What does the Iraq insurgency have in common with efforts to police America’s campaign finance system? Answer: In both cases, money will find a way.
In the past few weeks, the American military has launched a new effort to cut off the flow of money to Iraqi insurgents. Mixing monetary policy, diplomatic arm twisting, international detective work with the down-and-dirty job of raiding suspected arms and money caches, Bush administration officials speak of “starving” the insurgency of the money it needs to function.
“If we can stop the money, we can stop the insurgency,” a coalition official told the AP in Baghdad last Saturday, predicting a “crisis” among the Iraqi insurgents within a month.
Unfortunately, say counter-insurgency and financial experts, prospects for shutting down the flow of money in a land so recently looted of all its assets is not very likely. Like Sen. John McCain (R-Arizona) and Sen. Russell Feingold, (D-Wisc.), the fathers of the recently affirmed campaign finance law that banned “soft money” in American political campaigns, U.S. occupation authorities likely will find that by the time the affects of their actions are measurable in any real way, the flow of funds to the insurgency will have adapted to the new obstacles.
Another day, another dinar
There are several theories about how the insurgency is being funded. U.S. occupation authorities have tended to emphasize the idea that much of the money being used to pay “bounties” for killing coalition troops or to pay for operational expenses is drawn from funds looted by Saddam and his Baath Party loyalists as the regime was collapsing.
Some of this money, U.S. officials surmise, is in the form of U.S. dollars, but a large chunk would have been Iraqi dinars. As such, the Coalition Provisional Authority is pinning some hope on the current changeover across the country from pre-war Iraqi dinars bearing Saddam’s image to a new bank note. However, as Iraqis are able to trade in their old dinars for new ones, it is not entirely clear how the authorities plan to prevent looted dinars from being converted along with the rest.
The new dinar alone may not do much.
“I think the insurgency may have a shortage of personnel, not a shortage of money,” says Rick Francona, a former U.S. intelligence official who worked in Iraq. “it seems to me that the insurgents have access quite a sizeable amount of money. Most of what was looted was in the form of hard currency, mostly US dollars. Assuming that Saddam was able to access holdings other than those which were intercepted, the insurgency could conceivably have tens of millions of dollars or more. There doesn't seem to be any shortage.
A second source of funding, U.S. intelligence officials say, are bank accounts abroad where the Baathists stashed money in the run up to war. Of particular interest are bank accounts in Syria, where U.S. Treasury officials recently spent several weeks attempting to gain access to records. Back in February, as war neared, Treasury officials say Iraq cut a deal with Syria to sell it 150,000 to 200,000 barrels of oil at half the world market price as long as that money was paid in hard currency and held in Syrian accounts.
Treasury officials have been trying to get Syria to reveal the names of individuals with access to these accounts. Syria says the accounts have been frozen, but the U.S. has no way to verify this and, frankly, doubts it.
There is also a significant amount of money still inside Iraq in dollars and other hard currencies, experts say. At least $100 million of the $1 billion Saddam’s sons withdrew from the Iraqi treasury on the eve of war was never recovered.
Most of what was looted was in the form of hard currency, mostly US dollars,” says Rick Francona, a former U.S. military intelligence agent who worked inside Iraq. “Assuming that Saddam was able to access holdings other than those which were intercepted, the insurgency could conceivably have tens of millions of dollars or more. There doesn't seem to be any shortage.”
Financial experts also believe there is a “flow” replenishing insurgent funds.
“Whoever's driving the insurgency probably isn't just drawing down some pile of gold,” says a Wall Street financial analyst who fought in the first Gulf War. “First, it would have run out by now (which is why I'm astonished at the resiliency of the opposition),” the analyst said in an email, requesting anonymity. “Second, people don't behave that way around money. You don't spend your last dime on your business unless you think you can generate more funds. There has to be inflow; there has to be hope.”
A cave called hope
That brings us to the third source of money for what Arabs call the “resistance:” Al Qaida. As reported by Newsweek last week, Osama bin Laden, who once had virtually no ties with Iraq, has recently informed the Taliban that its monthly budget of $3 million is being cut in half so that the terror organization can divert funds – along with fighters – to Iraq.
If Iraq was not, as President Bush has called it, the “central front on terror” when the war started, it looks likely to develop into one now that American troops are there to provide Al Qaida with irresistible targets.
Finally, there is the larger issue of global terrorist funding networks. Administration officials recently have claimed progress in tracking and siphoning off the huge flow of money that had originated in Islamic charities, often in the Persian Gulf’s rich kingdoms. Of particular importance, a military intelligence official says, was the decision of the Saudi government last month to ban charitable donations to mosques, a decision made just after the November Al Qaida bombings of an apartment block in Riyadh.
However, recent evidence suggests that the progress made may merely be causing funds to take a new route to Iraq and other target regions.
David Aufhauser, who led the Treasury Department’s efforts to crack down on such funding just after Sept. 11, told NPR last week that “great gobs of money are pouring into the country to underwrite the insurgency.”
Furthermore, the General Accounting Office, an investigative arm of the Republican-led Congress, reports that the larger effort to stop such transactions is falling prey to bureaucratic red tape in Washington and a general lack of urgency.
The report is hidden fairly cleverly on the GAO’s website http://www.gao.gov/ (it is not even on their home page; you need to click “GAO Reports” then “Today’s Reports” and find item GAO-04-163). Upon reading it, the reason for the low profile becomes clear.
“The extent of terrorists’ use of alternative financing mechanisms is unknown,” the report says, “the lack of systematic data collection and analysis of case information.” It goes on to fault the FBI for “not systematically analyzing these mechanisms” and Treasury and the Internal Revenue Service for failing to produce a report that was due in 2002 on money laundering – a report that was to “form the basis of a strategy to address how money is moved and value transformed via trade in precious stones or commodities.”
Commodies like oil, for instance.
Even in American efforts to get at terrorist financing were firing on all cylinders, none of this takes into account a fifth source of funding – one present in most of the insurgencies and terrorist movements of the 20th century: racketeering. Hard as it may be for some to acknowledge, there does appear to be deep sympathy in some quarters inside Iraq for those fighting and killing American troops.
In the past, such sympathies lent themselves to protection rackets and extortion rings. In Northern Ireland, for instance, while the British government liked to portray Irish-American donations as the key source of IRA funding, the reality was quite different. A British intelligence source told me in 1994 that the vast majority of IRA funding was collected mafia-style from merchants and businesses in the North, and through armored car heists in the Irish Republic.
Six times in the past two weeks, coalition officials say, American military convoys protecting armored cars carrying the new dinars to Iraqi banks have been attacked, though none yet heisted, that we know of. The controversial shoot up that occurred in the southern city of Samarra on Dec. 1 – in which the U.S. claimed to have killed 54 insurgents, though no bodies were ever recovered – involved just such a convoy. And while the media and Pentagon have sparred over accounts of the battle, perhaps the most important fact has been submerged: the development of this, a fifth and inherently organic funding mechanism for the Iraqi insurgency. Here’s hoping they’ll starve within a month, but I’m not holding my breath.
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