October 4, 2001 | Backgrounder on National Security and Defense
The portion of America's foreign assistance that is designated as security assistance is already supporting the nation's war on terrorism by strengthening U.S. allies. This is particularly true for security assistance to friendly governments in regions like Central Asia, the Middle East, and North Africa that have been hotbeds for terrorist activity.
By law, America may not provide development assistance to the seven states identified by the U.S. Department of State as sponsors of terrorism: Cuba, Iran, Iraq, Libya, North Korea, Sudan, and Syria. This is not the case for America's allies, international financial institutions, or international organizations, all of which regularly disburse development assistance to state sponsors of terrorism.
Require U.S. executive directors of international financial institutions, particularly the International Monetary Fund and the World Bank, to demand official votes when financial institutions consider development assistance to terrorist sponsoring states.
A key element in America's war against terrorism will be to cut off foreign terrorist organizations from their financial resources. Most attention thus far has focused on policing private markets as foreign terrorist organizations increasingly are funded independently from states. It would be a mistake, however, to overlook the importance of assistance from the United States, other nations, and multilateral organizations or international financial institutions in the war on terrorism.
America's security assistance to states that oppose terrorist activities, particularly to Israel and moderate Muslim governments, is critical to winning this war. Recipients of U.S. security assistance often are natural allies in combating foreign terrorist organizations because they, as much as the United States, are targets of terrorists. As noted by President George W. Bush in his September 20 speech before a joint session of Congress, "[Terrorists] want to overthrow existing governments in many Muslim countries, such as Egypt, Saudi Arabia, and Jordan. They want to drive Israel out of the Middle East. They want to drive Christians and Jews out of vast regions of Asia and Africa." America therefore should continue to support its allies with security assistance.
Of equal importance, however, is the need to block development assistance to states that sponsor terrorism. Before the advent of private financing of terrorist activities, foreign terrorist organizations were funded predominantly by governments, and these groups remain dependent on sympathetic governments for protection and bases from which to operate.2 If America and her allies successfully curtail private financing of terrorism, these groups may again turn to states for financial support. Therefore, cutting off governments that support terrorism from development assistance is a logical complement to policing and curtailing private financing of terrorist activities.
Because of the fungibility of money, development assistance can support terrorism. Even if development assistance is not provided specifically to support terrorist activities, it increases the overall amount of resources available to recipients. If those recipients support foreign terrorist organizations, increasing available funding enables them to increase their support of terrorism. Moreover, providing development assistance to states that support or tolerate foreign terrorist organizations within their borders rewards them for their criminally negligent attitude toward combating terrorism.
There are two sources of development assistance: individual countries that provide "bilateral" development assistance and international organizations that provide "multilateral" development assistance.
The Secretary of State officially recognizes seven "state sponsors of terrorism"--Cuba, Iran, Iraq, Libya, North Korea, Sudan, and Syria6 --that may not receive development assistance from the U.S. The U.S. appropriated $57 million for foreign assistance to those countries in 2001, but that aid was directed toward undermining the governments in those countries or directly aiding the people suffering under them .7 (See Table 2.)
Other donor governments are not subject to these restrictions. For instance, Germany, Japan, the United Nations High Commissioner for Refugees, Austria, and France are the top five donors of net official development assistance (ODA), averaged from 1998 and 1999, to Iran; and Germany, Norway, the European Commission, the United Kingdom, and the Netherlands are the top five donors to Iraq. All told, the seven state sponsors of terrorism received $974 million in net ODA (average of 1998 and 1999). (See Table 1.)
The restriction on U.S. aid does not extend to countries that, while not designated as terrorist sponsoring states, have terrorist activities within their borders.8 Leaving aside Greece, Japan, and the Basque Region of northern Spain and southwestern France, which do not receive development assistance, the United States was among the top five donors of net ODA, averaged from 1998 and 1999, to nine of the 15 states having active foreign terrorist organizations.9 (See Table 1.) The United States provided assistance of some sort (development, humanitarian, or security) to each of the 15 countries with active foreign terrorist organizations within their borders in 2001.10 (See Table 2.)
Four of the five terrorist sponsoring states that are members of the IMF and the World Bank (with Libya the sole exception) have received funding from those institutions. (See Table 3.) Within the past 20 years, Iran and Syria received $625 million and $265.3 million, respectively, from the World Bank and Sudan received $1.8 billion from the IMF and the World Bank.13 Iran currently has six ongoing World Bank projects.14 Moreover, the IMF and the World Bank provide huge amounts of assistance to the 15 countries with active foreign terrorist organizations within their borders. Afghanistan, which has been harboring Osama bin Laden, is a member of the IMF and the World Bank and has received 20 World Bank loans totaling over $230 million.15 All told, 11 of the 15 countries have received over $1 billion from the IMF and the World Bank.16 (See Table 3.)
The first priority in fighting the financial front of the war on terrorism should be policing and curbing private financial transactions, as they are currently the primary source of funding for terrorist activities.17 As noted by the U.S. Department of State,
State sponsorship has decreased over the past several decades. As it decreases, it becomes increasingly important for all countries to adopt a "zero tolerance" for terrorist activity within their borders. Terrorists will seek safe haven in those areas where they are able to avoid the rule of law and to travel, prepare, raise funds, and operate.18
While state sponsorship of terrorism has decreased in recent years, it is reasonable to assume that such financing could rebound if private financing becomes more difficult. Moreover, terrorists need nations to harbor them, and such states should not be supported through development assistance. Therefore, America should enlist development assistance in its war on terrorism if President Bush is to fulfill his promise to "starve terrorists of funding."19
Although this assistance was not given to the governments of those seven sponsors, the United States should make the current prohibition under law more explicit to prohibit all assistance--development, humanitarian, and security--to governments sponsoring terrorist activities. If the U.S. decides to provide assistance to those countries, it should be provided through non-governmental organizations or other groups, provided they have verifiable evidence that they are not working with or through the government of the state sponsor of terrorism, or to groups working to overthrow the terrorist sponsoring regime.
Cutting these countries off from U.S. assistance, particularly security assistance, would be counterproductive. These governments--particularly moderate governments in Central Asia, the Middle East, and North Africa--are as much targets of radical terrorist attacks as the United States. Overt support for the U.S. in its war on terrorism, such as allowing U.S. military bases in their territory or supplying troops to fight alongside of America's, might make these governments greater targets for terrorist activities.
These nations can, however, provide valuable support for the war on terrorism by other means. Therefore, the Administration should demand that aid recipients support U.S. efforts to combat terrorism in other ways, such as supporting the U.S. in international bodies like the United Nations; sharing intelligence on terrorist activities; approving the use of airspace for strikes against foreign terrorist organizations; and providing the right for temporary use of ground, port, or air facilities for use in the fight against terrorism. Obviously, the conditions must be tailored to the country involved, but the overall quid pro quo of cooperation in return for development assistance should be comprehensive. The Administration should reevaluate aid policy toward unhelpful nations.
Therefore, the Administration must work with U.S. allies to ensure that they adopt restrictions on bilateral development assistance to terrorist sponsoring states that complement U.S. restrictions or, at the very least, do not undermine U.S. objectives by supporting states that sponsor terrorism.
This loophole must be closed to prevent multilateral funding for terrorist sponsoring states. There are two options: block approval of loans and grants to terrorist sponsoring states or amend the respective articles or charters governing individual institutions. Both strategies require the U.S. to assemble a coalition of member states with sufficient numbers and voting power to block loans to terrorist sponsoring states.
Blocking a loan requires a majority of the voting stock, which can be accomplished with the support of France, Germany, Japan, the United Kingdom, and two to three voting blocs23 in the World Bank and with the support of only nine other nations (Australia, Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, and the United Kingdom) in the IMF.24 Creating a coalition to block loans to terrorist sponsoring states is easier to accomplish than amending the articles or charters of multilateral organizations, because it requires fewer countries and less voting stock and can likely be assembled with America's European allies and Japan. For instance, amending the articles of the IMF and the World Bank requires the support of three-fifths of the membership and 85 percent of the voting stock.25 However, blocking loans lacks the permanency of amending articles or charters.
If the members of these institutions refuse to prohibit lending to terrorist sponsoring states, the U.S. should refuse to approve future quota increases for the IMF, replenishments for the International Development Association of the World Bank, or increased capital subscriptions for the International Bank for Reconstruction and Development.
instruct the United States executive director of each international financial institution to use the voice and vote of the United States to oppose any loan or other use of funds of the respective institutions to or for a country for which the Secretary of State has made a determination under section 2405(j) of title 50, Appendix, or section 2371 of this title [which prohibits assistance to governments that have "repeatedly provided support for acts of international terrorism"].26
As former U.S. Executive Director to the IMF Karin Lissakers has testified, the IMF voted on only about a dozen of over 2,000 financial and procedural decisions during her four-year tenure--in other words, U.S. intentions were circumvented 99.4 percent of the time because the IMF almost never votes.27 The Administration should demand that all votes involving loans or credits to countries sponsoring or harboring terrorists be official and released to the public. A recorded vote would put U.S. allies on record--a situation that should discourage votes in favor of loans for terrorist sponsoring states.
Terrorists require governments to provide protection from international justice and military retribution. President Bush demonstrated his awareness of this fact in his September 20 speech before a joint session of Congress by declaring that "[W]e will pursue nations that provide aid or safe haven to terrorism.... From this day forward, any nation that continues to harbor or support terrorism will be regarded by the United States as a hostile regime."
It makes little sense for America to provide millions in development assistance to its adversaries. To fulfill the President's promise to combat terrorism, America and its allies in the war on terrorism must cut off foreign terrorist organizations and the countries that harbor them from international financial flows through greater oversight of and restrictions on official development assistance, both bilateral and multilateral, to terrorist sponsoring states.
Brett D. Schaefer is Jay Kingham Fellow in International Regulatory Affairs in the Center for International Trade and Economics (CITE) at The Heritage Foundation.
2. As of October 8, 1999, the U.S. Department of State designated the following as foreign terrorist organizations: Abu Nidal Organization (ANO); Abu Sayyaf Group (ASG); Armed Islamic Group (GIA); Aum Shinriykyo; Basque Fatherland and Liberty (ETA); Gama'a al-Islamiyya (Islamic Group, IG); HAMAS (Islamic Resistance Movement); Harakat ul-Mujahidin (HUM); Hizballah (Party of God); Japanese Red Army (JRA); al-Jihad; Kach; Kahane Chai; Kurdistan Workers' Party (PKK); Liberation Tigers of Tamil Elam (LTTE); Mujahedin-e Khalq Organization (MEK, MKO, NCR, and many others); National Liberation Army (ELN); Palestine Islamic Jihad-Shaqaqi Faction (PIJ); Palestine Liberation Front-Abu Abbas Faction (PLF); Popular Front for the Liberation of Palestine (PFLP); Popular Front for the Liberation of Palestine-General Command (PFLP-GC); al-Qa'ida; Revolutionary Armed Forces of Colombia (FARC); Revolutionary Organization 17 November (17 November); Revolutionary People's Liberation Army/Front (DHKP/C); Revolutionary People's Struggle (ELA); Shining Path (Sendero Luminoso, SL); Tupac Amaru Revolutionary Movement (MRTA). The department's list also includes a "Definition of Terrorist Activity Used in These Designations." These groups are based or active in the following countries: Afghanistan, Algeria, the Basque Region (northern Spain and southwestern France), Colombia, Cuba, the Democratic Republic of Korea, Egypt, Greece, Iran, Iraq, Israel and West Bank settlements, Japan, Jordan, Libya, Lebanon, Pakistan, Peru, Philippines, Sri Lanka, Sudan, Syria, Turkey, and Venezuela.
3. Members of the DAC (in order of the amount, most to least, of development assistance disbursed in 1999) are Japan, the United States, France, Germany, the United Kingdom, the Netherlands, Italy, Denmark, Canada, Sweden, Norway, Spain, Australia, Switzerland, Belgium, Austria, Finland, Portugal, Ireland, Greece, New Zealand, and Luxembourg. "Net ODA in 1999--Amounts," Organisation for Economic Co-operation and Development, at /static/reportimages/B002A1F206FE155D91D4C859BD5287EA.jpg.
6. "Iran, Iraq, Syria, Libya, Cuba, North Korea, and Sudan continue to be the seven governments that the US Secretary of State has designated as state sponsors of international terrorism." See "Overview of State-Sponsored Terrorism," in Patterns of Global Terrorism--2000 , released by the Office of the Coordinator for Counterterrorism, U.S. Department of State, April 2001, at http://www.state.gov/s/ct/rls/pgtrpt/2000/index.cfm?docid=2441.
7. The U.S. made $5 million in grants to non-governmental organizations promoting democracy in Cuba, $25 million to the government opposition in Iraq, and $23 million for food and development assistance in the areas of Sudan not under the control of the government in Khartoum. The U.S. also provided $37 million in food aid to North Korea through multilateral organizations like the World Food Program. See "U.S. Aid to Nations Who Sponsor and Harbor Terrorism," Republican Study Committee, U.S. House of Representatives, at /static/reportimages/A833933A87FBE6BA79372E2D373D3193.PDF.
8. These countries include Afghanistan, Algeria, the Basque Region (northern Spain and southwestern France), Columbia, Egypt, Greece, Israel, Japan, Jordan, Lebanon, Palestine (the West Bank settlements), Pakistan, Peru, the Philippines, Sri Lanka, Turkey, Venezuela, and Yemen. See "Background Information on Foreign Terrorist Organizations," released by the Office of the Coordinator for Counterterrorism, U.S. Department of State, October 8, 1999, at http://www.state.gov/s/ct/rls/rpt/fto/index.cfm?docid=2801.
10. As designated by the U.S. Department of State. To be designated a foreign terrorist organization, a group must meet three criteria: "The organization must be foreign.... The organization must engage in terrorist activity as defined in Section 212(a)(3)(B) of the Immigration and Nationality Act.... The organization's activities must threaten the security of U.S. nationals or the national security (national defense, foreign relations, or the economic interests) of the United States." See "Foreign Terrorist Organizations, Designations by the Secretary of State," released by the Office of the Coordinator for Counterterrorism, U.S. Department of State, October 8, 1999, at http://www.state.gov/s/ct/rls/rpt/fto/index.cfm?docid=2682#criteria.
11. See "Members: International Bank for Reconstruction and Development," World Bank Group, at http://www.worldbank.org/html/extdr/about/members/ibrdlist.htm ; "Members: International Development Association," World Bank Group, at http://www.worldbank.org/html/extdr/about/members/idalist.htm ; and "IMF Members' Quotas and Voting Power, and IMF Governors," International Monetary Fund, at http://www.imf.org/external/np/sec/memdir/members.htm#i.
14. Iran, Islamic Republic,
Country Overview, "Lending Projects," at
16. While the IMF and the World Bank are the primary sources of multilateral development assistance, other multilateral donors should not be ignored. For instance, the United Nations Development Program (UNDP) was among Afghanistan's top five donors in 1999.
17. Gerald P. O'Driscoll, Jr., Brett D. Schaefer, and John C. Hulsman, "Stopping Terrorism: Follow the Money," Heritage Foundation Backgrounder No. 1479, September 25, 2001, at http://www.heritage.org/library/backgrounder/bg1479.html .
19. President George W. Bush, "Address to a Joint Session of Congress and the American People," September 20, 2001, at http://www.whitehouse.gov/news/releases/2001/09/20010920-8.html.
21. Donna Abu-Nasr, "Bin Laden's Financial World Vast," Associated Press, September 18, 2001. Other examples include Pakistan and Lebanon. According to the U.S. Department of State, "In South Asia, the United States has been increasingly concerned about reports of Pakistani support to terrorist groups and elements active in Kashmir, as well as Pakistani support, especially military support, to the Taliban, which continues to harbor terrorist groups, including al-Qaida, the Egyptian Islamic Jihad, al-Gama'a al-Islamiyya, and the Islamic Movement of Uzbekistan. In the Middle East, the United States was concerned that a variety of terrorist groups operated and trained inside Lebanon, although Lebanon has acted against some of those groups. Lebanon also has been unresponsive to US requests to bring to justice terrorists who conducted attacks against US citizens and property in Lebanon in previous years." See "Overview of State-Sponsored Terrorism," op. cit .
22. Information from the United States Agency for International Development (USAID) supports the data in Table 1. According to USAID, the European Union disbursed $1.1 billion in development assistance to Asia, the Middle East, and North Africa in 1999, and Germany and France provided an additional $955 million and $919 million, respectively. See "Asia and the Near East Overview," United States Agency for International Development, at http://www.usaid.gov/country/ane/ .
23. Each of the five largest donors (the United States, Japan, Germany, France, and the United Kingdom), along with China, Russia, and Saudi Arabia, cast their votes individually. The remaining member countries voluntarily form 16 groups that pool their votes. See "Appendix 2: Executive Directors and Alternates of the World Bank and Their Voting Power," in World Bank group, Annual Report 2000, June 30, 2000, at /static/reportimages/CAFB1E17132CFE2D010C9F8A2A7249C6.pdf.
24. International Monetary Fund, "IMF Members' Quotas and Voting Power, and IMF Governors," at http://www.imf.org/external/np/sec/memdir/members.htm.
25. "Any proposal to introduce modifications in this Agreement, whether emanating from a member, a Governor, or the Executive Board, shall be communicated to the chairman of the Board of Governors who shall bring the proposal before the Board of Governors. If the proposed amendment is approved by the Board of Governors, the Fund shall, by circular letter or telegram, ask all members whether they accept the proposed amendment. When three-fifths of the members, having eighty-five percent of the total voting power, have accepted the proposed amendment, the Fund shall certify the fact by a formal communication addressed to all members." See Article XXVIII: Amendments, in Articles of Agreement of the International Monetary Fund, at http://www.imf.org/external/pubs/ft/aa/aa28.htm . The World Bank also states that "Any proposal to introduce modifications in this Agreement, whether emanating from a member, a governor or the Executive Directors, shall be communicated to the Chairman of the Board of Governors who shall bring the proposal before the Board. If the proposed amendment is approved by the Board the Bank shall, by circular letter or telegram, ask all members whether they accept the proposed amendment. When three-fifths of the members, having eighty-five percent of the total voting power, have accepted the proposed amendments, the Bank shall certify the fact by formal communication addressed to an members." See Article VIII: Amendments, in Articles of Agreement of the International Bank for Reconstruction and Development, (As amended effective February 16, 1989), at http://www.worldbank.org/html/extdr/backgrd/ibrd/art8.htm#I1 .
26. International Financial Institutions Act (22 U.S.C. 262p-4q(a)), as referenced in Patricia A. Wertman and Pamela Hairston, "The IMF and `Voice and Vote' Amendments: A Compilation," CRS Report for Congress No. 98-391E, April 16, 1998, p. 17.