Terrorism, Inc.: The Financing of Terrorism, Insurgency, and Irregular Warfare

by Colin P. Clarke Ph. d.

  To get its message out, the LTTE distributed graphic videos, pamphlets, calendars, and other publications that demonstrated the Sri Lankan government’s deadly military strikes, with resulting collateral damage and the slaughter of civilians. Sympathy for the plight of the Tamils helped generate a more pliable diaspora community, which responded in kind by donating money to the LTTE and offering its members sanctuary abroad. The LTTE’s public relations machine became so effective that attempts by the government in Colombo to counteract its propaganda activities fell short.110 LTTE publications included journals and newspapers, and in North America alone, there were over 40 Sri Lankan Tamil newspapers, more than three-quarters of which were managed by the LTTE or associated front groups. To put this in perspective, “the LTTE propaganda and fund-raising network is superior to other extant networks such as Hamas, Hezbollah, Kashmiris, or the Basques,” judges Rohan Gunaratna.111

  In 2002, the Sri Lankan government allowed the Tigers to broadcast their previously banned “Voices of Tigers” FM radio station throughout northern Sri Lanka.112 The LTTE also established an online presence, creating a “virtual Tamil nation,” that provided a treasure trove of information related to the LTTE, its origins, Prabhakaran, and atrocities committed by the SLAF.113

  HOW LTTE FINANCING WAS COUNTERED

  Throughout the course of the insurgency, the LTTE consistently expanded and diversified its sources of income. In the early to mid-1980s, drug trafficking was a consistent revenue stream, but this changed over time. As the conflict wore on it became more and more difficult for the LTTE to sustain its fund-raising network. Donations that were once offered freely later had to be coerced. Once Western nations like the United States and the United Kingdom began to crack down on LTTE activities within their respective countries, the group increasingly devoted more time and energy to organized crime as a method of financing its activities, including human smuggling. After the LTTE was proscribed as a terrorist organization in countries where it once raised funds freely, this shift opened the LTTE up to arrest and prosecution. In 2005, Canada outlawed LTTE fund-raising networks. This proved a devastating blow to the insurgents, who lost an estimated $12 million from the Canadian connection.114 The loss of revenue from Canada was a major factor in the LTTE’s final defeat, especially because it occurred at the same time as the Sri Lankan COIN force was receiving $1 billion annually in military and financial aid from Beijing, as the Chinese sought to expand development rights for port facilities in South Asia.115

  Kinetic Activities

  For the majority of the conflict, the approach of the Sri Lankan government was almost purely kinetic, albeit somewhat cumbersome and counterproductive at various points. On balance, the leadership in Colombo lacked an appreciation for the importance of countering the LTTE’s financial architecture. Instead, the government sought to counter the insurgency through an authoritarian approach.

  In early March 2004, Vinayagamoorthy Muralitharan, known as “Colonel Karuna,” defected from the LTTE. Karuna took his autonomous, geographically concentrated Eastern Province army with him. The Eastern faction became Tamil Makkal Viduthalai Pulikal (TMVP) and subsequently joined the counterinsurgents in their fight against the LTTE, now mostly a Northern Province organization. Karuna’s defection struck a blow to the LTTE’s command and control.116 The split sapped the morale of the LTTE and limited its operational effectiveness. Once the Eastern faction split from the Tigers, the LTTE’s ability to conduct conventional operations was severely curtailed. Sri Lankan COIN forces benefited tremendously from TMVP intelligence and manpower in the Eastern Province.117 Karuna led his fighters against LTTE insurgents in the coastal areas of Batticaloa-Ampara in the east. Throughout 2006, the TMVP killed 82 LTTE insurgents while the Tigers only managed to kill 27 TMVP fighters.118

  Even for a group with traditionally high levels of fratricide like the LTTE, few could have predicted Karuna’s split and even fewer could have predicted the impact it would have on the Tamil Tigers. A purely kinetic analysis of Karuna’s defection reveals that once his force of 500–600 fighters switched sides, the LTTE began to operate as more of a conventional military, rather than as an insurgent force.119 This strategic miscalculation played directly into the hands of the Sri Lankan COIN forces, which had spent much of the past decade upgrading its conventional forces with the help of China.

  With the breakdown of the Norwegian-led peace process in 2006, and “Colonel Karuna” now siding with the Sri Lankan government, the COIN forces and the LTTE went back to war in late July. After the insurgents cut off water to the paddy fields surrounding Mavil Aru, COIN force jets attacked LTTE camps in the area. Bitter fighting ensued and continued to ebb and flow over the next two years. In March 2007, the LTTE’s Air Tigers struck a COIN force airbase in Katunayake. This was the first recorded insurgent air strike without the assistance of an external state supporter in history.

  “Colonel Karuna’s” defection provided the Sri Lankan government and military with a treasure trove of intelligence while serving the dual purpose of attenuating the strength of the group. With Karuna and his troops no longer defending the East, but instead helping to overtake it, the COIN forces captured Sampur, Vakarai, and other parts of the Eastern province. Between 2008 and 2009, the COIN forces launched an offensive in the northern part of the island and won the Battle of Kilinochchi in the Eastern theatre, effectively tightening the noose on the LTTE’s top leadership.120 The Tigers’ demise was cemented on May 18, 2009 when Prabhakaran was killed in fighting near Nandikadal Lagoon in northeastern Sri Lanka.

  Non-kinetic Activities

  It took overseas governments many years before any of them decided to take earnest action against the LTTE. In countries including Canada and the United Kingdom, there was serious resistance to proscribing the group as a terrorist organization until the very end. The result was that the LTTE had a free rein to organize fund-raising activities and tap the diaspora for voluntary (and involuntary) contributions. Once the Canadian and British governments did proscribe the group, this allowed them to start to drafting legislation and implementing procedures to counter the group’s finances.121 Even after being proscribed, the LTTE continued to raise money through charities and front companies. What made it difficult for both Canadians and British effort to adequately use the legislative means at their disposal was that the Tigers owned a number of legitimate businesses in Canada and Europe. These were businesses like jewelry stores, pawn shops and telephone outlets that were initially set up with LTTE seed money and a percentage of the profits were given back to LTTE through various third parties.

  For its part, the leadership of the Sri Lankan state embarked upon a major diplomatic offensive to persuade the international community to side with the government in Colombo. These efforts were aided by the events of 9/11, which led many nations to look at the world in more dichotomous terms. By and large, the LTTE was now considered a global terrorist threat with alleged links to Al-Qaida, whether or not these links were real or imagined, the mere allegation, gave this message some resonance. Sri Lanka trained its diplomatic corps to serve as liaisons with foreign governments in an information offensive designed to highlight the dangers of the LTTE. For the most part, this offensive focused on countries where the Tamil diaspora maintained a presence, including Australia, Norway, France, the United Kingdom, Canada, and to a lesser extent the United States.122 The challenge for these countries was that their own domestic constituencies were influential and there were many politicians that depended on Tamil votes. Not to be outdone, the LTTE maintained its own political council whose main job was to portray the LTTE as a legitimate organization protecting Tamil human rights.

  CONCLUSION

  The insurgents raised enough money to amass an extensive arsenal, which provided the group with the flexibility to fight as guerillas, or if it chose, to battle SLAF COIN forces in more conventional warfare. Most insurgent groups engage in asymmetric conflict because it is their only option. But
the LTTE was one of the most dynamic groups in history, partly due to its ability to fight in a number of ways. An evaluation of the LTTE’s military capabilities by Jane’s supports this assessment:

  At its peak, prior to the 2008–2009 SLA offensive, the LTTE had successfully developed and implemented an impressive range of conventional and non-conventional tactics, and was able to routinely strike at a wide range of different targets. The group earned a reputation for its mastery of conventional, land-based warfighting, regularly deploying its battle-hardened cadres against heavily fortified military targets. Such operations frequently showcased the LTTE’s ability to coordinate direct and indirect fire, and on occasion LTTE ground forces even mounted combined arms operations together with the group’s naval and air wings. Unusually for a sub-state group, the LTTE was able to supplement its mastery of maneuvre warfare with an effective use of positional warfare.123

  The 2002 cease-fire solidified the northeast as a Tamil home base by granting the LTTE autonomy and freedom of movement. The Tigers recognized that the population was a contest between the insurgents and the COIN forces. But because the LTTE lacked the resources of the NGO community, the Tigers’ political wing worked closely with civil society organizations. After the United States declared the LTTE a foreign terrorist organization (FTO) in 1997 and a Specially Designated Global Terrorist group in November 2001, became much more difficult for the Tigers to raise funds through NGOs and related charities.124

  CHAPTER 4

  Hezbollah: Financing the Party of God

  BACKGROUND

  Literally translated as “the Party of God,” Hezbollah1 was formed in the midst of an internecine civil war that would wreak havoc in Lebanon for 15 years, ending only in 1990.2 The group emerged from the extremely complex patchwork of ethnic and religious groups in Lebanon and draws its support almost exclusively from the Shia communities in the country’s capital city, Beirut, and its surrounding environs, southern Lebanon, the Bekaa Valley, and the Hirmil Region.3 Similar to other insurgent movements throughout the Middle East, Hezbollah receives support and is influenced by powerful actors in the region, including Syria and Iran, the latter of which was the “principal moving force” behind the group’s creation.4 Attacks abroad are orchestrated and conducted by the group’s international terrorist wing, known synonymously as the Islamic Jihad Organization (IJO) or the External Security Organization (ESO).

  HOW HEZBOLLAH FUNDED ITS ACTIVITIES

  Hezbollah’s funding stream derives from a combination of state sponsorship, an array of organized criminal activities, donations made from the Lebanese diaspora and other sympathizers abroad, as well as legitimate businesses. Unlike other groups that need to spend precious time and energy figuring out how to finance their day-to-day operations, Hezbollah enjoys the benefits of foreign patronage, which allow its members to focus on fund-raising in other arenas, including expatriate remittances, front companies located both within Lebanon and abroad (primarily in Africa, Latin America, and Asia) and various forms of crime ranging from cigarette smuggling to film piracy to credit card fraud. Indeed, sustaining the organization’s ever-growing legitimate portfolio makes its criminal activities that much more critical. The group has also been accused of dealing in more pernicious forms of crime, like the trade in conflict diamonds and narcotics smuggling. In 2011, an investigation into the Lebanese Canadian Bank revealed that Hezbollah maintained extensive ties to the South American cocaine trade.

  Gray Economy

  Conventional wisdom among regular observers of terrorism points to Al-Qaida as the first terrorist organization with a true transnational capability. In reality, Hezbollah is the most globally capable organization in terms of both fund-raising and operational capacity, having successfully executed attacks in Argentina, France, and Saudi Arabia. Part of Hezbollah’s success in raising funds through the gray economy is directly tied to its global reach. Wherever an opportunity presents itself—from Latin America to West Africa to Southeast Asia—Hezbollah has the ability to capitalize. A transnational diaspora, robust charitable organizations, and a range of legal businesses to launder money are a perfect complement to Hezbollah’s dark economic activities.

  Diaspora Support

  A worldwide Lebanese diaspora has allowed Hezbollah to extend its network to nearly every continent, with the most prominent diaspora communities located in West Africa and Latin America. After 9/11, the tri-border region where Paraguay, Brazil, and Argentina meet was identified as an “ungoverned space” where terrorists lived, trained, plotted, and raised money. The tri-border region, or “Triple Frontier,” is frequently cited as one of the most lawless places on the planet.5 Lesser known areas where Hezbollah has established a presence include Uganda, South Africa, and several Southeast Asian countries including Malaysia, Thailand, and Singapore.6 Investigations of the group’s high-profile attacks against Israeli and Jewish targets in Argentina in 1994 and 1996 revealed “official Iranian involvement,” to include training and logistical support.7 In the case of the attacks in Argentina, Imad Mughniyeh and Iranian Intelligence Minister Ali Fallahian were implicated for their role in helping to coordinate and execute the bombings.8

  The Lebanese diaspora living in Africa is known to contribute significant funding to Hezbollah’s agenda. This became evident when in December 2003, a Beirut-bound Union Transport Africaines flight crashed in Benin, West Africa while attempting to takeoff. Press reports from the Arab world at the time indicated that a Hezbollah “foreign relations official” and two of his aides were among those killed in the crash. The dead officials were carrying approximately USD $2 million in donations obtained from Lebanese nationals in West African countries, including Guinea, Sierra Leone, Liberia, and Benin, among others.9 The Israelis have reported that Hezbollah raises hundreds of thousands of U.S. dollars annually in Africa, soliciting donations from wealthy sympathizers from Senegal to South Africa.10 An estimated 120,000 Lebanese émigrés live throughout the region, many of whom are involved in import-export businesses.11

  Charities

  The Martyrs Foundation is a Hezbollah charity that provides both financial and operational support to the group, including direct support to operations during the July–August 2006 conflict with Israel as well as direction and financing for terror cells in Gaza related to both Hezbollah and Palestinian Islamic Jihad (PIJ).12 Money from the tri-border area in South America has been traced directly to the foundation, including shortly after the 9/11 attacks, when Paraguayan antiterrorism authorities discovered hundreds of receipts in Assad Barakat’s Casa Apollo electronics shop linked to Hezbollah’s Martyrs Foundation.13 According to Levitt, the Martyrs Foundation is “a massive entity that openly concedes to supplying charitable funds to the families of Hezbollah suicide bombers.”14 But the charity is more than just a funding stream. Indeed, the Martyrs Foundation, in addition to other Hezbollah charities like the Mahdi Scouts and the Shia schools, are an extension of Hezbollah into the community.15 The Martyrs Foundation operates in different countries under different auspices. In Germany, the organization was known as the al-Shahid Social Relief Institution and in the United States its satellite was called the Goodwill Charitable Organization, based in Dearborn, Michigan and responsible for funneling contributions from members and supporters directly to Hezbollah leaders in Lebanon.16

  Fraud

  Hezbollah’s connections abroad provide the group with a broad array of ways to make money through various frauds, schemes, and scams. The Greater Detroit metropolitan area and Dearborn, MI are areas home to large Arab and Arab-American populations. Within these populations, Hezbollah has sought and received both active and passive support from sympathizers and operatives. The group’s members have been implicated in everything from mortgage fraud to food stamp fraud (to include the misuse of grocery coupons) to credit card fraud, which has proved a lucrative endeavor. Hezbollah has also engaged in telecommunications fraud, which involved selling long distance telephone access through services
obtained fraudulently, and by cloning the identification of mobile phone subscribers.17

  The credit card fraud worked in the following way. First, front companies would process transactions made on credit cards that they knew would never be settled. Second, these front companies would be paid by the banks and credit card companies. Next, the members of the conspiracy would declare bankruptcy to the creditors, who in turn could not collect on the debt incurred. Finally, in order to hide assets from bankruptcy court, members of the group “sold” their homes to their wives or adult children.18

  Hezbollah’s fraud network included operatives in Michigan, California, Florida, Georgia, Illinois, Kentucky, Missouri, New York, North Carolina, and West Virginia. Globally, frauds were successfully perpetrated in the United States, Canada, Lebanon, Brazil, Paraguay, and China, to name just a few countries. Not only is the group’s transnational reach impressive but the talent on its payroll is too. Without question, Hezbollah has been able to call on highly skilled criminals, including computer hackers who were alleged to have breached the networks of over 138 different financial institutions, from New Zealand to Switzerland.19