What they don’t teach you at Harvard Business School – or the Economics of Terrorism. Loretta Napoleoni in interview.

The book is thoroughly researched, using her experience with European terror groups and their histories to great effect when analysing the current phenomena of ‘Islamic' terrorism. Isn’t there a danger, though, of oversimplifying things when you examine the IRA [Irish Republican Army]. or the Red Brigades, and then talk of Al-Qaeda in the same breadth? It gives the impression that we’re dealing with similar organisations, to which we can apply similar means of confrontation. Isn’t the reality that there’s a world of difference between Al Qaeda and traditional terrorist movements? “This is not a book about the ideology, it’s about the economics. This is why I link these organisations together, because economically speaking they are linked together. If not directly, and there’s no direct connection between the IRA and Al-Qaeda, then through an indirect connection which is the fact that they use the same infrastructure put in place by armed criminal organisations, illegal organisations. So if you look at smuggling, for example, they use the exact same channels to recycle the dirty money, so therefore they’re part of the same economic system. It’s a bit like saying what’s the link between the United States and Angola: of course there’s no direct link, but they’re all part, in a globalised world, of the same system. So while Al-Qaeda and the IRA were not linked in the 1980s, although Al-Qaeda existed in the 1980s, we have to wait until the 1990s, with the phenomena of Globalisation, to produce this link”.

One of the key differences between an organisation like the IRA and Al-Qaeda is the fact that the IRA emerged from a financial culture that was very much the same as those they attacked, whereas Al-Qaeda, whilst being fluent in the language of international capitalism, also have the added advantage of a background in an Islamic financial system that has very different rules and practices to our own, and one that the West is by and large struggling to understand. “Yes, I think the extra advantage that they have is that they know our system while we do not know theirs". Napoleoni qualifies:"In the case of the IRA they were moving within the same system. But having said that, it’s also true that the IRA was able to exploit the institutional international monetary system to its own advantage, and it was never stopped. The problem is that Governments never go after the money. I think the reason is that counter-terrorism is handled primarily by people who come from either the military/police or from a criminology/sociology background. You don’t have the economists there. That’s a terrible limitation".

This is a situation that hasn’t been changed by the terrible events of 9/11. “If you look at the composition of people, for example on the UN Security Council commission for counter-terrorism. It’s a body that’s trying to track the money, but it’s not using economists, or bankers. Why is this not happening? I think it’s because there’s tremendous fear. As I say in the book, there’s a tremendously sophisticated interdependency between the two systems [capitalist and terrorist]”.

Interdependencies and the cost of terror.

One of the shocking lessons to be learned when reading Napoleoni’s book is that the terror economy, valued by her at $1.5 trillion per annum, is so integrated with our traditional economy that to attack it has economic consequences for our own society. And it puts an interesting angle on some of the anti-American posturing that occurs in Europe, when you realise that much of the money that fled America, after the introduction of the Patriot Act, came to Euro zone banks. “In the last chapter of the book,"continues Napoleoni," I analyse the economic consequences of 9/11, and you can see that the Dollar has suffered tremendously. The attempt by the US to stop this flow of money into the US has actually backfired, because it is the reason why we had the beginning of the fall in the Dollar. If you talk to bankers, they’ll tell you that they don’t like the Patriot Act. People in the banking system don’t like to be investigated, they don’t like to have their clients investigated, and above all they don’t like the imposition of responsibility, which is not really their responsibility, i.e. tracking the dirty money. The really negative side of the Patriot act for bankers is that it’s now a criminal offence if you don’t report suspicious activities". Napoleoni is no stranger to financial institutions, having worked in both the IMF and the European Bank for Reconstruction and Development. She continues:"I spoke to a US banker just last week, the manager of a small bank in the US, and she told me that she had a situation where there was a suspicious account, where she didn’t really know what was happening. So she called the IRS [Internal Revenue Service] and asked should she report it. They said, “You don’t want to go there – it’s too complicated. Just close the account”. It’s interesting isn’t it? Even in the United States, this checking is not welcome, because nobody wants to get into this particular chain of events".

She continues:" a consequence of this is that we’re not actually tracking the money, as it’s not entering the US any more. There’s been no discovery through the Patriot Act of any important account from terrorism. This money is now coming into Europe, because Europe is relatively open. The impact of this is the fall of the Dollar and the rise of the Euro". Something that has rarely, if ever, been discussed in the media. "This gives us another example of how powerful this terrorist economy is, even more so as it’s a cash economy. What would happen if from one day to the next, or within a short space of time, we succeeded in defeating this economy? Clearly we’d go into recession, because, as in the case of the US, we’d have a depreciation of our currencies. The truth is, in a globalised world, it’s impossible to block this money. If they can’t come in through the Dollar, they’ll use the Euro, if they can’t use the Euro, they’ll use the Rouble or the Chinese currency. One way or another they’ll come in. The real problem is how do we stop it, in a globalised economy. I think the way we stop it is not so much looking at the money but the 'flows' of money, looking at where this money is going. You have to try to block the interdependencies at a commercial and financial level.

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