Report: Terrorists use cash, avoid financial ties

updated 11:49 a.m. ET Nov. 9, 2008

WASHINGTON - The international system for tracking and cutting off terrorist financing has achieved major successes but is fraying seven years after the Sept. 11 attacks, two former Treasury Department officials report. Some U.S. allies in the fight against terrorism pose the weakest links.

U.N. countries froze the assets of some 300 al-Qaida and Taliban members after the 2001 attacks. By early 2004, 112 countries had ratified an international effort to suppress terrorist financing. In addition, al-Qaida is not providing money for operations at past levels. Instead, local cells increasingly are self-funded and send money back to "corporate" al-Qaida.

But international interest in continuing to comply with U.N. enforcement rules is waning, according to the former officials, and terrorists have shifted from official financial institutions, frustrating government efforts to cut off their money streams.

"Few assets are now being frozen and, in fact, many countries still have not put in place the legal framework necessary to take action," the report states. The arms embargo and travel ban against those on the list have not been enforced.

Saudi Arabia donors biggest supporters
Donors from Saudi Arabia are the chief sources of support for al-Qaida extremist groups, while the Iranian government keeps financing Hezbollah, Hamas and other terrorist groups, according to the report. The research is intended as a road map for the incoming Obama administration to tighten the system and crack down on evolving terrorist financing schemes.

An advance copy of the report, "The Money Trail," was provided to The Associated Press. The authors, Matthew Levitt and Michael Jacobson, are presenting their findings to government agencies, as well as international organizations and think tanks. Leavitt was deputy assistant treasury secretary for intelligence and analysis from 2005 to early 2007, while Jacobson worked in the department's Office of Terrorism and Financial Intelligence. Both are now at the Washington Institute for Near East Policy. They spent 18 months interviewing government and financial executives around the world.

The report found that American ally Kuwait presents a growing problem, and problems extend through the Gulf states.

"Several U.S. officials compared Kuwait's present efforts against terrorist financing to Saudi Arabia's before the May 2003 attack in Riyadh, when the Saudi's first realized the extent of the threat on their hands," the report said, citing interviews with unnamed State and Defense Department officials.

The United Arab Emirates runs its financial monitoring system well "on the surface" but has just two analysts responsible for combating the financing of terrorist activities in one of the Middle East's major financial centers. The UAE government has only a limited understanding of how to "follow the money," an unidentified State Department official told the authors.

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