AMMAN - On September 29, 2020, the French National Anti-Terrorism Prosecutor Office (PNAT) launched a countrywide search mission that led to the arrest of 29 individuals on suspicions of contributing to a network that financially supports terrorism in Syria. Later, on October 3, eight of the suspects were indicted. According to French judicial authorities, this network was founded by two French nationals who moved to Syria in 2013 to join the so-called ‘Islamic State’ (ISIS).
Sophisticated funding schemes
Since the beginning of the Syrian revolution in 2011, which subsequently turned into a civil war, thousands of foreign fighters have headed to Syria to join the warring parties, including ISIS. While controlling a large territory in both Syria and Iraq, ISIS generated significant funding from racketeering, trafficking, and the exploitation of natural resources, mainly oil. In 2014, the annual income of ISIS peaked at 1.9 billion dollars, according to a report on terrorism financing commissioned by the French National Assembly.
This influx of manpower and money quelled after 2017, following critical territorial losses endured by ISIS, but external funding remains a crucial asset for its survival. This financial support, however, “is most often directed to support those that are stuck in camps, to assist with financing their return to their home countries,” Tom Keatinge, Director of the Centre for Financial Crime and Security Studies at the London-based RUSI institute, told Syria Direct.
To transfer funds to the organization in Syria, ISIS financiers must elude scrutiny, which is difficult in an increasingly monitored global financial system. One of the channels used is informal money transfer agencies known as "hawala" offices. In 2015, the French financial investigative unit (Tracfin) uncovered a network of over 300 individuals based in Turkey and Lebanon collecting funds sent by over 400 ISIS sympathizers, to be sent to Syria and Iraq. This network channeled around one million euros collected in France alone and sponsored the recruitment of foreign fighters.
In Belgium, a similar network operating between 2013 and 2017 sent an estimated 212,000 euros through hawala, collected from 111 individuals.
Traditional hawala networks are complemented with other channels that creatively exploit new technologies and payment methods, which are less regulated and monitored, to transfer money. One such method, for example, is sending prepaid cards by post, allowing recipients to withdraw the money anonymously. The same applies to e-vouchers purchased by ISIS supporters that are re-sold in other countries for cash. According to a 2015 report from the independent, inter-government Financial Action Task Force (FATF), in Paris, crowdfunding platforms have also been used to raise money later wired to recipients through private bank accounts and transported in cash into Syria.
The network recently dismantled in France used a more sophisticated scheme by using bitcoins. Cryptocurrency, which includes bitcoin and many other digital currencies, is a virtual form of money that is created, bought and stored online, and necessitates no interaction with a traditional bank. Bitcoins can be re-sold online against dollars or euro. The suspects indicted in France bought bitcoin vouchers from shops in the country. According to the prosecution, the vouchers were credited to bitcoin “wallets” (similar to a bank account for cryptocurrency) belonging to ISIS supporters.
New technologies, new challenges
The United Nations Convention for the Suppression of the Financing of Terrorism, adopted in 1999, requires UN member states to enact laws to prevent the abuse of their financial system for terrorist purposes. This was reinforced after the September 2001 terrorist attacks on the US, with UN Resolution 1373 further requesting member states to criminalize “the wilful provision (...) of funds by their nationals or in their territories, with the intention that the funds should be used, or in the knowledge that they are to be used, in order to carry out terrorist acts.”
This is easier said than done. The global watchdog on terrorism financing is the Financial Action Task Force (FATF), “an independent inter-governmental body that develops and promotes policies to protect the global financial system.” While its recommendations are considered international standards, their efficiency depends on individual states’ willingness to implement them.
Consequently, the FATF regularly publishes a “grey list” of countries - which includes Syria - representing a vulnerability for the global financial system due to insufficient regulation. Likewise, the European Union placed Syria on a list of “high risk” countries with “strategic deficiencies (...) that pose significant threats to the financial system [of the EU].” To interact with the Syrian financial system, banks and other financial institutions are required to adopt additional safety precautions and reinforced due diligence measures destined to manage these risks.
Thus, exchanges with Syria are more monitored, and large transactions or repeated interactions or dealings with specific recipients are all susceptible to triggering the interest of law enforcement. However, “one of the problems [faced by legal authorities] is that the amounts [transferred] are relatively small, and the financiers can avoid the formal banking system,” Dr. Martin Navias, from the Centre of Defense Studies at King’s College London, told Syria Direct. Indeed, the network recently uncovered in France circumvented traditional banks by using bitcoin and purchasing vouchers of a value below 150 euros to avoid raising suspicions.
The FATF’s work has translated into an increasingly regulated formal banking sector, but criminal networks can still exploit loopholes. Stephen Reimer, Research Analyst at the Centre for Financial Crime and Security Studies at RUSI, told Syria Direct that the challenge is that “law enforcement and regulation cannot keep abreast with the pace of technological developments in [financial] services being offered to customers in Europe.” This is recognized by the European Council, which points to the need for legislation to be frequently updated to keep pace with innovations such as cryptocurrencies.
Consequences for ordinary Syrians
The means used by terrorist organizations to channel money are also used by ordinary people for legal purposes. Although it is informal, hawala is an ancient, well-established system across the world that is commonly used for legitimate purposes. For example, many NGOs use hawala as an efficient and reliable way to transfer cash inside Syria, and diasporas around the world, Syrians included, use it to send remittances to their families at home.
“No one uses Western Union to send money to their relatives in Syria. No one uses the official channels,” Richard (a pseudonym), a Syrian living in the Netherlands, told Syria Direct. He regularly sends around 400 euros every three months to his wife in Damascus. “It’s possible to send money to Syria through a formal transfer, but no one does so due to the huge difference between the official exchange rate [which is applied by formal exchange agencies] and the rate on the black market.” Thus, Richard prefers to send money to Turkey via acquaintances traveling there, or through hawala. Euros are converted on the black market at a better exchange rate before being transferred to their final destination through another hawala. At the time of publishing, one dollar is worth around 2,300 Syrian lira (SYP) on the black market, compared to SYP 1256 at the official rate.
For many families inside Syria, these remittances are an indispensable source of income, given the skyrocketing cost of living.
According to the World Bank, Syria receives $1.6 billion worth of remittances annually, which constitute a significant contribution to its nominal GDP, situated at $21.1 billion according to the latest estimates from 2018. In this context, efforts to crack down on illicit financial flows used by criminal groups could unwittingly penalize ordinary Syrians like Richard: “As simple people, we just want to help our families, and of course this situation of [organized people sending large amounts to Syria for criminal purposes] can cause more difficulties for us.”
The same concern was echoed by Navias, who pointed out that formal financial channels - adopting a zero-risk approach - do not facilitate monetary transfers in high-risk countries. “The problem [for ordinary people] is not so much [at the level of the state], but at the institutional level,” he told Syria Direct. “Banks will prefer to divest rather than take on difficult [anti-money laundering and anti-terrorism] obligations. So the balance is not struck in favor of ordinary persons who simply wish to repatriate funds to their families.”
Like many, Richard heard stories about people losing their money to dishonest informal agencies, which is why he only trusts a handful of transfer agents and prefers to have acquaintances take the money to Turkey. “If there were an official way to do this fairly, without losing a lot of money due to the bad exchange rate, I would prefer - and I think everyone would prefer - to use it,” he said.
For Keatinge, the future of remittances may lie in technology that could match the efficiency of hawala and protect remitters thanks to greater traceability: “On the one hand, hawala systems offer incredible financial services; on the other hand, they are hard to regulate and can be vulnerable to abuse,” he said. “Technology solutions offer a great way of continuing to offer the important remittance service while at the same time strengthening the integrity of how funds arrive safely.”