Mainstream examinations of U.S. counterterrorism (CT) strategy frequently adopt a tactical perspective: how large-scale attacks are foiled through law enforcement or military action, or how responsible parties are tracked down and brought to justice. This perspective, however, frequently ignores the enabling factors of organizations and activities that threaten U.S. national security.
A number of inputs are required by illicit organizations to successfully plan and execute criminal acts against the U.S. These actors rely on sound financing that is adequately disguised so as not to reveal either its source or intended use. Threat finance encompasses the means and methods employed by illicit actors to secure financing for operations and activities in a manner that evades detection by authorities. This manner of financing utilizes various forms of money laundering – ranging from shell charitable organizations, extortion, and kidnapping, to counterfeiting, fraud, or market-based schemes. In 2011, illicit cash flows were estimated to account for 2 to 5% of global GDP (approximately US$800 billion to US$2 trillion).
Threat finance is a multifaceted issue the U.S. Government faces as global systems further integrate, driven by technology and communication. Terrorism and crime are businesses, nearly inseparable from this technological innovation and connectivity. Consequently, any effective strategy to combat threat finance must to take the following into consideration and call on a range of capabilities to detect, disrupt, and deter these operations.
Terrorism and crime are business operations. This understanding requires a different perspective and approach to degrading the capabilities of illicit actors. Mainstream examinations of terrorism and crime are output-driven, centered on potential and realized damages, as well as recovery efforts. Examining these activities instead as business operations requires an input-side focus on limiting resource availability — such as money — and gaining insight into illicit organizations to prevent the realization of their objectives.
Threat finance is intertwined with technological innovation and proliferation. The global financial system (GFS) is ever more integrated due to advances in technology and communication. Global networks, such as SWIFT, enable access to the global marketplace, while international institutions like BIS aim to regulate and maintain GFS stability. However, this increased connectivity and technological innovation, coupled with the potential for abstracted or anonymized interactions, has also reduced barriers to money laundering. Informal value transfers such as hawala persist, but many illicit financial activities rely on access to technological resources at some point. Therefore, anti-money laundering (AML) regulation cannot be wholly addressed independent of technological standards and best practices. Of critical import presently is a lack of cyberspace regulation and threat information sharing in the U.S. — an enormous gap in oversight easily exploited for illicit activity.
Effectively countering threat finance requires a balanced approach that leverages various capabilities. Degrading illicit financial networks will be countered most effectively through a combination of practice, policy, and education. The diverse characteristics of threat finance necessitate a broad range of technical capabilities in financial intelligence guided by effective, exacting regulation. Policies and regulations must be effective, but still enable legitimate actors to counter threat finance without bearing excessive costs in doing so.
An opportunity exists in AML efforts for both private industry and the public to play a much larger role in detecting and reporting questionable financial practices and transactions. These two groups are generally better positioned than authorities to encounter behaviors symptomatic of money laundering and financial crimes. Therefore, establishing best practices, raising awareness, and expanding the availability of reporting mechanisms could significantly augment AML efforts with limited investment.
An effective public-private partnership must be at the foundation of future U.S. AML efforts, predicated on an informed, balanced policy. This partnership, in addition to educating frontline enforcers and consumers about money laundering and its consequences is key. The earlier an illicit financial operation can be detected, the more likely it is to be disrupted before evidence of its existence gets lost in the noise. And though much has already been done on the domestic and international levels to counter money laundering, closer coordination between authorities and better integration of domestic and international practices is needed, while enforcement must be consistent across all levels.
Ultimately, the challenge of degrading illicit financial networks cannot be addressed through comprehensive legislation alone; rather, its individual factors will need to be addressed as such through both policy and practice. Targeting the activities of illicit organizations on the input side (money laundering) complements efforts directed at countering the outputs of their activities (acts of terrorism, trafficking, and other acts). Together, these two sides of a sound counterterrorism strategy will bolster U.S. abilities to discover and dismantle operations posing a threat to U.S. national security, and deter other actors from engaging in similar behaviors.
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The American Security Project will be examining threat finance, financial intelligence, and related issues via its Threat Finance and Financial Intelligence program, as part of an Asymmetric Operations focus.