Review of Terror
Incorporated: Tracking the Dollars Behind the Terror Networks
By Loretta Napoleoni (Foreword by Greg Palast)
Seven Sisters Press (2005), 324 pp.
Originally published in England in 2003 under
the title Modern Jihad, this updated, comprehensive survey of the means,
structure, and qualitative dimensions of terror financing in the global age
is a must-read for anyone – and this includes a lot of us – who would like to
understand the full ramifications of what it means to be fighting the financial
battle of the "war on terror." (For further background, read Ms. Napoleoni's
with me on Balkanalysis.com.)
Indeed, more sobering still than the author's exacting dissection of terrorist
financing methods is the provocative thesis that the "new economy of terror,"
as she calls it, has become so intertwined with the legitimate global economy
that to really eradicate the former would mean to do serious damage to the latter.
For better or for worse, we are stuck with it.
A renowned Italian economist and journalist, the author holds advanced degrees
from the London School of Economics and John Hopkins University, and has worked
for the United Nations, the International Monetary Fund, and the European Bank
for Reconstruction and Development. She also advises the Department of Homeland
Security on terrorism issues. Napoleoni thus speaks from a position of authority,
and while there are certain details glossed over too quickly and investigations
left unfinished, she is overwhelmingly successful at illustrating the "big
picture" – that is, the macroeconomics of a worldwide industry responsible
for funding companies, corporations, criminals, and of course, large-scale acts
of murder and mayhem.
Incorporated is divided into three major parts of rather uneven length.
The first, which attempts to provide some past context for the turbulence of
today, takes a look at how the proxy wars and interventions waged by the U.S.
and the USSR during the Cold War devastated large areas of the globe, dramatically
increasing the illegal narcotics and weapons businesses, propping up dictatorships
and terrorist groups, and generally introducing widespread chaos that could
only be partially controlled by the installation of ever more brutal and authoritarian
statelets, militias, and overlords. Throughout, both major combatants appeared
oblivious to the potential ramifications these covert interventions would have
in the future.
In addition to Cold War intrigue, the first part of Terror
Incorporated also chronicles the quest of organizations such as the
PLO to find economic independence from their foreign minders – and thus be able
to conduct war and politics on their own terms. The first part wraps up by outlining
the participation of Arab countries, newly enriched by the upsurge in oil prices
of the 1970s, in sponsoring terrorist groups throughout the Muslim world.
Part two of the work, "The New Economic Disorder," introduces the
key concept of the "state-shell," which refers to semi-autonomous
regions in which the rule of law and legitimate government have failed to take
root or more often, have been forcibly expelled by criminal interests: "in
the state-shell, political integration may even be absent; the state is constructed
around the economics of war generated by the armed struggle" (p. 66). South
America's cocaine-rich jungles, Palestine, and African countries like Somalia
are some of the examples given by the author in this respect.
The significance of such "state-shells," according to Napoleoni,
is tremendous: first of all, they provide many of the services to their subjects
that a legitimate state would (such as health care, employment, a modicum of
security), but serve as free zones for every kind of illicit activity known
to man – in the process becoming safe havens and supermarkets for terrorists.
This ambitious section also treats a variety of interconnected themes, all
of which have a basis in economic issues. Napoleoni discusses how the magnet
of the Afghan jihad and the demise of the Soviet Union, with the resulting impoverishment
of the new Central Asian republics, helped both to channel Muslim anger toward
terrorist groups and to provide a rationale for wealthy Arab and other Islamic
backers to gain an economic foothold in the needy new states – which were just
emerging from Communism and thus ripe for a bolstering of the faith.
These observations naturally lead to the next topic, Islamic "financial
colonization." Noting that bin Laden's rhetoric against the West is as
much driven by economic concerns as religious or moral ones, Napoleoni goes
on to detail the ways in which the rules of Islamic banking and the actions
of Arab businessmen created during the 1990s a network of mosques and charities
throughout the post-Communist Muslim world, which were then exploited by al-Qaeda
and other terrorist groups to foment discontent among the poor and disenfranchised,
creating a stockpile of future jihadis while also attempting to spread the strict
Saudi Wahhabi strain of Islam, and thus fundamentalist mores in a world that
has been otherwise globalizing and secularizing.
The third and final part of the work, "The New Economy of Terror,"
is perhaps the juiciest, laying out in facts and figures the disturbing trends
in terror financing that have made it (in collaboration with organized crime)
an indispensable part of the global economy; it is literally a "shadow
economy" in the sense that where goes legitimate capital, there too goes
Some of the examples of this intertwinement, which we will discuss further
below, are the terrorists' participation in international commerce and the banking
industry, as well as Osama bin Laden's former personal interests in African
agriculture, which have been used as bargaining chips against American economic
interests in the past. The author's conclusion – that the terror economy is
growing fast and is both propelled by and imperiling the legitimate global one
– introduces the provocative (if unstated) implication that the very act of
tackling terrorist financing represents, to some extent, an act of suicide on
the part of the "international community" and its institutions.
Incorporated is followed by two helpful short sections, one that gives
a group biography for each of the 59 terrorist/criminal organizations mentioned
in the text, and a second that defines key terminology used.
Major State Sponsors: Pakistan and Saudi Arabia
Aside from the active, original participation
of the U.S. and the USSR in supporting Islamic terrorist proxies before they
were perceived as a threat to Western civilization, the two countries that come
in for the most criticism in Terror
Incorporated are Pakistan and Saudi Arabia, which have sought to use
influence and capital both illegal and legal to spread, respectively, their
geostrategic and ideological influence throughout vulnerable Muslim states.
Napoleoni recounts how Pakistan's powerful intelligence service, the ISI, masterminded
the shipments of arms and drugs that created a criminal economy in Afghanistan
during the Russian occupation. She also details how incredibly corrupt the "pipeline"
was, with the Americans, Pakistanis, and Afghans, especially customs and border
officials, all taking their cut (chapter 6). Because of such tremendous rates
of "taxation" and the cost of running a guerrilla war against the
mighty Soviet army, however, massive increases in heroin production was required,
along with greater contributions from the ideology-minded Saudis, eager to make
their mark on Afghanistan with a fundamentalist state – something they would
achieve with the arrival of the Taliban, who filled the vacuum left by the post-Soviet
devastation and American disengagement.
According to the author, the crafty ISI never went off the offensive after
the Soviet pullout of Afghanistan and the end of American cooperation, but rather
took the war to new fronts. According to the author, the goal of establishing
a sphere of influence from the Central Asian states to the Caspian Sea led Pakistan's
secret service to foment insurrection in Chechnya in 1994, when it began "nurturing"
Chechen guerrilla leader Shamil Basayev. He was sent to an Afghan training camp
for jihadis, run by the notorious warlord Gulbadin Hekmatyar, a camp set up
by the ISI and CIA in the 1980s. The Jordanian mujahedin leader Khattab, who
would bring public relations to Chechnya in the form of propaganda video production
the next year, was also there.
"The master plan for Islamic insurgency in the Caucasus and Kashmir
was drawn up at a meeting held in Mogadishu, Somalia, in 1996 and attended by
the ISI and various Islamist armed groups. Osama bin Laden and high-tanking
Iranian intelligence officers were also present." (p. 95)
She adds that the subsequent war in Chechnya was expedited by Saudi charities
and a mosque network, as well as new organized crime networks with the Russians
and the Kosovo Albanians. In the last chapter of part two, "The Mosque
Network," Napoleoni argues that the religious expansionism of Saudi Arabia
has greatly increased the number of fundamentalist Wahhabi worshippers, around
whose ideology modern jihad has crystallized. What makes such groups dangerous
in Central Asia, Southeast Asia, and parts of Africa is their desire for recreating
medieval caliphates stretching across today's internationally recognized borders
– thus envisioning a world of constant upheaval and the advancement of the terror
Interestingly enough, the author claims that not all of the Saudi businessmen
funding such ventures are die-hard ideologues – rather, many are the victims
of racketeering from bin Laden and his ilk. Their invitations to cater to the
faithful imply some unpleasant consequences in the event of noncompliance.
The Role of Islamic Banking and Religious Expansionism
One of the services this book provides is a discussion
of the fundamentals of Islamic banking, more specifically known as the Hawala
system. Its methods of payment, often faster and cheaper than Western wire services,
have made it impossible to regulate. Clearing or balancing the payments is often
done in "hard" currencies such as gold. As Napoleoni notes, all transaction
records are immediately destroyed, and there is no stipulation that either the
sender or receiver be identified. The author cites UN figures in stating that
Hawala banking has a $200 billion annual turnover, and adds that "profits
come from currency fluctuations and fees on large sums of money, mostly from
drugs and arms traffickers, smugglers, or armed groups' illicit money transfers"
The author also devotes attention to another important aspect of Islamic banking:
the zakat, a sort of humanitarian 2.5 percent tax that is, in accordance
with Islamic law, levied on all transactions. This directive issued directly
from the rules of Muhammad himself, whose emphasis on caring for the poor and
downtrodden of Muslim society has been honored into the modern age. An example
of the scope of the zakat is given by the author, who reveals that the
6,000 members of the Saudi royal family, worth some $600 billion, are responsible
for a zakat of $12 billion per year (p. 124).
The remittances of such humanitarian funds to charity groups linked with terrorists
continue to go on:
"[T]he Bush administration claims that the core of bin Laden's financing
network in Saudi Arabia was masterminded and run by a Saudi businessman, Wael
Hamza Jalaidan, based in Jeddah. September 11, 2001 did very little to alter
this network. According to a UN report on the financing of al-Qaeda produced
in the summer of 2002, the organization has received $16 million from Saudi
Arabia since the World Trade Center attacks." (p. 126)
While the book is overall authoritative and convincing,
by virtue of its synthetic, synoptic scope some details tend to be glossed over.
For example, the author implies that the "put options" stock market
mystery preceding 9/11 (p. 168) has been solved, and that all of the suspicious
activity going on around the world was entirely terrorist-orchestrated. However,
the 9/11 Commission claimed (.pdf),
truthfully or not, that the frenetic stock market activity in America, at least,
was "innocuous." Nevertheless, the author does have some interesting
quotes from European bankers and traders, suggesting that "a well-established
relationship with futures brokers or stockbrokers" probably helped al-Qaeda-associated
front companies to capitalize on price increases in commodities such as gold
Another slight inaccuracy is that the author tends to overplay the role of
Islam in motivating Albanians to fight in 1999 in Kosovo (p. 172), since theirs
was primarily a nationalism-driven struggle. Of course, the end result – the
almost total destruction of Christian society in Kosovo – is a boon for the
Similarly, owing to their necessary brevity, the author's comments on the status
of the Pankisi Gorge in Georgia lack proper context. In the context of Chechnya,
she mentions that al-Qaeda terrorists had taken refuge in the Gorge (located
within Georgia but on the border). However, what she does not mention is that
it was, paradoxically, both the U.S. and Russia that stated this in early 2002
– the former wanted to (and did) insert a uniformed military presence into the
Caucasus state, while the latter threatened to (but didn't) bomb that same state
to push its own interests. Many Georgians have expressed cynicism about the
whole terrorist claim in light of these grander objectives of international
politics. In the same part of the text (p. 146), the author also seems to have
visualized Pankisi and the western Georgian breakaway region of Abkhazia as
being much closer together than they actually are.
Some Exceptional Revelations
As could be expected from its comprehensive nature,
Incorporated is full of interesting and unusual details that reveal
just how pervasive and integrated terrorist financing is with both the legal
and illegal economy.
For example, in one hidden corner of the South American landmass, a Wild West
border badlands has become a one-stop shop for all manner of international terrorists
and criminals, where "members of the IRA, ETA, and FARC are regular visitors."
Ciudad del Este, on the Paraguayan border with Argentina and Brazil, "is
the hub of a smuggling business that generates over $12 billion per year"
(p. 177). In addition to the usual criminals, however, this sleepy town far
from the Islamic battle lines has hosted people like Lebanese businessman Ali
Khalil Mehri, who funded Hezbollah and agitated for the cause of the "martyrs"
with the proceeds of software piracy.
With over 20,000 Muslims in one town in the heart of South America, Ciudad
del Este proved a good recruiting grounds for terrorists carrying out attacks
on Jewish interests in Argentina. In October 2001, the government froze assets
amounting to $22 million "in over 40 accounts used to channel money to
various Middle Eastern armed groups." Of course, the Islamists operate
in league with the indigenous drug traffickers and money launderers as well
Napoleoni also gives space to detailing how the investments of Arabs and Arab
banks are channeled through Western banks, and how the temptation of large-scale
cash infusions into such banks has made them reluctant to ask questions regarding
the money's provenance. Providing a similar example, she adds that "banks
in Florida get a large cut of the money laundered by Latin American drug barons.
This money contributes to the U.S. money supply and to Florida's economy"
(p. 117). The author also speaks critically of the role of Cyprus as a hub for
international money laundering.
Perhaps the most astonishing vignette, however, involves the author's allegation
that Osama bin Laden himself, due to a clever personal investment, was able
to terrify American industry far more than by blowing up the World Trade Center.
While living in Sudan during the mid-1990s, bin Laden acquired interests in
various agricultural producers, including the Gum Arabic Company of Khartoum.
When in November 1997 President Clinton wanted to slap sanctions on the country
for supporting terrorism, a diverse group of American interests objected, from
the Newspaper Association of America, National Soft Drinks of America, and the
National Food Processors Association to the Grocery Manufacturers of America
and the Non-Prescription Drug Manufacturers Association.
Their combined lobbying clout forced the U.S. government to exclude Gum Arabic
from the sanctions list. "[T]he consequences of the embargo for U.S. companies
would have been disastrous," the author states. "Since importing from
Chad or Nigeria was not viable due to the poor quality of the product, American
importers would have had to buy gum Arabic from their French competitors at
much higher prices" (p. 201).
Finally, the devilish paradoxes of terrorism's
effect on money laundering are discussed, using the example of the U.S. government's
reaction to 9/11 (asset-freezing, a new scrutiny of financial transactions,
etc.). According to the author, these activities and the unease they brought
to wealthy evildoers worldwide was one of the prime causes in the dollar's decline
after Sept. 11; it provoked money launderers from criminal or terrorist organizations
to flee to the less regulated Eurozone. At the same time, the author charges
that the EU has made itself vulnerable to the acceleration of terrorist finances
in its currency with its lack of Europe-wide policing measures such as the U.S.
PATRIOT Act, something that makes it harder to track such funds.
It thus appears that whole economies, even large and advanced ones, now have
to absorb the shock of terrorist finance in two ways: one, the financial losses
accompanying terrorist attacks (in New York, billions were lost); and two, coping
with the outflow of capital that accompanies crackdowns.
Nevertheless, despite America's best efforts to fight a financial war on terror,
Napoleoni's prognosis is gloomy. Globalization is at war with itself even more
than Islam is at war with the West. Through years of experience and after learning
from every defeat, the terrorist masterminds have developed antibodies against
state control. As soon as one charity is shut down, it springs up again under
a different name; when bank accounts are frozen, precautionary assets such as
gold or diamonds are moved; when transportation of money becomes impossible,
the luxuries of Islamic Hawala banking can be employed. And, as the author discusses
in the beginning in reference to the forced non-investigation of Saudi terrorist
ties before 9/11, the "special relations" between the U.S. and the
world's most dangerous state sponsors assure that at the end of the day, only
lip service is being paid to the government's stated commitment to the war on
Ironically, it might be said that even the production and sale of a book such
as this, on terrorist financing and how to combat it, is itself a product of
the "new economy of terror"; after all, if there were no terrorism,
there would be no market.
This is abundantly clear from reading the
author's own account of her efforts to get a publisher for the book: "In
the late 1990s, I asked my agent to see if there was any interest in a book
on the economics of terrorism, but she immediately discouraged me," she
says. "In 2000 I approached a top New York agent with the same proposal,
which she very politely turned down. Then came September 11, and since then
my phone hasn't stopped ringing."
In the end, the sobering conclusions reached in Terror
Incorporated: Tracking the Dollars Behind the Terror Networks certainly
don't leave much room for optimism about a terror-free future – and even, perhaps,
for the relative desirability of one. But one bright spot, at least, is that
this book, with its fascinating glimpses into terrorist funding schemes and
its provocative theses on the interrelation between the two economies, remains
a very stimulating and thought-provoking read. Even if one does not approve
of or agree with the "bad guys," what can't be denied is that some
of them are very clever indeed.