U.S. administrations before and after 9/11 have utilized sanctions as part of counter-terrorism tools. The Trump administration recently strengthened the sanctions measure to counter terror globally. How do sanctions work as part of counter-terrorism? More specifically, are they effective in reducing terrorist attacks? We assess the effects of counter-terrorism sanctions by looking at the trend in terrorist attacks before and after the sanctions imposition by the United States with the designation of Foreign Terrorist Organization (FTO). We argue that the effectiveness of counter-terrorism sanctions in reducing terror attacks crucially depends on the adaptability of terrorist organizations. The adaptability comes from the diversity in initial financing sources, ranging from private donations, criminal activities, state sponsorship, and terrorist networks. More diverse source of funding guarantees the resource shifts, such as Al-Shabaab moving from charcoal sales to civilian taxation and the Islamic State moving from oil trade to antique trade. The resource-shifting adaptability has consequences for attacks since sanctions would have limited effects on terrorist attacks. To test our idea empirically, we trace the adaptation to sanctions in three generations of the FTO groups, the first generation before 9/11, the second generation of Al-Qaeda affiliates, and the third generation of Islamic State affiliates. We also provide a statistical test of a global sample of terrorist groups between 1990 and 2007 estimating the effect of adaptability on the counter-terrorism sanctions effectiveness. We find, in most cases, sanctions are ineffective because terrorists adapt. The finding have important implications for sanctions as a counterterrorism tool.