Two and a half years into the 'war on terror', the US is running a $500 billion budget deficit, its highest ever and the country is struggling to cover war costs. Terrorism seems to be a very costly business. So how can terrorists afford it? The answer is simple: terrorism is their business.
1. Terrorism has always been a business
During the Cold War terrorism was the trade of the superpowers. They fought wars by proxy across the world by funding local armed groups with legal or covert operations (for example the Contras in Central America). In the late 1970s-early 1980s, some of these groups managed to privatize terrorism. To raise money, they used a mixture of legal and illegal activities -- the IRA had the monopoly of private transport in Belfast; the PLO got a cut out of the Hashish trade from the Bekaa Valley; Carlos the Jackal and Aby Nidal became 'guns for hire' for Arab leaders such as Gaddafi.
2. Globalization boosted terrorism
In the 1990s, as international economic and financial barriers were lowered, terror groups expanded their businesses, which become transnational. Today, money is raised cross border, as proved by the joint business empires of Yousef Nada and Idris Nasreddin, two of bin Laden's associates. According to the UN, their portfolios, which range from real estate to fisheries, sprawl across Europe and Africa, and are worth hundreds of millions of dollars.
3. Each time an American reads a newspaper or takes a sip at a soft drink, they contribute to Osama bin Laden's financial empire
Terror businesses could not stay out of the largest consumer market in the world, the US. In the mid 1990s, while residing in Sudan, Osama bin Laden acquired 70% of Gum Arabic Company Ltd, which produces about 80% of the world supply of gum arabic. Extracted from the sap of the acacia trees that grow in Sudan, gum arabic is used to make ink stick to newspapers, to prevent sediment forming in soft drinks and to create a protective shell around sweets and pills to keep them fresh. The US is the largest importer in the world. Bin Laden's investment proved to be a very sound one. In November 1997, when Clinton imposed economic sanctions on Sudan, a number of American importers including the Newspaper Association of America, and the National Soft Drinks Association of America, objected. Eventually, Gum Arabic was exempted.
4. The Terror Economy is Bigger than the GDP of the United Kingdom
Globalization also facilitated the merging of terror enterprises with criminal and illegal activities. This meant big business. Today their joint yearly turnover is a staggering $1.5 trillion dollars, higher than the GDP of the United Kingdom.
5. The terror economy props up western capitalism
The bulk of the $1.5 trillion flows into Western economies and gets money laundered in the US and Europe. This is a vital infusion of cash into these economies. If we were to cut it overnight, the West would be plunged into a recession.
6. The illegal/terror economy grows faster than the US economy
Up to now, terror business has been conducted in dollars, primarily in 100 dollars bills; so are arms and drugs smuggling and other criminal and illegal activity. Thus, a rough indication of the rate of growth of the terror economy is given by the yearly infusion of new stock of US dollars. In the year 2000, as much as two third of the US money supply, equivalent to $500 billion, was taken out of the US monetary system for good and is now held abroad. This figure refers to money taken abroad in suitcases or via offshore accounts. If these statistics are correct, then the rate of monetary growth of the terror/illegal economy is higher than that of the US economy.
7. 9/11 was one of the greatest insider-trading events in modern history
Terrorists are also very skilled speculators. During the week before 9/11, an unusually high volume of trading was reported in certain sectors, e.g. air transport, energy and insurance. Shares of American Airlines and United, the US airlines involved in the 9/11 attack, were targeted. A similar trend was reported in the insurance business, with leading companies becoming the object of exceptional and unexpected speculation on the futures market. The weekend following the attack, Ernst Welteke, president of the German Bundesbank, admitted that there had been insider trading by 'terrorists' and added that the commodities markets had also been targeted. Indeed, days before the attack, oil and gold experienced a sudden and inexplicable rise in price. This was followed by a surge in activity on the futures market. On 12 September, oil prices jumped by more than 13 per cent and gold prices went up by over 3 per cent. Prices continued to climb all week. Anybody who knew what was going to happen on 11 September could have predicted such a trend.
8. Profiteering on Terrorism
Terrorism is such a good business that even the US government tried to get a stake in it. Last summer, the Pentagon was forced to abandon a 20 months project, Future PAM, to launch an online futures market that allowed speculators to bet on assassinations, coups and acts of terrorism. The project was headed by a leading expert on state sponsored terrorism, retired vice admiral John Poindexter, formerly national security adviser under President Reagan. In the1990s, Poindexter was convicted on five felony counts, including lying to Congress, destroying documents and obstructing congressional inquiries into the Iran-Contra scandal. Several US senators strongly opposed the project on the ground that terrorists would be the biggest beneficiaries as they are the ones who carry out the attacks.
9. Terrorism is such a good business that nobody really wants to eradicate it
So far, international efforts to curb terror financing have failed. An insignificant $140 million of terror money have been frozen since 9/11, 70% coming from accounts held in the West. Business profits generated by Al Qaeda front companies and donations from the Muslim world are mostly untouched. For example, Haramain Charitable Foundation, a Saudi charity worth $30 million per year, is still active in several countries. Recently Haramain has opened a new Islamic school in Jakarta, a hot bed of Islamist terror in South East Asia. Twice the Saudis have agreed to shut this charity, which is headed by Sheikh Saleh bin Abdul Aziz al-Ashaikh, Saudi minister for Islamic affairs, but never did it. So far the Saudis have frozen $4.7 million of terror money, closed 6 of the 241 Saudi charities and prohibit the collection of coins at the entrance of shopping malls. Not a lot when compared with UN reports stating that prior to 9/11, as much as 20% of Saudi GDP went to fund Al Qaeda alone.
10. Twice the US passed on the opportunity to get hold of Osama bin Laden
Is terror such good business as to prevent the arrest of bin Laden? In 1996, the Sudanese Minister of Defence, Major General Elfatih Erwa, offered to extradite Osama bin Laden, then resident in Sudan, to the US. American officials declined the offer. Instead, they told General Erwa to ask bin Laden to leave the country. 'Just don't let him go to Somalia,' they added. In 1993, 18 US soldiers had been brutally killed in Somalia in street riots involving Al Qaeda supporters and the US feared that bin Laden's presence in the country would create further unrest. When Erwa disclosed that bin Laden was going to Afghanistan, the American answer was 'let him go'. A few weeks after 9/11 the leaders of the two Pakistani Islamist parties negotiated with Mullah Omar and bin Laden for the latter's extradition to Pakistan to stand trial for 9/11. Once again the US refused the offer.
Two and a half years into the 'war on terror' it is apparent that the winners are the terrorists -- while Al Qaeda's finances are still intact the US is running the highest budget deficit in history. What can be done? Start by treating terrorism for what it is: a global business; force our Muslim allies to act immediately to curb terror funding and concentrate our efforts to hunt terror money in our countries, even if that implies putting under investigation the strongholds of Western capitalism: Wall Street, the City of London and the thousand offshore centres linked to them.
Loretta Napoleoni is an economist who has worked for banks and international organizations in Europe and the US. She has written novels and guide books in Italian and translated and edited books on terrorism. She is among the few people who interviewed the Red Brigades in the early 1990s. She developed the idea to research and write a book on the economics of terrorism while interviewing the leaders of the Red Brigades.
Napoleoni's latest book, published September 2003, is Modern Jihad: Tracing the Dollars Behind the Terror Networks