Summary

Terrorist Financing: U.S. Agencies Should Systematically Assess Terrorists' Use of Alternative Financing Mechanisms

GAO-04-163  November 14, 2003

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Cutting off terrorists' funding is essential to deterring terrorist operations. The USA PATRIOT Act expanded the ability of law enforcement and intelligence agencies to access and share financial information regarding terrorist investigations, but terrorists may have adjusted their activities by increasing use of alternative financing mechanisms. GAO was asked to assess (1) the nature of terrorists' use of key alternative financing mechanisms for earning, moving, and storing terrorists' assets; (2) what is known about the extent of terrorists' use of alternative financing mechanisms; and (3) challenges that the U.S. government faces in monitoring terrorists' use of alternative financing mechanisms.

Terrorists use many alternative financing mechanisms to earn, move, and store assets. They earn assets by selling contraband cigarettes and illicit drugs, by misusing charitable organizations that collect large donations, and by other means. They move funds by concealing their assets through nontransparent mechanisms such as charities, informal banking systems, and commodities such as precious stones and metals. To store assets, terrorists may choose similar commodities that maintain their value and liquidity. The extent of terrorists' use of alternative financing mechanisms is unknown, owing to the criminal nature of terrorists' use of alternative financing mechanisms and the lack of systematic data collection and analysis of case information. The Federal Bureau of Investigation (FBI) does not systematically collect and analyze data on these mechanisms. Furthermore, the Departments of the Treasury and of Justice have not yet produced a report, required under the 2002 National Money Laundering Strategy, which was to form the basis of a strategy to address how money is moved or value transferred via trade in precious stones and commodities. In monitoring terrorists' use of alternative financing mechanisms, the U.S. government faces a number of challenges, including accessing ethnically or criminally based terrorist networks, targeting high-risk financing mechanisms that the adaptable terrorists use, and sharing data on charities with state officials. The Internal Revenue Service (IRS) has committed to, but has yet to establish, procedures for such data sharing.

Subject Terms

Counterterrorism
Drugs
Terrorists
Federal intelligence agencies
Financial analysis
Financial management
Law enforcement agencies
Money laundering
Monitoring
Terrorism