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NDLS professor: Stop ISIS by choking funding

October 8, 2014

The battle against the Islamic State of Iraq and the Levant is often discussed in terms of bombs and boots on the ground. However, an expert in terrorist financing at the Notre Dame Law School says destroying the Islamic State group, also referred to as ISIS, must include going after the money.

“No question, ISIS is the best-funded international terrorism organization the world has seen,” said Jimmy Gurulé, NDLS professor and former undersecretary for enforcement with the U.S. Treasury Department from 2001 to 2003.

Choking the flow of money can cripple a terrorist organization’s ability to recruit and train new terrorists, purchase military-grade weapons and launch attacks.

gurule-jimmy-mug.jpg Gurulé

But stopping the dollars is not easy. The judicial system is divided over the interpretation of a key statute used to combat the terrorists’ financial enablers, and one legal scholar argues the penalties have to be harsher to really get the attention of the banking sector.

Money going to the groups is not arriving in suitcases or duffle bags. It is rolling through the international banking system, so the financial services community has become an important ally, although, Gurulé pointed out, a reluctant one.

Banks are required by the U.S. government to know their customers, watch for suspicious transactions and report any evidence of terrorist financing schemes. Not complying could bring stiff penalties.

Recently, a jury in federal court found a foreign bank liable for injuries and deaths caused by Hamas. The financial institution now faces the potential of significant monetary penalties.

Sarah Jane Hughes, fellow in commercial law at Indiana University Maurer School of Law, does not believe hitting banks in their wallets will be enough. The problem, she said, is the tremendous amount of money to be gained by circumventing the system.

Shareholders will pay the fines and move on, she said. Aggressive enforcement of the law has to include criminal penalties.

“I think if it’s only money and nobody is going to jail, the message doesn’t get through,” Hughes said.

A new strategy

Going after the financial arm of the Islamic State group will require a substantially different tactic than the one the United States employed against al-Qaida, Gurulé said. The primary reason is this terrorist group has a funding operation that al-Qaida “could only dream about.”

While al-Qaida depended on deep pockets of donors sympathetic to its cause, the Islamic State group is basically self-funded.

Unlike al-Qaida, the Islamic State group actually controls a large area of land in Iraq and Syria which gives the group a state-like quality, Gurulé explained. The territory under its rule includes robust oil wells and refineries. Money from the sale of that oil on the black market is estimated to pump $2 million to $3 million per day into the organization’s coffers.

Like al-Qaida, the Islamic State group relies on some funding from sham charities that are really fronts for funneling money to terrorists. In addition, the group extorts money from businesses in the area it controls.

“The challenge of cutting off ISIS funding is much more daunting than it was cutting off funding to al-Qaida,” Gurulé said.

As part of the George W. Bush administration, Gurulé helped develop the first version of the counterterrorism financing strategy designed to stop the money going to al-Qaida.

The plan drew a great deal from the lessons the federal government learned in fighting the war on drugs. Specifically, U.S. officials discovered that breaking the financial arm of the drug cartels did more damage than prosecuting and punishing the kingpins.

The tactic is considered to have done the same against al-Qaida, Gurulé said. It disrupted the organization’s terrorist activities and made getting money more difficult.

Any counterterrorism financing strategy built to defund the Islamic State group will have to be significantly different from the al-Qaida version. Gurulé said because Islamic State group has that state-like dimension, the plan should resemble the strategy of sanctions used against Iran.

The Obama administration extended sanctions to foreign companies that did business with Iran. American businesses were prohibited from working with companies headquartered outside of U.S. borders that did business with Iran. Moreover, those foreign entities were prohibited from doing business with U.S. companies or getting government contracts.

“Simply because it’s difficult does not mean we shouldn’t undertake the effort to identify companies buying ISIS oil and identify companies handling ISIS money and identify companies transporting ISIS oil for sale around the world,” Gurulé said.

Penalties

Although banks and companies are supposed to ensure that American entities are not doing business with countries and organizations that have ties to terrorism, Hughes thinks they are not looking much beyond their customers.

The banks and businesses either are being willfully blind or they do not have the imagination to see far enough into their clients’ relationships.

The financial and business sectors, Hughes said, are working under the modus operandi of “You’re good until you’re not good.”

hughes Hughes

To send the message that the U.S. is serious about not doing business with rogue entities, Hughes said, the penalties have to either hurt, like revoking a bank’s charter or suspending its ability to clear dollars, or result in somebody getting indicted.

“But there are still people who will cheat,” she conceded, “because there’s so much money.”

The Anti-Terrorism Act is one way to deter terrorist financing by punishing the terrorists and their financial services providers. And, Gurulé pointed out, the penalty can be very painful since the Act allows for treble damages.

Pursuing this remedy is difficult because of a split between the federal Circuit courts over the interpretation of the Act. Some courts read the statute as having an aiding and abetting provision while others, including the 7th Circuit Court of Appeals, do not.

With the disagreement, the law is now being applied differently among the jurisdictions, which makes obtaining a civil judgment more difficult, Gurulé said. Some plaintiffs carry a heavier burden of proving the bank committed an intentional act that caused the terrorist attack while other plaintiffs just have to show the bank aided and abetted by providing substantial assistance.

Proving a financial institution substantially assisted terrorists in an attack is not easy, Gurulé said, but it is easier than proving direct liability.

On Sept. 22, plaintiffs who were either injured or had relatives maimed or killed during attacks by Hamas in the 2000s proved their case. A federal jury in Brooklyn found Arab Bank violated the Anti-Terrorism Act by processing transactions for a charity that was allegedly connected to the terrorist group. Therefore, the jury held the bank liable for the deaths and injuries caused by suicide bombings.

With treble damages, Gurulé speculated the plaintiffs could see a judgment in the billions of dollars. That would certainly be a penalty that would hurt, but plaintiffs may not see the money soon because the bank plans on appealing.

Since the Circuits dispute the interpretation of the Anti-Terrorism Act, the issue is ripe for review by the Supreme Court of the United States. However, getting a case before the justices is likely several years away.•
 

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