Draining Terror's Financial Swamps

netWMD - The War to Mobilize Democracy ^ | November 4, 2004 | Douglas Farah

[forty_years]

Editor's note: Readers may be interested in two related stories: "Invested in Terrorism" and "BBC: U.S. Damned if it does and damned if it doesn't". -ALJ

Douglas Farah uncovered the story of al-Qaeda's involvement in West Africa's diamond smuggling while reporting on Africa for the Washington Post, which he described in Blood from Stones: The Secret Financial Network of Terror (New York: Broadway, 2004). Mr. Farah, now a consultant, freelance writer on terror finance and national security matters, and a senior fellow at the Consortium for the Study of Intelligence, addressed the Middle East Forum in New York City on October 11, 2004.

At a time when state control is diminishing or nonexistent across growing swaths of the world, non-state armed groups pose a little-understood but important challenge to the United States and other nations. In order to meet this premier security challenge of the modern age, we must gain a much deeper understanding of the ways in which criminal states and non-state armed groups interact.

Non-state actors

Non-state actors can be roughly divided into four types:

• Insurgents engaged in a protracted political and military struggle aimed at weakening or destroying the power and legitimacy of a ruling government;
• Terrorists who spread fear through the threat or use of proscribed violence for political purposes;
• Militias made up of irregular yet recognizable armed forces operating within an ungoverned area or a weak or failing state;
• International criminal organizations engaged in one or more type of criminal enterprise that operates across regions and national borders.

These non-state actors become particularly dangerous when they are hosted by or operate in conjunction with illegitimate states functioning like criminal enterprises.

Liberia

In Charles Taylor's Liberia, this is precisely what occurred. Under Taylor's patronage, international arms dealers worked alongside al Qaeda operatives, Israeli and South African mercenaries, Hezbollah diamond merchants, and Russian and Balkan organized crime figures.

Diamonds from West Africa are a particularly attractive commodity to armed groups and criminals because they are alluvial and require very little investment in order to exploit. Taylor had launched two bloody civil wars (one in Liberia and one in neighboring Sierra Leone) in order to gain control of diamond fields.

The fact that the U.S. intelligence community had no agents on the ground monitoring the situation, developing human intelligence or studying the different networks explains why the threat was not understood or taken seriously for several years. It also helps explain why the intelligence community dismissed out of hand the first revelations of Taylor's ties to al Qaeda and other terrorist organizations.

Al Qaeda

Perhaps the most intricate relationship between states and non-state actors involved operatives from al Qaeda who were interested in the diamond trade. There appear to have been at least two phases to al Qaeda's West African diamond activities. The first started some time before 1996, when bin Laden lived in the Sudan, and was aimed at helping finance the organization. This lasted until the end of 2000.

The picture of al Qaeda operations in West Africa changed dramatically toward the end of 2000, when senior al Qaeda operatives arrived in Monrovia to take control of the diamond buying operations. They set up a monopoly arrangement with the Revolutionary United Front (RUF) in Sierra Leone for the purchase of diamonds through Taylor. This was in the months immediately prior to 9/11, when the terrorists were moving their money out of traceable financial structures into commodities in preparation for the aftermath of the attacks.

In the immediate aftermath of the 1998 attacks on two U.S. embassies in East Africa, the Clinton administration sought to punish the Taliban and al Qaeda by freezing its assets. To the surprise of U.S. officials, the move netted some $240 million, mostly in the form of gold on deposit with the U.S. Federal Reserve.

To convert cash assets into an untraceable commodity, al Qaeda operatives paid a premium of 10 percent to 20 percent over the going rate for uncut stones, leaving regular buyers without any merchandise. The pace of the purchases picked up beginning in January 2001 and lasted until just before 9/11. The available evidence, compiled by the Belgian police, points to al Qaeda purchasing some $20 million worth of RUF diamonds during the eight months prior to 9/11.

A combination of rebel forces, international pressure, and the guarantee of gilded exile caused Taylor finally to leave power in August 2003 and take refuge in Nigeria. But throughout most of his tenure – ruler of most of Liberia since 1992 and president since 1997 – Taylor's massive criminal and terrorist ties went unstudied and were given a low priority by the intelligence community.

Conclusion

There are several important lessons to be learned from what transpired in Liberia under Taylor.

Terrorist groups are sophisticated in their exploitation of "gray areas" where states are weak, corruption is rampant, and the rule of law is nonexistent. They have used areas like West Africa for many years to finance their activities. They correctly bet that Western intelligence services did not have the capacity, resources or interest to track their activities there.

Terrorist groups in these areas learn from their own mistakes as well as from each other. Al Qaeda lost a large amount of cash following the 1998 Embassy bombings, but it moved to correct that weakness before the 9/11 attacks.

We need better intelligence (particularly human intelligence) and analysis if we are to trace terrorist funding and the use of commodities. Relying on high-tech monitoring systems is not an effective way to gather intelligence in countries in which telephones are rare, Internet access is very limited, and business deals depend largely on familial relationships.

Terrorist networks and criminal networks can overlap and function in the environments of failed states, like that of Liberia. Commodities like diamonds are the currency of choice as the different groups provide services to governments or rebel groups in exchange for cheap and easy access to commodities.

The intelligence community does not react well to information that it does not procure on its own. The use of diamonds, along with tanzanite and other commodities, was dismissed for years because newspaper correspondents rather than intelligence operatives came up with the initial information. If it had not been for the dedicated work of a handful of members of Congress and the intelligence community, the information would have been buried.

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