September 26, 2001

September 26, 2001 | News Releases on Department of Homeland Security

U.S. Shouldn't Overlook Other Bank Systems in Terror War, Analysts Say

WASHINGTON, Sep. 26, 2001-U.S. officials can make their efforts to cut off funding to Osama bin Laden and other terrorists more effective by tracking the informal financial networks that help fund terrorism, a new Heritage Foundation paper says.

Pakistan and India, for example, use a "hawala" system (Hindi for "in trust") to transfer large sums of cash from one country to another without the funds ever crossing borders, write Heritage financial and foreign policy experts Gerald O'Driscoll Jr., John Hulsman and Brett Schaefer. Brokers track monetary obligations through a system of chits and verbal agreements, with few written records.

"Terrorists prefer such a system because it's hard for outsiders to monitor the flow of money," says O'Driscoll, a former Federal Reserve vice president.

O'Driscoll, Hulsman and Schaefer say the best ways to stop bin Laden and other terrorists from getting money include:

  • Persuading other countries to freeze terrorist assets.
  • Policing financial transactions to help detect terrorist transactions and prosecute banks that knowingly assist terrorists.
  • Increasing intelligence capabilities to monitor the "hawala" system and other informal money networks.

"More than a military leader, Osama bin Laden is a modern financier dedicated to supporting barbaric acts through a complex financial network," the analysts say. "Cut off these money flows, and the terrorist activities will be stunted no matter how fanatical the devotion of their followers."

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