analysis Funding Terrorism in Southeast Asia: The Financial Network of Al Qaeda and Jemaah Islamiyah Zachary Abuza

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[1] Terrorism and its Financial Background, Cranfield University, Tom Maley

[2] VOLUME 14, NUMBER 5, December 2003, NBR Analysis Funding Terrorism in Southeast Asia: The Financial Network of Al Qaeda and Jemaah Islamiyah Zachary Abuza

[3] Terrorism and its Financial Background, Cranfield University, Tom Maley

[4] Hendarmin Ranadireksa, Gema Pesan Bangsa, Bandung, 2007 – Hypothesis on discussion on Forum Rektor