Global Governance: The Case of Money Laundering and Terrorist Financing
Sheik Saeed, a key al Qaeda leader in Afghanistan, was asked in a May, 2007 interview, "what are the [most important] needs of Jihad in Afghanistan?" He responded that the foremost need is financial, and added that "there are hundreds wishing to carry out martyrdom-seeking operations, but they can't find the funds to equip themselves. So funding is the mainstay of Jihad" (Shapiro, 2009: 1). This casual quote reveals the central importance of financing to terrorist operations. The money required to carry out a terrorist operation is channeled to training camps, weapons, travel, payouts, and propaganda. Both American and British governments claim that they had successfully thwarted terrorist attacks in Bali and Heathrow, respectively, by tracking money linked to financing of planned attacks. Thus, following the money trail and stopping terrorist financing could lead to a decline in terrorist incidents.
Following the money trail and halting terrorist financing in many cases requires transnational operations, which may be difficult because each country guards its sovereignty. However, since money laundering and terrorist financing are key issues for the security of all states, there is a strong need for global governance. Though correct estimates of the amount of money laundering are hard to come by, the IMF in 1996 reported that between two and five percent of the global GDP ($590 million to $1.5 trillion dollars) may be due to money laundering (FATF, "Money Laundering," 2009: 1). This has potential for economic distress for various countries. The increasingly transnational nature of criminal activities requires international cooperation. However, the diversity of national legal systems, especially in surveillance of financial activities, creates loopholes that terrorists often use. They can exploit countries with weak or ineffectual controls to participate in legal financial markets.
This paper examines Robert Keohane's concept of "governance dilemma" and Slaughter's theory of "government networks" to understand the nature of international efforts to control money laundering and terrorist financing (Slaughter, 2004a: 4). Among other things, Keohane states that although a world governed by international institutions is beneficial, it posses a threat to people's liberties. Slaughter offers a possible solution to this problem in her theory of "government networks" in which she states that "relatively loose, cooperative arrangements across borders between and among like agencies that seek to respond to global issues" can be formed to address issues at a global scale. According to Slaughter, "networks will form the core of the new world order of governance" (Slaughter, 2004a: 14).
More specifically, this paper considers Slaughter's theory in terms of money laundering and terrorist financing by focusing on the international regime of laws, rules and regulations established within a complex network of governmental, non-governmental and intergovernmental surveillance efforts. The paper takes a historical perspective, in that, it examines the international cooperation efforts and international organizations role in the fight against money laundering and terrorist financing before and after 9/11, for instance, establishment and operation of the Financial Action Task Force (FATF).
With great pressure from the U.S., the G-8 created the FATF which was set up as an independent inter-governmental task force with the OECD handling its financing. Created in 1989 and now having thirty-three members, the FATF works very closely with the IMF, World Bank, United Nations and FATF-style regional bodies for the development and promotion of policies to fight money laundering and terrorist financing. The FATF has promoted forty recommendations to create a base-line of universally applicable measures constituting a framework of international cooperation for the criminal justice system, the financial sector, and the non-financial businesses. …