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FOREWORD

Few aspects of the global war on terror are as inscrutable as the battle being waged on the financial front. Money for al-Qaeda and other terrorist groups is raised and moved worldwide and channeled through a web of institutions and individuals. The United States, other governments, the UN, and a range of international organizations have grappled with how best to address this daunting challenge.

My predecessor, Leslie H. Gelb, established the Independent Task Force on Terrorist Financing in 2002 to evaluate U.S. efforts to disrupt the financing of terrorist activities. The first report, chaired by Maurice R. Greenberg, concluded that although al-Qaeda's finances had been disrupted, they had not been destroyed-and that as long as al-Qaeda retained access to a viable financial network, it would remain a threat to the United States. The initial report recommended a series of steps to ensure a more effective U.S. and international response to al-Qaeda's global financial network.

Subsequent world events-including the May 2003 Riyadh bombings and the war in Iraq-made it clear that a further review of efforts of the U.S. and Saudi governments to curtail terrorist financing was warranted. In this update, the Task Force reports both on important achievements and on the work that remains to be done. The Task Force, composed of a bipartisan group of experts from the foreign policy, business, law enforcement, and intelligence communities, makes a series of recommendations to redouble efforts to frustrate al-Qaeda's financial network.

This Task Force, would not have been possible without the leadership of Maurice R. Greenberg. I am grateful to Hank for continuing to spearhead this effort. I am also pleased that Mallory Factor has teamed up with Hank to serve as his vice chair. Thanks, also, to William F. Wechsler and Lee S. Wolosky, who continued to serve as co-directors of this update, which makes another important contribution to an issue of vital national and international importance.

Richard N. Haass

President

Council on Foreign Relations

June 2004

ACKNOWLEDGMENTS

This report is the result of the hard work and support of a number of dedicated individuals of both political parties who seek to further critical national interests. We are, once again, grateful for the hard work and dedication put forth by all Task Force members. Our members brought unique backgrounds and areas of expertise to this complicated issue, and all worked hard to reach consensus under a tight schedule.

Much of the information concerning the subject of terrorist financing is highly classified. The report of this Task Force, comprised entirely of former governmental officials and private citizens, is necessarily limited to the realm of the unclassified. Moreover, the response of foreign nations to the financing of terrorism is frequently exceptionally nuanced. Conclusions regarding the nature and adequacy of that response are necessarily shaped by the social and professional backgrounds of those drawing the conclusions. Not unrelatedly, while sometimes public pressure is indispensable in diplomacy, it can also be the case that pushing too hard and publicly on sensitive matters can risk entrenchment and less progress on important issues than can more cautious and discrete approaches. Nevertheless, with those caveats in mind, we hope that this report will help promote an informed debate and discussion in our open society on the public record concerning a subject that remains largely opaque.

We are particularly grateful to our chair, Maurice R. Greenberg, for his stewardship of this project and his broader leadership in assuring continued attention to, and scholarship on, issues at the intersection of global finance and national security. Sustained attention to these issues will be critical to the success of the U.S.-led war on terrorism. With the limited exception of work now being performed by the Watson Institute for International Studies at Brown University, they are, to the best of our knowledge, the subject of no other sustained, appropriately funded scholarship at U.S. universities, think tanks, or nongovernmental organizations.

We also wish to thank Mallory Factor, the Task Force's vice chair, for his dedication to these issues and his extraordinary efforts to advance the mission of the Task Force.

The Task Force's deliberations benefited considerably from input from senior members of the U.S. Treasury Department and the National Security Council, and from discussions with officials of the Central Intelligence Agency. We are extraordinarily grateful to the U.S. officials

who have assisted our work. We are also grateful to Adel al-Jubeir, foreign policy adviser to Saudi Crown Prince Abdullah, for his interest in our work.

We also benefited from the assistance of the Council's Lee Feinstein, Lindsay Workman, Jennifer A. Manuel, Margaret Winterkorn-Meikle, and Maria J. Kristensen, and we are grateful for all they did to make this Task Force a success. The resources and expertise of the Watson Institute were especially valuable, and we are grateful to the Institute's Thomas Biersteker and Sue Eckert for their major contributions to our Task Force mission.

We would also like to express our deep gratitude to the team from Columbia University's School of International and Public Affairs, Business School, and Law School that researched applicable Saudi Arabian laws and regulations for the Task Force, and whose assessment is referenced in this report: Nicholas Barnard, Seung Woo Chun, Mohamed Essakali, Yair Galil, Ilan Goldenberg, Reginald King, Duncan Long, Jennifer Mendel, Mihaela Nistor, Mitch Silber, Sean Smeland, Anuj Tiku, Deepak Venkatachalam, Michael Wallach, Ryan Wallerstein, and Suh-Kyung Yoon. They are an unusually talented group who brought enthusiasm, diligence, and strong analytical skills to this project. We are especially appreciative of the hard work done by the team leader, Mitch Silber, and for high-quality follow-up work undertaken by Yair Galil.

We would also like to extend special thanks to Christopher Blanchard and Martina Strazanova, rising stars in this new field, both of whom offered expert assistance and consistently wise counsel in the preparation of this report.

Finally, we wish to thank Council President Richard N. Haass for his continued support of our work and Council President Emeritus Les Gelb, whose initial vision made this Task Force a reality.

William F. Wechsler
Lee S. Wolosky

INTRODUCTION

In October 2002, this Task Force issued its inital report on terrorist financing. That report described the nature of the al-Qaeda financial network, the actions that had been taken to date to combat terrorist financing, and the obstacles that hindered those efforts.

Among our core findings was that, after a promising start in the immediate wake of 9/11, the US government's efforts to combat terrorist financing remained "inadequate to assure sustained results commensurate with the ongoing threat posed to the national security of the United States "A key problem, we found, was that "deficiencies in political will abroad—along with resulting inadequacies in regulatory and enforcement measures are likely to remain serious impediments to progress." Specifically, our initial report concluded:

It is worth stating clearly and unambiguously what official U.S.
government spokespersons have not. For years, individuals and charities
based in Saudi Arabia have been the most important source of funds for
al-Qaeda; and for years, Saudi officials have turned a blind eye to this
problem.

Our Task Force report also included a number of specific strategic and tactical recommendations to help remedy these problems. Our core recommendations included two organizational ones. We recommended centralizing authority for policy formation and implementation on these issues within the White House. On the international front, we recommended the creation of a new multilateral organization to facilitate international cooperation.

We also recommended the encouragement of the Saudi regime to strengthen significantly its efforts to combat terrorist financing. In this regard, we noted a recent historical record of inattention, denial, and half measures.

We recommended directly confronting the lack of political will in Saudi Arabia and elsewhere through the institution of a declaratory policy that would permit or compel U.S. officials to speak more frankly about the nature of the problem:

Put issues regarding terrorist financing front and center in every bilateral
diplomatic discussion with every 'front-line' state in the fight against
terrorism-at every level of the bilateral relationship, including the

highest. Where sufficient progress is not forthcoming, speak out bluntly,
forcefully, and openly about the specific shortfalls in other countries'
efforts to combat terrorist financing. The Task Force appreciates the
necessary delicacies of diplomacy and notes that previous administrations
also used phrases that obfuscated more than they illuminated when making
public statements on this subject. Nevertheless, when U.S. spokespersons
are only willing to say that 'Saudi Arabia is being cooperative' when they
know very well all the ways in which it is not, both our allies and
adversaries can be forgiven for believing that the United States does not
place a high priority on this issue.

The reaction to the release of the Task Force's initial report was reflective of thenprevailing mindsets. The Saudi Arabian Foreign Minister, Prince Saud al-Faisal, told CNN that the report was "long on accusation and short on documented proof." The Saudi ambassador to the United States, Prince Bandar bin Sultan, said the Task Force report was based on "false and inconclusive information" and "clearly out of touch with current activities." He also maintained that “Saudi Arabia has put into place the tools, resources, laws, and regulations to combat terrorism and terrorist financing" and promised to "prosecute the guilty to the fullest extent of the law." The U.S. Treasury Department's spokesperson called the report "seriously flawed."

Meanwhile, the executive branch continued to grapple throughout the fall of 2002 and thereafter with how best to address the problem of Saudi individuals and organizations that it believed to be financing al-Qaeda and other terrorist organizations. In November 2002, a National Security Council Task Force was reportedly prepared to recommend to President George W. Bush an action plan designed to force Saudi Arabia to crack down on terrorist financiers within ninety days or face unilateral U.S. action. During 2002 and into the first few months of 2003, U.S. officials engaged their Saudi counterparts on a sustained basis in Washington and Riyadh-at increasingly high levels, with more intelligence they were prepared to share, and with more aggressive demands.

1 Elsewhere, the reaction to the report was more positive. Members of Congress, for example, broadly endorsed the report and sought to implement certain of its recommendations. On July 30, 2003, a bipartisan group of 111 members of the House of Representatives led by Rep. Jim Davis (D-FL) and including the chair of the International Relations Committee, chair of the Financial Services Committee, chair of the Appropriations Committee, and the vice chair of the Intelligence Committee, wrote to the president to ask that he accept a key recommendation of the Task Force and centralize authority for this issue in the White House. Earlier, on July 16, Rep. Nita Lowey (D-NY) led efforts to increase funding for the Treasury's Office of Technical Assistance, citing a recommendation of our initial report. On November 18, 2003, Senator Arlen Specter (R-PA) cited the findings of our report when introducing the Saudi Arabia Accountability Act of 2003, a bill that would impose certain sanctions on Saudi Arabia unless the president certifies that it is cooperating with U.S. efforts to combat terrorism.

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