Money Jihad on summer break

This blog will be on hiatus for a couple weeks.  Thanks to readers and subscribers for your patience!

Fresh tweets at @MoneyJihad should continue as usual.

Government shares wealth with MILF

The central government of the Philippines has brokered a deal with the radical Moro Islamic Liberation Front to split revenues generated in the breakaway southern island of Mindanao.  The MILF (or “Bangsamoro”) will receive 75 percent of tax revenues, 75 percent of mining revenues, and 50 percent of fossil fuel revenues, with the central government retaining the balance.  The “crown jewel” of the agreement is that the MILF will receive their whopping cut through an automatic, annual, haggle-free grant from the central government.

It remains to be seen which taxes, such as zakat, jizya, or kharaj, the MILF may seek to impose on Mindanao residents.  The agreement is reminiscent of a truce between the government of Pakistan and militants in the tribal belt that resulted in the imposition of jizya against Sikhs in that country in 2009.

From the Philippine Star on Tuesday:

MANILA, Philippines – A wealth-sharing deal with the Moro Islamic Liberation Front (MILF) is advantageous to the country and “will stand the test of legality and constitutionality,” the chief of the government panel negotiating peace with Muslim rebels said yesterday.

In a press briefing at Malacañang, chief negotiator Miriam Coronel-Ferrer said a wealth-sharing scheme approved on Saturday was justified as it would make the envisioned Bangsamoro entity self-sustaining and progressive.

The Bangsamoro is also entitled to automatic appropriation from the central government.

Based on the agreement, the Bangsamoro entity gets 75 percent share in taxes and revenues from natural resources and metallic minerals and 50 percent from energy and other mineral resources.

Ferrer said that of all the provisions in the wealth-sharing annex, “the jewel in the crown” was the provision entitling Bangsamoro to automatic appropriation and regular release of budget.

The allocation will be in the form of an annual “block grant” from the central government similar to the internal revenue allotment (IRA) received by local government units.

“The formula for the automatic appropriation of block grant will be provided in the basic law. Many of us have not focused on this detail because much of the reporting on media have concentrated on the sharing arrangements with regard to natural resources but, as I said, this is the jewel in the crown,” Ferrer said.

At the same time, Ferrer said the agreement provided that revenues collected by the Bangsamoro from additional taxes and their share in government income from natural resources would be deducted from the annual block grants on the fourth year of the operation of the regular Bangsamoro government.

“This provision came from the MILF. It indicated that behind the haggling for more share is the intent to be less and less dependent on the national government,” Ferrer said.

“It indicated that the intention is not to get the ‘lion’s share’ for its own sake but to be able, in the future, to stand tall as a progressive and peaceful region; an equal partner of the central government in an equally peaceful and progressive country,” she said.

“This, indeed, is the true meaning of partnership – a partnership that is not based on dependency and patronage, but on the strength and capacities introduced by both for the benefit of the whole,” she added.

Ferrer said this was a unique provision because there would be automatic appropriation that would spare the region from the constraints of central budgeting process.

“I would like to say that this is a structural difference. This is not just an add-on in terms of additional percentage or whatever but this, basically, redefines the whole structure with regard to the financing of the Bangsamoro government,” Ferrer said…

Al-Shabaab’s new quartermaster? Iran.

In addition to imposing zakat on commodities such as charcoal and sugar, and extorting funds from Dahabshiil wire service, al-Shabaab may be receiving support from Iran, a designated state sponsor of terrorism.  Perhaps Iranian aid helps make up for al-Shabaab’s financial setback when it lost control of Kismayo and the lucrative harbor taxes it imposed there.

This eyebrow-raising revelation comes from a UN report disclosed to Reuters:

Exclusive – Arms ship seized by Yemen may have been Somalia-bound: U.N.

By Louis Charbonneau and Michelle Nichols

UNITED NATIONS | Tue Jul 2, 2013

(Reuters) – An Iranian ship laden with arms seized by Yemeni authorities in January may also have been bound for Somalia, according to a confidential U.N. report seen by Reuters on Monday.

Yemeni forces intercepted the ship, the Jihan 1, off Yemen’s coast on January 23. U.S. and Yemeni officials said it was carrying a large cache of weapons, including surface-to-air missiles, being smuggled from Iran to insurgents in Yemen.

The confidential U.N. report, by the U.N. Monitoring Group on Somalia and Eritrea, cited Yemeni officials as saying that it was possible diesel carried aboard the ship could have been intended for shipment to Somalia.

The group, which tracks compliance with Security Council sanctions, raised concerns in the report about the flow of weapons to Islamist al-Shabaab militants since the U.N. Security Council eased an arms embargo on Somalia’s fragile Western-backed government earlier this year…

Sanction-busting smugglers flock to Oman

Barack Obama has said, “We’ve imposed the toughest sanctions in history.”  But with respect to Iran, the sanctions regime looks more like a game of whac-a-mole where, as one sanctions loophole pops up and is beaten down, another loophole or workaround pops up somewhere else.  In the latest illustration of this, the UAE has been pressured to clamp down on smuggling to Iran, and an island off the coast of Oman has begun picking up the slack.

From France 24 on Jul. 11 (h/t latlongpacific):

Iranian smugglers set up shop in coastal Oman

Due to the ramping up of international sanctions, many Iranian merchants who were working legally in Dubai are leaving and heading to Khasab, a small coastal town in Oman, where smuggling is rife.

Khasab, in the southern part of the Hormuz Strait, is conveniently located just 45 kilometres from the Iranian island of Qeshm. Many Iranian merchants who previously worked in the UAE are now establishing themselves in Khasab, where they rely on “shooties” – a local term for smugglers – to take their goods to Qeshm and from there to the rest of Iran.

According to our Observers, as well as other reports, both Omani and Iranian police appear to turn a blind eye to this practice. A photographer who recently travelled to the region told FRANCE 24 that the Omani authorities try to prevent this from making the news. He said that after taking photos of the smugglers, he was repeatedly interrogated, made to erase almost all his photos, and warned to stay away from Iranians working in Khasab.

Many Iranian businessmen have quit Dubai in the past couple of years because UAE authorities — under pressure from the United States — have made it increasingly difficult for them to work there. Many Iranian businessmen’s bank accounts have been frozen; they no longer enjoy banking facilities such as loans; and work permits are increasingly difficult to obtain. According to one veteran Iranian businessman FRANCE 24 spoke to, such measures have pushed Iranians who were previously working in the UAE legally to go to Oman, and smuggle their goods to Iran via Khasab: “They simply could no longer compete with non-Iranian merchants and were incurring loses. Doing business here in Dubai has now become almost impossible for Iranians”…

The ratlines of Hamas

Hamas and tunnel owners are making millions of dollars a year from Gaza Strip smuggling.  A nice little summary of the long-known situation comes to us from a new, scholarly article entitled “Terrorist Use of Smuggling Tunnels” in the latest edition of the International Journal of Criminology and Sociology:

…The amount of money made by Hamas off taxing contraband smuggled through Gaza Strip tunnels, as well as the political advantage of Hamas controlling both absolute and conditional contraband tunnel smuggling, has been addressed in the business management popular press. For example, one source reported that “the tunnels generate $188 million in tax revenues on things like cigarettes, gas and building materials” (Topol, 2013, para. 13).

Palestinians estimate that 25% of the Hamas government’s budget comes from taxes imposed on the owners of the underground tunnels. For example, Hamas has imposed a 25% tax and a $2,000 fee on every car that is smuggled into the Gaza Strip. Hamas also charges $15 for each ton of cement, eight cents for a pack of cigarettes, and 50 cents for each liter of fuel smuggled through the tunnels (Toameh, 2012).

The political advantage the smuggling tunnels provided to Hamas included that while the tunnels are essential for transporting absolute contraband and materials into Gaza, they are also critical for maintaining the goodwill of Gazans by providing them with cut-price commodities even with surcharges added by Hamas officials (Alster, 2013). The financial rewards of engaging in criminal smuggling of contraband between Egypt and the Gaza Strip are an important part of transnational tunnel analysis because the Gaza Strip is a site of an estimated 600 millionaires (Toameh, 2012)…

Lessons in extortion by El Salvador’s gangs

Although the gangs may not be using the proceeds to fund international terrorism, the shakedowns of local businessmen are very reminiscent of terrorist fundraising activity by ETA in Spain and by Islamist militants in Afghanistan, Pakistan, Somalia, and Iraq.

InSight Crime has the analysis, which may provide some useful lessons for counter-terror finance analysts:

2 Businesses Per Week Shut Down by Extortion in El Salvador

Around 70 percent of the 11,730 businesses registered with the National Council for Small Businesses (Conapes) reported being extorted by gangs, according to the group’s director Ernesto Vilanova.

The head of El Salvador’s Chamber of Commerce, Federico Hernandez, confirmed the practice is widespread and said extortion, along with the government failing to pay contractors on time, is the main factor behind an increase in closures of small and micro-businesses — classified as businesses employing between one and 50 people.

Hernandez said the Chamber had registered a rapid acceleration in the number of businesses forced to close over the last five months and that the situation was worse now than at any point in his four-year stint at the head of the organization.

According to Vilanova, despite the truce between the two street gangs behind most of the extortion, the Mara Salvatrucha (MS-13) and Barrio 18, there is little optimism in the business community that the situation will improve. “This is never going to end,” he said. “They arrest three, but there are thousands more out there.”

InSight Crime Analysis

The comments made by the two Salvadoran business organizations highlight the crippling economic impact of extortion, especially in developing economies where most opportunities for employment are with small and micro-businesses.

Worryingly, they also add weight to reports that the since the gang truce, far from leading to a reduction has actually seen an increase in extortion…

This ongoing problem illustrates that gang war truces may not be as effective as everybody hoped for, especially when the underlying reason for the conflict isn’t addressed.  Will this be a lesson for those seeking to broker a truce with the Taliban?  Or will we look back months after a “peace deal” is signed and wonder why ordinary Afghan businessmen and farmers are being ripped off once again by the tax men of the Taliban?

Kuwaiti donors arm Syrian mujahideen

Not to be outdone by their Saudi and Qatari neighbors, Kuwaitis are raising money to fund and arm the rebels in Syria.  This is being done through private donations, and officials claim that safeguards are in place to ensure that aid goes to the “right” people.  But this claim is unconvincing, especially given Kuwait’s record of allowing the Revival of Islamic Heritage Society to operate and fund terrorism abroad.

From Reuters:

Insight: Kuwaitis campaign privately to arm Syrian rebels

By Sylvia Westall and Mahmoud Harby

KUWAIT | Thu Jun 27

(Reuters) – At a traditional evening meeting known as a “diwaniya”, Kuwaiti men drop banknotes into a box, opening a campaign to arm up to 12,000 anti-government fighters in Syria. A new Mercedes is parked outside to be auctioned off for cash.

They are Sunni Muslim and mainly Islamist like many Syrian rebels who have been trying for two years to overthrow President Bashar al-Assad, a member of the minority Alawite sect that is a branch of Shi’ite Islam.

Syria’s war has widened a faultline in the Middle East, with Shi’ite Iran and Lebanese militia Hezbollah backing Assad and Sunni-ruled Gulf Arab nations supporting his opponents.

“The world has abandoned the Syrian people and the Syrian revolution so it is normal that people start to give money to people who are fighting,” said Falah al-Sawagh, a former opposition member of Kuwait’s parliament, surrounded by friends drinking sweet tea and eating cakes.

In just four hours the campaign collected 80,000 dinars ($282,500). The box moves to a new house each day for a week. Sawagh estimates this type of campaign in Kuwait, one of the world’s richest countries per capita, raised several million dollars during the last Ramadan religious holiday.

Sunni-ruled Kuwait has denounced the Syrian army’s actions and sent $300 million in humanitarian aid to help the millions displaced by the conflict in which more than 90,000 have died.

Unlike Saudi Arabia and Qatar, Kuwaiti government policy is against arming the rebels. But the U.S. ally allows more public debate than other Gulf states and has tolerated campaigns in private houses or on social media that are difficult to control.

Kuwaiti authorities are nevertheless worried that the fundraising for Syria could stir sectarian tensions – Kuwait has its own Shi’ite minority. The West is concerned that support will bolster al Qaeda militants among the rebels.

Some opposition Islamist politicians and Sunni clerics have openly campaigned to arm rebel fighters, using social media and posters with telephone hotlines in public places. Former MP Waleed al-Tabtabie, a conservative Salafi Islamist, posted pictures of himself on Twitter clad in combat gear in Syria…

Hezbollah bank fined

The fine of $102 million against Lebanese Canadian Bank is far less than the $1.9 billion settlement with HSBC or the $600+ million settlements with ING and Standard Chartered last year.  It also appears that nobody from the bank will ever face prosecution for aiding Hezbollah, and the extradition of one of their big-time money laundering clients, Ayman Joumaa, appears to have stalled.

From Agence France Presse (h/t El Grillo):

US fines ‘Hezbollah’ bank $102 mn for laundering

(AFP) – Jun 25, 2013

WASHINGTON — A Lebanese bank accused of laundering money from drugs and other operations for clients tied to Hezbollah militants agreed Tuesday to pay US authorities $102 million to settle the charges.

Beirut-based Lebanese Canadian Bank was singled out in February 2011 for allegedly moving hundreds of millions of dollars for criminal groups and traffickers operating in Latin America, West Africa and the Middle East.

Some of the customers it served were closely linked to Hezbollah, which Washington has blacklisted as a “terrorist organization.”

US authorities had already taken control of $150 million the bank set aside for a possible penalty as it was being bought in 2011 by another Beirut bank, Societe Generale de Banque au Liban…

Term of the week: trade-based money laundering

Julie Myers, the former assistant secretary of the Immigration and Customs Enforcement agency, once defined trade-based money laundering as:

The use of trade to legitimize, conceal, transfer, and convert large quantities of illicit cash into less conspicuous assets or commodities. In turn, the tangible assets or value are transferred worldwide in an effort to avoid financial transparency laws and regulations.*

Common methods of laundering money through trade are over-invoicing and under-invoicing.  If you want to transfer money to somebody, you could transfer goods to them and under-bill them.  If somebody is trying to transfer money to you, you could transfer goods to them and over-bill them.  From the outside, it appears to be a legitimate transaction.  But the parties involved know it’s a sham to transfer extra money without drawing attention to themselves from financial authorities.

 

*U.S. House of Representatives Subcommittee on Trade, 109^th Congress, 2^nd Session, “Customs Budget Authorizations and Other Customs Issues” (Washington:  U.S. Government Printing Office, 2007).

FATF’s terrorist charity typologies

The Financial Action Task Force, an international financial watchdog, has updated its “Recommendation 8” pertaining to government oversight of nonprofit organizations.  (Thanks to Arye Glozman who sent in a link to the report).

Overall, the revised recommendations show greater deference to the nonprofit sector and urge restraint by governments in regulating charities than the 2002 version.  This deference is a bit strange considering that using charities as vessels for funding terrorism has not decreased since 2002 then, neither in the West as illustrated by organizations such as the Holy Land Foundation and WAMY Canada, nor in the Middle East and Northern Africa where Gulf-based charities have played a central role in funding and arming Islamist rebels of the Arab Spring.

That being said, the FATF report does present a useful set of typologies to categorize four different types of terrorist “misuse” of nonprofit groups:

1. Front charities, where everybody from the donors to the charity workers to the beneficiaries knows that the charity is a sham designed to fund terrorism.
2. Organizations defrauding donors by telling them the money is going toward legitimate programs but then redirect the proceeds to terrorism.
3. Branch offices of charities defrauding headquarters by misleading the leadership about the branch’s actual programs.
4. Charity workers abusing their positions to distribute aid to militants.

The “charities” used by Osama bin Laden to funnel money from wealthy Saudi donors to Al Qaeda in the 1990s are a good example of type #1.  Jamaat-ud-Dawa in Pakistan is a good example of a front charity today, with donors and recipients understanding that the money is really for the Lashkar-e-Taiba terrorist group.  Many analysts would probably say that the Holy Land Foundation fell into type #2, with donors unwittingly funding Hamas (although some donors knew that their zakat was funding “resistance” against Israel).  Islamic Relief Worldwide can be associated with types #3 and #4 by having a branch office in Gaza that passed money along to Hamas, allegedly without the knowledge of headquarters in England.

Al Qaeda makes millions from Mosul shakedowns

Merchants, doctors, and sheikhs in northern Iraq are being blackmailed by Al Qaeda to fund martyrdom operations there and in Syria.  At about $1 to $1.5 million in payments per month, Al Qaeda may be grossing between $12 to $18 million a year—a staggering sum for an organization that was on the verge of bankruptcy following the Iraq surge.

During its pre-9/11 heyday, Al Qaeda was pulling in $30 million a year, but had arguably collapsed to $5 million following the invasion of Afghanistan.  Viewed with that trend in mind, the Mosul extortion racket isn’t just a regional threat to Malaki or to Syria, but a reversal of fortunes that puts Al Qaeda back toward the upper echelons of well-funded terrorist groups worldwide.

From the AP via NPR, with some paragraphs omitted for brevity and relevance:

In Northern Iraqi City, Al-Qaida Gathers Strength

by The Associated Press

June 20, 2013

BAGHDAD (AP) — Al-Qaida’s Iraq arm is gathering strength in the restive northern city of Mosul, ramping up its fundraising through gangland-style shakedowns and feeding off anti-government anger as it increasingly carries out attacks with impunity, according to residents and officials.

It is a disturbing development for Iraq’s third-largest city, one of the country’s main gateways to Syria, as al-Qaida in Iraq makes a push to establish itself as a dominant player among the rebels fighting to topple the Syrian regime.

The show of force comes as Mosul residents cast ballots in delayed local elections Thursday that have been marred by intimidation by militants. Al-Qaida’s renewed muscle-flexing is evident in dollar terms too, with one Iraqi official estimating that militants are netting more than $1 million a month in the city through criminal business enterprises…

Other Sunni militant groups, including Ansar al-Islam and the Army of the Men of the Naqshabandi Order, are also active in Ninevah. Mosul is the capital of the Sunni-dominated province.

Al-Qaida’s growing power is particularly worrying because it is thought to be behind the bulk of the bombings across Iraq and because it is trying to assert itself as a player in neighboring Syria’s civil war. The head of al-Qaida’s Iraq arm last week defied the terror network’s central command by insisting that his unit would continue to lay claim to al-Qaida operations in Syria, too.

“We’re definitely concerned about it,” said a U.S. diplomat about the deteriorating security situation in Mosul. The diplomat, who wasn’t authorized to speak on the record, said al-Qaida’s Iraq arm sees an opportunity to try to build support in the area and is “out blowing things up to show that the government can’t protect and serve the people.”

Al-Qaida’s growing strength in Mosul is painfully clear to businessman Safwan al-Moussili. Traders like him say they are once again facing demands from militants to pay protection money or face grave consequences. Merchants say that practice had largely disappeared by the time American troops left in December 2011.

“They tell us: ‘Pay this amount.’ And if it’s higher than before, they say something like: ‘You recently went to China and you imported these materials and you made such and such profits,'” he said. “It seems they know everything about us.”

Small-scale shop owners, goldsmiths, supermarkets, gas stations and pharmacies are all being hit up for money these days.

Al-Moussili and his fellow businessmen feel they have little choice but to pay up. About two months ago, he recalls, one businessman refused to pay, and insurgents planted a bomb inside his shop that killed the man.

“That forced everybody to pay, because we don’t see the security forces doing anything to end this situation,” he said.