Terrorists Use Various Alternative Financing Mechanisms to Earn, Move, and Store Their Assets

Terrorists use an assortment of alternative financing mechanisms to earn,  move, and store their assets. Terrorists Move Assets via Systems and Commodities That Allow Ease of Concealment and Liquidity

To move assets, terrorists use mechanisms that enable them to conceal or  launder their assets through nontransparent trade or financial transactions  such as charities, informal banking systems, bulk cash, and commodities  such as precious stones and metals. Extent of Use of Alternative Financing Mechanisms Is Unknown

The true extent of terrorist use of alternative financing mechanisms is  unknown, owing to the criminal nature of the activity and the lack of  systematic data collection and analyses. U.S. Law Enforcement Does Not Systematically Collect and Analyze Data on Terrorists’ Use of Alternative Financing Mechanisms

U.S. law enforcement agencies—specifically, the FBI, which leads terrorist  financing investigations and operations—do not systematically collect and  analyze data on terrorists’ use of alternative financing mechanisms. The Departments of the Treasury and of Justice have yet to produce their  report on how money is being moved or value is being transferred via the  trade in precious stones and commodities. This report was required by  March 2003 under the 2002 National Money Laundering Strategy. The  information gained in the report was to form the basis of an informed  strategy for addressing this financing mechanism. Appendix I: Objectives, Scope, and Methodology

The Ranking Minority Member of the Senate Committee on Governmental  Affairs’ Subcommittee on Oversight of Government Management, the  Federal Workforce and the District of Columbia and the Chairman of the  Senate Caucus on International Narcotics Control asked us to assess (1)  the nature of terrorists’ use of key alternative financing mechanisms for  earning, moving, and storing terrorists’ assets; (2) what is known about the  extent of terrorists’ use of alternative financing mechanisms; and (3) the  challenges that the U.S. government faces in monitoring terrorists’ use of  alternative financing mechanisms.
Why GAO Did This Study

Cutting off terrorists' funding is essential to deterring terrorist operations. The USA PATRIOT Act expanded the ability of law enforcement and intelligence agencies to access and share financial information regarding terrorist investigations, but terrorists may have adjusted their activities by increasing use of alternative financing mechanisms. GAO was asked to assess (1) the nature of terrorists' use of key alternative financing mechanisms for earning, moving, and storing terrorists' assets; (2) what is known about the extent of terrorists' use of alternative financing mechanisms; and (3) challenges that the U.S. government faces in monitoring terrorists' use of alternative financing mechanisms.

What GAO Found

Terrorists use many alternative financing mechanisms to earn, move, and store assets. They earn assets by selling contraband cigarettes and illicit drugs, by misusing charitable organizations that collect large donations, and by other means. They move funds by concealing their assets through nontransparent mechanisms such as charities, informal banking systems, and commodities such as precious stones and metals. To store assets, terrorists may choose similar commodities that maintain their value and liquidity. The extent of terrorists' use of alternative financing mechanisms is unknown, owing to the criminal nature of terrorists' use of alternative financing mechanisms and the lack of systematic data collection and analysis of case information. The Federal Bureau of Investigation (FBI) does not systematically collect and analyze data on these mechanisms. Furthermore, the Departments of the Treasury and of Justice have not yet produced a report, required under the 2002 National Money Laundering Strategy, which was to form the basis of a strategy to address how money is moved or value transferred via trade in precious stones and commodities. In monitoring terrorists' use of alternative financing mechanisms, the U.S. government faces a number of challenges, including accessing ethnically or criminally based terrorist networks, targeting high-risk financing mechanisms that the adaptable terrorists use, and sharing data on charities with state officials. The Internal Revenue Service (IRS) has committed to, but has yet to establish, procedures for such data sharing.