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Monday, Dec. 31, 2001

Hunting down terrorist funding requires new teamwork

The bombing in Afghanistan continued throughout the Islamic holy month of Ramadan and the Taliban government was swept from power much more swiftly than was previously anticipated.

While there are still pockets of resistance in Afghanistan, the next problem facing the international community is the eradication of international terrorist organizations. One of the keys to doing this will be the tracking down and freezing of terrorist funds.

This issue was discussed by the Group of Seven at a meeting Oct. 6 that resulted in an action plan being announced.

Legislation to crack down on terrorist funds is under way in Japan. The main aims of the new law are expected be to hunt down money flows linked to terrorists, freeze the related bank accounts, and punish those who provide terrorist groups with funding. But there are many difficulties in drafting such legislation in a rapidly globalizing economy.

First, it is easy to imagine terrorist funds overlapping in many cases with those used by organized crime, and it is obvious that measures to counter money-laundering will need to be galvanized. A new aspect to be reckoned with, however, is that it will become necessary at times to punish those who provide sources of funding that have no links to crime.

Collection of such money is sometimes carried out under the guise of charitable deeds, such as helping the poor. Thus it is difficult to determine whether those who supply money are acting benevolently or not.

The United States itself once provided funds to the al-Qaeda network and the Taliban. But money has no color, and if there are any funds left in the accounts used by the U.S., and it turns out the money was used for terrorist activities, the U.S. would be punishable.

Second, it would be easy to grasp the flow of funds if the names of the holders of the bank accounts were known, but things are not that simple. In an environment of rapid social change, new accounts are always being opened by individuals and small-scale offices set up in individual homes. It will be very costly to confirm if such accounts are linked to terrorist groups.

Furthermore, even in existing corporate accounts, there are more accounts for affiliated companies, and if transactions are made through tax havens they become very difficult to track. The biggest business of tax havens is attracting new accounts, and since this is where they get much of their revenue, it is unclear to what extent they will be willing to assist in checking suspect cash flows.

In addition, the relationship of the new legislation to protecting personal assets must also be taken into account, and there will be many legal hurdles to be overcome regarding how and for how long such assets may be frozen.

Third, we are seeing an increase in movements of money that do not go through legal financial institutions such as banks. For example, the Chinese Snakehead syndicate is believed to use such underground financial systems for its transactions. The proliferation of the Internet is also providing a new means by which transfer routes can be diversified.

Fourth, there are also money transactions linked with the trade in goods. Since the Sept. 11 terrorist attacks in the United States, the price of diamonds has risen, but this phenomenon can't merely be brushed aside as the usual market players buying a relatively stable commodity in times of turmoil. As evidence of this, we see that the price of gold, which traditionally serves as a commodity for hedging risk, has remained stable during this time. This may be because while transporting gold is easy to check with metal detectors, diamonds cannot be checked in this way, and a small volume of diamonds translates into huge amounts of money. Thus, the cat-and-dog chase between authorities clamping down on such practices and those seeking ways around them will continue.

To overcome such hurdles, the cooperation of not only industrial countries but developing countries as well will be necessary. In this respect, we must be sure not to mistake the issues of race and religion with those of terrorism.

Unfortunately, Japan's measures regarding international crime -- and not only terrorism -- lag behind those of other countries, with the percentage of arrests in this area remaining low.

One reason Japan lags here is the tendency of the Japanese bureaucracy to place greater weight on vertical ties within one's ministry or agency rather than on cross-communication. The strong leadership of the prime minister, as well as close cooperation among relevant organizations such as those involved in finance, fiscal policy, justice, foreign affairs and the police, is essential.

Teruhiko Mano is an adviser to Tokyo Research International Ltd.

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The Japan Times

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