In a speech on September 24, 2001, President George W. Bush stated that "Money is thelifeblood of terrorist operations today. We're asking the world to stop payment." (1) Accordingly,during the past year the United States has mounted a wide-ranging domestic and international effortto freeze, seize, and intercept the flow of funds to terrorist groups. Since the September 11 attacks,roughly $121 million in terrorist assets has been frozen worldwide, but less than 20 percent of thistotal has been blocked in the past 11 months. (2) Fora variety of reasons that will be discussed in thisreport, traditional anti-money-laundering tools appear to be of limited use in disrupting terroristfinancing, which follows a dynamic different from that of traditional criminal organizations. Inaddition, pre-September 11 financial support for terrorism from Middle Eastern sources reportedlyhas continued. (3) Furthermore, there is an increasingconsensus that pursuit of terrorists' funds couldentail significant domestic and international political costs, e.g. infringing on civil liberties orreligious freedom, alienating large Muslim constituencies, inflicting harm on poor countries, andaggravating conflicts with Islamic states. Some observers also criticize the diversion of resourcesfrom traditional criminal investigations (such as ones focused on drug trafficking) to tracking the relatively minuscule amounts of money that find their way into terrorist cells through a host ofinformal channels. How efforts to "follow the money" should be prioritized in and integrated witha comprehensive global struggle against terrorism thus becomes an issue of considerable significancefor U.S. policymakers and for Congress. An overarching goal of U.S. counterterrorism policy since the September 11, 2001, attacks hasbeen to expose, disrupt, and incapacitate the financial networks of terrorist groups. In a speechdelivered on September 24, 2001, President George W. Bush stated: "We will direct every resourceat our command to win the war against terrorists, every avenue of diplomacy, every tool ofintelligence, every instrument of law enforcement, every financial influence. We will starve theterrorists of funding." (4) A key instrument in thiseffort was Presidential Executive Order 13224,issued on September 23, which blocked "all property and interests in property" of certain designatedterrorists and individuals and entities materially supporting them. (5) As of late November 2002, some250 individuals and groups, most of them al Qaeda-related, had been designated under the order and$36 million in terrorist-related funds in 92 separate accounts reportedly had been frozen by U.S.financial institutions. (6) The vast bulk of terrorist assets and funding sources, though, are considered to lie outside of the United States. Consequently, Washington has made considerable effort to enlist support of othernations in the campaign against terrorist financing. To some extent, international efforts havemirrored U.S. policy. For example, the United Nations Security Council (UNSCR), pursuant toUNSCR Resolution 1390 (January 16, 2002) and related preceding resolutions, maintains aconsolidated freeze list of some 300 individuals and entities linked to al Qaeda, Osama bin Laden,and the Taliban. (7) The European Union and a numberof individual states maintain their ownterrorism lists and blocking orders. As a result of these various activities, approximately $85 millionof terrorist bank funds reportedly has been frozen outside the United States in the post-September11 period. Of the total $121 million blocked worldwide, more than 75% reportedly has been linkedto the Taliban and al Qaeda and the rest to other terrorist entities. (8) The bulk of the activity hasoccurred in a few countries. Although almost 170 nations have blocking orders in force, only 4countries, including the United States, account for about two-thirds of the blocked $121 million,according to U.S. financial data. How effective the campaign to limit terrorist finance has been is a matter of controversy. U.S. officials regard the effort as a vital adjunct to the overall fight against terrorism. They claim thatasset seizures to date have constricted the funds of al Qaeda and other terrorist groups. A TreasuryDepartment fact sheet of September 2002 noted: "Our war on terror is working--both here in theUnited States and overseas. ï¿½ Al Qaeda and other terrorist organizations are suffering financiallyas a result of our actions. Potential donors are being more cautious about giving money toorganizations where they fear the money might wind up in the hands of terrorists. In addition, greaterregulatory scrutiny over financial systems around the world in the future may identify those whowould support terrorist groups or activities." (9) Others have expressed skepticism about the campaign. As a recent report by a U.N. Security Council monitoring group observes, "Al Qaeda continues to have access to considerable financialand other resources." As noted above, reports indicate that less than 20 percent of the reported $121million total in blocked terrorist assets have been frozen since mid-January 2002, which suggests thatthe campaign is yielding sharply diminishing returns. "Government officials have indicated that ithas proved extremely difficult to identify these additional funds and resources," the U.N. reportconcludes. (10) The difficulty may be attributed to various factors. Some observers claim that al Qaeda is relying increasingly on non-bank mechanisms to move and store funds, such as converting assetsto untraceable commodities, including gold and diamonds, or moving funds via informal valuetransfer ("hawala") systems that leave virtually no paper trail. Alternatively, al Qaeda may haveacquired greater sophistication in laundering funds. Bin Laden himself remarked to a Pakistanijournalist shortly after the September 11 attacks that his financial backers "are as aware of the cracksinside the Western financial system as they are of the lines of their hands." (11) Additionally, the evident fragmentation of terrorist finances poses significant challenges for law enforcement. Many small terrorist cells are virtually self-sustaining, deriving income from legitimatebusinesses or from assorted small criminal scams. (12) In such cases, there is not much of a money trailto follow. Moreover, terrorist operations tend to be cheap; a U.S. government report notes "therelatively modest funds needed to undertake them elude all but the most concentrated oversight." (13) Apparently the September 11 attacks, which cost an estimated $500,000, required a strategic infusionof funding from outside (much of it reportedly from a terror support network in the United ArabEmirates). (14) Yet the highly destructive 1993World Trade Center bombing, according to its"mastermind" Ramzi Yousef, cost less than $20,000. Reportedly, the conspirators were able to fundthe operation themselves from criminal activities such as check and credit card fraud, and throughdonations raised from a local charity. (15) A related concern centers on the level of international cooperation in disrupting terror financing. Some of the wellsprings of financial support for terrorism, especially sources in Middle Easterncountries, reportedly have been little affected by the post-September 11 crackdown. A report by theCouncil on Foreign Relations released in October 2002 states, "For years, individuals and charitiesbased in Saudi Arabia have been the most important sources of funds for al Qaeda, and for yearsSaudi officials have turned a blind eye to this problem." (16) U.S. officials publicly state that they arepleased with Saudi cooperation, but it is widely believed that some Saudi donors continue to financeterror. (17) A July 2002 report by the RoyalCanadian Mounted Police states that in Saudi Arabia aloneindividuals continue to donate $1 to $2 million a month to bin Laden through mosques and otherfundraising avenues that also perform legitimate charity work. (18) Saudi performance in freezingassets seems to be improving; between late October and late November 2002 the amount of fundsblocked by the kingdom reportedly increased more than tenfold, but whether this enforcement actionhas significantly curbed the flow of funds to terrorists is uncertain. Washington can continue to tryto pressure the Saudis, but for overarching strategic reasons-U.S.-Saudi military ties and worlddependence on Saudi oil-U.S. leverage in the situation or the readiness to use it is limited. Another controversial topic concerns the scope of the U.S.-led campaign. U.S. designations under Executive Order 13224 target international terrorism broadly and include numerous terroristentities that have little or no association with al Qaeda. Yet the international community has not yetadopted a unified definition of who is a terrorist and what constitutes terrorist activity. The universaladage, "One man's terrorist is another man's freedom fighter," has particular relevance here. Forinstance, the Convention on Terrorism of the Organization of the Islamic States says that "peoples'struggles aimed at liberation and self-determination shall not be considered a terrorist crime." (19) HAMAS and Hezbollah are excluded under this definition. Moreover, the European Union has notincluded Hezbollah on its freeze list but only designated the military wing of HAMAS (HAMAS Izzal Din al Qassem) for sanctions purposes. (20) TheU.N. list is limited to entities linked to al Qaedaand the Taliban. In the view of some, differences with European and Middle Eastern states overdesignations of terrorists could detract from the international fight against al Qaeda. Most controversial of all, perhaps, have been the U.S. freezing orders against Islamic charities and other nongovernmental organizations (NGOs). Certain charities allegedly serving as conduitsfor terrorist funds also support legitimate humanitarian causes. One targeted organization--the HolyLand Foundation for Relief and Development (HLFRD)--disbursed approximately $6 million in2000, mostly to Palestinian refugee families in Jordan, Lebanon, and Israel, according to its annualreport.