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Terrorist Finance, the Balkans and the Mob: Interview with Loretta Napoleoni

April 17, 2006


In Christopher Deliso’s new and exclusive interview with Italian economist and author Loretta Napoleoni, readers are treated to expert insights on the issues of terrorist financing, organized crime in Europe and the Balkans, and the intractable intertwinement of the terrorist economy and the legitimate one.

Loretta Napoleoni is the author of several books, most recently Insurgent Iraq : Al-Zarqawi and the New Generation and Terror Incorporated: Tracking the Dollars behind the Terror Networks.

The Scale of the Terror Economy and the Role of Islamic Finance

Christopher Deliso: You speak in your book, Terror Incorporated: Tracking the Dollars behind the Terror Networks, of an overall turnover annually in the terror economy of some $1.5 trillion- an almost unfathomable amount. How did you calculate this?

Loretta Napoleoni: I used statistics and estimates based on the global drug trade, the illegal black economy in various goods, and known terrorist funds from Islamic charities and so on. But the problem is that my calculations were done before 9/11 and to really redo them to take account of the major changes since then, should be including Iraq.

So in addition to the estimate of the $1.5 trillion terror economy mentioned in the book, I estimate now it is probably 20 percent higher, because of the sudden increase in drugs coming from Afghanistan, and the side effects of oil’s surge in value.

CD: On another topic- you discuss (on p. 125) the concept of zakat, an Islamic alms tax on transactions meant to help the needy according to Islam. Does it apply to all transactions? How is it enforced?

LN: Yes, according to the Islamic system this charity payment is required. But all Islamic banks are different- they don’t have to comply with the exact same regulations, so long as their behavior is based on their interpretation of Sharia law.

CD: How much is the zakat tax? I understand you say the Saudi royal family alone is obliged to pay $12 billion a year because of its immense wealth.

LN: The zakat taxes amount to 2.5 percent, and these moneys are directed to various organizations, the biggest being in Saudi Arabia, where is a central zakat office.

CD: Now please explain about Islamic banking. I thought that it does not allow charging fees, thinking it usurious and thus incompatible with the commandments of Islam. So how do the bankers make any money?

LN: Of course, a banker never lends you money for free. The way they operate is that they charge you a cost. While it’s more or less just a conceptual one, it is still an interest, rates change but they apply them at a fixed interest rate.

CD: And what of Hawala banking? In your book you point to this global means of moving money as sometimes faster than Western Union, with no way of tracing it, and something that has been used in terrorist financing. So how exactly does it work? For example, if I wanted to send money the Hawala way to you in London, from here in Skopje, what would I do?

LN: You would go to a Hawala exchanger in your city, and they will tell you who is their correspondent in London. And then they do the exchange. It is very cheap, the cost.

CD: But I understood that money does not actually change hands between the dealer in city A and city B.

LN: Basically, the guy in London will use his own money. At the end of the year the “clearing’ is done. The interesting thing is that the clearing is done in gold- the benchmark is gold- and that is what OBL suggested doing with it.

CD: And what is the scale of these kind of transfers annually?

LN: Frankly, it is impossible to calculate, but the amounts are staggering.

CD: Is the Hawala system connected completely, around the globe? Or are there competing networks?

LN: The entire network is connected. Certain countries use it more than others, however; Africa and southeast Asia especially- Pakistan is huge.

CD: Still, is it possible to find a Hawala dealer in any country in Europe, for example?

LN: Yes, almost anywhere you go in Europe now has some Hawala dealer presence. The World Bank did a report on Hawala a couple of years ago- you can find more facts there.

Loose Ends

CD: Another detail from your book. In it, you make a very interesting statement: you contend that a Chechen-KLA link was created in the 1990’s. But I don’t see any source reference for the details. Can you give any more information here?

LN: The Islamists of that region were doing business with the Chechnya mafia, by this I mean the Russian mafia, because the origins of the Russian mafia are in Chechnya. The drug routes went via Chechnya. So where did the Albanians and the KLA come in? From the mid-1990’s, they received a cut in the business, the shipments in heroin coming from Turkey through the Balkans. And the KLA was the armed protection for the smugglers. But Albanian “mafia’ is a very loose concept, not like Cosa Nostra or “Ndrangheta in Italy.

CD: Another detail which struck me is the presence of 20,000 Muslims in a corner of South America- the border triangle between Paraguay, Brazil and Argentina which you describe as a hotbed of criminal and extremist activities. But this is very far from the Muslim world- so how did it happen?

LN: Well, for people looking to resettle in better places, such as some Muslims from the Middle East in earlier times, it was very easy to emirate to Paraguay. South America is one of the easiest places to go. That doesn’t surprise me. These people who are there left during the Civil War in Lebanon; some who were lucky went to Europe, but many came to Paraguay. It turned out to be a great place to do “business.’ And there is also a large community in Argentina.

As I mention in the book, some of the extremists in Paraguay were linked to funding violent Middle Eastern Islamic groups and with attacks on Jewish interests in Argentina.

CD: Another topic for clarification (p. 136) you speak of being able to buy fake passports at the famed radical mosque in London, Finsbury Park – but I imagine that it has long been controlled by the police. Surely, you can’t still buy fake passports there?

LN: No, I think by now you are right, you can’t there. But of course, there are criminals all around London and any big city, and so they are readily available. In the last chapter I talked about Nick Fielding, the excellent investigative report for the Telegraph, who just by answering an ad in a newspaper for a company offering “visa assistance’ was able to acquire a high-quality fake, no questions asked.

CD: So where are such documents produced? Is there some center?

LN: The place where they do are doing fake ID’s and passports very well now is Bulgaria. They do a very good job, there is a KGB connection there- and it is pervasive, all around Europe. For example, I checked recently with the police in Catalonia. They say the market is huge for fake identities. And sometimes they even use real, stolen passports, but carefully cut out and replace the photo to suit the needs of the client.

CD: What about the discussion you give of stock market speculation and the famous “put options’ scandals before 9/11? You also say the price of gold shot up in the days before as al Qaeda converted bank assets into gold, aware that some of those accounts were bound to be shut down by the US soon after.

LN: Indeed. Using gold was a strategy, and interestingly enough, fits in perfectly with the established Hawala network. Similar activity took place before the Madrid bombing, which we found, as well as the London 7/7 bombings, were not the work of al Qaeda itself. The movement fragmented, making it more difficult to pin down, but the methods were the same.

From that point of view they [the Islamic terrorist movements] are changing radically. They are no more a traditional armed group. The oil market has delivered a massive amount of wealth. Now, the money they need is not to do another 9/11, but to continue the insurgency in Iraq.

Grounds for Cynicism

CD: So would you say that the US involvement in Iraq is like some sort of magnet, to draw in the terrorists and terrorist assets of the world, and have them waste their money there- and American response to bin Laden’s stated wish to bleed the American economy? Or is that too cynical?

LN: It’s possible. They are using Iraq, and will even bomb Iran, using Iraq as the battlefield for where the rival Muslims can fight it out with each other. It’s tragic what’s happening there.

CD: So what do you make of the recent flurry of speculation unleashed by Seymour Hersh’s latest piece predicting upcoming air strikes by the US on Iran? Do you think this is really going to happen?

LN: Not only do I think it is going to happen, but it might even be soon. According to what I know, Iran is most likely- I mean, it is going to happen, before spring 2007- and maybe even before this fall.

CD: There are some factions in and around the US government who have been long pulling for such military intervention, for years. We call them the neoconservatives, the war party, and so on. What do you make of their execution of this “war on terror’?

LN: For them, terrorism is not a problem- 9/11 is the best thing that ever happened to them. The neocons couldn’t have gone into Iraq without an excuse. So defeating terrorism is not high on the agenda. I do believe they were not interested in fighting terrorism in the first place. They need it to keep up their rationale for wars… We don’t go for [Osama bin Laden] seriously because it was not a priority.

Balkan and Mediterranean Mafia, Money Laundering, Mosques

CD: Indeed. Moving now from the topics that popped up in your book, let’s move to more specific Balkan/Mediterranean ones. For example, there have been many reports over the years about the strong ties between the Italian and Albanian mafias. Can you shed any light on this connection?

LN: First of all, we should say something about the terminology, because it affects the group structure. In the case of the Albanian one, you don’t have a single mafia, but a loose network based in families and clans.

But things are much more structured in the Italian mafia. The Cosa Nostra is a pyramid with one boss-

CD: Kinda like the Catholic Church.

LN: Yes, I suppose, like the Church with the Pope. The terminology is interesting: such groups in Italy are always referred to by their names, Cosa Nostra or “Ndrangheta. The word “mafia’ is a sort of general word- it is actually that comes from America, a word that was popularized in that society and popular culture. In Italy, you never use the word “mafia;’ people distinguish between one group or another by their name. And this says a lot about the cohesiveness of the organizations.

Now, about the direct connections- a recent anti-drugs reports from the Italian government claim that the Albanian organized crime groups from Albania proper are more and more involved in the Otranto Channel, people-smuggling especially.

CD: And drugs? How is that working?

LN: Interestingly, we have found heroin is no longer as important as cocaine among certain levels of society. In Europe, there has been a decline in heroin use over the last few years. More and more, cocaine has found its way, becoming a middle-class drug, whereas heroin is perceived as being for the marginalized and lowest of society.

CD: But what about the connection between Italy and the Balkans in terms of the drug and other smuggling trade?

LN: Of course, Italy gets substantial smuggling imports from the Balkans- but with the growth in South American cocaine, it is also exporting there. Bulgaria is another important transshipment point in heroin trade. In Italy, the Albanians are heavily involved with prostitution- all this because of strong ties with “Ndrangheta. They have infiltrated all areas of the Italian state, including the police- they control not only territory but economy. It’s hard to break their group when the entire population is afraid and don’t want to resist.

And with their wealth and sophistication the “Ndrangheta actually surpasses police efforts to stop them. So for example, when they operate the run between Albania and the Puglia coast, with their sophisticated small boats with tracking devices, they don’t need to be super careful because the police don’t have the resources to match.

CD: What other trends in European organized crime can you mention?

LN: Well, an important one to watch is the Chinese mafia. They are not as structured as the Italian crime syndicates, somewhat more loose. But the Chinese mafia in Italy is getting bigger. They are involved in kidnapping, racketeering, not yet so much with drugs. The same is true in Spain, where the authorities are very concerned about the Chinese gangs. And like the Albanians, they are very hard to penetrate because of the language. No one speaks Chinese.

CD: In your book you also mention the role of Cyprus in money laundering. You say Turkish North Cyprus-

LN: No, it is South Cyprus I meant. Maybe there was a mistake in the printing. Nothing has changed since the book was published. A few nights ago I was speaking with a Middle East businessman who again mentioned the long-acknowledged presence of the Russian mafia and suspicious Arab businessmen are in the Republic of Cyprus. How they got into the EU is amazing- the kind of banking and transactions they do there are massive and illegal. There’s just no compliance, no control. It’s unbelievable.

Like other tax havens, there is no specific legislation on anti-money laundering or anti-terror financing in Europe. The existing laws haven’t done anything. These tax havens should be abolished. But you can’t do it, because they’re of great use to the western capitalist system.

So we’re stuck basically. If we were to do something, to really do something about terrorist financing, we would have to change our system entirely.

CD: In your book, you speak at length of a radical mosque network in Europe which has the double purpose of clandestine fundraising and indoctrination. What if I mentioned, in your country, the town of Treviso near Venice as an important center of extremism with ties to the Balkans?

LN: Treviso- wouldn’t surprise me. But I can’t say anything more. In Italy, as you know from the publicized events in Milan and elsewhere, as well as in other European countries, we have a Wahhabi and Salafi presence.

CD: Do you distinguish the two?

LN: The hard-core Salafists are more often from places in North Africa, Palestine, Syria. The Wahhabis, Saudi-backed of course, very much support creation of a Sharia state, an amalgamation of religion and state. The Salafists, on the other hand, call for the total destruction of the environment.

On Kosovo and Iraq and Beyond

CD: As you know, right now the negotiation process for defining Kosovo’s final status is going on. So what do you see in the future of an “independent” Kosovo – could it become a narco-terrorist statelet with no viable economy? After all it, it is run by the mob and is faced with the likelihood of a huge drop in service industry prices when the rich internationals leave. So, to use a term you employ throughout your book, could Kosovo end up being a ‘state-shell’, an illegitimate hotbed of unrest ruled by a criminal and terrorist economy?

LN: Of course, there is this danger. I don’t have any solutions for this, I’m afraid. But while Kosovo for sure could end up being a state-shell, ironically if it becomes an independent state we won’t be able to call it that!

But Iraq is a state-shell. There is no central government, there have been elections, but they have not produced a government- all the economy that come in is supporting one armed group or another-

CD: But what of the argument that the war effort actually has benefits for the US, at least for the military-industrial companies, the military contractors and so on? Does this “trickle down’ when it returns home?

LN: Well, the US is using clean money, and a lot of money comes back in. But is not beneficial to the US economy, because it’s coming out of debt. Those who make it in Iraq, like the military contractors and other personnel, while they spend it in the US, they spend it on consumption, not investment. A lot of people end up buying property. So there is no stimulus for growth from the war economy.

In fact, the money generated by the war economy only benefits the oil and military-industrial industries. We are creating a criminal and illegal economy because we’re doing business with all these guys. For a very basic and intractable example- some of the money the US has been donating ended up going to Iraqi politicians who run militias fighting against the US. It is self-defeating, and dangerous.

CD: So is it possible that there could be an economic crash in the US because of military overstretch, the deficit, foreign debt-servicing, treasury bonds and so on?

LN: We know that at a certain stage these issues, as well as corruption in the US will cause problems. And the balance of trade, with so many goods produced in China- it’s an unsustainable situation in the long run. But as long as the US dollar remains the reserve currency of the world, no one will let the US go bust. If there is a strong movement among oil markets and central banks towards the Euro, however it will be a problem.

CD: A final question, getting back to a very recent event in Italian organized crime. What can you tell us about the effect that the recent capture of legendary mafia outlaw Bernardo Provenzano will have on the structure or activities of the mafia in Italy?

LN: Well, I have not been following Provenzano’s capture too closely. What I can say is that it opens new scenarios in Sicily, not so much in [the rest of] Italy. The most powerful organized crime organization at the moment is the “Ndrangheta, which was not controlled by Provenzano.

What we can say is that due to this capture the Mafia will need to get reorganized, which will open new opportunities for the [Calabrian] “Ndrangheta. The Southern Italy-Balkan link, the link with Albanian organized crime, is the “Ndrangheta.

CD: Loretta, thanks very much for taking the time to speak with us.

LN: Thank you.

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