Terrorist Financing: U.S. Agencies Should Systematically Assess  
Terrorists' Use of Alternative Financing Mechanisms (14-NOV-03,  
GAO-04-163).							 
                                                                 
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.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-163 					        
    ACCNO:   A08852						        
  TITLE:     Terrorist Financing: U.S. Agencies Should Systematically 
Assess Terrorists' Use of Alternative Financing Mechanisms	 
     DATE:   11/14/2003 
  SUBJECT:   Counterterrorism					 
	     Drugs						 
	     Financial management				 
	     Money laundering					 
	     Terrorism						 
	     Federal intelligence agencies			 
	     Law enforcement agencies				 
	     Monitoring 					 
	     Financial analysis 				 

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GAO-04-163

United States General Accounting Office

GAO

                       Report to Congressional Requesters

November 2003

                                   TERRORIST
                                   FINANCING

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

GAO-04-163

Highlights of GAO-04-163, a report to congressional requesters

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.

GAO recommends that (1) the Director of the FBI systematically collect and
analyze data concerning terrorists' use of alternative financing
mechanisms; (2) the Secretary of the Treasury and the Attorney General
produce the planned report based on up-to-date law enforcement
investigations on precious stones and commodities; and (3) the IRS
Commissioner

November 2003

TERRORIST FINANCING

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

Terrorists use many alternative financing mechanisms to earn, move, and
store assets (see table). 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.

Examples of Alternative Financing Mechanisms That May Be Used to Earn,
Move, and Store Terrorist Assets

Alternative financing mechanisms Earning Moving Storing

Trade in commodities

Illicit drugs X

establish interim procedures for Weapons X
sharing information on charities Cigarettes X
with state charity officials. Diamonds X X X
The DOJ did not formally respond
to our recommendation. The Gold XX
Treasury agreed to produce the Systems
planned report and IRS committed Charities X X
to expedite issuance of procedures. Informal banking X

Currency

Bulk cash X X www.gao.gov/cgi-bin/getrpt?GAO-04-163.

Sources: GAO analysis based on government, industry, and research sources.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact Loren Yager at (202)
512-4128 or [email protected].

Contents

  Letter

Results in Brief
Background
Terrorists Use Various Alternative Financing Mechanisms to Earn,

Move, and Store Their Assets Extent of Use of Alternative Financing
Mechanisms Is Unknown Key Challenges Impede Monitoring of Terrorists' Use
of Alternative

Financing Mechanisms Conclusions Recommendations for Executive Action
Agency Comments and Our Evaluation 1

3 5

9 23

28 34 34 35

Appendix I Objectives, Scope, and Methodology

Appendix II 	Comments from the Department of the Treasury 42 GAO Comments
46

Appendix III Comments from the Internal Revenue Service

  Appendix IV GAO Contacts and Staff Acknowledgments 50

GAO Contacts 50 Staff Acknowledgments 50

  Tables

Table 1: Key U.S. Government Entities Responsible for Deterring Terrorist
Financing 8 Table 2: Examples of Alternative Financing Mechanisms That May
Be Used to Earn, Move, and Store Terrorist Assets 10

  Figures

Figure 1: Hizballah Financiers Earn Assets through Cigarette Smuggling 13
Figure 2: Location of Benevolence International Foundation Offices
Worldwide 16

                Figure 3: Example of Hawala-type Transaction 18

Abbreviations

ATF Bureau of Alcohol, Tobacco, Firearms, and

Explosives DEA Drug Enforcement Administration DHS Department of Homeland
Security DOJ Department of Justice FBI Federal Bureau of Investigation
FinCEN Financial Crimes Enforcement Network HAMAS Harakat al-Muqawama
al-Islamiya-Islamic

Resistance Movement ICE Bureau of Immigration and Customs Enforcement
INTERPOL International Criminal Police Organization IRS Internal Revenue
Service OGQ Operation Green Quest TFOS Terrorist Financing Operations
Section U.N. United Nations USA PATRIOT Act Uniting and Strengthening
America by Providing

Appropriate Tools Required to Intercept and Obstruct Terrorism Act

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.

United States General Accounting Office Washington, DC 20548

November 14, 2003

The Honorable Richard J. Durbin
Ranking Minority Member
Subcommittee on Oversight of Government Management,

the Federal Workforce and the District of Columbia
Committee on Governmental Affairs
United States Senate

The Honorable Charles E. Grassley
Chairman
Caucus on International Narcotics Control
United States Senate

U.S. government officials recognize that cutting off terrorists' funding
is an
important means of disrupting their operations. The Uniting and
Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act (USA PATRIOT Act),1 enacted
shortly after the terrorist attacks of September 11, 2001, expanded the
ability of law enforcement and intelligence agencies to access and share
financial information regarding terrorist investigations. As initial U.S.
and
foreign government deterrence efforts focused on terrorists' use of the
formal banking or mainstream financial system, terrorists may have been
forced to increase their use of various alternative financing mechanisms.
These mechanisms enable terrorists to earn, move, or store assets and
may include a variety of commodities and informal financial systems.

You requested that we review what is known about terrorists' use of
alternative financing mechanisms.2 In response, in this report we assessed
(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)
the challenges that the U.S. government faces in monitoring terrorists'
use

1Pub. L. No. 107-56 (Oct. 26, 2001).

2Terrorists are individuals who are part of international organizations
with the will and means to target the United States or U.S. interests
abroad with violent or dangerous acts calculated to intimidate, coerce, or
retaliate against government conduct (see 18 U.S.C. 2331(1), 18 U.S.C.
2332b(g)(5)).

of alternative financing mechanisms. As agreed with your staff, the
alternative mechanisms that this report addresses include the use of
commodities, bulk cash,3 charities, and informal banking systems,
sometimes referred to as hawala.4 We primarily focused on religious
extremist movements in the Middle East noted in the National Strategy for
Homeland Security, including al Qaeda, HAMAS (Harakat al-Muqawama
al-Islamiya-Islamic Resistance Movement), and Hizballah. In a subsequent
report that you have requested, we will specifically address coordination
of U.S. and international efforts abroad to deter terrorists' use of
alternative financing mechanisms.5

In conducting our review, we examined documentation and interviewed
officials from U.S. agencies, including the Departments of Justice, the
Treasury, Homeland Security, State, and Defense, as well as from the
intelligence community. We also assessed information provided from various
nongovernmental organizations, industry and charitable associations,
researchers in the field, and the United Nations. In addition, we
conducted fieldwork in Belgium and France, where we interviewed officials
from several international entities including the Financial Action Task
Force on Money Laundering, INTERPOL (International Criminal Police
Organization), the European Union, and the World Customs Organization. At
these locations, we also assessed information from government, law
enforcement, and industry officials, as well as U.S. embassy officials. As
discussed with your offices and agreed with U.S. law enforcement agencies,
we have limited our reporting of specific examples of terrorists' use of
alternative financing mechanisms to publicly available information to
ensure that law enforcement operations are not

3The use of bulk cash refers to smuggling currency, travelers checks, or
similar instruments across borders by means of a courier rather than
through a formal financial system.

4According to the 2002 National Money Laundering Strategy, informal value
transfer systems (referred to here as "informal banking systems") are
known by a variety of names reflecting ethnic and national origins
predating the emergence of modern banking and other financial
institutions. Included, among others, are systems such as hawala or hundi,
terms commonly used when referring to Indian, Pakistani, and Middle
Eastern systems. These systems provide mechanisms for the remittance of
currency or other forms of monetary value-most commonly gold-without
physical transportation or use of contemporary monetary instruments.

5Also at your request, we addressed U.S. domestic coordination efforts to
deter terrorist financing under a separate report focusing on the National
Money Laundering Strategy. See U.S. General Accounting Office, Combating
Money Laundering: Opportunities Exist to Improve the National Strategy,
GAO-03-813 (Washington, D.C.: Sept. 26, 2003).

  Results in Brief

jeopardized. It is important to note that there are few such cases.
Further details about our scope and methodology are contained in appendix
I.

Terrorists use a variety of alternative financing mechanisms to earn,
move, and store their assets based on common factors that make these
mechanisms attractive to terrorist and criminal groups alike. For all
three purposes-earning, moving, and storing-terrorists aim to operate in
relative obscurity, using mechanisms involving close knit networks and
industries lacking transparency. More specifically, first, terrorists earn
funds through highly profitable crimes involving commodities such as
contraband cigarettes, counterfeit goods, and illicit drugs. For example,
according to U.S. law enforcement officials, Hizballah earned an estimated
profit of $1.5 million in the United States between 1996 and 2000 by
purchasing cigarettes in a low tax state for a lower price and selling
them in a high tax state at a higher price. Terrorists also earned funds
using systems such as charitable organizations that collect large sums in
donations from both witting and unwitting donors. Second, to move assets,
terrorists seek out mechanisms that enable them to conceal or launder
their assets through nontransparent trade or financial transactions such
as the use of charities, informal banking systems, bulk cash, and
commodities that may serve as forms of currency, such as precious stones
and metals. Third, to store assets, terrorists may use similar
commodities, because they are likely to maintain value over a longer
period of time and are easy to buy and sell outside the formal banking
system.

Owing to the criminal nature of terrorists' use of alternative financing
mechanisms and the lack of systematic data collection and analysis, the
extent of terrorists' use of alternative financing mechanisms is not
known. U.S. law enforcement agencies, and specifically the Federal Bureau
of Investigation (FBI), which leads terrorist financing investigations, do
not systematically collect and analyze data on alternative financing
mechanisms. The lack of such data hinders the FBI from conducting
systematic analysis of trends and patterns focusing on alternative
financing mechanisms. Without such an assessment, the FBI does not have
analyses that could aid in assessing risk and prioritizing efforts.
Moreover, despite an acknowledged need for further analysis of the extent
of the use of alternative financing mechanisms by terrorists, few rigorous
studies have been conducted. For example, the Departments of the Treasury
and Justice did not produce a report on the links between terrorist
financing and precious stone and commodity trading, as was required by
March 2003 under the 2002 National Money Laundering Strategy.

In monitoring terrorists' use of alternative financing mechanisms, the
U.S. government faces a number of significant challenges, a few of which
include accessibility, adaptability of terrorists, and competing
priorities. First, according to law enforcement agencies and researchers,
it is difficult to access or infiltrate ethnically or criminally based
networks that operate in a nontransparent manner, such as informal banking
systems or the precious stones and other commodities industries. Second,
the ability of terrorists to adapt their methods hinders efforts to target
high-risk industries and implement effective mechanisms for monitoring
high-risk industry trade and financial flows. According to the FBI, once
terrorists know that an industry they use to earn or move assets is being
watched, they may switch to an alternative commodity or industry. Finally,
competing priorities create challenges to federal and state officials'
efforts to use and enforce applicable U.S. laws and regulations in
monitoring terrorists' use of alternative financing mechanisms. For
example, although the Internal Revenue Service (IRS) agreed with us in
2002 to begin developing a system, as allowed by law, to share with states
data that would improve oversight6 and could be used to deter terrorist
financing in charities, the IRS has not made this initiative a priority
due to competing priorities.

In this report, we recommend that the Director of the FBI, in consultation
with relevant U.S. government agencies, systematically collect and analyze
information involving terrorists' use of alternative financing mechanisms.
We also recommend that the Secretary of the Treasury and the Attorney
General produce the report on the links between terrorism and the use of
precious stones and commodities that was required by March 2003 under the
2002 National Money Laundering Strategy based on up-to-date law
enforcement investigations. Finally, we recommend that the Commissioner of
the IRS, in consultation with state charity officials, establish interim
IRS procedures and state charity official guidelines, as well as set
milestones and assign resources for developing and implementing both, to
regularly share data on charities as allowed by federal law.

The Department of Justice (DOJ) did not formally respond to our
recommendation that the Director of the FBI, in consultation with relevant

6See U.S. General Accounting Office, Tax-Exempt Organizations:
Improvements Possible in Public, IRS, and State Oversight of Charities,
GAO-02-526 (Washington, D.C.: Apr. 30, 2002).

Background

U.S. government agencies, systematically collect and analyze information
involving terrorists' use of alternative financing mechanisms. However, in
DOJ's technical comments they agreed with our finding that the FBI does
not systematically collect and analyze such information, but they did not
specifically agree or disagree with our recommendation. In response to our
recommendation regarding a planned report on precious stones and
commodities, the Department of the Treasury responded that the report
would be issued as an appendix to the 2003 National Money Laundering
Strategy. However, the strategy was to be issued in February 2003 and had
not been issued as of our receipt of Treasury's comments on October 29.
The IRS agreed with our overall recommendation to establish IRS procedures
and state charity official guidelines to regularly share data on charities
as allowed by federal law. The IRS also committed to expedite its efforts
to establish procedures and guidelines by one year, the end of calendar
year 2003, rather than 2004 as originally planned. However, the IRS did
not address establishing milestones and assigning resources to meet the
target date or interim guidelines should they miss the 2003 target date.

In its fight against terrorism, the United States has focused on
individuals and entities supporting or belonging to terrorist
organizations including al Qaeda, Hizballah, HAMAS and others. Al Qaeda is
an international terrorist network led by Osama bin Laden that seeks to
rid Muslim countries of western influence and replace their governments
with fundamentalist Islamic regimes. The al Qaeda network conducted the
September 11 attack on the United States and was responsible for the
August 1998 bombings of U.S. embassies in Kenya and Tanzania, as well as
other violent attacks on U.S. interests. Al Qaeda reportedly operates
through autonomous underground cells in 60 to 100 estimated locations
worldwide, including the United States. Hizballah is a Lebanese group of
Shiite militants that seeks to create a Muslim fundamentalist state in
Lebanon modeled on Iran. Hizballah has planned, or been linked to,
numerous terrorist attacks against America, Israel, and other western
targets. Although Hizballah's leadership is based in Lebanon, Hizballah is
a vast organization with a global network of supporters and established
cells in Africa, North and South America, Asia, and Europe. According to
the State Department, HAMAS has pursued the goal of replacing Israel with
an Islamic Palestinian state.7 While HAMAS supplies humanitarian aid to
Palestinians

7U.S. Department of State, Patterns of Global Terrorism 2002 (Washington,
D.C.: April 2003).

and has participated in peaceful political activity, the organization
conducts large-scale suicide bombings. According to the State Department,
HAMAS currently limits its terrorist operations to targeting Israeli
civilians and the Israeli military in the Gaza Strip, the West Bank, and
Israel, but Americans have been killed in HAMAS attacks, and the
organization raises funds in North America and Western Europe.

These terrorist organizations are known to have used alternative financing
mechanisms to further their terrorist activities. Government officials and
researchers believe that terrorists do not always need large amounts of
assets to support an operation, pointing out that the estimated cost of
the September 11 attack was between $300,000 and $500,000. However,
government officials also caution that funding for such an operation uses
a small portion of the assets that terrorist organizations hold-assets
earned, moved, or stored through mainstream financial or alternative
financing mechanisms. According to the Treasury's Office of Foreign Assets
Control, the support infrastructure critical for indoctrination,
recruitment, training, logistical support, the dissemination of
propaganda, and other material support requires substantial funding.

A number of strategies and laws guide the U.S. government in deterring
terrorists' use of alternative financing mechanisms.8 Among the
strategies, for example, the Departments of Justice and the Treasury
publish an annual National Money Laundering Strategy, which has
increasingly focused on terrorist financing, including alternative
financing methods. This strategy sets goals for U.S. agencies in combating
terrorist financing and reports on progress made in implementing these
goals. In addition, the Department of State issues an annual International
Narcotics Control Strategy Report,9 which features a section describing
mechanisms, cases, and efforts to deter terrorist financing. Moreover, the
President's National Security Strategy of the United States of America10
calls for the United States to work with its allies to disrupt the
financing of terrorism by blocking terrorist assets, and the National
Strategy for Combating

8We did not evaluate the adequacy or implementation of these strategies,
with the exception of the 2002 National Money Laundering Strategy as it
pertains to alternative financing mechanisms.

9U.S. Department of State, International Narcotics Control Strategy Report
(Washington, D.C.: March 2003).

10Office of Homeland Security, the White House, President's National
Security Strategy of the United States of America (Washington D.C.: July
2002).

Terrorism11 includes an objective to interdict and disrupt material
support for terrorists. Regarding laws, the authority of the USA PATRIOT
Act of 2001 significantly expanded U.S. law enforcement's ability to
deter, investigate, and prosecute cases of terrorist financing. More
recently, the United States enacted the Suppression of the Financing of
Terrorism Convention Implementation Act of 2002,12 which implements the
requirements of the 1999 International Convention for the Suppression of
the Financing of Terrorism. Among its provisions, this act makes it a
crime to provide or collect funds with the intention of using the money
for terrorist activities.13

Deterring terrorists' use of alternative financing mechanisms falls within
the overall U.S. interagency framework of plans, agency roles, and
interagency coordination mechanisms designed to combat terrorism. In
general, the National Security Council manages the overall interagency
framework. The National Security Council heads the Counterterrorism
Security Group, which is composed of high-level representatives (at the
Assistant Secretary level) from key federal agencies that combat
terrorism. To implement directives and strategies, various federal
agencies are assigned key roles and responsibilities based on their core
missions. Numerous components of the Departments of Justice, the Treasury,
State, Homeland Security, and other agencies participate in efforts to
combat terrorist financing (see table 1). In addition, the intelligence
community plays a significant role.14

11The White House, National Strategy for Combating Terrorism (Washington
D.C.: February 2003).

12Pub. L. No. 107-197, Title II (June 25, 2002).

13See 18 U.S.C. 2339C(a)(1).

14The intelligence community includes the Office of the Director of
Central Intelligence; the Central Intelligence Agency; the National
Security Agency; the National Imagery and Mapping Agency; the National
Reconnaissance Office; the Defense Intelligence Agency and other offices
within the Department of Defense for the collection of specialized
national intelligence through reconnaissance programs and the intelligence
elements of the Army, the Navy, the Air Force, and the Marine Corps; the
FBI; the Department of the Treasury; the Department of Energy; the State
Department's Bureau of Intelligence and Research; and such other elements
of any department or agency as may be designated by the President or
jointly by the Director of Central Intelligence and the head of the
department or agency concerned.

Table 1: Key U.S. Government Entities Responsible for Deterring Terrorist
                                   Financing

Department Bureau/division/office Role

Central Intelligence Leads gathering, analyzing, and disseminating

Agency 	intelligence on foreign terrorist organizations and their
financing mechanisms; charged with promoting coordination and
information-sharing between all intelligence community agencies.

                               Homeland Security

Bureau of Customs and Border Protection 	Detects movement of bulk cash
across U.S. borders and maintains data about movement of commodities into
and out of the United States.

Bureau of Immigration and Customs Enforcement Participates in
investigations of terrorist financing cases (ICE - formerly part of the
Treasury's U.S. Customs Service) involving U.S. border activities and the
movement of trade, currency, or commodities.

U.S. Secret Service 	Participates in investigations of terrorist financing
cases, including those involving counterfeiting.

Justice 	Bureau of Alcohol, Tobacco, Firearms, and Participates in
investigations of terrorist financing cases Explosives (ATF) involving
alcohol, tobacco, firearms, and explosives.

Civil Division Defends challenges to terrorist designations.

Criminal Division 	Develops, coordinates, and prosecutes terrorist
financing cases; participates in financial analysis and develops relevant
financial tools; promotes international efforts and delivers training to
other nations.

Drug Enforcement Administration (DEA) 	Participates in investigations of
terrorist financing cases involving narcotics and other illicit drugs.

Federal Bureau of Investigation (FBI) 	Leads all terrorist financing
investigations and operations; primary responsibility for collecting
foreign intelligence and counterintelligence information within the United
States.

National Security Manages the overall interagency framework for Council
combating terrorism.

State Bureau of Economic and       Chairs coalition subgroup of a National 
            Business Affairs                                 Security Council 
                                Policy Coordinating Committee, which leads    
                                U.S                                           
                                 government efforts to develop strategies and 
                                                                   activities 
                                    to obtain international cooperation.      

Bureau of International Narcotics and Law Implements U.S. technical
assistance and training to Enforcement Affairs foreign governments on
terrorist financing.

Office of the Coordinator for Counterterrorism	Coordinates U.S.
counterterrorism policy and efforts with foreign governments to deter
terrorist financing.

Treasury Executive Office for Terrorist Financing and Develops U.S.
strategies and policies to deter terrorist

                                Financial Crime

financing, domestically and internationally; develops and implements the
National Money Laundering Strategy as well as other policies and programs
to prevent financial crimes.

                     Department Bureau/division/office Role

Financial Crimes Enforcement Network (FinCEN) 	Supports law enforcement
investigations to prevent and detect money laundering, terrorist
financing, and other financial crime through use of analytical tools and
information-sharing mechanisms; administers the Bank Secrecy Act.

Internal Revenue Service (IRS) Criminal Participates in investigations of
terrorist financing cases Investigation with an emphasis on charitable
organizations.

IRS Tax Exempt and Government Entities Administers the eligibility
requirements and other IRS tax law that apply to charitable and other
organizations that claim exemption from federal income tax.

Office of Foreign Assets Control 	Develops and implements U.S. strategies
and policies to deter terrorist financing; imposes controls on
transactions; and freezes foreign assets under U.S. jurisdiction.

Office of the General Counsel	Chairs Policy Coordination Committee for
Terrorist Financing, which coordinates U.S. government efforts to identify
and deter terrorist financing; coordinates U.S. government actions
regarding implementation of, and imposition of, economic sanctions under
Executive Order 13224 with respect to the freezing of terroristrelated
assets.

Office of International Affairs 	Provides advice, training, and technical
assistance to nations on issues including terrorist financing deterrence.

 Sources: GAO, using information from the Departments of Justice, the Treasury,
                         State, and Homeland Security.

    Terrorists Use Various Alternative Financing Mechanisms to Earn, Move, and
    Store Their Assets

Terrorists use an assortment of alternative financing mechanisms to earn,
move, and store their assets. Terrorists, like other criminals, focus on
crimes of opportunity in vulnerable locations worldwide and seek to
operate in relative obscurity by taking advantage of close-knit networks
of people and nontransparent global industry flows when earning, moving,
and storing their assets.15 To earn assets, they focus on profitable
crimes or scams involving commodities such as smuggled cigarettes,
counterfeit goods, and illicit drugs and the use of systems such as
charitable organizations that collect large sums. To move assets,
terrorists use mechanisms that enable them to conceal or launder their
assets through nontransparent trade or financial transactions such as
charities, informal banking systems, bulk cash, and commodities such as
precious stones and metals. To store assets, terrorists may use
commodities that are likely to

15These preexisting networks are based on ethnic, geographic, or criminal
links, providing access to people with similar interests and to
established financing structures founded on trust-based relationships and
often lacking substantial formal documentation.

maintain their value over time and are easy to buy and sell outside the
formal banking system. For example, terrorists may use precious stones and
metals that serve as effective forms of currency. Table 2 shows examples
of mechanisms that terrorists may use to earn, move, and store assets and
also shows that terrorists may use assets for more than one purpose.

Table 2: Examples of Alternative Financing Mechanisms That May Be Used to
Earn, Move, and Store Terrorist Assets

  Alternative financing mechanisms Earning Moving Storing Trade in commodities

                                Illicit drugs X

                                   Weapons X

                                  Cigarettes X

Diamonds X X

Gold X

                                    Systems

                                 Charities X X

                               Informal banking X

                                    Currency

Bulk cash X

Sources: GAO analysis based on information from government, industry, and
research sources as noted in the scope and methodology.

 Terrorists Earn Assets via Systems and Commodities That Are Highly Profitable