GLOBAL GUERRILLA FINANCING

Al Qaeda's shift from conventional terrorism to global guerrilla sabotage tactics will allow them to make money through the manipulation of financial markets. The sabotage of systems -- corporations, infrastructure, and networks -- can have a major impact on global stock and commodity markets. Access to these markets is easy and the returns are rapid (markets can make signficant moves in minutes and the returns extracted in about as much time). This is particularly worrisome if al Qaeda increases their use of mercenaries to expand their operations. Here are three attack types and the mechanisms by which to profit from them:

• Focused attacks. These attacks target specific corporations. Likely targets: corporate headquarters, large plants, and senior management. For example, a release of low-grade (hospital level) radioactive material on the Microsoft campus would likely lop off a high percentage of Microsoft's market value. The best way to gain from this attack would be to buy put options (options that gain in price as the stock goes down) or make short sales on MSFT. Through easily set up "cut-out" accounts that trade on the largest markets, the financial return could easily be in the tens of millions.

• Area attacks. An indirect method that uses financial mechanisms to gain from the damage to companies that have facilities or personnel in the "area" of a given attack -- within the blast area or downwind. The potential of multiple targets within the target area offers the potential of several parallel investment vehicles (a form of vicious diversification). The main benefit of "area attacks" is that it is possible to hide the true motive/target of the attack within a larger context.
  
  
• Supply chain attacks. Another indirect method would be to benefit from damage to companies that are reliant on goods and services of the primary targets of the attacks. Supply chain attacks can also enable financial gain through the elimination of a key competitor (in a market with few, but highly interchangeable competitors) or through price accumulation in a critical resource. A good example is oil, where the elimination of any significant amount of production will drive up prices for this commodity. Financial gain would be accomplished through the purchase of futures contracts and call options.

Rapid Enforcement Mechanisms
The shift to this strategy will likely occur rapidly. Unfortunately, the mechanism needed to mitigate its impact will likely take a long time to arrive if we are merely reactive in our posture. The systems needed will take a long time to develop. A smart strategy would be to extend the current anti-terrorist financing task force (a mostly forensic joint Treasury/FBI/IRS operation) to include the following powers before this becomes a trend:

• Short sales and put options. The are currently mechanisms that prevent trading on a stock. The power to implement this trading ban should be part of the task force's arsenal of tools. The delay will enable the task force the time needed to investigate accounts with suspect trades in place. In the case of area attacks, the task force should work with insurance data suppliers that track the influence an attack will have on buildings/facilities/companies in the area. This data will allow quick reaction to area attacks.

• After hours trading systems. The popularity of Instinet and Island "matching networks" complicate the situation since they allow trades to occur after normal market hours. An attack that occurs in the middle of night could cause rapid price shifts in the after-hours market. The task will need to both establish ties with these networks to prevent trading in damaged companies and operate on a 24-hour basis. Rapidity is key here -- minutes and not hours.

• Uncontrolled global markets. Some markets will be impossible to control. They are both too vast, too global, and too important to stop trading (oil for example). In this case, the emphasis should be on rapid forensic analysis of suspicious trades (particularly rapid turn-arounds). This analysis should be computerized for rapidity and generate a rapid interview process (in concert with global law enforcement) with suspected "investors."

NOTE: Although there have been reports of al Qaeda's use of this technique during 9/11, it is still likely an outlier activity. The vast majority of attacks have relatively little influence on markets.

Comments

[J.]

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[matthew hester]

terrorist have unlimited funds....they plan to have america destroy its self from "inner" economic collapse.."destroying and then instantly benifiting from it..i did not know that terrorist acted in this way....damn i feel like bush is the anti christ..

[Sandy]

Gangs are only a result of the poverty caused by the capitalist wage system, which is also slavery because employees are slaves. And most companies never should have existed.

If USA had ended the wage in 1865 (after Civil War) & begun to teach all people to work part-time (10/week) building only live/work towers connected to trains, & had Democratic Socialism, then no gangs or terrorists, or wars or crimes, would have happened since that time.

[tbrucia]

A general comment: It's interesting that physical structures are designed with redundancies and backups (e.g. fighterjet control systems), whereas financial and economic systems are frequently designed to 'cut out the fat' thereby rendering them more fragile. Yet there are exceptions. The backup systems post 9-11 for Wall Street are both robust and (as are all backups) examples of redundancy. It would be interesting to see systematic modeling of societies -- including their financial and economic systems. The models (to be realistic) would perforce have to include feedback loops, non-linearities, etc, making them similar to programs used to forecast weather. Beyond forecasting categories of disaster and critical nodes which would create havoc, the use of such models would (theoretically) allow the design of alternative routings, redundancies, etc. It seems to me that identifying vulnerabilities is simply the 'first baby step' toward creating quantification, formulization, and inclusion in forecasting models. (I'm not trying to minimize the importance of identifying vulnerabilities; simply pointing out it's insufficient....)

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