The Counterterror War That America Is Winning

The United States has centered its efforts on invasions and insurgencies. But another campaign appears to be having greater success.

An image of a building between collages of bills and weapons
Valerie Chiang

Since the 9/11 attacks, the United States has mounted wars in Iraq, Afghanistan, and elsewhere—parts of a War on Terror that has publicly centered on invasions and insurgencies. As evidenced by the American withdrawal from Afghanistan, these militarized counterterrorism efforts have somewhat stalled in recrimination and regret.

At the same time, the U.S. has worked to debilitate terrorist groups through a separate approach, one that appears to be the greater success. It is a battle of financial access, not weaponry, and is led by bureaucrats, not soldiers. This campaign to stop terrorist financing offers more cautious optimism, as well as a path forward: We can use markets, rather than simply militaries, to curtail terrorists in the 21st century.

Trillions of dollars pass through the global financial system every day. Most of these transfers are unremarkable: investors purchasing foreign stocks or migrants sending money back home. But amid the inlays and outlays lurks something more nefarious: money intended for terrorists and criminals.

These illicit funds move alongside legitimate exchanges, passing through sometimes-indifferent financial institutions. A few cross-border transfers—a Gulf prince’s secret offshore account or the hawala vendor down the street—may be all a terrorist group needs to plan its next attack. The Islamic State’s Paris attacks, for example, cost less than $10,000, but killed 128 people.

Large-scale operations take more time, planning, and funds. Al-Qaeda spent close to half a million dollars in the years prior to the 9/11 attacks, much of which went to American bank accounts to purchase flight training and supplies. Yet not a single transfer was flagged as suspicious.

The U.S. has disproportionate market power, claiming the world’s largest economy and its biggest financial sector. Its currency is used in transactions across the globe. And even before 9/11, it had a framework for stopping illicit flows, using laws and regulations to target money from drug cartels and organized crime.

Tackling the kind of small-scale transfers that support terrorism, however, required a new global push.

The initial effort began only days after 9/11. Combatting terrorist financing was declared a top priority, as important as the fight against al-Qaeda itself. The PATRIOT Act forced through new banking laws, laying out a host of financial-transparency requirements: U.S. financial institutions now had to know whom they were doing business with, and screen those clients for potential risks. Banks had become tools of national security.

Treasury officials knew, however, that this approach had an underlying problem. Despite its outsize influence, the U.S. alone couldn’t keep questionable money out of finance. Global banking is like a network of underground tunnels: Plugging one passage only diverts traffic to other routes.

The Bush administration, fond of going it alone in other respects, took to multilateralism to address the issue. In a span of weeks, the U.S. added new names to a United Nations sanctions list targeting al-Qaeda and pushed through an expansive Security Council resolution that required all countries to criminalize the financing of terrorism. In a separate international forum called the Financial Action Task Force (FATF), Washington rushed the adoption of special recommendations detailing precisely how countries should stop terrorist financing.

UN Security Council actions are binding under international law, and by acting through the UN, the U.S. forced other countries to freeze the assets of probable terrorists, and to pass new laws and regulations. The PATRIOT Act, meanwhile, gave free rein to the U.S. Treasury to deploy financial coercion; Washington could now maintain its own sanctions list of terrorist threats. And through the FATF, the U.S. could exercise informational power, collecting and disseminating best practices.

Law, coercion, and information were all viable influence strategies, yet all three started and stalled. Countries struggled to implement the UN’s asset freezes and delayed passing counterterrorism legislation. The laws that did pass typically had glaring gaps. Ignoring the FATF’s list of best practices, national parliaments tended to criminalize only illicit flows directly linked to a terrorist act, a significant limitation because, since funds are fungible, monetary support could continue unchecked.

The sanctions route encountered other problems. In the first few years, the Treasury was willing to list a few countries—Ukraine, Nauru, and Burma—over illicit financing concerns. But a decade later, the list was rarely used. The U.S. might have disproportionate financial power, but this couldn’t erase the political costs that accompanied unilateral sanctions: Targeting a few bad apples was fine, but what if the problem was a U.S. ally, as was often the case?

After years of limited progress, the then-34 members of the FATF decided that they needed a better way to fight illicit financing. The organization was monitoring policy, but too many countries were falling behind. It decided it would issue a public list. If a country, such as Turkey or Indonesia, was not doing enough to stop illicit financing, the FATF would publicize it.

Officially, the FATF rarely threatened punishment against listed countries; such efforts were reserved for major problems such as North Korea and Iran. Unofficially, however, the list was a signal for global banks. Listed countries began to face higher banking costs or delays in trade financing. The FATF might have called for few explicit consequences, but banks were stepping in to enforce FATF standards. Panama’s listing, for example, led some international banks to suspend their relations with Panamanian banks. In Thailand, the country’s listing meant diplomats struggled to cash checks.

So while defense officials were planning and carrying out invasions in Iraq and Afghanistan, Treasury officials were busy transforming the financial system into a place where banks everywhere would screen for illicit flows.

In 2009, more than 80 percent of countries had either no laws criminalizing terrorist financing, or laws with significant holes. Today, nearly every country has a complete legal framework in place. The FATF accomplished what law and unilateral coercion could not: a drastic shift in the way countries approach terrorist financing.

Market enforcement is predicated on an acute understanding of power in the modern era. Seventy years ago, the U.S. government used financial assistance to Europe to balance against the Soviet Union. The plan linked economic growth and trade with long-term security gains. Fast-forward to today, and those linkages have evolved into a global system in which governments fear the everyday caprices of international finance and trade more than the remote possibility of another world war.

Those who have the power to influence markets, thus, have the ability to change the world. The U.S. has dominated this space for many years, but policy makers don’t seem to be aware of the power they possess. Conversations about national security remain focused on weapons systems and alliances; ones focused on climate change suggest a passive acceptance of the status quo. But markets possess their own kind of influence and authority that can be wielded to great effect.

American power is slowly declining, the global stage gets more crowded each year, and nontraditional solutions are more essential than ever. One such solution, market enforcement, has a deep and widespread global reach. Its impact, however, is predicated upon a multilateral approach. By acting through the FATF, the U.S. has avoided many of the political costs that would make it difficult to pressure allies to combat illicit financing. American regulators might shape bank incentives, but the economic clout of the FATF membership ensures that banks around the world are part of this effort.

Multilateralism may also help protect market enforcement from itself. Market power, once unleashed, is not easy to control. When governments tinker with profit functions, they signal priorities that can undermine other important values. The fight against illicit financing means banks are less willing to support low-yield clients. So the rules that make it more difficult for a supporter to funnel money to the Somali terrorist group al-Shabaab have also made it harder for ordinary Somalis to receive aid and remittances. What costs are acceptable? And how can they be minimized? Such conversations cannot be had without broad engagement.

U.S. counterterrorism policy has left us all with many regrets. We cannot undo the mistakes of the past two decades, nor can we make what is happening right now in Afghanistan less painful to watch. But by understanding the shape of all things possible, we can honor those who died.

For too long, the U.S. government has viewed national security as best achieved through war, bombings, and coercion. But we are in a different era, and the policy solutions of the past 100 years are ill-suited for 21st-century threats. Market enforcement may be a key for pushing us into a new foreign-policy moment. Only by seeing our successes can we avoid repeating our failures.

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