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THE NATIONAL BUREAU OF ASIAN RESEARCH NBR ANALYSIS VOLUME 14, NUMBER 5, December 2003 Funding Terrorism in Southeast Asia: The Financial Network of Al Qaeda and Jemaah Islamiyah Zachary Abuza [This page intentionally left blank.] Foreword Arecent report from the U.S. GeneralAccounting Office (GAO) highlights how international terrorists make widespread use of alternative and informal mechanisms to raise, move, and secure their funds.1 The very nature of these informal financial mechanisms—the use of charities and informal banking systems, or trade in licit and illicit commodities—makes it extremely difficult for counter-terrorist and law enforcement officials to monitor flows of funds that terrorist groups need to sustain themselves and to execute attacks. The overlapping missionsandjurisdictionsofdifferentgovernmentagenciescomplicatesthesituationfurther .Some agencies advocate the immediate seizure of funds when they are discovered, while others prefer to monitor transfers in order to expose more of the terrorist network. The GAO report concludes by noting that without good data and analysis, officials cannot make good decisions among competing priorities and challenges nor allocate resources to address them. We hope thatthepublicationofthispaper,whichdetailsJemaahIslamiyah’sfinancingnetworksinSoutheast Asia, will contribute to an increased understanding of this critical challenge. In this issue of the NBR Analysis, Dr. ZacharyAbuza,Associate Professor of International Politics at Simmons College, illustrates a variety of methods that Jemaah Islamiyah uses to raise and transfer funds. He details how the organization uses Islamic charities (many of which are associated with charities based in SaudiArabia) and front companies to raise funds and move money around the region; how it secures pledges from its members and supporters, as well as diverts legitimate donations away from mosques and charities to its coffers; how it uses the hawala (underground banking) system and personal couriers (carrying cash, gold, or gems) to transfer funds across borders almost without trace; and also how some cells have resorted to petty criminal activities, such as bank robberies, to support their operations. Dr.Abuza argues thatAl Qaeda initially regarded the countries of SoutheastAsia, with their loosely regulated financial sectors and pervasive money laundering and smuggling networks ,asa“backoffice,”providinglogisticalandfinancialsupportforitsactivitieselsewhere. 1 General Accounting Office, “Terrorist Financing: U.S. Agencies Should Systematically Assess Terrorists’ Use of Alternative Financing Mechanisms,” GAO-04-163, November 2003. 237 The establishment of front companies, charities, and religious schools across the region providedtheinfrastructurethatJemaahIslamiyahusedtobuilditsterroristnetworkthroughoutthe 1990s, before launching its first attacks in 2000. Dr.Abuza contrasts successes in regional cooperation in the arrest of leading terrorist operatives with uneven enforcement of international agreements and lack of political will to move against financing systems. In a sobering illustration of the asymmetrical nature of the terrorist threat, Dr. Abuza details how funding for the October 2002 Bali bombings came from a variety of sources and through different channels. The entire operation—which claimed more than 200 lives, devastated Bali’s tourism-dependent economy, and according to some assessments dragged Indonesia’s economic growth rate down as much as one percentage point—required less than $50,000 to plan and execute. Nonetheless, Dr. Abuza argues that sustained action against terroristfinancing,despitetheconsiderabledifficulties,isworthwhilebecauseitlimitsthe“space” that groups such as Jemaah Islamiyah need to plan, train, and carry out attacks. Dr.Abuza’s paper is the latest in a series of assessments of the rise of terrorism in SoutheastAsia that NBR has sponsored and published in the past two years, which include: Sheldon Simon, “SoutheastAsia and the U.S. War on Terrorism,” NBR Analysis, July 2002; Robert Hefner, “Islam and Asian Security,” Strategic Asia 2002–03: Asian Aftershocks, September 2002; and Zachary Abuza, “The War on Terrorism in Southeast Asia,” Strategic Asia 2003–04: Fragility and Crisis, September 2003. We are grateful to the Henry M. Jackson Foundation for its support of the NBRAnalysis series.As with all issues of the NBR Analysis, the author is solely responsible for the content and recommendations of his paper. RichardJ.Ellings President The National Bureau ofAsian Research 238 Funding Terrorism in SoutheastAsia: The Financial Network ofAl Qaeda and Jemaah Islamiyah Zachary Abuza Before Al Qaeda’s regional affiliate Jemaah Islamiyah developed its own terrorist capability and Southeast Asia became a theater of operations, the region was first and foremost a back office for Al Qaeda, providing important logistical and financial support. Southeast Asia remains an important financial center for Al Qaeda. At the same time, Jemaah Islamiyah has developed its own funding mechanisms, including charities, front companies, donations, hawala (underground banking), gold and gem smuggling, and petty crime to support its operations. To date, none of these mechanisms have effectively been shut down. While...


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