Explainer: Terrorists' Financial Assets

On Monday, President Bush announced an executive order freezing the assets of organizations linked to known terrorists. But exactly what does it mean to freeze assets? As the campaign against terrorism moves to the world of finance, here are answers to that and other questions.

What Does it Mean to 'Freeze Assets'? The term "freezing assets" is often used to cover a variety of law-enforcement actions that prevent parties in question from making significant financial transactions. For instance, suspects arrested in financial fraud cases may have their assets frozen by the presiding judge to prevent them from quickly transferring money to foreign bank accounts.

In this case, Bush's executive order means that the 27 parties named are effectively prevented from doing business in the United States, and that their banks must halt any of their transactions. The Office of Foreign Assets Control, a branch of the Treasury Department, sent out a bulletin containing Bush's executive order and asked for banks to immediately notify the government of their compliance with the order.

The executive order also states that if an international bank conducts business with known terrorist groups, Treasury Secretary Paul O' Neill can order the suspension of that bank's U.S. business — a potentially more powerful tool in the long run. The Executive Order

Whose Assets Were Frozen? Of the 27 parties mentioned, 12 are individuals, 11 are known terrorist groups, three are charitable organizations and one is a German-based business. The Bush administration probably will add more names to its list as the investigation of worldwide terrorist networks continue. Executive Order: the Sanctions List

Will This Help Show Who Ordered the Sept. 11 Attacks? Not necessarily. The FBI continues to follow the money trail coming from the four Sept. 11 hijackings, tracing credit card purchases and receipts of other financial transactions. But the government also thinks the total amount of money spent on the hijackings may only total about $500,000 — for flying lessons, airline tickets, rental cars, apartments, and other expenses.

This executive order is geared more strictly toward limiting the long-term flow of the large amounts of money terrorist groups — especially Osama bin Laden's al Qaeda network — need to set up and maintain operations such as their training camps around the globe, as well as weapons purchases. The Investigation: Read the Latest

Has the United States Ever Tried This Before? The Clinton administration enacted three similar executive orders in the 1990s dealing with terrorists and, specifically, bin Laden. The first, in 1995, seized assets from those deemed to be hurting the Middle East peace process. The second, in August 1998, prohibited financial transactions in the United States if they involved bin Laden. And the third, in July 1999, prohibited financial transactions involving Afghanistan's ruling Taliban group.

The 1998 order did not have any apparent effects, since bin Laden was deemed not to have any assets in the United States at the time. But the 1999 ruling led to the seizure, in July 2001, of $255 million in Taliban-controlled assets.

Following bin Laden's Finances

How Does the U.S. Government Track These Larger Transactions? As part of U.S. banking regulations, transfers of money of more than $10,000 must be reported to the government by banks and other financial institutions. That provides a record of the movement of funds — and often leads terrorists or others transferring illegal funds to use complicated systems of multiple transfers, bogus holding companies, and other tactics intended to throw investigators off the trail.

How Do Terrorists Handle Smaller Amounts of Money? It seems likely that a great deal of the illegal financial activities of terrorists are conducted in cash. But it is possible for other international financial transactions to take place on a small basis through informal, under-the-radar financial businesses. According to some news reports, the Bush administration is also examining ways to crack down on the hawala or hundi, the name for the small, storefront money centers that allow funds to move back and forth between the United States and the Middle East with barely a trace. Video: Hawala Explained

What About Money Laundering? Do Terrorists Engage in it?

Money laundering is the process by which illegally earned funds — from drugs, arms deals or other activities — enter into the legitimate financial system. Though many different methods are used, typically the cash proceeds of a criminal enterprise will be slipped into the revenues of an apparently legal company owned by or affiliated with the criminals in question.

Some of the funding for terrorists presumably comes from illegal, laundered money, but it is not the main thrust of the Bush administration's terrorist investigation. Additionally, experts think drug trafficking, not terrorism, is the main worldwide source of money-laundering activity. According to the Financial Crimes Enforcement Network (FinCEN), another branch of the Treasury Department, drug dealing "generates tens of billions of dollars a year" in laundered money. And while some estimate that a worldwide total of $50 billion to $100 billion is laundered annually, a FinCEN statement notes that many investigators think "it is simply not possible to pinpoint the amount."

What About These Stories That the Terrorists Profited on the Stock Market? And What Is 'Selling Short' or Using A 'Put,' Anyway? Part of the government's investigation of the Sept. 11 plot involves scrutinizing heavy selling in the stock market in the weeks before the hijackings, including the dumping of airline stocks that were later hurt as a result of the attacks.

In general, "selling short" on a stock means getting rid of it at a higher price, usually with the intention of buying it later for less. A "put" is a kind of trade in which investors bet that a stock will go down; they can sell shares — even if they don't own any at the time — and buy them back later. Among other things, an unusually large amount of "put" options were exercised in August on American Airlines and United Airlines, the two carriers whose planes were hijacked and crashed. Investigators continue to look into the situation.

Did Terrorists Know Which Stocks Would Drop?