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Taking Hand-Outs or Going It Alone:Nationalization versus Privatization inthe Funding of Islamist Terrorist GroupsJoshua Alexander Geltzer aa Yale Law School , New Haven, CT, USAPublished online: 24 Jan 2011.

To cite this article: Joshua Alexander Geltzer (2011) Taking Hand-Outs or Going It Alone:Nationalization versus Privatization in the Funding of Islamist Terrorist Groups, Studies in Conflict &Terrorism, 34:2, 144-170, DOI: 10.1080/1057610X.2011.538833

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Studies in Conflict & Terrorism, 34:144–170, 2011Copyright © Taylor & Francis Group, LLCISSN: 1057-610X print / 1521-0731 onlineDOI: 10.1080/1057610X.2011.538833

Taking Hand-Outs or Going It Alone:Nationalization versus Privatization

in the Funding of Islamist Terrorist Groups

JOSHUA ALEXANDER GELTZER

Yale Law SchoolNew Haven, CT, USA

This article explores the consequences for the funding of Islamist terrorist groupsof nationalization, in the form of state sponsorship, versus privatization, in the formof autonomous financing. The article begins by examining the evolution in terroristgroups’ sources of funding from state sponsorship to autonomous activity, then turnsto the benefits and costs to terrorist groups of relying on state sponsors. The articlethen analyzes the benefits and costs of procuring funding autonomously. Finally, thearticle weighs those benefits and costs in relation to a terrorist group’s emphasis onenhancing its constituency versus pursuing its agenda. The article’s central conclusionis that nationalization tends to boost a terrorist group’s constituency while privatizationtends to bolster a group’s agenda. Determining which advantage takes priority dependson the relative importance to a given terrorist group at a particular time of enhancingits constituency versus advancing its agenda.

Terrorism’s Price Tag

The Cost of Killing

With human bodies packed together and hurtling along at precariously high speeds, modernforms of transportation provide tantalizing targets for terrorists. Otherwise minor explosionscan, in such crammed yet delicately balanced settings, prove destructive and deadly. Whilepursuing such vulnerable targets can be lethally efficient, doing so successfully is nevereasy—or free.

On 29 November 1987, a rather unusual pair of travelers—a 26-year-old female anda 70-year-old male—boarded Korean Air Flight 858 in Baghdad. By the time they left theflight during its stopover in Abu Dhabi, they had planted on the plane a time bomb thatwould explode over the Andaman Sea, killing all 115 people unfortunate enough to remainon board.1 Significant costs had gone into the operation, including expenditures for thebomb itself, airplane tickets, nights in different hotels, and fake Japanese passports that

Received 17 January 2010; accepted 16 May 2010.The author thanks Katherine Boone, Amy Chua, Joshua Mora, Jed Rubenfeld, Jonathan Wein-

berger, and the author’s parents, as well as two anonymous reviewers, for exceptionally supportiveand helpful feedback at various stages of this project.

Address correspondence to Dr. Joshua A. Geltzer, Yale Law School, 127 Wall St., New Haven,CT 06511, USA. E-mail: JGeltzer@gmail.com

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Taking Hand-Outs or Going It Alone 145

ultimately would fail the perpetrators.2 Affording such costs, however, posed no difficultyfor those carrying out the operation: Kim Il-Sung’s North Korean regime simply paid foreverything from the state’s coffers, directly providing the perpetrators with the necessarymaterials and funds.3

Just short of twenty years later, two bombs were discovered and disabled in centralLondon before they exploded. It is unclear whether the bombs were fully functional; re-gardless, strong fumes gave them away before any damage could be caused.4 A day later, aJeep carrying propane canisters crashed through the glass doors of Glasgow InternationalAirport’s central terminal, starting a small fire and causing minor injuries to five people.5

These relatively unsuccessful terrorist attacks nonetheless caused significant fear and dis-ruptions across the United Kingdom and beyond; only a few relatively minor elementskept the attacks from being far more destructive. While assembling the materials involvedand engaging in the necessary transportation were relatively cheap, some funds were, ofcourse, required. Those funds appear to have been paid for by the perpetrators themselves:not only was there no state providing the financing, there seems to have been no distinctterrorist group doing so, either. Although there are suspicions that some of the perpetratorswere linked to individuals associated with Al Qaeda in Mesopotamia, no evidence of anyactual meetings—or certainly of any active involvement—with a formal terrorist group hasemerged.6 These individuals appear to have been inspired by others, but then to have actedon their own.

These examples illustrate both ends of a spectrum of terrorist funding. In the firstinstance, a state directly undertook an act of terrorism, paying for every element of itwithout even the involvement of an intermediary such as a state-sponsored terrorist group.In the second case, a number of individuals collaborated in perpetrating acts of terrorism,raising the funds themselves with merely tangential links to any terrorist organization. Muchof today’s most worrying terrorism is perpetrated by terrorist groups—rather than statesor individuals—that fall between these poles; but such groups’ sources of funding havedistinctly evolved from resembling the former to mirroring the latter. That is, the funding ofterrorist groups—and, in particular, Islamist terrorist groups—has generally shifted fromstate sponsorship to autonomous financing.

Terrorism and the Debate Between Nationalization and Privatization

A central debate in the field of international business transactions concerns the relativebenefits and costs of nationalization versus privatization, including the benefits and costsof each arrangement for companies themselves.7 The conceptual framework underlyingthat debate can be applied with illuminating effect to terrorist groups and their quest forrobust, sustainable sources of funding. This article, focusing on Islamist terrorist groups inparticular, explores the consequences for the funding of terrorist groups of nationalization,in the form of state sponsorship, versus privatization, in the form of autonomous financing.

The article begins by exploring the general evolution in Islamist terrorist groups’sources of funding from state sponsorship to autonomous activity. While others have notedthe broad trend in terrorist group activity from state control to independent action, theyhave failed to specify a number of distinct and discrete models of terrorist sources offunding, in particular, that have emerged amid that evolution. Five such models are identi-fied and described here: state-sponsored; autonomous but territorially based; autonomousand transnational but centrally directed; autonomous and decentralized with seed money;and autonomous and decentralized with dispersed sources of funding. Just as biologicalevolution has produced new species while older ones continue to exist, this evolution in

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terrorist financing has generated new models over time even as all five models remain inexistence.

After examining that evolution and the models of terrorist funding that have emerged,the article turns to the benefits and costs to a terrorist group of relying on a state sponsorfor funding, ranging from the advantages of predictable and continuing financing and theobviation of peripheral and distracting activities, to the disadvantages of subservience and anincreased range of adversaries. The article then analyzes the benefits and costs of procuringfunding autonomously, through a terrorist group’s own activity, such as the advantages ofcomplete self-direction and potentially increasing assets and the disadvantages associatedwith the risk of criminal activity and the lack of a state defender. Finally, the articleconcludes that the benefits and costs of nationalization relate most directly to a terroristgroup’s constituency while the advantages and disadvantages of privatization implicatemost immediately a group’s agenda.

The article’s principal conclusion is that nationalization’s benefits and costs generallycenter on a terrorist group’s constituency, while privatization’s advantages and disadvan-tages relate most directly to a terrorist group’s agenda. Hence, a key insight is that na-tionalization generally boosts a terrorist group’s constituency while privatization typicallybolsters a group’s agenda. In turn, determining which set of advantages takes priority fora particular terrorist group at a particular time depends on the relative importance to thatgroup of enhancing its constituency versus promoting its agenda.

Rather unusually, but of critical importance, the perspective adopted for most of thisarticle is that of the terrorist group itself: from the group’s own perspective, what arethe tradeoffs involved in state sponsorship versus autonomous financing? To be sure,the subject is of importance in large part because of the lessons that can be applied tocounterterrorist efforts—but before any disease can be cured, it first must be diagnosed.Hence, this article concentrates on the diagnosis, exploring the consequences associatedwith different arrangements for terrorist group financing for such groups themselves, andleaves to future work the important task of exploring the counterterrorist implications—thecures—that derive from this fuller understanding.

The General Evolution in the Funding of Islamist Terrorist Groups: FromNationalization (State Sponsorship) to Privatization (Autonomous Financing)

A number of authors have categorized in various ways the evolution in terrorist groups,both generally8 and with respect to terrorist finances in particular.9 Indeed, the latter cate-gorization aptly notes a “Privatization of Terror” and describes “the evolution of politicalviolence during the last half-century: from state-sponsored terrorism to the privatizationof terror and the birth of state-shells.”10 However, no source has specified in detail theparticular models of Islamist terrorist group funding that have emerged in the course ofthis evolution toward privatization, especially those models that have moved past the state-shell arrangement. Such models provide the focus of this discussion, which lays out fivefinancing arrangements that demarcate various places on the spectrum from nationalizationto privatization in the funding of Islamist terrorist groups. These models are not meant toindicate the only points along that spectrum that are conceivable or even that have beenrealized, but instead are intended merely to denote some particularly important forms thatterrorist funding has taken in its general but distinct trajectory from state sponsorship toautonomous financing.

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Taking Hand-Outs or Going It Alone 147

Model 1: State-Sponsored

First is the model most closely resembling pure state terrorism as exemplified by NorthKorea’s downing of Korean Air Flight 858: namely, state sponsorship of terrorist groups.Hezbollah, especially at its inception in the mid-1980s, epitomized such an arrangement,as Hezbollah was an entity overwhelmingly sponsored by the Iranian regime of AyatollahKhomeini, who was deemed by the group its highest clerical authority.11 While Hezbol-lah and its financing certainly evolved in the ensuing years, in its formative phase thegroup is believed to have received ninety percent of its funding from the regime in Tehran,making the group essentially an outgrowth of the Iranian Government—especially in fi-nancial terms.12 “In many ways, . . . Hizballah represents the acme of a state-sponsoredgroup. . . .”13

Much as if Hezbollah were a terrorist branch of the Iranian armed forces, and indeedcoordinating the activities of the group with those of Iran’s Revolutionary Guard, the regimein Tehran laid Hezbollah’s foundations and gave the group strategic direction.14 In what “isperhaps the strongest and most effective relationship between a state sponsor and a terroristgroup in history,” the ruling regime of “Iran helped found, organize, and train Hizballah,”providing “direct military support, training, financial backing, organizational aid, and nu-merous other forms of assistance.”15 In turn, “Hizballah has served Iran loyally, strikingIran’s various foreign enemies, helping assassinate Iranian dissidents, and otherwise advanc-ing the interests of the Islamic Republic.”16 With its funding coming directly from Tehran,Hezbollah initially raised few funds of its own.17 Instead, the group demonstrated a modelof terrorist financing in which state sponsorship directly meets a terrorist group’s budgetaryrequirements.

Model 2: Autonomous but Territorially Based

A second model moves from state sponsorship toward autonomy but retains the territorialbasis characteristic of a state itself. This version has been called “the state-shell model,”in that the terrorist group establishes the basic elements—or shell—of a state in a geo-graphical territory over which the group exerts significant control.18 Hamas’s trajectoryfrom challenging the Palestine Liberation Organization for control over the Gaza Strip andthe West Bank to actually controlling Gaza demonstrates the key aspects of this model.While Hamas initially depended on funds provided by the governments of Saudi Ara-bia, Iran, and other states, it has moved significantly toward autonomous but territoriallybased funding sources of its own.19 Many of those sources have been charities, whosedonors have sought to support the social and political services that Hamas provides inits territorial ambit as well as to bolster Hamas’s often violent challenges to the Israelistate.20

As Hamas’s territorial control has deepened through violence as well as through elec-toral success, the amount of the group’s funding and the breadth of its funding sources havesoared, with funds now being generated by Palestinian expatriates, private donors world-wide, and a global network of charities.21 Criminal enterprises, including many operatingon American soil, have proven exceedingly profitable.22 Moreover, holding companies likeBeit-el-Mal Holdings have produced significant profits through investments in projects suchas the Al-Aqsa International Bank.23 While such companies are periodically shut down byvarious foreign and international counterterrorist authorities, new revenue-generating en-tities consistently emerge in their stead.24 As long as Hamas is able to maintain credibleterritorial control and provide state-like services while establishing state-like protection

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over the group’s own activities, Hamas will likely prove able to supplement whateverfunds it continues to receive from states with enormous funding sources of its own, thusperpetuating its state-shell arrangements.

Model 3: Autonomous and Transnational but Centrally Directed

A third model shares the autonomy that now appears to characterize a group like Hamasbut lacks territorial control. Instead, such a model of terrorist funding is transnational butremains centrally directed. Al Qaeda operated in this manner for a number of its mostsuccessful and deadly attacks. As the group emerged, it possessed neither loyalties to anyparticular state nor a particular geography over which it exerted control. While connectedin various ways to elements within the governments of Pakistan, Saudi Arabia, and othercountries, and while physically based for periods of time in certain geographical areas—firstSudan, then Afghanistan—the group neither was an extension of any particular regime norlaid claim to territorial control over any particular area, instead actually supporting theSudanese regime and the Taliban rather than being supported by those regimes: that is,contrary to the popular conception, Al Qaeda was sponsoring state regimes rather thanbeing state-sponsored.25 The group was distinctly transnational, consisting of individualsof different nationalities, operating from territories belonging to different countries, andcarrying out attacks in different states around the world.26

Nonetheless, and despite its global dispersal, the group maintained a centrally directedhierarchy through which funding was generated, channeled, and distributed. Drawing some-what on Osama bin Laden’s personal wealth but far more on sizable donations from withinSaudi Arabia and elsewhere, Al Qaeda raised significant funds, which were administered bythe group’s Money and Business Committee.27 In turn, operations had to receive centralizedapproval before they were funded.28 For example, the lead planner of the 11 Septemberoperation, Khalid Sheikh Mohammed, presented an initial proposal for 9/11 to bin Laden,who demanded a refining and scaling down of Mohammed’s plan before allocating fundsto it.29 Al Qaeda’s centralized hierarchy continued to exercise control over the operation’sfunding, with Mohammed himself periodically dispensing funds to the group’s operatives.30

Hence, while remaining financially independent of any government or territorial base, AlQaeda centrally directed the procurement and distribution of funding that enabled its attackon 9/11.

Model 4: Autonomous and Decentralized with Seed Money

Increasingly, however, Al Qaeda’s operations have come to resemble a fourth model ofterrorist funding, in which terrorist groups are autonomous and decentralized, dispens-ing “seed money” to cells that must then accommodate their fuller funding requirementsindependently.31 In this arrangement, funding is centralized only initially, with the grantingto cells of preliminary funds—“a cash lump sum to get them started”—as well as approvaland some element of direction from the main terrorist group itself.32 Thereafter, the cellsmust sustain themselves on their own: they receive “seed money from their sponsors to setup shop in other countries; they are otherwise expected to ‘live off the land’ in providingfor themselves.”33

An early instance of Al Qaeda adopting this approach—perhaps in part out of adaptivenecessity—was the so-called Millennium bomber, Ahmed Ressam. In 1998, Al Qaedagave Ressam $12,000, then dispatched him from Afghanistan to strike on American soilon or around 1 January 2000. Having entered Canada, Ressam realized that his fellow

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operatives would not be able to secure the necessary travel documents to join him; whetherAl Qaeda originally intended for them to bring with them additional funds is unclear,although presumably the group did not so intend, as its leadership could have sent moremoney to Ressam much as Al Qaeda sent periodic funds to the 9/11 hijackers. Regardless,Ressam used his seed money to get to Canada and begin the operation, then—operatingin a decentralized manner independent of Al Qaeda’s core in Afghanistan—engaged inpetty crime to sustain himself and to acquire the materials needed to finish his bomb, evengetting himself arrested four times for thievery.34 While Ressam eventually was stopped atthe American border by an alert customs officer, Ressam’s financing arrangement served asa harbinger of a new model for Al Qaeda’s funding of terrorist attacks—one that appears tohave been repeated in the October 2002 attack by Al Qaeda’s affiliate, Jemaah Islamiyah (JI),in Bali. In that instance, it seems that bin Laden’s core organization provided much of thefunding to an operation that was not centrally directed, but that other supplementary sourcesalso were necessary to complete the operation.35 In particular, jewelry store robberies byJI netting over five pounds of gold turned Al Qaeda’s original seed money into fundssufficient to mount a major and devastating attack.36 Similarly, Algeria’s revived and AlQaeda–affiliated Global Salafist Group for Preaching and Combat (GSPC) “received seedmoney from al Qaeda” before launching deadly terrorist attacks financed in full by further,independent fund-raising.37 While a survivalist response may have played a role in theemergence of this financial model, in broad strategic terms it was long in the making,with strategists like Abu Musab al-Suri calling for decentralization to replace the morevulnerable hierarchical model.38

Model 5: Autonomous and Decentralized with Dispersed Sources of Funding

Finally, a fifth model of terrorist funding has emerged that also involves an autonomous anddecentralized terrorist group but eliminates the initial grant of seed money entirely, insteaddemanding that cells match their decentralized functioning with decentralized funding. Inother words, a terrorist group offers a broad framework for action and endorses particularattacks, but leaves the implementation of such attacks—including their funding—to cellsacting largely autonomously of the group’s core. In financial terms, such an arrangementmarks the zenith of al-Suri’s strategic vision of decentralization mentioned above.

Al Qaeda has moved in this direction as well, particularly in its March 2004 bombingsin Madrid. The core group, presumably then based in northwest Pakistan, had little directconnection to the attack, playing a role mainly by inspiring the perpetrators and motivatingthem with a specific call for targeting Spain before its general election.39 It seems that noevidence has emerged that any funds passed from the central terrorist group itself to thoseacting in its name.40 To the contrary, one of the two lead planners was a wealthy drugdealer who raised funds for the operation through the trafficking of drugs,41 in particularhashish and ecstasy.42 While one report suggests that as early as 1999 “many of al-Qaeda’scells were virtually self-sufficient,”43 certainly with the Madrid attack in 2004, the increas-ing decentralization characterizing most of Al Qaeda’s operations had spread to the veryfinancing of those operations, as well.44

Summary

Hence, for Islamist terrorist groups, a spectrum of funding arrangements has emerged, fromstate-sponsored (such as Hezbollah, especially in its initial incarnation), to autonomous butterritorially based (such as Hamas today), to autonomous and transnational but centrally

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directed (such as 9/11-era Al Qaeda), to autonomous and decentralized with seed money(such as Bali-era Al Qaeda), to autonomous and decentralized with dispersed sources offunding (such as Madrid-era Al Qaeda). To be sure, neither a strict chronology nor adirect evolutionary chain is being claimed: these manifestations have overlapped and, in alllikelihood, will continue to overlap. But, in the wake of international changes stemminglargely from the end of the Cold War and the resulting diminution of states’ willingnessto sponsor terrorism for the sake of leverage against their rivals,45 a tendency emerged inwhich Islamist terrorist groups have departed from the state-sponsored model and movedtoward ever more autonomous and decentralized arrangements for securing funding. Asterrorism-sponsoring “state entities have diminished in significance in recent years, . . .

terrorist finances have had to be derived from sources other than state budgets.”46 Inparticular, “[s]ince September 11, Islamist armed groups across the world have successfullydeveloped several techniques to self-finance themselves, and no longer have to rely uponthe funding of al-Qaeda.”47 Doing so carries with it certain benefits—and certain costs.

The Benefits and Costs of Nationalization

In the context of business entities, much has been written weighing the benefits and costs ofnationalization—there meaning state ownership—versus privatization—there meaning pri-vate ownership. Although much of that literature focuses on the benefit to the state (meaningthe government and/or the public) of each arrangement, some analyses have adopted theperspective of the companies themselves, and evaluated the advantages and disadvantagesto them of nationalization versus privatization. Economists, especially Western economists,have tended to favor privatization over nationalization except in limited contexts, but theliterature reveals advantages and disadvantages potentially associated with each economicarrangement.

In brief, nationalization carries with it benefits for companies that include economiesof scale, favorable antitrust policies, the involvement of employees in managerial decisionmaking, potential for government intervention and even rescue, the focused mission andgood will generated by the perceived provision of public services, pricing that takes intoaccount socially marginal costs, government monitoring, and, depending on the account,allocative or productive efficiency.48 At the same time, nationalization also imposes distinctcosts on companies, such as a lack of incentives due to insulation from competition, thepersistence of losing businesses or components thereof, poor provision of services, the inef-ficient influence of special interests and lobbyists, outright corruption, weak management,excessive employment, and poor choices of product and location.49

In contrast, privatization’s advantages to companies include productivity gains, man-agerial efficiency and effectiveness, enhanced labor productivity, effective shareholder over-sight, the incentives generated by competition, decreased prices, foreign investment andother influxes of capital, the encouragement of employee ownership, and, depending on theaccount, allocative or productive efficiency—overall resulting in increased profitability.50

However, privatization also involves disadvantages to business entities such as the sub-servience of quality to profit margin, the instability associated with responding to com-petition, the failure to provide unprofitable but socially desirable services, a loss of jobsand lower wages due to streamlined management, potentially unpopular foreign ownership,increased prices in the absence of subsidization, and the empowerment of suddenly richand potentially corrupt private owners.51

As governments and companies, as well as those who study them, continue to weighthese benefits and costs associated with nationalization versus privatization, the framework

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of that debate can be applied to terrorist group financing, though the associated advantagesand disadvantages are, of course, rather different from those characterizing the businesscontext. A number of those differences will emerge throughout the ensuing analysis, but oneoverriding distinction should be made clear at the outset: firms pursue profit, while terroristgroups pursue political objectives. In turn, firms adopt financial arrangements intended tomaximize their profits, while terrorist groups employ financial arrangements designed tofacilitate their violent approach to a political agenda. To the extent that the means adoptedin such pursuits are constrained, they may be limited in the case of companies by ethicalconsiderations (even if not in all instances), while terrorist groups may limit their choicesbased on ideological considerations—as will be seen below.

For a terrorist group, nationalization in the form of state sponsorship carries with itan array of significant benefits and costs. This section explores a number of such benefits,and then turns to the most prominent corresponding costs. The central benefits of statesponsorship include reliable funding, the obviation of peripheral, non-terrorist activities,and the protections associated with a state defender.

Benefits of Nationalization

Perhaps the most obvious financial benefit to a terrorist group of having a state sponsor isenjoying a source of predictable, consistent funding. While it is, of course, always possiblethat a particular regime will be toppled or will suddenly change direction away fromsupporting terrorism, in general the presence of a state sponsor provides a terrorist groupwith the relative certainty of a steady stream of funding. Such predictability and constancypermit the planning not just of major terrorist attacks but also of a longer-term strategy inwhich individual attacks are designed to pursue steadily the group’s ultimate objectives.Indeed, much as for companies nationalization can provide government-backed insulationfrom the waxing and waning of profits, for terrorist groups nationalization in the form ofstate sponsorship can ensure that funding remains available even when such groups wouldhave difficulty generating finances on their own. “Operatives who are not scrounging for aliving are able to devote themselves to training and planning operations.”52

Hence, Hezbollah’s early years involved a focus on terrorist activity rather than financialarrangements, with the latter being handled by the group’s sponsors in Tehran. As a result,Hezbollah was able to move from being a relatively minor player in the political chaos ofLebanon to assuming a prominent role as a regional and international actor. Within justa few years, Hezbollah was fielding five thousand armed fighters who could challengethe security of Israeli forces in Lebanon.53 Moreover, Hezbollah soon extended its reach toWestern peacekeepers as well, killing 63 people at the American Embassy in Beirut in April1983 and, six months later, simultaneously killing 241 American Marines and 58 Frenchpeacekeepers.54 Thanks in no small part to consistent, dependable, and plentiful fundingfrom Iran, Hezbollah was suddenly a major international actor.55 Amidst an intense set ofrivalries in Lebanon and across the Middle East, Hezbollah’s leaders “took advantage ofIran’s . . . financial support . . . to care for the families of their fighters and build networksthat enabled them to outpace their rivals and emerge as dominant” among them.56 In general,state sponsorship can provide even the newest of terrorist groups “with investment profilesand bulging balance sheets.”57

In addition to enjoying a steady source of funding, a terrorist group whose financing isnationalized through state sponsorship need not engage in fund-raising activities that wouldbe peripheral to, and diversionary from, the group’s true raison d’etre: the pursuit of politicalobjectives through violence. Terrorist groups fundamentally are political, not economic,

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entities: “Greed is the motor of crime. Armed groups, on the other hand, are motivatedby politics. Their ultimate aim is not monetary, it is political.”58 In turn, a nationalizedarrangement permits a terrorist group to remain a purely—or at least primarily—politicalactor, rather than being forced to become an economic one, as well: “While in the statesponsorship model, money originates from foreign states . . . , in the privatization modelfunds are raised primarily via criminal activities, such as extortion and kidnapping, and goto sustain the group and its armed struggle.”59 This advantage of nationalization benefitsa terrorist group in a manner without a direct corollary for a company: while the latteris inherently engaged in financial calculations and activities, a terrorist group need notbe, if it can live off funds supplied by a state sponsor.60 Such a terrorist group can avoidbeing distracted by—and being pursued by legal authorities for—criminal activities suchas kidnapping, fraud, smuggling, and so on. The group also can avoid the distracting andrisky task of establishing charitable front organizations in order to raise funds.

An example of such an arrangement supporting Islamist terrorism can be found in thePalestinian Islamic Jihad (PIJ). Lesser known than other Palestinian terrorist organizations,PIJ has proven just as deadly, carrying out numerous lethal suicide bombings in Israelduring the Second Intifada.61 Part of the reason that PIJ has been able to maintain a lowerprofile—and thus escape intense scrutiny and countermeasures by Western authorities—isthat its activities appear almost uniformly directed toward terrorism, rather than involv-ing fund-raising and other efforts. With a base of operations in Damascus and apparentlycontinuous, reliable funding from the Syrian and Iranian regimes, PIJ can focus overwhelm-ingly on terrorism rather than on financing.62 Unlike Hamas or Hezbollah, both of whichtoday supplement their Syrian and Iranian backing with fund-raising of their own, PIJ hasleft behind little evidence of such privatized financial activity, adhering more strictly to anationalized model.63 In the words of the group’s own Secretary-General, “The PalestinianIslamic Jihad . . . is a fruit from the bountiful tree of the leader Khomeini.”64 Maintainingnationalized fund-raising has allowed PIJ to avoid the risky trails and exposure associatedwith terrorist groups’ peripheral involvement in fund-raising.

A fourth advantage to a terrorist group of enjoying state-sponsored funding redoundsto the group’s benefit in more than just financial terms. In such a nationalized arrangement,the terrorist group effectively finds itself with a state protector and defender that seeksto guard its investments in the group and that is loathe to see global rivals diminish thepotency of what amounts to an extension of the state. Hence, as counterterrorist governmentsattempt to crack down on a terrorist group financially but also otherwise—through the useof force, in the battle for public opinion, and so on—the group is likely to find the stateon whose funding it relies willing and probably eager to offer support and defense, muchas a nationalized corporation often can reply on its supporting government to bolster thecorporation against competitors, especially foreign ones. In general, “terrorists enjoyingstate support are far less vulnerable to their target regime’s countermeasures. The victimstate is less able to deal a knockout blow to the terrorist group, disrupt its logistics, discreditits cause, or otherwise defeat it.”65

Such state support on the part of the Iranian regime has helped to shelter Hezbollahfrom the increasingly aggressive counterterrorist measures pursued by Israel, America, andothers. Indeed, even though, as previously mentioned, Hezbollah has moved beyond themodel of pure state sponsorship and today engages in massive fund-raising efforts of itsown,66 its enduring connections to the Iranian regime continue to pay off in Tehran’s con-sistent, sometimes even proactive efforts to thwart its rivals in Jerusalem and Washington.While, as will be seen, counterterrorist efforts to pursue and disrupt autonomously fundedterrorist groups such as Al Qaeda by no means have proven easy, Israel and America have

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encountered rather different obstacles in trying to target Hezbollah’s funds and operations:“Iran’s sponsorship greatly hindered the efforts of Israel and other governments to fightHizballah.”67 In addition to benefiting from refusals by Iran and others to freeze the group’sassets,68 Hezbollah is consistently replenished with weapons from Iran; its members cantake ready refuge there; and the intelligence operations targeting the group often face Iranianinterference.69 As one expert on the group notes, “[W]ithout Iran’s political, financial andlogistical support, [Hizballah’s] military capability and organisational [sic] developmentwould have been greatly retarded.”70 While Iran’s reasons for continuing to support Hezbol-lah in the face of Israeli and American pressure are manifold, Tehran’s desire to protectits massive investment in the group through its nationalized source of the group’s fundingsurely acts as one important impetus.

Costs of Nationalization

While nationalization in the form of state sponsorship offers certain benefits to an Islamistterrorist group, a nationalized arrangement also brings with it distinct costs. These costsinclude subservience to a state, unavoidable linkages to the fate of a particular regime, andpotentially greater ease for counterterrorist authorities.

One disadvantage of state sponsorship is subservience: a sponsored group is largely atthe mercy of whichever regime holds its purse strings, thus greatly restricting the group’sfreedom to select and pursue its own objectives, strategy, and tactics. While the initialsupport of a state sponsor may have obvious benefits, remaining beholden to that sponsorcan quickly restrict a terrorist group’s freedom to pursue particular objectives, adopt adesired strategy, or employ certain tactics. Such costs to terrorist groups are akin to majordisadvantages for companies of nationalization, in that their freedom to act in ways intendedsolely to increase profits are limited by the non-market goals of a government such asproviding needed services to its population and maintaining the government’s popularity.Terrorists generally face “limits on their activities as a result of state support,” and thatsupport “often forces the group to restrain its activities to accord with the interests of thesponsoring state.”71

To whatever extent Hezbollah has sought to chart its own path as an internationalactor, the group has been constrained by its continuing—even if diminishing—financialdependence on state sponsors. Hezbollah consistently has continued “taking its orders fromIran,”72 whose funding remains a cornerstone of the group’s capacity to operate.73 While byno means utterly in conflict, Iran’s primary intentions for Hezbollah and the group’s ownaspirations appear to be diverging. For Iran, the priority remains intimidating, attacking, andweakening Israel, now Iran’s most formidable regional foe; indeed, Tehran has been specificin ensuring that its funding of Hezbollah is directed foremost toward that objective.74

For Hezbollah, however, increasing its share in the Lebanese government—and, in turn,enhancing the group’s international legitimacy—has become ever more important duringthe sustained periods in which Israel has no ongoing military operations in Lebanon.75

Progress on that front demands greater attention to, and investment in, the social servicesthat have garnered Hezbollah such popularity.76 Already, “Hizballah’s increasing role inLebanese politics has led it to move away from its fierce loyalty to Iran.”77 It is easy toforesee a future in which the tension between Iran’s desires for Hezbollah and the group’sown ambitions increases, at which point the existing disadvantage of relying, even partially,on a state sponsor for funding will become even more problematic for Hezbollah.

Not only is a terrorist group with nationalized finances forced to take orders fromits state sponsor, but the group’s fate is largely tied to that of the regime, as well. For

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example, if economic sanctions are imposed on the regime, whether because of its supportfor terrorism or for other reasons, the group’s funding will likely suffer as a result. Moreimportantly, should the regime be targeted by other countries or overthrown from within,the terrorist group is likely to find itself without funding sources. Indeed, even without theregime being thus targeted, a terrorist group can share the fate of its sponsor in the form ofan increased range of adversaries: those governments that might not otherwise be concernedwith the group itself might attempt to counter the group’s activities as a way of exertingpressure against the group’s state sponsor. The strategic but unprofitable manipulation ofnationalized companies for the sake of broader national interests provides an analogue inthe realm of corporate behavior.

Some have suggested that this motivation—of vicariously confronting a statesponsor—contributed significantly to Israel’s targeting of Hezbollah in the war that brokeout in Israel and Lebanon during August and September 2006. While Israel certainly soughtto degrade Hezbollah’s own capacity and to retaliate for the group’s launching of rocketsinto Israel and kidnapping and killing of Israeli soldiers, Israel seems to have sought to usethe conflict with Hezbollah as an opportunity to roll back Iran’s increasing influence in theMiddle East in the wake of America’s difficulties in Iraq and with Iran more broadly. Hence,one commentator writes that a primary objective of Israel in the conflict was to “weakenIran in any upcoming showdown.”78 Another deemed the engagement “the start of a newwar between Israel and Iran,” emphasizing the role of Iranian ambitions and concerns thatcontributed to Hezbollah finding itself in surprisingly direct and open conflict with Israel.79

To the extent that “Hezbollah . . . suffered tactical and political losses,”80 the group owedsuch setbacks in significant part to its continuing partial financial dependence on Iran, areliance that ties the group’s fate to that of the regime in Tehran. This liability would, ofcourse, only become exacerbated should Iran’s foes target the regime more vigorously, asthey would likely target Hezbollah as well—and should the regime either fall or opt out ofsponsoring terrorism, the group might find itself in difficult financial straits indeed. Hence,while in some circumstances state sponsorship can increase a terrorist group’s security, inother scenarios such patronage can leave the group in greater danger than it would otherwisefind itself on its own.

A third cost to a terrorist group of state-sponsored funding is the potential for greaterease in cutting off the group’s finances. A counterterrorist government can focus its effortson the sponsor providing such finances, and if that sponsor proves susceptible to anyof various potential sources of pressure, the vulnerability of the group’s funding will berevealed. Moreover, should the state sponsor itself choose independently to cut off thegroup’s funding, that sponsor clearly will know exactly how to do so—and how to attackthe group further should the regime so desire. And “[s]ponsors are notoriously fickle,”meaning that “a state may crack down on the terrorist group it once supported, effectivelyturning a haven into a prison.”81 A rough comparison in the corporate field involves theuncertainties associated with whether backing for a nationalized company will continueshould its supporting regime (or even just political party) become unstable or fall.

While countries opposed to Hezbollah have struggled to sap the group’s plentiful fi-nancing, such countries at least know where the road to doing so lies—namely, throughTehran. As it already has tried to do, Washington “can use its voice and its vote in interna-tional financial organizations to prevent any financial aid to countries that support terrorism.It can also take more action to censure countries that are known to fund” terrorism, as wellas to target “other entities that do business with these countries.”82 And, in its most extremeform, such action against state sponsors can include “the wholesale removal of oppressiveregimes” that provide funding for terrorist groups.83 To be sure, none of these methods has

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proven entirely easy or effective with respect to Hezbollah. But at least such efforts have adistinct, definite, and single focus. Moreover, should Tehran itself ever decide to jettison itssupport for terrorism, perhaps in return for greater integration into the international com-munity, Hezbollah would clearly find itself facing a budget shortage—and should Tehrandecide actively to undermine the group, its vulnerabilities would be well known and quicklytargeted.

The Benefits and Costs of Privatization

While nationalization has an array of distinct advantages and disadvantages for terroristfunding, so, too, does privatization. In many—but not all—respects, the major benefitsof privatization reflect the dominant costs of nationalization, and the primary costs ofprivatization are the most significant benefits of nationalization. Exploring the benefits andcosts of privatization on their own terms, supported by concrete examples, will reveal howthe privatized arrangement of autonomous fund-raising actually affects terrorist groups. Theadvantages of such an arrangement include complete self-direction, a potentially increasingbudget, the avoidance of sharing the fate of any particular regime, the increased difficultiescaused for counterterrorism, and, in the most extreme of privatized models, the eliminationof the need to move funds.

Benefits of Privatization

Perhaps most importantly, the financial freedom provided by privatized funding carries withit strategic and operational freedom. A terrorist group that is financially independent needneither answer to a particular regime nor do its bidding. As a consequence, the group canpursue its own objectives in its own desired manner, dictating its own strategy and tactics.With control over its own purse strings, a group has control over its own terrorist activities,as well—much as a privatized corporation can behave entirely as a market actor, makingthe decisions deemed most conducive to increasing profit.

Epitomizing such an autonomous approach since the group’s inception has been AlQaeda. “Having developed multiple sources of support, [Al Qaeda] is free from the controlof any government and able on its own to maintain the organizational infrastructure,communications systems, training programs, and operations.”84 Bin Laden himself hastaken public pride in the group’s autonomy from state control. In a 1998 interview, he stated,“Some countries who are on our side and have possessions and funds have . . . ordered us tostop attacking America, but we believe that these attacks are a duty incumbent upon us, as ismotivating our umma.”85 As bin Laden’s words suggest, even countries that have supportedAl Qaeda and have been capable of offering it significant resources have not been able toexert leverage over the group, which has maintained its strategic and operational freedom bymaintaining its financial freedom. While Al Qaeda certainly selects the targets for its attacksstrategically, perhaps intentionally avoiding financially vital countries like the United ArabEmirates so as not to spur greater scrutiny of the group’s monetary transactions,86 the grouphas remained free to pursue its own agenda on its own terms, unbound from the state-imposed restrictions that accompany the nationalization of a terrorist group’s funding:“Unlike state-sponsored terrorist groups, al Qaeda is financially robust. Having developedmultiple sources of support, it is free from the control of any government.”87 Indeed, arobustly self-financed terrorist group has such freedom that it can choose to act much likea state sponsor itself toward other terrorist groups, just as Al Qaeda has done in “findinglocal partners by offering training facilities, military expertise, and financial support.”88

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Not only does privatized funding enable a terrorist group to enjoy self-direction evento the point of resembling a state sponsor, but it also allows a terrorist group, like anysuccessfully financed private venture, to see its budget grow in light of its own success.While depending on a state sponsor limits a terrorist group’s operating budget to whateverresources that state is willing to provide, privatized fund-raising means that a terroristgroup can raise as much money as it can, and then reap the benefits in the form of increasedterrorist activity. Much as a major argument for the privatization of companies is thatprivate enterprises tend to generate greater profits, so, too, in the world of terrorist groupscan privatization mean an enhanced cash flow.

Al Qaeda has reaped precisely such benefits in each increasingly privatized arrange-ment that the group has adopted. The group’s success at accomplishing its own fund-raisingis nothing short of astounding. “Bin Laden’s al-Qaeda organisation [sic] became the mostformidable of its kind” as bin Laden “broadened and deepened his sources of finance.”89

With such deep pockets, “[w]hen it came to funding the September 11 attack, moneyappeared to be no object, particularly in the months leading up to the hijackings.”90 AlQaeda’s sources of funding blossomed to the point where financing, often a vulnerabilityfor terrorist groups, became one of Al Qaeda’s most reliable assets: even after America re-sponded to 9/11 with aggressive counterterrorist measures, “al-Qaeda was able to reboundbecause its ‘financial network has survived largely intact.”’91 Not only does the privatizedmodel, if successful, produce steadily increasing sums for terrorist groups to spend on theirattacks, but privatization also leaves terrorist groups insulated from the financial problemsthat might affect a state sponsor and, in turn, might limit how much that sponsor would bewilling to allot to terrorist groups.

Along the lines of such insulation, another advantage of eschewing state sponsorship infavor of privatized fund-raising is that a terrorist group’s fate is not tied to that of a particularregime, much as a privatized corporation is generally insulated from the vicissitudes of anyparticular government. While all regimes are, at least in theory, potentially fallible, regimesactively sponsoring terrorism are especially fallible, for two reasons. First, countries targetedby acts of terrorism are likely to retaliate against the state sponsoring such violence. Second,any state sponsoring terrorism is probably a revisionist state that seeks to alter the existinginternational order, an ambition almost certain to draw the ire of status quo states withinterests in preserving that order.92 Hence, state sponsors of terrorism are particularlyshaky foundations for terrorist groups seeking sustainable funding. Moreover, even if aregime is not actually toppled, it might simply cut off its funding for terrorism for any of awhole host of reasons.

Al Qaeda’s formative years demonstrate the value of a group being able to survive thevicissitudes associated with state sponsorship. The origins of the group and its “financialnetwork” lie in the mujahedin who were funded and supported by Pakistan, Saudi Arabia,and the United States and sent into Afghanistan to fight the Soviets there.93 After theSoviet Union’s withdrawal from Afghanistan, support for the mujahedin vanished, with thepreviously supportive governments looking to reap the so-called peace dividend associatedwith the Cold War’s ending. Had such individuals had no further recourse for financing,their mission might have ended there. Yet, thanks to the independent sources of fundingthat bin Laden and others had long and carefully cultivated, alternative financing existed,and certain of the mujahedin were organized into the initial ranks of Al Qaeda.94 Witha privatized source of independent funding rather than dependence on Pakistani, Saudi,and American sponsors, Al Qaeda emerged and flourished despite the abrupt dwindling ofpreviously state-provided funds.

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A third benefit of privatized financing for terrorist groups is the difficulty, for thosepursuing counterterrorism, to crack down on funding sources not tied to a single country,diversified in nature, and spread around the world. As noted earlier, to inhibit funding for astate-sponsored terrorist group is by no means easy, but at least such efforts have a naturaland confined direction, namely that of the particular government (or governments) financ-ing the group. For a privatized group, however, funding does not emerge from any single,similarly confined center of gravity. To the contrary, multiple jurisdictions are involved,making efforts to thwart such funding extremely difficult and dependent on the cooperationof many countries and international organizations. In this regard there seems to be no directcomparison to the corporate sphere, in which companies are generally only “countered,”so to speak, in the form of market competition. Nonetheless, a generalized analogue can befound in a company offering a diversified array of products, something more common toprivatized, profit-hungry firms: any competitor seeking to edge a diversified company outof the market will find it particularly tough to dislodge, as a diversified company can com-pensate for diminishing returns from a single product line with revenues from other lines.

America and its allies have experienced precisely this complicated and frustratingarrangement in their post-9/11 efforts to attack the sources of Al Qaeda’s funding, whichare “decentralized, compartmentalized, flexible, and diverse. . . .”95 As a Council on ForeignRelations study noted, “Al-Qaeda differs from traditional, state-sponsored terrorist groupsin one critical way: it is financially robust . . . Al-Qaeda’s financial network continuesto support the organization today, even after being driven from its Afghan base, andallows it to maintain its capacity to attack Americans at home and abroad.”96 BecauseAl Qaeda “raises money from a variety of sources and moves money in a variety ofmanners” “in virtually every corner of the world,” cutting off the flow of that moneyhas proven extremely difficult.97 For counterterrorist officials to interfere successfully andsustainably with voluntary donations to ostensible charities, legitimate business operations,criminal activities, and other sources of Al Qaeda’s finances is a formidable, uphill battle.98

Moreover, for such officials to restrict in a meaningful way Al Qaeda’s movement of fundsthrough formal banks, the hawala underground banking system, smuggling, and othermeans poses a still greater challenge.99 Success requires not just extraordinary interagencycooperation within the U.S. government100 but also close cooperation with other countries,whose support has been unsteady at times.101 Thanks in large part to its privatized financialarrangement, Al Qaeda has proven not an impervious target102 but certainly a very difficultone for counterterrorist officials seeking to disrupt the group’s funding.103

Another advantage stemming from privatization in its most extreme forms is thatprivatization eliminates one of the foremost difficulties for terrorist financing, namely themovement and dispersal of funds once they have been generated. Such transfers of cashrequire elaborate and risky arrangements such as shell banks, shell companies, conversioninto money orders, hawalas, and, of course, straightforward physical smuggling acrossborders.104 When cells are able to raise most or all of their own funds, they eliminate the needfor risky transactions involving the transfer of funds from a central organization to its variouscomponents. Again, this benefit of privatization lacks any direct analogue for companies.However, a rough comparison is a large multinational corporation’s reinvestment in asubsidiary of funds earned locally by that subsidiary itself, thus obviating the movement offunds back to the parent company and avoiding any associated legal issues, especially taxes.

JI’s attack on Bali and Al Qaeda’s attack in Madrid demonstrate how the otherwisedifficult and dangerous task of moving funds can be eliminated partially or entirely whencells generate most or all of their own funds. When those funds are relatively small in thefirst place, and then need not pass through the financial system, they “are likely to prove

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very hard to detect prior to a terrorist attack.”105 Especially in the case of a cell like the onethat targeted Madrid, “such terrorist self-funders are unlikely to leave discernible terroristfinance trails to follow prior to their carrying out an act of terrorism.”106 In the case of theMadrid attack, no such trail appears to have existed, thanks to the extreme decentralizationand privatization of Al Qaeda’s financing.107 Such a model for terrorist funding bypassesthe otherwise difficult task of transferring funds, many of which must be laundered todisguise their criminal heritage, and thus also by-passes the enforcement regimes designedto oversee such transactions.108

Costs of Privatization

For all its benefits to terrorist groups, the privatization of funding has its costs. Such costsinclude the waxing and waning of funding, the additional risks of exposure associated withfund-raising in several areas, the absence of a state defender, and the loss of support fromthose who might support a terrorist group’s cause but oppose its involvement in criminalactivity.

First, autonomous funding lacks the consistency and reliability of state sponsorship.Much as a privatized corporation lacks the financial shelter provided by government stew-ardship and must survive on its own in the face of market competition, an autonomouslyfinanced terrorist group cannot persist based on handouts from a state sponsor and mustensure that its cash flow remains steady and plentiful based solely on the group’s ownefforts. Such self-financing is likely to involve spikes and falls in financing as a terroristgroup’s fund-raising efforts meet sometimes greater and sometimes lesser success, depend-ing on the group’s popularity, its capacity to fund-raise in the face of contrary efforts bycounterterrorist governments, possible competing efforts by other terrorist groups, and thefinancial circumstances of those from whom the funds must be raised, among other factors.

A scholarly attempt at modeling the finances of the aforementioned Al Qaeda–affiliatedGSPC revealed precisely such fluctuations and vulnerabilities.109 As previously mentioned,the GSPC fits the fourth model mentioned earlier, in which the initial investment from AlQaeda of seed money must be made sustainable through the GSPC’s own fund-raising.Modeling such efforts reveals potential difficulties for the GSPC on a number of fronts.First, the members of the local population most likely to be sympathetic are relatively poor,limiting their capacity to contribute to the group. Second, the group’s major alternative tovoluntary donations is extortion, which can alienate the local population and undermine thegroup’s fund-raising efforts more broadly, as well as constraining the group operationally.Third, the group’s efforts to profit from local smuggling, especially in the Sahel Belt, arehamstrung by that area’s “vast and expansive desert region,” the difficulty of controllingwhich leaves the GSPC “only able to tax 10 percent of this smuggling operation per year.”110

Fourth, the profits to be derived from other types of fund-raising, ranging from otherwiselegitimate businesses to kidnappings, depend greatly on the market for such activities aswell as on the GSPC’s capacity to withstand counterterrorist efforts and to operate freelywithout endangering the group through exposure. Hence, the model of the group’s financesshowed fluctuations quite unlike the steady stream of funding available to state-sponsoredterrorist groups—and, on the whole, “[s]imulation results showed an overall decline inGSPC strength over time,” in part caused by, and in part causing, a corresponding declinein funding.111 Overall, the privatization of a terrorist group’s financing carries with it all therisks of fluctuation and failure that emerge from having to sustain oneself without a statesponsor.

Privatization carries with it a second cost for terrorist groups: potential exposureto intelligence-gathering and, in turn, to counterterrorist authorities. Avoiding detection is

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crucial to the very existence of a terrorist group, and any contact with the outside world risksfatal exposure.112 That risk is, presumably, worth taking in order to distribute propaganda,to increase recruiting, and, above all, to carry out terrorist attacks, all of which are clearlycentral to the mission of a terrorist organization. When that organization must raise its ownfunds as well, the frequency and breadth of its contacts with the outside world—and itsresulting risk of exposure—are greatly magnified. This distinctly terrorist vulnerability hasno real parallel for privatized corporations operating legally.

Al Qaeda’s leadership, known for being intensely security-conscious and thus ableto survive for years despite being among the world’s most wanted individuals, appearsto have limited its types of fund-raising for precisely this reason. “Long ago, al Qaedastrategists reasoned that drug trafficking would expose them to possible detection, captiveshave told U.S. interrogators. They also don’t trust many of the big drug barons, intelligenceofficials says, and have encouraged their members not to get involved with them.”113 Havingseen what non-essential contact with the outside world can produce—for example, KhalidSheikh Mohammed’s decision to grant al-Jazeera an interview may have contributed to hisarrest114—Al Qaeda’s core has chosen to minimize the ways in which the group exposesitself to potential discovery and capture, thus trying to cope with the very real risk ofexposure always present when a terrorist group must raise funds for itself. Especially whenthat activity is criminal, the danger is grave, as terrorist groups’ “involvement in criminalactivity leaves them susceptible to detection and disruption due to their involvement withother criminals in the course of their criminal conduct.”115 Privatization and the autonomousfund-raising demanded thus generate the distinct cost of potential exposure and detection.

In addition to such risks, privatized financing leaves a terrorist group without the typeof state defender available to, and invested in, a state-sponsored terrorist group. In turn,as counterterrorist governments target a terrorist group both financially and otherwise,the group must fend for itself, rather than being able to rely on protection from a statesponsor eager to protect its investment by sheltering the terrorists as well as to thwart thosegovernments exerting pressure against an entity that the sponsor has formed to serve itsstrategic ends. Much as governments can attempt to exert their influence abroad to ensuremarket access and other competitive arrangements for nationalized corporations, so too canstate sponsors seek to ensure the continued viability and activity of the terrorist groups thatthey sponsor. The absence of such protection in either case constitutes a distinct downsideof privatization.

Al Qaeda endured precisely this vulnerability in the wake of 9/11, as the group hadto bear the brunt of America’s counterterrorist efforts without the aid of a dedicated statedefender. While the Taliban did employ its forces against the United States in Afghanistan,those forces were minimal and largely built up by Al Qaeda itself in the first place. Farmore significant was that Al Qaeda lacked a regime willing actively to push back againstAmerica’s global counterterrorist activities. In turn, the United States was able to drive AlQaeda out of its Afghan stronghold, scattering the group’s membership and disrupting itstraining camps. Not only did other governments fail to defend Al Qaeda, but many activelysupported America—much to the disappointment of Al Qaeda’s leadership. Thus, despitebin Laden’s earlier prediction that “the Muslim nation in Pakistan will rise up to defendits Islam,” he articulated “much sorrow” that “Pakistan is one of the biggest pillars of. . . this Crusader alliance,” and subsequently added that “General [Pervez] Musharraf hasdisappointed us,” referring to his government as “apostates and hypocrites.”116 Similarly,and especially after Al Qaeda targeted Riyadh with multiple attacks in 2003 and 2004, theSaudi regime engaged in active and at times aggressive counterterrorist measures againstAl Qaeda, even as certain members of that regime remained personally sympathetic tothe group’s cause.117 Even America’s rival, Iran, appears to have arrested a number of Al

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Qaeda members in the wake of 9/11118 and also provided some cooperation in America’sinvasions of Afghanistan and Iraq, while perhaps also hedging its bets by permitting somekey Al Qaeda figures to operate from Iran while under house arrest there.119 Worldwide, asthe United States increased its pressure on Al Qaeda, even those governments most likelyto sympathize with the group failed to defend it and went so far as to cooperate, to varyingdegrees, with America: “Most of the countries that had welcomed [Al Qaeda] had, likePakistan, done a sudden political about-face and either joined the international alliance oragreed to ‘clean up’ their territory.”120 Such is the lonely and vulnerable condition of aprivatized terrorist group lacking a state defender.

A fourth cost to a terrorist group of privatized funding is the potential loss of supportfrom those who embrace the group’s political objectives and use of violence but reject itsparticipation in non-terrorist criminal activity, a major source of funding for most terroristgroups with privatized financing arrangements. That is, while terrorism itself is, of course,criminal, those who support a terrorist group view such terrorism as justified—but somenevertheless do not see any justification in the group engaging in other types of non-political crime. Indeed, “[i]n years past, many terrorist groups would have steered awayfrom criminal activity, worried that such tactics might tarnish their image.”121 The corollaryfor companies might be the loss of previous public support—even indulgence—when whatwas once viewed as a service provided by the state becomes perceived as a money-makingventure designed to fatten the wallets of private, and often foreign, owners. For terroristgroups, not only can non-terrorist criminal activity serve to tarnish on the group’s image,but it can also alienate potential supporters when they themselves become the victims ofthe group’s criminality.122

Significantly, at least for Islamist terrorist groups, this cost appears to be lessening.Today, “for hard-pressed jihadists, committing crimes against nonbelievers is increasinglyseen as acceptable. As Abu Bakar Bashir, Jemaah Islamiyah’s reputed spiritual head,reportedly said: ‘You can take their blood; then why not take their property?”’123 Similarly,while Al Qaeda’s core appears to maintain its distance itself from the drug-related activitiesin which the Taliban and others take an active part for the sake of profits,124 others amongAl Qaeda’s broader ranks now appear to have indulged in such potentially profitable drug-related practices, as evidenced by the U.S. Navy stopping a cargo ship in the Persian Gulfoperated by suspected Al Qaeda affiliates and carrying two tons of hashish.125 Moreover,Islamists loosely linked to Al Qaeda are now selling heroin, making fake credit cards,cloning cellular phones, engaging in identity theft, and trafficking in persons in countrieslike France, Italy, and Morocco.126 While engaging in criminal activity might nonethelessbe deterring the support of some otherwise enthusiastic Islamists, it appears that this cost ofprivatization is diminishing over time. Nonetheless, evidence of its continued consequencesin the context of an Islamist insurgent group—the Mahdi Army in Baghdad—has emerged,as the once-popular group’s “use of extortion and violence began alienating much of theShiite population to the point that many quietly supported American military sweeps againstthe group.”127 At least in some contexts, this traditional risk to terrorist groups of privatizedfund-raising evidently persists.

Weighing the Advantages and Disadvantages of Nationalizationand Privatization

The preceding analysis identified and explored the major advantages and disadvantagesassociated with the nationalization and privatization of terrorist groups’ sources of funding.That analysis revealed that both arrangements—and the particular models that have arisen

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along the nationalization–privatization spectrum—provide certain benefits but also carrycertain costs. In turn, neither nationalization nor privatization presents a dominant choicefor all terrorist groups at all times, meaning that neither is superior to the other in allrespects. Instead, nationalization and privatization offer asymmetric dominance128: onearrangement is better in some senses, while the other arrangement is superior in othersenses. Hence, across the diversity of terrorist groups, one would expect elements of bothfinancing arrangements to persist, at least to some degree, so long as the benefits and costsof each remain decidedly mixed.

But it is possible to offer a broader conceptual synthesis through which the advantagesand disadvantages can be framed. Doing so reveals that certain circumstances will—ingeneral—make one model more appealing than the other, while different contextual factorswill favor a different model. In particular, whether nationalization’s benefits or costs aremore significant for a terrorist group depends on the group’s constituency, while whetherprivatization’s benefits or costs are more salient is determined largely by a terrorist group’sagenda.

Consider the dominant advantages of state sponsorship: reliable funding, the ability tofocus exclusively on terrorist activity, and the protection of an invested state defender. Theseadvantages redound most to the benefit of a terrorist group when that group lacks a definedconstituency. In the absence of such support, a terrorist group will struggle to raise funds ofits own, lacking the name brand needed to secure donations and the elaborate networks ofactivities required to generate revenue. Moreover, in order to garner widespread support, aterrorist group will need to engage in attention-grabbing terrorist attacks while avoiding theoften negative publicity associated with criminal activity. Furthermore, it is in the absence ofpopular support that a terrorist group is weakest and thus most vulnerable to counterterroristtargeting, making the protections offered by a state defender particularly vital in sustainingthe group. Overall, the steady funds, singular focus, and overarching protection provided bya state sponsor can compensate for the financial vulnerabilities emerging from a minimalconstituency. And a potentially viable terrorist group is most likely to have only a minimalconstituency when that group is in its formative stages, meaning that the advantages ofstate sponsorship are likely to prove most pronounced when a terrorist group is just gettingstarted. In turn, it is no surprise that eventually established groups such as Hamas andHezbollah relied most heavily on state sponsorship—and were most fully nationalized intheir financing—when they were in their earliest stages and lacked much of a constituency.

In contrast, the downsides of state sponsorship emerge most distinctly when a terroristgroup already enjoys a well defined and sizable constituency and seeks to increase it, butis constrained in doing so by the ties binding the group to a particular regime. Recallthat the major costs of state sponsorship are subservience, an increased range of adver-saries, and greater vulnerability to counterterrorist measures. In general, subservience toa regime is particularly frustrating to a terrorist group when it possesses a constituencyof sufficient size that the group could pursue precisely the agenda that it desired—if onlyit were not beholden to a government and that government’s control over the group’spurse strings. Unlike a still emerging terrorist group, which seeks the attention needed togenerate support, an established terrorist group with a formidable constituency wants toavoid the particular type of attention associated with an increased range of adversaries,especially as the damage caused by those adversaries can weaken the support of one’sconstituency, as Hezbollah may have experienced in the wake of its 2006 conflict withIsrael.129 Additionally, once a group achieves widespread support and reaches terroristascendancy, a major concern becomes fending off the counterterrorist measures of now-attentive governments, and such measures are easier to implement against the simplified

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financing associated with nationalization—especially if one’s state sponsor should sud-denly prove cooperative in counterterrorist efforts. Thus, it is probable that once a terroristgroup achieves a sustainable constituency, it will begin to feel acutely the disadvantagesassociated with state sponsorship, and begin to move, at least partially, toward a privatizedmodel of financing—just as Hamas and Hezbollah have increasingly done over the years.Then again, those groups’ continuing state sponsorship may suggest that they remain in astage where they favor cultivating their constituencies over pursuing entirely autonomousagendas.

While the relative significance of the benefits and costs of nationalization are deter-mined by the breadth and depth of a terrorist group’s constituency, the relative importanceof the advantages and disadvantages of privatization emerge largely from a group’s agenda.Autonomous financing offers the benefits of self-direction, potentially surging budgets,insulation from the fate of any regime, increased difficulty for counterterrorist authorities,and minimized movement of funds. These advantages are particularly useful to a terroristgroup in enabling it to set the terms of its own agenda. Clearly, self-direction provides thefreedom to decide whom to attack as well as when and how to do so. Increasing financesaccruing from a group’s own fund-raising efforts mean that the group can grow ever moreambitious in its agenda, whether that entails carrying out more devastating terrorist attacksor supplementing its acts of terrorism with other activities designed to enhance support forthe group. Insulation from the fate of a particular regime permits a terrorist group to becomea truly distinct actor in international politics. Decreasing one’s susceptibility to countert-errorist authorities and minimizing the risks associated with moving funds can allow aterrorist group to determine its agenda based less on the group’s vulnerabilities and moreon the group’s ideology. Hence, to the extent that a terrorist group seeks an agenda distinctfrom that of any potential state sponsor, as well as an agenda of increasing ambition, theadvantages of privatization will be particularly enticing, as they have proven for Al Qaedain its pursuit of an ever-escalating agenda.130

The disadvantages of privatized fund-raising also relate most directly to a terroristgroup’s agenda. Those disadvantages include inconsistent funding, increased exposure,the absence of a state defender, and the potential loss of support from those repelled bythe group’s criminal activity. Inconsistent funding is a serious threat to the realization ofa terrorist group’s agenda: not only do insufficient funds make impossible the scale andfrequency of attacks needed to pursue strategic objectives, but the absence of such attackscan potentially stall the group’s agenda entirely, in that an autonomously financed groupis likely to be the only actor actively pursuing its particular agenda. Additionally, theeffort required for fund-raising serves as a significant distraction from the steady pursuitof terrorist goals. Apart from the setbacks associated with actual exposure, even just therisks of exposure imposed by privatized fund-raising can inhibit a group’s ability to pursueits agenda, as the group must constantly weigh the value of undertaking a particular attackagainst the risks involved in replenishing the sums expended on the attack. The absenceof a state defender means that a group must moderate its agenda so as not to elicit harshreprisals that might threaten the group’s very existence, given its lack of a state’s protectiveshield. Finally, a privatized group’s agenda must be moderated by the budgetary constraintsthat emerge from the need to minimize criminal activity from fear of a backlash. Hence,Al Qaeda’s pursuit of a distinct international agenda has periodically waned as the grouphas had to focus on rebuilding its finances, surviving counterterrorist onslaughts withoutthe help of a state defender, and avoiding certain potentially profitable sources of fundingout of fear that drawing on such sources would alienate some of the group’s supporters.

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Moreover, and intriguingly, Al Qaeda’s experiences in Iraq have revealed a potentiallyimportant exception to privatization’s general advantages for a terrorist group’s agenda:when a group is fully privatized but pursues an agenda that includes objectives tied tostate sovereignty and nationhood, a backlash may ensue. That is, privatization generallyenables the pursuit of a group’s own agenda, but when that agenda involves elements ofstate-like activities, being a privatized, non-state actor can prove a distinct disadvantagefor a terrorist group. In Al Qaeda’s case, as the group attempted to lay foundations fora regime in postwar Iraq that would be consistent with the group’s vision of governance,the group gradually lost local support, eventually producing a fierce backlash that greatlyminimized the group’s support in Iraq and capacity to operate there. Many of those whosupported Al Qaeda’s violent attacks against the United States and others nonetheless re-jected the group’s vision for Iraq, and in particular its pretension to have established a newIslamic State of Iraq.131 In broad terms, the group’s popularity as a privatized, non-stateresistance force failed to translate into popularity for the group’s vision for a sovereignstate. Thus, a privatized group attempting to promote an agenda that includes state-basedobjectives may find itself in danger of lacking credibility when it comes to promotingarrangements consistent with the norms of nationhood. This liability is an important excep-tion to the general benefit bestowed by privatization on a terrorist group’s pursuit of its ownagenda.

On the whole, nationalization’s benefits and costs generally center on a terrorist group’sconstituency, while privatization’s advantages and disadvantages relate most directly to agroup’s agenda. In turn, when the benefits of one financial arrangement are salient and theopportunity costs of the other arrangement are relatively unimportant, predicting whicharrangement will be adopted appears rather straightforward, assuming the group is drivenprimarily by rational calculations. Hence, one would expect that a terrorist group still insearch of a constituency and willing to share a regime’s agenda would be drawn towardnationalized financing: state sponsorship would help to build the group’s constituency, whilethe foregone agenda-boosting aspects of autonomous financing would not be of particularappeal. One also would expect that a terrorist group with a well established constituencyand an independent agenda would find privatized financing to be a compelling arrangement:autonomous financing would permit the group’s self-directed pursuit of its own agenda,while the constituency-building elements of state sponsorship being sacrificed would notbe of paramount importance.

But what about a group still building a constituency but committed to an independentagenda, or a group possessing a constituency but pursuing an agenda largely shared by apotential state sponsor? In such instances, the tradeoffs of nationalization and privatizationhave to be weighed on a case-by-case basis to see which matter more to a particularterrorist group: the benefits and costs vis-a-vis a group’s potential constituency associatedwith state sponsorship (or its absence), or the advantages and disadvantages in relationto a group’s agenda linked to autonomous financing (or its absence). The key recognitionis that nationalization tends to boost a group’s constituency while privatization tends tobolster a group’s agenda—and determining which advantage takes priority depends on therelative importance of each to a given terrorist group. That importance could, of course,shift over time, leading a terrorist group first to rely on state sponsorship as a constituencyis established and then to turn toward autonomous financing as pursuit of an independentagenda assumes greater importance. Thus, the shift from nationalization to privatizationmight be a phenomenon witnessed not just in the broad patterns of terrorist groups but alsowithin the individual life-cycles of particular groups.

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Concluding This Foray and Extending the Debate

This article has made an initial effort to apply the debate over nationalization versusprivatization to the context of Islamist terrorist group funding. The article began bydemonstrating how the general evolution in such funding has moved from state sponsorshiptoward financial autonomy, generating a number of models along the way: state-sponsored;autonomous but territorially based; autonomous and transnational but centrally directed;autonomous and decentralized with seed money; and autonomous and decentralized withdispersed sources of funding.

The article then examined benefits of nationalization, such as predictable financing,the obviation of peripheral activities, and state protection, as well as the costs associatedwith nationalization, including subservience to a particular regime, ties to a regime’s fatethat include a widened range of adversaries, and a potentially easier task for counterterroristgovernments. In contrast, the benefits of privatization were shown to include self-direction,potentially increasing assets, freedom from any regime, increased difficulties for coun-terterrorism, and the elimination of the need to transfer funds. Privatization’s costs includespikes and falls in funding, the risks associated with criminal and other peripheral activities,the absence of a state defender, and the loss of support from those opposed to the group’scriminal behavior. Finally, the article concluded that a nationalized arrangement tends tofavor a group seeking to build a constituency, while privatized financing tends to benefit agroup aiming to pursue an independent agenda.

Much as, in the business context, the debate between nationalization and privatizationhas been enhanced by vigorous dissenting views and the increased empirical data broughtto bear on the subject, so must this debate in the arena of terrorism be extended andembellished. Clearly, benefits and costs of other financial arrangements beyond thoseexplored here are significant, and should be suggested and evaluated. Moreover, the fundingof a wider array of terrorist groups must be considered—including, of course, those thatare not Islamist in orientation. Furthermore, the elaboration of differences between thebusiness and terrorist contexts, such as the type of bottom line involved and the differencesbetween competitors and adversaries mentioned earlier, merits attention as a conceptualavenue in its own right. With such additional research and analysis, a fuller set of benefitsand costs to terrorist groups of state sponsorship and of autonomous funding can beappreciated—and, in turn, the corresponding implications for counterterrorist policy can beexplored.

Notes

1. U.N. SCOR, 43d Sess., 791st mtg., U.N. Doc. S/PV.2791 (16 February 1988); “Suspectin Korean Crash Recovers from Poisoning,” New York Times, 6 December 1987, p. A30.

2. U.N. SCOR, 43d Sess.3. Bruce Hoffman, Inside Terrorism (1998), pp. 189–190; William C. Triplett II, Rogue State:

How a Nuclear North Korea Threatens America (2004), pp. 92–93.4. “Two Car Bombs Found in West End,” BBC News, 29 June 2007. Available at http://news.

bbc.co.uk/2/hi/uk news/6255960.stm5. “Two Men Crash SUV into Glasgow Airport,” Washington Times, 30 June 2007. Avail-

able at http://www.washingtontimes.com/news/2007/jun/30/2-men-crash-suv-into-glasgow-airport-72002425/

6. Raymond Bonner et al., “British Inquiry of Failed Plots Points to Iraq’s QaedaGroup,” New York Times, 14 December 2007. Available at http://www.nytimes.com/2007/12/14/

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world/europe/14london.html; “Two Men Linked to Both U.K. Plots,” CBS News, 3 July 2007. Avail-able at http://www.cbsnews.com/stories/2007/07/03/terror/main3010835.shtml

7. One should note that the debate’s centrality and importance have not necessarily diminishedits predictability and reactivity: largely Western scholars, drawing on largely Western ideologies andexperiences, have generally staked out a pro-privatization position, with other, more diverse voicesgradually emerging in response, although receiving an audience mostly in the aftermath of massiveresentment periodically generated by privatization’s implementation. Such a recognition suggests thatwhile the debate itself presents an important comparable framework for analyzing terrorist financing,the particular contours of the debate do not necessarily merit admiration or replication.

8. For example, Walter Laqueur, No End to War: Terrorism in the Twenty-First Century(2003); David C. Rapoport, “The Four Waves of Modern Terrorism,” in Audrey Cronin and JamesLudes eds., Attacking Terrorism: Elements of a Grand Strategy (2004), p. 46.

9. Loretta Napoleoni, Terror Incorporated: Tracing the Dollars Behind the Terror Networks(2005), p. 225.

10. Ibid., at 31, 156.11. Rachel Ehrenfeld, Funding Evil: How Terrorism Is Financed—and How To Stop It (ex-

panded ed. 2005), p. 120; Judith Palmer Harik, Hezbollah: The Changing Face of Terrorism (2004),p. 16.

12. Robin Wright, “Islam’s New Political Face,” Current History (January 1991), pp. 25, 28.See generally A. Nizar Hamzeh, “Lebanon’s Hizbullah: From Islamic Revolution to ParliamentaryAccommodation,” Third World Quarterly 321 (1993), p. 14.

13. Daniel Byman, Deadly Connections: States That Sponsor Terrorism (2005), pp. 313–314.14. Ehrenfeld, Funding Evil, p. 120.15. Byman, Deadly Connections, pp. 80, 87; see ibid., p. 88.16. Ibid., p. 80.17. See generally Hamzeh, “Lebanon’s Hizbullah.”18. See Napoleoni, Terror Incorporated, pp. 66–67 (citing Cheryl Rubenberg, The Palestine

Liberation Organization: Its Institutional Infrastructure (1983), p. 58).19. Ibid., p. 72; Jonathan M. Winer, “Countering Terrorist Finance: A Work, Mostly in

Progress,” Annals of the American Academy of Political and Social Science 618 (2008), pp. 112, 115.20. Ehrenfeld, Funding Evil, pp. 100–105; Mathew Levitt, Hamas: Politics, Charity, and

Terrorism in the Service of Jihad (2006), pp. 56–59, 62–63; Napoleoni, Terror Incorporated, pp. 73.21. Levitt, Hamas, pp. 56–79; Napoleoni, Terror Incorporated, pp. 73–74.22. Levitt, Hamas, pp. 70–72.23. Napoleoni, Terror Incorporated, p. 74.24. Ibid.25. See Abdel Atwan, The Secret History of al-Qaeda (2006), pp. 47–56. While a former deputy

assistant secretary of State for Law Enforcement contends “that the equivalent of state sponsorship ofal Qaeda prior to 9/11” in Afghanistan, Pakistan, Saudi Arabia, and Sudan “did play a material factorin financing the organization’s development,” Winer, “Countering Terrorist Finance,” p. 115, a formerdirector for Transnational Threats at the National Security Council reflects scholarly consensus inretorting that while headquartered “in both Sudan and Afghanistan, the al Qaeda terrorist organizationprovided important financial support to its host state—instead of the other way around,” Lee S.Wolosky, “Breakdown: The Challenge to Eliminating Al Qaeda’s Financial Networks,” in Bryan LeeCummings, ed., Beyond the Campaign: The Future of Countering Terrorism (2004), p. 143. See alsoPhilippe Migaux, “Al Qaeda,” in Gerard Chaliand and Arnaud Blin, eds., The History of Terrorism:From Antiquity to Al Qaeda (2007), pp. 314, 318–321. For more on Al Qaeda’s financial support forthe Taliban in Afghanistan, see generally Lawrence Wright, The Looming Tower: Al-Qaeda and theRoad to 9/11 (2006).

26. See Rohan Gunaratna, Inside Al Qaeda: Global Network of Terror, 3rd ed. (2003).27. Thomas H. Kean et al., The 9/11 Commission Report (2004), pp. 169–173; Napoleoni,

Terror Incorporated, p. 126.28. Napoleoni, Terror Incorporated, p. 223.

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29. Kean et al., The 9/11 Commission Report, p. 154.30. Ibid., pp. 169–173.31. Napoleoni, Terror Incorporated, p. 161, initially uses the phrase “seed money” in the

context of starting an offshoot terrorist group rather than funding a particular operation, but proceedsto discuss the latter, as well.

32. Ibid., p. 164.33. Ibid. (quoting former Deputy Assistant Secretary of State for International Law Enforce-

ment Jonathan Winer).34. Kean et al., The 9/11 Commission Report, pp. 177–178; Napoleoni, Terror Incorporated,

pp. 164, 176.35. William M. Wise, “Indonesia’s War on Terror” (2005), p. 11. Available at http://www.

usindo.org/publications/reports/pdf/WarOnTerror.pdf36. David E. Kaplan, “Paying for Terror: How Jihadist Groups Are Using Organized-Crime

Tactics—and Profits—To Finance Attacks on Targets Around the Globe,” U.S. News & World Re-port, 27 November 2005. Available at http://www.usnews.com/usnews/news/articles/051205/5terror.htm

37. Alex Grynkewich and Chris Reifel, “Modeling Jihad: A System Dynamics Model of theSalafist Group for Preaching and Combat Financial Subsystem,” Strategic Insights (November 2006).Available at http://www.ccc.nps.navy.mil/si/2006/Nov/grynkewichNov06.pdf

38. Brynjar Lia, Architect of Global Jihad: The Life of Al-Qaida Strategist Abu Mus’ab al-Suri(2008).

39. Marc Sageman, Leaderless Jihad: Terror Networks in the Twenty-First Century (2008),p. 129; Jason Burke, “What Role Did al-Qaida Play?” Available at Guardian.co.uk, 31 October 2007.http://www.guardian.co.uk/commentisfree/2007/oct/31/whatroledidalqaidaplay. On the possibility ofsome direct connections, see Lia, Architect of Global Jihad, p. 265.

40. See Burke, “What Role Did al-Qaida Play?” p. 39; Napoleoni, Terror Incorporated,p. 224.

41. Burke, “What Role Did al-Qaida Play?”; “Madrid Bomb Leader ‘Identified,”’ BBC News,1 April 2004. Available at http://news.bbc.co.uk/2/hi/europe/3590575.stm

42. Kaplan, “Paying for Terror.”43. Mark Huband, “Bankrolling Bin Laden,” Financial Times, 28 November 2001. Available at

http://specials.ft.com/attackonterrorism/FT3FJ5RJMUC.html; see also Migaux, “Al Qaeda,” p. 331.44. See Michael Jacobson and Matthew Levitt, Combating the Financing of Transnational

Threats (2009), pp. 2–5. Available at http://washingtoninstitute.org/opedsPDFs/4a2d1476df4b3.pdf

45. Byman, Deadly Connections, pp. 1–2, 59; Ehrenfeld, Funding Evil, pp. 7–10; Jean-Francois Thony, “Money Laundering and Terrorism Financing: An Overview,” in International Mon-etary Fund, ed., Current Developments in Monetary and Financial Law 3 (2005), p. 219. But seeNapoleoni, Terror Incorporated, p. 59 (“At the end of the 1970s, after the second oil shock, . . .

[a]rmed groups abandoned state sponsorship and financed themselves using market and businesstechniques”).

46. Ilias Bantekas, “The International Law of Terrorist Financing,” American Journal of In-ternational Law 97 (2003), pp. 315–316.

47. Napoleoni, Terror Incorporated, pp. 223–224; see Kaplan, “Paying for Terror” (quotinga Congressional Research Service counterterrorism specialist in saying, “The bottom line is if youwant to survive today as a terrorist, you probably have to support yourself”).

48. See Elliott D. Sclar, You Don’t Always Get What You Pay For (2000), p. 23; Jean-JacquesRosa, “Nationalization, Privatization, and the Allocation of Financial Property Rights,” Public Choice75 (1993), pp. 317, 319–320; Gerard Roland, “Private and Public Ownership in Economic Theory,” inGerard Roland, ed., Privatization: Successes and Failures (2008), pp. 9, 12; Klaus M. Schmidt, “TheCosts and Benefits of Privatization: An Incomplete Contracts Approach,” Journal of Law, Economics,and Organization 12 (1996) 1, 2–4, 16–19; Carl Shapiro and Robert Willing, “Economic Rationalesfor the Scope of Privatization,” in B. N. Suleiman and J. Waterbury, eds., The Political Economy of

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Public Sector Reform and Privatization (1990), p. 55; George Yarrow, “Privatization in Theory andPractice,” Economic Policy 1 (1986), pp. 324, 331–332.

49. See Robert Grosse and Juan Yanes, “Carrying Out a Successful Privatization: The YPFCase,” Academy of Management Executive (May 1998), pp. 51, 52–55; Roland, “Private and PublicOwnership in Economic Theory,” p. 14; Andrei Shleifer and Robert W. Vishny, “Politicians andFirms,” Quarterly Journal of Economics 109 (1994), p. 995; Joseph E. Stiglitz, “Foreword” toPrivatization: Successes and Failures, Gerard Roland, ed. (2008), pp. ix, x.

50. See Sclar, You Don’t Always Get What You Pay For, pp. 3–15; Bernardo Bortolotti andValentina Milella, “Privatization in Western Europe: Stylized Facts, Outcomes, and Open Issues,” inGerard Roland, ed., Privatization: Successes and Failures (2008), pp. 32, 55; Antonio Estache andLourdes Trujillo, “Privatization in Latin America: The Good, the Ugly, and the Unfair,” in GerardRoland, ed., Privatization: Successes and Failures (2008), pp. 136, 154; Grosse and Yanes, “CarryingOut a Successful Privatization,” p. 52; Jan Hanousek, Evzen Kocenda, and Jan Svejnar, “Privatizationin Central and Eastern Europe and the Commonwealth of Independent States,” in Privatization:Successes and Failures (2008), pp. 76, 94; Rafael La Porta and Florencio Lopez-de-Silanes, “TheBenefits of Privatization: Evidence from Mexico,” Quarterly Journal of Economics 114 (1999),p. 1193; Roland, “Private and Public Ownership in Economic Theory,” p. 17; Schmidt, “The Costsand Benefits of Privatization,” pp. 2–4, 16–19; Stiglitz, “Foreword,” p. xi; Yarrow, “Privatization inTheory and Practice,” pp. 327, 330.

51. See Sclar, You Don’t Always Get What You Pay For, pp. 78–79, 92; Massimo Florio,“Economists, Privatization in Russia and the Waning of the ‘Washington Consensus,”’ Review ofInternational Political Economy 9 (2002), pp. 359, 385–388; Grosse and Yanes, “Carrying out aSuccessful Privatization,” p. 54; Schmidt, “The Costs and Benefits of Privatization,” pp. 2–4, 16–19;Yarrow, “Privatization in Theory and Practice,” pp. 329–333, 340–342.

52. Byman, Deadly Connections, pp. 60–61.53. Ibid., pp. 83–84.54. Ibid., pp. 84–85.55. See Louise Richardson, What Terrorists Want: Understanding the Enemy, Containing the

Threat (2006), p. 54.56. Byman, Deadly Connections, p. 61; see Harik, Hezbollah, p. 40.57. Hoffman, Inside Terrorism, p. 187.58. Napoleoni, Terror Incorporated, p. 170; see Grynkewich and Reifel, “Modeling Jihad”

(“While a traditional business markets goods and services in order to meet a political objective,terrorism creates a peculiar commodity (terror or fear) in pursuit of a political objective”); Kaplan,“Paying for Terror” (explaining the view of U.S. intelligence analysts that “the key difference isone of motive: Terrorist groups are driven by politics and religion, while purely criminal groupshave just one thing in mind—profit”); Kimberley L. Thachuk, “Terrorism’s Financial Lifeline:Can It Be Severed?,” Strategic Forum (May 2002), pp. 1, 3 (“Organized criminal activity is mo-tivated by simply profit—amassing staggering sums either legally or illegally. For terrorist groups,though, the money (however amassed) is a means to other ends”); John D. G. Waszak, Note, “TheObstacles to Suppressing Radical Islamic Terrorist Financing,” Case Western Reserve Journal ofInternational Law 36 (2004), pp. 673, 674–675 (“The motivation for terrorism is predominantlypolitical, while the motivation for narco-terrorism and other criminal enterprises is predominantlyeconomic”).

59. Napoleoni, Terror Incorporated, p. 170.60. In fact, the situation is essentially reversed for nationalized corporations: the involvement

and oversight of a government injects political considerations into corporate activities that are oth-erwise focused on maximizing profits. See Rosa, “Nationalization, Privatization, and the Allocationof Financial Property Rights,” pp. 318–319 (“Private shareholders seek to increase their financialwealth while governments try to improve their political advantage through the distribution of politicalbenefits via state-owned enterprises (SOEs)”).

61. “Who Are Islamic Jihad?,” BBC News, 9 June 2003. Available at http://news.bbc.co.uk/2/hi/middle east/1658443.stm

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62. See Ehrenfeld, Funding Evil, p. 106; Holly Fletcher, “Palestinian Islamic Jihad,” Council onForeign Relations (10 April 2008). Available at http://www.cfr.org/publication/15984#8; Richardson,What Terrorists Want, p. 53. But see Waszak, “The Obstacles to Suppressing Radical Islamic TerroristFinancing,” p. 687 (suggesting that PIJ has attempted to raise at least some funds of its own).

63. Fletcher, “Palestinian Islamic Jihad”; “Who Are Islamic Jihad?”64. Ehrenfeld, Funding Evil, p. 131 (quoting Ramadan Shalah).65. Byman, Deadly Connections, p. 5; see also ibid., pp. 67–75.66. Ehrenfeld, Funding Evil, pp. 119–152.67. Byman, Deadly Connections, p. 97.68. Ehrenfeld, Funding Evil, p. 17; Harik, Hezbollah, pp. 178, 181.69. Byman, Deadly Connections, pp. 87–99.70. Ibid., p. 97 (quoting Amal Saad-Ghorayeb).71. Byman, Deadly Connections, p. 5; see also 50–52, 75–76.72. Ehrenfeld, Funding Evil, p. 120; see also Byman, Deadly Connections, pp. 89–90.73. Ehrenfeld, Funding Evil, pp. 124–130.74. Ibid., p. 125; see Byman, Deadly Connections, p. 101.75. Ehrenfeld, Funding Evil, p. 122; see Harik, Hezbollah, pp. 3, 81.76. Ehrenfeld, Funding Evil, p. 123.77. Byman, Deadly Connections, p. 105.78. Paul Salem, “The Future of Lebanon,” Foreign Affairs (November/December 2006),

p. 13.79. Ze’ev Schiff, “Israel’s War with Iran,” Foreign Affairs (November/December 2006),

p. 23.80. Salem, “The Future of Lebanon,” p. 18.81. Byman, Deadly Connections, pp. 6, 77.82. Ehrenfeld, Funding Evil, p. 174.83. Ibid., p. 185.84. Maurice Greenberg et al., Council on Foreign Relations, Terrorist Financing (2002), p. 5.85. Bruce Lawrence, Messages to the World: The Statements of Osama bin Laden (2005)

(quoting Osama bin Laden), p. 78.86. See Waszak, “The Obstacles to Suppressing Radical Islamic Terrorist Financing,”

pp. 677–678, 693–695, 701–702.87. Wolosky, “Breakdown,” p. 143.88. Brynjar Lia, “Al-Qaida’s Appeal: Understanding Its Unique Selling Points,” Perspec-

tives on Terrorism (May 2008). Available at http://www.terrorismanalysts.com/pt/index.php?option=com rokzine&view=issue&id=14&Itemid=54, pp. 3, 6.

89. Huband, “Bankrolling Bin Laden.”90. Ibid.91. Ehrenfeld, Funding Evil, p. 195 (quoting Mark Huband and David Buchan, “Al-

Qaeda ‘May Have 18,000 Operatives,’“ Financial Times, 25 May 2004. Available at http://ftrsupplemental.blogspot.com/2004/05/al-qaeda-may-have-18000-operatives.html

92. See generally Jason W. Davidson, The Origins of Revisionist and Status-Quo States (2006).93. Ehrenfeld, Funding Evil, pp. 34–35; Wolosky, “Breakdown,” p. 143; Migaux, “Al Qaeda,”

pp. 316–317. See generally Peter Bergen, Holy War, Inc.: Inside the Secret World of Osama bin Laden(updated ed. 2002); Jason Burke, Al-Qaeda: The True Story of Radical Islam (2004).

94. Atwan, The Secret History of al-Qaeda, pp. 43–47.95. Wolosky, “Breakdown,” p. 144.96. Greenberg et al., Terrorist Financing, p. 5.97. Ibid., pp. 6, 9; see Eric J. Gouvin, “Bringing out the Big Guns: The USA Patriot Act,

Money Laundering, and the War on Terrorism,” Baylor Law Review 55 (2003), pp. 955, 975; U.S.General Accounting Office, Terrorist Financing: On Deterring Terrorist Operations in the UnitedStates (2005), pp. 6, 9–10.

98. Greenberg et al., Terrorist Financing, pp. 6–8.

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99. See Gouvin, “Bringing out the Big Guns,” pp. 976–979; Greenberg et al., Terrorist Fi-nancing, pp. 8–11.

100. U.S. General Accounting Office, Investigating Money Laundering and Terrorist Financing:Federal Law Enforcement Agencies Face Continuing Coordination Challenges (2004); U.S. GeneralAccounting Office, Terrorist Financing, pp. 7–9.

101. James Gillespie, “Finance, Terror, and International Cooperation,” in Bryan Lee Cum-mings, ed., Beyond the Campaign: The Future of Countering Terrorism (2004), p. 154; Greenberget al., Terrorist Financing, pp. 15–21; Wolosky, “Breakdown,” pp. 151–153.

102. See Maurice R. Greenberg et al., Council on Foreign Relations, Update on the Global Cam-paign Against Terrorist Financing (2004), p. 5; U.S. Department of the Treasury, Progress in the Waron Terrorist Financing (2003). Available at http://www.treas.gov/press/releases/reports/js721.pdf;Martin A. Weiss, “Terrorist Financing: U.S. Agency Efforts and Inter-Agency Coordination,” inMary B. Erlande, ed., Terrorist Financing (2006), p. 1; Bantekas, “The International Law of TerroristFinancing,” p. 329; Waszak, “The Obstacles to Suppressing Radical Islamic Terrorist Financing,”pp. 689–690.

103. See Ehrenfeld, Funding Evil, pp. 66–68; Winer, “Countering Terrorist Finance,”pp. 116–128.

104. See Ehrenfeld, Funding Evil, pp. 13–15; Wolosky, “Breakdown,” pp. 145–146.105. Winer, “Countering Terrorist Finance,” p. 120.106. Ibid.; see Tara A. Leweling and Mark E. Nissen, “Defining and Exploring the Terrorism

Field: Toward an Intertheoretic, Agent-Based Approach,” Technological Forecasting & Social Change74 (2007), pp. 165, 188.

107. See Burke, “What Role Did al-Qaida Play?”108. See Thachuk, “Terrorism’s Financial Lifeline,” pp. 1, 3; Thony, “Money Laundering and

Terrorism Financing”; Bruce Zagaris, “The Merging of the Anti-Money Laundering and Counter-Terrorism Financial Enforcement Regimes After September 11, 2001,” Berkeley Journal of Interna-tional Law 22 (2004), p. 123.

109. See Grynkewich and Reifel, “Modeling Jihad,” p. 37.110. Ibid.111. Ibid.112. See Daniel Byman, “Do Targeted Killings Work?,” Foreign Affairs (March/April 2006),

pp. 95, 103–104.113. Kaplan, “Paying for Terror”; see Ian Siperco, Subversive Markets: The Economic Roots

of the Iraq Insurgency. Available at http://www.rusi.org/downloads/assets/Subversive Markets.pdf(2007).

114. See generally Ron Suskind, The One Percent Doctrine: Deep Inside America’s Pursuit ofIts Enemies Since 9/11 (2006).

115. Winer, “Countering Terrorist Finance,” p. 120.116. Lawrence, Messages to the World, pp. 101, 129, 143, 156 (quoting Osama bin Laden).117. Atwan, The Secret History of al-Qaeda, pp. 169–178; Daniel Benjamin and Steven Simon,

The Next Attack: The Globalization of Jihad (2005), pp. 98–104.118. “Iran Announces Al-Qaeda Arrests,” BBC News, 16 July 2005. Available at http://news.

bbc.co.uk/2/hi/middle east/4689151.stm119. Philippe Migaux, “The Future of the Islamist Movement,” in Gerard Chaliand and Arnaud

Blin, eds., The History of Terrorism: From Antiquity to Al Qaeda (2007), pp. 349, 360; SiobhanGorman, “Spy Chief Says Bin Laden Son Left Iran, Likely Is in Pakistan,” Wall Street Journal, 17January 2009, p. A2.

120. Migaux, “Al Qaeda,” p. 334.121. Kaplan, “Paying for Terror.”122. See Grynkewich and Reifel, “Modeling Jihad” (“[C]ertain types of fundraising activities

negatively influence the level of popular support for the insurgency. For example, as the [GlobalSalafist Group for Preaching and Combat] increases the number of extortions it carries out againstthe Algerian population, this decreases the population’s support for the insurgency”).

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170 J. A. Geltzer

123. Kaplan, “Paying for Terror” (quoting Abu Bakar Bashir).124. Ibid.125. Napoleoni, Terror Incorporated, p. 220.126. Kaplan, “Paying for Terror”; U.S. General Accounting Office, Terrorist Financing, p. 11.127. Sabrina Tavernise, “A Shiite Militia in Baghdad Sees Its Power Wane,” New York Times,

27 July 2008, p. A1.128. Jonathan Baron, Thinking and Deciding, 4th ed. (2007), p. 295.129. See Salem, “The Future of Lebanon,” p. 18.130. See Kean et al., The 9/11 Commission Report, p. 51.131. Brian Fishman, “Harmony Project, Dysfunction and Decline: Lessons Learned from

Inside Al Qa’ida in Iraq” (2009). Available at http://www.ctc.usma.edu/harmony/pdf/DD FINALFINAL.pdf

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