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Financing Terror: Testing the Closed-system Theory
Introduction
Most Pakistanis believe that Terrorism and terrorist activities are a part of a wider game and politics. India, America, Afghanistan, Iran, Saudi Arabia and a nexus of other alliances are often held responsible in the media and collective conscious of the people are responsible for providing the terrorists with funding and logistical support to attack Pakistan and operate within Pakistan.
On the other side of the spectrum it has been noted that terrorist organisations in other parts of the world have operated in what can now be called as a in-system or closed-system economy (Dalyan, 2008; FATF-GAFI, 2008). Essentially what it means is that the terrorist organisations invest considerably in a relatively stable economic infrastructure which supports their operational capabilities much like economies that focus on isolation in terms of capital generation capabilities (Clarida, Gali, & Gertler, 2001; Vlachos, Georgiadis & Iakovou,2007).
The main sources of income for the organisations are stated to be as follows: state-sponsership, criminal enterprise, regular enterprise and private support. Most Pakistanis favour the first state-sponsership as the main source of funding for terrorist operations within their own country however it should be noted that empirically the evidence for this type of funding has decreased Bantekas, 2003; Clunan, 2006; Hardoin & Weichhardt , 2003). This is in part due to the difficulty the post-9/11 legislation poses to moving large finances (see, FATF-GAFI report for a detailed description of financial operations of terrorist organisations).
The next source seems to have taken precedence and there seems to be a logical tactical advantage to that as well (Brigadier Shahid, personal communication, 2013) for it should be noted that direct control over the economic infrastructure enhances the operational capabilities of an entity (Sanderson, 2004).
Taking this strategy a bit further it should be noted that there have been cases of a nexus amongst criminal and anti-state organisations for both share a number of features namely, the opposition to state hold, a preference for a lower law and order hold on operational areas, intimidation of local populace where operations are carried out and state independent economic holdings (Sanderson, 2004).
Thus, expounding this theory further it should also be noted that once generation and sustainance of funding reaches a certain level a small organisation looks to invest and diversify its holdings and sources of income (Narula, 2002) this is why some theorists have pointed out that terrorist organisations most probably support legitimate businesses and use it for white-washing and asset management (Napoleoni, 2004) whereas there is a possibility of using it as recruitment grounds as well.
An interesting note is also on the use of charities for financing terrorism though in the present times (2013) it is most likely used more for asset management than revenue generation (authors opinion).
Research Questions
Taking into account the hidden nature of the data this study aims to put to the test the closed-system theory. The research questions of this study are as follows:
i. Can the cost of organisational expense of terrorit organisations be be explained by closed-system ?
ii. Is the closed system economy adequate for sustaining terrorist operations in Pakistan?
iii. Can the terrorist incidents pattern be explained by closed-system economy?
Cost of a terrorist operation
It is hard to measure the financial cost of executing a terrorist operation mostly due to the fact that most of the raw materials are procured via the black market which is difficult to analyse in terms of economics. However, projective costs have been estimated by various studies and for the purpose of this study the cost per terrorist operation will be taken into account as USD 10,000 (Reese, 2009) This is because of the dearth of studies on financial cost of terrorist operations within Pakistan and because the above stated figure is internationally agreed upon minimum cap for international strikes thus it makes sense to cap it as such as most probably the cost is lower than that in Pakistan (Brig. Shahid, personal communication, 2013).
Organisational expense
The terrorist organisations in Pakistan are organisations and it is natural that they operate like one. Every organisation has a cost of existing which is also called organisational expense, it includes the cost of running day to day operations of the organisation. Though there is not a comprehensive model of the organisational structure of the terrorist organisations in Pakistan there is a high probability that they emulate the organisational structure of the 1980s raised original Mujahideen groups against the Soviets for most of their training was received in such formations (Nawaz, 2009). Thus, the organisational model of the focus of this study, the Taliban of Pakistan, is modelled on the Afghani chapter of the Taliban (see Afsar, Samples & Wood, 2008) with almost 8 major departments of functioning with 10% going as running costs (Afsar, Samples & Wood, 2008; Harrison & Price, 2002)
Closed-system economies
The studies on closed system economies suggest that there is a probable variation of about 15% in the overall economic revenue generated by closed-systems that figure will be taken into account. As per most preliminary analysis of the financial infrastructure of the Pakistani terrorist organisations, specifically the TTP, suggests that their revenue generation capabilities have not been greatly perturbed by the military operations against them. In fact they have focused more on diversifying the economic arm of their infrastructure as the civilian component and administration of the counterinsurgency programme has not been up to the mark forcing the military to establish control multiple times on territories already cleared of militants (Nawaz, 2009; 2011). Thus, allowing the Taliban to change tactics and focus revenue generation elsewhere in the nation with heavy investing in criminal enterprises (Walsh, 2012).
Thus, there is considerable support for the agreed upon figure of 15% fluctuations in the revenue of terrorist organisations, specifically the Taliban.
Revenue of the Pakistani Taliban
For the purpose of this study the revenue of the Taliban would be taken as USD 200 million (Mufti, 2009) though there have been figures going as high as USD 500 million and as low as USD 100 million, it seems to hold the average from USD 200 Billion of narcotics trade with respect to the region (Ansar, work in progress, 2013).
Data and results
Number of terrorist attacks and death toll in Pakistan by year (accessed from Wikipedia and other news sources online)
216 in 2012 (cost = USD 2610000)
65 in 2011 (cost = USD 650000)
157 in 2010 (cost = USD 1570000)
139 in 2009 (cost = USD 1390000)
92 in 2008 (cost = USD 920000)
Number of terrorist attacks 2008-12
Running of TTP
With an average of running cost of USD = 160 million accounting for the projected 8 departmental divisions (which includes reinvestments) the Taliban have USD= 40 million to fight the Pakistan military and execute attacks in Pakistani soil. The total cost of operations in 2008-12 comes to USD= 7140000 (7.1 million), the average per annum to USD = 1428000 (1.4 million). This leaves the organisation a comfortable capital to shift around, counter a near-conventional battle against the Paksitani military and even invest in recruitment projects or expansion.
Implications
The figures are surprisingly high but help to explain the success that the Taliban have enjoyed so far. Even if the figures are not accurate, even by the authors own accounts, they are based on real figures and the actual picture is not far from this one. Even if the figures are above the actual figures (though the author chose the lowest figures available for revenue and highest for spending) it does lend support to the original research questions that the study poses.
There cannot denying that there might be a foreign hand amongst the terrorist organisations, however, it is possible that there is a closed-economy which can sustain the workings of the Taliban, which is used as the focus of this study. It is entirely possible that this similar networking allows an independent and free strategy of the terrorist organisations.
The implications for the counterinsurgency programmes of Pakistan are very clear: the military must put pressure on the insurgents but as this is a war of attrition and the sole military pressure has been unable to cut off the economic backbone of the insurgents their capabilities to strike against Pakistan is not compromised. This explains why they are able to strike back again and again despite military pressure on them.
Secondly, the civilian government needs to increase its tax net due to the hidden aspect of the money transfer that spills into Pakistan (Jamwal, 2003). Furthermore, Pakistan needs to curb on the administration free parts of the country to get a tab on the economic activity there for the accountability of the financial movement there which can also help in intelligence crackdowns. Thirdly, the stumping of the criminal organisations which have political backing and connections needs to heavily and vehemently put down as every soldiers blood has the black money from every gang who operates in Pakistan Brig. Shahid (personal communication, 2013). This will be difficult as the political culture in Pakistan has a certain interest in maintaining a relatively free tax and law and order hold in the country (Philip, 2005).
The way forward is to work within Pakistan and that too in terms of civics rather than a total military operation. Military operations tend to lag when the civics is also laden onto them (Nawaz, 2010) therefore the civilian government needs to improve the law and order situation country-wise not just in the affected areas for a successful blow against the Taliban and terrorists.
References
Afsar, S., Samples, C., & Wood, T. (2008). The Taliban: An Organizational Analysis: DTIC Document.
Ansari, A. (2013). Billing for terror: estimating the cost of terrorist operations. University of Karachi. Karachi.
Clarida, R., Gali, J., & Gertler, M. (2001). Optimal monetary policy in closed versus open economies: An integrated approach: National Bureau of Economic Research.
Dalyan, Ş. (2008). Combating the Financing of Terrorism: Rethinking Strategies for Success. Defence Against Terrorism Review, 1(1), 137-153.
Harrison, D. A., Price, K. H., Gavin, J. H., & Florey, A. T. (2002). Time, teams, and task performance: Changing effects of surface-and deep-level diversity on group functioning. Academy of management journal, 45(5), 1029-1045.
Jamwal, N. (2002). Hawala‐the invisible financing system of terrorism. Strategic Analysis, 26(2), 181-198.
Mufti, S. (2009). Funding the Pakistani Taliban, GlobalPost.
Napoleoni, L. (2005). Terror incorporated: tracing the dollars behind the terror networks: Seven Stories Press New York.
Narula, R. (2002). Multinational investment and economic structure: Globalisation and competitiveness: Routledge.
Nawaz, S., & de Borchgrave, A. (2009). FATAa most dangerous place. Center for Strategic and International Studies.
Philip, C. S. The Idea of Pakistan, 2005, Lahore: Vanguard Books.
Reese, J. (2009). Financing the Taliban: The Convergence of Ungoverned Territory and Unofficial Economy. Michigan State University.
Sanderson, T. M. (2004). Transnational terror and organized crime: blurring the lines. Sais Review, 24(1), 49-61.
Shahid, M. (2013). [A conversation about the insurgents].
. Terrorist Financing. (2008). France: FATF GAFI.
Vlachos, D., Georgiadis, P., & Iakovou, E. (2007). A system dynamics model for dynamic capacity planning of remanufacturing in closed-loop supply chains. Computers & Operations Research, 34(2), 367-394.
Walsh, D. (2012). Taliban Gaining More Resources From Kidnapping, The New York Times.
An original piece I have been flirting with for a while, please read and critique
@Capt.Popeye @Marshmallow @Alpha1 @Armstrong @Aeronaut @Kirat @Secur @Dillinger please tag others as well
Introduction
Most Pakistanis believe that Terrorism and terrorist activities are a part of a wider game and politics. India, America, Afghanistan, Iran, Saudi Arabia and a nexus of other alliances are often held responsible in the media and collective conscious of the people are responsible for providing the terrorists with funding and logistical support to attack Pakistan and operate within Pakistan.
On the other side of the spectrum it has been noted that terrorist organisations in other parts of the world have operated in what can now be called as a in-system or closed-system economy (Dalyan, 2008; FATF-GAFI, 2008). Essentially what it means is that the terrorist organisations invest considerably in a relatively stable economic infrastructure which supports their operational capabilities much like economies that focus on isolation in terms of capital generation capabilities (Clarida, Gali, & Gertler, 2001; Vlachos, Georgiadis & Iakovou,2007).
The main sources of income for the organisations are stated to be as follows: state-sponsership, criminal enterprise, regular enterprise and private support. Most Pakistanis favour the first state-sponsership as the main source of funding for terrorist operations within their own country however it should be noted that empirically the evidence for this type of funding has decreased Bantekas, 2003; Clunan, 2006; Hardoin & Weichhardt , 2003). This is in part due to the difficulty the post-9/11 legislation poses to moving large finances (see, FATF-GAFI report for a detailed description of financial operations of terrorist organisations).
The next source seems to have taken precedence and there seems to be a logical tactical advantage to that as well (Brigadier Shahid, personal communication, 2013) for it should be noted that direct control over the economic infrastructure enhances the operational capabilities of an entity (Sanderson, 2004).
Taking this strategy a bit further it should be noted that there have been cases of a nexus amongst criminal and anti-state organisations for both share a number of features namely, the opposition to state hold, a preference for a lower law and order hold on operational areas, intimidation of local populace where operations are carried out and state independent economic holdings (Sanderson, 2004).
Thus, expounding this theory further it should also be noted that once generation and sustainance of funding reaches a certain level a small organisation looks to invest and diversify its holdings and sources of income (Narula, 2002) this is why some theorists have pointed out that terrorist organisations most probably support legitimate businesses and use it for white-washing and asset management (Napoleoni, 2004) whereas there is a possibility of using it as recruitment grounds as well.
An interesting note is also on the use of charities for financing terrorism though in the present times (2013) it is most likely used more for asset management than revenue generation (authors opinion).
Research Questions
Taking into account the hidden nature of the data this study aims to put to the test the closed-system theory. The research questions of this study are as follows:
i. Can the cost of organisational expense of terrorit organisations be be explained by closed-system ?
ii. Is the closed system economy adequate for sustaining terrorist operations in Pakistan?
iii. Can the terrorist incidents pattern be explained by closed-system economy?
Cost of a terrorist operation
It is hard to measure the financial cost of executing a terrorist operation mostly due to the fact that most of the raw materials are procured via the black market which is difficult to analyse in terms of economics. However, projective costs have been estimated by various studies and for the purpose of this study the cost per terrorist operation will be taken into account as USD 10,000 (Reese, 2009) This is because of the dearth of studies on financial cost of terrorist operations within Pakistan and because the above stated figure is internationally agreed upon minimum cap for international strikes thus it makes sense to cap it as such as most probably the cost is lower than that in Pakistan (Brig. Shahid, personal communication, 2013).
Organisational expense
The terrorist organisations in Pakistan are organisations and it is natural that they operate like one. Every organisation has a cost of existing which is also called organisational expense, it includes the cost of running day to day operations of the organisation. Though there is not a comprehensive model of the organisational structure of the terrorist organisations in Pakistan there is a high probability that they emulate the organisational structure of the 1980s raised original Mujahideen groups against the Soviets for most of their training was received in such formations (Nawaz, 2009). Thus, the organisational model of the focus of this study, the Taliban of Pakistan, is modelled on the Afghani chapter of the Taliban (see Afsar, Samples & Wood, 2008) with almost 8 major departments of functioning with 10% going as running costs (Afsar, Samples & Wood, 2008; Harrison & Price, 2002)
Closed-system economies
The studies on closed system economies suggest that there is a probable variation of about 15% in the overall economic revenue generated by closed-systems that figure will be taken into account. As per most preliminary analysis of the financial infrastructure of the Pakistani terrorist organisations, specifically the TTP, suggests that their revenue generation capabilities have not been greatly perturbed by the military operations against them. In fact they have focused more on diversifying the economic arm of their infrastructure as the civilian component and administration of the counterinsurgency programme has not been up to the mark forcing the military to establish control multiple times on territories already cleared of militants (Nawaz, 2009; 2011). Thus, allowing the Taliban to change tactics and focus revenue generation elsewhere in the nation with heavy investing in criminal enterprises (Walsh, 2012).
Thus, there is considerable support for the agreed upon figure of 15% fluctuations in the revenue of terrorist organisations, specifically the Taliban.
Revenue of the Pakistani Taliban
For the purpose of this study the revenue of the Taliban would be taken as USD 200 million (Mufti, 2009) though there have been figures going as high as USD 500 million and as low as USD 100 million, it seems to hold the average from USD 200 Billion of narcotics trade with respect to the region (Ansar, work in progress, 2013).
Data and results
Number of terrorist attacks and death toll in Pakistan by year (accessed from Wikipedia and other news sources online)
216 in 2012 (cost = USD 2610000)
65 in 2011 (cost = USD 650000)
157 in 2010 (cost = USD 1570000)
139 in 2009 (cost = USD 1390000)
92 in 2008 (cost = USD 920000)
Number of terrorist attacks 2008-12
Running of TTP
With an average of running cost of USD = 160 million accounting for the projected 8 departmental divisions (which includes reinvestments) the Taliban have USD= 40 million to fight the Pakistan military and execute attacks in Pakistani soil. The total cost of operations in 2008-12 comes to USD= 7140000 (7.1 million), the average per annum to USD = 1428000 (1.4 million). This leaves the organisation a comfortable capital to shift around, counter a near-conventional battle against the Paksitani military and even invest in recruitment projects or expansion.
Implications
The figures are surprisingly high but help to explain the success that the Taliban have enjoyed so far. Even if the figures are not accurate, even by the authors own accounts, they are based on real figures and the actual picture is not far from this one. Even if the figures are above the actual figures (though the author chose the lowest figures available for revenue and highest for spending) it does lend support to the original research questions that the study poses.
There cannot denying that there might be a foreign hand amongst the terrorist organisations, however, it is possible that there is a closed-economy which can sustain the workings of the Taliban, which is used as the focus of this study. It is entirely possible that this similar networking allows an independent and free strategy of the terrorist organisations.
The implications for the counterinsurgency programmes of Pakistan are very clear: the military must put pressure on the insurgents but as this is a war of attrition and the sole military pressure has been unable to cut off the economic backbone of the insurgents their capabilities to strike against Pakistan is not compromised. This explains why they are able to strike back again and again despite military pressure on them.
Secondly, the civilian government needs to increase its tax net due to the hidden aspect of the money transfer that spills into Pakistan (Jamwal, 2003). Furthermore, Pakistan needs to curb on the administration free parts of the country to get a tab on the economic activity there for the accountability of the financial movement there which can also help in intelligence crackdowns. Thirdly, the stumping of the criminal organisations which have political backing and connections needs to heavily and vehemently put down as every soldiers blood has the black money from every gang who operates in Pakistan Brig. Shahid (personal communication, 2013). This will be difficult as the political culture in Pakistan has a certain interest in maintaining a relatively free tax and law and order hold in the country (Philip, 2005).
The way forward is to work within Pakistan and that too in terms of civics rather than a total military operation. Military operations tend to lag when the civics is also laden onto them (Nawaz, 2010) therefore the civilian government needs to improve the law and order situation country-wise not just in the affected areas for a successful blow against the Taliban and terrorists.
References
Afsar, S., Samples, C., & Wood, T. (2008). The Taliban: An Organizational Analysis: DTIC Document.
Ansari, A. (2013). Billing for terror: estimating the cost of terrorist operations. University of Karachi. Karachi.
Clarida, R., Gali, J., & Gertler, M. (2001). Optimal monetary policy in closed versus open economies: An integrated approach: National Bureau of Economic Research.
Dalyan, Ş. (2008). Combating the Financing of Terrorism: Rethinking Strategies for Success. Defence Against Terrorism Review, 1(1), 137-153.
Harrison, D. A., Price, K. H., Gavin, J. H., & Florey, A. T. (2002). Time, teams, and task performance: Changing effects of surface-and deep-level diversity on group functioning. Academy of management journal, 45(5), 1029-1045.
Jamwal, N. (2002). Hawala‐the invisible financing system of terrorism. Strategic Analysis, 26(2), 181-198.
Mufti, S. (2009). Funding the Pakistani Taliban, GlobalPost.
Napoleoni, L. (2005). Terror incorporated: tracing the dollars behind the terror networks: Seven Stories Press New York.
Narula, R. (2002). Multinational investment and economic structure: Globalisation and competitiveness: Routledge.
Nawaz, S., & de Borchgrave, A. (2009). FATAa most dangerous place. Center for Strategic and International Studies.
Philip, C. S. The Idea of Pakistan, 2005, Lahore: Vanguard Books.
Reese, J. (2009). Financing the Taliban: The Convergence of Ungoverned Territory and Unofficial Economy. Michigan State University.
Sanderson, T. M. (2004). Transnational terror and organized crime: blurring the lines. Sais Review, 24(1), 49-61.
Shahid, M. (2013). [A conversation about the insurgents].
. Terrorist Financing. (2008). France: FATF GAFI.
Vlachos, D., Georgiadis, P., & Iakovou, E. (2007). A system dynamics model for dynamic capacity planning of remanufacturing in closed-loop supply chains. Computers & Operations Research, 34(2), 367-394.
Walsh, D. (2012). Taliban Gaining More Resources From Kidnapping, The New York Times.
An original piece I have been flirting with for a while, please read and critique
@Capt.Popeye @Marshmallow @Alpha1 @Armstrong @Aeronaut @Kirat @Secur @Dillinger please tag others as well
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