Terrorists’ money trail often leads to nowhere

As the United States and its coalition partners move to cut off the financial lifeblood of terrorism, they will run headlong into a simple, centuries-old practice of moving money that will frustrate their efforts.

It’s called hawala. Translated, it means “trust” -- an irony not lost on investigators.

Experts think as much as half the money on the Indian subcontinent and in parts of the Middle East is moved and hidden through hawala, a system that has its roots in medieval times. It is easy, secret and excruciatingly difficult to trace.

It works like this: One person in Kabul starts a transaction by passing money or something else of value to a middleman there. That middleman then contacts another broker in, say, Germany. Ending the transaction, the broker in Germany hands off the cash or merchandise to its intended recipient. No questions asked. There may or may not be an IOU or other paperwork recording the transaction. In any case, the paperwork almost certainly disappears.

The player on the front end of the deal may or may not know the person on the tail end. The brokers are main players who make the system work -- passing money across the globe virtually undetected.

If at all possible, no banks or financial institutions are used.

In other words, the myriad pieces of paper that frame the carefully ordered financial system in the U.S. simply don’t exist in this shadowy world.

“They don’t care who the customers are who give them the money, and they don’t care who the recipients are. They’re not bankers; they’re money movers,” said Jonathan Winer, former top State Department official. “You can’t trace money that’s been moved through hawala.”

Targeting small businesses

In some cases, the money is moved through charitable trusts and other foundations -- or even small businesses that may have no direct connection with the transaction.

Louise Shelley, a professor at American University in Washington and director of the school’s Transnational Crime and Corruption Center, said fighting the hawala system can be done only on a grass-roots level, targeting the organizations laundering the money.

Prosecutors in the United States use a rule of thumb when investigating sophisticated organized-crime networks: Follow the money, and it will lead you to the bad guys. But the complexities in this case are daunting.

Effort must be on target

Many of the first 27 accounts the Treasury Department is moving to freeze belong to accused terrorist mastermind Osama bin Laden and individuals, as well as businesses and charities associated with him. Most are outside U.S. borders.

Tracking terrorists through their pocketbooks -- a tough but successful approach used against drug cartels and mobsters -- will be very difficult, said Stuart Eizenstat, a former Treasury Department official.

“It’s like cutting the tentacles off of an octopus,” he said. “You still have a lot of other tentacles around. And those are not necessarily hierarchically structured, so that you get it at the top and everything else withers. These are all at the same level, and many are independent of each other and may not even know each other.”

Cash is terrorism’s lifeblood

The effort may pay off, though. If you can get to it, going after money has two major advantages, said Mark Schnapp, a former assistant U.S. attorney in Miami now in private practice.

First, slowing down or cutting off funding can stop an operation in its tracks, said Schnapp, who oversaw several money-laundering stings during his tenure as a federal prosecutor.

Shutting down access to money can be extremely effective, he said. The most recent example: Through international cooperation, banks froze accounts belonging to former Peruvian spymaster Vladimiro Montesinos last year.

Unable to draw on his money -- which came from drug dealers at a time when Montesinos was Peru’s top narcotics cop -- the disgraced official was forced to return home to face charges.

The second, more important part of the equation is that the paper trail often leads to people with connections to the main players.

“Unless they develop live people to talk to them, there’s no substitute,” Schnapp said. “They can trace the money to the end of time. ... But without a person to explain this to you, you’re going to be in big trouble.”

There are complicating factors that go beyond the cash-and-carry nature of terrorism.

In contrast with most drug and organized-crime operations, the money used by terrorist groups is raised or made outside the United States, making it tougher to trace through bank accounts here. And what money can be tied to this country may not be linked to criminal activity.

“It may not be so obvious as an illegitimate purpose,” Schnapp said. “Plus, we’re mostly dealing with small purchases here. Hotel rooms, plane tickets, even flying lessons. They didn’t spend a lot of money to do this.”

International support is key

With the capacity to do damage with relatively small amounts of money, cutting off enough of the dragon’s tail to do permanent damage will take a lot of time.

Shelley, the American University professor, noted, however, that the lessons learned in previous money-laundering probes still apply.

“Terrorists and transnational organized criminals used the same mechanisms. You don’t need to do a different kind of investigation,” she said. “Same methods, different motives.”

Help from other countries, particularly in Europe and the Persian Gulf region, is essential. Banks will have to agree to open records and take calculated risks that the accounts the administration wants frozen are the right ones.

For example, with several nations on board, federal investigators were able to crack the Bank of Credit and Commerce International, a Pakistani-founded bank that laundered tens of millions of dollars in drug profits, in 1988. In a Senate hearing Thursday, Sen. John Kerry, D-Mass, noted that bin Laden, whose wealth is estimated up to $300 million, had money in BCCI.

With the help of U.S. allies, including the banking haven of Switzerland, Schnapp said, investigators likely are working on two tracks.

The first is interviewing hundreds of people held in connection with the terrorism investigation, hoping to expand the web of associations already being mapped by FBI agents.

The second is combing through every scrap of intelligence gathered during the past few years, looking for clues that emerge with the hindsight afforded by the events of Sept. 11.

“You never know what piece of information will lead you into the gold mine,” Schnapp said. “You don’t just follow money. You start shaking the trees.”