CQ HOMELAND SECURITY

The increasingly fractured international map is easily exploited by terrorists, who merge their syndicates with criminal groups to globetrot without ever raising their heads above ground.

This merging and malleable network allows the free flow of currency, arms, people and drugs — anything the terrorists and criminal groups need — and proves the fallacy of national borders in an ever-shrinking world.

“They’ve picked up on globalization faster in some cases than we have,” said Frank Cilluffo, director of George Washington University’s Homeland Security Policy Institute.

A panel of counterterrorism experts, including former federal officials and a noted journalist, outlined the difficulties of targeting terrorist finances during a roundtable discussion Tuesday, in part because the subject has received short shrift in current policy discussions and presidential campaigns, Cilluffo said.

The changing nature of criminal and terrorist networks will require a more sophisticated, comprehensive, and nimble approach to halting terrorist financing than is being pursued today, the panelists agreed. This included a focus on financial intelligence, a comprehensive product-labeling and regulatory system to track the flow of commerce and finances, and an understanding of how terrorists have spread beyond their initial borders.

Journalist and author Doug Farah of the Counterterrorism Blog and Nine/Eleven Finding Answers Foundation underscored some emerging macro-trends in hopes of dispelling common misconceptions about terrorist operations.

As the number of nations in the world expands, Farah said, so does the number of failed states and thus potential terrorist safe-harbors. Since World War II, the number of countries has grown from 51 to about 200. Meanwhile, he counted the number of failed states as growing from 11 in 1996, to 17 in 2003, to 26 three years later. Today, he said, there are more.

“Eleven to 26 in one decade is pretty alarming, and it’s not getting any better,” Farah said.

A corollary of this is the merging of terrorist pipelines with those of organized crime, expanding the reach and danger terrorists pose. The Revolutionary Armed Forces of Columbia, or FARC, for example, are involved in a nexus that runs from Colombia to Venezuela to Iran; it is a prototype for contemporary terrorist groups from Latin America to sub-Saharan Africa that today cross borders, and even continents, at will.

Policymakers also often fail to disaggregate the different types of failed states, Farah said.

“We like to talk about failed states as failed states, when in fact I would argue that many failed states are in fact very efficient, they do what they do well, and in fact they’re simply criminal syndicates,” Farah said.

He cited former President Charles Taylor’s Liberia as an example. On trial for war crimes before the Special Court for Sierra Leone, Taylor collected gold and diamonds instead of picking up garbage or running schools for his people. At the same time, Taylor allowed Hezbollah, al Qaeda, and Russian and Israeli criminal groups to operate in a country the size of Maryland and somehow kept them from killing one another.

“That’s a very efficient state,” Farah said.

Outlaws flock to such places because they find safe harbor as well as other handy items such as diplomatic passports, “an incredibly nice thing if you’re a wanted criminal,” Farah said.

But even looking at the map carved into discrete chunks is a mistake. Take the war in Democratic Republic of Congo, which has leaked out to surrounding nations, or the conflict over natural resources between Liberia and Sierra Leone, or the FARC, which operates across Latin America and other parts of the world, Farah said. In reality, their borders are nonexistent.

“I don’t think you can separate these groups as national problems any longer,” Farah said. “I think you see them spreading rapidly across the globe,” and that will aid self-financing, for example, through drugs – opium in Afghanistan and cocaine in Columbia – as state sponsorship becomes a less prevalent option.

Stephen Kroll, a professor of international politics at American University and a former chief counsel at the Treasury Department’s Financial Crimes Enforcement Network, critiqued the view that going after terrorist finances is unimportant because terrorist attacks can be conducted on the cheap.

“I think they’re not thinking about something important, which is the capital costs of this whole thing,” such as running madrasas and training camps and paying the families of martyrs, Kroll said.

Sanctions policy, for its part, is ineffective at stopping terrorist financing because terrorists have so many options — massive drug-trafficking earnings, for example — although it can be useful in forging diplomatic alliances.

In addition, organizationally, there’s still too much interagency competition and unwillingness to share intelligence. “We’ve never had a real fusion center,” Kroll said, “. . . we’ve never had a real ability to match data.”

Even more serious problems can be found in the cracks in the international structure — an unwillingness to address the two structural problems that impede all terrorist financing initiatives, offshore financial centers and shell companies. It’s not just the Cayman Islands anymore, Kroll said. It’s Dubai, the United Arab Emirates and Singapore.

“I think we tend to understate how sophisticated some of these groups are, think of Dr. [A. Q.] Khan, and the financing of weapons of mass destruction,” he said.

Matthew Levitt, a former deputy assistant secretary for intelligence and analysis at the Treasury Department and a director of counterterrorism programs at the Washington Institute for Near East Policy, said he gets frustrated when people reach for a single tool to deal with a complex issue — which has happened in discussions on sanctioning Iran over its nuclear enrichment program, for example.

On terrorism financing issues, the magic tool is often thought to be the traditional option of freezing funds, Levitt said.

This should involve not just fundraising, which can be so ubiquitous as to make efforts ineffective, but also other activity nodes along the money: transferring, laundering, and accessing funds. In all these cases, freezing funds is only as effective as intelligence, because terrorists will use front organizations to move money around.

The other side of the equation is financial intelligence, or following the financial transactions of a target to understand its size, capabilities, and possible actions. The 9/11 commission argued, and Levitt agrees, that as effective as it can be for stopping funds, financial intelligence is infinitely more effective as an intelligence tool, to following links between individuals and organizations from a source of funding to the users and even operators.

“And there have been instances where we have followed it upstream to the point of uncovering actual trigger pullers,” Levitt said.

This is undermined when intelligence agencies focus on one or two groups, because fundraising agents often overlap and can be caught if following seemingly secondary trails. Another problem in pursuing financial intelligence is convincing allies to perform it seriously.

“As a pre-emptive tool, we are still convincing allies that this is something they should seriously invest their time in,” Levitt said.

That, and the importance of intelligence for freezing assets as well, reminded him of being in a leaky boat, he said. “Until we get a lot more partners doing this, we’re just not going to have a system where people are looking at this and sharing information in a timely and effective way.”

Jonathan Winer, a former deputy assistant secretary of state for international law enforcement and a senior vice president of APCO Worldwide, a consulting firm, supported broad technocratic methods of countering terrorism financing.

That is, first, setting up a universal marking and labeling system to track commerce. The government does so with bottles of water, but not diamonds, timber, currency or fertilizer.

“We could,” Winer said, “but we don’t.”

In addition, there are huge regulatory blind spots, as shown in the problems predicting risk in the current financial crisis. If the government can’t track trillions of dollars in financial institutions, how can it follow the relatively small amounts of money used in terrorist attacks.

Every failed state is a blind area, Winer said, as are store-value cards, currency, unregulated hedge funds, he said.

To erase the blind spots, Winer recommended creating a technocratic system for collecting intelligence on commerce and finances on a daily basis. This includes universal marking and labeling systems for trade as well as a regulatory system that will follow currently exempted financial vehicles.

And Winer hopes that’s what the next administration will try to do.

Matt Korade can be reached at mkorade@cq.com.