International Banking: Text and Cases, Page 1 of 2

Elusive Terror Money Slips Through Government Traps

by Jane E. Hughes, Brandeis University
USA Today, November 27, 2001

Hunting down terrorists'money makes for compelling headlines,

but the unfortunate reality is that freezing the financial assets of
terrorists is highly unlikely to shoot a silver bullet into the
terrorists' hearts. Instead, it's likely to be about as debilitating to
the bad guys as a stubbed toe.

U.S. officials liken the hunt for terrorist money to their anti-
money-laundering efforts that supposedly have been so valuable
in the war on drugs. But there are several fallacies in this
argument. Most obviously: When did we win the war on drugs?

Drug trafficking, use and profits are all flourishing despite 15

years of increasing pressure on bankers to identify "suspicious
transactions" that theoretically should lead law enforcement
agents to drug barons. Putting bankers on the front lines in the
war against drug traffickers has produced floods of suspicious
transaction reports, but few impoverished and imprisoned ex-drug
traffickers.

In addition, terrorist finances are the mirror image of money

laundering. Money laundering is the act of depositing ill-gotten
gains into the banking system, then whipping them through
enough accounts (and countries) to blur the original source of the
money and make it look legal. Terrorists do the exact opposite;
they deposit funds that were probably earned legitimately into the
financial system. The funds are transferred and eventually
withdrawn for the purpose of committing illegal acts. In the battle
against money laundering, the focus is on the depositor; here we
are looking for those who withdraw the money.

Hunting for a needle

Perhaps most compelling, money laundering by drug traffickers
involves breathtaking sums of money. Terrorism, by contrast, is a
bargain-basement operation. The International Monetary Fund
estimates that money laundering amounts to as much as 5% of the
world's gross domestic product, or $1.5 trillion per year. U.S.
officials believe that it cost terrorists a mere $500,000 or so to
create the horrors of Sept. 11. Consider that some $1.2 trillion
passes through foreign exchange markets every day, then imagine
hunting for that $500,000. It's a needle-in-a-haystack story --
except this needle is trying to evade the hunter.

In the next few months, it probably will be relatively easy to feed

thousands of suspect names into worldwide databases to track
down and freeze funds associated with them. But there's a lot
more where that came from. Lucrative sidelines such as drug

http://www.aw.com/info/hughes_macdonald/article.html 13/03/03