There’s a fascinating item in the latest issue of The Economist (you’ll need a subscription to read the whole thing, though) about how Western crackdowns on terrorist accounts with traditional banks have led al-Qaeda and related groups to start exploring alternate channels through which very small amounts of money can be shuttled around nearly anonymously:

[Regulators] are turning their attention to charities and to unregulated systems, such as hawalas, a popular method of transferring money in the Gulf and South Asia that leaves almost no paper trail.

The smaller the sums involved, the bigger the problem for the regulators. Anyone wanting to send up to $1,500 daily can do so anonymously. They can walk into a hawala broker in say, Karachi, and hand over the money in cash. The broker makes a phone call to the recipient’s nearest hawala dealer, who simply pays him from his own account. It is all done on trust, handwritten records are kept but the money never moves through the banking system.

Before September 11th, al-Qaeda had no need for hawalas. It financed its activities through banks in Dubai and elsewhere, wiring lump sums to wherever it wanted. Now, it may be looking for more secretive channels…

[T]errorism of the al-Qaeda sort does not need a lot of money. The attacks on September 11th cost $500,000 at most.

Western authorities say that this is a sign of weakness on the part of the terrorist groups, not strength, and I think they’re at least in part correct — after all, anything that forces al-Qaeda to drive their operations further underground and adds complications to their planning isn’t good for them. However, the use of these kind of small-scale networks is also somewhat unsettling in that it seems very typical of the tactics of asymmetric warfare that the U.S. so far has shown little ability to counter. Let’s just hope that the hawala network doesn’t scale…