Saturday, July 25, 2009

Terrorist Overhead

Matthew Levit, over at Counterterrorist Blog makes a very important point:

Along these lines, a report of the Financial Action Task Force (FATF), an international body focused on anti-money laundering and combating terror finance, found that while financing any singular attack may be relatively inexpensive compared to the damage incurred, “maintaining a terrorist network, or a specific cell, to provide for recruitment, planning, and procurement between attacks represents a significant drain on resources. A significant infrastructure is required to sustain international terrorist networks and promote their goals over time.” Creating and maintaining such support and facilitation networks, FATF concluded, requires significant funds.

This FATF study, Terrorism Financing,” Financial Action Task Force, February 28, 2008, available online at http://www.fatfgafi.

Basically, what Levitt and the FATF are stating is that terrorist networks, in addition to their direct costs of such items as setting of IADs, also have substantial overhead: bribery costs, smuggling expenses, money laundering depletion, propaganda expenses, and so forth.

Overhead is a well known part of cost accounting. When, for example, you purchase a shirt from a department store, its cost involves more than just the cost to get it from the Chinese sweat shop that made it. It also includes the rent for the store, its heating and electricity, its property tax, the janitor's minimum wage ( assuming he is not an illegal immigrant working for less ), and so forth.

One of the true marvels of modern capitalism, perhaps even more than derivatives and other "complex financial instruments," is cost accounting - which basically is the ability to squeeze these overhead costs to a minimum. Which explains why your department store does not actually hire the janitor, but rather has outsourced janitorial services to a third party. So it doesn't have to pay the janitor benefits and can disclaim responsibility when the immigration authorities stage a raid.

So we should realize that terrorist networks, although more abstract and disembodied, are like department stores in that they have to maintain and market themselves and so forth.

Terrorists, drug kingpins, and the like enjoy full access to accounting services. Accordingly, we should conclude that their cost accounting exploits at least match your department stores'.

The resulting permutations should be interesting.

1 comment:

  1. As expected from D.K., the analysis is insightful. I didn't know that you had a blog.

    I think it's important to note that terror, like computer game design, is a glamor industry. It has low labor costs because many people are highly motivated to break into the industry.