Institutionalization of risk management framework in Islamic NGOs for suppressing terrorism financing

Author:Radiah Othman
Position:School of Accountancy, College of Business, Massey University, Palmerston North, New Zealand

Purpose – The aim of this paper is to propose solutions for improving internal controls and transparency to alleviate concerns of international community over alleged linked with terrorist groups. Design/methodology/approach – The authors explore the counter-insurgency theory and political process model to explain the current state of counter-terrorism activities aimed at Islamic... (see full summary)

1 Introduction

In most of the developing countries, NGOs are seen as addressing the issues of development and poverty. Most of the services provided by these organizations include childcare, healthcare, adult literacy, social welfare and other services that some governments are incapable of providing. Some NGOs are purely of foreign origin, while in third world countries some are local but funded from abroad ( Jamil, 1998 ). Foreign NGOs have also been active in relief and rehabilitation work in natural disasters. NGOs with a humanitarian and social justice focus are seen as helping ethnic minority and economically disadvantaged groups. It cannot be disputed that NGOs play a vital role in supplementing the service delivery functions of some governments. However, there have been many instances when these organizations have been exploited by terrorist groups as a method to finance their activities. Terrorist organizations and political insurgents could use NGOs as a tool to move community members along a “continuum of community support” toward greater acceptance of and participation in violent activities ( Flanigan, 2006 ). In the aftermath of 9/11, on 28 September 2001, the US President passed executive order 13224, freezing the assets of individuals and charities suspected of being linked to terrorism ( Cole, 2003 ). This executive order clearly states that foreign persons are to be determined by the Secretary of State, in consultation with the Secretary of the Treasury and the Attorney General, to have committed, or to pose a significant risk of committing, acts of terrorism that threaten the security of US nationals or the national security, foreign policy, or economy of the USA. The UN also passed Resolution 1373 under Chapter VII of the Charter asking the member states to refrain from providing any form of support to terrorist groups, and to implement measures to suppress terrorist acts within their jurisdictions. These include enhanced financial and border controls and international judicial cooperation, among others ( Humanitarian Policy Group (HPG), 2011 ).

The current discourse on the “war on terrorism” has conflated nationalist issues, with Islam being blamed for the violence. For instance, much of the political violence in countries such as Thailand, the Philippines and India to name a few are old-fashioned nationalist or ethnonationalist movements ( Acharya, 2009 ). Though these conflicts predate September 2011, national governments who have failed to find a solution have used Islam as a scapegoat. It is misleading to portray Islam as an undivided whole and those who choose to be Muslims as adherents of a homogenous worldview ( Kadioğlu, 2005 ). Liberal and community oriented views espoused by NGOs coexist within Islamic societies and at times confront radical terrorist groups. In this paper, first, we explore the counter-insurgency theory and political process model to explain the current state of counter-terrorism activities aimed at Islamic NGOs. Islamic NGOs are of considerable concern for US counter-terrorism operations ( Bloodgood and Tremblay-Boire, 2011 ). We briefly discuss the US Government primacy over such operations which tend to send the message of local organizations' incapability of detecting NGOs' financial assistance to terrorist groups ( Tovo, 2006 ). Prior studies on the financing of terrorism document that it has been accomplished through legitimate business. Since the 9/11 attack, Islamic charities have faced increased scrutiny over alleged links with extremist groups. The USA has tried to identify charities engaged in facilitating “terrorist” activities and to cut off funds channeled through them ( Benthall, 2003 ). Islamic charities are considered particularly suspect as fronts or conduits for terrorist financing through mobilization of financial resources using informal banking systems and religious traditions of Zakat and Sadaqah ( Hardister, 2003 ; McCulloch and Pickering, 2005 ; Sproat, 2005 ). Indeed, the Financial Action Task Force ( FATF, 2002 ) argues that community solicitation and fundraising appeals have been used as effective means of raising funds to support terrorism.

Second, we propose an accountability regime for NGOs, to first detect and then prevent the welfare activities of Islamic NGOs becoming warfare activities. Although we do not empirically test whether new risk measures would reduce the likelihood of, or damage from, terrorism we believe that it is a new contribution to ongoing measures to suppress terrorism financing. We believe that there is little research exploring the idea of the disruption of the money flow to be of greater importance than freezing the accounts to suppress terrorism financing.

2 Counter-insurgency theory, political process model and counter-terrorism activities

The ideological antecedents of counter-terrorism lie in counter-insurgency theory and practice which was originally developed by the French and British military in the face of nationalist struggles to overthrow colonial rule ( McCulloch and Pickering, 2005, p. 472 ). According to Hocking (2004, p. 71) , counter-terrorism provided a domestic peace-time adaptation of strategies for “war against terror” after the end of Cold War. Lum et al. (2006) report that in 2005 the Congressional Budget office estimated that since 1998 the financial resources appropriate to combat terrorism has increased from US$7.2 billion to $88.1 billion while homeland security funding has risen from $9 billion in 2000 to $32 billion in 2005. The use of these resources has led to setting up of organizational structures empowered to direct interagency counter-insurgency tasks in several jurisdictions, without even the knowledge of sovereign states. Counter-terrorism laws have developed at different paces in different jurisdictions. The USA is a special case. In this regard, the two most relevant sanction regimes in the USA are: the Department of the Treasury Office of Foreign Assets Control (OFAC) and the Material Support Statute in US criminal law because these have the greatest potential adverse impact on humanitarian organizations ( HPG, 2011 ). OFAC is the lead office responsible for implementing sanctions with respect to assets of international terrorist organizations and terrorism supporting countries. It focuses on identifying persons for designation; assisting parties in complying with the sanctions' prohibitions through its compliance and licensing efforts; assessing civil monetary penalties against the persons violating the prohibitions; and working with the other US Government agencies. As of 31 December 2011, assets blocked pursuant to Executive Order 12947 and 13224 and 18 U.S.C 2339b (a)(2) totaled $25,528,389 ( OFAC, 2011 ).

We argue that contemporary “counter-terrorism” practices are associated with the surveillance over NGOs due to their ties with terrorist groups. The US Government has intensified surveillance through its diplomatic, cultural, educational and social agencies such as USAID and pressures on supernatural organizations such as the International Monetary Fund (IMF). For instance, USAID partner vetting requirements envisage collecting and reporting information about partner and contractor staff to the US Government which has been dubbed as invasive and accusatory by partners ( HPG, 2011 ). Many counter-terrorism measures taken after 9/11 against the Islamic NGOs that pose a threat to the West can be characterized as reminiscent of the coercive strategies of an earlier colonial period and can be characterized as neo-colonial.

Terrorism refers to the deliberate reckless killing of civilians, or to the doing of extensive damage to their property, with the intention of spreading fear among communities and expressing discontentment or angst ( Macrae and Harmer, 2003 ). Economic theory identifies terrorists as rational actors who use violence as a means to achieve political goals. According to McAdam's (1982) political process model, insurgencies (terrorists) mobilize not only because people harbor grievances of some kind, share their grievances with others, and together can do something about them, but they also need to have access to sufficient resources and networks of potential members and organizations. As the broader political environment becomes “open” to insurgency formation, insurgencies mushroom into terrorist groups. In many cases, political opportunities have manifested themselves in three broad forms:

  • political instability;
  • enhanced political position of the aggrieved populations; and
  • ideological openness ( Everton, 2011 ).
  • Newman (2006, p. 751) identifies poverty, social inequality and political grievances, among others, as key preconditions that set the stage for terrorism. Akyuz and Armstrong (2011) propose that social disorganization theory provides a useful framework for understanding the social-structural correlates of terrorism.

    From the above theoretical discussions, we predict that an extremist group such as Al-Qaeda emerged from the ruins and political instability in the aftermath of the Afghan Soviet Union war. The group mobilized Islamic NGOs in the guise of Islamic social welfare to support its war (Jihad) against the West and the USA in particular. Terrorist groups such as Al-Qaeda and radical ideologues are using Islamic ideology to galvanize the wider Muslim community not only into committing violence but also for garnering financial and logistical support. NGOs...

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