Why FBI is following the money in Times Square bomb case

Three Pakistani men arrested Thursday in connection with the case of alleged Times Square bomber Faisal Shahzad may be connected to an informal money-moving network that terror groups are increasingly using to finance their activities.

The three men may not have known how Shahzad intended to use the money in question, say the officials. Indications are they are not terrorist financiers per se, but links in an informal network of brokers, known as hawala, used to transfer cash quickly and easily over long distances.

“Hawala is a popular value transfer method that predates the Western financial system and remains less expensive, and at times more widely available, than modern banking for transmitting legitimate funds around the world,” writes John Rollins, a specialist in terrorism and national security with the Congressional Research Service, in a March report on terrorists and transnational crime.

Thursday’s high-profile law enforcement sweeps netted two men in Massachusetts and one in Maine, according to the FBI. Sen. Susan Collins (R) of Maine said there is no direct connection between the arrestee from her state and Faisal Shahzad.

Law enforcement officials instead indicated that the Times Square bomb suspect may have used hawala money-moving services provided by the men.

Hawala dealers, also known as hawaladars, operate as part of an informal financial network used to bypass the traditional banking system.

Here's how it works: Say a man in Pakistan wanted to send cash to a colleague in the US. He would visit a hawaladar in his own country and hand over the money, plus a fee of about 5 percent.

The Pakistani hawaladar would communicate with a trusted counterpart in the US, and indicate who should get the money, and how much. The US hawaladar would then make the payment. Usually, no money for that individual transaction actually travels between the two countries. The US hawaladar would simply carry the debt until one of his clients needed to send money to Pakistan. Then the whole process would be carried out in reverse.

Hawaladars are supposed to obtain a license in the US, but few do. It’s a system that immigrants often use to send remittances back home, and that families abroad use to send money to, say, students in the US.

But counterterrorist efforts have made it increasingly difficult for Al Qaeda and its associated groups to send money through the regular banking system. Increasingly the US and other nations have turned their scrutiny to the more informal hawaladars, said David Cohen, assistant secretary for terrorist financing at the US Department of Treasury, in January remarks before the Council on Foreign Relations.

“As we have become more successful in preventing the abuse of the formal financial system, illicit finance has increasingly migrated to these other transmission techniques,” said Mr. Cohen.

According to Cohen, Al Qaeda’s traditional sources of funds, such as donors and charities in Saudi Arabia and other Gulf countries, have dried up due to world counterterrorism efforts. Top Al Qaeda leaders in recent months have taken the unusual step of issuing public pleas for funds.

“Al Qaeda is in its worst financial state in years,” Cohen said in April at a luncheon sponsored by the Washington Institute for Near East Policy.

According to news reports, Al Qaeda has even begun charging some recruits for training. The going rate for an AK-47 rifle, ammunition, and grenades is about $1,200.

But terrorist attacks in Western countries do not cost a lot of money. The 2004 Madrid subway bombings cost a total of about $10,000, for instance, according to an estimate by the Financial Action Task Force, an intergovernmental antiterrorist group.

Regardless of the amount, US counterterrorism officials still take a cue from what Deep Throat told Washington Post reporter Bob Woodward during the Watergate investigation: “Follow the money.”

These days, that's a challenge.

“The international community faces a daunting challenge in confronting global terrorism financing," Cohen told the Washington Institute luncheon. "The task is especially tough in today’s environment, with money constantly crossing borders and rocketing around the globe.”

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Faisal Shahzad case intensifies scrutiny of links between Pakistan militant groups