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Terrorism and Money Laundering

©Charles Epping, 2006

Contact: CharlesEpping@aol.com

Terrorist attacks are usually not very expensive endeavors.The recent plot to bomb flights from the UK to the United States involved little more than smuggling liquid explosives onto the aircraft in passengers' hand luggage. On September 11, 2001, the Al Qaeda only needed a few box-cutters and some airline tickets to bring down the World Trade Center.

But what lies behind these and other attacks is usually a vast network of terrorist cells and training camps that somehow need to be paid for.

The Hezbollah, for example, not only has to fund a well-trained and well-armed militia, but it has to pay for a whole range of "charitable" activities such as clinics, schools, even a television station which help to ingratiate them with the local population in Southern Lebanon

How do they get the money to pay for all this?Some of the Hezbollah's money comes from contributions from individuals and governments: it was recently disclosed that Iran is paying Hezbollah up to $300 million to support them in their war against Israel.But a big part of Hezbollah's funding still has to come from other sources-and many of them are illegal.

In 2002, for example, two Hezbollah operatives in North Carolina were convicted of running a cigarette smuggling operation, shipping cigarettes from low-tax states like North Carolina to states with high cigarette taxes like Michigan.This generated millions of dollars in profit--much of which was sent to Lebanon to support the Hezbollah's activities.The two operatives are now serving prison terms for "aiding and abetting" terrorist activities in the Middle East.

And how do these terrorists get their illegally-earned money to where it's needed?The men in North Carolina simply packed it into suitcases and brought it to Lebanon by hand.But when you have large amounts to send-millions, if not billions of dollars-you need to use the banking system.And banks in countries with lax laws and minimal oversight are the most logical alternatives.But most off-shore banks, especially those in the Caribbean, have become associated with illegal money-primarily drug money.

So the key for terrorists is to get their illegally-earned money into more respectable banks so it can be sent to where it's needed without arousing suspicion from the local authorities.Ideally, they want the money to end up in respected banking centers, such as Switzerland.But the authorities there have greatly increased their efforts to close loopholes such as Trustee accounts, which allow people to open accounts in someone else's name.Which makes the Swiss banks, in fact, even more sought after as part of the chain used to launder money.

Unfortunately, removing one money-laundering loophole is not going to solve the problem-especially when other financial centers, such as those in Cyprus and the Caribbean, are not so strict at accepting illegal money.It's a bit like hitting a pillow with your fist: you hit one area and the money goes somewhere else.Any solution to the problem of terrorist groups laundering funds, therefore, has to involve a comprehensive plan to go after the source of funding-as well as its use.

By going after Hezbollah rockets and bunkers, Israel may think it's removing a major menace to its security.But any weekend gardener knows that if you cut off a weed above the ground it's just a matter of time until it grows back.The financial roots that nourish terrorist activities have to be dealt with as well.And that means that all the players in the international banking system need to find a way control the flow of illegal money-and stop it from getting into terrorist hands.

Charles Epping, a Swiss-based financier and financial writer is the author A Beginner's Guide to the World Economy (Vintage Books) and Trust, a new novel published by Greenleaf Book Group Press which explores the use of a Swiss trustee account by the Hezbollah and other groups to move illicit money through the international financial system.