Terrorism Financing in Southeast Asia: Nature and Risk Assessment

By Adrien Morin

Tackling the issue of terrorism financing is an integrant part of mitigating risks associated to terrorism in the age of Global Jihad. Southeast Asian jihadi groups have plenty of opportunities to generate and exchange financial assets through local fundraising, and money transfer solutions. Regional authorities along with the international community must continue to improve Southeast Asia’s financial monitoring system to mitigate risks associated to terrorism financing.

It has been more than fifteen years since 9/11 took the lives of nearly 3,000 people, and we have not seen a terrorist attack of this intensity ever since. Recent attacks have highlighted that low-cost terrorist operations can result in mass casualties while significantly impacting the social stability of the country or regions where they have been perpetrated. So why should we allocate resources to destroying the financial networks of international terrorist organizations, and why should we consider Southeast Asia in the equation?

There are several dimensions to consider when answering that question. First, large-scale terrorist organizations must rely on comprehensive financial resources to develop their logistical network, spread their propaganda, preserve their personnel, recruit new fighters, and thus, ensure their survival. It is these resources that grant them the capacity to carry out military-like operations.

Second, these large-scale terrorist organizations, because of the attention they receive, often act as catalysts, and many individuals around the world adhere to the narrative they propagate to address their own personal grievances towards their societies. Many of the perpetrators of recent isolated terrorist attacks were not directly part of these large-scale terrorist groups, but still acted in their name and were heavily influenced by their political and military actions, as well as by their ideological and religious propaganda.

From this perspective, combatting the financing of terrorism (CFT) must be fully integrated in the set of tools used to eradicate large-scale terrorist organizations or at least limit their expansion, in order to reduce the terrorism risk on a global scale. While often forgotten, Southeast Asia also faces a significant risk, with many groups using terrorism as a tactic to impose their political or religious agenda, including large-scale jihadi organizations. Moreover, some of these groups have established transregional networks and have been involved in terrorist operations across the globe, attempting to integrate a Global Jihad movement. The most prominent one of them is with little doubts Jemaah Islamiyah (JI), although the organization was largely weakened by the counterterrorism policies implemented across the region following 9/11, and even more so after JI’s alleged implication in the 2002 Bali bombings. The downfall of JI did not bring Global Jihad to an end in Southeast Asia and splinter groups emerged from the fragmentation of the organization’s network. An overview of the existing literature using for instance the work of regional experts such as Peter Chalk or Shashi Jayakumar helps us highlight a complex network of jihadi organizations operating in Southeast Asia, along with their connections to other groups in and outside of the region.

Moreover, Southeast Asian countries have largely been affected by the foreign fighters’ phenomenon, with hundreds of their nationals gone to join the conflict in the Syrian and Iraqi theaters, alongside the Islamic State.

A wide panel of options for Southeast Asian jihadi groups to generate financial assets

The Regional Risk Assessment on Terrorism Financing 2016 identified “self-funding from legitimate sources as posing the highest risk for raising terrorism funds.” Indeed, most of Southeast Asia’s jihadi groups have plenty of opportunities to raise funds locally through legitimate and commercial means, making the most of the cash intensive nature of the region’s economy. These include direct donations from members and businesses supporting these groups, coming from individuals’ personal income, sales of goods or personal items, loans, welfare payments and pension funds. Cash can quickly change hands unnoticed, sometimes ending up in the wrong ones, while financial intelligence units (FIU) have insufficient resources and competencies to monitor these local commercial activities in a comprehensive manner.

The same risk assessment indicated that financial assets generated through nonprofit organizations (NPOs) comes second in terms of risk rating related to terrorism financing in Southeast Asia. Indeed, in their article from 2007 titled “Following the Money Trail: Terrorist Financing and Government Responses in Southeast Asia”, Aurel Croissant and Daniel Barlow described how Islamic charities are an effective fundraiser as they rely on “the century-old tradition of charitable giving” known as zakat, a pillar of Islamic faith and religious obligation. Many Muslims thus feel obliged to donate money to Islamic charities, creating financial assets which unfortunately occasionally end up in the wrong hands. Fundraising through Islamic NPOs in Southeast Asia was used for instance by groups like ASG or MILF, to establish training camps and develop infrastructure, which have been utilized by Al-Qaeda recruits. This type of terrorism fundraising channeled jihadi financial assets into the region with the help of charities such as the International Islamic Relief Organization (IIRO) or the International Relations and Information Center (IRIC) in the Philippines, both directed by now defunct Mohammed Jamal Khalifa, former senior member of the Muslim Brotherhood and Bin Laden’s brother-in-law.

Jihadi groups, have a wide range of possibilities regarding the use of criminal activities for fundraising, including kidnap-for-ransom (KFR), extortions and robberies, arms trafficking, human trafficking, drug trafficking, piracy, and cyber-criminality. ASG for instance, has made a name for itself for frequently resorting to KFR operations as a way to generate financial assets. Their ransoms have oscillated between a few hundred thousand US dollars and dozens of millions, like in the case of the 2015 abduction of two Canadian nationals, one Norwegian and one Filipino.

Arms trafficking, especially Small Arms and Light Weapons (SALW), is a significant issue in Southeast Asia, with 19 countries producing SALW in the Asia Pacific region, including Indonesia, Malaysia, Myanmar, Philippines, Singapore and Thailand. SALW trafficking can be a very lucrative business with more than 875 million firearms in circulation in the world today, many of which can obviously fall into the hands of armed groups such as jihadi organizations.

Similarly, drug trafficking has proven to be an effective way of financing terrorist activities and Southeast Asian groups have plenty of opportunities to take their own share of this international traffic. The region is home to the “Golden Triangle”, one of the busiest drug trafficking routes in the world, with production reaching 762 tons of opium, 76 tons of heroin, and illegal trades averaging USD 16.3 billion per year. Groups like ASG and MILF have already been suspected of involvement in illegal drug production and trades.

Piracy is another important lucrative criminal activity, generating between USD 7 billion and USD 12 billion each year. Southeast Asia in particular is severely affected by the problem, the Malacca Strait and the South China Sea in general being one of the world’s most dangerous place to venture on a boat. Moreover, some of the groups cited earlier such as ASG or MILF happens to possess robust maritime capabilities.

Finally, and although it still is an emerging threat in the region, cyber-criminality appears to have a potential for fundraising among jihadi groups, especially given the rejuvenation of these groups’ members and their increasing cyber-related skills. Countries like Indonesia and Thailand are particularly affected, having reported cybercrimes and mass marketing scams targeting offshore victims.

Plenty of opportunities to make the money flow across borders

Southeast Asia’s economy developed at an impressive rate since the mid-1980s, and while foreign investments flew into the region’s financial markets, the banking sector saw a rapid increase in its activities while insufficiently adjusting its financial controls and Anti Money Laundering (AML) mechanisms. The impossibility to monitor all financial transactions in an expanding financial market has provided opportunities for organizations and individuals to fund criminal groups of all sorts through the Southeast Asian hub. CFT measures have been gradually implemented across the region following 9/11, but as Croissant and Barlow explain, if countries like Singapore have quickly adapted their banking system in compliance with international norms, others have made progress at a much slower pace. They explain that Thailand and Indonesia also significantly improved the security of their financial sector, while Malaysia – despite the importance of Kuala Lumpur’s financial center – and the Philippines follow with a considerable gap. Brunei is even further behind, although the country has since then created its own national FIU (2007) and developed a more comprehensive framework to tackle the financing of terrorism between 2011 and 2013. The two authors identify Laos, Cambodia, Vietnam and Burma as the “problem countries” regarding CFT efforts.

Another notable aspect of the Southeast Asian banking system is related to Islamic banking, that is, the practice of financial activities consistent with Islamic principles and sharia law. As Zachary Abuza explained in his article from 2003, “Funding Terrorism in Southeast Asia: The Financial Network of Al Qaeda and Jemaah Islamiya”, Islamic banks seek to “circumvent the practice of paying and charging interests”, which goes against these Islamic principles, consequently “commingling funds to create investment vehicles”, hence creating opportunities for anonymous money transfers between Islamic financial institutions. Malaysia for instance, positioned itself as the regional frontrunner in Islamic banking in the mid-1990s, while transitioning its ASEAN-centric position towards a pro-Muslim foreign policy, increasing opportunities for anonymous money transfers between the region and the Middle East. Nitin Prasad, in his book “The Financing of Terrorism” from 2016, even adds that terrorist groups that use Islam to justify their activities are more likely to find collaborators within the Islamic banking system.

Southeast Asia is also home to a comprehensive network of informal value-transfer systems (IVTS), which permit the transfer of financial assets without the need to physically move the money, through a remittance mechanism, and therefore, avoid financial controls and protocols inherent to the conventional banking system. IVTS have been historically widely used in the Middle East and in East Asia, and it should not come as a surprise that it became a key tool used inside the global jihad network to transfer funds across countries and continents, and between the Middle East and Southeast Asia more specifically. Zachary Abuza highlights for instance that the hawala, the most commonly known IVTS, is used extensively in Malaysia, Singapore and the Philippines, especially due to the substantial number of Southeast Asian workers from those countries located in the Middle East. The difficulties encountered by FIUs to monitor the Southeast Asian banking system are increased exponentially when it comes to investigating transactions performed through IVTS, due to the informal and anonymous nature of these systems.

Finally, emerging fund-transfer solutions such as stored value cards and online payment platforms, are bringing a new problem to the equation, especially with the increasing number of young people familiar with modern technologies, joining jihadi organizations. Stored value cards, which came into being in the mid-1990s and saw an exponential development since the mid-2000s, allow individuals to load money in one place and then withdraw this money from any unsupervised bank accounts in various ATMs all around the world. Online payment platforms on the other hand, have reportedly been widely used to implement job recruitment scams used to recruit innocent people as “money mules”, who were then “duped into laundering funds.” These money laundering schemes could easily be used to finance jihadi groups in Southeast Asia. Moreover, beside the leader PayPal, several locally created companies already see millions of dollars transiting through the region on their virtual platforms.

The role of the Southeast Asian financial hub in terrorism financing

There is a clear lack of data available in the field to this day, to precisely quantify the amount of money related to terrorism financing that is created in Southeast Asia, or that transits through the region. However, plenty of opportunities currently exist in the region to finance terrorist organizations through local fundraising or under-monitored fund transfer methods. Front organizations, Islamic charities, social media and crowdfunding platforms, KFR, drug trafficking among others, all provide a wide array of options for Southeast Asian jihadi groups to generate their own source of income without the need for financial assistance from outside the region. But even if that was the case, regional terrorist groups have a large panel of options to import financial assets through the region’s porous borders, using a relatively loose banking system, various type of IVTS, international NPOs, among other tools. The Indonesian FIU, estimates for instance that more than IDR 10 billion (USD 750,00) in terrorism financing entered Indonesia between 2014 and 2015, while the Jakarta attacks in January 2016 were allegedly financed by a Syria-Iraq cell of the Islamic State, with links to an Indonesian network. On the other hand, recent reports have highlighted that financial assets have been flowing out of the region to support jihadi groups fighting abroad, mainly in Iraq and Syria, though these financial assets are only a small percentage of international funding to armed groups in the area.

Despite the lack of quantifiable data highlighted earlier, the overview of available evidences seems to indicate that terrorism financing remains an indigenous problem in Southeast Asia in 2017, and that only a small portion of the financial assets created inside the region by local jihadi groups, are actually redistributed to other areas of the globe. Similarly, the Southeast Asian financial hub does not seem to be a money-transiting one for the global jihadi network, and there is little evidence that financial assets entering the region are then redistributed abroad to support jihadi groups. Instead, current evidences from the 2016 Regional Risk Assessment and in terms of opportunities available in the region, push us to lean towards qualifying the Southeast Asian financial hub as a self-reliant one, acting occasionally as the destination for jihadi groups’ investments.

The conclusions highlighted in the figure above suggest that reducing the risk of terrorism financing in Southeast Asia in the context of a persisting global jihad movement, should primarily come from regional initiatives, carried out by Southeast Asian countries. Those governmental actors should first focus on implementing policies seeking to destroy the permissive environment for illicit fundraising in the region, which allow several jihadi groups to create their own financial assets thus ensuring their organizational survival. Second, Southeast Asian countries should also continue to develop financial tools to monitor suspicious funds flowing into the region, and intended to support local jihadi groups. FIUs will probably play a key role in overseeing and monitoring the multitude of suspicious financial activities occurring across the region.

If the terrorism financing issue in Southeast Asia appears to be mostly indigenous, it does not mean that the problem should be stripped off the agenda regarding international CFT efforts. Indeed, the analysis of existing fundraising and fund-transfer methods in Southeast Asia highlights that there are plenty of opportunities persisting in the region, for local groups to further contribute to the financing of global jihad, although such opportunities are not necessarily currently taken advantage of. Therefore, vigilance should prevail even among nonregional actors, to be prepared to face future terrorism financing challenges coming from the Southeast Asian financial hub.

Cover Picture: dollar bills, © selbstfotografiert / Wikimedia Commons