and Other Commodities
in Terrorist Finances By March 18, 2004
Commodities such as gold, diamonds and tanzanite play a vital role in terrorist financing. Gemstones have played a particularly important role in the financing of al Qaeda, while gold, for a variety of cultural and logistical reasons, has been used primarily as way to hold and transfer value. Diamonds have also been used extensively by Hezbollah and other terrorist groups in the Middle East that have a long tradition of access to diamonds in West Africa through the Lebanese diaspora in that region, but in this paper I will focus primarily on the al Qaeda connections.i
Diamonds and tanzanite have played an important role in both financing terrorist activities and helping terrorists move their money outside the formal financial sector.ii Diamonds, tanzanite and other gemstones hold their value over time, are easy to transport, do not set off metal detectors and can be easily converted back to cash if necessary. They are often found in areas largely outside government control, where illicit trade has flourished for year and where it is easy for clandestine structures to operate while drawing little attention.
Al Qaeda sought to exploit diamond businesses in West Africa, East Africa and Europe for many years. Al Qaeda, the Taliban and the Northern Alliance all exploited Afghanistan's emerald fields to finance their activities, so gemstones were not an unknown revenue source.
New evidence has emerged to buttress the data already public on the al Qaeda ties to the African diamond trade. The existing data comes largely from the testimony of al Qaeda members convicted of the 1998 U.S. embassy bombings in East Africa; my own investigations into the ties in West Africa, particularly to Charles Taylor in Liberia and the RUF in Sierra Leone; and investigations by the London-based NGO Global Witness. Among the new elements are public statements by the prosecutor and chief investigator for the Special Court for Sierra Leone, the U.N.-backed body investigating crimes against humanity committed in Sierra Leone's brutal civil war, that they have verified the presence not only of the al Qaeda operatives I had identified as being in the region, but also other senior al Qaeda figures.iii And in November 2003, Shaykh Abdul Qadir Fadlallah Mamour, a radical Senegalese Muslim cleric expelled from Italy back to his native land for supporting al Qaeda, was asked by reporters if he had ever met bin Laden. Yes, Mamour replied, he had met bin Laden three times between 1993 and 1996. The reason, he said, was because bin Laden had capitalized his diamond business, selling diamonds between Africa and Belgium.iv
The documentary and anecdotal evidence point to two phases in al Qaeda's diamond activities. The first started sometime before 1996, when bin Laden lived in the Sudan, and was aimed at helping finance the organization. This lasted until the end of 2000. The latter years overlap with the same type of activity in tanzanite. Some of the evidence was provided by Wadi el Hage, bin Laden's personal secretary until he was arrested in September 1998. During his trial, El Hage's file of business cards, personal telephone directory and handwritten notebooks were introduced as evidence. He was convicted and sentenced to life in prison for his role in the East Africa bombings. The notebooks contain extensive notes on buying diamonds, attempts to sell diamonds, and appraising diamonds and tanzanite. There is a page on Liberia, with telephone numbers and names. His address book and business card file were full of the names of diamond dealers and jewelers, many containing the purchaser's home phone number. Mamoun Darkanzali, a German charged with supporting al Qaeda, told German authorities he had met el Hage in the early 1990s because el Hage "wanted to make a deal in uncut diamonds." The deal did not go through, he said, because of the lack of trust with the German buyers. Unfortunately, U.S. and European intelligence agencies paid little attention to what was viewed as secondary documents and statements in the trials. Most of el Hage's notebooks, written in Arabic, have still not been translated into English.v
It is not clear how profitable, ultimately, al Qaeda's diamonds ventures were. El Hage and others did not keep sales records. The record in Sierra Leone and Liberia is also sketchy. While the first known contacts with the Taylor regime and the RUF came in September 1998, and continued sporadically for the next two years, it is not clear how many diamonds were purchased in that period.
The picture in West Africa changes dramatically toward the end of 2000, when senior al Qaeda operatives arrived in Monrovia, Liberia. Having set up a monopoly arrangement for the purchase of diamonds through Taylor with the RUF, al Qaeda buyers went on a spree that lasted several months. But here the intention was clearly not to make money, but rather to buy the stones as a way of transferring value from other assets. In order to do this, the al Qaeda operatives were paying a premium over the going rate for uncut stones, leaving regular buyers without any merchandise, prompting widespread grumbling in the largely Lebanese diamond-buying community. The pace of the purchases picked up beginning in January 2001 and lasted until just before 9/11. Telephone records from the middlemen handling the purchases shows telephone calls to Afghanistan right up to Sept. 10. The available evidence points to al Qaeda purchasing some $30 million to $50 million worth of RUF diamonds during the eight months prior to 9/11. To me, all the evidence points to a rapid, large-scale value transfer operation that allowed the terrorist group, perhaps assisted by Hezbollah operatives, to move money out of traceable financial structures into untraceable commodities. I have written on the details of this operation if there is further interest.vi What is not clear because further on-the-ground research has not been possible, is whether the tanzanite-buying operation was simply a money-making operation for the organization, or whether it was also part of a value-transfer method.
The use of gold and purposes for using the metal are different than those of precious stones. Gold seems to be used primarily to store value and facilitate the movement of money across the world's financial markets.
Cultural and regional factors made gold a favorite commodity of both the Taliban and al Qaeda. Much of the money they had was stored in gold outside even their own financial system.
In 1998, following the al Qaeda attacks on the U.S. Embassies in Nairobi, Kenya and Dar-es-Salaam, Tanzania, the Clinton administration froze some $240 million in assets belonging to Afghanistan's Taliban government and bin Laden, the rogue regime's guest. That caught both the Taliban and al Qaeda by surprise because they apparently did not realize the money, mostly held as gold reserves in the United States, could be targeted.vii
But that was not the entire terrorist treasury, and there were efforts to replenish the coffers in the aftermath of that setback. On Oct. 16, 2001, nine days after the United States began its bombing campaign of Afghanistan in retaliation for 9/11, a senior aide to Taliban leader Mullah Omar entered the central bank office in Kandahar. Using his political and religious clout, he bullied the manager into allowing him to withdraw $5 million in U.S. currency and Pakistani rupees. He packed the money into burlap sacks, loaded them, with the help of two men, into a waiting Toyota Land Cruiser and sped away. On Nov. 12, Taliban leaders collected $6 million from the central bank in Kabul. The scene was repeated across the country. "They took all the money from the other branches, but we don't know the details," said Allah Hashmee, manager of the Kabul bank. "No check, no receipt, they just came and took it." In addition to the millions of dollars known to have been taken from official government accounts, millions more were held privately, outside of official banking channels.viii Much of the Taliban's budget, in fact, came from bin Laden and his al Qaeda cohorts, usually not in the form of cash. Gold, a favorite currency of the Taliban and al Qaeda, was stored in ingots in the central bank and in the homes of prominent leaders. It, too, was collected. In the waning days Taliban control of Afghanistan, Omar and bin Laden sent waves of couriers carrying gold bars and bundles of dollars--the treasury of the country and the terrorist movement--across the porous border of Afghanistan into Pakistan.
From the Afghan-Pakistan border area, where sympathy for both groups runs high, the money and gold were consolidated and taken by trusted couriers to the port city of Karachi, Pakistan. There, the Taliban consul general Kaka Zada oversaw the movement of the wealth to the desert sheikdom of Dubai, United Arab Emirates. The transfer to Dubai relied on couriers and the virtually untraceable, informal money transfer system known as hawala, a method widely used across the Middle East, North Africa and Asia. Zada also personally acted as a courier at least once, taking $600,000 in a diplomatic pouch to Dubai in late November 2001.ix
Such money movements are not unusual. Pakistani officials estimate that $2 million to $3 million a day are hand carried from Karachi to Dubai, a flight of less than an hour. But in the three weeks from the end of November to mid-December there was a large spike in the amount of money traveling that route, reaching $6 million to $7 million a day. Once in Dubai much of the wealth of the Taliban and al Qaeda was converted to gold bullion and scattered around the world. Gold, unlike cash, is exempt from almost all reporting requirements that govern currencies, making it much harder to trace.
In Dubai, the gold transactions went undetected at the time. No one there, one of the gold capitals of the world and a traditional smuggling center for the region, asked any questions about unusual gold movements. "Gold is a huge factor in the moving of terrorist money because you can melt it, smelt it or deposit it on account with no questions asked," said a senior U.S. law enforcement official. "Why did it move through Dubai? Because there is a willful blindness there."x
As with the diamond trade, tantalizing clues to al Qaeda's use of gold were available from public testimony against the terrorist organizations. In the prosecution of those responsible for the 1998 Embassy bombings, prosecution witness Tamara Ratemo, a Kenyan, told the court she rented her 10-room house on the outskirts of Nairobi to Fazul Abdullah, who later handled the diamonds for al Qaeda in Sierra Leone and Liberia. Asked if Abdullah had said why he needed such a large house, Ratemo responded: "Yes, he said he had a family and he had some business people who would be coming to visit frequently…He said the kind of people that are dealing with, they are trading gold and they would come from Dubai."xi
Dubai plays a crucial role in movement of gold by al Qaeda, as well as the regional economy. The gold souk in Dubai has been thriving since 1947, and the market has long played a vital role in the economies of India and Pakistan. As one of the seven emirates that make up the United Arab Emirates, Dubai was also the financial center for the Taliban and al Qaeda. The UAE was one of only three countries to recognize the Taliban regime--along with Saudi Arabia and Pakistan-and Dubai was vital to the survival of the militant Islamic revolution. Gold was one of the main reasons.
Demand for gold in India and Pakistan is extremely high for a host of religious, cultural and legal reasons. Gold has significance in ceremonial rites for Hindus, and is widely used for dowries in marriages. But for centuries gold has also been the preferred medium of exchange for businessmen and traders on the Indian subcontinent. Gold is a traditional hedge against inflation, hoarded as a security against times of high inflation or hardship. The annual demand for gold in India is estimated by Interpol, the international police agency, to be an astonishing 800 metric tons, almost triple that of the United States.xii
Because gold imports into both Pakistan and India have traditionally been restricted and subject to high tariffs, gold smuggling from Dubai, where the gold trade is unregulated, has been enormously profitable for decades. Dubai's location is ideal, making it a nexus of myriad smuggling networks that flow through Iran, India, Pakistan, the Arab world, to Afghanistan and Central Asia. A study of gold smuggling in the mid-1990s by Interpol, one of the few that exist, found that $4.2 billion in gold was smuggled into India in 1991. In the late 1980s and early 1990s the price of gold in India was 65 percent higher than in other countries, making gold smuggling an enormously profitable, multi-billion dollar industry.
Tariffs have since come down, but remain high enough to make smuggling profitable, though less ubiquitous. Dubai imported 300 metric tons of raw gold in 2002, down from 800 metric tons in 1996. Most of the gold comes into Dubai from large Swiss banks or precious metal dealers in London. Following the collapse of the Soviet Union, tons of stolen gold came through the former Soviet bloc to Dubai.xiii Much of the gold is smuggled aboard the thousands of dhows, the traditional Arab sailboats made of wood, that ply the waters between Pakistan, India and Iran. Many are now outfitted with high-powered diesel engines to outmaneuver law enforcement vessels. Because the smuggling benefits all sides, enforcement is generally lax.
Gold was also a familiar currency to the leadership of both the Taliban and al Qaeda, who preferred it to dollars and other currencies. On the Arab peninsula gold has a commercial rather than religious significance. Saudi Arabia imports about 90 metric tons of gold a year.xiv In Afghanistan, gold was much preferred to the worthless local currencies issued by the different warring groups in the country. Those selling opium and heroin in the lush Afghan valleys demanded payment in gold. Smugglers of televisions, generators, medicines and other contraband demanded either gold or opium. During the war to take control of Afghanistan, the Taliban was broadly backed by Pakistani and Indian businessmen who wanted a single authority to guarantee their merchandise could move by truck across Afghanistan. In the years between the withdrawal of the Soviet forces and the Taliban's conquest, any small-time warlord or group of armed men could sent up a roadblock and extort a tax, killing business. The Taliban promised to end the practice, and in exchange received from the transportation syndicates substantial financial backing, much of it in gold. Opium growers operating in areas under Taliban control were assessed taxes in gold. Donations to the Taliban and al Qaeda from wealthy Saudi backers were also often made in gold.xv In the early days of the Taliban regime the national airline, Ariana Airlines, flew gold bullion directly from Dubai to the Taliban's unofficial capital in Kandahar. When U.S.-led forces occupied Afghanistan they found al Qaeda training manuals that included not only chapters on how to build explosives and clean weapons, but sections on how to smuggle gold either on small boats or concealed on the body. Using specially-made vests, gold smugglers can carry up 80 pounds, worth up to $500,000, on their person. Cash is far bulkier.xvi
Gold has an added role as the engine of the region's subterranean financial system, the official currency of the network known as hawala. There are those here who know more about the relationship between gold and hawalas than I do, so I won't go into the details here.
Gold continued to play a vital role in al Qaeda finances in recent times. In the summer of 2002, elite European intelligence units monitoring al Qaeda's movements forwarded an alarming report to their U.S. counterparts: Al Qaeda and the Taliban were quietly shipping large quantities of gold through Karachi to Sudan. The gold was being sent by boat to either Iran or Dubai, where it was mixed with other goods and flown by charter airplanes to remote airstrips in Sudan. The gold was obtained through a "commodity-for-commodity exchange," Pakistani intelligence officials said, meaning heroin and opium stashed by the Taliban and al Qaeda was traded to drug traffickers for the precious metal. The gold was packed in boxes and represented only a small portion of the cargo on each charter flight. Estimates of the value of the gold ranged from several hundred thousand dollars to several million.xvii But just as important as the amount was what the gold signified: the ability of al Qaeda and the Taliban to replenish their financial coffers in the face of global efforts to disrupt their network.
Sudan was familiar territory for bin Laden, and his history there has been retold often. But it is worth bearing in mind, given the financial investments he developed there.
In April 1991, he had moved there with a small group of trusted aides and assistants, welcomed by the fundamentalist Islamic government. He brought with him millions of dollars, the remains of his inheritance, which he invested liberally in the impoverished nation, buying the political good will of the ruling National Islamic Front, the radical Islamist government led by Hasan al Turabi. Bin Laden had known Turabi in Afghanistan and the two shared a vision of eradicating secular governments in the Muslim world. Bin Laden even married into Turabi's family, wedding Turabi's niece.xviii Bin Laden's construction company, Al-Hijra for Construction and Development, built the road linking Khartoum and Port Sudan, as well as a modern international airport near Port Sudan.
Bin Laden also founded the Taba Investment Company and its subsidiary export-import firm, Wadi al-Aqiq Company Ltd. Through those investments he was able to secure a near-monopoly on Sudan's major exports, including gum Arabic, corn, sunflower and sesame products. The investments were made in cooperation and for the joint benefit of senior NIF officials. His al-hemar al-Mubarak-ah Agricultural Company Ltd. purchased large tracts of land near Khartoum and in eastern Sudan. One of his biggest investments was to jointly capitalize, with NIF officials, the al-Shamal Islamic Bank.
Bin Laden's investment in the bank was $50 million. The bank continues to operate today and its owners deny any connection to the Saudi terrorist. Bin Laden used the money he was generating from his commercial activities in Sudan to expand his reach and his vision. He began financing Egyptian extremists and other groups, hosting Egyptian, Tunisian, Algerian and Palestinian combatants at his camps, while continuing to fund safe houses in Pakistan and Afghanistan.
In May 1996, under heavy pressure from the United States and anxious to rehabilitate its international image, Sudan asked bin Laden to leave, and he returned to Afghanistan. However, many of bin Laden's businesses in Sudan remained active and he remained close, economically and politically, to many leaders of the NIF. After leaving, bin Laden retained stakes in the banking system, a tannery, his construction business and other endeavors.xix Because of that surviving infrastructure, Sudan was a logical place to turn as a new financial hub as the global pressure on al Qaeda's financial structure grew when the group was driven from Afghanistan. With financial transactions in Dubai and elsewhere under growing scrutiny, a less visible location was needed. Bin Laden "has banking contacts there, he has business contacts there and he is intimately familiar with the political and intelligence structure there," said a European intelligence official. "He never fully left Sudan despite moving to Afghanistan."xx
This paper has tried to show how commodities, including gemstones and gold, play an important role in terrorist financing, primarily the financial structure of al Qaeda. Given the nature of the transactions, the growing pace of globalization and the untraceable nature of these transactions, they are likely to remain an integral part of terrorist financial structure for the foreseeable future.