Tracing the Money Trail of Terrorism

Accountants, computer experts and fraud investigators have risen to the forefront of the new war against terrorism.

Though physical targets are difficult to identify, federal officials realized that the flow of money to terrorists is a key vulnerability in their underground networks.

One of the first acts by the federal government after the attacks on the World Trade Center and the Pentagon was the creation of the Foreign Terrorist Asset Tracking Center--a group of financial investigators drawn from the CIA, FBI, National Security Agency, U.S. Customs Service, Secret Service and other government agencies.

They already have spent 11 days poring over bank records, credit card statements, transactions from brokerage accounts and other financial information in search of links between the 19 men who hijacked four jetliners on Sept. 11 and various organizations connected to Osama bin Laden’s Al Qaeda network.

“The U.S. government is optimistic that this type of strategic approach to funding of terrorist activity will serve as a preventive approach to dismantling terrorist activities before they even begin,” said Rob Nichols, a Treasury Department official.

Treasury Department officials wouldn’t discuss any specifics about how the tracking center plans to operate. Nichols would say only that the number of agents on the force is “sizable.”

They face a daunting puzzle that grows exponentially with each step backward through the financial records.

“This is like a plate of spaghetti,” said Ann E. Wilson, a certified public accountant and certified fraud examiner based in Pasadena. “You start pulling on one piece and you don’t know what you’ll pull out and how far you’ll have to go. It’s a long and tedious process.”

The field is known as “forensic accounting.” Its usual role is in securities fraud investigations, embezzlement cases and divorce proceedings in which one spouse suspects the other of hiding assets.

Traditionally, the role of accountants is to collect financial data and organize the information into a single comprehensive financial statement.

“This is the opposite,” said Dan Ray, a former FBI special agent who now works as a forensic accountant and certified fraud examiner with Hemming Morse Inc. in San Francisco. “This takes a financial statement and rips it apart and goes backward to find its key components.”

A forensic accountant typically begins with a single credit card receipt, such as one showing the signature of Mohamed Atta, believed to have been one of the hijackers of American Airlines Flight 11. The receipt, from Warrick’s Rent-a-Car in Pompano Beach, Fla., contains a credit card number linked to a specific account. The transactions on that account can reveal a pattern that may lead to other conspirators.

The records also will indicate how purchases were paid for, most likely with a check. That will lead to a bank account, belonging to either the suspect or one of his financial patrons.

The key is tracking the flow of money in and out of the account. If funds came in by check, the account number on that check can be traced. If money was wired into the account, the source of those funds could be identified as well. Canceled checks will reveal the account numbers of people who received money from the suspect.

Each account could be linked to several others, which in turn could have links to yet more accounts. An investigation could quickly reveal a network with multiplying branches and perhaps hundreds or even thousands of leads.

Other kinds of financial transactions also could become the starting point for new branches.

For example, tracking center investigators are trying to figure out who purchased put options in American Airlines and United Airlines in the days before the attacks involving the companies’ planes. The put options would rise in value if the prices of those airline stocks fell in subsequent weeks.

Indeed, shares of American parent AMR Corp. have sunk 40% since the attacks, and shares of United parent UAL Corp. have plummeted 44%. Investigators are suspicious that some of the buyers knew about the attacks in advance. Finding them could lead to sources of terrorist funding, said Lewis Freeman, a forensic accountant based in Miami.

The biggest potential roadblock in tracing the trail of money is the use of cash. The Bank Secrecy Act requires banks and other businesses to file a currency transaction report with the federal government whenever they conduct a transaction or series of transactions involving at least $10,000 in cash. But the act is easily circumvented by spreading out deposits so they are below that threshold.

There is simply too much cash in circulation for investigators to be able to determine where any specific bills came from.

The use of false identification also could cause a trail to end abruptly. U.S. banks typically require a government-issued picture ID, such as a driver’s license or a passport, to open an account. But banks aren’t usually on the lookout for false IDs, and someone with a reasonable fake probably wouldn’t encounter any problems, said Ray, the former FBI special agent.

Investigators may have no trouble tracing the source of funds to a specific bank account--but then find that those banks are based in Syria, Iraq, Libya or even Afghanistan. Those countries aren’t likely to cooperate with U.S. investigators.

“How do we get that information from a country like Iraq?” said D. Larry Crumbly, a professor of accounting at Louisiana State University and editor of the Journal of Forensic Accounting. “I’m always worried that eventually it will wind up with Iraq.”

Still, investigators have many advantages. They should be able to conduct their investigation much more rapidly than normal forensic accountants, which will allow them to make progress before leads grow stale.

Public records will be made available to them more quickly than to their counterparts in the private sector. And as agents of the government, they have access to more sources of information. “They could look up tax records, check if there is an FBI file, look up driving records, military records, get Social Security information and passport information to see where they traveled,” Ray said.

Perhaps the most potent weapon the investigators have is time. The government can afford to track down as many leads as they can uncover.

Forensic accountants said there was no way to predict how long it would take for the tracking center to identify and cut off funds for terrorism. Most agreed it would be impossible to trace every single money trail to its source.

But eventually, they are almost certain to disrupt the money flow and potentially forestall at least some future terrorist attacks.

“If you just keep working on a case, you will find a piece of evidence where someone slips up or somebody talks or somebody knows something,” Freeman said. “It’s like any other perfect crime--it only takes one slip-up.”