MEMORANDUM TO: OPINION LEADERS

FROM: ELLEN BORK, Deputy Director

SUBJECT: Shutting Down Terror-Financing in Southeast Asia

Despite Southeast Asia’s importance as a source of terror-financing, not nearly enough has been done to shut down funding channels there, Zachary Abuza argues in a piece (“Asia Hasn’t Stopped the Terror Funding”) in today’s Asian Wall Street Journal. Professor Abuza, the author of Militant Islam in Southeast Asia: Crucible of Terror, criticizes the additions of individual terrorists in jail or on the run to a UN blacklist as “futile gestures.” Meanwhile, American “bureaucratic wrangling” inspired by “fear of diplomatic fall-out,” resistance and denial from Malaysia and Indonesia, the continued activities of Saudi Arabian charities, and other failures allow funds to flow to companies and charities that provide a network of support to terrorists. While several Southeast Asian countries have recently gotten good marks for their anti-terror efforts, Professor Abuza suggests that where terror-financing is concerned that is not the case.

Asia Hasn’t Stopped The Terror Funding
Zachary Abuza
Asian Wall Street Journal
October 1, 2003

It’s now just over a year since 20 al Qaeda and Jemaah Islamiyah operatives in Southeast Asia were added to the list established under United Nations Resolution 1390, which provides for international sanctions against known terrorist financiers. Earlier this month, the U.N. put another 19 such terrorists from Southeast Asia on the list. These actions amount to little more than futile gestures that do little to tackle the problem of terrorist funding in Southeast Asia.

Many of these men are in jail -- one since 1995 -- and the rest are on the run. None are known to have significant assets, very few of which have been frozen. Almost the only benefit of placing these individuals on the U.N. blacklist was to make it easier to target those who do business with them. That’s especially important in countries like Indonesia, where JI has still not been banned and you can’t be arrested for being a member of the group unless police can draw a direct link to a crime or terrorist act.

Once an individual is on the Resolution 1390 list, it becomes an offense to have any business or financial dealings with them. So even if it is impossible to link a JI member to the Bali bombing, proving he gave money to someone on the list becomes enough to issue an arrest warrant almost anywhere in the world.

Necessary as this is, it’s a far cry from what’s needed to tackle terrorist funding in Southeast Asia. Al Qaeda has been active in the region since the early 1990s, when it first began using Southeast Asia as a back office for activities such as setting up front companies, fundraising, recruiting, forging documents and purchasing weapons. Only later did the region become a theater of operations in its own right as JI, its local affiliate, developed its own terrorist capabilities.

According to U.S. law-enforcement officials, Southeast Asia has now become even more important to al Qaeda’s money men following the Sept. 11, 2001 terrorist attacks. Those prompted a crackdown on funding channels in the Middle East, especially in the financial centers in Abu Dhabi and other parts of the United Arab Emirates. But little was done to shut down funding channels in Southeast Asia, where money continues to flow to the terror group through hawala networks, gold and gem smuggling and cash transfers. That’s why the list of names added to the U.N. blacklist last year was so disappointing, since it didn’t include any of the known front companies and charities affiliated with terror groups in the region.

What’s worse, the list was shortened by bureaucratic wrangling within the U.S. government. Although the U.S. Treasury Department initially drew up a list of 300 individuals, charities and corporations in Southeast Asia believed to be funding terror groups or acting as a front for their activities, the State Department insisted on deleting many of these. That’s because they feared the diplomatic fallout, especially from the Malaysians, whose nationals comprised much of the original list.

They were supported by the intelligence community, who see terrorist financiers as an important intelligence-gathering tool. CIA officials wanted the known fronts to remain operating so that they could better monitor them and the associated individuals. The CIA also expressed concern that putting front companies on the list would only drive them underground, and prompt the terror groups to establish new funding mechanisms, charities and companies.

Even stronger opposition came directly from the Malaysians. Foreign Minister Datuk Seri Syed Hamid Albar stated that, “There is no evidence within the Malaysian banking system to suggest that any Malaysian has financed a terrorist operation.”

Terrorist financing issues remain a very sensitive issue for the Malaysians and they have taken umbrage at any suggestion that their financial institutions have been used to support terrorism. For instance, the original list of names from the U.S. Treasury Department included 10 Malaysian-based firms controlled by JI members, that donate 10% of their revenue into the Infaq Fi Sabilallah -- or Jihad Fund.

Yet the Malaysian government has refused to cooperate with the United States in tackling these firms. Their attitude is that putting such names on the U.N. list would be pointless, since the firms are either defunct, have changed hands or did not generate income for JI members alone and so could not be characterized as JI fronts. But the chief reason seems to be a fear in Kuala Lumpur that having Malaysian-based firms named in this way would have an adverse impact on their economy, by scaring away investors who might view the country as a terrorist haven.

Similar considerations explain Jakarta’s reluctance to tackle the issue of Indonesian-based funding of terror groups. For instance, the attorney general’s office has resisted setting up a financial-intelligence unit.

Of equal importance are the Saudi charities in the region. Omar al Faruq, al Qaeda’s former top organizer in Southeast Asia, has confessed under interrogation that a branch of the al Haramain Islamic Foundation, an international charity based in Saudi Arabia, was the primary conduit of funds to terrorist groups in the region. Despite Saudi pledges that al Haramain would stop operations in Indonesia, it has just completed a new madrassah on the outskirts of Jakarta, one of many schools it supports across the archipelago.

Like al Haramain, two other Saudi charities, the International Islamic Relief Organization and the Medical Emergency Relief Charity, work with the largest Indonesian charity Kompak, which was active in the sectarian conflict in the Malukus and Sulawesi that led to the death of some 8,000 people. According to detained JI members, skimmed funds from Kompak funded JI’s two paramilitary arms. At least two of the 13 regional chiefs of Kompak were JI members. Kompak produced many of the jihadi videos that JI and al Qaeda used to raise funds, propagandize and recruit.

Yet this charity, which is affiliated with the politically powerful Islamist organization Dewan Dakwah, remains open. In the Philippines, the IIRO, whose office was established by Osama Bin Laden’s brother in law, Mohammed Jamal Khalifa, in the early 1990s, directed funds to the Abu Sayyaf and MILF insurgents, in addition to building, mosques, schools and dispensaries. Yet due to Saudi Arabia’s diplomatic clout (and the one million Filipino guest workers in the kingdom), the IIRO was never shut down; it simply changed its name and continued operations.

Officials must also look in new places: One of the most important sources of al Qaeda funding was a small Islamic charity, the Om al Qura foundation, which had branches in Thailand and Cambodia as well as Bosnia and Chechnya. The mastermind behind that charity also established money-laundering fronts in orphanages and nursery schools in Malaysia.

Governments in the region cannot become complacent about the threat of terrorism. JI is down, but not out. Yes, there have been some 200 arrests -- but JI is actively recruiting. Its goal is to cause economic chaos, conditions it needs to gain political support. It has the will and capacity to do inordinate damage to the economies of the region.

Terrorist acts do not require huge sums of money. Bali and the JW Marriott bombings cost no more than $35,000 each, a fraction of the overall financial damage they caused. But the expenses of maintaining a terrorist organization do add up: safe houses, living expenses, procurement, bribes, false documents and travel. JI and al Qaeda have wisely and effectively diversified their sources of revenue. States in the region must resist bureaucratic inertia and overcome the lack of political will in order to crack down on the terrorists’ financial fronts.

Mr. Abuza is director of Asian studies at Simmons College in Boston and author of “Militant Islam in Southeast Asia: Crucible of Terror” (Lynne Rienner, forthcoming).