FDD’s Schanzer and Zarate Testify about Terror Finance Threats

WASHINGTON, DC – As Congress and the administration explore ways to stem the threat of terrorists destabilizing important regions and attacking U.S. interests and those of its allies, Dr. Jonathan Schanzer, Vice President for Research at the Foundation for Defense of Democracies (FDD), and Juan Zarate, chairman and senior counselor of FDD’s Center on Sanctions and Illicit Finance (CSIF), testified today before the House Committee on Financial Services’ Task Force to Investigate Terrorism Financing, focusing on developments in the Middle East and Africa.

Schanzer, formerly a terrorism finance analyst at the U.S. Treasury’s Office of Intelligence and Analysis, noted that his testimony underscores “the work of a number of CSIF analysts at FDD who have been tenaciously tracking the financial flows of terrorist operatives and rogue states.”

His testimony highlighted the increasing intersection between terror finance and criminal activity. “Designated terrorist groups in Africa and the Middle East take advantage of the territories they control… by exploiting existing businesses and levying oppressive taxes and tolls on the populations they dominate,” he testified.  

Schanzer explained that many of the actors, like the Islamic State and Boko Haram, operate in the “financial underworld,” in which money moves in “cash and through value-transfer systems, meaning that for the United States, addressing these challenges often requires bilateral or multilateral cooperation with local law enforcement to establish better controls.”

Schanzer addressed Iran’s position as the “number one terrorist sponsoring country in the world” and focused on the key role that specific states like Turkey, Saudi Arabia, Kuwait, and Qatar play in the fundraising efforts by terror groups, both directly and indirectly. Specific states like Iran, Turkey, Saudi Arabia, Kuwait, and Qatar play key roles in the fundraising efforts by terror groups, both directly and indirectly.

Schanzer noted that Turkey has been a major partner of Iran through the “gas-for-gold” trade, assisting Iran in avoiding restrictions from the international sanctions regime. In addition, “Ankara’s desire to bring down the Assad regime in Syria has led to inexcusable policies that have enabled the growth of jihadist groups like Jabhat al-Nusra (JN) and the Islamic State (IS). Turkey’s southeastern frontier… is now akin to Peshawar, Pakistan in the 1990s as the primary gateway for this generation of jihadists,” Schanzer said. In addition, there is evidence that Turkey has directly supplied weapons to jihadist groups neighboring the Turkish border.

On another front, “the Qataris are incredibly candid—almost shameless—about their support for the terrorist group Hamas,” Schanzer explained. Qatar is the home base for the Hamas leadership including Khaled Meshal and Izzat al-Rishq. Qatar is a critical fundraising hub for groups like al-Qaeda, the Taliban, and Lashkar-e-Taiba. His testimony provided further details on this.

Schanzer offered policy recommendations to combat terrorist financing including:

• Coordinated efforts by the U.S. Treasury and Congress to identify threats to national security and impose targeted financial sanctions.
• Congressional oversight of the existing sanctions architecture in the case of any nuclear deal in order to prevent Iranian financial support for illicit activities.
• Punishment of individuals and entities in Gulf Arab states that facilitate terrorism, “including government officials, institutions, or the state as a whole.”
• Challenging Turkey’s role in funding illicit actors through, “economic pressure, a review of military cooperation, or even a review of its status as a NATO member.”
• Congressional requests for the extradition of designated terrorist financiers.
• Support for Egypt’s attempt to cut off funding for Hamas and other extremist groups.

Zarate, former deputy national security advisor for combating terrorism and also a senior advisor at the Center for Strategic and International Studies, explained the importance of combating terrorist organizations financially because “money is their enabler, but it’s also their Achilles’ heel. If you can cut off funding flows to rogue groups or states, you can restrict their ability to operate, govern, and force them to make choices—not only budget decisions, but also strategic choices.”

Zarate testified that “using financial power and suasion to affect America’s enemies and their budgets—well beyond U.S. borders—provided a form of asymmetric power that the United States could use against non-state networks exploiting the global system. … Devising and leveraging this new type of strategic suasion is a critical and new way of thinking about how to leverage American power as power  dynamics devolve and shift globally.”

The counter-terrorism finance strategy of the U.S. must constantly adapt as these non-state networks change tactics. Zarate noted the different practices of terror groups today as the Islamic State runs a war economy, al-Qaeda in the Islamic Maghreb (AQIM) sustains income through kidnappings for ransom, and al-Qaeda in Pakistan fundraises through Gulf States and collaborates with other militant networks.

“Although al-Qaeda has been hurt financially, the old funding networks that sustained the Afghan and Arab mujahideen, al-Qaeda core, Islamists in Chechnya, AQI, and other elements of al-Qaeda still exist. Sympathizers, deep-pocket donors, and charities and other organizations remain, and they can be used to funnel money to sympathetic causes,” Zarate said.

Zarate warned that the capability of the U.S. to exert influence globally through formal financial institutions should not be taken for granted. “Our ability to use these powers could diminish as the economic landscape changes. Treasury’s power ultimately stems from the ability of the United States to use its financial powers with global effect. This ability… derives from the centrality and stability of New York as a global financial center, the importance of the dollar as a reserve currency, and the demonstration effects of any steps, regulatory or otherwise, taken by the United States in the broader international system. If the U.S. economy loses its predominance, or the dollar sufficiently weakens, our ability to wage financial warfare against terrorists and America’s enemies could wane,” he said.

Zarate concluded: “The power to affect the budgets of America’s enemies is an enormous power that needs to be tended carefully and wielded wisely. … America’s enemies… will continue to find ways to work around the international pressure and strictures put upon them. This is why the campaign against terrorist financing cannot be treated as a static venture but instead an ongoing and critical part of the changing terrorist and international security landscape. The U.S. government, led by the Treasury, must continue to innovate and find new ways and partners to make it harder, costlier, and riskier for terrorist groups around the world to raise and move money.”

The full text of Schanzer’s testimony is here. The full text of Zarate’s testimony is here.    

About the Foundation for Defense of Democracies (FDD):

The Foundation for Defense of Democracies is a non-profit, non-partisan 501(c)3 policy institute focusing on foreign policy and national security. Founded in 2001, FDD combines policy research, democracy and counterterrorism education, strategic communications and investigative journalism in support of its mission to promote pluralism, defend democratic values and fight the ideologies that drive terrorism. Visit our website at www.defenddemocracy.org and connect with us on Twitter, Facebook, and Youtube.

About FDD’s Center on Sanctions and Illicit Finance (CSIF):

FDD’s Center on Sanctions and Illicit Finance is a project designed to illuminate the critical intersection between illicit finance and national security. The Center relies on regional and sanctions expertise within FDD, including a core cadre of financial, economic, and area experts and analysts, to promote a greater understanding of illicit financing and economic threats. The Center also designs creative and effective strategies, doctrines, and uses of financial and economic power to attack and protect against priority threats and vulnerabilities. More information on CSIF is available at http://www.defenddemocracy.org/csif.

Media Contact:

Kevin M. Black, Communications Associate
Office: (202) 403-2941 Cell: (203) 858-0562
[email protected]

Please contact FDD to discuss these and other issues relating to terror finance with Schanzer or Zarate.