In their new book, Financial Statecraft: The Role of Financial Markets in American Foreign Policy, Benn Steil and Robert Litan estimate the costs of commiting recent terrorist acts:
...acts of terror are cheap to carry out. The truck bomb used at the World Trade Center in February 1993 cost $400. The cost of training and support of the 19 individuals who participated in the 9/11 airline hijackings is estimated at only $500,000. Terrorist operations since 9/11 have been even cheaper: the October 2002 Indonesia bombings cost $50,000; the November 2003 Istanbul attacks cost less than $40,000; and the March 2004 Madrid bombings, carried out with dynamite and cell phones, cost less than $10,000. As Defense Secretary Donald Rumsfeld admitted in a memorandum leaked to the press in October 2003, "The cost-benefit ratio is against us! Our cost is billions against the terrorist cost of millions."
Since these attacks are so cheap, is money spent to interdict terrorist financial resources really well spent:
These limitations cast doubt on the effectiveness of the financial war on terror. Some policymakers have recognized this. While the 9/11 Commission Report, for instance, asserts that efforts to track terrorist financing should remain "front and center in U.S. counterterrorism efforts," it also acknowledges that asset freezing will diminish in effectiveness as terrorists find more ways to go around the system. As we have seen, the same can be said for AML regulation. In light of these doubts, we need to take a more rigorous look at the costs and benefits of the AML campaign . . .
The upshot of this assessment is that America is spending at least $7 billion a year on unproven initiatives to fight a financial war on terror. To put this finding in some meaningful perspective, there is a host of compelling homeland security initiatives that are in dire need of that kind of money. For instance, we currently have no effective system for monitoring and verifying the contents of the world’s 90 million container shipments per year. As a consequence, any one of those containers could contain an explosive, possibly nuclear, device. If loaded onto one of the 8 million containers that pass through U.S. ports each year, the device’s detonation could shut down all shipments into and out of the United States for several weeks or even months, thereby causing an economic disaster. What would it cost to implement an effective worldwide container security system? Stephen Flynn, a leading expert on homeland security, estimates it would cost roughly $40 to $80 per shipment, or $4 to $7 billion per year. In other words, for the same amount of money that is spent domestically on possibly fruitless AML initiatives, we could institute a global security system that would significantly reduce the risk of a crippling shutdown of the international commerce network.
But does this analysis miss something?
In light of the clear opportunity costs of America’s spending on antiterrorism financial regulation, we must ask whether we have fully encompassed the reasons for it in our discussion. The answer may be that we have left out an important public diplomacy dimension to such spending. As the terrorism expert Paul Pillar suggests, by mounting a financial war on terrorism the United States signals to other countries the seriousness with which it takes the terrorist threat, and may thereby be able to influence other governments to take the matter seriously as well. A government that condemns terrorism and demands that other countries make political and financial sacrifices in order to stop it cannot afford to appear to be allowing its financial institutions to abet terrorist financing with impunity. Seen in this light, the financial war on terror is a necessary component of a wider initiative to draw nations with disparate interests into visible cooperation against a threat which is widely felt but often difficult to combat, for political reasons, through more aggressive means . . .
Jan 20 revision: Title revised for clarity.
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