war on the rocks

Regaining Control of the [Rebel] Financing Agenda in Syria

January 20, 2014

As the Syrian civil war rages, the US and its allies are struggling to find a willing, capable, and acceptable opposition movement to support. Meanwhile, funds from across the Middle East are flowing to a range of rebel factions.  According to a recent Brookings report, much of this regional funding comes from private donors based in Kuwait or those in neighboring countries funneling money through Kuwait. While much of this privately donated money, currently estimated in the “hundreds of millions” of dollars, is intended for humanitarian purposes, the Brookings report reveals that a substantial portion  is being used to establish and support various armed groups.  At the next round of talks in Geneva, which will be held on January 22nd, the parties must consider how to better control private funding in order to enable humanitarian relief and curtail financial assistance which “super-empowers” radical groups, exacerbating sectarianism and undermining US efforts to influence the direction of the war. Kuwait is a good place to begin. To understand why, one needs to first comprehend how the global community addresses the illicit financing of terrorism.

The Financial Action Task Force (FATF), founded in 1989 by the G-7 to inform and guide the global effort to combat money laundering by the narcotics industry, is at the heart of today’s global counter-illicit finance regime. When President George W Bush signed Executive Order 13224 launching “a strike on the financial foundation of the global terror network” to “starve terrorists of funding,” FATF was the natural mechanism for doing so.  It quickly produced 9 Special Recommendations to supplement the existing forty, and over the following years organized regular evaluations to determine the extent to which countries complied (or not) with these 49 Recommendations.

Kuwait’s most recent review was undertaken in 2010 and revealed “many shortcomings,” particularly in relation to countering terrorist finance, including a complete lack of the criminalization of terrorist-financing, no established Financial Intelligence Unit (FIU), and no implementation of the relevant UN terrorist-financing conventions and Security Council resolutions.  Of FATF’s 49 Recommendations, Kuwait was “partially” or “not compliant” with 37 (a 75% failure rate).  In contrast, Saudi Arabia and Bahrain were “partially” or “not compliant” in 19 and 25 categories respectively following their most recent evaluations. Kuwait’s shortcomings were underscored in US State Department cables from late 2009, which revealed frustration at a lack of inclination to “take action against Kuwait-based financiers and facilitators,” and noted that “groups continue to exploit Kuwait both as a source of funds and as a key transit point.”

Publicly pressured by FATF, and privately encouraged by US authorities, Kuwait has taken belated action to address its shortcomings by finally introducing legislation to identify and freeze terrorist assets, criminalize terrorist-financing, and establish an FIU. Paper compliance with FATF’s recommendations is a first step, but enforcement and prosecution will be needed to convince the international community that Kuwait has finally caught up with expectations.  Indeed, FATF’s most recent plenary meeting in October acknowledged the high-level political commitment made by Kuwait, but noted that certain strategic implementing and operating deficiencies remained, thus leaving Kuwait on its list of “High-risk and Non-cooperative Jurisdictions.”

Tightening Kuwait’s illicit finance framework is essential, but will take time. There are other, more immediate steps the US and its partners in the international community can take to frustrate illicit financial flows.

First, the US Treasury Department can designate individuals directly, as it did recently in the case of two individuals based in Qatar and Yemen for providing financial support to al-Qaeda.  When individuals are designated, any assets held in areas under US jurisdiction are immediately frozen and US persons are generally prohibited from doing business with them, directly or indirectly.  In other words, these individuals will see their relationships with the financial system severely restricted as banks, which generally need some form of direct or indirect access to the US market, are unlikely to risk providing services to them in contravention of the designation order. Thus, to the extent private donors are funnelling funds to designated organizations such as Jabhat al-Nusra, they can be targeted by the US even if the Kuwaiti authorities lack the willingness to do so.

Second, the US and international community can target funding flows indirectly. This is especially pertinent in those instances where funding conflicts with the international community’s efforts but does not demonstrably support designated terrorist organizations, and is thus outside the reach of EO 13224 and FATF-related global regulations. One way of indirectly targeting these flows is to alert banks to the “unwelcome” activity of their clients, which can lead them to withdraw services.  Although this would not directly target the flows into Syria, it could discourage fundraising activities.  Frustrating the travel plans of known couriers is another way to curtail the delivery of funds. This tactic is especially relevant given that Syria is under international sanctions and thus effectively cut off from the international banking system, which means that much of the financing is moved physically by cash couriers via third countries such as Turkey. Finally, a state-sponsored initiative to aggregate and direct humanitarian funds in a co-ordinated manner would reduce the need for individuals to direct and deliver funds, thus ensuring a more even and perhaps less ideologically motivated distribution of the much-needed aid.

It may be possible to enact legislation and identify many of the large fundraisers working in Kuwait, but the high profile many of them enjoy may limit the willingness of the authorities to interfere with their activities. Moreover, implementing domestic restrictions in Kuwait could drive the raising and transferring of funds further underground into informal channels that are more difficult to monitor.  For these reasons, and as a result of the time it will take for Kuwait to take direct action, it is critical that the international community develops indirect means of targeting fundraising if it wishes to regain control of the financial agenda in the Syrian civil war.

 

Tom Keatinge is a former investment banker at J.P. Morgan and an analyst of terrorist and extremist financing. He holds an MA in Intelligence & International Security from King’s College London.  Follow him on twitter: @keatingetom.

 

Photo credit: epSos.de