The Honorable Juan C. Zarate served as Deputy Assistant to the President and Deputy National Security Advisor for Combating Terrorism from 2005 to 2009. He was responsible for developing and implementing the U.S. government’s counterterrorism strategy and policies related to transnational security threats. Mr. Zarate was the first-ever Assistant Secretary of the Treasury for Terrorist Financing and Financial Crimes. He is the chairman and co-founder of the Financial Integrity Network, the senior national security analyst for CBS News, and a visiting lecturer of law at the Harvard Law School. Mr. Zarate is the CTC’s Class of 1971 Senior Fellow.
CTC: This month you testified in front of the Senate Homeland Security Committee about the terrorist threat in Europe and its effect on the threat to the U.S. homeland. What can we learn from your testimony?
Zarate: The attacks in Brussels, like those in Paris in November 2015, were shocking but not surprising. The concern that ISIS or al-Qa`ida would leverage foreign fighters and embed them back into Western societies has now come to pass. Europe suffers from a serious counterterrorism problem, stemming from fundamental, interrelated problems.
ISIS has trained and deployed Europeans back into Europe to perpetrate sophisticated attacks, and authorities are playing catch-up, with an unclear sense of the expanse of the terrorist networks. Many of the transnational networks that have long served violent extremist causes, to include prison and criminal networks, have been coopted or repurposed by ISIS for their European strategy. Embedded recruitment pipelines, often led by charismatic clerics, have supplied hundreds of recruits. Terrorist networks unearthed or involved in recent attacks have tended to have a common ideological and operational lineage with ties back to known radical elements and operatives.
Francophone cells—comprised of French, Belgian, and dual nationals—have proven a lethal network for ISIS attack plotting in Europe. These Western operatives have been trained to evade scrutiny, engage in operational security, including the use of encryption technologies, and execute strategic attacks in concert. The sheer volume of potential operatives, along with unknown actors, has overwhelmed even the best European services.
This is exacerbated by intelligence blind spots and a lack of real-time information-sharing within Europe, a clear mismatch of capabilities, a failure of security forces to cooperate across borders, and a reactive security paradigm.
And of course, a serious, long-term challenge for European authorities lies in the deep pockets of radicalization embedded in particular communities and neighborhoods. Such neighborhoods have served as breeding grounds and micro safe havens for violent Islamic extremists, ideologues, and recruitment. Factors such as economic and social isolation of immigrant communities and failed integration policies, along with festering questions of individual identity, loyalty, and alienation, have fueled these hot spots of radicalization.
The problem of disaffected communities and marginalized individuals will only be exacerbated with new refugees flowing into Europe, and the difficulty of their economic and social integration across Europe, and the potential for the fueling of right-wing reactionary forces. The refugee crisis offers ISIS strategic advantages of using the flows to infiltrate operatives back into Europe, increasing destabilizing pressure on Europe’s economies and structures at time of social and institutional fragility, and the potential of future radicalized refugees if they can be recruited and are not well integrated or insulated from such radical forces.
All of this impacts U.S. security directly. Concerns over the visa waiver program are real, and the demonstration effect of successful terrorist attacks in the West can motivate radicalized individuals to attack. The growing sophistication of the networks in Europe reflects a graduation of capabilities, with operatives able to execute strategic attacks under the noses of European authorities focused on preventing such attacks. These adaptations are likely to continue, and those could ultimately be reflected in the United States, with terrorists sharing methodologies.
Ultimately, the United States needs a strong Europe to be an active partner in counter-terrorism across the board. We are at war together.
CTC: In your book Treasury’s War, you were part of a team in the Treasury Department that revolutionized how the United States went after al-Qa`ida and other terrorists financially after 9/11. Today we are using many of those same tools, but the Islamic State appears to have a much more diversified financial portfolio from which to support itself. Are our financial tools therefore less effective against the Islamic State?
Zarate: The U.S. government has become very good at using financial power, economic influence, and Treasury tools to isolate and unplug America’s enemies from the global financial and commercial system—ultimately, making it harder, costlier, and riskier for them to raise and move money around the world. This playbook is still effective, but it needs to be continuously refined to account for the adaptations of the enemy.
Terrorists groups have grown more independent and innovative in developing self-funding mechanisms while individual members and cells use local means to raise necessary funds. ISIS runs a war economy, with a diversified portfolio providing them income. Their ability to control significant territory, with populations to tax and resources to exploit, has allowed them to govern and expand their operations. Revenue from running oil operations in Iraq and Syria has been a major source of revenue for the group—as it has taken advantage of the black market in oil and old Iraqi oil smuggling routes and as it has developed mobile refineries and transport to transact with brokers, including even the Assad regime in Syria.
We’ve had to accelerate our understanding of how ISIS is doing business and moving money within its territory and beyond. We can certainly squeeze key chokepoints for the ISIS economy where it touches the regional and global financial system, including by isolating the financial institutions that sit in ISIS-controlled territory. Ultimately though, we have had to recognize that a major enabling factor for financing is ISIS control of territory and real resources—and that we have to dislodge the group physically. There is no magic button at Treasury that allows us to do this.
This is why economic disruption is a key element of the war plan against ISIS. The U.S. and coalition airstrikes—including on cash distribution centers—and pressure on the ground have dislodged the Islamic State from some of its oil infrastructure and put real pressure on its economy.
CTC: What is our biggest constraint in going after the Islamic State financially? What could or should we be doing in the financial realm that we are currently not doing? What are we doing that is working well that we should double-down on?
Zarate: The constraints on our financial gameplan have been twofold: a lack of good information about the specifics of the ISIS economy and its continued control of territory that allows them access to populations and resources, like oil, antiquities, and granaries. There is also the problem that ISIS—in occupying major urban centers—has created economic defensive shields, understanding that we are not going to bomb all the banks in Mosul or starve the economy of millions of people. There are material constraints to what we can do while ISIS controls real territory and populations.
We don’t need more legislation, but we do need better intelligence, strong partners on the ground, and sustained political will and attention to disrupt ISIS financing, to include the physical disruption of its hold on territory. We also need to work closely with our allies and the private sector to determine how effectively to isolate terrorist economies. Treasury has been doing a good job of attacking this problem with its authorities and relationships. Financial intelligence, tools and suasion, enforcement, and financial diplomacy can all be used aggressively to attack terrorist and illicit financing as it hits key chokepoints and the financial system.
CTC: You are part of a special CSIS Commission on Countering Violent Extremism that is co-chaired by Tony Blair and Leon Panetta and strategically timed to influence policy in the next administration. Where do we need to go with CVE moving forward? What models have been successful, and what obstacles stand in our way to do better in this domain?
Zarate: The purpose of the CSIS CVE Commission is to provide the new administration and allies around the world with recommendations on how to address the long-term challenges and threats of violent extremism and ideologies animating ISIS and others movements. We are losing the broader “battle of ideas” against a violent extremist ideology that is infecting a whole new generation of Muslim millennials and defining what it means to be Muslim in the 21st century.
But this is a long-term battle, and we have assets, allies, and ideas on our side. The vast majority of Muslims are not drawn to the ideology, and Muslim voices and activists are speaking against extremism. This is precisely why ISIS has targeted some of them openly and why voices of moderation have come under direct attack in places like Bangladesh. Mothers and victims of terrorists have organized chapters and spoken out against radicalizers. Former extremists have organized to counter recruitment and the ideology on the streets, in campuses, and online. Muslim youth, imams, and entrepreneurs have developed on-line platforms to organize against extremism.
Attempts to amplify these and other credible voices and create new platforms for expression and a sense of modern identity not dictated by terrorists have worked on a small scale. All of these efforts must be scaled up dramatically. Networking, empowering, funding, and enlisting credible voices are critical, and this has to be done not just by governments but also by civil society, NGOs, and philanthropists.
Governments need to provide consistent strategic focus, funding, and a willingness to let a thousand flowers bloom. This includes seeding investments in this space—like a “CVE In-Q-Tel”—to allow for investment in innovation to counter the messaging and manifestations of extremism. And then we need to scale those projects and networks that have proven successful with real effects.
CTC: Many argue that the United States and the West in general are at an obvious disadvantage in influencing Muslim hearts and minds. What role should the U.S. government play here? How can our government empower private sector entities, NGOs, and Muslim communities to take the lead in this fight in the United States and around the world?
Zarate: Through two administrations, the United States has struggled to counter this ideology. The U.S. government is neither expert nor credible in confronting an ideology grounded in interpretations of Islam. Yet we cannot abdicate taking the ideological fight to the enemy nor hope that these groups will alienate themselves into extinction with their brutality. And we cannot simply assume that our allies—especially in Muslim communities—can defend against the threat of terror and the allure of the ideology on their own.
America must lead—empowering, enabling, and defending networks, communities, and individuals willing to confront the ideology. This includes not just counter-messaging but confronting directly the outbreaks and manifestations of this ideology, as with a pandemic. This requires empowering a new type of coalition—a network of networks—that not only counters the extremists’ narrative and seeks to intervene and replace it, but also gets ahead of it through inoculation.
And the new and virulent manifestations of these threats offer opportunities to create new alliances and networks to confront the ideology—from human rights and women’s groups to archaeologists and conservationists. International security forces and private stability operations teams could be enlisted to protect vulnerable populations, sites, individuals, and species against violent extremists. This ideological fight is not just about terrorism. These are enemies of humanity—attempting to spread their ideology while reshaping borders, history, and identity.
CTC: In your guest lecture with our cadets, you discussed the importance of properly conceptualizing the risk and its impact on influencing national security policy? Some portray the Islamic State as an existential threat to the United States and its allies, while others seem to downplay the risks posed by the group relative to other national security threats. Where do you stand? What is at stake if we get this perception of risk wrong?
Zarate: Assessing threats and classifying the risks from terrorism are a fundamental part of how we calibrate our response, devise our policies and strategies, and ultimately make decisions about what the nation will do to defend itself. If we underestimate the threat, we run the risk of ignoring threats as they gather and then will have to react when it’s too late. If we overestimate the risk, we may overreact, overextend, and misallocate our resources. We also need to be precise about the threats we are facing and allow for a “taxonomy” of threats that we constantly evaluate.
In this regard, we’ve heard the President talk about ISIS and terrorism not being an “existential” risk. Recalibrating and rationalizing risk is the right instinct, but articulating this in terms of “existential risk” has a strategically dangerous effect. This has the potential to dull the sense of urgency to confront the real and quickening strategic threat from ISIS and the movement that may follow.
Expressing a threat as an “existential” risk suggests a final stage of a manifested threat that could collapse a society. Using this construct as the benchmark that defines the nature, scale, and pace of U.S. interests and response to global terrorism distorts a more strategic and global view of the gathering threat. It doesn’t account for the very real threat posed to our closest friends and allies, many of whom are fighting for their survival, as well as the externalities of terrorism like refugee flows and instability.
More importantly, such a maximalist formulation doesn’t account for the reality that ISIS continues to adapt very quickly and may present new and more dangerous threats to U.S. and allied interests – from use of WMD to cyber attacks. Significantly, defining threats through the lens of “existential risk” doesn’t fully recognize that a series of smaller-scale attacks—choreographed properly—could have broad social effects and political impact that affects the trajectory of nations and societies. We are seeing this in Europe now.
CTC: On the heels of the attacks in Paris and Brussels, what do you make of the current Islamic State threat in Europe? Do you see these attacks as part of a paradigm shift in the group’s strategy moving forward, or is it an act of desperation of an organization on the decline in Syria and Iraq?
Zarate: This was a strategy not triggered by provocation or weakness, but is rather a deliberate part of ISIS’ long-term planning. Failing to understand and anticipate ISIS’ intent and capabilities has led to some misguided assumptions that have now been shattered in the wake of the attacks in Paris and Brussels. As part of its broader strategy of confrontation and establishment of the caliphate, ISIS has intended to confront the West. This can be seen in that while it was creating its caliphate and expanding its provinces to places like Libya and Yemen, ISIS has been simultaneously planning to strike the West, using Western operatives flowing into the conflict zone by the thousands, and has openly attempted to inspire singular attacks by sympathetic radicals in Western societies. It has built these capabilities over time and taken advantage of intelligence and security gaps to implant operatives in Europe.
This should not have come as a surprise to those watching ISIS erase the border between Iraq and Syria, occupy major cities in the Middle East, and take advantage of the safe haven it has established and the foreign fighters flowing in and out of the region. Almost two years ago, my colleague, Tom Sanderson, and I wrote an op-ed in The New York Times detailing the story of the sale of Belgian passports on the Syrian-Turkish border. Indeed, with the thousands of foreign fighters traveling to terrorist-controlled territory and others animated by the allure and narrative of a historic and heroic caliphate battling infidel forces, ISIS and al-Qa`ida can more easily mobilize attacks against the West.
CTC: How does European CT need to respond to this threat? What is the United States’ role here, and what can it do to best help our European allies?
Zarate: The United States and Europe are facing a common terrorist enemy. The United States must work closely with its European partners—to enable, support, and lead where necessary—to disrupt the short and long-term threats from terrorism.
The United States, Europe, regional partners, and the international community must deny physical safe haven and territory to terrorist groups – and ultimately wrest control of territory back from ISIS and al-Qa`ida. It is in these terrorist archipelagos now occupied and governed by terrorist groups that they are able to plot, train, interact, and adapt. In concert with Europe, the United States should help enable local proxies and allies on the ground to fight ISIS and al-Qa`ida directly.
The United States should enable European partners by spurring even greater intelligence- and information-sharing, forcing European partners to sit together to understand the unfolding threat and determine or establish new mechanisms to increase real-time information sharing tied to terrorist suspects and plots. This becomes critical as ISIS establishes or expands beachheads in places like Sirte, Libya, and the Sinai. The West needs to defend against expeditionary terrorism coming from new safe havens.
The United States and Europe also need to work to undermine the ideology that animates the violent Sunni extremist movement. Finally, we must push government agencies to imagine the unimaginable and not underestimate the will and capacity of global terrorist organizations to strike Europe and the United States.
CTC: The fight for Mosul has apparently begun. How does it end?
Zarate: I have no doubt that Iraqi forces, supported by the Kurds, the United States, and the broader coalition, will retake Mosul. The question will be when, with how much bloodshed and cost, and whether Mosul and surrounding territory can be held, rebuilt, and defended. The longer we wait to retake Mosul, Raqqa, and key population centers, the harder it will be to dislodge ISIS from its strongholds and disrupt ongoing terrorist activities. Importantly, demonstrating that ISIS is losing in the physical space—and losing its hold on the caliphate—will begin to shatter the myth of ISIS victory and the allure of the caliphate to the global movement. This is essential to stunting the expansion of the movement.
CTC: What is one thing that U.S. counterterrorism officials should pay more attention to that they are not?
Zarate: I worry about the quickening of the terrorist threat and the innovative adaptations from ISIS, al-Qa`ida, and related terrorist networks—including dangerous new attack methodologies, use of chemicals weapons, evolving cyber capabilities, creative and attractive leveraging of social media, and governance models. All of this is happening in an unstable and unmoored global environment where governance and authorities are challenged and asymmetric capabilities and awareness are growing.
U.S. counterterrorism officials should never underestimate the creativity of committed global terrorists, especially when they have time, space, and resources to adapt. We certainly shouldn’t overestimate the enemy or hype threats, but we should never fall prey to underestimating them or suffer again from a failure of imagination. We should always be asking, “What comes next?”
The views expressed here are those of the author and do not reflect the official policy or position of the Department of the Army, Department of Defense, or the U.S. Government.
 Juan C. Zarate and Thomas M. Sanderson, “How the Terrorists Got Rich,” New York Times, June 28, 2014.