Addressing Terrorism Funding Threats through Charitable Foundations

22nd June 2017

Revised, Edited by Bachir El Nakib, Senior Consultant, Compliance Alert (LLC)

"Charities can be potential channels for raising and distributing funds for terrorism financing. Because of this charities must take all reasonable precautions and exercise due diligence (research and action to reduce the risk, particularly when working with other people and organisations) to ensure that funds are not inadvertently directed towards terrorism. This includes putting in appropriate governance structures. There may be serious consequences for charities if they are used for terrorism financing (even if the charity does not know), including criminal penalties".

Terrorist organizations, classified by international agencies such as ISIL or Daesh, Al Qaeda, Al Nusra, Jaysh Fateh, Hamas, Hezbollah and FARC, state sponsors of terrorism, such as Iran, North Korea, Syria, and criminal organizations, such as Mexican drug cartels, have had many years to perfect their fundraising infrastructure and exploit weaknesses in the safeguards established by governments and the global financial sector.

"Guarding charities from terrorism and extremism was one of three strategic priority risk areas: the other two are tackling fraud and financial abuse and protecting vulnerable beneficiaries".

Terrorism Financing typologies show that one of the way in which terrorists obtain funds is through non-profit organizations (NPOs). They give examples of NPOs being used to raise, transfer and divert funds for terrorist purposes. They also identify terrorist organizations posing as legitimate NPOs.

The Financial Action Task Force (FATF) adopted, in October 2001 (Special Recommendation VIII) asked countries to review the adequacy of laws and regulations that relate to entities that can be abused for the financing of terrorism and ensure that NPOs are not misused by terrorists. This should be done while “safeguarding and maintaining the practice of charitable giving and the strong and diversified community of institutions through which it is operated”.

This broad and general language does not specify how the review and adoption of standards can be done. The FATF became aware that the diversity of the NPO sector and the differences in the level of oversight among countries as well as the lack of clear indications of concrete measures to be implemented required additional guidance and published a Best Practice Paper in 2002 that offered a range of options for preventing the misuse of NPOs for terrorist purposes. After 2002, however, FATF members continued to indicate their difficulties in implementing SR VIII and an interpretative note was issued in 2006.

A leaked email written by Hillary Clinton in January 2016 included an excerpt from a private speech she had made in 2013 in which she acknowledged that “the Saudis have exported more extreme ideology than any other place on earth over the course of the last 30 years.” And a classified 2009 cable signed by Clinton while serving as US Secretary of State admitted that “Donors in Saudi Arabia constitute the most significant source of funding to Sunni terrorist groups worldwide.” In July of 2013, the European Parliament identified Wahhabism, the governing doctrine of Saudi Arabia, to be the main source of global terrorism.

Many questions then arise on the flexibility Qatari jurisdiction, and whether it is lenient in fund-raising and financing banned extremist groups abroad.

A US State department country reports on Terrorism in 2015 confirmed that “entities and individuals within Qatar continue to serve as a source of financial support for terrorist and violent extremist groups, particularly regional al-Qaeda affiliates such as the Nusra Front”.

Several sources in both the US congress and other western nations have chided how Qatari judiciary is lenient when it comes to financing of extremists from individuals in Doha.

Among the most prominent methods used by terror financiers with Qatari support are those associated with ransom payments, many of which are simply arranged operations to obtain the funds, especially when it comes to kidnappings by extremist group Nusra Front.

The UN Secretary-General Report on the threat posed by ISIL (Da’esh) to international peace and security and the range of United Nations efforts in support of Member States in countering the threat (S/2017/467) [EN/AR]

I. Introduction

1. In adopting its resolution 2253 (2015), the Security Council expressed its determination to address the threat posed to international peace and security by Islamic State in Iraq and the Levant (ISIL, also known as Da’esh) and associated individuals and groups, and emphasized the importance of cutting off its access to funds and preventing it from planning and facilitating attacks. In paragraph 97, the Council requested that I provide an initial strategic-level report on the threat, followed by updates every four months.

2. The present report is the fifth such report (see S/2016/92, S/2016/501, S/2016/830 and S/2017/97) and was prepared by the Counter-Terrorism Committee Executive Directorate and the Analytical Support and Sanctions Monitoring Team pursuant to Security Council resolutions 1526 (2004) and 2253 (2015) concerning Islamic State in Iraq and the Levant (ISIL) (Da’esh), Al-Qaida and the Taliban and associated individuals and entities of the Security Council Committee established pursuant to resolutions 1267 (1999), 1989 (2011) and 2253 (2015) concerning Islamic State in Iraq and the Levant (Da’esh), Al-Qaida and associated individuals, groups, undertakings and entities, and in close collaboration with the Counter-Terrorism Implementation Task Force, the United Nations Counter-Terrorism Centre and other United Nations entities and international organizations.

3. Security Council resolution 2253 (2015), adopted at a Council meeting held at the level of ministers of finance, reinforced the existing international counter-financing of terrorism framework by calling on Member States to move vigorously and decisively to cut off the flow of funds and other financial assets and economic resources to ISIL. The present report focuses on current sources of terrorism financing and the evolution in financing methods; the measures put in place by Member States to deny funds to ISIL and its affiliates and disrupt terrorist networks; and the efforts of the United Nations and its partners to strengthen States’ capacities in that regard. The report also addresses measures and initiatives — including prosecution and rehabilitation strategies — developed to address the threat posed by foreign terrorist fighters (see Council resolution 2178 (2014)) who return from conflict zones, whether to their respective States of origin or to other States.

II. Development of the threat since January 2016 (S/2016/92)

A. Core of ISIL in Iraq and the Syrian Arab Republic

4. Since January 2016, Islamic State in Iraq and the Levant (ISIL) has remained under continuous military pressure and experienced several setbacks in the Syrian Arab Republic and in Iraq. The group continues to resist, however, in particular in Mosul, Iraq, and currently retains its hold over Raqqah, Syrian Arab Republic. Owing to the complicated military situation, the group reorganized its military structure, diverting decision-making responsibility downwards to local commanders (see S/2017/35, para. 16). In a further reaction to its setbacks in the conflict zone, the group continues to enable and inspire a range of attacks outside the conflict zone. The death of Abou Mohamed al Adnani (QDi.325) and the loss of the city of Manbij, Syrian Arab Republic, which served as the group’s headquarters for propaganda and external attack planning, forced the group to reorganize (see S/2017/35, para. 18). ISIL has used improvised explosive devices since its inception; however, despite the sustained military pressure, the group was able to develop capacities to assemble such devices on an industrial scale and to use significant numbers of commercially available drones in a variety of ways: for propaganda, reconnaissance, to direct indirect fire and for aerial attacks.

5. The number of ISIL fighters has significantly decreased in the past 16 months to between 12,000 and 20,000 (see S/2017/35, para. 14). In parallel, the flow of foreign terrorist fighters from many regions to Iraq and the Syrian Arab Republic has slowed. However, returnees and the relocation of fighters from the conflict zones to other regions now present a considerable threat to international security (see S/2017/35, para. 3).

6. The threat from ISIL has been exacerbated by its sophisticated use of the Internet and social media to disseminate online messages to a wide international audience. Since 2014, ISIL has used its online publications to reach potential foreign terrorist fighters and social media to directly engage individuals, encouraging them to join its ranks. It has also targeted specific skill-sets and tailored its message to different linguistic groups using foreign terrorist fighters primarily based in Syria and Iraq to reach out to individuals in their countries of origin in their own language. Once engaged in dialogue, ISIL recruiters and enablers quickly shifted their communications onto a wide range of encrypted applications, complicating efforts in home countries to monitor and investigate such contacts. In the past 16 months, the volume of propaganda has declined, while the earlier overarching message intended to convey an impression of “State building” has shifted towards seeking to demonstrate successes in its military engagements (see S/2017/35, para. 17). Despite this decline in output, much of the propaganda will persist as supporters outside the conflict zones collect and redistribute it.

In addition to funding historically received through charitable fronts and donations from state sponsors of terrorism such as Iran and Syria, many terrorist and criminal organizations raise money through a variety of criminal enterprises, including narcotics trafficking, credit card scams, and smuggling. For example, Mohammad Hammoud and five other individuals were convicted in 2003 for organizing a cigarette smuggling ring in North Carolina for Hezbollah’s benefit. Investigators estimate that the smugglers collected approximately $2 million in profits from their activities.

“Traditional” Banking Channels

The United States and other nations have developed legal and regulatory systems aimed at detecting, blocking, and freezing illegal funds transfer activities, and (especially post-9/11) tools to identify and map terrorist and other criminal networks. But these systems have limits, and terrorists, money launderers, and rogue states constantly attempt to exploit vulnerabilities and systemic flaws in the financial system. For example, since 1986, the U.S. has maintained an anti-money laundering regime requiring banks to report banking transactions that bankers find “suspicious” as well as those indicative of criminal conduct. However, many experts complain that information gathered through such channels is not used effectively, at times focusing too narrowly on a particular incident, or only generating anecdotal evidence to indicate patterns-and-trends, rather than deeper data mining. And while an entire industry comprised of expensive computer software and training seminars has developed to combat money laundering that has arguably improved risk detection and intelligence gathering, anti-money laundering and terrorism financing regulations are only as effective as the commitment financial institutions have to implementing them. The past decade clearly demonstrates that the international financial community remains a key point of vulnerability because some banks are not actively trying to prevent illicit conduct and others are actively profiting from it.

Charitable Fronts

As noted terrorism financing expert Dr. Matthew Levitt observed when he testified before the U.S. Congress in 2010, a key vulnerability of large terrorist groups such as Hamas and Hezbollah is their “need for a large flow of external funds, necessitated by the local population’s inability to finance all of the infrastructure needed to provide essential services.” Identifying and exploiting terrorists’ vulnerabilities in this respect requires understanding the different means and mechanisms that such groups employ to maintain steady cash flow.

In the Islamic world “zakat” (religious tithing) is considered a religious obligation. Islamist terrorist organizations often raise funds through charitable organizations by exploiting the tenet of zakat through fundraising apparatuses that provide a ready source of income generated from religious or ethnic communities with ties to the Middle East. Although Islamic charities serve many legitimate purposes, in many places a lack of transparency, oversight, and financial controls fosters an environment allowing terrorist groups to divert funds raised in the United States, Europe and elsewhere and use them for illicit purposes.

In fact, the Financial Action Task Force on Money Laundering’s 2002-2003 Report confirmed that some Islamist charitable organizations were established solely to earn funds for terrorist organizations. For example, the Holy Land Foundation for Relief and Development in Texas was convicted in 2008 of raising millions of dollars in the United States for Hamas. Similarly, the Al Aqsa Foundation in Germany was successfully prosecuted for funding Hamas. Likewise, the “Martyrs’ Foundation” in Lebanon, headed by Mohammad Hasan Rahimiyan, is allegedly controlled by Hezbollah.

These concerns linger today, both at national and local levels. For example, the New York State Legislature continues to consider a bill aimed at prohibiting funding of terrorist activities through donations to not-for-profit organizations. The United Nations Counter-Terrorism Security Committee also continues to explore ways of addressing threat finance risks to the charitable and not-for-profit sectors. Donations to purported charitable organizations have also been cited as fueling the continuing violent sectarian conflict in Syria, with millions of dollars from Gulf Charities being traced to Salafi militants waging a bitter civil war in that country.

State Sponsors of Terrorism

According to the U.S. State Department, the Islamic Republic of Iran remains the most active state sponsor of terrorism. Through its Islamic Revolutionary Guard Corps (IRGC) and its Ministry of Intelligence and Security (MOIS), Iran is directly involved in planning and supporting terrorist acts. Iran also continues to exhort a variety of groups, especially Palestinian terrorist groups like Palestinian Islamic Jihad (PIJ) and Hamas, to employ terrorism in pursuit of their goals. Iran’s Supreme Leader Ali Khamenei and former President Mahmoud Ahmadinejad have repeatedly praised Palestinian terrorist operations. Iran also provides Hezbollah and Palestinian terrorist groups with extensive funding, training, and weapons. Iranian control over Hezbollah is particularly direct and is exercised through various individuals and institutions, primarily through senior Iranian clerics and Iran’s MOIS, IRGC and elite Qods Force.

Syria has also been designated by the United States as a state sponsor of terrorism. The Syrian government continues to provide political and material support to Hezbollah and political support to Palestinian terrorist groups, including PIJ and the Popular Front for the Liberation of Palestine (PLFP). In fact, the Popular Front for the Liberation of Palestine-General Command (PFLP-GC) and PIJ base their external leadership in Damascus.

In recent years, Iranian efforts to use the global banking system to circumvent U.S., U.N. and other sanctions regimes reached their possible zenith in the wake of multi-billion dollar scandals involving many of the world’s most prominent banks that aided Iran’s efforts to avoid detection of prohibited transactions. These banks included (but were not limited to) Lloyds TSB, Credit Suisse, Bank of Tokyo Mitsubishi, Standard Chartered Bank, and ING Bank. Incredibly, these banks did not simply look the other way, or stumble in detecting illegal transactions. Instead, they frequently proposed, developed protocols, and actively coached Iran and Iranian bankers in ways to “strip” information from funds transfers. While the banks have collectively paid hundreds of millions of dollars in fines, and entered into Deferred Prosecution Agreements with the U.S. Department of Justice, to date no bank has been criminally prosecuted, leading many counter-terrorism professionals (including Professor Jimmy Gurulé, former U.S. Undersecretary for Terrorism and Financial Intelligence) to raise the troubling question, “are banks too big to prosecute?” Indeed, concerns about whether federal regulators can handle this job alone have led some states to independently pursue measures, including enacting statutes requiring state pension funds to divest themselves of companies’ stocks where those companies have discernible ties to State Sponsors of Terrorism.

Hawala

Terrorist and criminal actors vary their methods, based on differences in their structure, role, and degree of openness. For example, Daesh, Al Qaeda, largely a clandestine network, frequently uses “Hawala” channels (though it also raises funds through mosques, sympathetic clerics, and charitable organizations). Hawala is an alternative or parallel remittance system (literally translated as “transfer”) often associated with informal money exchange systems operating outside of formal financial sectors. It is used primarily to send money home to the Middle East or South Asia from abroad without physically transporting currency, thereby making it difficult for investigators and regulators to track the money.

In its simplest form, Hawala has four parties: (1) a customer who wants to send money; (2) a local intermediary (hawaladar) with a counter-part in the country or region where the customer wants to send the money; (3) a hawaladar in the receiving country or region who will provide the actual money to the recipient; and (4) the recipient. Thus, Hawala acts as an informal transnational credit system without the need to physically transfer currency from place to place. Like other “informal funds transfer systems” Hawala originated as a means of developing efficient and safer systems for trade financing, given dangers in traveling with gold or other hard currencies. The Hawala system, though used elsewhere, is principally and historically associated with South Asia and the Middle East, where expatriate communities who migrated to Europe, the Persian Gulf region, or North America, use Hawala to send remittances to relatives back home.

Although Hawala is used for legitimate funds transfers, its anonymity and minimal documentation have also made it vulnerable to abuse by individuals and groups transferring funds to finance illegal activities. For example, a series of bomb blasts in a major Indian city in 1993 was financed through Hawala, with the subsequent investigation revealing that the funds supporting these bombings (specifically funds used to buy explosives and to pay the bombers) were handled by Hawala operators in the United Kingdom, Dubai and India.

What happens is that the terrorist group Al Nusra kidnaps a group of Fijian, Italian, Lebanese, Syrian, or Turkish nationals, throwing in the occasional American for good measure. Then, friend-to-the-world Qatar will sweep in and pay Al Nusra to return the hostages: $150 million (Dh550.9 million) for the Turks, $20 million for the Fijians, $30 million for the Lebanese, $16 million for the Syrians, $15 million for the Italians, and $150 million for the American. Often the hostages are humanitarian aid workers, nuns, bishops, UN peacekeepers — people especially lauded by the West. Once Sister Christian from the village of Maalulahas has been released, the world erupts in glorious thanks. Through this method, Qatar has been openly funding Al Nusra since 2013. Nevertheless, it boasts of their “achievement of humanitarian and moral principles.”

Trigger

A ransom of up to $1 billion paid by Qatar to Iranian and Al Qaida-linked terrorists in Syria to release kidnapped members of the country’s royal family may have been a trigger behind six nations’ cutting ties with Doha, officials have claimed. The hefty ransom reportedly secured the release of 26 members of a falconry party, which included some members of Qatar’s royal family, who were kidnapped while hunting in southern Iraq in December 2015. Qatar paid the ransom to an Al Qaida affiliate fighting in Syria and Iranian security officials, a person involved in ransom negotiations said in April.

"The government of Qatar has hired John Ashcroft, the U.S. attorney general during the Sept. 11 attacks, as it seeks to rebut accusations from U.S. President Donald Trump and its Arab neighbors that it supports terrorism.

Qatar will pay the Ashcroft Law Firm $2.5 million for a 90-day period as the country seeks to confirm its efforts to fight global terrorism and comply with financial regulations including U.S. Treasury rules, according to a Foreign Agents Registration Act, or FARA, filing on Friday with the Justice Department.

"The firm's work will include crisis response and management, program and system analysis, media outreach, education and advocacy regarding the client's historical, current and future efforts to combat global terror and its compliance goals and accomplishments," according to a letter by Ashcroft firm partner Michael Sullivan included in the filing.

The Ashcroft firm was hired to do a compliance and regulatory view of Qatar's anti-money laundering and counterterrorist financing framework, Sullivan said in an email.

"Qatar is confident that the review and analysis will confirm that Qatar has significant measures in place to prevent and detect efforts to launder funds and/or to use its financial systems to finance terrorist organizations," he said.

Ashcroft was U.S. attorney general under President George W. Bush from February 2001 to February 2005, turbulent years in which U.S. policies and laws were reshaped by the so-called war on terrorism that followed the 2001 al Qaeda attacks.

Ashcroft's firm includes an array of former senior government officials including Sullivan, a former U.S. attorney in Massachusetts appointed by Bush to lead the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF).

(Reporting by Doina Chiacu and Ginger Gibson in Washington)".

Dangerous contradiction

Yousuf Al Otaiba, UAE ambassador to the United States, said it is a striking and dangerous contradiction: Qatar invests billions of dollars in the US and Europe and then recycles the profits to support Hamas, the Muslim Brotherhood and groups linked to Al Qaida.

How terrorists can abuse charities for terrorism financing

Some of the ways terrorists can misuse charities to raise funds to finance or support their activities (with or without the charity’s knowledge) include:

Using charity funding
For example, a local organisation that has a relationship with the charity to conduct project activities overseas, a ‘partner organisation,’ uses all or part of the charity’s money to fund acts of terrorism.
Using charity assets
For example, the charity’s vehicles or premises are used to transport or store weapons.
Using the charity’s name and status
For example, fundraising is conducted in the name of the charity by a terrorist organisation, without the charity’s knowledge or consent.
Committing financial abuse within a charity
For example, members of a terrorist group may infiltrate the charity and pose as employees, who then skim off money from fundraising to fund terrorist purposes.
Setting up a charity for illegal or improper purposes
For example, a terrorist group registers a charity but the charity does not work towards their charitable purpose. The group uses all of the charity’s funds for terrorism financing.

Why charities are at risk

The factors that allow charities to achieve outcomes and earn respect from the public also make them vulnerable to being misused to fund terrorism.

Operating locations

Charities may have a global presence that provides a framework for national and international operations and financial transactions.
Many charities work within or near those areas that are most exposed to terrorist activity.
Charities may operate in emergencies or provide humanitarian responses in locations where there are no banks or infrastructure, and they may have to deal in cash or use alternative remittance systems.

Financial operations

Charities often have complex financial operations which are not always accounted for in detail, including:

multiple donors, investments and currencies
a high volume of small transactions
informal money transfers.

There may be unpredictable and unusual income and expenditure streams, so suspicious transactions may be hard to identify.

Organisational structure and programs

Charities may be run by one or two key individuals, often in unsupervised roles which makes it easy to quickly move money and assets around.
Often there are complex programs of operation and charities pass funds through intermediary partner organisations to deliver their services.

The high level of public trust