[Senate Hearing 108-802]
[From the U.S. Government Publishing Office]
S. Hrg. 108-802
COUNTERTERROR INITIATIVES
IN THE TERROR FINANCE PROGRAM
=======================================================================
HEARINGS
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
FIRST AND SECOND SESSIONS
ON
COUNTERTERROR INITIATIVES IN THE TERROR FINANCE PROGRAM, FOCUSING ON
THE ROLE OF THE ANTI-MONEY LAUNDERING REGULATORY REGIME IN THE
FINANCIAL WAR ON TERRORISM, BETTER UTILIZATION OF TECHNOLOGY, INCREASED
INFORMATION SHARING, DEVELOPING SIMILAR INTERNATIONAL STANDARDS, AND
THE FORMATION OF THE TERRORIST FINANCING OPERATIONS SECTION (TFOS)
__________
SEPTEMBER 25, OCTOBER 22, 2003, APRIL 29, AND SEPTEMBER 29, 2004
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
RICHARD C. SHELBY, Alabama, Chairman
ROBERT F. BENNETT, Utah PAUL S. SARBANES, Maryland
WAYNE ALLARD, Colorado CHRISTOPHER J. DODD, Connecticut
MICHAEL B. ENZI, Wyoming TIM JOHNSON, South Dakota
CHUCK HAGEL, Nebraska JACK REED, Rhode Island
RICK SANTORUM, Pennsylvania CHARLES E. SCHUMER, New York
JIM BUNNING, Kentucky EVAN BAYH, Indiana
MIKE CRAPO, Idaho ZELL MILLER, Georgia
JOHN E. SUNUNU, New Hampshire THOMAS R. CARPER, Delaware
ELIZABETH DOLE, North Carolina DEBBIE STABENOW, Michigan
LINCOLN D. CHAFEE, Rhode Island JON S. CORZINE, New Jersey
Kathleen L. Casey, Staff Director and Counsel
Steven B. Harris, Democratic Staff Director and Chief Counsel
Skip Fisher, Senior Professional Staff
John O'Hara, Senior Investigative Counsel
Stephen R. Kroll, Democratic Special Counsel
Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator
George E. Whittle, Editor
(ii)
C O N T E N T S
----------
THURSDAY, SEPTEMBER 25, 2003
Page
Opening statement of Chairman Shelby............................. 1
Opening statements, comments, or prepared statements of:
Senator Bunning.............................................. 2
Senator Schumer.............................................. 12
Senator Corzine.............................................. 13
Senator Sarbanes............................................. 14
Senator Grassley............................................. 30
WITNESSES
David D. Aufhauser, General Counsel, U.S. Department of the
Treasury....................................................... 3
Prepared statement........................................... 31
John S. Pistole, Assistant Director, Counterterrorism Division,
Federal
Bureau of Investigation........................................ 5
Prepared statement........................................... 36
E. Anthony Wayne, Assistant Secretary for Economic and Business
Affairs,
U.S. Department of State....................................... 8
Prepared statement........................................... 42
----------
WEDNESDAY, OCTOBER 22, 2003
Opening statement of Chairman Shelby............................. 47
Opening statements, comments, or prepared statements of:
Senator Sarbanes............................................. 48
Senator Bunning.............................................. 49
Senator Allard............................................... 56
Prepared statement....................................... 87
Senator Schumer.............................................. 59
WITNESSES
Richard A. Clarke, former National Counterterrorism Coordinator,
National
Security Council............................................... 49
Prepared statement........................................... 87
Louise Richardson, Executive Dean, Radcliffe Institute for
Advanced Study,
Harvard University............................................. 67
Prepared statement........................................... 91
Jean-Charles Brisard, CEO, JCB Consulting International.......... 70
Prepared statement........................................... 95
Matthew A. Levitt, Senior Fellow in Terrorism Studies, The
Washington
Institute for Near East Policy................................. 74
Prepared statement........................................... 110
Additional Material Supplied for the Record
Letter to Senator Richard C. Shelby and Senator Paul S. Sarbanes
from Stephen J. Brogan, Managing Partner, Jones Day, dated
October 30, 2003............................................... 128
----------
THURSDAY, APRIL 29, 2004
Opening statement of Chairman Shelby............................. 133
Opening statements, comments, or prepared statements of:
Senator Sarbanes............................................. 134
Senator Bennett.............................................. 135
Senator Dole................................................. 136
Senator Allard............................................... 136
Prepared statement....................................... 169
WITNESSES
Samuel W. Bodman, Deputy Secretary, U.S. Department of the
Treasury....................................................... 136
Prepared statement........................................... 169
William J. Fox, Director, Financial Crimes Enforcement Network,
U.S.
Department of the Treasury..................................... 159
Prepared statement........................................... 181
R. Richard Newcomb, Director, Office of Foreign Assets Control,
U.S.
Department of the Treasury..................................... 161
Prepared statement........................................... 187
Nancy Jardini, Chief, Criminal Investigation, Internal Revenue
Service........................................................ 163
Prepared statement........................................... 201
----------
THURSDAY, SEPTEMBER 29, 2004
Opening statement of Chairman Shelby............................. 209
Opening statements, comments, or prepared statements of:
Senator Reed................................................. 210
Senator Enzi................................................. 210
Senator Stabenow............................................. 212
Senator Crapo................................................ 212
Senator Bunning.............................................. 212
Prepared statement....................................... 260
Senator Sarbanes............................................. 223
Senator Carper............................................... 227
WITNESSES
Lee H. Hamilton, Vice Chair, The National Commission on
Terrorists Attacks
Upon the United States, A Former Representative in Congress from
the
State of Indiana............................................... 213
Prepared statement........................................... 260
Slade Gorton, Commissioner, The National Commission on Terrorists
Attacks
Upon the United States, A Former U.S. Senator from the State of
Washington..................................................... 214
Prepared statement........................................... 260
Mallory Factor, Chairman, Mallory Factor, Inc.................... 234
Prepared statement........................................... 264
Lee S. Wolosky, Of Counsel, Boies, Schiller & Flexner, LLP....... 236
Prepared statement........................................... 267
Stuart A. Levey, Under Secretary, Terrorism and Financial
Intelligence,
Under Secretary for Enforcement, U.S. Department of the
Treasury..................................................... 245
Prepared statement........................................... 272
Response to a written question of Senator Enzi............... 288
Michael J. Garcia, Assistant Secretary, U.S. Immigration and
Customs
Enforcement, U.S. Department of Homeland Security.............. 247
Prepared statement........................................... 280
John E. Lewis, Deputy Assistant Director, Counterterrorism
Division,
Federal Bureau of Investigation................................ 250
Prepared statement........................................... 283
COUNTERTERROR INITIATIVES IN
THE TERROR FINANCE PROGRAM
----------
THURSDAY, SEPTEMBER 25, 2003
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:06 a.m., in room SD-538, Dirksen
Senate Office Building, Senator Richard C. Shelby (Chairman of
the Committee) presiding.
OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY
Chairman Shelby. Good morning. The hearing will come to
order.
Today is the first in a series of hearings concerning the
difficult issues surrounding the financing of terror. The
unique and broad jurisdiction of this Committee will allow us
to conduct a comprehensive review of the administration's
campaign to ``starve the terrorists of their funding.'' Indeed,
President Bush recognized the need for this campaign, and
within 2 weeks of September 11, 2001, stated, ``Money is the
lifeblood of terrorist operations today. We are asking the
world to stop payment.'' Terror financing takes on an
international dimension that seeks to use to its advantage the
global economy and a financial industry that freely crosses
borders under the cover of legitimate transactions and the ease
and convenience of wire and computer technology.
If money is the ``lifeblood'' of the terrorist, it is also
his poison. Money leaves a trail and a signature which can and
must be used to identify, track, disrupt, and dismantle the
terrorist organizations which support those who would target
innocent people and our way of life. As important as a military
campaign, the enforcement effort, and the intelligence
collection, it is not possible to overstate the importance of
following the money as an equal partner in our coordinated war
against terror. Without the efforts of the United States and
the world community to develop and to implement comprehensive
programs which target all aspects of the use of terror funds
and share each bit of information from the single wire transfer
to the bulk cash smuggling operation, the other mandates may
well fail.
The importance of the issue welcomes a bipartisan effort.
The leadership of Senator Sarbanes, the former Chairman and now
the ranking Democrat on this Committee, has exemplified the
kind of cooperation this issue demands. This kind of unity
allowed the Congress to pass the USA PATRIOT Act. The
legislation was historic, not only for the speed with which it
was designed and passed, but also for its focus on the
multiagency cooperation needed for effective and efficient
implementation.
As these hearings progress, the Banking Committee will
explore all aspects of the terror finance issue. It will be
important to educate the American people about the complexity
of addressing the demands of cutting funds off from the
terrorist wherever he is located and whatever case he avows.
Our witnesses today will speak about those demands since they
are in the forefront of the Administration's fight.
Future witnesses will testify about how terror groups are
organized. We will also hear about alternative methods
terrorists resort to when our financial industry denies them
clandestine use of its banks. The Committee will look at the
charade of so-called charities which raise considerable monies
for a scourge that is the antithesis of charitable giving. We
will also address the effective use of the tools Congress
created in the USA PATRIOT Act. All this will be with a view
toward our oversight function here. Is the system being used to
full advantage? However, as the American people have seen with
other issues this Committee has addressed, like responsible
corporate governance, we have an independent duty to see where
improvements to the system can be made, and I believe we will
not shirk that responsibility.
We have to assure the American people that every action,
every technique, every fraud or ruse used by those who seek to
harm us will be anticipated, met, and countered swiftly and
effectively.
Today, we have some very distinguished witnesses here, and
I would like to introduce them at this time. I will then call
on some of my Members who are here.
David Aufhauser is the General Counsel for the Department
of Treasury. Mr. Aufhauser is also the head of an informal
group known as the Policy Coordination Committee, or FCC.
Supervisory Special Agent John Pistole is the Assistant
Director for the FBI's Counterterrorism Division. He has had a
distinguished career in fighting organized crime and
terrorists. Finally, we have Tony Wayne, Department of State's
Assistant Secretary for Economic and Business Affairs. He
served as the Director for Regional Affairs in the
Counterterrorism Office of the State Department. His current
position puts him in the middle of our diplomatic efforts in
this arena.
I want to call on Senator Bunning for any remarks he may
have.
STATEMENT OF SENATOR JIM BUNNING
Senator Bunning. Thank you, Mr. Chairman. I thank you very
much for holding this important hearing, and thanks to our
witnesses today as well for appearing.
After September 11, we all know that the United States is
not immune to terrorist attack. In order to prevent another
horrific attack, not only must we track down those who
performed these terrorist acts, but we must hit the terrorist
organizations where it hurts them the most--in their
pocketbooks. No matter how many terrorists we capture, as long
as terrorism has a funding source, there will always be another
one waiting to step in and take their place.
The United States needs to be able to investigate and
prosecute terrorist financiers wherever they hide. To do this,
we must have the cooperation and support of the international
community. We have made some progress in finding and blocking
some of these funds, but there is still a lot more that we can
do. We must turn off the terrorism funding faucet and force
these terrorists to dry up and wither away.
Once again, Mr. Chairman, thank you for holding this
important hearing.
Chairman Shelby. Thank you.
All of your written statements will be made part of the
record in their entirety as we move along in this very
important endeavor.
I first want to acknowledge that Senator Grassley, the
Chairman of the Finance Committee, has a statement for the
record, and without objection, it will be entered here.
Chairman Shelby. Mr. Aufhauser, we will start with you. You
proceed as you wish. Welcome to the Committee.
STATEMENT OF DAVID D. AUFHAUSER
GENERAL COUNSEL, U.S. DEPARTMENT OF THE TREASURY
Mr. Aufhauser. Thank you, Mr. Chairman. It is a distinct
honor to appear before you. You and I actually have previously
discussed Treasury enforcement and terrorist financing matters
in closed hearings before the Senate Intelligence Committee
when you served on that Committee. And I am actually very
grateful for the chance to debate these issues in the daylight
because I think we can all profit from an informed debate on
something that is central, I think, to the lives of the
country.
Senator Sarbanes, whom you commended for also being a major
participant in this hearing, I am grateful for the attention he
has paid to it, particularly through my good friend, Steve
Kroll, on his staff. I live in the District of Columbia, so
Senator Sarbanes is the closest I have ever come to a Senator.
And I am particularly grateful that he has people like Steve
working for him.
Chairman Shelby. We are also grateful to Senator Sarbanes,
as I said, the former Chairman of the Committee, now the
ranking Democrat, for his interest in this because we are
approaching this in a bipartisan fashion, not only with our
Committee members and the leaders of the Committee but with our
staffs, too.
Mr. Aufhauser. Well, on the staffs, I would be remiss if I
did not mention the good industry of Steve Harris and Kathy
Casey.
Chairman Shelby. Absolutely.
Mr. Aufhauser. And particularly John Smith. I think we are
all safer because of it.
Mr. Chairman, terror traffics in three forms of currency:
hate, counterfeit religion, and money. The first two are born
out of a deficit of hope, particularly in the Middle East, the
most naked symbol of which, I think, is the failure to resolve
the question of Palestine. But the malevolence preys on a
dynamic that extends far beyond those borders, the corners of
the world where you find the Islamic Diaspora: hunger, torn by
civil war, living in near-permanent refugee camps, looking for
remedy where reason seems to beggar that notion. There,
hopelessness is forged into hate by merchants of the false cure
called terror.
These are problems writ large that must be addressed if we
hope to bring our children up in a world no longer haunted by
killers with political agenda. But it will take years to win
hearts and minds, and the challenge may be beyond my personal
ken.
I have a more immediate and, if you will, pedestrian
calling, which is to deal with the third leg of terror, which
is its funding. The task came to me with some irony. I joined
the Treasury Department in March of 2001, challenged by Paul
O'Neill to help him put good money to good account,
particularly in development aid. We wanted real-world
consequence, and our model was water wells in 1,000 villages
rather than the narcotic of grand master plans.
After September 11, 2001, I was asked to deal with the
distorted mirror image of that ambition, no longer responsible
for money intended to enrich people but to destroy them. It is
something that we have never done before in this country, at
least in a systemic way, and a legitimate subject perhaps for
examination and research.
I say that because almost nothing is more important on the
battlefield of the war on terror than diminishing the flow of
money, and there is additional irony that it took the
destruction of a temple of commerce to teach us that lesson.
Why is it important?
First, it is doable and it is within our reach. Al Qaeda's
cashflow has been Balkanized and cut by two-thirds since we
started this campaign.
Second, it provides infinite leverage to prevent calamity.
You cannot limit the imagination or design of a terrorist cell
that is rich with money in its pockets. But all their invention
is forfeit if the funds never materialize.
Third, in this uncommon shadow war of terror, virtually
every source of information we have is suspect. It is the
product of treachery or deceit or bribery or interrogation. But
financial records do not lie, and they bring integrity to the
process of threat assessment and the prevention of mayhem.
Fourth, a man who straps a bomb to his chest is an
implacable foe. He is beyond redemption and certainly beyond
deterrence because of any threat of economic or physical
sanction. But his banker is a coward and can be made wary and
apprehensive and a bankrupt source of future funding.
Fifth, intelligence on future terror acts is a compound of
genius, sweat equity, and serendipity. I do not like the
serendipity part. The prospect of collecting and successfully
analyzing intelligence on 100 events at the end of the pipeline
of the terrorist enterprise would be nothing short of
miraculous. Stopping the capital formation of that enterprise
before all such invention, while a daunting challenge, is our
more promising strategic choice and goal.
There will be no surrender on a Battleship Missouri in this
particular war. There is no flag to capture, no uniformed army
to corral, no clod of earth that our enemies will wish to
preserve in the event of defeat. Rather, we will count our
victories one at a time, measured in single captures or
killings. We will defeat them, however, in a systemic way only
by denying them the lifeline of their mobility and stealth,
which is their financing.
It cannot be done alone, as you said. Virtually all of our
concerns, save for John Pistole's good industry on domestic
threat here in America, are abroad. We, therefore, mark our
successes by building new laws, new capacities, and political
will globally to stem the flow of terrorist financing, whether
it is Syrian and Iranian support for Hezbollah, whether it is
money flowing out of Europe for Hamas, or whether it is money
flowing out of the Gulf States for Al Qaeda. There has been a
sea change because of our efforts. Let me close this opening
statement with an example.
Over the past 1,700 years, any member of the Islamic faith
could walk into one of tens of thousands of mosques that
populate Saudi Arabia and reaffirm a covenant with God, at
least in some small part, by depositing coin or currency in a
collection box known as ``sikhada.'' It is an intensely private
act, Senator, what you might call a very good secret--nothing
vainglorious, just a simple act of faith and charity. In a
world of peace, it would not be the business of governments.
Indeed, to regulate it could be called sacrilege.
We do not, however, live in a world of peace, and some of
these collection boxes have been found in the hands of Al
Qaeda. And today, thanks in part to our dialogue with Saudi
Arabia, the keeper of Mecca, cash collection in sikhada is
banned.
That kind of change in even the most fundamental acts of a
society or a faith has taken enormous resources and the kind of
industry that would make this Committee proud of a government
and an interagency process that works as one. For a while
there, we were spinning gold out of straw. It was all new, and,
we can still make substantial improvements. But with colleagues
like Tony and John here, the campaign against terrorist
financing will bring more peace, in my judgment, to our
citizens than an army of soldiers in the war against terror.
Maybe if I get the privilege to return to public service, I can
work on those village wells that Paul and I spoke about 3 years
ago when the world was a very different place.
Thank you.
Chairman Shelby. Thank you.
Mr. Pistole.
STATEMENT OF JOHN S. PISTOLE
ASSISTANT DIRECTOR, COUNTERTERRORISM DIVISION
FEDERAL BUREAU OF INVESTIGATION
Mr. Pistole. Chairman Shelby, Senator Bunning, thank you
for the opportunity to be here this morning representing the
FBI. My name is John Pistole, Assistant Director of the
Counterterrorism Division.
Director Mueller is changing the focus of the FBI, as you
are well aware. As Assistant Director of Counterterrorism, I
have the privilege and the responsibility for ensuring that our
56 field offices, our 84 Joint Terrorism Task Forces, and our
45 legal attache offices overseas, all of whom are working
toward countering terrorist activity, are aware of the mandate
that we focus on intelligence primarily, with law enforcement
sanctions as an ancillary avenue of disruption to terrorist
organizations. With that in mind, we have changed the focus of
the FBI to ensure that we do everything we can to collect,
analyze, exploit, and then disseminate on a timely basis all
information that we have collected.
One of the things that has changed in the FBI since
September 11 is our focus on terrorism financing. Prior to the
events of September 11, we simply did not have a comprehensive,
centralized, focused, or proactive approach to terrorism
finance matters.
The events of September 11 identified a critical need for
this comprehensive, centralized approach. In response to that,
we created what is known as the Terrorism Financing Operations
Section, TFOS, headed by Dennis Lormel, who is here with me
today. The mission of TFOS has since evolved into a broader
strategy to identify, investigate, prosecute, disrupt, and
dismantle incrementally all terrorist-related financial and
fundraising activities.
In forming this TFOS, we built upon the traditional
expertise the FBI has in conducting complex criminal financial
investigations and long-established relationships with the
financial services communities in the United States and abroad.
Integrating these skills and resources with the
Counterterrorism Division allows the FBI to bring its full
assets to bear in the financial war on terrorism.
In terms of context, the September 11 hijackers utilized
slightly over $300,000 through formal banking channels to
facilitate their time in the United States. We assessed that
they used another $200,000 to $300,000 in cash to pay for
living expenses, which brings us to the challenge of how we
identify terrorist funding in all venues.
We have conducted significant liaison and outreach since
September 11, both within our domestic partners as represented,
of course, with Treasury and State here, through the JTTF's,
but also significantly with our international law enforcement
and foreign intelligence partners.
We have done much, but there is still much to be done. We
have initiated several proactive projects through the Terrorism
Financing Section, where we are focusing on more sophisticated
and effective processes and mechanisms to address and target
terrorism financing as it develops and evolves. These proactive
approaches are predicated on this cooperation we have with
other agencies, and especially with our partners in private
financial services. To that end, we have engaged in significant
information sharing of FBI information, obviously on an as-
needed basis, with those in the intelligence community and also
with our law enforcement partners and private partners.
Under the tutelage of Mr. Aufhauser, through the National
Security Council's Policy Coordinating Council, we have been
able to allocate resources in an organized and focused approach
where we are prioritizing the matters as best assessed.
I want to spend just a moment, if I could, Chairman Shelby,
on the issue of Saudi Arabia and the war on terrorism. The
Kingdom of Saudi Arabia has taken a number of steps, both
demonstrable and measurable, since September 11 but, most
significantly, since the three bombings in Riyadh on May 12 of
this year. I have been to the Kingdom twice since May 12 to
assess the possibilities of greater interaction and cooperation
between the FBI and the Mabahith, the Saudi equivalent of the
FBI. Saudi Arabia has put new laws and regulations in place in
terms of trying to strengthen existing laws and regulations
regarding, for example, money laundering. They have also
assisted in trying to block funds and gathered evidence and
arrested terrorism suspects.
One of the individuals I wanted to highlight this morning
is an individual who the Saudis have been looking for for some
time in connection with his probable participation in the May
12 bombings in Riyadh, which killed 34 individuals, including
some Americans, and the 9 individuals who were the suicide
bombers. This individual, Zubayr al-Rimi, we have been looking
for also. We did not believe he was in the United States, but
on September 5 of this year, we put out what we call a BOLO, be
on the lookout for this individual. And 2 days ago, the Saudis,
through intelligence, cooperative intelligence activity, were
able to locate him near the
border with Yemen in southern Saudi Arabia, and in a fierce gun
battle eventually led to Mr. al-Rimi's death, where a Mabahith
officer was also killed and two critically wounded. That brings
the number of Mabahith officers and security forces in the
Kingdom to over a dozen now who have been killed in trying to
pursue and locate Al Qaeda members in the Kingdom.
In those terms, there has been a lot of rhetoric. People
have referred to the rhetoric. They are now also spilling their
blood in terms of trying to locate and capture Al Qaeda.
Also in the last several days, there has been a sensitive
operation which resulted in a number of very positive law
enforcement intelligence collection and disruption of
individuals in the Kingdom, which I would be glad to provide in
a classified format.
We have engaged significantly in training of Mabahith
officers. In fact, we have FBI agents, Treasury agents on the
ground right now in Riyadh who are training 20 Mabahith
officers in terrorism financing, specific issues there.
We had also initiated joint investigative efforts with
Mabahith in Riyadh where we, again, have Treasury agents and
FBI agents who are actually working hand in hand with Mabahith
to identify and disrupt terrorist financing in the Kingdom. So
there are a number of positive steps that we see and assess in
dealing with the Kingdom of Saudi Arabia.
We had a number of successes with our partners represented
at the table here and others not represented in terms of
disrupting terrorism financing here in the United States. There
have been a number of indictments, a number of cases still
pending. Certain
individuals have pled guilty and received fairly lengthy prison
sentences in regard to their fundraising on behalf of terrorist
organizations here in the United States.
We have also been able to disrupt overseas four planned
terrorist attacks because of our relationship with a particular
foreign intelligence service and with certain financial
services entities in the United States that were able to
provide almost real-time information that led to the specific
identification of individuals picking up money overseas that
was going to be used in terrorist attacks. So we are seeing a
number of successes in that regard.
I want to publicly thank the financial institutions here in
the United States who have done an incredible amount of work
with us in the law enforcement and intelligence communities to
ensure that we are doing everything humanly possible to disrupt
and prevent the next terrorist act.
One issue I would like to raise Chairman, is one thing that
we would like to see improved upon, and that is the production
of documents, financial documents, in electronic format. And I
can go into more detail on that. Historically, of course, we
have subpoenaed documents from a bank, and several weeks later,
we get a banker box of paper documents. And then we have to
sift through those and try to analyze those by hand.
We are seeking--and some financial services companies have
provided those documents in electronic format, but we are
seeking to have a uniform approach to that where we could have
all documents provided in an electronic format to allow us to
analyze, exploit, and disseminate as appropriate, as we can.
In the war on terrorism financing, in conclusion, I would
say that it is a long, difficult road, as David Aufhauser said.
Will we ever be able to disrupt and prevent every dollar going
to terrorists? I do not believe so. Every dollar that we are
able to prevent, that is one less dollar that is going to buy
bullets or bombs for terrorists.
Thank you, Mr. Chairman.
Chairman Shelby. Mr. Wayne.
STATEMENT OF E. ANTHONY WAYNE
ASSISTANT SECRETARY FOR ECONOMIC AND
BUSINESS AFFAIRS, U.S. DEPARTMENT OF STATE
Mr. Wayne. Thank you, Mr. Chairman, Senator Bunning. It is
a great pleasure to be here and have this opportunity to talk
about this important front in this war against terrorism.
I would like to begin by recognizing how far the U.S.
Government has come in interagency coordination when it comes
to deal with terrorist financing. We have made enormous steps
forward in the degree to which we can bring all the equities of
the various U.S. agencies together to coordinate our efforts
and to go after this very complex set of factors, of aspects,
as we try to cut off the flow of funds to terrorists.
I would also like to express my appreciation for the
leadership David Aufhauser has brought to the Policy
Coordinating Committee, which has helped bring us all together.
As he said, at first we were getting a lot of straw and seeing
what gold we could spin, but we have actually started spinning
gold out of this process, and that is becoming more and more
fruitful as we go forward.
Our task has been to identify, track and pursue the
financing targets and to work with the international community
to get them to take measures along with us to thwart the
ability of terrorists to raise and channel funds to carry out
their heinous acts. A key weapon in this process has been the
Executive Order which the President signed shortly after
September 11, Executive Order 13224. Under that order we have
frozen the assets of 321 individuals and entities. The agencies
working together on this are daily in contact, evaluating new
names, looking at targets for a possible asset freeze, but we
are also looking at other forms of action, not just the public
action of asset freeze. We have used these actions, as Mr.
Pistole was saying, very effectively.
Often we will start off by a diplomatic initiative to get
other governments to start conducting the audits that need to
be taken, to undertake the investigations themselves, to start
exchanging information with us, the kind of financial records
that Mr. Aufhauser cited, to get better cooperation between law
enforcement and intelligence agencies, and to put new laws and
regulations in place. It is surprising how many countries in
the world did not have the legal authority to really act in
these areas.
In every approach that we have adopted in the PCC regarding
a specific target, there has been very extensive, very careful,
painstaking work that has taken place. We want to make sure we
have very credible evidence that links that target to
terrorism. We want to weigh all the various options for going
after a target. We need to identify the most effective way. A
number of times we will shift gears as we go forward in
pursuing a certain target. We want to be right. We want to be
legal, and we want to be effective as we move ahead. In some
cases that means we support public action, but in other cases
we have chosen other methods, including law enforcement,
intelligence, or getting another government to undertake the
action that is needed.
Internationally, let me just note that the United Nations
has been very important in this effort. It helped give the
international impetus and legitimacy to asset freezes that are
needed for us to help persuade others to come together. This is
important because, one, most of the assets, of course, that
terrorists use are not flowing through the United States. They
are flowing through other countries. Second, when it comes to
Al Qaeda in particular, it means that when an individual or an
entity is listed on the UN sanctions list, all 191 members of
the UN are obligated to implement those sanctions including
asset freezes of those individuals and entities. So far on that
list at the UN there are 217 names.
Another important organization to mention in this effort is
the Financial Action Task Force, which we call FATF in our love
for acronyms. There are 33 members in this group, and what they
initially were devoted to doing was combating money laundering.
But after September 11 they expanded their focus and came up
with additional recommendations on fighting terrorist finance.
It is in large part because of the action of this group, for
example, that Indonesia has just recently passed a very strong
set of anti-money laundering and antiterrorist financing laws,
that the Philippines recently also very much strengthened their
regulation and legal structure for being able to act against
terrorist financing. Right now, there is a FATF team that is
working with the Saudi Government to review its recently
drafted regulations and pending legislation as well.
Saudi Arabia has been a particular focus of our
counterterrorist finance efforts. On October 12, 2001, we and
the UN designated for asset-freezing the assets of a Saudi
millionaire, Yasin al Kadi, because of his links to Al Qaeda.
Subsequently, we and the Government of Saudi Arabia submitted
to the United Nations the names of the Somali and Bosnian
branches of a Saudi-based charity, Al-Haramain, and that was
listed for, those branches were listed in the UN for worldwide
asset freezing. We and the Saudis have also submitted the name
of Wael Julaidan, a prominent Saudi Al Qaeda financier to the
UN in September 2002. These are a few examples of the public
activity that has taken place.
In January, we launched a reinvigorated senior-level
dialogue designed to improve communications and concrete
cooperation with Saudi Arabia. The United States told the Saudi
Government forthrightly that they would be judged by their
actions. As a result of the May 12, 2003 bombings in Saudi
Arabia that left 34 dead, including 8 Americans, that dialogue
has intensified.
Our strategy with Saudi Arabia has three parts: interaction
between key U.S. Government and Saudi officials; presenting
packages of useful and usable information to the Saudis to help
them take action against individuals and organizations involved
in the funding and support of terrorism; and applying
diplomatic pressure to ensure effective and timely Saudi action
based on the information. All of this requires follow up in the
building of relationships of trust and confidence.
But it is important to recognize that Saudi Arabia has made
fundamental and necessary changes in its banking and its
charity systems to help strangle the funds that are keeping and
have been keeping Al Qaeda in business. Saudi Arabia is working
with us very closely, as Mr. Pistole mentioned, in a number of
ongoing efforts. The new banking regulations place strict
controls on accounts held by charities. Charities cannot
deposit or withdraw cash from their bank accounts, nor can they
make wire transfers abroad via their bank accounts. As David
Aufhauser mentioned, they have now banned in Saudi Arabia the
collection of donations at mosques and instructed retail
establishments to remove charity collection boxes from their
premises. This is something that is undoubtedly very
challenging for the government of Saudi Arabia to do.
I want to stress, however, this is a work in progress. We
have reason to believe that our new cooperative work with the
Saudis on terrorist financing will be effective, but we need to
see results. We believe the Saudi Government is implementing
its new charity regulations, but there too we need to see
results.
Let me stress one point here. The Saudis have been and are
still limited by their own lack of expertise, and this is a
situation, as Mr. Pistole mentioned, that we are working to
address. They are now receptive to our assistance and our
efforts to help them boost their capacity. The Saudis are not
yet where they need to be. They have much work to do. However,
we believe they are headed in the right direction and are
committed to countering the threat of terrorist financing, and
are giving us very strong cooperation at this time in the war
on terrorism.
Let me just mention one other key focus of our terrorist
finance efforts: Hamas. Recently, on August 22, President Bush
announced the designation for asset freezing of five Hamas fund
raisers and six top Hamas leaders. Earlier in the year, the
United States had also designated for asset freezing another
Hamas charity operating in various parts of Europe, the al Aqsa
Foundation.
Hamas' recent suicide bombings demonstrate the
organization's commitment to undermining any real efforts to
move toward permanent peace between Israel and the
Palestinians. Shutting off the flow of funds to Hamas is
crucial to reducing Hamas' ability to carry out its activities
and to thwart the progress toward peace. In light of this, the
United States welcomed the European Union's recent decision to
designate Hamas in its entirety as a terrorist organization. We
have also urged governments throughout the region of the Middle
East to take steps to shut down both Hamas, its operations, and
its offices and to do everything possible to disrupt the flow
of funds to Hamas and the other Palestinian organizations that
have engaged in terror.
I think it is worth briefly noting that there has been a
lot of other activity going on in the Middle East region. A
number of governments, the UAE, Bahrain, Egypt and Qatar have
passed new money laundering legislation. The Gulf Cooperation
Council has been an active member of the FATF group. They have
taken fresh looks at their banking systems. All of these
countries are taking new looks at how they have regulated
charities. They are also looking at the informal money exchange
systems in the Middle East called hawalas because these pose a
specific and special challenge to the flow of money between
regions, between countries in the world. We have been working
with them and others in this effort.
I want to note just for a moment that arrests, that asset
freezes get the headlines because they are public, but we do do
a number of things that we put under the rubric of diplomatic
activity, and I just want to stress that diplomatic activity is
not about just going in and having tea with an official from
another government. We are talking about getting other
governments to cooperate concretely. We are talking about
including law enforcement actions, intelligence actions,
getting them to speak out publicly, getting them to prosecute
terrorists, getting them to extradite terrorists, getting them
to put new laws in place that they did not have before,
prohibiting funds that are flowing to charities illicitly or
for wrong purposes, making sure that their companies are not
allowing funds to flow through them to terrorists. We are also
working hard in what we call diplomatic activities to make it
much easier for our colleagues in the law enforcement and the
intelligence agencies to work with their colleagues.
The results of all of this action together and all of the
agencies working together is vital for our long-term success.
Now, we are going to keep working hard at this in all the
regions of the world, and I am very happy, Mr. Chairman, that
you are having an ongoing series of hearings and examinations
of this problem, because it is complex, it is going to take a
long time, and it touches many different regions and many
different aspects of financial flows.
One of the key things that we try and do in this process is
identify the vulnerabilities, not only in our own system but in
other countries' systems, and in that context I just want to
point out the vital importance of the capacity building and
technical assistance that we can offer others. It is surprising
when you actually go to other countries and talk to them, how
much help they need even if they want to do the right thing.
Thank you very, very much, Mr. Chairman, Members of the
Committee. We have a long way to go. We are started in the
right direction and we very much appreciate all of your support
as we move down this road. Thank you.
Chairman Shelby. Thank you, Mr. Secretary.
Senators Schumer, Corzine, and Sarbanes have joined us.
Senator Schumer, do you have an opening statement you would
like to make?
STATEMENT OF SENATOR CHARLES E. SCHUMER
Senator Schumer. Thank you, Mr. Chairman. I appreciate that
because I have another place I have to go. I am going to try to
come back and ask some questions as well because I appreciate
your doing this and all of the hearings. This is much needed
because this is a very serious issue, one, as you know, that I
care a whole lot about. We all know that money is the lifeblood
of terrorism. We have said that so many times it seems like old
hat. But you cut off the funds that allow terrorists to carry
out their deeds and you go a long way to shutting down their
operations and that is why it is so appropriate to start with
Saudi Arabia.
I believe that Saudi Arabia has done more to fund terrorism
and more to fund, to empower and enable terrorism than any
other country. In fact, I would argue that if you want to trace
how much damage countries do to us, probably Saudi Arabia does
at least as much damage as many countries on the terrorist
watch list, even though they profess to be much greater allies.
I do not have a long time to go into a whole lot of things,
but it is my basic view--I am going to focus on two--that the
Saudi royal family struck a deal with the devil a long time
ago, offering to sponsor the teachings of the country's hard-
line clerics and propagate them around the world, wahabiism,
militancy, a hijacking of a peaceful religion, Islam. It is a
remarkably peaceful religion, and the vast majority of Muslims
in this country are patriotic citizens who came here because
they loved our values, and you cannot state that enough. But
the Saudi royal family, who probably does not even represent
the Saudi people, struck a deal with the devil, and said: Leave
us alone here, and we will help you propagate this in Pakistan
and in Indonesia and everywhere else. Of course, all of that
changed at September 11. It has changed a little more after the
bombings in Riyadh, but it sure has not changed enough.
The two places I want to focus right now--and I hope the
witnesses will address it--one is the Saudi interior minister,
the man in charge of antiterrorism in Saudi Arabia, the man you
are supposed to cooperate with--Mr. Wayne, I do not agree with
you. This is not a question of their not having the tools but
wanting to help. They want to do as little as possible to
assuage the West, and they keep doing the same things. The
Minister, the Interior Minister, repeatedly continues to block
American investigations. He singlehandedly blocked the trial of
the 13 Saudis indicted in the American courts for killing 19
Americans when they bombed Khobar Towers.
After September 11--this is not a rabble-rouser on the
streets. This is the Interior Minister. I believe he is the
brother of Abdullah. He insisted that Zionists were responsible
for September 11 and insisted that Saudi citizens could not
have been involved, even after the Saudi Government admitted
that 15 of the 19 hijackers were Saudi. That is not a lack of
technical ability, in all due respect, Mr. Wayne.
Even as I speak, Nayef appears up to his old tricks,
because they for months denied American agents access to a
Saudi with knowledge of extensive plans to release poison gas
into New York City subways. So that is point one. How the heck
can this Government cooperate in cutting off finances in
stopping terrorism when their Interior Minister seems to have
no desire, and in fact professes things that you would think
would only come from extremists and terrorists themselves.
Then the second issue is the enabling, the empowerment, the
schools that are funded around the world. Why is it that in
places as far away as Indonesia and Pakistan there are so many
young people who seem to feel that it is their mission in life
to create a religious war against the infidel, who are not only
all non-Muslims but members of other Muslim sects that are not
as extreme? We know why. Because the Saudi royal leadership,
aided and abetted by the Saudi Government has funded these
schools. Are they stopping the flow of funding to the
madrassas? No. If any one has evidence that they are, I would
like to know it. I believe that if there were no madrassas you
can make an argument that September 11 might not have happened,
that Al Qaeda would not be either in existence or as strong as
it is today. That funding comes from the leadership of Saudi
Arabia. We all know that Al Qaeda is funded by Saudi citizens.
Let me read you something from the Council on Foreign
Relations Report. This is a year after September 11, chaired by
Hank Greenberg, head of AIG, hardly a rabble-frouser or
anything like that. The report said:
It is worth stating clearly and unambiguously what official
U.S. Government spokespersons have not. For years individuals
and charities based in Saudi Arabia have been the most
important source of funds for Al Qaeda, and for years Saudi
officials have turned a blind eye to the problem.
If the Saudis want to show that they are part of the family
of Nations and are not being two-faced, telling the West they
hate terrorism and allowing the funding, I would suggest that
they cut off the funding of these madrassas immediately, which
teach hatred and take poor starving kids who know nothing
better, feed them, and then teach them that their mission in
life is to kill other people who do not believe what they
believe, inimical to the freedom and plurality that we hold,
and again I hasten to add, the vast majority of Muslim-
Americans hold dear.
Thank you for allowing me to make this statement and I hope
I can return to ask questions about Nayef and about these
madrassas and if there has been any progress made.
Chairman Shelby. Thank you, Senator Schumer.
Senator Corzine.
COMMENTS OF SENATOR JON S. CORZINE
Senator Corzine. Thank you, Mr. Chairman.
I appreciate you holding this hearing on a most complex
subject. We obviously hear the intersection of diplomacy and
the need for detailed effort in the area of our financial
system.
I have a formal statement that I will put in the record.
Chairman Shelby. It will be made part of the record in its
entirety.
Senator Corzine. But one of the points that I make in that,
which is reinforced with the opening statements, which I think
is so important in the greater war on terrorism, is the
emphasis on coordinated multilateral action. The simple fact is
interruption of funds flows that these funds and the efforts
that are being made would not occur without a multilateral
approach to how we are dealing with it.
I will now quote from the General Counsel of Treasury's
view: ``Acting unilaterally is often an empty gesture, an
action without effect.'' I think that is an approach that needs
to be taken in the war on terrorism.
Chairman Shelby. Senator Sarbanes.
COMMENT OF SENATOR PAUL S. SARBANES
Senator Sarbanes. Thank you very much, Mr. Chairman.
I am sorry I was not able to be here right at the outset of
the hearing, but I had a conflicting responsibility.
First, I want to commend you, Chairman Shelby, for calling
for an in-depth review of the financing of terrorism. I think
this is an extremely important subject, and I am pleased to
join with you in this shared effort. In fact, your chairmanship
first of the Intelligence Committee and now of this Committee I
think gives you a unique perspective to come at this issue, and
I fully support your plans to make this a high priority for our
Committee.
I strongly share your commitment to focusing on ways to
improve the detection and prevention of terrorist financing. I
think it is generally acknowledged that following the money can
be the key to the most difficult of investigations. That is why
this Committee moved to report a Money Laundering and Anti-
Terrorist Financing bill on October 4, 2001, less than a month
after the September 11 tragedy, and held two oversight hearings
last year on the implementation of the resulting legislation.
We need to look at how money is used to pay directly or
indirectly for the work of terrorists around the world, where
the money comes from, how it passes through the global payment
system, how it is disguised. That knowledge, of course, is
necessary if we are to examine how the U.S. Government deals
with the terrorist money flow, whether our agencies are
organized effectively to do so and whether our international
arrangements are adequate to the task.
Breaking up the infrastructure through which terrorists are
recruited, trained, and sustained is essential to reducing the
threat of terrorism. Cutting down--or, hopefully, cutting off--
the money on which terrorists rely to construct and maintain
that infrastructure is one of the best ways to do so.
But economic sanctions, seizure of funds and other means
will work to deprive terrorists of financing only when those
efforts reflect the sophisticated knowledge of terrorism's
financial backers, the regions from which they come, and the
methods they rely on.
The Chairman has indicated that the Committee is now
undertaking a comprehensive review of all aspects of terror
financing. Subjects will include implementation of Title III of
the USA PATRIOT Act, methods and means of terror financing, the
relationship and cooperation of the various executive
departments and agencies in countering terrorist financing, and
the cooperation of the international community, and privacy and
civil liberties issues.
This is a comprehensive and ambitious agenda, but it is my
own view that it can make a very significant and substantial
contribution to the fight against terrorism.
A lot of people think it is somewhat off to the side or not
right in the middle, but the fact of the matter is that if we
can succeed in this fight, if we can dry up the financial
resources, this may well be the most effective way to get at
this problem.
Mr. Chairman, I strongly share your commitment to this
series of hearings, and we look forward to carrying through
with it, and I want to welcome our three witnesses today.
Chairman Shelby. Thank you, Senator Sarbanes.
Mr. Aufhauser, you have recently traveled--probably many
times--to Saudi Arabia with a multiagency group to coordinate
closer cooperation with the Kingdom of Saudi Arabia, among
other things. What has Saudi Arabia accomplished regarding
terrorist financing, in a frank and candid way, if you can say
so here, and would you assess for us the cooperation of Saudi
Arabia with our efforts, real time, in the past and in the
future?
Go ahead.
Mr. Aufhauser. Let me begin if I can by rehearsing some of
the strides that have been made as a result of the dialogue
with Saudi Arabia.
Chairman Shelby. Sure.
Mr. Aufhauser. And it is a litany of specifics. There have
been, one, arrests of six to eight prominent fundraisers that
have been identified to us by detainees.
Two, there has been, as Mr. Wayne has noted, significant
designations of prominent merchants, particularly out of Jeda.
This has profound deterrent effect, as I stated in my opening.
Three, they agreed to shutter the offices in Bosnia, in
Kosovo, of two significant Al-Haramain charity outposts which
are financing terror as opposed to underwriting eleemosynary
purposes.
Four, they have agreed indeed to restructure that of their
largest charities, Al-Haramain, to conduct a criminal
investigation of its head, and have agreed further to cut off
all support, all financial support, of Al-Haramain and eight
additional offices around the world where we again demonstrated
to them that those offices were perverting the purposes of
charity to do violence to communities.
They have also adopted an ambitious charities regime, which
Mr. Wayne testified to, which basically exercises more control
over the remittance of cash or money across borders. In fact,
it indeed needs to be vetted now by Saudi authorities,
effectively.
They have also adopted extensive anti-money laundering
legislation and regulations which are now under scrutiny by
international auditors in the form of FATF, again as alluded to
by Mr. Wayne.
And as I have stated, they have taken the profound step of
prohibiting cash collections in their own mosques, something
which is at war with 1,700 years of their heritage.
I will also say that they tell us that they have begun the
vetting of clerics for extremism and indeed have told us that
as many as 1,200 domestically have essentially been canned
because of such vetting.
And they have also begun to police money remittance outfits
and closed more than 100 of them which were previously
unregulated and responsible for cross-border changing.
The most important thing that they have agreed to do is
this joint task force, which gives us a window of transparency
and a tester on their true resolve to use the evidence that we
give them, to use their compulsory process to get at things.
Now, that is extraordinary stuff from where we were before
September 11, but it is far from enough in my judgment. I would
characterize--and I am a little bit more Spartan on this than
most--I would characterize the cooperation as halting, lacking
all initiative, responsive, sometimes insincere. Let me give
you an example of the insincerity. The adoption of the
charities regime was widely announced here in Washington last
fall or winter, but it was not implemented until Ambassador
Black and I went to Riyadh and urged them to follow through and
put their money where their mouths were.
Similarly, on the designations of Julaidan, which was
referred to by Mr. Wayne, to be sure, they designated him, they
conducted interrogations, but they failed to share material
information about those interrogations with us.
I also think there has been a too convenient reliance on
systemic change there. It is both laudable and troubling,
because it gives them the opportunity to say ``We are changing
our system,'' but it also gives them the opportunity to avoid
the hard issue of who is personally accountable for what has
been going on.
Chairman Shelby. What do you think could be accomplished if
the Saudis are serious and want to sustain this effort to
cooperate fully in the war against the terrorists, as
referenced in the financing of terrorism? In other words, what
do they need to do? I am not saying they will do it, but what
would they need to do?
Mr. Aufhauser. Well, let me first say I effectively agree
with Senator Schumer in saying that if we can get full
cooperation out of the Saudi Government in policing what are
undoubtedly significant money flows to Hamas and others out of
Saudi Arabia that we would significantly deplete the financial
resources of terrorists, particularly in Al Qaeda and Hamas but
indeed in other parts of the world, other terrorist
organizations.
What is most needed is to start taking personal
accountability and holding people personally accountable and to
police their charity system in a meaningful way. There was a
reference to Prince Nayef. He actually sits as a fiduciary if
you look at the structure of Al-Haramain yet, in a very un-
Sarbanes-Oxley-type way, apparently failed to note what was
happening in his own shop.
Chairman Shelby. But they cannot have it both ways; they
have had it both ways for a while--but not in the future, can
they?
Mr. Aufhauser. I do not want to sound too harsh. I want to
be clear. What they have done, particularly post May 11, is
nothing short of a new era for our dialogue with them. The
Joint Task Force on Terrorist Financing is the tester. And we
have a reciprocal obligation, by the way, in connection with
that. We have to share our information with them. But we now
for the first time have the opportunity to use their compulsive
process to follow leads and investigate what we now suspect.
Chairman Shelby. Given your experience as Chair of the
Policy Coordinating Committee and for the American people who
will be looking at this now, tell us what the PCC is.
Mr. Aufhauser. It is an interagency group that gathers
almost weekly to examine what the world of law enforcement and
intelligence is learning about the sources and uses of
terrorist financing; and most importantly, it is a group that
decides what is the best way to go about exploiting the
information that we know so that we prevent another calamity.
We are not governed by any prejudice of prosecution or
designation or diplomacy. We do it on a case-by-case basis to
decide based on as real world effect rather than political
theatrics. And most
importantly, most importantly, it represents an integrated
government on a battlefield. It is also the recommender of
strategic direction to the National Security Council--what
parts of the world should we focus on, what networks should we
focus on, and the principled way we should focus on those
networks. It also makes strong recommendations about how to
allocate our intelligence collection resources.
Chairman Shelby. Should we keep it as it is? Should we
improve it? Are there ways to improve the PCC?
Mr. Aufhauser. It effectively probably needs more of an
executive secretariatship than it has had in the past, and I
think Secretary Snow is intent on doing that as long as the
Treasury Department continues to chair the committee, which in
my judgment is an absolute necessity.
Let me make one point on that. The President made Treasury
the chair of the PCC because he had the intuitive wisdom to
know that in fighting a war, the tactical sometimes trumps the
strategic. And he gave it to Treasury because we are like
terriers with a bone on one issue--we focus on the sponsors,
the donors, the wellspring of money, not on the use of
financial information so much to stop episodic, everyday,
anticipated events. I leave that to the FBI and the CIA, but we
give it strategic direction.
Chairman Shelby. It sounds like it should stay in Treasury.
Mr. Aufhauser. Yes, sir.
Chairman Shelby. Why will additional assets within the
intelligence community make a difference, a real difference, in
the kind and quality of information that you and Treasury
assets receive when you should have this information in the
first place?
Mr. Aufhauser. Well, the most significant disability in the
war on terrorist financing is actionable intelligence, and by
``actionable intelligence,'' I mean not information but
information that we can share with our allies and friends
abroad.
Chairman Shelby. And do something with.
Mr. Aufhauser. And do something with. But mostly that it is
sharable, that it gets declassified in a manner that we can
convince allies that we have enough to move on, because as Mr.
Wayne said, this is a feckless act if we do it alone.
Second, in terms of increased assets, it is worth noting
both the CIA and the FBI have stood up these new terrorist
financing units basically from ground zero to well over 200
full-time employees, and those assets are well-employed and
well-exploited by the PCC.
Chairman Shelby. Senator Sarbanes.
Senator Sarbanes. Thank you very much, Mr. Chairman.
Mr. Aufhauser, I want to explore--it is not directly on the
subject of this hearing--but Treasury's traditional enforcement
arms, except for the Criminal Investigation Division of the
Internal Revenue Service, were transferred out of the Treasury
Department in March when the Department of Homeland Security
was created. In fact, at present, the position of
Undersecretary for Enforcement as I understand it is unfilled,
and you supervise as General Counsel both the Financial Crimes
Enforcement Network and the Office of Foreign Assets Control.
I understand there is an internal study going on at
Treasury about the issues raised by the loss of enforcement
capability at Treasury. Without revisiting the Homeland
Department issue--and I had considerable concern at the time
about this loss of enforcement capability at Treasury--how can
we address this question? I mean, you still have important
responsibilities, but my perception is that a lot of the
enforcement capability that Treasury previously had has been
shifted somewhere else. It seems to me that that leaves you
with a problem on your hands.
Mr. Aufhauser. Let me characterize it as an opportunity.
Senator Sarbanes. All right.
Mr. Aufhauser. You are correct. We have--the Treasury
Department has--a profound responsibility to try to promote and
sustain the integrity of the domestic and indeed international
financial system particularly from forces of corruption, or
people who would like to turn it into a weapon of violence
against us.
We also have substantial statutory authority to do so. But
we have been limited in the resources that we can apply to do
both, particularly in the area of national security interest.
If you
rehearse for a minute our five main areas of interest in
national security--economic sanctions, anti-money laundering,
terrorist financing, guaranteeing that critical financial
infrastructures are
secure, and guaranteeing the integrity of our currency, that
is, counterfeiting, which is a tool of choice of the sponsors
of terror--we have significant responsibilities, and we have
done very well in my judgment during the last 2 years largely
because of the talent of the people who work with me and
largely because of their sweat equity and largely because they
are the creators of good ideas, and good ideas have force.
But their opportunities to continue to put those ideas into
action would profit, I think, in my judgment, from more
resources committed to Treasury enforcement. We are somewhat
handicapped in what we have been doing and what I think we need
to do. Let me give you some examples because examples speak
much better than my thoughts.
We do not have auditors to ensure compliance with the USA
PATRIOT Act. We do not have investigators to pursue the
priorities of the National Money Laundering Strategy. We do not
have an intelligence office that is fully integrated into the
national intelligence community. And as a consequence,
sometimes priorities and programs championed by Treasury can
become easily subordinate to the daily travails of other
agencies.
Secretary Snow and I have been talking. I have made some
recommendations. There are some quite explicit recommendations
that I would make, including an undersecretary for enforcement,
including an assistant secretary for intelligence so our ad hoc
participation in the intelligence community is made formal, and
then a host of other recommendations which I think are quite
doable and quite affordable which would help us guarantee the
financial integrity of the system.
Senator Sarbanes. Well, I for one would welcome Treasury
sending to the Congress proposals in this arena in order to
reconstitute or enhance its enforcement capabilities.
One of the arguments that was made for not shifting
everything over was that Treasury has a particular role in
dealing with financial markets and has established contacts all
over the world with significant actors in other countries, and
that if Treasury were not in the middle of this, we would
really lose a great deal if the whole thing went over to
Homeland Security.
On the other hand, to leave that with you for very good
reason, I think, since you have these other responsibilities
that clearly belong to Treasury and interact with finance
ministries in other countries, but not give you the tools down
below in order to carry out the job it seems to me is pretty
short-sighted. So whatever the study comes through with, we
would certainly welcome it.
Mr. Aufhauser. Can I emphasize, that the job is being done;
what we are talking about is now to enhance what we are doing.
So it is not completely forfeit. I do not want to leave you
with that impression. But there are many specifics that I think
would enhance our ability to perform what the President and
Congress have asked us to do, particularly in the area of the
USA PATRIOT Act.
Senator Sarbanes. Let me just ask one more question, and
then I will stop. One important effect of Title III of the USA
PATRIOT Act was to extend the basic anti-money laundering
control regulations to many types of financial institutions
that had previously not been subject to the rules.
Mr. Aufhauser. Right.
Senator Sarbanes. For example, insurance companies and
hedge funds in addition to the money service businesses and
casinos already subject. Who is responsible for auditing all of
these institutions for compliance?
Mr. Aufhauser. Well, it is precisely my point. In the past,
the Bank Secrecy Act requirements, of course, have applied to
financial institutions that are the subject of various Federal
financial regulators. And we have delegated the responsibility
and the authority and the power to conduct compliance audits to
those regulators, like the Federal Reserve and the OCC.
They do well, although my intuition on the matter is that
the BSA part of the bank audit might be stepchild to the rest
of the audit, whereas if we had our own people performing those
audits out of the Treasury Department, they would have a matter
of priority and primacy.
Now that we have extended, under the USA PATRIOT Act, the
responsibilities to comply with the Bank Secrecy Act through a
myriad of industries which are not subject to Federal financial
regulators, we now have to depend on them honoring the law, but
we have no power or resource or people to audit them.
Senator Sarbanes. Well, that is not a very happy situation,
is it?
Mr. Aufhauser. No, sir.
Senator Sarbanes. Thank you, Mr. Chairman.
Chairman Shelby. Senator Bunning.
Senator Bunning. Thank you, Mr. Chairman.
Mr. Aufhauser, you recently testified that Saudi Arabia was
``the epicenter of terrorist financing.'' That is a quote--
``epicenter.'' Do you actually think any kind of an agreement
with the Saudis will actually succeed, or will it be just more
rhetoric?
Mr. Aufhauser. No. I think it will succeed, but we have to
be religious about policing the agreements and the plans and
going forward.
Senator Bunning. Does the new agreement with the Saudis
allow the United States of America to actively pursue suspected
terrorists in Saudi Arabia, or are we still in limbo like we
have been, with our hands tied behind us, until the Saudi
Government makes the first move?
Mr. Aufhauser. I would actually like to defer to Mr.
Pistole, but I will give you two sentences on it. Number one,
we have never not investigated any Saudi individual's
complicity in terrorist financing. What we are talking about is
whether or not we can now marry up our own independent efforts
with the compulsory process and police powers of Saudi Arabia.
And the Joint Terrorism Task Force that they have agreed to do
does precisely that.
Senator Bunning. It allows the United States to act
without--or, it must use Saudi Arabia and the United States?
Mr. Aufhauser. John is actually orchestrating this, so if I
can, I will defer to John.
Senator Bunning. All right. John, I will be more than happy
to listen.
Mr. Pistole. Senator, yes, sir. Actually, there are two
initiatives that the FBI is working with the Saudi Government
through the Mabahith, and Treasury is part of that, the CIA is
also a part in one aspect, and that is what we basically call a
``fusion cell,'' which is an operational arm of intelligence
from both the United States and Saudi intelligence and law
enforcement communities to actually try to locate and identify
Al Qaeda and other terrorists who may be in the Kingdom, such
as the individual I referenced before, Zubayr Al Rimi.
The second aspect, which David mentioned, is the Joint
Terrorism Financing Task Force, which was recently stood up in
Riyadh. It is led by Mabahith, but it is comprised of FBI and
Treasury agents who are working with Mabahith on specific,
actionable intelligence to identify and follow the trail of
money.
It is not being done unilaterally, obviously. We need the
cooperation of the Saudis to pursue both through Mabahith and
through the Saudi Monetary Agency, SAMA, to trace the funds
through Saudi accounts to wherever they may go in the world. So
it is a collaborative effort.
Senator Bunning. Thank you.
All of you most likely know that a University of Southern
Florida professor was arrested and charged with raising money
for the Palestinian Islamic Jihad. What is the Government doing
to prevent this type of reverse money laundering, money
apparently raised legally and going to existing terrorist
operations--anybody?
Mr. Pistole. I will be glad to start. Yes, he was arrested
earlier this year and of course has not been convicted of
anything yet, but the charges in that investigation and others
similarly situated around the country focus on two aspects. One
is the legitimate, from the perspective of fundraising for
supposedly legitimate causes, or humanitarian relief and
associated aspects of that. The other aspect is the illegal
activity that is being conducted here in the United States, the
proceeds of which then are sent overseas in furtherance of
terrorist activity.
In that case and in a number of other cases around the
country, we have investigations which we believe have enough
evidence to demonstrate that these individuals are operating
illegally either through the acquisition of funds which are
sent to terrorist organizations, perhaps by contributors who
are witting or unwitting in the eventual end-use of those
funds.
The other aspect again is that underlying criminal
activity, whether it is drug trafficking, credit card fraud,
infant formula fraud, cigarette tax fraud--any illegal activity
you can think of, we have investigated or have current
investigations on where we believe those funds are then being
sent overseas for terrorist activity.
The key is trying to determine, once they go overseas, how
they are being used, and again, that goes back to my analogy--
if they say all this money----
Senator Bunning. I want to get one more question in before
you have talked me out of my time.
Mr. Pistole. Yes, Senator.
Chairman Shelby. We will give you the time, Senator.
Senator Bunning. Thank you. I appreciate it.
Mr. Pistole. My point is trying to determine, once the
money goes overseas, how is that money being used. And again,
if $100 goes overseas and $99 goes to humanitarian relief, that
is fine, but if that extra dollar goes to buy the bullets or
bombs, that is where we have a problem, because that is
supporting terrorist activity.
So we will investigate, and through the Department of
Justice, we will attempt to charge those individuals who are
supporting funds in that way.
Senator Bunning. Okay. This is more personal because it
affected a bunch of people in the 101st Division that is
stationed in Fort Campbell, Kentucky. There have been
allegations that Saudi-financed organizations, specifically
mosques, here in the United States actually trained Army
Sergeant Asan Akbar, a Muslim engineer with the 101st Airborne
Division who killed two of his peers and injured 15 others in
Kuwait.
What are we doing about those kinds of things? If we are
going to stop terrorism at its roots, how do we get hold of
these supposed charitable mosque organizations that are
collecting illegally and training people to do illegal acts?
Mr. Pistole. If I could respond to the initial part of
that, one of the things that we are doing through our Joint
Terrorism Task Force is trying to identify those mosques where
that type of hatred, that violence, is being espoused. In
certain situations, we have been able to conduct convert
investigations, including having either cooperating witnesses
or undercover agents go into those mosques to personally assess
what is being espoused.
In terms of the financing aspect, we have worked with the
Saudi Embassy here in Washington to obtain a list of all the
individuals that the Saudi Government supports through monthly
stipends who may be imams, clerics, other individuals and
community centers who may be espousing that violence or hatred.
We have identified certain of those individuals from our
investigations to the Embassy and requested that the Saudi
Government curtail any additional funding, which they have done
in certain situations.
There was one individual similar to this individual--his
name is Adnan El Shukrajumah--who was in South Florida. His
father was an imam of a radical mosque. El Shukrajumah was one
of the individuals identified by senior Al Qaeda detainees as
being the next individual to conduct a terrorist attack in the
United States because of his fluency in English, his pilot
skills. He was not a Saudi citizen but was identified as such.
His father was receiving money through the Saudi Government. We
identified that, and they curtailed the funding to him.
They have also provided us a list of every student in the
United States whom the Saudi Government has supported, and some
of those individuals we have under investigation for their
support of radical Islam.
There are a number of initiatives which I could go into in
more detail in a classified hearing.
Senator Bunning. It seems to me we have just started to
push the envelope down the field, and we have a long way to go.
Thank you.
Mr. Pistole. Agreed.
Senator Sarbanes. When you say ``curtail,'' do you mean
eliminate or limit it?
Mr. Pistole. Stop; stop the funding.
Senator Sarbanes. Stop it.
Mr. Pistole. Yes.
Senator Sarbanes. Thank you.
Chairman Shelby. Thank you.
Senator Corzine.
Senator Corzine. Thank you, Mr. Chairman.
I would like to get a general sense of the international
cooperation we are having with respect to the kinds of
activities that we are now pursuing under the USA PATRIOT Act
and with respect to our own financial institutions.
When we were originally debating and discussing the money
laundering issue, for instance, Swiss bank secrecy was a major
issue that we were attending to, and there have been some
changes in the law. How effectively has our pursuit of this
terrorist trail been able to be implemented with our allies and
participants internationally in the official chains of
financial institutions?
Mr. Wayne. Senator, generally, we have had very, very good
cooperation, particularly in the case of Al Qaeda, and that is
certainly the case--you mentioned Switzerland, and a number of
my colleagues from the Treasury Department have traveled to
Switzerland and had detailed discussions with their
authorities. Their authorities have been very cooperative in
this effort. That is similarly true in other parts of Europe as
we are going after Al Qaeda.
It has generally been practically everywhere in the world
that we have gone to talk, people have been cooperative. A
number of places, we have run into limits because of the legal
and regulatory framework that other countries have as to what
they can do in their specific cooperation with us, and that has
varied country to country.
There, we have focused on encouraging them to get their
regulation and laws in place that allows them to go further.
But the spirit of wanting to cooperate has been quite pervasive
certainly post-September 11 on Al Qaeda.
I do not know if David has some more specifics,
particularly in the financial area.
Mr. Aufhauser. First, I want to affirm what Tony has said.
On official channels, there has been perfect cooperation. The
one major hurdle has been differences of administrative law,
issues of evidence, that permit a freezing of assets on less
than ``beyond a reasonable doubt.'' Here, as you know, Senator,
we have a lesser standard for proceeding under IEPA and under
the powers given to OFAC, which basically is an ``arbitrary and
capricious'' standard. That is a standard that is alien in many
parts of the world.
For that reason, you frequently have to try to share and
develop more evidence than otherwise you think is required. A
lot of the dialogue officially is to convince them that this is
enough for them to act.
In terms of private channels, we have been in near-weekly
if not daily contact with private banking associations and,
where we have specific evidence and where appropriate with
specific banks on private matters, and achieved remarkable
degrees of cooperation.
I think everybody knows that one of the great ironies of
what happened on September 11 is that our enemies used the very
tools of commerce, particularly the increasingly borderless
financial world, to strike at the heart of it. And they are
angry about it, and they are committed to join us in fighting
it.
Senator Corzine. So you are having no roadblocks in your
ability to reverse-engineer the maps and flows across
international boundaries.
Mr. Aufhauser. My biggest disability is actionable
intelligence, enough to share people to push the envelope in
their own jurisdictions.
Senator Corzine. The corresponding banking issue that was
so much a centerpiece of much of what we discussed when we were
writing Title III has been open to your ability to pursue and
to understand the flows of funds, whether it is to charitable
organizations or through business----
Mr. Aufhauser. Yes. Where necessary, we have a pretty deep
understanding of what happens in the documented banking world
today.
Senator Corzine. Usually, when there is pressure in one
area, other elements of transaction flow develop. Are we
identifying, and is it becoming clear, or are there channels
that are developing that have nontraditional, if one would say,
that we are onto--we all heard about the hawala issue when we
were debating--but are there other channels that are becoming
more apparent--people used couriers as an example in one of the
testimonies. Are we seeing new avenues of transfer without
trying to--and I am not asking you for a revelation of
classified material.
Mr. Aufhauser. You are right to state that there has been a
return to couriers, but couriers are not new; they are the most
ancient form of value transfer, of course. That is actually
good news, because that is less mobility, that is less transit,
and they have to carry volumes of cash, and that is actually a
handicap for them.
And we have hundreds of years, all of us, as police
officers and enforcement officers, of trying to police borders
against couriers.
In terms of turning to other forms of value transfer,
hawala has probably always been the most significant challenge
because it is an undocumented way, as you know, for
transferring money, and a traditional way in much of the
developing world and transitional world for transferring money
at very little transaction cost.
There are only two really good ways to deal with hawala.
One is to regulate them, which is a modest advance, and the
second is to penetrate them.
Senator Corzine. Thank you.
Chairman Shelby. Secretary Wayne, I will start with you on
this question, which is kind of a follow-up question to Senator
Bunning and Senator Corzine regarding charitable giving.
On Monday, I understand that the UK unfroze the assets of
Interpal, a so-called charity which the United States believes
is aligned with terrorists. The UK Charity Commission said,
``The American authorities were unable to provide evidence to
support their allegations.''
How does this happen, Secretary Wayne? Is it timely and
usable information? Is it being shared? Is this a result of
intelligence which cannot be used, or just not enough
information? Sometimes you just do not have enough. Is there
some more authority that you need?
I will start with you, but I would like to hear from David
and John.
Mr. Wayne. Sure. Let me say a few things, and of course, we
can be more explicit in closed session.
Chairman Shelby. Sure, I understand that.
Mr. Wayne. One of the challenges here was that Interpal,
the UK Charity Commission, in response to our actions put a
temporary freeze on the funds of Interpal that they had under
their authority, and they asked for unclassified information,
again, that would show that these funds were going to fund
terrorism.
There are two challenges there. One is to show the link to
terrorism, and two is to make it in an unclassified format. We
did share information with them about Interpal and Hamas and
Hamas charities. The challenge to make that link was in a
unclassified format.
They have told us that they appreciate what we gave them;
it was not enough for them to make that decision in their
system, which all has to be public and unclassified, but they
would be open to us providing more information to them in the
future. But it does go to the challenge that David Aufhauser--
--
Chairman Shelby. The expression of future problems, then.
Mr. Wayne. --that David Aufhauser pointed to, which is
actionable information and then information--there are two
levels of that--first, information that you can share
confidentially with another government, and there is
information that because of their system, they ask to be
public, and that is a challenge, and it was a challenge in this
case.
Chairman Shelby. Mr. Aufhauser, do you have any comment on
this?
Mr. Aufhauser. My reaction actually was almost visceral.
They do not get it. Once the EU finally came around to our view
that it was complete sophistry to say that Hamas' left arm is
not its right arm in terms of distinguishing between the
military end----
Chairman Shelby. It was the same body, wasn't it?
Mr. Aufhauser. --yes--between the military and the
political end, once that decision was made, there should be no
evidentiary burden in demonstrating that Interpal knew that the
money was going for violent purpose. It is enough to
demonstrate that the money went to Hamas, period. So I do not
get it.
Chairman Shelby. Mr. Pistole.
Mr. Pistole. This is one of the benefits of the USA PATRIOT
Act is the use of classified information in criminal
proceedings or proceedings such as this, which is to our
benefit in the United States. Unfortunately, with the UK
system, they are basically, as has been described, wanting
classified information that could be declassified. We are in
the process of doing that, but it is not there yet.
Mr. Wayne. If I could just add a little bit about the
debate that is going on in Europe in regard to this----
Chairman Shelby. Yes, go ahead.
Mr. Wayne. As Mr. Aufhauser mentioned and as I mentioned in
my statement, the EU finally recently agreed to designate all
of Hamas as a terrorist organization. Previously, they had
designated what they called the military wing of Hamas, but
refused to designate the political or the charitable or the
other wing of Hamas.
Chairman Shelby. Are they deceiving themselves here?
Mr. Wayne. Well, there are a couple of things, as I was
just going to add. They have just done that. What they did not
agree to do was then automatically designate all the charities
that we believe are Hamas charities. Indeed, they are still
debating that. I will be very honest. Some countries in Europe
think they should do that, others have questions. There are a
number of different questions. Some are still raising the issue
of the evidence. Part of our challenge and our need will be
indeed to convince them that if the whole organization is a
terrorist organization, then the whole is a terrorist
organization.
They also do face in their legal systems, however, some
different challenges. The Germans had earlier this year, for
example, frozen the funds of the al Aqsa Foundation. That
decision is now being challenged in their courts, with people
arguing in the court that you have to show real links to
terrorism to do that.
So part of it is persuading people that this is all part of
the whole, and part of it is that they do have different
standards and legal systems which they have to adjust and work
with.
Chairman Shelby. But it cripples the effort.
Mr. Wayne. It does, and that is why we are going to
continue vigorously to work with our friends and close allies
to show them what we very much believe is the right way to be
fighting terrorism in this case.
Chairman Shelby. Senator Sarbanes.
Senator Sarbanes. I was just going to make the point--Mr.
Aufhauser talked about ``actionable intelligence.'' I am not
quite sure how you are using the word ``actionable.'' We may
have good intelligence, but we do not get the response that it
deserves or warrants or justifies, because the people we are
dealing with abroad come at it with a different mindset or a
different standard or a different attitude. How much is that a
part of your problem? I mean, this instance would seem to
rather dramatically illustrate that, but how extensive is this?
Mr. Aufhauser. Two answers, both responsive. When I use the
term ``actionable intelligence,'' I mean what I can share with
people to convince them to act, because if I cannot get
somebody abroad to act, what we are doing is political theater.
I have got to be able to share it.
Second, what happened with Interpal in Britain is really
quite chilling. These are the best of our friends. If we cannot
convince them to join us against one of the primary funders of
Hamas, in the millions of dollars, within weeks after the
designation by the EU of Hamas as a foreign terrorist
organization, it gives you some taste of how difficult it is to
get other, less friendly Nations to join us in the Gulf or
elsewhere.
The short answer to your question is that it is a question
of political will, but political will is frequently reinforced
and overcome with actionable, shared, significant intelligence.
Chairman Shelby. I will start again with you, Secretary
Wayne. I believe it is given that the terrorist finance issue
is as much diplomatic in a sense as it is enforcement. I think
that has been made clear here. There are material differences
in many countries' views of ``support for terrorism.'' In fact,
the President's Executive Order states that those individuals
and groups ``otherwise associated with terrorists will be
subject to sanctions.'' This is almost--we have some good
lawyers around here--a strict liability standard, using the
legal phrase.
In addition, it appears that much of our effort has been to
focus on the Muslim world. And as you look around the world,
can we convince our allies, whom you have alluded to, that the
present standard, that our standard, is, one, appropriate? Have
we helped or hurt our long-term efforts for a short-term
benefit, and how have we been able to do this? And what are the
biggest challenges that we face in this war?
I will start with you, Secretary Wayne.
Mr. Wayne. Thank you, Mr. Chairman.
Well, indeed, a lot of what we do in what we call
``diplomatic activity'' is take the information that we have
and persuade people what the linkages are and why they need to
act. And the further you get down that chain from terrorism to
supporting terrorism, the harder it is to convince people, no
question about that.
Chairman Shelby. They have to want to be convinced.
Mr. Wayne. They have to want to be convinced, yes.
Chairman Shelby. If they start with a premise that maybe
they do not want to be convinced, you have a difficult task.
Mr. Wayne. Right. There is no question that the easiest of
a difficult task is when we are talking about Al Qaeda, because
with Al Qaeda, there was a broad-based and still is a broad-
based international consensus embodied in UN Security Council
resolution after resolution, with a committee establish at the
UN with a list there of Al Qaeda supporters that countries must
act against with asset freezing and travel banning; and once
this committee has approved a name, countries are obligated to
enforce sanctions.
Early on, we were worried in that case, for example, that
we were the only one putting names forward. But other countries
have now been joining us. Just the other day, Germany put
forward a list of a number of names which we joined, just a
couple of days ago, that came into effect. That makes it much
easier in those cases to go into countries and say ``You need
to act against this.''
And although there has still been a lot of persuading to
do, we have been able to rally governments to do things
publicly and privately.
When we get to other terrorist groups, it is harder, but we
did pass a UN Security Council Resolution 1373 with others
support that makes it a broader effort, an obligation for all
countries to put laws in place to fight terrorism. We need to
be building that consensus, and it is harder in some cases than
others to do so.
Chairman Shelby. Is it insurmountable?
Mr. Wayne. No, it is not, but it is a long-term effort, and
in a number of countries, with a number of regimes, it is more
of a challenge than in other places. It is like every
international effort we face--sometimes it is harder----
Chairman Shelby. It takes sometimes a wake-up call--all of
you alluded to the Saudi situation in May, where they were
attacked on their own soil and sustained deaths, and so did we.
Does it take that sometimes to change mindsets?
Mr. Wayne. Sometimes it does. As with all of us as
individuals, sometimes--I remember my parents telling me
something I should not do because it would have bad
consequences. Well, until I did it and felt those bad
consequences, sometimes I did not really learn it. It is
sometimes that way.
Chairman Shelby. The hard way.
Mr. Wayne. The hard way. That is right.
Chairman Shelby. Mr. Aufhauser.
Mr. Aufhauser. Surely the immediacy of the threat emboldens
people to raise their standards of care in their banking
systems, particularly as it goes to terrorist financing. That
was the wisdom that informed us to write that Executive Order
the way we did.
You asked whether I think it was wise to do it. Yes, I do
think it is wise to do it. I also think it is unwise to use
that power except in the most judicious and prudent
circumstances. It is a situation where the threat is probably
more potent than the execution.
Also, it has been, in my judgment and talking with
international bankers over the last 3 years, very useful in
raising the standards of due diligence of fiduciaries, and that
is significant, because we need gatekeepers, because as good as
my colleagues at the CIA are, or John Pistole is at the FBI, we
cannot capture every piece of misconduct occurring in the
digital electronic system.
Senator, you asked the largest challenge. I think we need
to demonstrate when we ask people to act that we have
credibility in the asking. It goes back to--and you are tired
of this mantra from me this morning, I am sure--it goes back to
that we have evidence, that we have intelligence to act upon.
And equally----
Chairman Shelby. And evidence that you can share with them,
perhaps.
Mr. Aufhauser. --evidence we can share with them--but
equally important is that the action will have real world
impact and will not be derided as political theater.
Mr. Pistole. One of the items, Mr. Chairman, that is not in
my written statement--I talk about some of the indictments and
convictions here in the United States, again, some of the
fundraisers, some of those who have engaged in material support
for terrorism by going to overseas training, jihadist camps,
and so on--those are all good successes. One of the
frustrations of this job is that we are not able to herald some
of the untold successes that we have, and in that arena, since
September 11, we have been able to engage with, for example,
the central banks of certain countries in a proactive way to
help us identify possible accounts and funds that are being
used.
We have been able to exploit documents and pocket litter,
if you will, from high-value detainees from Al Qaeda from
around the world in a way that those ongoing, sensitive methods
and techniques or sources that we use will never be on the
front page of The Washington Post or on CNN--hopefully not,
anyway----
Chairman Shelby. They should not be.
Mr. Pistole. --to allow us to continue those successes so
we have those--and you are very aware of those from your tenure
on the Intelligence Committee. But it is those types of
activities.
We do have a number of building blocks that we put in place
that we are now building on. The foundation is there with that
cooperative agreement with some of these bankers around the
world, with the Saudis especially. With so much focus on what
has come out of Saudi, whether the 15 of the 19 hijackers or
the funding, the new era that we see there is giving us
cautious optimism that we are moving in the right direction.
Chairman Shelby. But without cooperation--and now I use the
term ``diplomatic'' which represents the State Department--but
without diplomatic recognition of how important cooperation is,
it is going to be hard to meet this challenge, is it not, Mr.
Aufhauser?
Mr. Aufhauser. Yes, and to his great credit, the President
has made it a presidential priority and agenda, and he makes it
plain everywhere.
By way of example, we bring that message to every gathering
and forum of the World Bank and the IMF, particularly Secretary
Snow. It was part of his agenda and part of the calendar and
part of the talking points that I wrote for every meeting that
he had--dozens and dozens and dozens of bilateral meetings.
It is a priority of the United States because it is
recognized as the only systematic way that we can go about
reducing the threat of terror on our soil again.
Chairman Shelby. To find the money, right?
Mr. Aufhauser. Yes.
Chairman Shelby. To find the money.
We would contemplate as we go down the road on these
hearings to get into some closed hearings where we could share
a lot of the things at the proper time you are doing that we do
not need to relay here.
Mr. Aufhauser. Right. We look forward to that, Senator.
Chairman Shelby. I want to thank all of you for being here.
As you know, this is the first of a lot of hearings on this
subject. We on the Committee believe that this is very
important, as you do, and we will continue to work with you.
Gentlemen, thank you for your patience, and thank you for
your participation.
Mr. Aufhauser. Thank you, Mr. Chairman.
Mr. Pistole. Thank you.
Mr. Wayne. Thank you, Mr. Chairman.
Chairman Shelby. The hearing is adjourned.
[Whereupon, at 11:45 a.m., the hearing was adjourned.]
[Prepared statements supplied for the record follow:]
PREPARED STATEMENT OF SENATOR CHUCK GRASSLEY
A U.S. Senator from the State of Iowa
September 25, 2003
Thank you, Mr. Chairman and Members of the Banking Committee, for
inviting me to submit a statement during your hearing on our
counterterrorism efforts and terrorist financing programs. As you know,
I have been very supportive of the Banking Committee's continued
efforts to halt money laundering and terrorist financing in order to
ensure the stability of our financial system. This is an issue of
profound importance to our national security and the stability of our
financial institutions. It is also one of great concern to me and I
appreciate your giving me the opportunity to speak to you today.
Money laundering is a significant threat to our country because it
undermines our national security, promotes corruption, and funds
terrorism. Money laundering operations as a whole include such
mechanisms as structured transactions, wire fraud, over and
underinvoicing, and other activities designed to defraud and hide
profits from illegal activities. All of these transactions undermine
legitimate financial institutions by promoting corruption, funding
criminal operations, and by providing a method of profiting from
illegal transactions such as drug trafficking and weapons sales. At the
same time, they provide no economic benefits to our national economy.
I agree with the Administration's sentiment that identifying and
halting the mechanisms that fund terrorist activities is just as
important as eliminating the terrorists themselves. The financing of
terrorist organizations is one aspect of a larger challenge--that of
halting all money laundering. The effort to halt terrorist financing is
an important aspect our comprehensive and coordinated approach to
combating all forms of money laundering and those criminal
organizations that benefit from these systems.
Money laundering is the functional equivalent of a war industry for
terrorist groups. Terrorist groups will use whatever means available to
obtain funding for their cause. Our attention is focused on identifying
and halting those mechanisms used specifically by terrorist
organizations such as charitable organizations, money service
businesses, and alternative remittance systems which are often referred
to as hawalas. The tools used to launder and disguise funds for
terrorist organizations are similar, and quite often identical to,
those used by many drug traffickers and criminal organizations to clean
their own dirty money.
For example, a cigarette smuggler based in North Carolina was
recently sentenced to 155 years in prison for using his illicit earning
to send thousands of dollars to Hezbollah, an organization that has
been designated by the State Department as a Foreign Terrorist
Organization. In addition, we know that the proceeds from the sale of
illegal narcotics on the streets of the United States is funneled right
back into the pockets of terrorist organizations in Colombia--namely
the FARC, ELN, and the AUC--which have also been designated as Foreign
Terrorist Organizations by the State Department. These Colombian
terrorist organizations rely heavily on the Black Market Peso Exchange,
as well as on the purchase and sale of commercial goods on the black
market.
The best response to the money laundering threat is a comprehensive
and coordinated response which must be laid out in an effective
strategy. The strategy must identify the risks and threats that we, as
a Nation, face from this insidious problem. Without the identification
of specific risks and threats, we cannot begin to implement laws and
regulations that will effectively combat the sources and shut down the
system as a whole.
An effective strategy must also clearly define the leadership and
support roles that should be played by each department and agency with
jurisdiction over money laundering regulations and investigations. In
some respects, the level of cooperation demonstrated by terrorist
financing task forces is unprecedented. At the same time, there are
signs of bureaucratic infighting, one-upmanship, and duplication of
efforts still exist and continue to plague law enforcement. We cannot
afford to have each department and agency pursue its own agenda without
regard to the operations of others. The surest way to resolve this
problem is by defining it in the strategy.
Right now, we have the goals and objectives for addressing the
threat, and we have numerous tools at our disposal to meet those goals,
such as the Bank Secrecy Act and the USA PATRIOT Act. What we do not
have right now is the effective coordination among our agencies that
will provide effective implementation of these tools. We need
coordination not only between Federal law enforcement agencies but also
between regulators, industry experts, and policymakers as well. Only
when we have a systematic approach to money laundering will we be able
to avoid the duplication and inconsistencies that currently plague our
efforts.
I encourage the members of the panel today, including officials
from Treasury Department, State Department, and the FBI to focus on
coordination. We must formulate a comprehensive approach to money
laundering.
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PREPARED STATEMENT OF DAVID D. AUFHAUSER
General Counsel, U.S. Department of the Treasury
September 25, 2003
Chairman Shelby, Senator Sarbanes, and distinguished Members of
this Committee, thank you for inviting me to testify today about the
U.S. Government's efforts generally, and the efforts of the Department
of the Treasury in particular, to address the financing of terror.
Shortly after the September 11 attacks, President Bush gave those
of us who work on these issues very clear orders. He told us to starve
the terrorists of funding. Since that mandate over 2 years ago, the
United States has waged a ``war'' against global terrorism. We at
Treasury are principally involved in the financial front of that
``war.'' But this ``war'' is profoundly uncommon. There is no known
sovereign; no uniformed army; no hill to take; no target that is
seemingly out of bounds. Indeed, terrorists obscenely place a premium
upon the death of innocents. It is shadow warfare, and a key source of
the stealth and mobility necessary to wage the war is money.
Money is the fuel for the enterprise of terror. It may also be its
Achilles' heel. It can leave a signature, an audit trail, which, once
discovered, might well prove the best single means of identification
and capture of terrorists and pinpointing their donors. Financial
records are literally the diaries of terror. Stopping the flow of money
to terrorists may be one of the very best ways we have of stopping
terror altogether. That is a dramatic statement, but it is not possible
to overstate the importance of the campaign against terrorist
financing. If you follow and stop the money, you have gone a long way
to diminish the killing and destruction.
That being said, it is unwise to understate the difficulty of this
endeavor. Our economy is deliberately open and porous. The ways to game
restrictions on the flow of capital within the banking system are
nearly infinite, and the endeavor becomes more difficult when money is
moved outside the banking system. Moreover, the challenge is worldwide
in scope. The overwhelming bulk of the assets we seek to freeze; the
cashflow that we hope to strangle; and the records that we aspire to
exploit are beyond the oceans that surround us. To act alone would
justly invite critique.
In the United States, the program to wage the financial front of
the war includes:
an Executive Order using the powers granted by the Congress
through the International Emergency Economic Powers Act that raises
the standards of conduct and due diligence of financial
intermediaries, and explicitly targets underwriters of terror for
the freezing of their assets;
UN Security Council resolutions and conventions that
internationalize asset freezes and mandate the criminalization of
terrorist financing;
more scrutiny at the gateway to U.S. financial markets that
has been provided under the USA PATRIOT Act;
law enforcement criminal investigations and foreign
intelligence operations aimed at terrorist supporters and terrorist
financiers;
extensive diplomatic efforts, including the engagement of
central bankers and finance ministries, to champion the need and
wisdom for international vigilance against terrorist financing and
the taking of appropriate action to address it;
outreach to the private sector for assistance in the
identification, location, and apprehension of terrorists and their
bankers; and
bilateral and multilateral efforts to build laws and systems
that will help prevent terrorists from corrupting the financial
system in developing countries around the globe, followed by
training missions dispatched to those countries to help their
officials administer those laws.
Perhaps the most visible weapon on the financial front of the war
has been the public designation of terrorists and their support network
coupled with the freezing of their assets. Publicly designating
terrorists, terrorist supporters and facilitators, and blocking their
abilities to receive and move funds through the world's financial
system have been, and continue to be, a crucial component in the fight
against terrorism. The Executive Order imposing economic sanctions
under the International Emergency Economic Powers Act permits the
public designation of not only terrorists and terrorist organizations,
but also supporters, facilitators, and underwriters of terror as well.
Once designated, this order freezes the assets of the designee held by
U.S. persons. Action under this order is not ``criminal'' and does not
require proof beyond a reasonable doubt. Currently, we have publicly
designated 321 individuals and entities as terrorists or terrorist
supporters and over $136.8 million dollars have been frozen around the
world.
This is not, however, a ``box score'' game. Only a small measure of
success in the campaign is counted in the dollars of frozen accounts.
The larger balance is found in the wariness, caution, and apprehension
of donors; in the renunciation of any immunity for fiduciaries and
financial intermediaries who seek refuge in notions of benign neglect
and discretion, rather than vigilance; in financial pipelines that have
gone dry; in the flight to old ways of value transfer, such as the use
of cash couriers, in the ability to focus our resources on those
avenues of last resort; and in the gnawing awareness on the part of
those who bank terror that the symmetry of borderless war means that
there is no place to hide the capital that underwrites terror.
Notwithstanding the power of this tool, it is important to remember
that it is only potent when we can pull the rest of the world with us,
through coordinated multilateral action, in identifying and freezing
the assets of identified terrorists and their supporters. The simple
fact is that most of the funds we are attempting to freeze are beyond
the reach of the United States. Acting unilaterally is often an empty
gesture; an action without effect. Therefore, we need our allies to
join with us and act in concert and in a coordinated way. This is no
easy task. And this is a task that occupies much of our time on the
financial front of the war against terrorism. The most critical aspect
of this task is the ability to develop and provide our allies in the
war with sufficient actionable information--information that is often
thin and also derived from extremely sensitive sources. The predicate
for everything we do is actionable information about a target.
Organization of the Effort
Shortly after the attacks of September 11, in furtherance of
developing and implementing a coordinated attack on terrorist
financing, the National Security Council established a Policy
Coordinating Committee on Terrorist Financing. The purpose of the
Committee is to (i) recommend strategic policy direction to the
National Security Council on issues relating to terrorist financing;
(ii) vet and approve proposed public action against targeted terrorists
and terrorist financiers; and (iii) coordinate the United States'
efforts on issues relating to terrorist financing. I have chaired that
Committee since October 2001.
The Committee has sufficient structure to ensure we are working
toward achieving the goals of the Committee; however, we have
purposefully kept the process flexible, informal, collaborative, and
iterative. It is a process that has worked well to vet and coordinate
proposed action by the United States on the financial front of the war
on terrorism.
Challenges Ahead
The Kingdom of Saudi Arabia
I have testified before that Saudi Arabia has been an ``epicenter''
of terrorist financing. Financing emanating from Saudi Arabia and a
balance of Gulf States has been a central focus of our efforts at
collection and prevention. The Saudi Government has taken action and
implemented systemic changes--both before and after the May 12 bombings
in Riyadh--that are promising and constructive. More initiative,
follow-through on systemic change, and personal accountability are
required.
The May 12 bombings in Riyadh appear to have given life to such a
sea change. A sense of urgency now informs Saudi efforts. The promising
change on the financial front of the war is the agreement to create a
Joint Task Force with the United States to investigate terrorist
financing and follow financial leads. The dialogue and dynamic in this
task force will be ``cop to cop''--taking place on the ground rather
than between diplomats at 30,000 feet. The task force will share
financial leads on a real time basis and begin meaningful--and
hopefully productive--investigations to track down the ``banking of
terror.'' This will be an important proving ground to determine Saudi
commitment on the financial front of the war. We must watch diligently
as the task force is established and moves forward.
Hamas, etc.
We must continue to focus our resources on Hamas and similar
terrorist organizations. We must work as hard as we can to convince the
rest of the world that it cannot stand by and do nothing against groups
that are sending suicide bombers onto buses or into plazas to kill
innocent children. Unlike Al Qaeda, we do not enjoy a UN Sanctions
program mandating the freezing of these organizations' and their
operatives' and supporters' assets. What is required is unrelenting,
consistent, well-informed diplomatic outreach using well developed
facts--actionable intelligence--to bring a principled discipline to
countries that now stand on the sideline refusing to act because the
purpose of acts of terror are believed to be politically laudable, not
withstanding the moral obscenity of the means of reaching any such
goal.
Global Systemic Change
We must continue to work bilaterally and multilaterally to build
financial safeguards throughout the globe to do all we can to ensure
terrorists cannot game the financial system. Charities and informal
money transfer operations, or hawalas, are of particular concern. We
have done much in this area, but we need to continue to do more.
Address Root Causes
In the long-run, the war on terror will be like Sisyphus toiling to
push the stone up the hill if the community of nations does not do
something to address the despair and economic misery that permits false
prophets to preach hate and killing and terror as remedy.
Those are some of the more significant challenges we see as we move
forward on the financial front of the war. We have come a long way, but
we have a long way to go. The President has said on many occasions that
this will be a long battle. I can validate that statement. But you
should know I see tremendous commitment to this battle every day.
Because of this Committee's jurisdiction, we think it is important
to spend some time discussing what we have done with the tools Congress
provided to us nearly 2 years ago in the USA PATRIOT Act.
The Role of the Anti-Money Laundering Regulatory Regime
in the Financial War on Terrorism
After the attacks of September 11, it seemed as if we were looking
at the world through the wrong end of a telescope. Worldwide efforts to
combat money laundering were focused, rightly so, on identifying large
scale criminal enterprises that were injecting millions of dollars into
the financial system. In the world of the financing of terrorism,
however, we were reminded that the deadliest of operations can be
financed with relatively paltry sums of money that would give even the
best of financial institutions not the slightest hint of their illicit
purpose. An integral part of the financial war on terrorism over the
past 2 years has focused on enhancing the ability of financial
institutions to better identify and guard against the financing of
terrorism. The first step, however, is recognizing our limitations. We
are still discovering the many different ways in which our enemies use
the recorded financial system to fund their operations. While we have
developed considerable information on their methods, we still have much
to learn.
This we do know--even the most unsophisticated of terrorism
financing operations will likely intersect the regulated financial
system at some point. Title III of the USA PATRIOT Act mandates many
substantial changes to the U.S. anti-money laundering regulatory
regime. We wish to thank this Committee for its work in developing and
securing passage of these provisions. Title III, in our view, reflects
the realities of today's global financial marketplace and the new
threats to our financial system. As you know, for the past 2 years we
have been engaged in the most extensive revision of the anti-money
laundering regulatory regime in recent memory.
Once complete, if properly enforced, these changes will go far to
prevent not only the laundering of illicit proceeds, but also aid the
financial system in preventing the use of clean money to finance
terror. The Act's principal focus on financial intermediaries, the
international gateways to the U.S. financial system, the expansion of
due diligence and monitoring requirements, enhanced reporting
obligations, and renewed commitment to information sharing comprise the
elements of a comprehensive antiterrorist financing regime. While the
end goal of devising systems capable of proactively identifying
potential terrorist financing activities remains elusive, we are
creating the necessary infrastructure within financial institutions
that will 1 day support such systems. For example, several sections of
the Act focus on the correspondent account, the international gateway
to the U.S. financial system. These provisions require financial
institutions to conduct greater due diligence both before opening such
accounts and while they are open. The scrutiny given to these accounts
not only augments the audit trail, but also serves to deny certain
foreign financial institutions access to the U.S. financial system in
the first place. Uniform customer identification regulations recently
issued will require all financial institutions to take important steps
to verify the identity of their customers. Additionally, we have
created a system pursuant to Section 314(a) of the Act to enable law
enforcement to locate quickly the accounts and transactions of those
suspected of money laundering or the financing of terrorism. While we
are still working closely with law enforcement and the financial
community on the operation of the system, since its creation, the
system has been used to send the names of 256 persons suspected of
terrorism financing to financial institutions. This has resulted in
1,739 matches that were passed on to law enforcement.
A particularly important provision is Section 311 of the Act, which
provides the Secretary with the necessary ability to protect the U.S.
financial system against specific terrorist financing threats posed by
foreign financial institutions, accounts, transactions, or even entire
jurisdictions. The Secretary can require U.S. financial institutions to
take appropriate countermeasures against such threats, countermeasures
which include requiring the termination of any correspondent accounts
involving the threat. We have utilized this authority in the money
laundering context, and we are presently considering its use in
connection with the financing of terrorism.
I thought it would be helpful to bring you up-to-date on where we
are in the process of implementing Title III of the Act. Since its
passage, Treasury, the Financial Crimes Enforcement Network (FinCEN),
the financial regulators, and the Department of Justice have worked
together to draft and issue extensive regulations that implement the
Act's provisions. Among other things, we have published regulations
that:
Permit and facilitate the sharing of critical information
between law enforcement and the financial community, as well as
among financial institutions themselves;
Close off our financial borders to foreign shell banks,
require additional due diligence for correspondent accounts
maintained for foreign financial institutions, and require foreign
banks with correspondent accounts in the United States to supply
the name of a U.S. agent for service of process as well as the
identities of their owners;
Require U.S. financial institutions to establish customer
identification and verification procedures for all new
accountholders;
Expand the universe of financial institutions reporting
potentially suspicious activities to FinCEN; and
Expand our basic anti-money laundering regime to include a
wide range of financial service providers, such as the securities
and futures industry and money services businesses.
Our work is not yet finished. We are working to complete several
regulatory packages. First on the list is the issuance of a final
regulation that will delineate the scope of the obligation of U.S.
financial institutions to conduct due diligence and
enhanced due diligence on correspondent accounts maintained for foreign
financial institutions and private banking accounts for high net worth
foreign individuals. Although the banking, securities, and futures
industries have been operating under an interim rule since last year,
important questions regarding the application of this statutory
provision remain.
We will also complete final regulations requiring other categories
of financial institutions, such as those in the insurance and hedge
fund industries, to establish anti-money laundering programs. This is
an integral component of our anti-money laundering and antiterrorist
financing efforts--to ensure that all available avenues for financial
crime are blocked by this basic protection. Similarly, now that we have
issued final regulations requiring the banking, securities, futures,
and mutual fund industries to establish customer identification
programs, we will be drafting regulations applicable to financial
institutions in other industries that offer their customers accounts.
Finally, we are continuing to explore the appropriate expansion of the
suspicious activity reporting regulations to additional categories of
financial institutions. We have already proposed to require mutual
funds, futures commission merchants, and insurance companies to file
such reports.
Let me provide you with some sense of how we are using the USA
PATRIOT Act and the implementing regulations to combat terrorist
financing. While it is still relatively premature to evaluate their
impact, we do have some indication of their effectiveness. For example,
as I noted above, the Section 314(a) system has been used in many cases
and has resulted in a substantial number of leads. The additional
reporting and recordkeeping authorities have enhanced the database
FinCEN uses for its research and analysis in supporting terrorism
investigations--since September 11, FinCEN has supported 2,692
terrorism investigations. The Terror Hotline established by FinCEN has
resulted in 789 tips passed on to law enforcement. Since the World
Trade Center Attacks, FinCEN has made 519 proactive case referrals to
law enforcement based upon an analysis of information in the Bank
Secrecy Act database. With the expansion of the suspicious activity
reporting regime, financial institutions have filed 2,655 suspicious
activity reports (SAR's) reporting possible terrorist financing. In
addition to passing these reports on to law enforcement, FinCEN has and
will continue to analyze the SAR's to report on systemic patterns in
the financing of terrorism.
Finally, I cannot neglect mentioning our partnership with the
financial community. Since passage of the Act, the willingness of the
financial community to work with us in this fight has been remarkable.
Cooperation comes in the form of formal and informal feedback on new
regulations, one-on-one assistance with specific investigations, and
the proactive identification of potential instances of the movement of
funds to finance terrorism. While we expect the financial community to
join us in this fight--and they have done so--we also recognize and
appreciate these efforts, from the largest of financial institutions to
the smallest of the community banks.
While it is appropriate on this occasion to reflect on what we have
accomplished, it is essential that we map out a strategy for
proceeding. The plan is straightforward--do a better job of leveraging
the regulatory regime to maximize the protections against the financing
of terrorism. We will do so in the following manner:
Better Utilization of Technology
Technology holds one of the keys to our success in the financial
war on terrorism. This involves the ability to marshal and synthesize
all available information to proactively identify possible instances of
the movement of illicit funds. Now more than ever we require our
financial institutions to produce data and information. Several
initiatives are already under way within Treasury and FinCEN. For
example, FinCEN will be receiving assistance from the Business
Executives for National Security and the Wharton School of the
University of Pennsylvania in developing technology that will allow
financial institutions to report suspicious transactions more easily
and quickly. As part of an overall plan to enhance our technological
platform, FinCEN is also developing a new system to manage the Bank
Secrecy Act (BSA) database. ``BSA Direct'' will involve a significant
upgrade to the platform on which the BSA database is maintained, and
will provide users with web-based, secure access that allows for faster
and easier searching. Finally, we will continue to work to assist
financial institutions in developing proactive software to better
identify potential terrorist financing activities.
Increased Information Sharing
A central theme of the USA PATRIOT Act is to enhanced information
sharing. While we have taken substantial steps toward this goal, our
challenge remains to find better ways of providing information and
feedback. This is not simple. Often the information we develop is
highly protected intelligence information that cannot be disclosed, and
we are always wary of providing our enemies with a roadmap or a ``how-
to'' guide to manipulating our defenses. That said, we understand the
importance of, and are searching for, better ways to share information
with the private sector.
Developing Similar International Standards
For our regulatory efforts to be effective, standards should be
internationalized as much as possible. Thus, we will continue to devote
ourselves to encouraging the development of international money
laundering and terrorism financing standards that reflect the
principles of our domestic regime. We have already done this in several
areas. In conjunction with the Financial Action Task Force, in addition
to
securing the promulgation of the Eight Special Recommendations on
Terrorist Financing, the FATF recently completed the revision of the 40
Recommendations on Money Laundering. The changes reflect many of the
concepts of the USA PATRIOT Act. For example, key changes to the 40
Recommendations include: (1) enhanced due diligence with respect to
correspondent banking accounts; (2) increased scrutiny for politically
exposed persons; and (3) prohibition on the use of shell banks.
Ensuring Compliance with International Standards
Assessing jurisdictions against these standards and cultivating
their compliance with them are important components of our work.
Without vigorous and consistent implementation of these standards
throughout the globe, terrorists and criminals will enter the
international financial system at the point of least resistance, and
preventive national efforts will be rendered considerably less
effective. Ensuring global compliance with international standards is
accomplished through a three-prong strategy that includes: (i)
objectively assessing every country's standards against the
international standards; (ii) providing capacity-building assistance
for key countries in need; and (iii) ensuring appropriate consequences
for countries and institutions that fail to take reasonable steps to
implement standards to prevent terrorist financing and money
laundering.
Treasury is participating in a variety of global assessments
sponsored by the IMF and the World Bank, the FATF, and FATF-Style
Regional Bodies. We are also seeking to build the capacity of
jurisdictions to combat money laundering and the financing of terrorism
through a robust regulatory regime. This is done through bilateral and
multilateral outreach and training. Finally, recalcitrant jurisdictions
face potential sanctions pursuant to Section 311 of the USA PATRIOT
Act.
Evaluating the U.S. Regulatory Regime
As we complete regulations implementing the USA PATRIOT Act, our
next and perhaps most important task is to take a critical look at what
we have done and ask the difficult questions of whether they are
effective and what additional regulations may be necessary. We will
work through both formal and informal means to conduct this evaluation,
and look forward to working with this Committee during the process.
We are, in our judgment, on the right path. We have much work left
to do. We appreciate the support we have received from the Congress--
particularly this Committee--on these important issues. I believe what
I have said time and again, stopping the flow of money is one of the
very best ways to stop the terror.
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PREPARED STATEMENT OF JOHN S. PISTOLE
Assistant Director, Counterterrorism Division
Federal Bureau of Investigation
September 25, 2003
Good Morning Chairman Shelby, Senator Sarbanes, and other
distinguished Members of the Committee. On behalf of the FBI, I would
like to thank you for this
opportunity to address the FBI's role in ensuring greater integrity of
our country's financial institutions with respect to terrorist
financing. I will discuss the FBI's efforts in identifying, tracking,
and dismantling the financial structure supporting terrorist groups to
include forward thinking proactive and predictive capabilities. I will
speak about our evolving liaison, sharing and outreach relationships
with the financial community as well as with foreign governments and
their respective financial and regulatory institutions (to include
Saudi Arabia). I will conclude with some recent terrorist financing
successes and the challenges we as well as private industry still face
in following the money and obtaining and analyzing financial records,
especially in emerging threat situations.
FBI Change in Focus
As Director Mueller stated during his June 18, 2003 testimony
before the House of Representatives Committee on Appropriations it is
critical that the FBI transform it is ``intelligence effort from
tactical to strategic . . . if the FBI is to be successful in
preventing terrorism and more proactive in countering foreign
intelligence adversaries and disrupting and dismantling significant
criminal activity.''
Following the events of September 11, 2001 (September 11), the FBI
changed it is focus making counterterrorism it is highest priority and
redirecting resources accordingly. The emphasis was placed on
intelligence with prevention as our primary goal. Counterterrorism
investigations have become intelligence driven. Criminal investigation
into these matters is considered a tool to achieve disruption,
dismantlement, and prevention.
Formation of TFOS
Prior to the events of September 11, the FBI had no mechanism to
provide a comprehensive, centralized, focused, and proactive approach
to terrorist financial matters. While the FBI examined financial
records at the time of previous terrorist
attacks, as part of the investigation into each of the attacks, the
events of September 11 identified a critical need for a more
comprehensive, centralized approach to financial matters. The Terrorist
Financing Operations Section (TFOS) of the FBI's Counterterrorism
Division was formed, immediately after September 11, in response to
this critical need. The mission of the TFOS has since evolved into a
broader strategy to identify, investigate, prosecute, disrupt, and
dismantle incrementally, all terrorist related financial and
fundraising activities.
Identifying, tracking, and dismantling the financial structure
supporting terrorist groups is critical to successfully dismantling the
organizations and preventing future terrorist attacks. As is the case
in most investigations, locating and ``following the money'' plays a
critical role in identifying those involved in the criminal activity,
establishing links among them, and developing evidence of their
involvement in the activity.
Terrorists, their networks and support structures, require funding
in some form to exist and operate. Whether the funding and financial
support is minimal or substantial, it usually leaves a financial trail
that can be traced, tracked, and exploited for proactive and reactive
purposes. Being able to identify and track financial transactions and
links after a terrorist act has occurred or terrorist activity has been
identified, represents only a small portion of the mission; the key
lies in exploiting financial information in efforts to identify
previously unknown terrorist cells, recognize potential terrorist
activity/planning, and predict and prevent potential terrorist acts.
In forming the TFOS, the FBI built upon its traditional expertise
in conducting complex criminal financial investigations and long
established relationships with the financial services communities in
the United States and abroad. Integrating these skills and resources
with the Counterterrorism Division, allows the FBI to bring its full
assets to bear in the financial war on terrorism.
The TFOS is both an operational and coordinating entity with
proactive and reactive responsibilities. As a coordinating entity, the
TFOS is responsible for ensuring that a unified approach is pursued in
investigating terrorist financing networks. The TFOS achieves this
directive by: (1) coordinating the financial aspects of FBI Field
Office and Legat terrorism investigations; (2) establishing overall
initiatives, policy and guidance on terrorist financing matters; (3)
participating in the National Security Council's Policy Coordinating
Committee (PCC) on Terrorist Financing; (4) coordinating national
liaison with the financial services sector; (5) cooperating in and
coordinating criminal terrorist financing investigations with the
Department of Justice; and (6) providing support and training to Field
Offices to include the designated Terrorism Financing Coordinator (TFC)
It is critical that the financial aspects of terrorism
investigations be adequately addressed and that a concerted,
coordinated effort is made to investigate terrorist finance issues by
experienced financial investigators. Rarely will a terrorist financing
investigation be confined to the territory of one field office, rather
they normally span not only multiple field office jurisdictions, but
also the globe; for example, these types of investigations will
frequently be linked to investigations and/or issues in other
jurisdictions and other countries. It is imperative these investigative
efforts be effectively coordinated, placed into perspective with other
counterterrorism efforts, prioritized in accordance with national and
global strategies, and addressed in concert rather than in a
disjointed, inefficient manner. Prior to the establishment of the TFOS,
there did not exist within the FBI a mechanism to ensure appropriate
focus on terrorist finance issues and provide the necessary expertise
and overall coordination to comprehensively address these matters.
So how far have we come in the war on terrorist financing since
September 11? There currently exists a much better understanding of
terrorist financing methods. More sophisticated and effective processes
and mechanisms to address and target terrorist financing continue to
develop and evolve. Proactive approaches are
increasingly being utilized. The awareness around the world on the part
of law enforcement, government agencies, regulators, and policymakers,
and the private sector of terrorist financing methods, suspicious
financial activity and vulnerabilities is much higher since September
11. International cooperation has reached unparalleled levels. Outreach
with, and cooperation from, the private sector has been outstanding and
continues to develop, particularly the level of two-way interaction
between law enforcement and the private sector. The ability to access
and obtain this type of information in a timely fashion has
significantly enhanced the FBI's ability to identify, investigate, and
resolve immediate threat situations involving potential terrorist
activity. However, we still face significant challenges in obtaining
and analyzing financially related records in a timely fashion,
especially in emerging threat situations, which I will discuss later in
my testimony. The ability to conduct near real-time monitoring of
specifically identified financial activity has been invaluable to not
only investigations ongoing in the United States, but also to foreign
law enforcement and intelligence agencies in related investigations.
This illustrates another example of not only more proactive measures
but also of increased cooperation and coordination with the
international community.
Liaison and Outreach
Extensive training and support of international investigations by
the TFOS has led to agent visits/exchanges and training programs
involving a variety of countries from Europe, Asia, the Middle East,
South America, and Africa. In support of specific high profile joint
terrorist financial investigative matters, a number of countries and
agencies, including the United Kingdom, Switzerland, Canada, Germany,
and Europol, have detailed investigators to the TFOS on a TDY basis.
The TFOS has engaged in extensive coordination with authorities of
numerous foreign governments in terrorist financing matters, leading to
joint investigative efforts throughout the world. These joint
investigations have successfully targeted the financing of several
overseas Al Qaeda cells, including cells located in Indonesia,
Malaysia, Singapore, Spain, and Italy. We have also disrupted Al Qaeda
financing in the UAE, Pakistan, Afghanistan, and Indonesia with the
assistance of relationships established with authorities in those and
other countries.
The TFOS has developed a specific terrorist financing/money
laundering crimes curriculum for international training which includes
topics such as: Acquiring and handling evidence in document intensive
financial investigations, major case management techniques, forensic
examination tools, and methods of terrorist financing. At the request
of the U.S. Department of State, the TFOS has led an interagency team
to provide this curriculum to a number of countries (and is scheduled
to provide to approximately 38 countries) identified as needing law
enforcement training on conducting terrorist financing investigations.
Through these training and outreach initiatives the TFOS has been
able to build relationships with foreign counterparts that improves the
FBI's ability to obtain access to financial records held by foreign
financial institutions.
The TFOS has cultivated and maintains a contact database of
private industry and government sources/persons who can provide
financial data, including near real-time monitoring of financial
transactions. Many of these contacts can be reached or accessed on 24
hour/7 days a week emergency basis allowing the TFOS to respond rapidly
to critical incidents. In all cases, TFOS follows applicable legal
procedures in obtaining access to financial data.
Through these contacts and with legal process the TFOS has access
to data and information from a variety of entities including: Banking,
Credit/Debit Card Sector, Money Services Businesses, Securities/
Brokerages Sector, Insurance, Travel, Internet Service Providers,
Telecommunications Industry, Law Enforcement, State/Federal Regulatory
Agencies, Public and Open Source Data Providers, the Intelligence
Community, and International Law Enforcement and Intelligence Contacts.
The timeliness and accessibility of the data is contingent on a variety
of factors including whether the acquisition of the information
requires legal process, the search capabilities of the data provider,
and the size and depth of the data request. The ability to access and
obtain this type of information in a time sensitive and urgent manner
has significantly enhanced the FBI's ability to identify, investigate,
and resolve immediate threat situations involving potential terrorist
activity. For example, the ability to conduct near real-time monitoring
of specifically identified financial activity has been invaluable to
not only investigations ongoing in the United States, but also to
foreign law enforcement and intelligence agencies in related
investigations.
Being able to identify and track financial transactions and links
after a terrorist act has occurred or terrorist activity has been
identified represents only a small
portion of the mission. The key lies in exploiting financial
information in efforts to identify previously unknown terrorist cells,
recognize potential terrorist activity/planning, and predict and
prevent potential terrorist acts. Prior to September 11, there was not
enough emphasis placed on addressing the mechanisms and systems
associated with terrorist financing and disrupting them before they
could be utilized to further terrorist activities.
Proactive TFOS Projects
The TFOS has a responsibility to be not only reactive but also
proactive as well, to think strategically about potential threats and
future case development. As a result, the TFOS, together with the
Counterterrorism Section (CTS), Criminal Division of the Department of
Justice (DOJ), have begun a number of proactive initiatives to identify
potential terrorists and terrorist related financing activities.
The overriding goal of these projects is to identify potential
terrorists and terrorist related individuals/entities, mechanisms or
schemes through the digital exploitation of data. To accomplish this,
the TFOS seeks to (1) identify potential data sources; (2) create
pathways and protocols to legally acquire and analyze the data; and (3)
provide both reactive and proactive operational, predictive and
educational support to investigators and prosecutors.
It is important to understand that these projects and similar
initiatives by the TFOS seek only to more fully exploit information
already obtained by the FBI in the course of it is investigations or
through the acquisition of new data through the appropriate channels
and legal process. The FBI does not seek access to personal or
financial information outside these constraints.
Information Sharing
Information sharing is critical to all of our efforts. The
intelligence community, including the FBI, produces and obtains
tremendous amounts of classified intelligence information. While much
of the information can be of significant value in terrorist finance
investigations, the value will not be realized nor maximized absent the
ability to filter the information, analyze it, and disseminate it in an
appropriate manner to those who can make the best use of the
information. Toward this end, the TFOS participates in joint endeavors
involving the CIA, FBI, Treasury Department, Department of Justice, and
the Department of Homeland Security involving potential terrorist
related financial transactions, in addition to other joint
participation between the TFOS and the intelligence agencies. The TFOS
has personnel detailed to the CIA/CTC and personnel from there work
directly with the TFOS on financial intelligence matters.
A Policy Coordinating Committee (PCC) on Terrorist Financing was
formalized at the end of 2001. The PCC generally meets at least once a
month to coordinate the U.S. Government's campaign against terrorist
financing. The meeting generally focus on ensuring that all relevant
components of the Federal Government are acting in a coordinated and
effective manner to combat terrorist financing.
Saudi Arabia and the War on Terrorism
Following the September 11 attacks, it became apparent that the
role of nongovernmental organizations (NGO's) and charitable
organizations, as a potential source of funding for terrorist groups,
needed closer scrutiny. This included any role that may have involved
Saudi Arabia or its citizens in the support of terrorism, both directly
and indirectly, through the financial support of these charitable
organizations.
The Kingdom of Saudi Arabia has taken important steps to deter
global terrorism, and has redoubled its efforts following the deadly
car bombings in the Kingdom on May 12, 2003. Prior to the May 12
bombings, Saudi Arabia put new laws and regulations in place for all
charitable organizations, ensuring that they are audited to prevent the
flow of funds to entities other than charity. Saudi Arabia has also
strengthened its laws and regulations regarding money laundering. These
efforts include new rules concerning the verification of customers'
identities as well as restrictions on nonresidents' ability to open
accounts in the country. These measures are being reviewed this week by
an international team of experts from the Financial Action Task Force.
In March 2002, Saudi Arabia and the U.S. Government jointly
blocked the accounts of Bosnia and Somalia branches of Al-Haramain
Islamic Foundation, and of Wa'el Hamza Julaidan, an associate of Osama
bin Laden who provided financial and logistical support to Al Qaeda.
Since the May 12, 2003 bombings of the three western compounds in
Riyadh, Saudi Arabia, cooperation with the Kingdom of Saudi Arabia has
significantly improved. The FBI sent an investigative team to the
Kingdom and worked with the law enforcement and intelligence services
to conduct the appropriate post incident investigation and evidence
collection. Cooperation with the Saudi Arabian Government continues on
this and other terrorism investigations. Saudi Arabia has contributed
to the break up of a number of Al Qaeda cells, the arrests of key Al
Qaeda leaders, and the capture of Al Qaeda members in Saudi Arabia.
The Saudi and U.S. Governments have recently agreed to focus
increased investigative attention on identifying and eliminating
sources of terrorist funding within the Kingdom and around the world.
The FBI and our counterparts in the Saudi Ministry of Interior have
established a joint terrorism financing task force.
The USA PATRIOT ACT and Other Legislation
Our efforts to combat terrorism have been greatly aided by the
provisions of the USA PATRIOT Act. The success in preventing another
catastrophic attack on the U.S. homeland would have been much more
difficult, if not impossible, without the Act. It has already proved
extraordinarily beneficial in the war on terrorism, and our
opportunities to use it will only increase. Most importantly, the USA
PATRIOT Act has produced greater collection and sharing of information
within the law enforcement and intelligence communities.
Title III of the Act, also known as the International Money
Laundering Anti-Terrorist Financing Act of 2001, has armed us with a
number of new weapons in our efforts to identify and track the
financial structure supporting terrorist groups. Past terrorist
financing methods have included the use of informal systems for
transferring value in a manner that is difficult to detect and trace.
The effectiveness of such methods should be significantly eroded by the
Act, which establishes stricter rules for correspondent bank accounts,
requires securities brokers and dealers to file SAR's, and certain
money services to register with FinCEN and file SAR's for a wider range
of financial transactions.
There are other provisions of the Act that have considerably aided
our efforts to address the terrorist threat including: Strengthening
the Government's position in defending suits brought by those who
provide material support; and the power to seize money subject to
forfeiture in a foreign bank account by authorizing the seizure of a
foreign bank's funds held in a U.S. correspondent account.
The FBI has utilized the legislative tools provided in the USA
PATRIOT Act to further its terrorist financing investigations. Some
examples of how the TFOS has used the provisions in the USA PATRIOT Act
to obtain foreign bank account information by issuing subpoenas on
those foreign bank's U.S. correspondent bank and to corroborate
financial data obtained through criminal investigative techniques with
intelligence sources. All of these techniques have significantly
assisted ongoing terrorism investigations and would not have been
possible, but for the enactment of the USA PATRIOT Act.
It is important for the Committee and the American people to know
that the FBI is using the USA PATRIOT Act authorities in a responsible
manner. We are making every effort to effectively balance our
obligation to protect civil liberties with our obligation to protect
Americans from terrorism.
Terrorist Financing Successes
The FBI has achieved several recent and notable successes. These
are the direct results of our ongoing efforts to cultivate more
meaningful and more productive international relationships, and
increase emphasis on sharing relevant financial information
domestically between law enforcement, government agencies, and private
financial institutions. In concert with other U.S. Government agencies,
the FBI has deployed advisers and trainers on numerous missions around
the world to assist countries in the crafting of legislation to combat
terrorist financing, further strengthen financial oversight controls,
and encourage closer scrutiny of suspicious financial transactions.
On four separate occasions, the FBI has received financial
information from a foreign government directly related to the funding
of a pending terrorist attack. On these occasions the FBI was able to
provide near real-time tracking of the funds and provide the foreign
government with specific and identifiable information regarding the
parties involved in the financial transactions more explicitly the
exact location and time the transactions occurred. Based on this
critical information, the foreign government was able to locate members
of terrorist cells and prevent them from executing their intended
terrorist attacks.
In January 2003, German law enforcement authorities that had been
working closely with the FBI arrested Mohammed Al Hassan Al-Moayad, a
Yemeni national, on charges of conspiring to provide material support
to Al Qaeda and Hamas. Al-Moayad was a significant financial
contributor to Al Qaeda and Hamas and boasted that he provided over $20
million dollars to Osama bin Laden. Al-Moayad had participated in
several fund-raising events at the Al-Farouq Mosque in Brooklyn, New
York. Al-Moayad has been arrested and is awaiting extradition to New
York from Germany.
In December 2002, a Federal grand jury in Dallas returned an
indictment against a senior Hamas leader, Mousa Abu Marzouk, for
conspiring to violate U.S. laws that prohibit dealing in terrorist
funds. Also arrested and charged by the FBI were Ghassan Elashi,
chairman of the Holy Land Foundation for Relief and Development (HLF).
Elashi and four of his brothers, all of whom are employees of the
Richardson, Texas, based InfoCom Corporation, were charged with selling
computers and computer parts to Libya and Syria, both designated state
sponsors of terrorism. The indictment alleged that the Elashi brothers
disguised capital investment from Marzouk, a specially designated
terrorist for his admitted leadership role with Hamas. The indictment
and subsequent arrests have disrupted a U.S.-based business, which was
conducting activities with a known Hamas leader, and international
state sponsors of terrorism.
In support of other FBI field office cases, the TFOS provided
intelligence and criminal financial investigative assistance through
various mechanisms such as: (a) financial analytical support; (b)
financial link analysis; (c) field deployment of financial experts; and
(d) major case management support. This support aided investigators in
a variety of cases such as:
The FBI Joint Terrorism Task Force (JTTF) in Charlotte, NC,
utilized racketeering and terrorist financing statutes to disrupt,
and then dismantle a Hizballah procurement and fund-raising network
relying on interstate cigarette smuggling.
The FBI, supported the Treasury's Office of Foreign Asset
Control (OFAC), in blocking assets of U.S. offices for Holy Land
Foundation for Relief and Development (HLF). This resulted in the
closure of Hamas' largest fund-raising entity in the United States
(The HLF has been linked to the funding of Hamas terrorist
activities, and raised $13 million dollars of support in 2000).
Joint FBI-OFAC cooperation shut down U.S.-based offices of
Benevolence International Foundation (BIF). Assets and records were
blocked after it was determined that the charity was funneling
money to Al Qaeda. In February 2003, Enaam Arnaout, the head of
BIF, pled guilty to racketeering conspiracy and fraud charges.
The FBI, with cooperation from the U.S. Intelligence Community
and a foreign government, apprehended a principle money launderer
of Osama bin Laden's, responsible for funneling approximately tens
of millions of dollars through international accounts to Al Qaeda
and the Taliban.
In February 2003, the FBI arrested Sami Al Arian, the alleged
leader of U.S.-based Palestinian Islamic Jihad (PIJ), and three
other members of his organization. They also closed several front
companies suspected of providing material support to PIJ members in
operations against Israel.
Participation of Financial Institutions
Since the events of September 11, private industry and particularly
the financial services industry have made great efforts to assist law
enforcement in the investigation of terrorism and terrorist financing
related matters. Their corporate patriotism and desire to work more
closely with Government in protecting America is recognized and
appreciated. They are literally on the ``front lines'' in the financial
war on terrorism. Because it takes money to travel, communicate, and
carry out terrorist acts it is the bank teller, manager, or broker that
is more likely to interact with the next terrorist or terrorist
financier, maybe even before law enforcement or the intelligence
community does. For this reason, it is critical that the financial
services industry receive the necessary training and awareness of the
``Things to Look For'' as it relates to terrorism and that they have a
vehicle or mechanism to report their suspicions to the Government in a
timely and efficient manner. This is accomplished through the use and
electronic filing of SAR's. Conversely, the Government needs to have a
way to communicate these ``Things to Look For'' with the private sector
as well as a mechanism to publish names of individuals, entities and/or
organizations reasonably suspected of engaging in terrorist activity.
Outreach and training combined with the utilization of USA PATRIOT ACT
Section 314(a) facilitates the timely sharing of information between
law enforcement and financial institutions. As mentioned earlier, the
TFOS has sponsored and participated in a series of conferences and
training forums with representatives from the financial services
industry and regulators to educate them of the ``Things To Look For''
but more coordination and law enforcement outreach is needed.
Production of Financial Records in Electronic Format
One of the biggest challenges facing law enforcement when it comes
to financial records analysis is the unavailability of financial
records in electronic format. In the past, it was common for
investigators to request and financial institutions to provide copies
of financial records such as statements, copies of checks, or deposit
slips in hard-copy (that is, paper) form. The delays inherent to their
production and forwarding to law enforcement was complicated by the
fact that the records were not readily accessible by the financial
institution and because they are often in paper form they are not
readily searchable or retrievable. This is especially true when time is
of the essence during emerging threat situations where access to and
analysis of the records is critical. Some financial institutions have
made great strides in converting and storing their transactional and
customer records in electronic format. The credit card industry is a
good example of this. Many banks and institutions even allow their
customers to view and download their account transactional data via the
Internet into financial management programs. However, others because of
the nature of their business or the costs involved do not digitally
store or are not capable of producing records electronically.
Future law enforcement investigations would be significantly
enhanced if financial institutions were to develop and adopt standards
of best practices for the storage and production of financial records
in electronic format. Countless hours and resources on the part of
private industry and the Government could be saved if these records
were stored and produced in a format that eliminated the need for
investigators to re-input or type the information back into financial
analysis programs.
Currently when records are not available in a digital format, we
utilize high-speed scanners to scan and copy the records. Text is
thereby converted to optical character recognition (OCR) searchable
text. By ``digitizing'' the documents into scanned, searchable images
they become immediately available to all with a need or interest in the
records. Digitizing the records not only facilitates rapid
dissemination of the documents but also provides for enhanced searching
and analysis. Storage, retrieval, and discovery production costs are
also thereby reduced. Once the records are digital, then advanced
searching tools may be applied against them to identify key
information, patterns, or trends.
However, as long as relevant records remain in paper form whether
held by the financial institution or the Government, investigators are
impeded in their timely dissemination and analysis. This can have an
impact on our preventative efforts.
In summary, the increased promotion of antiterrorist financing
training both domestically and internationally would go a long way
toward furthering cooperation and raising awareness of patterns in
terrorist financing. Efforts to interdict illegal money remitters which
undermine our financial institutions and provide a potential avenue for
illicit funds to be transferred should be pursued. Finally, the
production of financial records in electronic format would facilitate
not only sharing and analysis, but also increase our ability to
tactically respond to emerging threats.
Conclusion
Terrorism is a global problem. The solution is grounded in what we
have experienced since September 11--unprecedented international
cooperation and coordination. The threat terrorism poses must always be
considered imminent. In addition to considerable financial
investigative expertise, addressing terrorism and the finances that
support and propagate it requires the ability to both implement
proactive and preventive approaches to disrupt and dismantle as well as
the ability to conduct highly reactive immediate response financial
investigations to address potential imminent threats. As stated herein
and in conjunction with more and more of the international community
and other aspects of the U.S. Government, the FBI has made considerable
progress toward achieving and implementing these abilities.
Again, I offer my gratitude and appreciation to you, Chairman
Shelby, Senator Sarbanes, and the distinguished Members of the
Committee, for dedicating your time and effort to this issue and I
would be happy to respond to any questions you may have.
----------
PREPARED STATEMENT OF E. ANTHONY WAYNE
Assistant Secretary for Economic and Business Affairs
U.S. Department of State
September 25, 2003
U.S. Interagency Efforts to Combat Terrorist Financing
Mr. Chairman and distinguished Members of the Committee, thank you
for the opportunity to testify on U.S. efforts to combat terrorist
financing.
The United States remains engaged in a long-term war against
terrorism. I thank you for your support and for providing the necessary
tools for waging this war. This fight requires actions on several
fronts. A critical front is the effort to defeat, disrupt, and destroy
the financial networks that sustain terrorists and finance their
operations.
I would like to begin by recognizing how far we have come in terms
of U.S. Government interagency coordination when it comes to dealing
with terrorist financing. We have made enormous strides in improving
the degree to which all U.S. agencies with equities related to the
pursuit of terrorist financing cooperate and coordinate their efforts.
This strong interagency teamwork involves the intelligence and law
enforcement communities, as well as State, Treasury, Homeland Security,
and Justice collectively pursuing an understanding of the system of
financial backers, facilitators, and intermediaries that play a role in
this shadowy financial world. It involves the Treasury Department,
coordinating the policy process by which we examine actions to disrupt
these financial networks. It involves the Department of Justice leading
the investigation and prosecution in a seamless, coordinated campaign
against terrorist sources of financing. And, it involves the State
Department leading the interagency process through which we develop and
sustain the bilateral and multilateral relationships, strategies and
activities, including, in coordination with Justice, Treasury, and
Homeland Security, the provision of training and technical assistance,
to win vital international support for and cooperation with our
efforts.
A Policy Coordination Committee established under the framework of
the National Security Council and chaired by the Department of the
Treasury ensures that our activities are well-coordinated. The
Department of State, the Department of the Treasury, the Department of
Justice, the Department of Homeland Security, intelligence agencies,
and law enforcement agencies all work very closely together in this
effort. The Department of Homeland Security is a recent addition to the
framework and we look forward to involving them in the disruption of
networks bearing also on homeland security. Our task has been to
identify, track, and pursue terrorist financing targets and to work
with the international community to take measures to thwart the ability
of terrorists to raise and channel the funds they need to survive and
carry out their heinous acts.
A key weapon in this effort has been the President's Executive
Order 13224, which was signed on September 23, 2001, just 12 days after
the terrorist attacks of September 11. That Order provided the basic
structure and authorities for an effort, unprecedented in history, to
identify and freeze the assets of individuals and entities associated
with terrorism across the board. Under that Executive Order, the
Administration has frozen the assets of 321 individuals and entities.
The agencies cooperating in this effort are in daily contact, looking
at and evaluating new names and targets for possible asset freeze.
However, our scope is not limited to freezing assets. We have very
successfully used other actions as well, including developing
diplomatic initiatives with other governments to conduct audits and
investigations, exchanging information on records, cooperating in law
enforcement and intelligence efforts, and in shaping new regulatory
initiatives. We recognize, however, that designating names is--along
with arrests--the action that is most publicly visible. But,
designations are, in no way, the only action underway. Allow me to
stress this point, particularly because some questions have been raised
by commentators in this regard: Every approach the PCC has adopted
regarding a specific target has involved extensive, careful work. We
need to make sure we have credible information that provides a
reasonable basis linking the individual or entity to terrorism; we need
to weigh the options available to us for addressing the target; we need
to identify the most effective approach, realizing that we may shift
gears and adopt a different strategy later on. We want to be right,
legal, and effective. In some cases we support public action, such as
designations, in other cases we choose other methods, including law
enforcement, intelligence, or getting another country to undertake law
enforcement or intelligence action. At the end of the day, all our
actions combined, and the efforts of countries around the world, have
succeeded in making it more difficult for terrorists to move and
collect funds around the world, in particular through regular banking
channels.
Internationally, the UN's role in responding to the challenge of
terrorist financing has been crucial: The UN helped to give
international impetus and legitimacy to asset freezes and to underscore
the global commitment against terrorist financing. This is extremely
important, because: (1) most of the assets making their way to
terrorists are not under U.S. control; and (2) when it comes to Al
Qaeda in particular, it means that when an individual or entity is
included on the UN's sanctions list, all 191 UN member states are
obligated to implement the sanctions, including asset freezes against
these individuals and entities. It has added a total of some 217 names
to its consolidated list since September 11.
Another very important actor in international efforts to combat
terrorist financing has been the Financial Action Task Force (FATF), a
multilateral organization of 33 members individually and collectively
devoted to combating money laundering that has adopted 40
recommendations on the elimination of money laundering and an
additional, complementary eight special recommendations on combating
terrorist finance. FATF is monitoring compliance with its
recommendations in coordination with regional bodies, the UN Counter-
Terrorism Committee, and the G-8-initiated Counterterrorism Action
Group. FATF is planning assessments of country-needs for technical
assistance to improve local ability to combat terrorist financing. It
is in large part due to FATF's focus and efforts on terrorist
financing, for instance, that the Indonesian Parliament passed
important amendments to its anti-money laundering law on September 16,
amendments that will improve the country's ability to take actions
against terrorist financing. Similarly, it was FATF's efforts that led
the Philippines to pass legislation in March that will significantly
increase that country's ability to carry out meaningful antiterrorist
financing measures. A FATF team is working closely with the Saudi
Government to review recently drafted regulations as well as pending
legislation. FATF will advise on whether such regulations and
legislation meet international standards of effective instruments to
combat money-laundering and terrorist financing.
Saudi Arabia has been a particular focus of our counterterrorist
finance efforts. On October 12, 2001, we and the UN froze the assets of
Saudi millionaire Yasin al Kadi because of his links to Al Qaeda.
Subsequently, we and the Saudi Government submitted on March 11, 2002,
the names of the Somali and Bosnian branches of the charity Al Haramain
to the UN for worldwide asset-freezing. We and the Saudis also
submitted the name of Wael Julaidan, a prominent Saudi Al Qaeda
financier, to the UN for freezing on September 6, 2002. These are a few
examples of actions that have been publicly visible.
Launched in January, our senior-level dialogue designed to improve
communications beginning in January, the United States has told the
Saudi Government forthrightly that they would be judged by their
actions. As a result of the May 12, 2003 bombings in Saudi Arabia that
left 34 dead, including 8 Americans, the dialogue has intensified. Our
strategy with the Saudis has three parts:
interaction between key U.S. Government officials with Saudi
officials;
presenting packages of usable information to the Saudis to
help them take action against individuals and organizations
involved in the funding and support of terrorism; and
applying diplomatic pressure to ensure effective and timely
Saudi action based on the information. This requires follow-up and
the building of relationships of trust and confidence.
Saudi Arabia has made fundamental and necessary changes to its
banking and charity systems to help strangle the funds that keep Al
Qaeda in business. It is important to note that many of the changes
implemented by Saudi Arabia go beyond what we would have legal
authority to do. As I mentioned earlier, the FATF is in the process of
reviewing the effectiveness of these new laws and regulations. Saudi
Arabia is working with us closely in the context of the new task force
on terrorist financing, led on the U.S. side by the FBI. Experts from
the FBI and IRS have just completed the first part of a training model
designed to strengthen the financial investigative capabilities of the
Saudi security forces. In the UN, as mentioned above, Saudi Arabia
submitted, jointly with the United States, the names of two branches of
a major Saudi NGO, as well as that of a major Saudi financier, for
worldwide asset-freezing because of their links to Al Qaeda. Saudi
Arabia's new banking regulations place strict controls on accounts held
by charities. Charities cannot deposit or withdraw cash from their bank
account, nor can they make wire transfers abroad via their bank
account. And Saudi Arabia has banned the collection of donations at
mosques and instructed retail establishments to remove charity
collection boxes from their premises, something that is undoubtedly
extremely challenging for Saudi Arabia, but that the Saudi Government
has undertaken because it understands that terrorists are more likely
to use such funds than those channeled through regular banking
channels. Having said all this, I want to stress that this is a work in
progress. We have reason to believe that the new task force on
terrorist financing will be effective but we will need to see results.
We believe the Saudi Government is implementing its new charity
regulations, but there too, we will need to see results.
Again, please allow me to stress a point, because sincere and
concerned questions have been raised in this regard: The Saudis have
been and still are limited by their own lack of expertise, a situation
we are working to address. They are receptive to our assistance and
efforts to help them boost capacity to combat terrorist finance. The
Saudis are not where they need to be, and they have much work to do.
However, we believe they are headed in the right direction, are
committed to countering the threat of terrorist financing, and are
giving us very strong cooperation in the war on terrorism.
Another key focus of terrorist finance effort has been Hamas. I
would like to highlight the recent U.S. designations related to Hamas.
On August 22, the President announced the designation for asset-
freezing of the following five Hamas fundraisers: CBSP (Comite de
Bienfaisance et de Secours aux Palestiniens), ASP (Association de
Secours Palestinien), Interpal, Palestinian Association in Austria
(PVOE) and Sanabil Association for Relief and Development. He also
announced the designation of six top Hamas leaders (Sheikh Yassin, Imad
al Alami, Usama Hamdan, Khalid Mishaal, Musa Abu Marzouk and Abdel Aziz
Rantisi). Earlier this year, the United States also designated for
asset-freezing another Hamas charity operating in various parts of
Europe, the al Aqsa Foundation.
Hamas' recent suicide bombings demonstrate the organization's
commitment to undermining any real efforts to move toward a permanent
peace between Israel and the Palestinians. Hamas and other Palestinian
rejectionist groups must not be permitted to undermine the aspirations
of the Palestinian people for a viable, secure state living side-by-
side with Israel in peace and security. While the Palestinian Authority
and Arab states have endorsed the road map devised by the Quartet,
Hamas continues to reject constructive efforts toward a peaceful
solution to the Middle East conflict.
Shutting off the flow of funds to Hamas is crucial to reducing
Hamas' ability to carry out its activities and to thwart progress
toward peace. Hamas is also clearly a threat to Palestinian reform,
including Palestinians committed to a negotiated peace. Hamas has used
its charities to strengthen its own standing among Palestinians at the
expense of the Palestinian Authority.
In light of this, the United States welcomed the EU's recent
decision to designate Hamas in its entirety as a terrorist
organization. Previously, the EU had only designated Izzadin al Kassem,
Hamas' ``military wing'' as a terrorist entity.
We have also urged governments throughout the region to take steps
to shut down both Hamas operations and offices, and to do everything
possible to disrupt the flow of funding to Hamas, and other Palestinian
organizations that have engaged in terror to disrupt peace efforts.
Some of these financial flows may be used to support charitable
activities, but some of this money frees up funds used to support
Hamas' rejectionist and terrorist activities. We will continue to
engage with regional governments to prevent all funding of Hamas and
other groups that have engaged in terror.
In all our discussions with EU Governments on this matter, EU
states have raised serious concerns about addressing the basic
humanitarian needs of the Palestinian population. Even as we try to
shut off the flow of funds to Hamas, it is important to remember that a
significant portion of this money has gone to provide some basic
services to the Palestinian population--services the Palestinian
Authority has not yet successfully provided. This is a concern that the
U.S. shares and is working with our Quartet partners and others to
address. However, as long as Hamas continues to rely on terrorism to
achieve its political ends, we should not draw a distinction between
its military and humanitarian arms, since funds provided to one can be
used to support the other.
Also worth noting are actions taken elsewhere in the Middle East.
The United Arab Emirates, Bahrain, Egypt, and Qatar have also passed
anti-money laundering legislation and all Gulf Cooperation Council
member states have increased oversight of their banking systems.
Kuwait, Saudi Arabia, Bahrain, Qatar, and Oman are devising ways to
prevent the misuse and abuse of charities for terrorist purposes.
Hawalas, or informal money remittance systems, have posed special
challenges in the Middle East and South Asia. Similar systems operate
around the world, often beyond the purview of bank regulators. They
have existed for thousands of years and are not necessarily illegal
undertakings, but are susceptible to misuse. We have made a special
effort to engage countries on Hawalas and other informal networks,
encouraging innovative solutions, including via technical assistance
and regulatory oversight. In April 2002, the United Arab Emirates
hosted a major international conference to make countries aware of how
Hawalas operate and steps that might be taken to ensure they are not
used to support terrorism. Follow-up continues wherever Hawalas are
common by United States and internationally sponsored technical
assistance and training teams.
Asset-freezes and arrests get the headlines, but ``diplomatic
action'' also makes a difference in the world of terrorist finance. Let
me just briefly characterize for you the forceful types of actions that
we refer to under the rubric ``diplomatic action,'' a phrase that we
well know is not always assumed to be a synonym for ``armed and
dangerous.'' But we would consider ourselves second to no agency in the
forcefulness and persuasive potential of the tools at our disposal, as
validated by the fact that, often, there is interagency consensus on a
recommendation to wield diplomacy as a weapon against terrorists. When
we talk about diplomatic approaches for dealing with targets, we are
talking about getting other governments to cooperate in the war against
terrorist financing by taking concrete actions of their own, including
law enforcement and intelligence actions, as well as getting them to
speak out publicly against terrorist groups. It has involved
encouraging foreign governments to prosecute key terrorists and
terrorist financiers; to extradite a terrorist financier; to pass
strong antiterrorist financing legislation; to prohibit funds from
being sent to a charity; and to make sure companies funneling funds to
terrorists are shut down. Diplomatic action also means improving
conditions for our colleagues in other agencies to work more
effectively with their foreign counterparts in the fight against
terrorist financing. The results obtained through such diplomatic
strategies are crucial to our long-term success.
As we move forward with refined strategies, we will continue to
work actively with other governments in different regions of the world
to make further progress in our fight against terrorist financing. In
Saudi Arabia, we will continue our cooperation to achieve actions such
as the joint submission to the UN for asset freezing of the Bosnian and
Somali branches of the Saudi charity Al Haramain, and the similar
designation of Wael Julaydan, a prominent Saudi Al Qaeda financier.
These actions as well as other important initiatives such as
cooperation in building a joint task force on terrorist financing, we
believe are, and will continue to be, productive and in the interest of
protecting and saving American lives. In Asia, we will continue to work
with governments to confront Jemaah Islamiyah (JI), including its
sources of funding. In the last few weeks, the UN has listed 20 new
names of individuals associated with JI whose assets UN member states
are obligated to freeze. In this hemisphere, the OAS/CICAD Money
Laundering Experts Group is drafting model laws and regulations that
nations may adapt, enact, and implement to fulfill their FATF
commitment to combat terrorist financing. We continue to identify
vulnerabilities around the world and to work with other countries to
address them effectively. Our capacity-building and technical
assistance is vital in this effort. We have made it more difficult for
terrorists to move and collect funds, but we still have a long way to
go given the dimensions of this challenge.
Mr. Chairman, thank you for the opportunity to address this
important issue.
COUNTERTERROR INITIATIVES IN
THE TERROR FINANCE PROGRAM
----------
WEDNESDAY, OCTOBER 22, 2003
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:07 a.m., in room SD-538, Dirksen
Senate Office Building, Senator Richard C. Shelby (Chairman of
the Committee) presiding.
OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY
Chairman Shelby. The hearing will come to order.
Today is the second in a series of hearings concerning the
difficult issues surrounding the financing of terror. This
Committee's comprehensive review of the United States' campaign
to ``starve the terrorists of their funding'' began with a look
at the Administration's current organization for this task. Our
first hearing began to develop the theme that diplomacy is the
equal partner of enforcement and that intelligence used in the
analysis for prevention of terror acts is every bit as
important as evidence garnered for criminal prosecution. The
testimony from the first hearing also will allow the Committee
to review the effective organization of the many agencies of
our Government which address terror finance issues.
Today, the Committee will hear from experts in terror
organizations and their allies. For many years, the United
States focused on state sponsors of terrorism. Later, faced
with the threat of organizations beyond mere political
boundaries, we began to look at the international actors who
would threaten our citizens worldwide. With terrorism on our
shores, we see that terror organizations, using both simple and
sophisticated schemes to infiltrate the United States, must
make alliances, even with entities not sharing their ideology.
Our witnesses today will assist us in understanding the
underpinning of these relationships. It will be important to
explore the ``soft underbelly'' of terrorist support so that we
may ``dismember and gut'' this scourge.
We are privileged today, very privileged, to have as our
first panel Richard A. Clarke. Mr. Clarke has spent a career
relentlessly pursuing terrorists, while suffering the day-to-
day frustrations of this complex pursuit. He has spent an
unprecedented 11 years service in the White House for three
different Presidents. His positions included Special Assistant
for Global Affairs, Special Adviser for Cyber Security, and
National Coordinator for Security and Counterterrorism. His
remarkable tenure was distinguished by hard work, dedication,
and frank yet sophisticated advice. Mr. Clarke, we welcome you
and thank you for your important service to our country over
the years.
Our second panel will look at the shifting alliances within
the terror world and, in some instances, with professional
criminal elements. They will address the relationships with
legitimate businesses and other entities that terror groups, of
necessity, must
employ. Our witnesses will also explore the practical
complexity of ``following the money'' as it makes its way to
and from the hands of those who would do us and our way of life
harm.
I believe we must assure the American people that every
action, every technique, every fraud or ruse used by those who
seek to harm us will be anticipated, met, and countered
swiftly.
Senator Sarbanes.
STATEMENT OF SENATOR PAUL S. SARBANES
Senator Sarbanes. Thank you very much, Mr. Chairman. I am
pleased to join you today as the Committee continues its review
of the financing of terrorism.
In our hearing last month, the General Counsel of the
Department of the Treasury, David Aufhauser, and officials from
the FBI and the State Department underscored the importance of
identifying the methods by which terrorists are financed and of
tracking and seizing terrorist funds. Finding the channels
through which these monies move can illuminate the
relationships among terrorist cells and planners. If we can
significantly restrict the flow of funds used to recruit,
train, and sustain terrorists, the threat they pose can be
diminished accordingly.
To reach these goals, relevant information must be
collected, analyzed, and shared, and decisions must be made
about how to use that information to the greatest effect.
Focusing on how well the Government is organized to perform,
and is actually performing, these tasks requires a broad focus.
There are many kinds of terrorist groups, and these groups
operate in different cultures and circumstances.
We now know that Osama bin Laden used first the Sudan and
then Afghanistan to build the Al Qaeda infrastructure during
the mid-1990's, when only a few officials were focused on the
potential risk from those activities. One of those officials
was Dick Clarke, and we are very pleased to have him as our
first witness this morning. Terrorism today affects many
nations across the world, in Africa, South America, the Middle
East, Asia, as well as the United States and Europe. Its
funding involves a growing alliance between terrorism and
traditional criminal activity, such as narcotics trafficking,
as well as many kinds of undocumented economic activity, for
example, the trade in raw gems, to which terrorists have
turned. Understanding the diversity of this problem can help us
to manage our vulnerability to future terrorist threats.
Our witnesses today will survey the terrain on which United
States and international efforts to identify and restrict
terrorist financing must operate. We are looking forward to
their recommendations to the Committee.
Mr. Chairman, I again want to thank and commend you for
making this subject a priority for the Committee.
Chairman Shelby. Thank you.
Senator Bunning.
STATEMENT OF SENATOR JIM BUNNING
Senator Bunning. Thank you, Mr. Chairman, for holding this
very important hearing. I would also like to thank all of our
witnesses for testifying today.
Everyone on this Committee is very concerned with what is
the best way to cut off terrorist funding. I think we have a
set of witnesses in front of us today that will help us delve
into these problems. Hopefully they will not just tell us what
we are doing right and what we need to do in the future, but
what we can and are doing wrong and how we can better use our
resources.
Obviously, there are no easy answers, and I applaud you,
Mr. Chairman, for holding this series of hearings so we can
really dig into this problem. I look forward to hearing from
all our witnesses. Thank you again.
Chairman Shelby. Thank you.
Mr. Clarke, your written testimony will be made part of the
record in its entirety. You proceed as you wish. Welcome to the
Committee. We thank you very much.
STATEMENT OF RICHARD A. CLARKE
FORMER NATIONAL COUNTERTERRORISM COORDINATOR
NATIONAL SECURITY COUNCIL
Mr. Clarke. Thank you, Mr. Chairman. I will summarize the
written testimony, but first I would like to thank you for this
opportunity to appear before this Committee. It is a privilege
and it is a pleasure to come back before you. You, as Chairman
of the Intelligence Committee, pursued this issue and pursued
the overall issue of terrorism long before September 11. I want
to thank you for your efforts over the years, and they are
continuing, obviously.
We have come a long way since the beginning of the
Government's focus on terrorist financing. When I first asked
the CIA in 1995, in that era, to look into terrorist financing,
they said, Well, after all, you have to understand, it does not
take a lot of money to do a terrorist act. What they failed to
understand was it took a lot of money to be a terrorist
organization.
The questions we asked then of the CIA were never answered,
and we asked them for 6 years. How much money does it cost to
be Al Qaeda? What is their annual operating budget? Where do
they get their money? Where do they stash their money? Where do
they move their money? How?
Those questions, asked from the White House at high levels
for 5 or 6 years, were never answered because, according to the
intelligence community, it was too hard. We have come a long
way since then.
Mr. Chairman, let me make five quick points and then
entertain your questions.
The first point, I think, is one that you all understand,
but I think we need to make the public and other governments,
the media, and the banking industry understand, and that is, Al
Qaeda has not gone away. We all have our scorecard of Al Qaeda
leaders that we mark off as they are arrested or killed, and we
get the impression perhaps that we are eliminating the
organization. Well, it is certainly on the ropes, but it is not
eliminated by any means, and it will not be for many years. So
it remains a threat, and its financing remains an issue.
The second point is that we now know, much more clearly
than ever before, that Al Qaeda is just a small piece of a
network of organizations, of concentric circles of terrorist
organizations, those that Al Qaeda spun off or adopted, the
regional affiliates of Al Qaeda that have been carrying out the
attacks in Indonesia and elsewhere. But now I think we can also
see that there are other terrorist groups, traditional
terrorist groups like Palestinian Islamic Jihad, Hamas, and
Hezbollah, that are engaged in a mutual support network. And
the funding mechanisms for PIJ and Hamas appear also to have
been funding Al Qaeda.
The third point is that although we have made significant
progress in the Federal Government, there are still significant
organizational problems created by the reorganization with the
Department of Homeland Security. For years, we tried to get a
single entity to be in charge of all of the terrorist financing
issues and to give that entity all the capabilities it needed--
forensic accounting, investigation, and whatnot. We do not have
that today. We have, unfortunately, an MOU signed by the
Department of Homeland Security and the FBI saying the FBI is
in charge. That MOU was signed by the Department of Homeland
Security without ever telling the key components of the
Department that were working on terrorist financing, like
Secret Service and the Customs intelligence units.
And so we have today the FBI, the TTIC, FinCEN, OFAC, the
Secret Service, the Customs Service, the banking examiners, the
State Department, all coordinated by the White House now but,
nonetheless, all doing their own thing in their own space. Once
again let me say that I believe there should be a single fusion
center where all of those agencies move personnel on a
permanent basis to work together.
There is also an organizational problem in the Treasury
because so much of the Treasury enforcement arm was ripped out
and sent to the Department of Homeland Security. The Office of
the Under Secretary for Enforcement was eliminated, and so we
now have two key aspects to the war on terrorism financing
problem--the Office of Foreign Asset Control and FinCEN, the
Financial Crimes Enforcement Network--reporting to a Deputy
Assistant Secretary. This may sound like trivia, but trust me,
in the executive branch it is not. Those two organizations have
great professional staff. They need to be integral to this
struggle, and they need to have an Assistant Secretary of the
Treasury for Enforcement to whom they report. They also need
their forensic accounting and bank examination staffs expanded.
The fourth point regards the USA PATRIOT Act which, in
Section 314, calls for a three-way flow of information within
the United States: from the U.S. Government to the financial
institutions, from the financial institutions to the U.S.
Government, and, third, between and among the financial
institutions. Only one of those three paths is now being
utilized. Financial institutions are providing information to
the Government. They are getting almost no information back
from the Government to help them know where to look or what to
look for. And they have yet to establish a sharing mechanism to
allow them to share the information among each other
effectively. Although there has been much talk about it, there
has been no progress yet in giving the bank officials security
clearances so that they can have access to the intelligence
lead information that they would need to go look for this
money.
The financial institutions all want to do a good job. They
have not been given the tools nor the assistance by the Federal
Government to do a good job. I would like to suggest that one
thing this Committee may want to think about in the future is
an oversight hearing on Section 314 of the USA PATRIOT Act.
Fifth, and finally, many governments around the world are
now doing a much better job of cooperating with us post-
September 11 or, in the case of Saudi Arabia, post the attack
in Riyadh. But there are still holdouts. While I was in the
White House, I always wanted to ask the Congress to take the
model of the drug certification process and use it for
financing of terrorism. It is at least as important an issue.
What is that model? That model is that the President would
annually report to the Congress on what every nation is doing
to assist us in finding and seizing terrorist funds. If the
President found that any nation was grossly not cooperating, he
would have to impose sanctions.
I know that in any one of these things the President also
has to have a waiver for national interest. But the process of
preparing that report, the process of going to other countries
and saying: We have a report to the Congress that the President
has to certify. What would you like us to say about it, about
your cooperation? Mr. Chairman, that was extraordinarily
helpful in dealing with the counternarcotics problem. It would
be extraordinarily helpful in dealing with this problem as
well.
There are sanctions that the President could impose. He
could prevent financial institutions in a non-cooperating
country, after due notice, from clearing dollar accounts with
the United States or with correspondent banks. That effectively
kills a financial institution. It is the nuclear bomb of the
international finance industry. I trust it would never have to
be used. But if it were used once, it would send an important
message to other states.
While we are getting cooperation, I do not think we should
rest on our laurels. I think we should, in fact, step up the
pressure because this problem is not going away. Financing is
the necessary fuel for terrorist organizations, and if we are
to win what will probably be a generation-long struggle against
the terrorist threat that faces us today, it is a necessary
precondition that we dry up the money.
Thank you, Mr. Chairman.
Chairman Shelby. Thank you, Mr. Clarke.
You mentioned or alluded to the National Security Council
Policy Coordination Commitment, the PCC. Currently, Mr.
Aufhauser chairs the group. He testified before this Committee
very recently--a very able man.
What are your basic thoughts on PCC? You know, when you
create an ad hoc group, it remains that way sometimes, as
opposed to defining something that is more permanent in nature,
I guess.
Mr. Clarke. Mr. Chairman, perhaps I am prejudiced from my
personal experience, but I think the only way departments and
agencies pay attention to important national goals is if there
is someone at the White House who is a pain in the rear end and
that perhaps has the power and trust of the President.
I think the new arrangement is that the Deputy National
Security Adviser, Mrs. Townsend, has taken on the role of
coordinating the interagency process with regard to this issue.
Now, I think that is important and I think that is a good
thing, and she is certainly well experienced and well equipped
to make it work, and she has the trust of the President.
But I think what is missing, the second element for
success, in addition to having a nudge in the White House, is
having an interagency center that is activist and that has all
the capabilities and skills it needs to carry out what the PCC
and the President want. We do not have that. We do not have
this one place where all the assets of the banking examiners in
the eight regulatory organizations--and there are eight at the
Federal level--where people from the Office of Foreign Asset
Control, FinCEN, Secret Service, and Customs intelligence are
all working together with the FBI.
I cannot stress enough how valuable these skills are at the
Secret Service. People think of them as bodyguards. They are
much more than that. They do one of the best jobs in the
Government on financial crime and have for years. We need them
to be integral to this effort.
The progress that we made, such as it was, prior to
September 11 on terrorist financing was done almost exclusively
by the Customs intelligence branch, and we need them integral
to this effort.
So, I would say the two key elements are a strong Chair in
the White House and a strong interagency fusion center. You
cannot just rely on the FBI.
Chairman Shelby. Mr. Clarke, you mentioned the flow of
information from the financial institutions to the Government,
but no backflow in a sense. If there is no feedback on what
they are getting, it seems like it is a one-way street and it
seems like it is inadequate. Do you want to elaborate on that a
little more? How do we change that?
Mr. Clarke. I think it is very frustrating for compliance
officers and security officers at U.S. banks and financial
houses who want to do the right thing but do not know what to
look for. And when they do find a suspicious activity and they
file a suspicious activity report as required by law, nothing
happens as far as they know.
Now, do they continue sending in that information? Maybe
they should be told, no, that was not helpful, look somewhere
else. Or they should be told that was exactly right and we need
to have more of that. They are not given any of this
information, and the reason they are not is they are told
either it is grand jury information, potentially, covered by
the Federal Rules of Criminal Procedure, or it is classified
information and you do not have a security clearance.
Those objections can be overcome. We can provide clearance
to these personnel. We can provide them with secure phones. We
can provide them with access to information so that they can do
their job better.
Chairman Shelby. Mr. Clarke, you referenced the drug
certification program. It sounds good, you know, if we could do
this with countries and say, gosh, we will investigate who is
really cooperating with us on fighting terrorism through the
financial institutions in their country and who is not. I have
been told that there are only two countries currently on the
drug list, Haiti and Burma, so many waivers are involved.
If we were to come forth with something like this, how do
we tighten it up to where we take the political elements out of
it?
Mr. Clarke. That is always going to be difficult, but while
there are only two countries now on the decertified list, there
have been other countries in the past. And the fact that they
have moved off the list means that we have made progress with
them.
There is always going to be political interference and the
State Department saying that we do not want to say this country
is doing things improperly. But I think if you have a criteria
list in the law, then there is less wiggle room for that type
of political interference.
Chairman Shelby. Senator Sarbanes.
Senator Sarbanes. Thank you, Mr. Chairman.
Let me first just follow along with the Chairman's last
question. Administrations have brought tremendous pressure to
bear on the Congress and actually repealed the drug
certifications. And as the Chairman pointed out, they often
render it useless because they give these waivers out all the
time. In fact, some argue that it weakens the perception of our
fight against drugs rather than strengthens it because we come
right up to it and then they say, oh, well, for other reasons,
you know, we are going to give a waiver here, we give a waiver
there and so forth. And the attitude finally--I mean, you know,
we have Haiti and Burma on this list. End of list. We would
have to think about whether the same thing would happen on the
money trafficking. But it is an interesting suggestion.
Some of us have the perception that the creation of the
Department of Homeland Security may well have set us back with
respect to addressing this issue of the financing of terrorist
organizations rather than move this forward. How do you see
that?
Mr. Clarke. I think there is no doubt that it did.
Reorganizing the Federal Government in the middle of a war on
terrorism was perhaps not the brightest thing we could have
done. And as someone who spent 30 years as a Federal
bureaucrat, I know that bureaucrats' tendency is to worry first
about their desk, their office, their boss, their building, and
their parking space. And when you start changing all of that,
it takes them off the substantive work they should be doing.
The organizational changes with the Customs Service, with
the Secret Service, with the ripping out of the enforcement arm
from the Treasury Department, I think all of that
discombobulated many of the key agencies in the fight to
identify terrorist fundraising. It is unfortunate. We lost
time. We still have not put Humpty Dumpty back together again
because we still have not got the Treasury Department with
someone really in charge of the residual enforcement elements,
OFAC and FinCEN.
Senator Sarbanes. Plus they have lost a lot of their tough-
minded investigators, have they not, at Treasury?
Mr. Clarke. They have lost almost all of them to the
Customs reorganization, and within Customs. Customs
intelligence, which was so key, has been broken up into two
different pieces.
So, yes, I think it is absolutely right that the
reorganization did not help and probably set us back.
Senator Sarbanes. Where would you put the fusion center?
Where would it be located if you had something like that?
Mr. Clarke. I think organizationally it should probably be
in the Treasury Department, but it does not matter a great
deal, as long as all of the key elements are represented and
they are really reporting to someone in the White House who
chairs an interagency committee.
Senator Sarbanes. Would you say that is the single most
important thing we could do in terms of organizing the U.S.
Government to address this problem?
Mr. Clarke. I think it is absolutely the most important
thing that we could do. Having the current structure where the
FBI is in charge and tells everybody else what to do is a
recipe, I think, for failure. We need an integrated
organization.
Senator Sarbanes. Why do you think that?
Mr. Clarke. Well, because the FBI, by tradition, does not
cooperate well with other Federal agencies and does not share
information and treats other Federal agencies as second-class
participants in the overall effort.
I think if we create a neutral center with the FBI,
obviously there and playing a key role, but the other elements
of the Government that have the legal authorities and the
skills necessary, and also gives us a second opinion, which we
desperately need on all of these questions.
Senator Sarbanes. How would you assess the effectiveness of
the major banking centers outside the United States in
enforcing economic sanctions and antiterrorist financing rules?
Mr. Clarke. I think they are much better now, obviously,
than they were prior to September 11, and the Saudis have
gotten better since the Riyadh bombing. But it is difficult for
me, outside the Government, to know the extent of that progress
in the last year.
Senator Sarbanes. Mr. Chairman, my time has expired.
Chairman Shelby. Senator Bunning.
Senator Bunning. Thank you, Mr. Chairman.
Let me do a little follow-up on what my Chairman and
Ranking Member have talked about as far as the Department of
Homeland Security and the ability to gather the information
necessary.
One of the main reasons we created the Department of
Homeland Security was to centralize the ability to gather all
intelligence and localize it in one Department. We fought the
ability of a Deputy Secretary in the Department of Homeland
Security to be in charge of the intelligence gathering and were
successful in defeating that. My gut feeling is that if all of
the people that are involved in this type of intelligence you
are talking about as far as financing and raising money and all
the things that are involved in the financing of terrorist
activity could report directly to the Secretary of Homeland
Security, Tom Ridge, who obviously has the right connections at
the White House and the Department of the Treasury, we would
not have this maze of people, including the FBI, CIA, or Secret
Service and/or all that you are talking about.
Do you think that that might, even if it were directly to
the Secretary of the Treasury--I am trying to get out from
under somebody being a bureaucrat first and responsible for the
overall
aspects of collection of this information.
Mr. Clarke. Well, Senator, I know that many in the Congress
thought that by creating a Department of Homeland Security and
having an intelligence division or an information analysis
division with an Under Secretary in charge, that coordination
and centralization would occur. It has not occurred. There are
many hundreds of unfilled jobs in the Department of Homeland
Security. The intelligence analysis capability has not yet been
created.
I am not sure it matters a great deal what department this
fusion center is in, but I think it is important that there be
a fusion center, a large center with good people, not just the
kind of people you want to get out of your organization and so
you assign somewhere else, but good people in a center with all
of the skills necessary, all of the agencies that can bring
something to the table, represent it, and that there be a
senior Federal official who does nothing but run that center,
and then a White House-led committee that does oversight and
policy direction. And I think those two elements are key--
someone senior at the White House, not somebody who has 27
other jobs at the White House but a senior-level person at the
White House with experience, and I think Fran Townsend is
absolutely the right person. The President has appointed the
right person to do that job, and she is the Deputy National
Security Adviser, and she has got great experience in this
issue going back 12 years.
What she lacks is the center, and whether it is in Treasury
or Homeland Security I do not think, frankly, makes much
difference.
Senator Bunning. Okay. To go back to the Chairman's
question about banks and other financial institutions, back and
forth, a lot of going to but nothing coming from, we have some
privacy problems that we have to solve, and you well know that
there are privacy problems that this Committee deals with on a
daily basis. How do we overcome them?
Mr. Clarke. Part of the privacy problem is part of the
classification, the secrecy problem in general. We have in the
past given secret-level clearance to corporate officials. The
head of security for every major airline has a secret if not a
top-secret clearance. There are people throughout the defense
industry in the private sector, Northrop Grumman, Lockheed, and
Raytheon, all have top-secret clearance. I do not know why we
cannot take the chief compliance officer or the chief security
officer of a major bank or financial institution and give them
a top-secret clearance. They are all former Secret Service and
FBI agents. They have all had top-secret clearance before,
anyway. They are people who we know we can trust because they
have spent 25 years with clearances in the past.
Senator Bunning. Where were you suggesting that we add that
to? The Department of the Treasury or the Department of
Homeland Security?
Mr. Clarke. Who gives them the clearance I think is less
important than the fact that they get it.
Senator Bunning. That they get it.
Mr. Clarke. Now, it costs money to give someone a security
clearance. These days a full-field investigation costs
$100,000. So someone is going to have to get an appropriation
if we are going to clear 50 people. That is going to be some
money. But it will bring us back great benefits because then
they will know what to look for.
Senator Bunning. A last question. You mentioned Section 314
of the USA PATRIOT Act. Tell me why we should re-examine that
Section or examine it to start with, and what progress can we
make if we do it?
Mr. Clarke. I am not suggesting it be modified. I am just
suggesting that you have an oversight hearing to see how it is
being implemented.
Senator Bunning. Thank you very much, Mr. Chairman.
Chairman Shelby. Senator Allard.
COMMENTS OF SENATOR WAYNE ALLARD
Senator Allard. Thank you, Mr. Chairman. I would like to
follow up on Senator Bunning's questioning about Section 314.
You suggested we hold a hearing. There are many parts of the
USA PATRIOT Act you have suggested need no hearing. What is
going on in Section 314 that drives you to think that we should
take a look at it?
Mr. Clarke. This hearing today has as its subject terrorist
financing, and that is what Section 314 is about. It does seem
to me that if you want to have a series of hearings on
terrorist financing that one of them should at least in part
focus on how well this part of the law is being implemented.
What I suggested was I think it is being well implemented by
the banks in that they are providing the Government
information. It is not being well implemented by the Government
in that the Government is not providing them information.
Senator Allard. So we need to take a hard look at the
Government's side of Section 314 and how it is being managed.
Mr. Clarke. And I think you also need to ask the banks if
there are things that they could do to exchange information
among each other, as they are authorized to do by Section 314.
Section 314 is well written. It authorizes the banks to
exchange information amongst each other without any fear of
monopoly, antitrust, or privacy problems.
Senator Allard. And you think Section 314 is essential?
Mr. Clarke. I think it is very essential, very well
written, and I think we need to make it work. I am not sure it
is working.
Senator Allard. You state in your testimony that the United
States should sanction governments that do not cooperate in the
search for terrorism financing. Has the cooperation of our
current partners been effective in your view?
Mr. Clarke. I suspect they are always going to be hold
outs, there are always going to be these offshore banking
centers that are scofflaws. Senator Sarbanes said there were
problems with narcotics certification. There absolutely were
problems with narcotics certification. If you were to do a
certification process for terrorist financing I think it would
be written differently. But the process of going to a
government and saying, ``We have to send the U.S. Congress a
document every year that says how you are doing, you, the Isle
of Mann, or you, Kiribati,'' there is going to be a document go
before the U.S. Senate saying how you are doing. The very fact
that you have that capability as a U.S. diplomat to say that to
another country brings progress.
Even if the threat of sanctions is remote, even if there is
only one country on the list, the threat that you could be put
on the list helps enormously. It has helped enormously in the
drug area. The measure of merit here is not how many countries
are on the list. The measure of merit is how many countries are
not on the list because we scared them into progress and
cooperation.
I know what it is like for a U.S. diplomat to go into one
of these countries and try to get their attention and try to
get their cooperation. It is hard. And if you have no stick, it
is very hard. I think we need to give our diplomats that stick,
and hopefully they will never have to use it.
Senator Allard. Do you believe that the existing antiterror
conventions and treaties are effective?
Mr. Clarke. There are, I think, 13 of them. Most of them
are very effective, but I think in the area of terrorist
financing there has not always been a willingness to share
information, a willingness to open up accounts. One of the
problems, frankly, is if we are going to ask other countries to
open up their banks for international inspection, we have to do
that too.
There has to be, as there is, a system for doing this that
is already in place, where three countries get together and
inspect another country, audit another country, and file a
report. That is a good process. Structurally that is a good
process, but it needs to go down to an additional level of
detail which it has not in the past.
Senator Allard. It sounds to me like if we would do that,
we might grant privileges to a foreign power that we do not
even grant to our own agencies here in the United States about
the sharing of banking information.
Mr. Clarke. No. It would be limited, and it is now, limited
to the banking examination authorities that the Federal
Government already has.
Senator Allard. I see my time has expired, Mr. Chairman.
Chairman Shelby. Thank you.
Mr. Clarke, in your written testimony you outline numerous
examples of terrorists and their agents leveraging or abusing
our First Amendment protections of the free exercise of
religion in pursuit of their fundraising efforts. Where do you
see the balance of the Government's intrusion into suspected
abuse, a front, organizations, or false religious
organizations?
Mr. Clarke. It is not coincidence that the terrorists have
chosen to wrap themselves in religion, particularly in this
country, because they know how difficult it is for law
enforcement to go after them if they have wrapped themselves in
a religious cloak. Under the former Attorney General guidelines
that General Ashcroft changed after September 11, but under the
guidelines that date back to the Watergate era, FBI agents were
not allowed to go into mosques or church.
Chairman Shelby. This is previous restrictions?
Mr. Clarke. Previously. There were a whole series of
restrictions like that. Many of them have been modified now.
But I think we have to walk a fine line here of obviously
continuing to respect the rights of religious institutions, but
knowing that the enemy has decided to hide himself in the
camouflage of religious institutions. If we know that, and we
do, then we have to examine them.
Chairman Shelby. We have to it and do it well. I understand
that. Can we fashion, and how do we fashion an investigative
guidance to balance the constitutional interests with our
investigative pursuit of financing? Knowing this, which, you
know you have people hiding behind the religious organization
to raise money for terrorist activities.
Mr. Clarke. I always believe that the Government has
greater credibility, the Executive Branch has greater
credibility when it has people who are not in the Executive
Branch doing some advice and oversight. In other words, an
outside advisory board. It would seem to me that in general the
Justice Department would be well advised to have a body of
people who are well-respected in the academic community for
their interest in civil rights, civil liberties, and religious
protection giving advice on an ongoing basis, and having access
to what it is that the Justice Department and other agencies
are doing.
Chairman Shelby. Mr. Clarke, in your view, and based on all
your experience, which is vast, what is the greatest challenge
in creating a terror finance program with some teeth in it,
where information is shared? You mentioned the lack of a real
fusion center before, lack of feedback to institutions, but
what is our greatest challenge?
Mr. Clarke. I think the greatest challenge, place where we
have failed the most and the place where had we succeeded we
would have gotten the greatest reward is in the area of
developing human intelligence. If the intelligence agencies
were able to tell us where to look for this money, it would be
a lot easier, because what we are doing now is we are going
through the haystack looking for the needle. And if you do it
that way it is terribly expensive, terribly time-consuming, and
frequently not productive. But if you have an intelligence tip
as to what bank account, what bank, then you do not have to go
rummaging through everybody's privacy.
Unfortunately, the U.S. intelligence community has not done
a good job of placing agents, particularly in human
intelligence, in these terrorist organizations that are able to
answer the simple questions, where is the money?
Chairman Shelby. Mr. Clarke, how do we, the United States,
address, I guess we would call it the informal value transfer
systems, for example real estate transactions--that is just one
you have mentioned, the illegal diamond exchanges, is it
hawalas?
Mr. Clarke. Hawalas.
Chairman Shelby. Explain how the hawalas works, if you
will.
Mr. Clarke. Hawalas are fascinating. They are a system of
ledgers. A network of people around the world who trust each
other and keep ledgers, and the ledger may just be this, it may
just be a notebook they keep in their pocket. You walk into a
hawala in Brooklyn and you say, ``I want $10,000 to go to my
brother in Rawalpindi,'' and you pay a 3 or 4 percent carrying
fee, and you are given a code word. You give that code word
then to your brother in Rawalpindi. He shows up at the
designated hawala there.
It does not say hawala on the door. It says rugs or coffee
beans.
Chairman Shelby. Or money shop.
Mr. Clarke. Money shop, exactly. The brother goes in and he
gives the code word and he gets the $10,000. And money has not
moved. That is why we cannot find it moving because it has not
moved. The hawala in Rawalpindi is using its own resources.
Chairman Shelby. You have a debit and a credit though.
Mr. Clarke. It is a ledger system and they clear the ledger
at the end of the quarter or the end of the year with each
other. And then money may physically move. The way it moves is,
as you suggested, goods are bought and sold, and so a rug
shipment moves and they pay $1 million for a rug shipment that
is worth $10,000, very, very hard to find.
When we first asked the FBI to find the hawalas in the
United States, of course the first question was, ``What is a
hawala?'' The second was a statement that there were not any.
So we went online and Googled hawalas in Brooklyn and Googled
hawala Queens, and we found lots of hawalas. They are still
here. They are more under cover than they were before, but it
was not even clear in most States that they were illegal at
that time. They are now.
Chairman Shelby. Are they real prevalent in the Gulf
States?
Mr. Clarke. Throughout the Arab and Islamic world.
Chairman Shelby. Is that the way they move money back and
forth to their families and so on?
Mr. Clarke. That is exactly how they do remittances. There
is a separate system in the Chinese ethnic community that is
very similar to the hawala system in the Islamic community.
They are very difficult to find. They are now illegal in the
United States, but there is not any international standard by
which they are illegal.
Chairman Shelby. How much money is moved, in your judgment,
through the hawalas? Is it hundreds of millions?
Mr. Clarke. That is very difficult. It is clearly hundreds
of millions, but putting it even parametrically saying how much
money it is, we really do not know.
Chairman Shelby. Senator Sarbanes.
Senator Sarbanes. Senator Schumer has not had a chance.
Chairman Shelby. I was going through the names. If you want
to yield, we will do it. We will have a second round. It is up
to you.
Senator Sarbanes. He has not had a round yet.
Senator Schumer. I have questions, but I will wait.
Chairman Shelby. Go ahead Senator Schumer.
STATEMENT OF SENATOR CHARLES E. SCHUMER
Senator Schumer. Thank you. I thank both of my colleagues.
I want to thank Mr. Clarke, whose service to his country is
just stellar and we thank you for being a voice on this long
before just about anybody else was, and I wish you were back in
Government, but I am glad you are still speaking out and being
involved.
First question is it seems that this is not new in terms of
the American Government having tried to crack down on Saudi
participation in terrorist financing. As I understand it, there
was a report in the July 2003 New York Times that said that
Vice President Al Gore arranged to meet with Saudi officials in
1999 and 2000, threatening Saudi Arabia with severe sanctions
if they did not stop participating in funding terrorism. Were
you aware of the meetings? How did the Saudis respond to the
threat? Did they make any moves to stop terrorist financing at
that point?
Mr. Clarke. That report is essentially true. What the
Saudis did prior to September 11 and even after September 11,
up until the Riyadh bombings, was to say that they took this
seriously and promised cooperation. They then asked us for lead
information. ``Fine. Mr. American, if you believe there is
money in our banks, tell us what bank account. Tell us the name
of the individual.'' When on rare occasions we were able to do
that, they said they would look into it and for the most part
nothing happened.
That has changed since the Riyadh bombings.
Senator Schumer. It did not change in the period between
September 11 and the Riyadh bombings much?
Mr. Clarke. My impression is that the wake-up call was not
September 11.
Senator Schumer. How much has it changed?
Mr. Clarke. I am told by my former colleagues in the White
House and elsewhere that it has changed quite a bit.
Senator Schumer. Did they react? Did they do anything after
Vice President Gore went to them and said, change things around
a little bit?
Mr. Clarke. They certainly agreed to a number of meetings
where Treasury Department officials and CIA and FBI officials
gave them lead information and gave them ideas about how you do
bank auditing and how you set up a suspicious activity
reporting system. They said they were going to look into all of
those and perhaps adopt them. I am not sure whether they
actually did anything.
Senator Schumer. Next question is somewhat related. We have
seen reports everywhere that this is not just some little small
group of rogue Saudis funding this, but rather that there are
officials at the highest levels of Saudi society, including
royal family, including present or former ministers in
financing terror. Some of these officials are the same ones, as
I understand it, who have some say in helping us with our
investigations of terror with Saudi Arabia.
First question is, have leading Saudi officials, either in
public or private capacity, funded terrorism and if so, do they
continue to do so today?
Mr. Clarke. I do not know the answer to that, Senator, but
I think this is a general answer.
Senator Schumer. Could you give us some context to this?
How could so many high up people be involved in this kind of
thing?
Mr. Clarke. Again, I do not know that high up people were
knowingly involved in terrorist financing, but I think the
context is this. There were some Saudis and people from other
countries who knowingly provided money to terrorist fronts.
There were others who knowingly provided money to Islamic
charities. The Saudi Government, as a matter of policy, was
providing money to Islamic charities around the world and to
the creation of mosques, not just the building of them but the
staffing of them and the running of them. The Saudi Government
was in effect an evangelical organization pushing its religion
around the world.
Many of those mosques and many of those religiously
affiliated charities that were receiving government money were
used by Al Qaeda as fronts, as sanctuaries, as places to raise
money, hold meetings, recruit personnel, employ people who were
really terrorists, and give them cover. The unknown question,
at least unknown to me, is the extent to which that knowledge
of the abuse was held at high levels of the Saudi Government. I
have to believe that if high levels of the Saudi Government
knew that that abuse was going on, they would want to stop it,
because after all, Al Qaeda's goal is to have them all hang
from telephone poles. There is no reason why the Saudi
Government wants to help Al Qaeda because the first thing Al
Qaeda will do is kill them all.
I think we have to distinguish between the evangelical
nature of the Saudi Government's support for Islam around the
world, on the one hand, and the abuse of the system the Saudis
created. Clearly, there were people who knew that the abuse was
going on, but I do not know who they were or how numerous they
were or how high level they were.
Senator Schumer. Does our intelligence have better
information now on who they would be? It would seem to be an
important thing to know.
Mr. Clarke. I think our intelligence has gotten much better
with it on that issue.
Senator Schumer. May I ask one more question, Mr. Chairman?
Chairman Shelby. Go ahead, Senator.
Senator Schumer. And this is one that Mr. Clarke and I had
talked about a little bit in Judiciary. He has been before
Judiciary because of his great knowledge on these things.
Again, we had talked about this. I am not sure if we did it
publicly or privately. But one thing I am really troubled about
is the planeload of Saudi citizens that was allowed to leave
the country right after September 11. They might have been
people either involved in terrorism or people who knew
something about terrorism. As I understand it, most of the
people who were on that plane now cannot be questioned by our
own authorities because the Saudis are very reluctant to allow
our authorities to question freely Saudi citizens who might be
involved in terrorism. Do you know how it all happened? Why it
was allowed, when we were not allowing anything else, and how
much damage did it do us and are we able to recoup some of that
now with this new change post Riyadh in being able to question
some of these people, albeit a couple of years later?
Mr. Clarke. Senator, I think this is really a tempest in a
teapot. What happened was that shortly after September 11 when
it became clear that most of the terrorists of September 11
were Saudis, the Saudi Government feared that there would be
retribution and vigilantism in the United States against
Saudis. That seemed to be a reasonable fear. The Saudi
Government therefore did what we do all the time in these kinds
of circumstances. It organized an evacuation flight for Saudi
citizens who wanted to be evacuated. I have done this several
dozen times, where we have arranged evacuation flights to
evacuate Americans under similar circumstances.
The list of personnel that were being evacuated was
provided to the FBI. We asked the FBI to see if there was
anyone on the evacuation list that they wanted to detain and
question, and the FBI told us there was no one on the list that
they wanted to detain.
Since this has become a matter for speculation I understand
that there are people in the FBI who say they did not really
have a chance. They had a chance.
I think the real test of whether or not this is a serious
issue is, is there anybody who was evacuated on that flight
that the FBI has subsequently tried to question, subsequently
found any value in questioning? As far as I know--I would be
pleased to hear otherwise--but as far as I know there was no
one on that flight that the FBI wanted to investigate or
interrogate then or wanted to investigate or interrogate
subsequently.
Part of the brouhaha is that there were members of the bin
Laden family on that flight, and there is a guilt by
association implication here. The bin Laden family is enormous,
number one. Number two, the members of the bin Laden family who
were living in the United States we were aware of. Without
going into more, in open testimony, let me just say we were
aware there were members of the bin Laden family living in the
United States, and had they been doing anything wrong we would
have known about it. Let me stop there.
Senator Schumer. Thank you, Mr. Chairman.
Chairman Shelby. Senator Bunning.
Senator Bunning. I am going to try get a handle on the
expansiveness of Al Qaeda and other terrorist organizations. In
your opinion is the widespread diversion of terrorist
organizations, Jihad, Hamas, and other organizations, is it a
coordinated unit, or is somebody coordinating as best as they
can? What happens with the funding and with the direction of
these terrorists?
Mr. Clarke. Senator, I think there was a great deal of
coordination among the two inner circles. Let me describe my
model of three circles here. The most central circle was Al
Qaeda itself. The circle around it was organizations that they
created or expanded and funded and trained, regional
affiliates. The third circle is groups that really have nothing
to do organizationally with Al Qaeda and predated it in many
ways, Hamas, Hizbollah, PIJ, and the others. Prior to our
dismantling efforts at Al Qaeda in 2001 and 2002 the inner two
circles did get direction from the leadership of Al Qaeda. In
other words, a regional affiliate in Algeria, Italy, or
Indonesia did take orders from the leadership of Al Qaeda.
The leadership of Al Qaeda cannot communicate, so the
regional affiliates are much more on their own. I think there
is a still informal, non-centralized, non-leader directed
relationship among all of these components. We have gone from
having something that was hierarchical to having something that
is more dispersed.
The American Right Wing Militia in this country talked
often about the concept of the leaderless revolution, and the
beauty of that to them was that you could arrest people you
thought were leaders and it would not affect the movement. The
same model is now working in the fundamentalist Islamic
terrorist circles, that it is more of a leaderless
organization, and you can pick off individual leaders in
individual cells. The other ones are still out there, and
sometimes communicate and cooperate with each other.
Senator Bunning. Would you say that as far as unit within
this country, with the United States, there is no specific one
person leading except the fact that they are individual cells
that are operating on their own?
Mr. Clarke. I suspect there are cells in the United States.
I do not know that for certain, but I think there are, and many
of them are operating on their own or are operating with regard
to regional terrorist organizations back in their home
countries. I do not think there is much of a hierarchical
system here.
Senator Bunning. The funding that Senator Schumer and
others have talked about, these cells, whether they be in the
United States or otherwise, are somehow funded, and whether it
be the Saudis or whoever, but through a series of charitable
foundations or other types similar to that?
Mr. Clarke. I think there are two things going on with
charitable foundations and apparent nongovernmental
organizations. One, there are some NGO's and charitable
organizations that were created by Arab governments, and
sometimes their local chapters have been taken over or abused
by terrorists as fronts, without the Arab governments knowing
it. There is another kind of charitable front that is created
by the terrorist group and does not have a governmental
affiliation, and we have seen both of those.
Sometimes the money does not flow to the cells in the
United States. Sometimes the money flows from the cells in the
United States.
Senator Bunning. If we kill the money do we kill the cells?
Mr. Clarke. No. But I think it makes it much more difficult
for these organizations to do recruiting and training if they
do not have the money.
Senator Bunning. In other words, it is central to our
success long term?
Mr. Clarke. It is a necessary precondition.
Senator Bunning. Thank you very much, Mr. Chairman.
Chairman Shelby. Senator Sarbanes.
Senator Sarbanes. Thank you, Mr. Chairman. I know we have
another panel and I will be very brief.
Mr. Clarke, first of all, let me again repeat my comments
and those of my colleagues in thanking you for coming and for
your efforts in this field.
When we did the title for the money laundering, we did that
in this Committee and had it included in the USA PATRIOT Act,
we put in a Section 311, special measures for jurisdictions,
financial institutions, or international transactions of prime
money laundering concerns. This was an effort to examine what
was happening elsewhere, declare it, and thereby bring a focus
to bear, and there were certain penalties that went with such a
designation.
Many of us feel that the Executive Branch has not--it is
the power in the Treasury--really utilized that power to the
extent that we thought it would be and to the extent that
circumstance would seem to warrant. What is your view on this
question?
Mr. Clarke. I think your assumption is correct, that the
Section 311 powers have not been used, and that is why I come
back to this notion of an annual report to the Congress where
every nation gets a page or more describing what they have
done. It is harder for the Executive Branch to cover up a lack
of cooperation from another country if it has to give you a
written report on that country.
Senator Sarbanes. My final question is: How much success
have we had in drying up funding sources for terrorism?
Mr. Clarke. It is very hard to know the extent as a
percentage or to describe our success overall when we do not
know what the whole was to begin with. We can point to what we
have done, but we do not know what the overall size of the
problem was to begin with. So have we eliminated 10 percent of
it or 90 percent of it? We do not know.
Senator Sarbanes. Do you see any evidence that we have
impacted sufficiently, that we have markedly affected their
ability to function?
Mr. Clarke. I think their ability to move funds has been
markedly affected. I think their ability to communicate has
been markedly affected. I think it is much more difficult for
them to do it. That does not mean it is impossible.
Let me give you an example. In the past they might have
picked up the telephone and called each other from one country
to another, or they may have gotten on an e-mail and sent an e-
mail from one country to another. They probably are very
reluctant to do that today, and they probably have to use
couriers to communicate, and those couriers have to be clean,
people without any record in any of our databases. You can
still communicate that way, but it is much more difficult and
much slower.
I think probably by analogy the same kind of thing is
happening with fund raising and fund moving. You can still
stash hundred dollar bills in boxes and ship them from country
to country, but that is riskier, it is slower, it is more
cumbersome. You can still do it.
Senator Sarbanes. Thank you very much, Mr. Chairman.
Chairman Shelby. Mr. Clarke, I am going to pick up on
something that Senator Schumer was into, and that is the
evacuation of a lot of the Saudis following September 11. Has
there ever been a published list of who all these people were?
Is that classified?
Mr. Clarke. I do not know whether it is classified,
Senator, but I have never seen a published list.
Chairman Shelby. I never have either. Do you know if there
was a manifest listing.
Mr. Clarke. Yes, sir.
Chairman Shelby. There was a manifest.
Mr. Clarke. Yes, sir, there was.
Chairman Shelby. And it is not classified that you know
about? If it is classified, I would want to know why it was
classified.
Mr. Clarke. I do not think it was then. I cannot imagine
any reason why it would be classified now.
Chairman Shelby. Do you know how many planes were involved
in spiriting out or evacuating these people from the United
States in the wake of September 11?
Mr. Clarke. No.
Chairman Shelby. Could it be more than one or you just do
not know?
Mr. Clarke. I do not recall. I do recall that we had a
manifest. That manifest was passed to the FBI and the FBI was
asked to do name checks on everyone on the manifests.
Chairman Shelby. But the FBI never interviewed any of these
people?
Mr. Clarke. The FBI said it didn't want to and didn't need
to.
Chairman Shelby. Who made that decision? Was that made at
the Director's level at that time?
Mr. Clarke. It was at least at the number two level.
Chairman Shelby. Do you know what dates this evacuation
occurred?
Mr. Clarke. I think it occurred within the first week
following September 11.
Chairman Shelby. Were these the only planes flying around
for a few days in the United States?
Mr. Clarke. Oh, no. I mean we were granting exceptions to a
number of people.
Chairman Shelby. What other exceptions, do you know?
Mr. Clarke. There were exceptions granted to a number of
government organizations.
Chairman Shelby. Our Government or other governments?
Mr. Clarke. Our Government.
Chairman Shelby. Okay.
Mr. Clarke. The Saudis were the only country that requested
an evacuation.
Chairman Shelby. That has been troubling to a lot of people
in the country, who left, why they left, and especially because
in view of the fact that there were thousands and still are
thousands of Saudi citizens going to school, doing business,
that remain in this country. Yet somebody made the decision to
let these people out even before they were vetted in any way.
Was this done at the request of the Ambassador, Prince
Bandar?
Mr. Clarke. That is my recollection, but it is not entirely
true that they were let out before they were vetted in any way.
Chairman Shelby. But they were never interviewed?
Mr. Clarke. There was no need to interview them. According
to the FBI, they were not people they wanted to interview.
I understand how this becomes a very sexy issue, but I
think the real test of whether or not it is a real issue is
whether or not the FBI, in retrospect, looks at that list and
sees anybody they would want to interview today.
Chairman Shelby. Do you know if they have looked at the
list and tried to interview them?
Mr. Clarke. My understanding is, and again you would have
to ask them to get a better answer, but my understanding is
there is no one on that list they wanted to interview then, and
there is no one on that list they want to interview now.
Chairman Shelby. I know the bin Laden families--and there
are a lot of people involved in the bin Laden family--and I am
sure most of them are not terrorists anyway. But was there one
member of the bin Laden family that actually was a brother or a
cousin that worked at the Saudi embassy here? Can you testify
to that?
Mr. Clarke. I do not recall precisely how many members of
the family were here or what they were doing. I do know that
they were subjects of interest to the U.S. Government long
before September 11.
Chairman Shelby. The people that were evacuated, was it
limited to diplomats and their families, or was it an ad hoc
group put together by the Saudi ambassador?
Mr. Clarke. It was a group put together by the Saudi
embassy.
Chairman Shelby. Senator Sarbanes, do you have any other
questions?
Senator Sarbanes. Yes, I have one more. When we evacuate
our people overseas and bring them out, is that generally any
American who shows up and wants to come out when we do that
kind of emergency operation?
Mr. Clarke. There are two kinds of emergency evacuations
that we use. One is an official evacuation, and one is anyone
who is an American citizen. Depending upon the threat, it is
one or the other.
Chairman Shelby. Mr. Clarke, we appreciate your testimony
here today. We appreciate, as all of us have said, your service
to this country.
Mr. Clarke. Thank you, Senator.
Chairman Shelby. Thank you very much.
We are going to call up our second panel. Dr. Louise
Richardson, Executive Dean, Radcliffe Institute for Advanced
Studies, Harvard University; Dr. Jean-Charles Brisard, CEO, JCB
Consulting; and Mr. Matthew Levitt, Senior Fellow, Washington
Institute for Near East Policy.
I just want to say a few words about Dr. Richardson and
others. Dr. Richardson is the Executive Dean of the Radcliffe
Institute for Advanced Studies at Harvard. She has studied and
written extensively on the alignment of terror groups
throughout the world. We look forward to her views on the
shifting alliances among, in some instances, what we call
``strange bedfellows.''
Dr. Jean-Charles Brisard is the CEO of JCB Consulting. In
that position, he is also the lead investigator for the law
firm of Ronald Motley, representing many of the families of the
victims of the attack on September 11. He has written and
studied extensively, not only regarding the attack, but also
generally concerning the movement of funds necessary to support
terror organizations.
Finally, we will hear from Mr. Matthew Levitt. Mr. Levitt
is a Senior Fellow for the Washington Institute for Near East
Policy. He has a unique perspective concerning these issues
built in no small part by his work as a Special Agent at the
FBI for many years. Mr. Levitt was in the International
Terrorism Section of the FBI and he has expanded that work into
his present position. He will assist us today in looking at the
transition from the conceptual analysis to the practical
complexity of identifying, tracking, and disrupting terror
organizations, using the trail that money leaves.
Dr. Richardson, Mr. Brisard, Mr. Levitt, your written
testimony will be made part of the hearing record in its
entirety. You may proceed as you wish.
Dr. Richardson.
STATEMENT OF LOUISE RICHARDSON
EXECUTIVE DEAN, RADCLIFFE INSTITUTE
FOR ADVANCED STUDY, HARVARD UNIVERSITY
Ms. Richardson. Good morning, Chairman Shelby, Senator
Sarbanes, and other distinguished Members of the Committee. I
am honored to have this opportunity to speak to you about my
understanding of the nature of terrorism and how lessons can be
derived from that understanding for the disruption of their
operations. As will readily become apparent, I am not an expert
on terrorist financing; rather, I am someone who has thought
about and taught about terrorist movements for many years.
I think the first point to be made in any discussion of
terrorism is to be clear about what it is precisely that we are
discussing, so in my written testimony I have suggested what I
take to be the seven crucial characteristics of the term
``terrorism''. I believe that, until we can forge some
agreement on what precisely it is we are talking about,
international cooperation against terrorism will remain
disappointing.
My argument is that it is the means that are employed, not
the ends that are pursued, not the political context in which
they operate, that determines whether or not a group is a
terrorist group.
The next point I think to be made about terrorist groups is
that there are very real differences between them. I believe
that if we want to fashion an effective counterterrorism
strategy, we must understand these differences. I believe that
terrorist groups can broadly be defined as belonging to one of
several types, and in my work I define them in accordance with
what I take to be their primary political motivation.
There are ethno-nationalist movements, there are social
revolutionary movements, there are Maoist movements, and there
are radical religious movements. A few words on the latter,
which are the groups which concern us most today.
I think that while the mixture of religious and political
motives has been a growing trend over the past 30 years, I
think that if one takes a longer perspective, it looks very
different. Prior to the French Revolution, indeed, religious
and political motives were invariably intertwined in terrorist
ideology. There have always been two characteristics which have
marked religiously motivated terrorist groups. First, they have
exercised less restraint than other terrorist groups. If the
audience is God, there really is no need to be constrained by
the desire to avoid alienating one's supporters. Second, they
have always been more transnational, because as we know,
religions transcend political boundaries, so these groups tend
to have broader bases of support and broader bases of
operation. Consequently, it requires effective collaboration
between governments to counter them.
Again, not all religious groups are the same. I think
religion plays at least one of three roles in different
terrorist groups. Sometimes it is simple a badge of ethnic
identity, as in the Northern Irish case. Sometimes it is a mask
for political motives, as in a number of Palestinian cases--and
I believe Mr. Clarke's comments this morning suggested that he
believed most of the groups we currently face are in this
category. And third, it sometimes serves as the defining
ideology and guide to action, as in religious sects.
Now, these types of terrorist movements I believe differ in
significant respects from one another. They differ in their
primary political motives and how they organize themselves to
achieve them. I believe that one can sensibly generalize within
the different types of movements, but only in very limited
respects across them. I was asked specifically to address the
issue of alliances or networks among terrorist groups. I
believe that it should come as no surprise to us to see
collaboration among different movements which share similar
primary motivations. The IRA in Northern Ireland, for example,
and the Basque ETA, are known to have had close links, and I
expect it was those links which led to the more recent revealed
connection between the IRA and the FARC in Colombia.
It would come as a surprise to me to learn of significant
alliances across these types of organizations. When cross-type
alliances have occurred, historically, to my knowledge, they
have been exclusively between social revolutionary and
nationalist movements. Islamic organizations could not
countenance the social views of social revolutionary or
nationalist groups. Members of nationalist groups tend to see
themselves as utterly different from what they would consider
the more depraved groups, which try to kill as many people as
possible. By and large, nationalist groups have wanted, in the
memorable words of Brian Jenkins, ``lots of people watching,
not lots of people dead.''
In trying to anticipate alliances among terrorist groups, I
think that a knowledge of the ideology of the group would help
anticipate the nature of the alliances they are likely to make.
Many of these groups with very different ideologies do
share some secondary motivations. These are the more immediate
or mundane motives and they are shared across types of groups.
By far the most common motive of any terrorist group and any
individual terrorist is the desire for revenge. The second most
common is publicity. They also, of course, seek funding. In
these organizational ways, one finds terrorist groups I think
operating much like other, more conventional organizations,
concerned for their own survival and their own expansion.
In none of these cases do the memberships seek personal
enrichment. For this reason, there are, in fact, limits to the
usefulness of the tools we have developed for anticipating and
countering criminal elements. The members of terrorist groups
believe in their cause. They are often, far from seeking self-
enrichment, are, in fact, willing to sacrifice everything they
have for the cause in which they believe.
Just as I believe it is important to draw distinctions
between different types of terrorist groups, It is also
important to draw distinctions between different types of
relationships between terrorist groups and their state
sponsors. These relationships range from relationships in which
the state exercises considerable control over the movements it
sponsors to relationships in which the state and the movement
simply share an enemy.
In every case, the terrorist movement is rendered more
effective and more lethal by the support provided by the
sponsoring state, but in every instance, the state is
capitalizing on a pre-existing movement rather than creating
one. The terrorist movements do not rely on the state for their
survival. Rather, state sponsorship is one of several means of
generating financial support for the movement. Other forms of
support we have heard about this morning. They include raising
money from the Diaspora as Islamic and nationalist groups the
world over have done successfully. Another popular fundraising
mechanism is the operation of legitimate front businesses to
generate money for the cause. I believe the Tamil Tigers in Sri
Lanka have perfected this technique.
In other cases, terrorists raise money through extortion
from the members of the societies they claim to represent, a
Maoist specialty, and in still other cases they raise funds
through criminal
activity. Bank robberies and kidnapping were once traditional
favorites; today, credit card fraud and in some cases drug
dealing has become more popular. But raising money through
criminal activity is a high-risk strategy for terrorist groups.
It exposes their membership to corruption and to capture. It
fudges the distinction they seek to draw between themselves and
criminals, and it undermines the basis of their popular
support.
The crucial point, of course, to bear in mind about
terrorism is that it is cheap. This is part of its appeal. The
attack on September 11 is probably the most expensive terrorist
operation in history. It is estimated to have cost a half-a-
million dollars. It takes a great deal less to buy some
fertilizer, rent a truck, and use them to bring down a
building. If a group has a generous sponsor, as say Hamas does
in Iran, they can afford to run charities and thereby secure
popular support. Such a group can also afford to support the
families of imprisoned or killed members. But it is not
necessary at all to have this level of support in order to
conduct terrorist operations. Terrorism is, above all, a
tactic, and its appeal as a tactic is precisely that one can
get so much ``bang'' for one's ``buck''.
Again, sophisticated weaponry, such as weapons of mass
destruction, is, of course, expensive. Aum Shinrikyo
demonstrated this fact. One way for terrorists to secure these
weapons is to be handed them by a state sponsor. My own view is
that this fear is very much overblown. The act of ceding to a
terrorist group one did not completely control, weapons of mass
destruction would be an act of such folly as to appear
incomprehensible to me.
My own prediction is that we will see far more Bali type
attacks than we will see September 11 type attacks. I worry
sometimes that our concern to prevent the less likely and more
expensive type of actions may deflect our attention from the
need to prevent the more likely, less expensive, and more
conventional attack.
I believe that the first priority in undermining terrorist
organizations is to understand how they see themselves, not how
we see them. To achieve this, we must be inside their cells and
inside the societies that produce them. We must read all their
communications and their propaganda in order to anticipate
their actions, but also to understand their appeal.
I think we can learn from terrorists, as they have learned
from us. We can learn to have patience and to wait for results.
The brilliance of the September 11 attack was its use of our
own strength against us. They turned our civilian airlines into
weapons for use against us. I think we must do the same. We
must understand their ideology and their tactics and use them
against them.
Terrorist organizations operate under conditions of
considerable uncertainty, and are constantly fearful both of
external attack and internal betrayal. We should exploit this
by keeping them under constant pressure and exploiting their
fissiparous tendencies. Their need to raise funds through
criminal activity, of course, increases their exposure and
gives us another avenue to pursue them.
If we undermine their support of charities, this won't
prevent terrorism, per se. Many donors to the charities
genuinely want to support the poor, and many of these charities
do a great deal of good for the beneficiaries. However, over
the longer-term, these charities serve to win and to sustain
support for those providing the charity. I believe, for
example, that the support for Hamas has to be seen in this
light.
I think that we should ensure that it is our friends who
are meeting the social needs of the potential recruits of the
terrorists. This is a long-term strategy, but terrorism as a
tactic has been around for a very long time and is likely to
remain. What is new is the existence of organizations willing
to kill as many civilians as they can, and the increasing
availability of the technical means to do so. Strangling their
financial assets will make it increasingly difficult for
terrorists to function, but I do not believe it will ever
eliminate terrorism.
Thank you.
Chairman Shelby. Mr. Brisard.
STATEMENT OF JEAN-CHARLES BRISARD
CEO, JCB CONSULTING INTERNATIONAL
Mr. Brisard. Chairman Shelby, Senator Sarbanes, and
distinguished Members of this Committee, thank you for inviting
me today to testify about the global war on terrorism.
Since June 2002, I have been leading an international
investigation for the September 11 Families United to Bankrupt
Terrorism in the course of an action brought by 5,600 family
members before the U.S. District Court of Washington, DC
against several entities and individuals that provided
financial support to the Al Qaeda network.
In that respect, our investigation is today active in
various regions of the world and has been able to recover a
considerable amount of information on Al Qaeda's support
networks through procedures of judicial or political
cooperation established with more than 30 states.
I would like today to share some of our findings with you.
This network, Al Qaeda, receives as its foundation massive
financial support of about $500 million from businesses, banks,
charities, or wealthy sponsors. This money primarily originates
from donors in the Middle East.
One single example can demonstrate the reach of this
support. In the course of our investigation, and as part of a
judicial cooperation process with Bosnia-Herzegovina, we
uncovered an internal document, known as the Golden Chain, that
lists the top 20 Saudi financial sponsors of the group,
including 6 bankers, 12 businessmen, and 2 former ministers,
whose assets were valued at $85 billion. They include leading
Saudi bankers and businessmen who represent the backbone of the
Saudi economy.
The institutional confusion existing in Saudi Arabia
between religious aims and financial instruments has created
over the years a window of opportunity for fundamentalist
organizations to consolidate and expand their reach. Most of
the financial revenue of Al Qaeda was raised through a
religious tax instrument and duty, known as Zakat, initially
conceived to cope with poverty and charity among Muslims that
have been abused by terrorists and their support, with the
implicit consent of a state unwilling to regulate the use of
religious money.
Al Qaeda operates behind a traditional economic and
financial network and mostly uses well-established channels to
transfer money. Documents made available to the September 11
families clearly established that major Saudi banks have helped
transfer funds to Al Qaeda by direct donations or by providing
the infrastructure and the means to do so.
This scheme is a perfect example of the way Al Qaeda
penetrates the business sector to operate. Beginning in 1996,
several business associates of Al Qaeda developed a money
laundering scheme in Spain involving Saudi and Spanish
companies to finance Al Qaeda operational cells or affiliates.
Several front companies, described as covers for Al Qaeda by a
Spanish Judge Baltasar Garzon, received more than $1 million in
Zakat from Saudi companies or individuals. This scheme,
financed in part, the Hamburg cell hijackers and the
preparatory filming of the World Trade Center.
Since September 11, Saudi Arabia has repeatedly stated that
its charities were legitimate organizations. Prince Sultan Bin
Abdulaziz, Saudi Minister of Defense, and an important donor to
several of these charities, recently stated that they were
``legitimate and well-established Muslim charities.''
Such statements are overturned by an array of facts and
evidence made available by several countries for the
investigation of the September 11 families, suggesting that
most of these so-called charities were, at best, fronts of
terrorist organizations, if not terrorism backbone, but in any
case, and for most of them, fictitious charities.
We recovered thousands of documents from Saudi charities
which are archives of Al Qaeda, showing their involvement in
every stage of terrorism, acting as an umbrella, safe houses,
and even military bases for Al Qaeda operatives, to the point
of creating a symbolic relationship with the terrorist
organization through its resources, management, members or
facilities.
Charities have, for example, provided military training for
Al Qaeda terrorists. From intelligence sources, the
investigation of the September 11 families established that 10
terrorist training camps in Afghanistan have been funded by
Saudi charities. The International Islamic Relief Organization
funded at least six terrorist training camps, including the
Darunta camp, a facility used for chemical and biological
weapons testing. Others, such as the Muslim World League and
the Saudi Red Crescent, were part of an Al Qaeda financial
committee.
Saudi Arabia has become a major concern in the war against
terrorism financing. The kingdom is still harboring essential
and constitutional elements of Al Qaeda: The ideology, the
human vector, and the financial tools.
In June 2001, the late FBI Chief of Antiterrorism, John
O'Neill, told me that all the answers, all the keys enabling us
to dismantle bin Laden's network, are in Saudi Arabia. Today,
all of our leads and much of the evidence collected for the
September 11 families put Saudi Arabia on the central axis of
terror, and shows that this government was aware of the
situation, was able to change the path of its organizations,
whether banks, businesses, or charities, but voluntarily failed
to do so. Rather, the Saudi Government facilitated the reach
and involvement of the charities and incited its citizens to
support the terror fronts when the highest ranking members of
the royal family are pouring tens of millions of dollars each
year to Islamic charities known for diverting money to Al
Qaeda.
Saudi Arabia also has been fully informed and warned by its
United States and European counterparts since at least 1994,
that several major charities sponsored by the Kingdom were
supporting terrorism.
In 1994, French Interior Minister Charles Pasqua visited
Saudi Arabia and met with the highest ranking Saudi officials
to express his deep concern on the role of charities in funding
terrorist organizations in the Middle East. In 1996, a CIA
report indicated that one-third of the Islamic charities were
linked to terrorism. In 1997, a joint security committee to
share information on terrorism was established with the United
States, involving the CIA, the FBI, and the NSA. In 1999 and
2000, several United States officials finally traveled to Saudi
Arabia to raise the same concern.
Despite clear warnings, Saudi Arabia's support to charities
has been continuous and extensive over time, even after
September 11. To date, most of the financial infrastructure is
still in place from banks to charities, including front
companies and wealthy donors.
While United States Treasury Department officials claim
Saudi Arabia is the epicenter of terrorism financing, the
Kingdom has only frozen a ridiculous amount of terrorist funds:
41 bank accounts belonging to 7 individuals, representing 4
percent of the total amount of terrorist-related funds frozen
around the world.
The major issue regarding Saudi Arabia concerns its
unwillingness until a recent period to face Islamic terrorism
as a threat. ``We have never worried about the effect of these
organizations on our country''. These were the words of Prince
Bandar Bin Sultan in September 2001.
This stand, indeed, had nothing to do with misconception on
the part of Saudi Arabia. We believe it was part of a clear,
calculated, and determined policy.
The same Saudi official acknowledged that the Kingdom might
have paid the price of its own protection. This is a major
revelation of our investigation, substantiated by several
testimonies and documents emanating from members of the Saudi
governmental apparatus or foreign intelligence. Since 1994,
Saudi Arabia has funneled money to bin Laden to preserve the
political power of the Al-Saud family in the Kingdom. Prince
Bandar refuses to call it ``protection money,'' and prefers the
notion of ``paying some people to switch from being
revolutionaries to be nice citizens,'' which is leading to the
very same consequence for us.
This trend also reverses a major argument of Saudi Arabia
when it claims to be the first target of Al Qaeda. The Kingdom
never faced Al Qaeda terrorist threats since May 12 of this
year. Osama bin Laden has targeted western interests in the
Kingdom, while surprisingly avoiding to hurt any symbol of the
monarchy. On the contrary, we believe Al Qaeda served for years
the very religious interests of its godfather in disseminating
the wahabi ideology in various regions of the world.
The truth is, since the beginning of the war against
terrorism financing, Saudi Arabia has been misleading the
world, and we are still awaiting the Saudis to apply for
themselves the very strong message of their ruler, Crown Prince
Abdallah, who in August 2003 made it clear that whoever harbors
a terrorist is a terrorist like him; whoever sympathizes with a
terrorist is a terrorist like him; and those who harbor and
sympathize with terrorism will receive their just and deterrent
punishment.
Saudi Arabia still maintains freely on its soil thousands
of individuals or entities who provide financial support to
terrorism, and the September 11 families are still waiting for
them to be investigated, sought, and prosecuted with the same
determination as the one applied to those who were carrying the
guns and bombs that they have paid for.
The point has been reached where the only alternative is
for the Kingdom to show clear evidence of its willingness to
terrorize the terrorists--in other words, to dismantle the
financial backbone of Al Qaeda, or to face liability for its
negligence. This liability could pass through several measures,
including designating Saudi Arabia as a state sponsor of
terrorism, if this country still maintains and provides roots
of terrorism, including the religious substrates with wahabism,
a radical doctrine that calls for intolerance and violence,
charities, with organizations offering full service to
terrorist organizations, and financed with banks, companies,
and businessmen still able to fund extremists.
Until now, the war against terrorism financing has been
mainly focused on the end-users entities and individuals,
primarily to prevent further terrorist attacks. While this
objective has been successful in many areas, I doubt it could
stand as a long time pattern to win this war.
At the operational level, Al Qaeda and its affiliates have
been more active since September 11 than in all their history,
with more than 40 bombings, causing 1,000 deaths. Al Qaeda has
been able to consolidate and spread its forces through other
organizations.
I see several major obstacles in the war against terrorism
financing, mostly related to its national nature, creating
international legal and cultural differences. Another obstacle
is based on political and diplomatic reluctances to address the
issue of the sources of funding.
The time has come to raise the final question of the
finality of the war against terrorism financing. This war will
only succeed if there is a clear intention from all the parties
involved to disrupt the entire chain of financing, including
above all, its sources. We can dismantle all the fronts, all
the intermediaries, and all the channels of terrorism funding,
but it will not be enough to disrupt its financing if we do not
cut the roots of it and prosecute the shareholders of Al Qaeda.
Several cases demonstrate that this war, until now, has
been selective, if not discriminating and avoiding to address
its roots. For example, I question the interest of designating
Yasin Al-Qadi as Chairman of the Muwafaq Foundation, an Al
Qaeda front, according to the U.S. Government, if its principal
founder and donor, Saudi banker Khalid Bin Manfouz, is still at
large.
The same applies to the Al Aqsa Islamic Bank, described as
the ``financial branch of Hamas,'' while its main shareholder,
Saudi businessman Saleh Abdallah Kamel, is not affected by any
measurable amount.
To extend the reach of current investigations, several
measures could be taken at the national and international
level, including the implementation of preventive designation
and freezing of assets of suspects to provide time for
investigations, while preserving the banking institutions.
The most important task of the U.S. Government is to
promote international cooperation, mutual understanding, and
common tools to fight this form of transnational terrorism. The
implementation of an international information-sharing body is
necessary to boost the worldwide investigations. The
independent and legitimate effort of September 11 families
provides a basis for cooperation, and I can announce today that
we will create in the upcoming months a global information
sharing body, in coordination with several governments and
international organizations.
Finally, I will leave my last words to Matthew Sellitto,
who lost his son on September 11. He, more than I can,
synthesized our common goal against terrorism financing: ``I
will see my son again some day, and I truly believe he will
ask, `Dad, when they murdered me, what did you do to find out
who murdered me?' Well, I can tell him, look him right in the
eye and say, I did everything I can . . . to find out who
murdered my son, why they murdered my son, and who gave them
the money to murder my son.''
Thank you.
Chairman Shelby. Mr. Levitt.
STATEMENT OF MATTHEW A. LEVITT
SENIOR FELLOW IN TERRORISM STUDIES
THE WASHINGTON INSTITUTE FOR NEAR EAST POLICY
Mr. Levitt. Thank you very much, Mr. Chairman, Senator
Sarbanes, distinguished Members of the Committee. Let me thank
you for inviting me to appear before you today and commend you
on holding this series of very important hearings.
I would like to give you, in brief, a conceptualization of
the issue of the crossover between terrorist groups, really a
very brief summary of my more detailed written testimony, so as
to leave you as much time as possible for questions. I would be
happy to answer any questions afterwards.
It is a painful reality that no counterterrorism technique
or
effort, as you have heard already today, however extensive,
international or comprehensive, will uproot terrorism. That is
the bottom line. There will always be people and groups with
entrenched causes, an overwhelming sense of frustration, a
self-justifying world view, and frankly, a healthy dose of
evil, who will resort to violence as a means of expression.
The goal of counterterrorism, therefore, should be to
constrict the operating environment, to make it increasingly
difficult for terrorists to carry out their plots of
destruction and death, more difficult to travel, more difficult
to recruit, to train, to procure weapons, to have day jobs,
safe houses, et cetera.
Constricting the operating environment includes cracking
down not only on the operational cells, but also on their
logistical and financial support networks as well, not only on
the ``trigger pullers,'' the people who detonate the bombs and
crash the airplanes, but also on the people who make it
possible for them to do so.
Networks and relationships best describe the current state
of international terrorism. This matrix of relationships
between terrorists who belong to one or another group is what
makes the threat of international terrorism so dangerous today.
For example, while there are no known headquarters-to-
headquarters links between Al Qaeda and Hezbollah, U.S.
officials recently revealed that Al Qaeda operational commander
Abu Musab al-Zarqawi not only has ties to Hezbollah, but also
that plans were in place for his deputies to meet with the
Lebanese group Asbat al Ansar, with Hezbollah, and ``any other
group that would enable them to smuggle mujaheddin into
Palestine,'' in an effort to smuggle operatives into Israel to
conduct operations. In fact, Zarqawi received more than $35,000
in mid-2001 just for work in Palestine, which included,
according to the Treasury Department, ``finding a mechanism
that would enable more suicide martyrs to enter Israel'' as
well as ``to provide training on explosives, poisons, and
remote controlled devices.''
Clearly, inattention to any one part of the web of militant
Islamist terror undermines the effectiveness of measures taken
against other parts of that web. In fact, the ethno-nationalist
Jihadists and other breakdowns that you heard Dr. Richardson so
eloquently describe have been blurred. For example, Palestinian
terrorists plotted to target the Azrielli Israeli Towers in Tel
Aviv, Israel's equivalent to the Twin Towers, in an attack
that, contrary to what Brian Jenkins used to say, did intend to
have many dead.
We need to debunk the myth that there are distinct wings to
terrorist groups--good wings that may be engaged in charitable
or political activity, and bad wings that do terrorist attacks.
In fact, the very wings of Hamas, Hezbollah and other groups,
that some are reluctant to recognize as terrorists, are the
very ones engaged in terrorist financing. Hamas trigger pullers
are not criss-crossing Europe with their hands out for funds.
It is the members of the Hamas dawa, the social service
network, that are doing it.
The case in Northern Virginia right now, of the myriad of
companies, charities, and other suspected terrorist front
organizations now under investigation there, highlights the
fact that there is a critical need to break away from the
tendency to adhere to a strict compartmentalization of
terrorist groups and investigating terrorism cases. We can no
longer look at terrorist groups as being in perfect little
square boxes that do not bleed into one another, that do not
cross over into one another, because they do.
Investigating the family of organizations in Northern
Virginia, including the Safa Group, the SAAR Foundation,
Success Foundation and many, many more, investigating them
strictly as Hamas or as Palestinian Islamic Jihad or Al Qaeda
cases clearly did not work. Indeed, the tentacles of this
entrenched network are suspected of providing tremendous
logistical and financial support to a variety of international
terrorist groups and likely not limited to these three.
Tracing these financial trails proved immensely difficult,
given the various groups' proactive efforts to layer their
transactions and obfuscate terrorist intentions of their myriad
financial dealings. More than anything, the links between the
various personalities involved with these organizations on the
one hand, and the laundry list of terrorist groups, fronts, and
operatives with which they were involved on the other, keyed
investigators into the network's terror financing and support
activities.
Progress on this complex web of front organizations appears
to have developed only with the passage of the USA PATRIOT Act,
which facilitated the sharing of intelligence with prosecutors
and, critically, cross referencing of information across
previously compartmentalized terrorism investigations.
To be sure, money is not an issue, not for Al Qaeda, not
for Palestinian terrorist groups, not for the Jihadists, and
Baathists working together fighting coalition forces in Iraq.
And this will continue to be the case until we do something
about it.
The fact is that while any given terrorist attack is
inexpensive, running a terrorist group is extremely expensive.
In the context of the war on terror, the road map to Mideast
peace, the liberation and liberalization of Iraq and many other
national security initiatives, failure to effectively combat
the financing of terrorist groups will translate into nothing
less than the failure of our best efforts to combat terror, and
secure peace and stability in the Middle East.
The principal terrorist threat today stems from the web of
shadowy relationships between loosely affiliated groups. The
sponsors of such groups further complicate that web, be they
states or sub-state actors. Indeed, there is no precise
organizational or command structure to the assemblage of groups
that fall under Al Qaeda's umbrella or that cooperate with the
organization.
In conclusion, given the multifarious links between
international terrorist groups, including Al Qaeda, Hamas,
Hezbollah, and others, and their relationships to state
sponsors of terrorism, such as Iran and Syria and more, the war
on terror must have a strategic focus on the full matrix of
international terrorism, not a tactical focus on Al Qaeda. The
next phase of the war on terror demands greater attention to
the web of logistical and operational interaction among these
various groups and state sponsors.
Thank you very much.
Chairman Shelby. Mr. Levitt, thank you.
This is a question for Dr. Richardson. You talked about the
concept of terrorists as transnational actors. We have seen
examples of this around the world. We know that members of the
Provisional Irish Republican Army have been tracked in the area
controlled by FARC in Colombia. We have also seen Hamas and
Hezbollah operatives in the tri-border area of Brazil,
Paraguay, and Argentina. And I am sure, Dr. Richardson, you
could cite many others.
In your opinion, where is the future of these so-called
alliances going? In other words, can you, or anyone, predict
where the terrorists will turn next? Is there an effective
model that would assist our analysts?
Ms. Richardson. Well, Mr. Chairman, the one that concerns
me most is actually one that I take from a reading of the cold
war when communist groups very successfully exploited
nationalist movements and made them much more difficult for us
to counter. I worry that the radical Islamic movements,
particularly in the areas of the former Soviet Union, might
exploit nationalist movements there and radicalize them and
infuse them with training and money and make them altogether
more dangerous.
Chairman Shelby. Is that all of Central Asia, not just
Chechnya?
Ms. Richardson. Right, it has already happened in Chechnya.
But that is the area that I would be most concerned with.
Chairman Shelby. Dr. Brisard, you have written and
testified about Al Qaeda's annual income. The estimates range
from $16 million to $50 million. You later say that this is
evidence of ``massive support from other means.'' You discount
credit card fraud and other petty money laundering schemes. How
much income, Doctor, do you believe is attributable to
misdirection of charitable giving, which Mr. Clarke talked
about, petty criminal frauds, direct donations, and other
methods?
Mr. Brisard. First, there is a recent estimate by a U.S.
Treasury Department official; Mr. Aufhauser has stated that the
annual income of Al Qaeda before September 11 was around $35
million a year. So the figure of $500 million I gave you for
the entire period since 1998 is quite substantiating what Mr.
Aufhauser said.
Al Qaeda itself distinguishes between organizational funds,
the funds they need for their infrastructure, protection,
training camps, communication, to move people, to pay also
protection to some governments, and to entertain the broad
network of affiliates and other organizations. It distinguished
organizational funds from the operational funds, and several
estimates around the world, intelligence estimates, believe
that operational funds only account for 10 percent of the
global Al Qaeda budget because, in fact--and in that regard, I
can join Ms. Richardson on the fact that simple devices do not
cost a lot of money. The problem is that Al Qaeda is totally
different. It has created what no other organization has
created before, a separate structure, an infrastructure for its
training purposes, for its movement of money purposes, and also
for communication, and it has needed to resettle in several
states, including Sudan and then later Afghanistan. They needed
a lot of money.
Chairman Shelby. Do you see Al Qaeda forming so-called
alliances outside of its ideology with other terror groups,
perhaps organized crime?
Mr. Brisard. No. They have tried in the past, in fact, to
extend the reach of the supports, even with some organizations,
as pointed out by Mr. Levitt, the Hezbollah, for instance, in
various regions of the world, but also other political
movements and dissident movements in Saudi Arabia, for
instance, yes.
Chairman Shelby. Mr. Levitt, you have a lot of experience
as a special agent in the FBI. Please tell us about what I call
the tyranny of the case file. If you know, has the organization
of the FBI's terrorism sections changed to account for what we
have heard today is a series of so-called shifting alliances
among terror groups and criminal elements? In other words, has
the Government become nimble and agile in its ability to
identify and track terrorists? And if not, are they greatly
challenged still?
Mr. Levitt. I do not think there is any part of the U.S.
Government we could call nimble.
Chairman Shelby. Or agile.
Mr. Levitt. Correct.
Chairman Shelby. Okay.
Mr. Levitt. First, let me just correct that when I was at
the FBI, I was a counterterrorism intelligence analyst. That is
a big difference from an agent, and that was a decision that I
made. And I would also point out that I have now been out of
the Bureau for almost 2 years.
Chairman Shelby. Okay.
Mr. Levitt. I worked September 11. I worked one of the
teams on one of the four flights, and it was painful but an
honor to do so. But then I left. And so I can share my
impressions with you, but I do not want to mislead you into
thinking that this is my experience from there.
Chairman Shelby. We appreciate you doing that for the
record.
Mr. Levitt. I believe that the FBI and other parts of the
U.S. intelligence community have begun a laudable process of
change. There is tremendous ways yet to go. The FBI is made up
of a group of people who are unbelievably committed and
dedicated, and I applaud them.
Having said that, they are not, I believe, properly
structured to be able to cope with this theme that I am trying
to lay out, which is the overall strategic nature of
international terrorism, the fact that these groups interact
together. It seems to me that if information is kept
specifically organized by case, which you have very aptly
termed ``the tyranny of the case file,'' then others who are
working similar and related cases may not, even within the
Bureau, have access to that information, let alone the whole
issue of whether or not the Bureau----
Chairman Shelby. There is no fusion there, is there?
Mr. Levitt. There is a significant lack of fusion. Let
alone whether or not the Bureau has changed enough to now be
sharing sufficient information with the rest of the community,
which is also something that needs to happen. The Bureau needs
to function more as part of the national security
infrastructure, feeding information to people on the National
Security Council and elsewhere.
Now, I believe that that change is going to be slow in
coming, not because of any poor intentions on the part of
people at the Bureau but because the Bureau is a dinosaur of an
organization that is slow to change and is set in its ways.
I like to joke that there are really three FBI's: there is
FBI headquarters; there are the FBI field offices, which are
pretty much fiefdoms unto themselves; and then there is FBI New
York, which is an entity unto itself.
Getting all these and other components of the FBI to work
together to get the changes that need to be done is going to be
a long process.
Chairman Shelby. Plus the mission of the FBI has changed a
little bit, has it not?
Mr. Levitt. I do not know if the mission has necessarily
changed so much. I worked purely in the counterterrorism
intelligence side of the house long before September 11, but
that was a very small side of the house. At one point the
entire FBI headquarters unit focused on international terrorism
was 30-something analysts for all the terrorist groups.
Chairman Shelby. As opposed to how many other agents
focusing on everything else?
Mr. Levitt. It is not a comparable number to compare to
agents because you will have agents in headquarters and agents
in the field. You will have very few analysts in the field. But
if you compare it, say, to the CIA, which would have, you know,
many times that number of analysts working the same number of
groups, it gives a sense of the scope of the problem.
Chairman Shelby. What culture change do you believe is
necessary to effectively collect and analyze information
concerning financial transactions?
Mr. Levitt. The first thing I think is that there needs to
be a greater appreciation of the need for analysis of
information, timely analysis of information, sharing that
information with everybody and anybody who has a role in that
analysis. That means both in the case of the FBI, within the
FBI, where it was not uncommon for the analysts who were
supposed to be analyzing specific types of information not to
have timely access to that information, and throughout the
intelligence community, and I am not now pointing just at the
FBI but elsewhere as well.
We know that there was a tremendous amount of information
that was collected throughout the community prior to September
11 that was not analyzed in a timely manner, and it is not just
the intelligence community. We know that there were suspicious
financial transactions that produced suspicious activity
reports, SAR's reports, that languished in the system and did
not actually arrive on anybody's desk until after the tragedy
of September 11. That is mind-boggling.
Chairman Shelby. It is.
Senator Sarbanes, thanks for your indulgence.
Senator Sarbanes. Thank you, Mr. Chairman.
I want to try to see if you can help me to focus in my own
mind on what we should do moving ahead. I would like to ask
each of you to give me the three concrete things that you think
need to be done and could be done to move against terrorism
financing.
Ms. Richardson. As they say in real estate, it is location,
location, location. I think in counterterrorism it is
intelligence, intelligence, intelligence. To me, by far and
away the most important thing for us to do is to get inside
these organizations, understand what they want, how they
organize themselves, and how they win supporters.
Even though I have said ``intelligence'' three times--let
me say the fourth, then, would be to engage in a campaign of
public diplomacy. We are never going to change the minds of the
members of Al Qaeda, but we can appeal to their potential
recruits, and I think we should. I believe that we should wage
a campaign of public diplomacy with the same skill and the same
relentlessness and, indeed, the same resources as we devote to
our military campaign, because I think we are losing the
argument on the ground. And over the longer-term, the only way
we will defeat these groups is to keep them small, to keep them
isolated, and to prevent them appealing to larger numbers.
We have a very strong case we could be making, and I do not
think we are making it. So intelligence and public diplomacy I
think far outweigh everything else.
Senator Sarbanes. Before I move on, I just want to ask a
follow-up question to Dr. Richardson. I am not clear. Is it
your view that drying up the money, while helpful, would not
really--that these groups, these terrorist groups, would
function in any event even if they were very short of resources
just by the nature of the groups?
Ms. Richardson. Yes, Senator, I do. I think we can
certainly undermine them, we can weaken them, but they will
continue to survive. They have done throughout history.
Terrorism is a tactic, and I think by just dealing with the
finances, worthwhile as it is, we are dealing with a symptom.
We have to address this problem by going much deeper and
dealing with the root causes, in my view.
Senator Sarbanes. And is there a new dimension in terms of
the kind of organization and structure that Al Qaeda developed?
It seems to me it brought a whole new dimension into this
terrorism situation, did it not?
For that, do not they really need resources? I mean, they
have these failed states. They used Sudan, then they used
Afghanistan. When you have those factors on the scene, aren't
you dealing with something of an entirely different dimension?
Ms. Richardson. I think, Senator, we have seen them
practice in an entirely different dimension because they have
had these resources. But their most important resource is that
they have an ideology that is able to win them recruits. They
have an argument that they are making successfully by depicting
us as their enemy, and we are letting them make that argument.
That is their most important resource, the fact that they have
got an argument that people find attractive and that they can
use to win recruits.
They can function without vast amounts of money. I realize
I am disagreeing with several of the other testimonies this
morning in which others have said that one needs money to run
an organization. That is undoubtedly the case. But one does not
need a sophisticated organization to run a terrorist movement.
They can survive on very little. The world is full of a myriad
of cases of deadly terrorist groups which have survived on very
little money.
This is not to say that I do not think it eminently
worthwhile to try and minimize their financial resources, but I
simply do not think that is the solution to the problem.
Senator Sarbanes. Mr. Brisard.
Mr. Brisard. I think the first thing to do is essentially
to take preventive actions on suspected entities or
individuals. There are hundreds of investigations around the
world carried out by governments or by public or private
entities, and all those investigations have uncovered a lot of
documents of evidence against several Al Qaeda sponsors. And,
still, there is nothing public, no action publicly taken
against those entities and individuals. And I think in this
field secrecy increases risks, especially the risk of other new
terrorist attacks being carried out.
For instance, in the Spanish investigation and prosecution,
several people have been linked with Jamiyah Islamiyah, an
organization in Indonesia. And it is only a year and a half
after they are mentioned in this prosecution that the United
States has designated several of these individuals that were
clearly linked to terrorists, Al Qaeda terrorists, in Spain and
other parts of the world.
The second thing is, I think, preventive freezing of assets
to prevent money to be moved to safe places by several
entities, known or under current investigations.
The third and most important measure I would take is on the
cooperation field. We cross every day and we speak every day
with governments around the world that are uninformed or not
knowledgeable enough to go after these entities and these
individuals, even on designated entities. And some question the
U.S. Treasury Department designated that individual or that
entity, and they do not know why they were designated. So it is
important to share information on a regular basis, to take
information where it is. And information is everywhere on those
networks. Our own effort, again, is able to recover a lot of
documents from sources themselves that could help governments
around the world, are actually helping governments around the
world that sometimes turn to us to have indications on specific
entities and individuals.
Senator Sarbanes. Mr. Levitt.
Mr. Levitt. First, before I give you my list of three, I
think it is important to say that the reason, I think, the
financing is so key is because traditionally in the
intelligence community, the way we define ``threat'' is intent
plus capability. The intent, the ideological drive is there, no
question, and the need to deal with this ideology, which I
concur with Dr. Richardson is their most valuable asset, is
very much an underrated issue. But the funding goes directly to
their capability to--fill in the blank--recruit, train, get on
airplanes, have day jobs, safe houses, et cetera.
When I talk about constricting the operating environment, I
want to point out that you can successfully do so to the point
that you actually suffocate an organization. Terrorism will
always be here. I state this very clearly in my written
testimony. But the Abu Nidal organization in its day was the
greatest threat we faced from international terrorism, and
today it is not. We successfully suffocated that organization,
and I submit that someday we will have done the same to Al
Qaeda, and yet we will still be facing an international
terrorist threat, perhaps one even as great as the one we face
today, but from a group with a perhaps similar but different
name.
Having said that, if I had to list, standing on one foot--
which I now am, but sitting--three issues, I would point out
first this conceptual issue, this need to understand that there
are these overlapping relationships bleeding between one group
and another. This has led to very tangible failures so far in
the war on terrorism. I go into some of them in the written
testimony. We sent a senior United States delegation to Europe
at one point asking them to assist us in freezing the funds of
approximately a dozen terrorist financiers, mostly but not
solely from Saudi Arabia. Because of the nature of the sources
and methods involved in the information we had about their
financing of Al Qaeda, we did not provide the Europeans with
much of that information. And because in the Middle East in
particular there is nothing to be ashamed of if you are
financing groups like Hamas, there was an abundance of
information about their financing of that and other similar
terrorist organizations. And what we were told by the
Europeans, as I understand it from United States officials, is
that if all we, the United States, could show is that these
individuals were financing Hamas, we would have to do better
than that. That led to a concrete failure where the funds of
people who were also financing Al Qaeda were allowed to remain
unfrozen.
The second thing I would point to is both international and
domestic restructuring and some thought about our laws.
Domestically, I think you heard from Mr. Clarke some ideas that
he can articulate better than I can. Clearly, we need to focus
our ability specifically when it comes to terrorist financing
to bring all the necessary parties, especially the analysts, to
one table, as it were, and have access to the information to be
able to deal--we have competing investigations, as I understand
it, even now and certainly before Operation Green Quest was
disbanded.
Internationally, we have a long laundry list of
international organizations from the UN on down--a Financial
Action Task Force on Money Laundering, the Egmont Group, and
others--who all have some hand in stirring this pot, but there
is insufficient coordination. And I think that the Council on
Foreign Relations Task Force on Terrorist Financing, of which I
am a member, its recommendation to have one large organization
dedicated just to this one issue is a very useful idea that
needs to be pursued.
Domestically, I think--and, frankly, an international
organization could help coordinate this--many countries, our
own included, need to think about passing some laws. For
example, in this country we have multiple and not necessarily
complementary terrorism lists. There is a whole laundry list of
groups that appear on Treasury's list, but not on States'
lists. There are other lists. Our lists do not match
necessarily with Europe's list. In Europe, there are individual
Hezbollah members who are on the list, but Hezbollah is not--
there needs to be some coordination there. I think, for
example, we also need to encourage countries to pass laws
criminalizing things like money laundering which are already
illegal, but criminalizing them when they are specifically done
in the support of terror and having higher penalties.
And, finally, the third, I think, is you cannot have a list
like this without, as Dr. Richardson noted, mentioning
intelligence, human in particular.
Senator Sarbanes. Thank you, Mr. Chairman.
Chairman Shelby. Mr. Levitt, first of all, I appreciate the
panel staying. We know it is past noon. At our first hearing,
we heard testimony that diplomacy is an equal partner with
enforcement in the efforts to ``follow the money.'' I know you
have addressed this issue abroad, most recently at a
conference, I believe, in Garmisch, Germany. You were involved
in that. I have about three things to ask you here.
One, do you see a change in the international cooperation
that we receive concerning terrorist financing?
Two, how would you implement your suggestion that there be
a specialized international organization which would combat
terrorist financing?
And, three, Mr. Clarke testified earlier today that he
would recommend that the U.S. sanction non-cooperating
countries. Do you see this as a possible effective tool? And
how would you implement or expand the idea, if you would? That
is three questions in one.
Mr. Levitt. Sir, I have to wonder how sorry you are that we
are late, because you asked three questions that are going to
take us a long time.
Chairman Shelby. That is all right.
Mr. Levitt. So, very briefly, if I may, I think there has
been a marked improvement in international cooperation overall.
I disagree with Mr. Clarke and others. I think on the specific
issue of Saudi Arabia in particular, there have been individual
instances of marked improvement. The fact that there are FBI
and IRS agents on the ground now is tremendous and unheard of.
There are a long list of issues the Saudis have promised to do
that they have not done. There are a long list of organizations
about which we have given them very specific information that
they have not acted on.
David Aufhauser I know has testified before this Committee
and elsewhere about the fact that the Account 98 accounts that
we know not only fund Palestinian humanitarian efforts but also
serve, in Mr. Aufhauser's terminology, as sources of blood
money for Hamas. And based on what I told you earlier in terms
of the overlapping relationships and links between these
organizations, that means the money is going elsewhere, too.
There is a lot more that has to be done.
In terms of implementing this concept of a larger
international group, this has to be, I think, the focus or one
of the foci of this diplomatic effort. The diplomatic effort
has to be involved in getting people to participate in law
enforcement intelligence efforts with us, and it cuts both
ways. We need to be providing more detail to our European
partners, I believe. There has to be a way to do that.
The details of that are something that I do not think we
have time for now, and it is something that the Council on
Foreign Relations Task Force I believe is going to be taking up
in its next report, which is going to be coming up soon.
In terms of the issue of sanctions, I think it is a good
idea, and I would point out as another example the fact that
there is a money laundering blacklist. I believe--I may be
wrong, but I think it was the Financial Action Task Force on
Money Laundering that drew up the blacklist, and that has
proven to be extremely effective in shaming nations into
cooperation--nations that are our friends and nations that are
not, nations that were intentionally and proactively allowing
money laundering to go on for whatever reason and others that
were not--but shaming them into action that they would not
otherwise take. That is an important factor here. No one wants
to have to use sanctions. No one wants to force the Executive
Branch's hand and get involved, have Congress get involved in
their ability to conduct foreign policy. I think this is a tool
that the Executive could use to its benefit.
Chairman Shelby. Thank you.
Dr. Brisard, you have testified about the misuse and abuse
of the Islamic banking system. You said that attempts to detect
and control money laundering have been largely ineffective.
One, explain the shortfalls in the Islamic banking system
as you have seen them. Also explain how these banks are
regulated, if they are, by governments or the banking industry.
And, two, is this a matter of negligence or indifference on
the part of government regulators, or is it a complicity with
the terror organizations, or some of both? And what can we do
about this?
Mr. Brisard. As far as the banks are involved, the Islamic
banking system is involved, we have seen a lot of money
originating from banks through the Zakat system. That means
through the nations, and a lot of banks, including the most
important banks in Saudi Arabia and elsewhere, have donated
money to several organizations. We have clearly identified
transfers of money originating from those banks or transferred
through those banks.
Inside those banks, every bank had a Zakat committee able
to receive the money and then to transfer the money to a list
of charities they agreed on. Most of these charities were for
years on the suspect watch list or have been knowingly involved
in terrorism.
As far as regulation is involved, you know, with Saudi
Arabia it is always the same. You have a lot of announcements
from that country. You were previously referring to questions
regarding the 1999 and 2000 trips in Saudi Arabia. We have
affidavits from people that were involved in those trips, and
what they clearly say is, well, we had a lot of promise from
the Saudis. And they were saying to us, well, we did what we
had to do, we made it necessary to regulate the charities, but,
in fact, 1 year later nothing has changed. This country has
turned to a PR company. Every day you have a new announcement,
something new coming out. Sometimes it is even contradictory
with previous statements. But in terms of regulating the banks,
they have--the very important problem with the Islamic banking
system is that the banks are regulated under totally different
rules than in most of the Western countries. And it is very
difficult to, for instance, ask for auditing a bank and access
records of the banks, and plus you have the various types of
religious or Islamic tools, including the Zakat system, which
is very difficult to regulate for Saudi Arabia.
Was it negligence? To some point we may say, yes, it was
negligence. But when we see that the Saudi Government has been
informed several times repeatedly by Western countries,
especially the United States, on the involvement of those
banks, of those businessmen and charities in funding terrorism,
I think we can speak, you know, of something else, the
unwillingness of this country to fully go after terrorism
financing, and complicity in some way.
Chairman Shelby. Thank you.
Dr. Richardson, you have testified that our first priority
in attacking terror organizations is to understand how they see
themselves and also how we see them. In light of what we have
heard from our witnesses today, yourself included, concerning
the use of organized crime connections and in some instances
shifting ideol-
ogies, tell us how you see your first priority assisting our
policymakers in preventing the next terror attack.
Ms. Richardson. Again, I would go back to the question of
intelligence. That is how we are going to anticipate what we
are going to face next.
Chairman Shelby. Human intelligence?
Ms. Richardson. Human intelligence, absolutely. We have to
have friends in every cell. We have to have friends in every
village in which these cells recruit, or at least we have to
have contacts who are willing to talk to us. That is the only
way we are going to know what they are going to do next. And it
seems to me----
Chairman Shelby. That is a tall order, is it not?
Ms. Richardson. Absolutely, an enormously tall order.
On the other hand, if we want to solve this problem, as I
think we can, and other countries have successfully solved in
the past, even when it looked, as in cases like Peru or Italy,
as if the government was about to be brought down. They did
succeed by being smart as well as by being strong, they did
manage through a multifaceted strategy to defeat terrorism. But
they did it. The Peruvian case I think is a very illustrative
example, if I could mention it. Year after year, wave after
wave of the military was dispatched into the countryside to try
to defeat the Sendero Luminoso. It was only when a 70-man
intelligence unit was created inside the police force that they
were ultimately able to bring down Abimael Guzman. This unit
studied the group, went out to the villages, understood their
appeal, and understood how they organized themselves. They
discovered that the Achilles heel of this movement was that it
was based on the intellect and prowess of one man. They
realized that they had to capture him, and decapitate the
movement and they did.
So this 70-man unit did what thousands upon thousands of
the military were not able to do, and I think that is a lesson
for us. I think many other countries around the world provide
many other similar lessons to us.
Chairman Shelby. The British spent years trying to
infiltrate the IRA, and I am not sure that they were ever
really successful.
Ms. Richardson. The Irish case is a case dear to my heart.
In recent years, in fact, British intelligence claims, I think
with reason, that for every IRA operation that was pulled off,
four were deflected through intelligence. The British did
successfully infiltrate the IRA. Now, it took them years to get
to that point. It took them 25 years, in a much more
geographically constrained area, so in many ways an easier
position than the one we are facing.
But, ultimately, it was, by virtue of the intelligence that
they understood the factions within the IRA. They were able to
play off those factions against one another. They were able to
make concessions to strengthen the more moderate factions and
ultimately bring about the situation we are in today, which is,
again, another sanguine example, in my view.
Chairman Shelby. Dr. Richardson, your writings and your
testimony draw conclusions that, ``The most effective
counterterrorist strategy will be directed to the source of
terrorism.'' Explain what you mean. And how do you see your
explanation as affecting law enforcement and national security
implications?
Ms. Richardson. Again, unfortunately, I do not have a
simple answer, but what I am driving at here is the fact, as I
mentioned earlier, that these movements' greatest strength is
the fact that they have an ideology that a great many people in
the region, if we are just talking about the radical Islamic
groups now, find appealing. So, again, I would reiterate the
point that if you have a complicit society, as there are in
many parts of this region, you do not need money. People will
provide safe houses, people will provide day jobs. They will
not have to be paid for it because they ultimately believe in
the cause.
In a great many cases, they will not believe in the means
that are being used to pursue the cause, but they will believe
in the ultimate cause, and, therefore, they will be complicit
and will not turn in the perpetrators of the violence.
We have to be out there in the field combating the
arguments that are being made. If I had any say in the matter,
we would have our own al-Jazeera. We would be on the airwaves
in the region making our case in a subtle, sustained, and
sophisticated way----
Chairman Shelby. But it is being made against us,
basically.
Ms. Richardson. Absolutely. We are losing this battle, at
the moment. But I think terrorism ultimately is a game of
psychological warfare. We are infinitely stronger physically
than these people ever will be, so we have to, I believe,
demonstrate that we can fight it and win it on those
psychological terms.
Chairman Shelby. Mr. Levitt, do you have any comments?
Mr. Levitt. The idea of having our own al-Jazeera is very
important. We are about to. Radio Sawa is about to go to
television. It remains to be seen how sophisticated it will be.
I know some of the people involved there, and they are
extremely impressive.
But I do think that there are fewer disagreements on this
panel than it may appear because there are two types of
counter-
terrorism. Both are critical and they both need to be done
simultaneously: Tactical and strategic efforts. We have someone
pointing a gun at our head right now. We need to be figuring
out why that gun is pointed at us, why others are supporting
it, what we can do to stop it. But we are fools if at the same
time we do not try and get that gun pointed down.
So we need to stop the flow of funds. We need to eliminate
terrorist training camps, which continue to operate in Iran,
Syria, and Lebanon. There are so many tactical things that have
to be done, and at the same time we are just as foolish if we
are so blinded by our need to deal with this immediate issue
that we continue to push off and push off these strategic
issues that Dr. Richardson has been pointing out that are no
less important.
Chairman Shelby. It is not going to be easy, is it?
Mr. Levitt. No, sir.
Chairman Shelby. I appreciate all of you and your patience
but, more than that, your contribution.
The hearing is adjourned.
[Whereupon, at 12:30 p.m., the hearing was adjourned.]
[Prepared statements and additional material supplied for
the record follow:]
PREPARED STATEMENT OF SENATOR WAYNE ALLARD
I want to thank Chairman Shelby for holding this hearing to review
various aspects of terror financing and the methods and instruments our
enemies use in order to finance their operatives around the world, and
in our country. This important area of jurisdiction for the Banking
Committee is rather obscure, yet has become of the utmost importance in
recent years with the increased occurrence of terrorist attacks and the
awareness of terrorist cells operating in our own communities. This
Committee has a unique opportunity and important responsibility to
further probe into this issue and shed light on the way terrorist
organizations operate.
In all reality, terrorist organizations will continue to exist and
plan their attacks whether or not they are easily or well financed.
When dealing with terrorist organizations, we are dealing with groups
motivated more by ideological, rather than political principles.
Therefore, our enemies will continue to devise their plan regardless of
their ability to easily access money. On September 11, we witnessed
their willingness to execute their plan at our expense by using our own
resources against us. Because terrorists may strike with even the
slightest resources available to them, this makes it all the more
important that we not just prune their financing agents for good
appearance, but rather pull the entire operatives out by the roots.
I would like to thank Mr. Clarke, Dr. Richardson, Mr. Levitt, and
Mr. Brisard for agreeing to come and share their expertise on terrorist
financing and look forward to hearing your opinions and strategies on
how we should progress with this critical issue.
----------
PREPARED STATEMENT OF RICHARD A. CLARKE
Former National Counterterrorism Coordinator, National Security Council
October 22, 2003
Mr. Chairman, It is an honor to be asked to appear here today to
offer some thoughts about the continuing problem of terrorist
financing. Before I begin, I want to recall that you, Mr. Chairman,
were a leader in the Congress in counterterrorism long before September
11 and I had the privilege of working with you on the threat from Al
Qaeda when you chaired the Senate Intelligence Committee. Those of us
who knew of your work then are greatly encouraged to have you leading
the Senate's examination of terrorist financing.
Mr. Chairman, I am a private citizen and what I say here today are
my personal views. They do not draw on access to current intelligence
information, but do benefit from reviewing media reports, court
documents, and discussions with those in Government and in the banking
and finance sector.
Despite the fact that CIA used to tell us that terrorist groups
like Al Qaeda do not need much money, we know now they do. Money is the
mother's milk of terrorism. There are five specific points on which I
would like to focus.
First, Al Qaeda is an on-going significant threat despite early
reports of its demise. The chief of Britain's MI5 recently warned the
threat posed by Al Qaeda to security may remain for many years.
Director-General Eliza Manningham-Buller said there was no prospect of
a significant reduction in the threat from Islamist terrorism over the
next 5 years. Ms. Manningham-Buller said she feared the danger would
not diminish within 5 years and then it will remain for a
``considerable number of years thereafter.'' She admitted that it was a
``bleak assessment'' and that she was ``personally concerned.'' Ms
Manningham-Buller described Al Qaeda as ``sophisticated and
particularly resilient'' and its members were able to blend into
society by living normal, routine lives until called upon for specific
tasks.
Second, what we know as Al Qaeda is a small part of the overall
challenge we face from radical terrorist groups which associate
themselves with Islam. Autonomous cells, regional affiliate groups,
radical Palestinian organizations, and groups sponsored by Iran's
Revolutionary Guards are engaged in mutual support arrangements,
including funding.
Third, although significant progress has been made in dealing with
the terrorism financing problem since September 11, there remain
organizational problems in the United States. Because of the transfers
of agencies to create the Department of Homeland Security, there have
been dislocations within the Executive Branch agencies which have the
skills to address terrorist financing. A MOU developed without the
participation of the concerned components of the new Department yielded
the exclusive lead in terrorism financing investigation to the FBI. On
an issue as important as this, we need a second opinion. We should not
sideline or subjugate the considerable expertise in financial crimes of
the U.S. Secret Service and the intelligence and enforcement personnel
of the former U.S. Customs Service. A report on terrorist financing
activities by the new Department was due to the White House last month,
but did not appear.
The reorganization also eliminated the senior position in the
Treasury for enforcement, despite the fact that two organizations
crucial to fighting terrorist financing remain in Treasury: the Office
of Foreign Assets Control (OFAC) and the Financial Crimes Enforcement
Network (FinCEN). These two organizations need to be strengthened by
giving them as a coordinator a new Assistant Secretary for Enforcement.
They should also be strengthened by the addition of forensic
accountants and bank examiners.
Fourth, although the USA PATRIOT Act requires U.S. financial
institutions and the Federal Government to cooperate among each other
in exchanging information on possible terrorist financing, there has
thus far been little information from the Government to the
institutions and little flow of information among the institutions.
This Committee may wish to turn its oversight attention to Section 314
of the USA PATRIOT Act.
Fifth, while many governments are now better cooperating in the
search for terrorism financing, we need to sanction those who do not.
The President should be required annually to report to the Congress in
a detailed, classified document what each nation is doing in the
international effort against terrorist financing, including their laws,
their cooperation, and the degree of vigor with which they are looking
for terrorist fronts and funds. Nations which are not adequately
cooperating should be subject to sanctions, such as having all of their
financial institutions made ineligible for clearing dollar accounts.
The President should have the ability to defer these sanctions, but
only by notifying the Congress why he wants them deferred and what he
proposes to do to get the nation cooperating.
Mr. Chairman, many governments, including are own, have been
manipulated by terrorist fronts seeking funds. Dating back to the
1980's, Islamist terrorist networks have developed a sophisticated and
diversified financial infrastructure in the United States. In the post-
September 11 environment, it is now widely known that every major
Islamist terrorist organization, from Hamas to Islamic Jihad to Al
Qaeda, has leveraged the financial resources and institutions of the
United States to build their capabilities. We face a highly developed
enemy in our mission to stop terrorist financing. While the overseas
operations of Islamist terrorist organizations are generally segregated
and distinct, the opposite holds in the United States. The issue of
terrorist financing in the United States is a fundamental example of
the shared infrastructure levered by Hamas, Islamic Jihad, and Al
Qaeda, all of which enjoy a significant degree of cooperation and
coordination within our borders. The common link here is the extremist
Muslim Brotherhood--all of these organizations are descendants of the
membership and ideology of the Muslim Brothers.
With a number of critical Government seizures, indictments,
deportations, and enforcement actions since September 11, greater light
has been shed on the means and methods of terrorist financing in the
homeland. Without question, the law enforcement powers and tools
created by the USA PATRIOT Act have contributed to the mounting
successes in the financial war on terrorism. For example, the ability
to utilize information gathered during intelligence investigations in
criminal prosecutions has enabled several critical arrests, including
Sami al Arian (the alleged North American leader of the Palestinian
Islamic Jihad) and the Portland Seven (who
allegedly attempted to wage war against American troops in
Afghanistan). Additionally, under to the USA PATRIOT Act, Rule 41 of
the Federal Rules of Criminal Procedure now authorizes warrants to be
issued by a Federal magistrate judge in any district in which
activities related to terrorism may have occurred, for property outside
the district. This provision has meaningfully aided several financial
terrorism investigations, including the ``Safa Group'' located in
Northern Virginia, suspected of financing Hamas, Islamic Jihad, and Al
Qaeda.
However, as Al Qaeda and the like continue to target the United
States and our allies, we are in no position to rest on our laurels.
Careful review reveals that continued vigilance and determination is
required to shutter the money stores of our terrorist enemies. From
magazines to mosques and charities, the agents of terrorism are well
rooted in the United States, exploiting the strengths and weaknesses of
our financial backbone. The network of terrorist leaders and operatives
in the United States has built a highly diversified arsenal of funding
sources, including unwitting governments.
To demonstrate what I mean, Mr. Chairman, allow me to summarize
some of the recent developments reported in the media and in court
filings. While I am not in a position to vouch for the veracity of all
of these reports, I believe the pattern they indicate is extremely
disturbing and means we must do more. Some specifics:
From his home and office in Tampa Florida, Sami al-Arian, the
indicted North American leader of the Palestinian Islamic Jihad,
allegedly coordinated the movement of fund from the Government of
Iran to suicide bombers in West Bank and Gaza.
Abdurahman Alamoudi, allegedly senior figure in the Muslim
Brotherhood in the United States and professed supporter of Hamas
and Hizbollah, was recently indicted for taking $340,000 from
Muammar Qaddafi and the Libyan Government, a designated state
sponsor of terrorism. According to Federal prosecutors, Alamoudi's
organization American Muslim Foundation funneled money to members
of the Portland Seven cell.
In a recent Federal affidavit, Senior Special Agent David Kane
confirmed, ``I know that terrorists who have attacked or tried to
attack the United States around the world have been associated with
. . . IIRO.'' The U.S. offices of IIRO were raided in 1997 and
again in 2002, in connection with Federal fraud and terrorism
investigations. IIRO has reportedly received funding from the Saudi
Government.
Human Concern International (HCI) reportedly received at least
$250,000 in funding from the Canadian Government. The Pakistan
office of HCI was headed by Egyptian Islamic Jihad leader and Al
Qaeda founder Ahmed Said Khadr. Khadr has been described by
Canadian intelligence services as a close associate of Osama bin
Laden and senior Al Qaeda money man.
Khadr and HCI convinced Canadian Government funding agencies to
sponsor ``charitable project'' for ``Afghan refugees'' when in fact
the funds were used to provide financial and operational support to
Jihad forces. The Pakistani Government also alleged that Khadr
siphoned moneys that contributed the 1995 bombing of the Egyptian
Embassy in Pakistan.
The Kuwaiti Government allegedly provides substantial funding
to charities controlled by the Kuwait Muslim Brotherhood, such as
Lajnat al-Dawa. The U.S. Department of the Treasury and the United
Nations Security Council designated Lajnat al-Dawa on January 9,
2003 as a supporter of Al Qaeda. Lajnat al-Dawa and its affiliates
had offices in the United States in Michigan, Colorado, and
Northern Virginia.
When United States and Bosnia authorities raided the offices
of Benevolence International Foundation (BIF) in 2002, a cache of
internal Al Qaeda records were reportedly recovered. Among those
documents was allegedly the ``Golden Chain,'' a list of bin Laden's
top Jihad financiers drafted in 1989. BIF's international
headquarters were located in Chicago, Illinois, until its assets
were frozen by the Treasury Department and its leader indicted by
the Department of Justice.
While reportedly in charge of finances for the Palestinian
Islamic Jihad, Sami al Arian allegedly sent a letter to Ismail
Shatti requesting funds for additional suicide bombings targeting
Israel. Ismail Shatti is reported to be a leading figure in the
Kuwaiti Muslim Brotherhood.
Yasin al Qadi is allegedly the financier behind several U.S.
organizations which have been tied to terrorist support. Qadi has
been identified in court papers as the banker behind a convoluted
real estate transaction in Illinois where proceeds where siphoned
off to Hamas operatives. Qadi has also been reported to be a lead
investor in BMI, a New Jersey-based Islamic investment bank
catering to ranking members of the Muslim Brotherhood, including
Hamas and al Qaeda backers.
In October 2001, the Treasury Department listed Yasin al Qadi as a
designated terrorist for his financial support of al Qaeda. Qadi
was the head of Muwafaq, a Saudi ``relief organization'' that
reportedly transferred at least $3 million, on behalf of Khalid bin
Mahfouz, to Osama bin Laden and assisted al Qaeda fighters in
Bosnia.
Following the events of September 11, 2001, the Treasury
Department designated several U.S.-based and international NGO's as
supporters of terrorism. Typically, such organizations offered
``relief'' services in conflict areas as cover for providing
financial and operational support to terrorist operations. One of
these organizations, the Holy Land Foundation for Relief and
Development, was reportedly
approved to receive supplemental funding by the United States
Agency for International Development. Another of these groups,
Global Relief Foundation, was
reportedly registered with USAID as a private nonprofit
organization providing ``relief, education and religious'' services
in Kosovo, Chechnya, Afghanistan, and Kashmir.
Terrorist leaders have also allegedly established private
schools in the United States, and used these schools to pay the
salaries of their operatives. In Tampa, Florida, Sami al Arian
established the Islamic Academy of Florida. The February 2003
indictment against al Arian says the school was used as a base of
support for the Palestinian Islamic Jihad ``in order to assist its
engagement in, and promotion of, violent attacks designed to thwart
the Middle East Peace Process.''
The Islamic Academy of Florida reportedly received at least $350,000
from the State of Florida through a program that diverts State
money to pay private school tuition.
Terrorist fronts operating under the false cover of charities
and relief organizations have raised millions of dollars from the
American public, some of whom perhaps knew the intended purpose of
their contributions and some of whom do not. Designated terrorist
entities such as Holy Land Foundation, Benevolence International
Foundation, and Global Relief Foundation have employed a number of
means to solicit tax-deductible donations. Methods of soliciting
donations include targeted newsletters, advertisements in Islamic
magazines and journals, and fundraising sessions at mosques and
conferences. Often, local representatives will organize smaller
fundraising dinners or events. Donors are encouraged to seek
matching gifts from their employers or associations.
Terrorist groups use a variety of means to move funds, including
charities, private companies, offshore accounts, U.S. accounts, real
estate transactions, blank checks, and bulk cash couriers. Often, a
combination of these channels are employed to accomplish several goals:
Obfuscate the sources of funds. By way of example, Saudi
citizens who are suspected of supporting terrorism are closely
monitored by the Saudi Arabian authorities. As a result, these
individuals are prohibited from sending money to terrorists via
direct bank transfers from Saudi Arabian accounts. Alternate
methods and routes of supplying funds are required. This often
involves utilizing overseas entities to support extremist causes.
Traveling electronically through the world, these money flows are
often very complex and involve significant ``layering.''
In the United States, this pattern was allegedly practiced by the
International Islamic Relief Organization (IIRO). IIRO's Virginia
branch would reportedly draw funds on Saudi Arabian accounts. These
funds were allegedly channeled through front companies operating as
chemical manufacturers, real estate developers, book publishers,
and social groups. In the form of investment proceeds, funds would
reportedly return to IIRO, which would in turn send money back to
Saudi Arabia.
Hide the ultimate use of the funds. Interviews with senior Al
Qaeda operatives have reportedly revealed the methods by which
terrorist front organizations conceal the destination of their
funds. Monies are transferred from Gulf, United States, or European
accounts to bank account in conflict zones, such as Chechnya,
Bosnia, Kashmir, or Israel. In most cases, funds are transferred
through several accounts in several different countries, making
them difficult to trace. Terrorist operatives then withdraw large
sums of money in cash and provide phony receipts for medical
supplies, food, or disaster relief. The cash and its ultimate use
becomes virtually untraceable.
Move funds into otherwise inaccessible territories. Whether by
their host governments or by the Israeli Government, individuals
and organizations throughout the Islamic world often are barred
from sending money to individuals and organizations in Israel and/
or the West Bank and Gaza. One way that supporters of terrorism in
Israel deliver money to terrorists in Israel and/or the West Bank
and Gaza is by first transporting the money to the United States
and only later sending it to Israel and/or the West Bank and Gaza
from the United States. Accordingly, while terrorist financing
money collected in the United States is simply transported abroad,
terrorist financing money collected abroad may enter the United
States either to enable its later transport to terrorist
organizations abroad or simply to fund terrorist activity in the
United States.
On October 9, 2003, Soliman Biheiri was convicted on Federal
immigration charges in the Eastern District of Virginia. Biheiri is the
first person convicted in connection with an alleged financial
terrorism investigation centered on a group of Islamic businesses,
charities, and missionary groups in Northern Virginia.
Biheiri was the President and founder of BMI, Inc., an investment
bank specializing in Islamically permissible investments. In the 1980's
and 1990's, BMI offered a series of financial services to Muslims in
America.
BMI solicited funds for real estate investments and offered leasing
services for wealthy Muslim business owners. By 1992, BMI boasted over
$1 million in medical equipment and automobile leases under management,
and advertised housing developments in Maryland and Indiana with
projected revenues in excess of $25 million.
While BMI held itself out publicly as a financial services provider
for Muslims in the United States, its investor list suggests the
possibility this facade was just a cover to conceal terrorist support.
BMI's investor list reads like a who's who of designated terrorists and
Islamic extremists.
BMI investors reportedly include designated Hamas leader Musa
abu Marzook and designated Al Qaeda financier Yasin al-Qadi.
BMI allegedly engaged in financial transactions with Bank al-
Taqwa and it founders Yousef Nada and Ghaleb Himmat. Bank al-Taqwa
and its founder Youssef Nada were designated SDGT's pursuant to
Executive Order 13224, on November 7, 2001. Al-Taqwa and its
members have been described by the Federal Government as the
financial advisers to Al Qaeda.
BMI allegedly received a $500,000 investment from Baraka
Group. Baraka Group, headed by Saleh Kamel, is reportedly a founder
of a Sudanese Islamic bank which housed several accounts for senior
Al Qaeda operatives.
Biheiri was a personal friend of Youssef Al Qaradawi,
allegedly a high-ranking member of the extremist Muslim Brotherhood
who has been barred entry into the United States. Qaradawi is
reportedly a shareholder of al-Taqwa and a member of its Sharia
board.
Biheiri's computer reportedly contained contact information
for Sami al Arian, the indicted North American leader of the
Palestinian Islamic Jihad.
The Kuwait Finance House was allegedly an investor in BMI. The
Kuwait Finance House is reported to be the financial arm of the
Muslim Brotherhood in
Kuwait. Several Al Qaeda operatives have allegedly been associated
with the Kuwaiti Muslim Brotherhood, including Khalid Sheikh
Mohammed, Suliman abu Ghaith, Wadih el Hage, and Ramsi Yousef.
On January 9, 2003, the Treasury Department designated the Kuwaiti
Lajnat al-Dawa as a terrorist entity. Lajnat al-Dawa reportedly
spawned out of and is controlled by the Kuwaiti Muslim Brotherhood.
Tareq Suwaidan, a leading member of the Kuwaiti Muslim
Brotherhood, reportedly engaged in financial transactions with BMI.
While one might expect BMI to operate out of Qatar, the Cayman
Islands or Liechtenstein, it was actually based out of Secaucus, New
Jersey, organized as a New Jersey corporation in March 1986. Although
BMI ceased operating in October 1999, investigators continue to probe
its financial dealings.
Thus, Mr. Chairman, we face an on going problem that is here in the
United States as well as abroad. It is a problem that we have just
begun to dent, one which needs continued Congressional oversight and
pressure. If we are to win the war on terrorism, there are many things
that we must do. Drying up the money going to terrorists is one of the
most important parts of winning that war.
----------
PREPARED STATEMENT OF LOUISE RICHARDSON
Executive Dean, Radcliffe Institute for Advanced Study
Harvard University
October 22, 2003
Good morning Chairman Shelby, Senator Sarbanes, and other
distinguished Members of the Committee. I am honored to have this
opportunity to speak to you about my understanding of the nature of
terrorism and about how lessons can be derived from that understanding
for the disruption of their operations. As will soon be obvious, I am
not an expert on terrorist finances, rather I am someone who has
thought about and taught about terrorist movements for many years.
The first point to be made in any discussion of terrorism is to be
clear about what it is we are discussing. The term terrorism is being
used so loosely that it has come to lose much meaning. The only
universally accepted attribute of the term is that it is pejorative. I
would like simply to posit what I take to be the seven crucial
characteristics of the term ``terrorism.''
1. Political. To constitute terrorism the act must be politically
inspired. If it is not, then it is simply criminal activity.
2. Violent. If the act does not involve violence or the threat of
violence then it is not terrorism.
3. Communication. The point of terrorism is to communicate a message.
It is not violence for the sake of it or even violence in the
expectation of defeating the enemy, but rather violence to convey a
political message.
4. Symbolic. The act and the victim usually have symbolic significance.
The shock value of the act is enhanced by the power of the symbol
of the target. The whole point is for the psychological impact to
be greater than the actual physical act. Terrorist movements are
generally out-manned and out-gunned by their opponents so they
employ these tactics to gain more attention than an objective
assessment of their capabilities would warrant.
5. Non-state actor. Terrorism as we understand it is conducted by
clandestine groups, not states. This is not to argue that states
cannot use terrorism as an instrument of their foreign and domestic
policy; they can and they do. Nor is it to argue that states cannot
take actions which are the moral equivalent of terrorism; they can
and they do. It is simply to argue that if we want to have any
analytic clarity in understanding the behavior of these groups we
must understand them as clandestine sub-state actors rather than as
states. Moreover, in our dealing with states we have the whole
panoply of international law to assist us in interpreting and
responding to their actions.
6. The victim and the audience are not the same. The point of terrorism
is to use the victim as a means of altering the behavior of the
larger audience, usually a government. Victims are often chosen at
random or as representative of a larger group; particular victims
are usually interchangeable. The more random the victim, the more
widespread the fear, and the more effective the action.
7. Deliberate targeting of noncombatants. This is what sets terrorism
apart from other forms of political violence, even the most
proximate form, guerrilla warfare. Terrorists have elevated to the
level of deliberate strategy, practices which are generally
perceived as being the unintended side-effects of warfare, killing
noncombatants.
My argument, then, is that it is the means employed and not the
ends pursued nor the political context in which they operate that
determines whether or not a group is a terrorist group.
The next point to be made about terrorist groups is that there are
very real
differences between them and if we want to fashion an effective
counterterrorism strategy we must understand these differences. I
believe that terrorist groups can broadly be defined as belonging to
one of several types. I am defining them here in accordance which what
I take to be their primary motivation.
1. Ethno-Nationalist movements. These types of movements are among the
most powerful, the most popular, and the most persistent of
terrorist movements. They occur all over the world in rich and poor
states, from Ireland to India. They range in size from a handful of
Corsican Nationalists to thousands of armed Tamils. The primary
political goal of these types of terrorist movements is to attain a
national territory consistent with their concept of their national
or ethnic identity.
These groups are utterly different in motivation, organization, and
appeal from the type of terrorism represented by Al Qaeda. That
said, these groups often enjoy significant, albeit often passive,
popular support. Looking ahead, I see one real cause for concern.
Just as the communist ideology on occasion fused with nationalist
movements in the course of the cold war, so too nationalist
movements, in regions with a significant Islamist presence, are
vulnerable to the exploitation of the conflict for the purposes of
a broader ideology.
2. Social Revolutionary Movements. These groups reached their heyday in
the advanced industrialized countries in the 1970's and 1980's.
Their overriding objective was the violent destruction of the
existing capitalist political-industrial-
military complex and its replacement with a better social system
based on the emancipation of the proletariat and the introduction
of a just and classless society. In adopting this goal, violence
was exonerated on the grounds that it was both a necessary
component of this destruction as well as a virtuous and wholesome
way of achieving it.
These groups proved most dangerous when they forged alliances with
other opponents of the government, as the Italian Red Brigades did
in uniting, for a time, the student and worker protest movements.
The apocalyptic nature of their aspirations is something they share
with the contemporary radical Islamic groups which also seek
complete destruction of the social and political order they
inhabit.
3. Maoist Movements. Maoist movements tend to germinate in rural areas
of poor countries as they have done in Peru, Nepal, and the
Philippines. The ideology calls for the liberation of the
impoverished rural masses through revolutionary violence and then
the defeat of the social order in the urban areas before eventual
victory in conventional conflict. Maoism provides a template for
revolutionary action for any group that purports to base its
legitimacy on communion with the masses.
Maoist groups share with social revolutionary groups and radical
Islamic groups a fanatical sectarianism, a millenarian approach,
and a belief in the liberating qualities of violence. Like the
social revolutionary groups, and unlike the radical Islamic groups,
the ideology is entirely secular.
For those interested in combating Maoist terrorist groups, the
trajectory of their violence and the nature of their appeal should
come as no surprise since it follows a coherent and elaborated
revolutionary technique.
4. Radical Religious Movements. While the mixture of religious and
political motives has been a growing trend over the past 30 years,
if one takes a longer perspective the story looks quite different.
Prior to the French Revolution, religious and political motives
were invariably intertwined in terrorist ideology. There have
always been two characteristics of religiously motivated terrorist
groups. First, they exercise less restraint. If the audience is God
there is no need to be constrained by the desire to avoid
alienating one's supporters. Second, they have always been more
transnational. Religions often transcend political boundaries, so
these groups tend to have broader bases of support and broader
bases of operation. Consequently, it requires effective
collaboration between governments to counter them.
Religion plays different roles in different terrorist groups.
Sometimes it serves purely as a badge of ethnic identity, as in
Northern Ireland. Sometimes it is a mask for political motives, as
in a number of Palestinian groups. Sometimes it is the defining
ideology and guide to action, as in religious sects.
Three political events were crucial to the radicalization of the
Muslim groups we face today. These were the Iranian Revolution, and
the subsequent effort of Iran to export its revolution overseas.
Then there was the war in Lebanon, and the United States
withdrawal. Finally, and perhaps most importantly, the war in
Afghanistan, which not only demonstrated that a superpower could be
defeated by organized Mujahadeen, but also provided legions of
armed and trained Islamic warriors, imbued with their own success,
which swelled the ranks of radical movements throughout the Middle
East and, as we now know, provided the base for Al Qaeda. These
political events, when fused with the philosophical justifications
for political violence against both nonbelievers and compromising
Muslims (read secular Muslim leaders) derived from particularist
interpretations of both Sunni and Shiite texts, have proven to be
an explosive mix.
The four types of terrorist movement differ in significant respects
from one another. They differ in their primary political motivations
and how they organize themselves to achieve them. I believe that one
can sensibly generalize within the different types of movements but
only in very limited respects across them. I was asked specifically to
address the issue of alliances or networks among terrorist groups. I
believe that it should come as no surprise to us to see collaboration
among different movements which share similar primary motivations. The
IRA in Northern Ireland and the Basque ETA, for example, are known to
have close links. It is probably those links that helped to forge
connections between the IRA and the FARC in Columbia that were recently
revealed. Similarly the social revolutionary groups had quite extensive
connections with one another, believing themselves all to be factions
in the broadly-based communist revolutionary march to overthrow
capitalism. It would come as no surprise to me to learn of links
between different Maoist groups either, though perhaps given the nature
of the terrain in which they operate this might be difficult. The links
between the radical Islamic groups are the most extensive and well
known. Al Qaeda had been forged on the basis of the multinational
mujahadeen who arrived in Afghanistan to fight the Soviets. We, of
course, know of the merger of several Islamic movements in the famous
and rather grandly called ``World Islamic Front'' in 1998 calling on
Muslim groups all over the world to unite. The organization self
consciously tries to serve both as a base for other groups as well as
operating on its own.
It would, however, come as a surprise to me to learn of significant
alliances across these types of organizations. When cross-type
alliances have occurred, they have been exclusively between social
revolutionary and nationalist movements. Islamic organizations could
not countenance the social views of social revolutionary or nationalist
groups. Members of nationalist groups see themselves as utterly
different from what they would consider as being the depraved Islamic
groups. Nationalist groups have not taken the opportunities available
to them to kill large numbers of people, preferring, in the words of
Brian Jenkins, ``lots of people watching, not lots of people dead.''
They perceive themselves as traditional freedom fighters and hence
occupying a different moral universe than the architects of September
11.
Latin American groups have had a tradition of collaborating among
themselves. They see themselves as fighting for similar causes against
similar enemies. The Monteneros, for example, shared the $60 million in
ransom they got for the kidnapping of the Born brothers in 1974 with
other Latin American insurgency groups. In the early 1990's, the
discovery of a terrorist treasure trove under a car repair shop in
Managua demonstrated that the tradition of collaboration continues.
In trying to anticipate alliances among terrorist groups I would
suggest, therefore, that a knowledge of the ideology of the group would
help anticipate the nature of the alliances they are likely to make.
While the differences in primary political motivation undermine the
degree to which one can generalize across types of groups, many groups
with very different ideologies do share secondary motivations. These
are the more immediate or secondary motives shared across types of
groups: By far the most common motive of the terrorist is revenge and
the second most common is publicity. They also seek funding. In these
organizational ways one finds terrorist groups operating much like
other, more conventional, organizations concerned for their own
survival.
In none of these cases do the membership seek personal enrichment.
For this reason the tools we have developed for anticipating and
countering criminal elements are of limited utility against them. The
members believe in their cause and they are often willing to sacrifice
everything they have in order to further that cause.
It is important to bear in mind, for example, that the reason 10
IRA prisoners starved themselves to death in Northern Ireland in 1981
was not to free Ireland from British oppression, but rather to secure
political prisoner status for themselves and their comrades. Their
sense of themselves as different and indeed morally superior to
ordinary criminals was such that they were willing to starve themselves
to make the point.
State Sponsorship
Just as it is important to draw distinctions between different
types of terrorist groups, I believe that it is also important to draw
distinctions between different types of relationship between terrorist
groups and their state sponsors. These relationships range from
relationships in which the state exercises considerable control over
the movements it sponsors to relationships in which the state and the
movement it supports simply share an enemy. The relationship between Al
Qaeda and the Taliban, when the terrorists appeared to be sponsoring
the state as much as the other way round, represents one extreme. Other
relationships vary along a spectrum of state control. Occasionally,
terrorists are simply the covert arm of the state, as in the murder of
dissidents overseas or intelligence operatives carrying out actions at
the behest of the state. While called terrorism, these cases, such as
the bombing of Pan Am 103 over Lockerbie, actually represent the covert
actions of a state. In a very few cases the state closely directs the
terrorist movement (as in the relationship between Syria and the PLFP-
GC) but a far more common relationship is one in which the state
supports the action of the terrorist group with financial and
logistical support, training facilities, and safe havens, but the state
does not actually direct the action of the terrorist movement. Iranian
support of Hamas and Hizballah would fit this category. At the other
end of the spectrum is a case like the Libyan support of the IRA in the
late 1980's. In this instance Libya and the IRA simply shared an enemy,
Britain. Libyan support was simply a means of punishing Britain for its
participation in the bombing of Tripoli in 1986.
In every case, the terrorist movement is rendered more effective
and more lethal by the support provided by the sponsoring state, but in
every instance the state is capitalizing on a pre-existing movement
rather than creating one. The terrorist movements do not rely on the
state for their survival. Rather, state sponsorship is one of several
means of generating financial support for the movement. Other forms of
support include raising money from the Diaspora as Islamic and
nationalist groups the world over have done successfully. Another
popular fundraising mechanism is the operation of a legitimate front
business to generate money for the cause. The Tamil Tigers in Sri Lanka
have perfected this technique. In other cases, terrorists raise money
through extortion from the members of the society they claim to
represent, as Maoist groups often do. In still other cases, they raise
funds through criminal activity. Bank robberies and kidnapping were
traditional favorites; today credit card fraud and in some cases drug
dealing, have become popular. Raising money through criminal activity,
however, is a high risk strategy for terrorist groups, exposing the
membership to corruption and to capture, fudging the distinction they
seek to draw between themselves and criminals, and undermining the
basis of their popular support.
The crucial point to bear in mind about terrorism, of course, is
that it is cheap. This is part of its appeal. The attack on September
11 is probably the most expensive terrorist operation in history and it
is estimated to have cost half a million dollars. It takes a great deal
less to buy some fertilizer, rent a truck, and use them to bring down a
building. If a group has a generous sponsor, as Hamas does in Iran,
they can afford to run charities and thereby secure popular support.
Such a group can also afford to support the families of imprisoned or
killed members. But it is not necessary at all to have this level of
support in order to conduct terrorist operations. Terrorism is above
all a tactic and its appeal as a tactic is precisely that one can get
so much bang for one's buck. It is cheap and easy and lends itself to
dramatic impact.
Sophisticated weaponry such as WMD is of course expensive. Aum
Shinrikyo demonstrated this fact. I believe we have all learned from
this experience and it is hard for me to imagine a situation anywhere
in the world today in which a clandestine group could develop
facilities of such sophistication, and recruits of such a technical
caliber, without the state noticing. Another way for terrorists to
secure these weapons is to be handed them by a state sponsor. My own
view is that this fear is overblown. The act of ceding to a terrorist
group one did not completely control weapons of mass destruction would
be an act of such folly as to be incomprehensible. A state willing to
risk annihilation might use the weapons itself but there are good
reasons why none has done so. The reasons why they would not cede the
means to a third party are even stronger.
My own prediction, therefore, is that we will see far more Bali
type attacks than we will see September 11 type attacks. I worry
sometimes that our concern to prevent the less likely and more
expensive type of actions may deflect our attention from the need to
prevent the more likely, less expensive, and more conventional attack.
I believe that the first priority in undermining terrorist
organizations is to understand how they see themselves, not how we see
them. To achieve this we must be inside their cells, and the societies
that produce them. We must read all their communications and their
propaganda in an effort to anticipate their actions but also to
understand their appeal
I think we can learn from the terrorists as they have learned from
us. We can learn to have patience and to wait for results. The
brilliance of the September 11 attack was its use of our own strength
against us. They turned our civilian airlines into weapons against us.
I think we must do the same. We must understand their ideology and
their tactics and use them against them. Terrorist organizations
operate under conditions of considerable uncertainty and are constantly
fearful of both external attack and internal betrayal. We should
exploit this by keeping them under constant pressure and exploiting
their fissiparous tendencies. Their need to raise funds through
criminal activity increases their exposure and gives us another avenue
to pursue them.
If we undermine their support of charities this won't prevent
terrorism per se. Many donors to the charities genuinely want to
support the poor and many of these charities do a great deal of good
for the beneficiaries. However, over the longer-term, these charities
serve to win and to sustain support for those providing the charity. I
think, for example, that the support for Hamas has to be seen in this
light. I believe that we should ensure that it is our friends who are
meeting the social needs of the potential recruits of the terrorists.
This is a long-term strategy but terrorism as a tactic has been around
a very long time and it is likely to remain. What is new is the
existence of organizations willing to kill as many civilians as they
can, and the increasing availability of the technical means to do so.
Strangling their financial assets will make it increasingly difficult
for terrorists to function, but it will not eliminate terrorism.
----------
PREPARED STATEMENT OF JEAN-CHARLES BRISARD
CEO, JCB Consulting International
October 22, 2003
Chairman Shelby, Senator Sarbanes, and distinguished Members of
this Committee, thank you for inviting me to testify today about the
global war on terrorism financing.
I started investigating terrorism financing networks in 1997 for
the French Government, since then, I have provided expertise to various
governments and to the United Nations. Since June 2002, I have been
leading an international investigation for the September 11 Families
United to Bankrupt Terrorism in the course of an action brought by
5,600 family members before the U.S. District Court of Washington, DC,
against several entities, banks, companies, charities, and individuals
that provided financial or logistical support to the Al Qaeda network.
In that respect, our investigation is today active in various
regions of the world and has been able to recover a considerable amount
of information on Al Qaeda support networks through procedures of
judicial or political cooperation established with more than 30
countries.
To date, our effort is probably a unique example of non-state
cooperation and investigation on terrorism.
This process, through cooperation and interviews with hundreds of
law enforcement officials, provides us with an independent, although
global, perspective on assessing intergovernmental efforts on terrorism
financing.
Above all, the current process has been able to uncover major
documents and items related to the funding of the Al Qaeda
organization, and I would like to share some of our findings with you
today. These findings help understand both the global context of
terrorism funding and the ways and means used by Al Qaeda on a regular
basis to raise and move funds for operational purposes.
Since September 11, 2001, the world, and especially the United
States, is facing the most innovative form of terrorism. Al Qaeda is
not only a militant-based or a combatant organization, it is also a
financial network combining the most modern tools of finance with the
oldest transactional instruments.
For 30 years, Western countries mostly dealt with simple terrorist
organizations, mainly disorganized local entities in Europe, Middle-
East, and Asia, or state-sponsored entities such as Hezbollah.
Al Qaeda has reshuffled our knowledge and assessment of terrorist
organizations by creating a complex confederation of militant bases and
aggregating financial support networks.
To support its criminal objectives, this organization has been able
to build a complex and intricate web of political, religious, business,
and financial instruments or supports.
Al Qaeda Financials
U.S. Treasury Department General Counsel David Aufhauser recently
estimated that Al Qaeda had an annual budget of upwards of $35 million
before September 11. This figure, he believes, is today between $5
million to $10 million.
This statement is important, as it is the first public estimate
made available by a U.S. official.
In December 2002, in my report to the UN Security Council, I valued
Al Qaeda annual income at $50 million and global assets within a 10-
year period between $300 million and $500 million. The UN Al Qaeda
Monitoring Group had previously estimated Al Qaeda annual income at $16
million in August 2002. An intelligence report also indicated in 2002
that Saudi Arabia alone was accounting for $1 million to $2 million a
month through mosques and other fundraising methods.
These figures are a clear indication of a massive financial support
to Al Qaeda prior to September 11 derived from other means that the
commonly referred credit card frauds, tax frauds, or other ``petty''
money laundering crimes.
Until now, intelligence and law enforcement agencies have based
their assumption on the fact that simple criminal devices do not need a
lot of money. This trend has proven to be correct when dealing with
simply structured organizations of the Palestinian type in the 1970's
and Algerian type in the 1980's.
The idea also proved correct regarding Al Qaeda at the operational
level, where local and national cells, mostly dormant cells, happened
to live in modest conditions.
But to apply that idea to the entire Al Qaeda network is not only
irrelevant but also simply turns to an end the war against terrorism
financing.
Al Qaeda clearly distinguishes in its training manual and in other
documents, its organizational funds and its ``operational funds.'' The
operational funds have two main objectives, the first is to invest in
projects that offer financial return to entertain local cells, and the
second is to carry out terrorist operations.
Apart from the operational level, one must not confuse the
requirements of Al Qaeda in terms of daily logistics and the super-
structure level, which is the real innovation introduced by Osama bin
Laden. The first purpose of money for Al Qaeda at this level is to
entertain the broad network of organizations, to fund them to stabilize
and leverage their support and to develop their reach. Over the years,
Al Qaeda financially supported several entities, from Libya to the
Philippines, from Indonesia to Somalia. Figures here range in millions
of dollars.
The second purpose of money at the super-structure level has been
to pay for protection and asylum. Since 1991, Al Qaeda and Osama bin
Laden had to resettle in various countries after the opposition
movement was banned from Saudi Arabia. It was the case in Sudan and
later in Afghanistan.
According to various intelligence estimates, less than 10 percent
of the annual
income of the organization went to operational planning and execution,
while 90 percent was used for the network infrastructure, mainly
facilities, organization, communication, and protection.
This money primarily originates from wealthy donors in the Middle-
East. In the course of our investigation for the September 11 families,
and as part of a judicial cooperation process with the state of Bosnia-
Herzegovina, we uncovered major evidence proving this factor.
The Golden Chain list of wealthy Saudi sponsors is an internal Al
Qaeda document seized by the Bosnian police during searches in the
offices of Benevolence International Foundation in Sarajevo in March
2002. Our team was granted access to this document, among others,
following an order of the Supreme Court of Bosnia-Herzegovina ordering
the U.S. Government to release this material.
The Golden Chain lists the top 20 Saudi financial sponsors of Al
Qaeda. It includes 6 bankers and 12 businessmen, among which there are
2 former ministers.
According to our estimates, their cumulative corporate net worth
totals more than $85 billion dollars, or 42 percent of the Saudi annual
GNP and equivalent to the annual GNP of Venezuela.
They include former leading Saudi banker Khalid Bin Mahfouz,
businessman Saleh Abdullah Kamel, the bin Laden family, and several
bankers representing the three largest Saudi banks (National Commercial
Bank, Riyadh Bank, and Al Rajhi Bank).
Most of them are or were involved, apart from their legitimate
businesses, in charity organizations as founders or board members.
Fundraising Methods
At the very beginning of Al Qaeda financing is an institutional
confusion between religion and finance that plays both as a common and
traditional religious justification and still poses real and unanswered
questions regarding the use or abuse of legitimate money by such
organizations.
The fundamental question refers to the way eminent religious tools
created to cope with poverty and charity among Muslims were diverted
and abused to serve terror aims around the world. The related issue is
how to manage and control religious tools and principles, and forbid
any abuse, while for instance several prominent scholars interpret the
rule of God as permitting such abuses.
The main financial vehicle to fund Islam was set up under the
Islamic rule of Zakat, a legal almsgiving required as one of the five
pillars of Islam on current assets and other items of income. Zakat has
been described as the ``cornerstone of the financial structure in an
Islamic State.''
According to the Koran, Zakat is a way of purification. Possessions
are purified by setting aside a proportion for those in need, and, like
the pruning of plants, this cutting back balances and encourages new
growth. This principle is an obligation for every Muslim.
According to the Koran, only the poor and needy deserve Zakat.
Basically, Zakat takes three forms, depending on its recipients,
Feesabeelillah (in the way of Allah), Lil-Fuqara (for the poor), and
Lil-Masakeen (for the needy).
Only the first form of Zakat has raised questions and various
interpretations among Muslim scholars, mostly those influenced by
Wahabbism doctrine of Islam.
Feesabeelillah is used to describe money spent in fighting for the
cause of Allah (Jihad).
Jihad refers to striving for excellence on one of several levels.
The first involves individual efforts, spiritual and intellectual, to
become a better Muslim. The second addresses efforts to improve
society. The third and last level, or ``holy war,'' involves self-
defense or fighting against oppression.
The personal jihad states that the most excellent jihad is that of
the soul. This jihad, called the Jihadun-Nafs, is the intimate struggle
to purify the soul of satanic influence--both subtle and overt. It is
the struggle to cleanse one's spirit of sin. This is the most important
level of jihad.
The verbal jihad is based of Prophet words that, ``The most
excellent jihad is the speaking of truth in the face of a tyrant.'' He
encouraged raising one's voice in the name of Allah on behalf of
justice.
Finally, physical jihad is combat waged in defense of Muslims
against oppression and transgression by the enemies of Allah, Islam,
and Muslims. We are commanded by Allah to lead peaceful lives and not
transgress against anyone, but also to defend ourselves against
oppression by ``fighting against those who fight against us.'' This
``jihad with the hand'' is the aspect of jihad that has been so
profoundly misunderstood in today's world.
According to Al Azhar's Islamic Research Academy, the concept of
jihad refers to the ``defense of the nation against occupation and the
plunder of its resources.'' But it does not cover the killing of
innocent people, the elderly, women, and children, which is forbidden
by Islam. The teachings of Islam also forbid the destruction of
buildings and establishments not connected with a specific battle. The
statement drew a distinction between violence perpetrated by oppressors
who have no respect for what is sacred and violence as a legitimate
defense launched by the weak to win their rights.
There is a clear distinction between the Koran's concept of a
defensive jihad and the usurped form of offensive jihad developed by
several scholars, including Omar Abu Omar (aka Abu Kutada), Al Qaeda
principal in the United Kingdom, who influenced a trend to support
those ``fighting in the Cause of Allah'' (the Mujahideen), thus
justifying Zakat for un-legitimate violence against peaceful nations.
In January 2002, for example a conference of Islam's Ulema
religious scholars in Beirut, Lebanon, clearly stated in its final
statement that :
``Hezbollah in Lebanon, Hamas, Islamic Jihad and all resistance
forces vividly express the will of the nation. They constitute
the first line in the defense of peoples and states and their
rights, causes, and sanctities. Through their jihad and
mujahidin, they represent the honor, pride, and dignity of
Muslims everywhere and reflect the human ambitions of all
oppressed peoples in the world. If the masters and protectors
of the Zionist entity in the U.S. Administration are targeting
the resistance because it poses a real threat to this entity,
we view this resistance as the noblest and most sacred
phenomenon in our contemporary history.''
Over time, this legal religious duty has been usurped and abused by
terrorists and their supports.
The Al Qaeda network extensively utilized the weakness of legal
rules to rely on funds diverted from the Zakat and other direct
donations through Islamic banks and since 1998, Osama bin Laden made
regular calls for Muslims to donate through the Zakat system to his
organization.
In December 1998, during an interview with ABC News, Osama bin
Laden stated that:
``Muslims and Muslim merchants, in particular, should give
their Zakat and their money in support of this state [Taliban
regime] which is reminiscent of the state of Medina (Al-
Munawwarah), where the followers of Islam embraced the Prophet
of God.''
Osama bin Laden addressed the same issue in a seized video tape
filmed during a wedding party in January 2001:
``Deserve credit those traders and businessmen who give Zakat
so that they can help arm that ill-equipped Lashkar.''
In September 2001, in an interview with Pakistani newspaper Ummat,
he declared that:
``Al Qaeda was set up to wage a jihad against infidelity,
particularly to counter the onslaught of the infidel countries
against the Islamic states. Jihad is the sixth undeclared
pillar of Islam. [The first five being the basic holy words of
Islam (There is no god but God and Muhammad is the messenger of
God), prayers, fasting (in Ramadan), pilgrimage to Mecca, and
giving alms (zakat).].''
Other Al Qaeda leaders made similar references, for example Mahfouz
Walad Al-Walid, aka Abu Hafs, during an interview with al-Jazeera on
November 30, 2001:
``We think that the cause in which there is a possibility for
all Muslims to participate in supporting by means of money,
men, or any kind of help, is the cause of Afghanistan.''
The Koran only gives general principles and guidelines regarding
the collection of Zakat, and most of the tax regulations are recent.
Zakat is levied pursuant to Royal Decree No. 17-2-28-2077 of 1380 A.H.
(1960) on Saudi nationals, both corporate (wholly Saudi-owned
companies) and individuals, and on the Saudi share of profits of
companies owned jointly with foreigners. Citizens and companies of the
Gulf Cooperation Countries (GCC) who are resident in Saudi Arabia and
do business in Saudi Arabia are treated as Saudis.
Zakat is calculated on capital and earnings from and on all
proceeds, profits, and gains from business, industry, or personal work,
and on property or monetary acquisitions of whatever type or
description. These include commercial and financial transactions and
dividends, livestock, and crops.
Based on recent figures, Zakat funds are estimated annually around
$10 billion in Saudi Arabia alone.
Monitoring of charitable donations through Zakat happened to be
baseless, while most of Gulf countries lack effective legal systems
that impose strict rules of transparency, accounting, and auditing
requirements, thus turning a legal religious duty into an illegal
money-laundering instrument.
The Zakat funds are controlled by the Department of Zakat and
Income taxes (Directorate General of Zakat & Income Tax (DZIT) of the
Saudi Ministry of Finance and National Economy. Authority of the
Department is based on the Royal Decree No. 3321, dated 21/01/1370HD
and the Ministerial Resolution No. 393, dated 06/08/1370H, which
include instructions for organizing, auditing, and collecting ``Zakat''
from all Saudis obligated to pay it.
The Department duties include examining, assessing, and taking
necessary action to ensure payment of Zakat.
Zakat payment is individual or may be organized at each business
level by a special committee that determines the recipients and
channels donations to these entities.
John B. Taylor, Under Secretary of Treasury for International
affairs, stated in April 2002, that to prevent terrorists from
``abusing'' these institutions was a main goal in the war against
terrorism financing.
The Saudi Kingdom in its report to the Security Council pursuant to
paragraph 6 of SC resolution 1373 (2001) concerning counterterrorism,
stated that, ``It is a basic principle of the Islamic Shariah that
whatever leads to the forbidden is itself forbidden.'' That principle
will remain baseless as far as there is no legal instrument to enforce
it.
Moreover, legal measures taken by the Kingdom, especially the 1976
Fundraising for Charitable Purposes Regulation, did not prevent misuse
of Zakat funds, as acknowledged by the Governor of the Saudi Arabian
Monetary Agency who recognized that ``some of them take their dollars
and they transfer them to accounts in Europe and use it for God knows
what.''
In 1999, the Kingdom approved amendments to existing money
laundering laws intended to bring them into compliance with
international regulations, but these amendments have not been
implemented.
In November 2002, Prince Salman bin Abdul Aziz said the country was
not responsible if ``some change the work of charity into work of
evil.'' He stated that he had personally taken part in the activities
of those organizations, ``and I know the assistance goes to doing good.
But if there are those who change some work of charity into evil
activities, then it is not the Kingdom's responsibility, nor it people,
which helps its Arab and Muslim brothers around the world.'' The
Prince, King Fahd's brother, added that if beneficiaries had used
assistance ``for evil acts, that is not our responsibility at all.''
Also in November 2002, Adel Al Jubeir, spokesman for the Saudi
Kingdom acknowledged that situation by saying that, ``People have now
taken advantage of our charity, of our generosity, of our naivety, if
you want to call it that, of our innocence,'' and calling for a global
audit of every charity in the Kingdom.
He also acknowledged the lack of real financial control. ``A number
of our charities, especially those operating outside Saudi Arabia did
not have sufficient financial control mechanisms to ensure that the
funds that were raised and that were spent actually went to where they
were supposed to go'' citing ``a massive fraud in the name of
religion.''
The Kingdom of Saudi Arabia repeatedly tried to establish legal
rules to govern Zakat and charities donations.
In 1994, the Saudi Kingdom issued a royal decree banning the
collection of money in the Kingdom for charitable causes without
official permission. King Fahd set up a Supreme Council of Islamic
Affairs (al-Majlis al-A'la lil-Shu'un al-Islamiyya), headed by his
brother Prince Sultan to centralize, supervise, and review aid requests
from Islamic groups. This council was established to control the
charity financing and look into ways of distributing donations to
eligible Muslim groups.
Coordination efforts have also been carried out by the Kingdom to
deal with specific goals and several bodies were created over time to
centralize donations for specific countries and regions.
Efforts to coordinate the recipients of money have been largely
undermined by the composition and management of these bodies. For
example, the Saudi Joint Relief Committee for Kosovo and Chechnya
(SJRC) included the International Islamic Relief Organization (IIRO),
the Saudi Red Crescent Society, the Muslim World League, the World
Assembly of Muslim Youth (WAMY), Al-Haramain Islamic Foundation,
Islamic Endowments, and Makka Establishment, some of which have already
been designated as terrorist supports.
Between 1998 and 2000, more than $74 million was diverted to local
bureaus of the SJRC that happened to be controlled by or to harbor
terrorists, while the Committee was supposed to be supervised by the
Minister of Interior, Prince Naif bin Abdul Aziz.
In June 1998, the CIA and Albanian authorities raided several
houses and offices of members of an associate of the SJRC in Tirana. In
July 1998, its Director Muhamed Hasan Mahmud, an Egyptian national, was
arrested on charges of making false documents and arms possession. He
was connected to a 1992 terrorist attack against the Egyptian
Parliament. Several of its members and directors were later arrested in
connection with the U.S. Embassy bombing in Kenya and Tanzania of
August 1998.
Similarly, the United Nations Mission in Kosovo (UNMIK) raided a
house rented by the SJRC in Pristina in April 2000, stating the
organization was acting as a cover for several Osama bin Laden
operatives, including SJRC former directors Adel Muhammad Sadi Bin
Kazem and Wael Hamza Julaidan (Secretary General of the Rabita Trust in
Pakistan and co-founder of Al Qaeda), designated as terrorist by the
United States Government in 2002.
Furthermore, in documents obtained from the Financial Police of the
Federation of Bosnia-Herzegovina Ministry of Finance, offices of the
Saudi High Commission in Bosnia-Herzegovina, the coordinating body for
charities in the country, clearly appear to be a front for radical and
terrorism-related activities, noting that documentation was found in
2001 ``for which it can be claimed with certainty that it does not
belong in the scope of work of a humanitarian organization (various
photographs of the World Trade Center, sketches of military bases,
certain photographs of military ships, civil airplanes, certain
specially protected facilities, and other).''
Through these various unsuccessful attempts to regulate or control
the recipients of Zakat or donations, one must question the real
ability and willingness of the Kingdom to exercise any control over the
use of religious money in and outside the country.
The result of that weak policy toward donations made for so-called
charitable purposes and the unwillingness of the Saudi Government to
consider its responsibility in that regard is a major setback in the
war against terrorism financing.
Saudi Arabia has repeatedly claimed to have taken steps to counter
terrorism financing since September 11, 2001, as if the Kingdom
discovered at that date that several of its prominent citizens were
funding a terrorist organization. The Saudi cooperation in the war
against terrorism financing is largely insufficient, if not
inconsistent.
We do not believe in the ``innocence'' of the Kingdom in that
respect. Saudi Arabia has been mostly negligent, and to some extent,
irresponsible in letting suspected organizations receive funds and
continue their operations while being fully aware of their links to
terrorists.
For example, according to documents seized by the Israeli
authorities in the Palestinian territories, the Saudi Arabian Committee
for Support of the Intifada al Quds was fully informed by the
Palestinian officials that it was sending funds to Hamas, a terrorist
organization.
In a letter written in 2000 to the Chairman of the Saudi committee,
a representative of Palestine stated that, ``The Saudi committee
responsible for transferring the contributions to beneficiaries is
sending large sums to radical committees and associations including the
Islamic Association which belongs to Hamas, the Al-Atzlach Association
[most likely the Al-Salah Association, a known agency of the Hamas in
Gaza], and brothers belonging to the Jihad in all areas,'' adding that,
``This has a bad effect on the domestic situation and also strengthens
these brothers and thus has a bad impact on everybody.''
Similar warnings were raised in Bosnia in 2000 by a Bosnian
association called ``Mothers of Srebrenica and Podrinje.'' In a letter
to Prince Salman, it was clearly claimed that the High Committee for
Bosnia-Herzegovina did not meet its goal in terms of financial help,
namely accusing the director of the Sarajevo office of diverting $100
million collected after Srebrenica's fall in July 1995, for Srebrenica
inhabitants.
Financial Conduits
Saudi Arabia is present at every stage of Al Qaeda financing, but
primarily as the major source of funding. This is an indication that
Osama bin Laden has been able to leverage his family position in the
Kingdom to gain access to major sources of funding. It is also a sign
that Saudi Arabia is offering several essential conducts for Al Qaeda
funding.
Over the years, Al Qaeda used various conduits for moving money to
its operational cells, mainly well established channels.
In that regard, international investigations have uncovered only a
few, if none usage of offshore facilities in Al Qaeda financial
instruments.
With the exception of a few banking institutions based and operated
from offshore centers such as the Bahamas and Switzerland, namely al
Taqwa Bank and Dar Al Maal Al Islami (DMI) no such examples can be
found around the world.
The nature of the Al Qaeda network is that it uses business covers
to finance its operations. One of the main characteristics of this
network has been its ability to operate behind a traditional economic
and financial network.
Furthermore, financial investigations determined that terrorists
did not need offshore centers simply because they had the ability and
the tools to deviate money from their recipient in order to finance
their operations in their own countries.
In that respect, the Zakat religious tax system imposed on each
transaction to
finance charitable Muslim needs, raises in its practical consequences,
the same nature of questions as does any offshore business by allowing
to deviate under no control large sums of money to suspicious entities.
Zakat is the most important source of financial support for the Al
Qaeda network, essentially because it is the most common and
unregulated way to raise donations in Saudi Arabia. Until recently, it
was also the most undocumented means to funnel money to these networks.
In several cases, money originating from Islamic banks and
charities in the Gulf was laundered through Western and specifically
United States, correspondents, whether banks or charities, before
reaching their recipients.
In that respect, most of the financial revenue of Al Qaeda is
raised through legal means.
The same applies to the Hawala alternative remittance system, at
least before September 11.
This informal system to transfer money has been regarded as a
primary tool for moving money and has been subsequently targeted by
counterterrorism financial institutions. However, the system, mostly in
use in Pakistan, India, the Gulf countries, and Southern Asia, is
essentially an ``end user'' tool for terrorists on the ground, in
remote areas, used to transfer money for operational purposes. It has
never been a primary tool or instrument for moving money, although this
instrument is believed to have regained importance after September 11,
with an extensive use in, for example, tribal areas of Pakistan and
Afghanistan.
Its importance in ``end-user dealings'' could be reduced by
facilitating cheap, fast remittances across international boundaries,
and by doing away with dual and parallel exchange markets, which are
always an incentive to keep transactions underground.
Another post-September 11 trend has been the extensive use of
couriers to funnel money.
Al Qaeda's main financial transactions are essentially organized
through three principal channels: the Islamic Banking system, business
transactions, and charities.
The Islamic Banking System
Beginning in the late 1970's, Saudi Arabia and other Gulf countries
created a banking system aimed at promoting and propagation (Dawa) of
Islam around the world.
In 1974, the OIC summit in Lahore voted to create the
intergovernmental Islamic Development Bank (IDB). Based in Jeddah, it
became the cornerstone of a new banking system inspired by religious
principles. In 1975, the Dubai Islamic Bank--the first modern,
nongovernmental Islamic bank--was opened. In 1979, Pakistan became the
first country to embark on full Islamization of its banking sector.
The creation of the Bank of Credit and Commerce International
(BCCI) in 1972, and its downfall in 1991, temporarily slowed the trend
of Islamic banking. The bank's main fraud scheme was to allocate large
loans without real guarantees, in return for investments in the bank's
capital, a practice known as ``loan back.'' This way, the main loan
beneficiaries were the shareholders themselves.
Saudi Islamic support was channeled through a complex banking
system that had at its center two entities created in the early 1980's:
Dar-Al-Maal Al Islami (DMI), founded in 1981 and chaired by Mohammed
Al-Faisal, and Dallah-Al-Baraka, founded in 1982.
Endowed with enormous funding ($1 billion in the case of DMI),
these institutions were rooted in both the Saudi Kingdom's desire to
spread its financial preeminence in the Arab world, and in its support
for the radical Islamic cause. Add to that the desire, already
perceptible during the inception of the BCCI, to create an
international financial network capable of sustaining the economic
vitality of the Arab countries in the eyes of large Western banks.
DMI, or ``The House of Islamic Money,'' is located in Switzerland.
It was created on July 29, 1981. Until October 1983, its president was
Ibrahim Kamel. He was replaced on October 17, 1983, by Prince Mohammad
Al Faisal Al Saud,. DMI is one of the central structures in Saudi
Arabia's financing of international Islam. Its main subsidiaries are
the Islamic Investment Company of the Gulf, the Faisal Islamic Bank of
Bahrain, and Faisal Finance. These high-level establishments enjoy
enormous power in the countries where they are settled, principally in
the Gulf and Sudan.
Functioning on an Islamic method, DMI adheres to the Zakat system.
After the transaction is made, the funds earmarked as Zakat disappear
and are off the books. Later, under no financial regulation, the money
may be used to fund radical Islamic groups.
Islamic banking institutions operate by participating in
investments, sharing profits on projects, and earning fees for services
performed.
One of the duties of Islamic banking institutions is to contribute
and manage Zakat funds.
Relying on Islamic banking, Osama bin Laden himself, in partnership
with several Saudi and Gulf Islamic banks, founded a banking
institution in Sudan, Al Shamal Islamic Bank, that provided funding for
terrorist operations, as confessed by several Al Qaeda members in 2001
during the United States African Embassy Bombing trial.
Several banks helped transfer funds to Al Qaeda through the Zakat
system, by direct donations or by knowingly providing means to raise or
transfer funds to the terrorist organization. Some of them even
controlled the Zakat funds beneficiaries, including charities that have
provided financial and logistical support to Al Qaeda.
Islamic banking facilities, instruments and tools have provided an
essential support to the Al Qaeda organization and operations.
The banking system, whether knowingly or not, have acted as an
instrument of terror, to raise, facilitate, and transfer money to
terrorist organizations.
Governed by Islamic Law (Sharia'a) that regulates commerce and
finance in the Fiqh Al Mua'malat, (transactions amongst people), modern
Islamic banks are overseen by a Shari'a Supervisory Board of Islamic
Banks and Institutions (The Shari'a Committee).
At the state level, the Saudi Arabian Monetary Authority (SAMA),
established in 1952, is the controlling body for the banking sector.
For that purpose, it can ask a bank for any information it deems
necessary and has the power to inspect accounts and records.
Since September 11, 2001, SAMA has addressed circulars to Saudi
banks to investigate the extent to which they may have assets belonging
to the individuals and entities that appear in the lists of those
suspected of having links to terrorism, and it has asked banks to
scrutinize accounts and audit all financial operations that affect
them.
Furthermore, SAMA instructed commercial banks to establish a Self-
Supervisory Committee to closely monitor and fight terrorism funding
and to coordinate all efforts to freeze the assets of the identified
individuals and entities. The Committee is composed of senior officers
from banks responsible for Risk Control, Audit, Money-Laundering Units,
Legal and Operations, and operates in the presence of SAMA officials.
The Saudi Government has also taken steps to combat money
laundering. This includes the establishment of anti-money laundering
units, with trained and dedicated specialized staff. These units work
with SAMA and law enforcement agencies.
Another institutional initiative is the creation of a specialized
Financial Intelligence Unit (FIU) in the Security and Drug Control
Department of the Ministry of Interior. This unit is specially tasked
with handling money-laundering cases.
Most of these bureaucratic measures, while creating the impression
that the Saudi Government is taking appropriate actions to counter
terrorist funding, have proved ineffective in countering networks that
can easily evade the controls.
Indeed, targeting money laundering turned to be ineffective, as the
practice refers to the cleaning of illegal gains from drug trafficking
and other criminal activities. In contrast, the funding of terrorism
involves using legitimate income to finance illegal activity, the
reverse process.
Similar doubts can also be raised as to the extent of the SAMA
willingness to effectively control these institutions, especially when
illegal practices involve the use of Zakat funds.
For example, it was only in 1999, after several months of fierce
international pressure, that SAMA directed an audit on the national
Commercial Bank (NCB), chaired at the time by Osama bin Laden's
brother-in-law, and one of his major financial supporters in the
Kingdom. After the audit revealed several millions of dollars were
diverted to terrorist organizations, its Chairman was finally replaced,
but remained until last year, along with his family, a major
shareholder of the bank with a controlling vote at its board of
directors.
Furthermore, documents made available to the September 11 families
clearly established that the NCB was still facilitating banking
transactions for terrorists after that date. The same applies to other
major banks of the Kingdom including Al-Rajhi Bank, Al-Baraka Bank,
Arab Bank, and the Saudi American Bank, which funneled money to or from
the Spanish Al Qaeda cell from 1996 until 2001.
Other banks, including Swiss-based DMI, as recently revealed by the
investigation of the families have funneled money to organizations
founded or used by terrorists, such as Al-Haramain Islamic Foundation
and Maktab ul Khedamat (Bureau of Services).
The confusion observed at the State level in Saudi Arabia between
religious aims and financial instruments has created over the years a
window of opportunities for fundamentalist organizations to consolidate
and expand their reach.
Penetration of the Business Sector
Al Qaeda is probably the most successful example of a terrorist
organization acting under the umbrella of business entities.
The organization succeeded in building a large array of banking and
corporate covers for its illegal activities in several countries.
The ability of the terrorist network to penetrate the business
sector has been a major factor for moving and receiving money through
legal instruments.
Operational cells of Al Qaeda have been able established umbrella
organizations, registered under local laws. Most of them are involved
in the construction, the real estate, and public building sectors. In
addition, many trade companies based in Saudi Arabia provided financial
support to create and run the local companies.
The legal statute of the establishment in Saudi Arabia offers soft
regulations, if any, in terms of accounting rules and legal
publications.
Two examples of the abuse of legitimate businesses illustrate the
ability of the terrorist organization: The first is given by the
network formed between 1983 and 1996 in Sudan, that crystallized for
several years the overall spectrum of facilities and tools at bin
Laden's disposal to carry out its fundamentalist goals, through banks,
companies, and charities. This network included the protection provided
by the state itself, a permanent factor in Al Qaeda's history that
explains its ability to remain an offensive organization.
When Osama bin Laden relocated to Sudan in 1991, he used its close
relations with the then controlling power of Islamic leader Hasan al-
Turabi, to set up several business ventures, to the extent of building
symbiotic relationships with Sudanese leaders of the National Islamic
Front (NIF).
In concert with NIF members, Osama bin Laden invested in several
large companies and banks, and undertook civil infrastructure
development projects.
The network of businesses controlled by Osama bin Laden included:
Al Shamal Islamic Bank, funded and controlled by wealthy Saudi
businessmen and bankers including Saleh Abdullah Kamel, Mohammed al-
Faisal or Adel Abdul Jalil Batterjee; an import-export firm; several
agricultural companies and a construction company settled in connection
with his Saudi family conglomerate to build roads and airport
facilities in Sudan.
These businesses enabled Osama bin Laden to offer safe haven and
employment to Al Qaeda members, to provide bank accounts to several
operatives, and to finance terrorist operations and facilities, mainly
training camps and arms buying.
Most notably, this network was able to carry out legal financial
transactions with Western banks and financial institutions, with the
guarantee of his prominent Saudi associates.
Beginning in 1996, several business associates of Al Qaeda
developed a money laundering scheme involving Saudi and Spanish
companies, to finance several Al Qaeda operational cells or supports in
Europe, Middle-East, and Asia, including preparatory operations for the
September 11 attacks on the United States.
Through several front companies described by Spanish judge Baltasar
Garzon as covers for Al Qaeda operations, Al Qaeda sponsors were able
to funnel more than $1 million from companies and individuals based in
Saudi Arabia to Germany and other Al Qaeda European cells between 1995
and 2001.
To date, this scheme represents the most direct uncovered link to
the September 11 attacks, regarding the operation's financing.
These companies, mainly involved in construction and real estate,
were convicted in arms trafficking, credit card fraud and false
documents (Credit card fraud and car smuggling). Along with illegal
activities, these entities provided financial assistance to Al Qaeda.
They made false financial statements and laundered more than $2.5
million in 5 years. That amount has not been recovered yet by the
investigators.
Several companies were used as umbrella organizations to facilitate
Al Qaeda operations in Europe through false contracts signed by a Saudi
company controlled by Muhammad Galeb Kalaje Zouaydi, European chief
financier for Al Qaeda, who created several corresponding companies in
Spain with several Al Qaeda militants.
To date, the Saudi company, Mushayt for Trading Establishment, is
still in activity and managed by several members of the Muslim
Brotherhood.
The economic network maintained regular incomes for the cells in
Europe or in the Middle East (Germany, Italy, Yemen, Syria, and Saudi
Arabia). In addition, these firms employed Ex-Fighters of Islam in
Chechnya or Bosnia and radical Muslims.
The network also maintained close relations with Al Qaeda members
and leaders in Europe, including hijacker Mohammed Atta, Said Bahaji,
and Ramzi Binalshibh, all related to Osama bin Laden.
Money was funneled to the Hamburg cell through the Saudi Al Rajhi
Bank to businessmen Mahmoud Darkazanli and Abdul Fattah Zammar who
provided the cell of hijackers with financial and logistical support.
The network of companies also facilitated in 1997 the preliminary
filming of the World Trade Center that was delivered to an Osama bin
Laden courier in Europe.
Ghasoub Al Abrash Ghalyoun (aka Abu Musab), a Spanish cell member
and business partner of Muhammad Zouaydi traveled to the United States
in August 1997 to film future targets of Al Qaeda, including the World
Trade Center.
In addition, Mushayt for Trading Establishment in Jeddah sheltered
and supported economically other international Muslim radicals,
including Nabil Nanakli Kosaibati Nabil, right-hand man of the Al Qaeda
Spanish cell leader, convicted for terrorist activities in Yemen on
behalf of Saudi intelligence services.
As Muhammad Zouaydi and most of the Al Qaeda Spanish members,
Kosaibati is a Spanish national of Syrian origin. He acknowledged
during his trial in 1997 that he was recruited and trained to use arms
and explosives by the Saudi intelligence. During his trial confession
he said that the Saudi intelligence ``sent him to Yemen in 1996 as an
active Saudi intelligence agent.''
He also acknowledged he received $150,000 from the Saudi
intelligence to kill the Yemeni Foreign Minister. Documents also
revealed that Kosaibati received $14,000 from Muhammad Zouaydi in 1996
and 1997 while living in Sanaa, Yemen on a monthly basis at the request
of a lieutenant of Osama bin Laden.
Moreover, Muhammad Zouaydi sustained Islamic charities known as Al
Qaeda logistical bases. For example, he sent $227,000 to Nabil Sayadi
in Belgium from his company Mushayt for Trading Establishment and
through the Saudi National Commercial Bank. Nabil Sayadi is leading the
Fondation Secours Mondial (Global Relief Foundation) in Belgium,
designated on the UN terror list since October 22, 2002.
The Spanish network has also been able to entertain business
relations at the highest level of the Saudi Kingdom.
In 1999, in his capacity of advisor-minister to King Fahd of Saudi
Arabia, Abdullah al Turki entered in negotiations to become business
partner of Muhammad Zouaydi, Al Qaeda financier for Europe, for a
construction project in Madrid, Spain, worth $ 2.3 million. Both agreed
to participate as business partners and a contract was written on
October 1, 1999 by Muhammad Zouaydi acting as representative of the
Spanish company Proyectos y Promociones ISO, stating that both parties
will finance 50 percent of the project and split the incomes 70/30
between Abdullah al Turki and Muhammad Zouaydi. As a guaranty for the
operation, Muhammad Zouaydi sent a check of $ 1.1 million on September
15, 1999 with Abdullah al Turki as beneficiary. Several documents
established that both men had business relations on a regular basis
until at least year 2000.
Abdullah al Turki is currently Secretary General of the Muslim
World League.
In the Al Qaeda European economic networks, Muhammad Zouaydi (Aka
Abu Talha) represents an illustration of the legal financial support.
Indeed, Zouaydi is Syrian born and Spanish national. He's graduated in
management, and passed years in Saudi Arabia as an accountant for the
Royal Family. He is also the brother-in-law of Mohamed Baiahah (Aka Abu
Khaled), known as a personal courier of Osama bin Laden in Europe.
Finally, he founded a trading company in Saudi Arabia, where he used
Waqf donations and false contracts to finance the activities of Al
Qaeda cells in Europe.
The Spanish scheme illustrates terrorism financing using donations
through a web of legally established companies transferring money
through the Islamic Banking System, namely al-Rajhi Bank, National
Commercial Bank, Faisal Islamic Bank, and Saudi American Bank.
Charities
Two hundred forty-one Saudi charity organizations are currently
operating in Saudi Arabia and abroad.
These organizations receive annually between $3 billion to $4
billion, of which between 10 percent and 20 percent is sent abroad.
Resulting from confused usage of religious tools, several charities
centered their efforts, not only on assisting needy around the world,
but also in supporting and participating in the political goals of the
few that viewed Islam as a way to combat Western influence.
Since September 11, Saudi Arabia has repeatedly stated that
charities were legitimate organizations.
Prince Sultan Bin Abdulaziz, Saudi Minister of Defense and an
important donor to several of these charities, recently stated that
they were ``legitimate and well-established Muslim charities.''
Such statements are overturned by an array of facts and evidence
made available by several countries for the investigation of the
September 11 families suggesting that most of these so-called charities
were at best fronts of terrorist organizations, if not terrorism
backbone, but in any case fictitious charities.
As far as a charity, whatever its initial purpose and the help it
is dedicating to the poor and needy, if it engages itself, willingly
and knowingly, through its management, members or facilities, in
providing substantial support to terrorism, this organization cannot be
viewed anymore as legitimate. Otherwise, under which criteria should a
donor be assured that the money raised by the organization won't
ultimately benefit a terrorist group?
Saudi charities are present at every stage of terrorism.
Saudi charities have provided terrorist organizations with the
essential ideological substrate. Most of these organizations have been
founded or inspired by radical religious or political leaders. The
Muslim World League was created in 1962 by former members of the
Egyptian Muslim Brotherhood. His current Secretary General, Abdullah al
Turki, is a former Minister of Religious Affairs of Saudi Arabia who
was a fellow of Sheikh Abdullah Azzam, Osama bin Laden spiritual mentor
who founded in the 1980's the Bait ul Ansar (Mujahideen Services
Bureau) in Peshawar, financed by Osama bin Laden and embryo of the Al
Qaeda terrorist organization. The International Islamic Relief
Organization (IIRO) was founded by Osama bin Laden brother-in-law.
Saudi charities have provided protection and facilities to Al Qaeda
members. This trend emerged years ago, since the very foundation of the
Al Qaeda network. In documents seized in Bosnia and Herzegovina in 2002
during searches of Benevolence International Foundation offices, and
obtained by the September 11 families, charities appear as part of Al
Qaeda, fully integrated in its organizational structure to the point of
creating a symbiotic relationship with it, acting as umbrellas, safe
houses, and military bases for Al Qaeda operatives.
The Saudi Red Crescent maintained passports for Al Qaeda operatives
to avoid searches and is referred to as an ``umbrella'' by Al Qaeda
operatives.
An official letter with the heading of the Muslim World League and
International Islamic Relief Organization suggest using the name of the
``league'' (the Muslim World League) as, ``an umbrella which you can
stay under.''
Saudi charities have provided arms and logistics to the Al Qaeda
network. A message on the letterhead of the Saudi Red Crescent bureau
in Peshawar requests that ``weapons'' be inventoried. The letter
contains a note from Osama bin Laden to its then director stating ``we
have an extreme need for weapons.''
In a letter from Benevolence International Foundation directed to
the World Assembly of Muslim Youth, BIF headquarters organizes the
collaboration with the Benevolence Islamic Committee along with WAMY to
provide military logistical support to Mujahideen efforts.
Saudi charities have provided military bases for Al Qaeda. In an
other letter seized in Bosnia-Herzegovina, the Muslim World League asks
for the opening of its bureaus ``for the Pakistanis,'' so the
``attacks'' will be launched from ``league'' (Muslim World League)
offices.
Saudi charities have provided military training for Al Qaeda
terrorists. From
several intelligence sources and documents collected around the world,
the investigation of the September 11 families has been able to
establish that several Saudi charities have funded at least 10
terrorist training camps in Afghanistan. The International Islamic
Relief Organization (IIRO) funded at least 6 training camps referred as
terrorist training camps by the U.S. Government, including the Darunta
camp, a facility used for chemical and biological weapons testing.
Saudi charities have provided an essential financial support to Al
Qaeda. Since the very beginning of Al Qaeda, Saudi charities have been
associated with the financial structures and procedures of the
organization. An internal document obtained by the September 11
families contains a list of goals for the organization, in which are
named organizations to be involved in securing money for Al Qaeda,
including Rabita Trust and Muslim World League.
Another internal document from BIF, includes a list of orders from
Osama bin Laden regarding the management of Islamic charities. At point
10 of this list, he urges the creation of a committee to receive
donations and maintain an account and the spending for Al Qaeda,
including: ``the Crescent (Saudi Red Crescent), the Rabita (the Muslim
World League) and the Relief agency.''
In a letter signed by Abdullah Azzam, spiritual mentor of Osama bin
Laden, it is mentioned that ``at the forefront'' of Islamic foundations
that contributed to the Jihad ``through financial support'' is the
Saudi Red Crescent.
Direct funding was revealed, for example, by former Al Qaeda
representative in Southern Asia Omar al Faruq confessions to the U.S.
authorities regarding Al Haramain Foundation. Al Faruq stated that ``Al
Haramain was the funding mechanism of all operations in Indonesia.
Money was laundered through the foundation by donors from the Middle
East.'' He also stated that the charity office was working under the
control of a representative of Osama bin Laden.
The lack of a transparent financial practice of Saudi charities was
notably established during controls of humanitarian organizations
conducted by the Bosnian Government. Documents made available by the
Bosnian Financial Police show that Al Haramain Islamic Foundation,
Benevolence International Foundation, Human Appeal International,
International Islamic Relief Organization Igasa, and the High Saudi
Committee for Help to BiH, ``mostly had cash without bank accounts and
proper documentation. A significant amount of money was transferred
through personal bank accounts of their employees, and there was no
documentation about the way of spending of that money.''
Al Haramain Al Masjid Al Aqsa, a sister organization of Al Haramain
in Bosnia-Herzegovina still active in the country, had transferred
money to Yassin Al Qadi, designated terrorist by the United States, and
Wael Julaidan, a Saudi businessman also a designated terrorist, had a
signature right over the account of the organization.
It is essentially the lack of internal regulation, along with the
Kingdom's inability and unwillingness to control the Islamic charities,
that enabled several of them to harbor, employ, or support
fundamentalists abroad, using or abusing their statute.
The Saudi Question
Saudi Arabia has become a major concern in the war against
terrorism financing, and more generally, in the war against terrorism,
as far as the Kingdom is still harboring essential and constitutional
elements of Al Qaeda: the ideological substrate, the human vector, and
the financial tools.
In June 2001, the late FBI Chief of Antiterrorism, John O'Neill,
told me that ``All the answers, all the keys enabling us to dismantle
bin Laden's network are in Saudi Arabia.'' Today, all of our leads and
much of the evidence collected by the September 11 families put Saudi
Arabia on the central axis of terror and shows that this government was
aware of the situation, was able to change the path of its
organizations, whether banks, businesses or charities, but voluntarily
failed to do so. Rather, the Saudi Government repeatedly claimed since
at least 1993 that the situation was under control while facilitating
the reach and involvement of the charities and the financial
institutions of the Kingdom, or inciting its citizens to support the
terror fronts when the highest ranking members of the royal family are
pouring tens of millions of dollars each year to Islamic charities
known for diverting money to Al Qaeda.
We have been able to establish that Saudi Arabia has been
repeatedly warned and informed on the extent of the support that the
Kingdom's charities were providing to extremist or terrorist groups,
but that it obviously failed to act upon this situation.
Saudi Arabia has been fully informed and warned by its United
States and European counterparts since at least 1994 that several major
charities sponsored by the Kingdom, if not most of its charities, have
been involved at various degrees, in supporting terrorism.
In November 1994, French Interior Minister Charles Pasqua
visited Saudi Arabia and met with several officials, including the
Saudi Minister of Interior Prince Naif, to express his deep concern
on the use of charities for other purposes, including funding of
terrorist organizations.
In 1996, a CIA report indicated that one third of the Islamic
charities were linked to terrorism.
In 1997, a joint security committee to share information on
terrorism was established with the United States involving the CIA,
the FBI, and the NSA.
In 1999 and 2000, several United States officials traveled to
Saudi Arabia to raise the same concern.
Despite clear warnings, Saudi Arabia's support to charities has
been continuous and extensive over the time, even after September 11.
Furthermore, most of the financial infrastructure is still in
place, from banks to charities, including front companies and wealthy
donors.
While officials of the United States Treasury Department claim
Saudi Arabia is the ``epicenter'' of terrorism financing, the Kingdom
has only frozen a ridiculous amount of terrorist funds.
According to the latest figures available, since September 11,
2001, Saudi Arabia has frozen 41 bank accounts belonging to 7
individuals for a total of $5,697,400, or 4 percent of the total amount
of terrorist-related funds frozen around the world.
The major issue regarding Saudi Arabia concerns its unwillingness
until a recent period, to face Islamic terrorism as a threat. ``We have
never worried about the effect of these organizations on our country,''
these are the words of Prince Bandar Bin Sultan in September 2001.
This stand, indeed, had nothing to do with a misconception on the
part of Saudi Arabia, it was part of a clear, calculated, and
determined policy, followed day-by-day by the highest level of the
security apparatus, applied by the business architecture and supported
by the rulers of the Kingdom.
The same Saudi official acknowledged that the Kingdom might have
paid the price of its own protection. This is a major revelation of our
investigation, substantiated by several testimonies, interviews, and
documents emanating from Osama bin Laden himself, members of the Saudi
governmental apparatus or foreign intelligence. It is believed that
since 1994, Saudi Arabia has funneled money to bin Laden for the
purpose of his jihad around the world to preserve the political power
of the Al-Saud family in the Kingdom. Prince Bandar refuses to call it
``protection money,'' and prefers the notion of, ``paying some people
to switch from being revolutionaries to be nice citizens,'' which is
leading to the very same consequence.
This trend also reverses a major argument of Saudi Arabia when it
claims to be the first target of Al Qaeda. Although bin Laden
criticized the Saudi regime in several instances after the first Gulf
war, the Kingdom never faced Al Qaeda terrorist threat before May 12 of
this year. Osama bin Laden has targeted western interests in the
Kingdom while surprisingly avoiding to hurt any symbol of the monarchy.
On the contrary, Al Qaeda served for years the very religious interests
of its godfather in disseminating the wahhabi ideology in various
regions of the world.
The truth is since the beginning of the war against terrorism
financing, Saudi Arabia has been misleading the world, and we are still
awaiting the Saudis to apply for themselves the very strong message of
their ruler, Crown Prince Abdallah, who, in August 2003 made it clear
that ``whoever harbors a terrorist is a terrorist like him, whoever
sympathize with a terrorist is a terrorist like him and those who
harbor and sympathize with terrorism will receive their just and
deterrent punishment.'' Saudi Arabia still maintains freely on its soil
thousands of individuals or
entities who provide financial support to the bin Laden network, and
the September 11 families are still waiting for them to be
investigated, sought, and prosecuted with the same determination as the
one applied to those who were carrying the guns and bombs they have
paid for.
The point has been reached where the only alternative is for the
Kingdom to show clear evidence of its willingness to terrorize the
terrorists, in other words, to dismantle the financial backbone of Al
Qaeda, or to face liability for its negligence in acting against the
terrorists and their associates. In that regard, the United States
Government or the U.S. Congress could take appropriate measures to
prevent unlawful actions from established banks, businesses or
individuals by considering designating Saudi Arabia as a state sponsor
of terrorism, if this state refuses to reverse its policy in three
major areas, which more and more appear as roots of terrorism:
Wahhabism, with a radical religious doctrine that calls for intolerance
and violence; charities, with organizations offering full-service to
terrorist organizations, including recruitment of operatives; and
finance, with banks, companies, and wealthy businessmen still able to
fund radical extremists.
The War Against Terrorism Financing
Until now, the war against terrorism financing has been mainly
focused on the end-users entities and individuals, primarily to prevent
further use of money for terrorist planning and operations.
While this objective is important, and has been successful in many
areas, I doubt it could stand as a longtime pattern to win the war
against the Al Qaeda network.
At the operational level, Al Qaeda and its affiliated organizations
have been more active since September 11 than in all the history of
this terrorist group since its creation in 1988, with more than 40
bombings claimed by this organization or attributed to its network
causing more than 1,000 deaths. Al Qaeda has been able to consolidate
and spread its forces through other organizations. On the financial
area, the efforts have mainly failed to assess and combat the roots of
Al Qaeda.
I see several major obstacles:
A legal obstacle, in the sense that law enforcement agencies
are confronted with an array of different criteria and regulations
to fight terrorism financing, while state cooperation depends on
political will.
A cultural obstacle. International cooperation is undermined
by the ``national approach'' culture of most law enforcement and
prosecution bodies around the world. Most of these agencies are
focusing their investigations and leads on national-based cells,
while avoiding to share information of interest for their
counterparts. In the course of our investigation and cooperation
process, we experienced various situations where, for example a
neighboring country was not aware of the involvement of an Al Qaeda
cell on its own territory in Europe. Due to our action, Australia
recently took actions against two Islamic leaders affiliated to the
Spanish Al Qaeda cell uncovered 1 year and a half ago.
An enforcement obstacle, as far as each state has its own
sanction system, and that no international body is to date vested
with a sanction mechanism to enforce decisions. During a recent
conference, a director of the Financial Action Task Force on Money
Laundering stated seriously that the highest sanction level in the
organization was for other members to dismiss the uncooperative
member-state.
Another obstacle I see is based on political and diplomatic
reasons to avoid addressing issues such as the sources of the
funds, because they might involve state interests.
The war against those networks will only succeed if there is a
clear intention from all the partners involved to disrupt the entire
chain of financing, including above all its sources. We can dismantle
all the fronts, all the intermediaries and all the channels of
terrorism funding; it won't be enough to disrupt its financing as far
as we do not cut the roots of it. Otherwise, they will find other ways
and means as it is already the case through couriers or alternative
systems, for the money to reach the terrorists.
I think time has come to raise these fundamental questions about
the war against terrorism financing and its finality.
It is time to go after the shareholders of the Al Qaeda terrorist
organization. Several examples are demonstrating that this war has been
selective, if not discriminate in avoiding to address its roots.
The Muwafaq Ltd. was incorporated in the Isle of Man in 1991. The
same year, Muwafaq Foundation (also known as Blessed Relief) settled in
Sudan with Yasin Al-Qadi acting as chairperson. Abdulrahman Bin
Mahfouz, son of Khalid Bin Mahfouz, became trustee of Muwafaq
Foundation while serving as member of the board and Vice Chairman of
the Executive Management Committee of the Saudi National Commercial
Bank. Abdulrahman Bin Mahfouz later acknowledged in an interview that
Muwafaq Foundation was the ``brainchild'' of his father, ``who funded
it with as much as $30 million.'' Yasin Al-Qadi has been designated as
Specially Designated Global Terrorist by the United States on October
12, 2001 and a U.S. Treasury Department statement added that ``Muwafaq
is an Al Qaeda front that receives funding from wealthy Saudi
businessmen'' (. . .) ``Saudi businessmen have been transferring
millions of dollars to bin Laden through Blessed Relief.'' Khalid Bin
Mahfouz acknowledged himself that he was ``the principal donor'' and
founder of the foundation. Yet, he is still at large.
Another example is provided by the Al Aqsa Islamic Bank, based in
Palestine. On December 4, 2001, within the framework of the fight
against the financial networks of terrorism, the United States
announced the freezing of assets of several charities in the United
States and two Palestinian financial companies believed to be support
structures for the Hamas terrorist movement. One among these, the
banking institution Al Aqsa Islamic Bank, was described as the
``financial branch of Hamas'' by the American authorities.
Yet, the financial sources and shareholders of the bank were not
designated. The bank was established with $20 million in capital by
several prominent financial groups or institutions, notably the Jordan
Islamic Bank and the Saudi Dallah al Baraka Group. The Jordan Islamic
Bank is the property of the Dallah al Baraka Group, led by Saleh
Abdallah Kamel, shareholder of the same bank Osama bin Laden funded in
Sudan via local trustees and companies.
Jordan Islamic Bank, a Dallah al-Baraka subsidiary, owns 14 percent
of Al-Aqsa, according to al-Aqsa's acting general manager. In a
statement, Saleh Abdullah Kamel acknowledged that Dallah al-Baraka owns
another 12 percent directly.
Up until now, no financial measure has been taken against the
assets of this Saudi shareholder, reducing the reach of the war against
terrorism financing, as far as the financial sources usually use
complex and multiple channels of investment.
The war against terrorism financing implies multiple cooperation
processes, whether public or private, and relies on a strong commitment
to a same and single objective from multiple partners.
To achieve this goal and extend the reach of current
investigations, several measures could be taken at the national and
international level:
Implement preventive actions to preserve the financial
institutions. The war against terrorism financing has implied
increased obligations for banking and financial institutions. Most
of these institutions are determined to enforce these regulations.
They strongly believe that facilitating terrorism-related
transactions would have an impact on their reputation and could
cost legal actions and financial risks for their own assets. Their
most pressing obligation is to be able to identify and check their
transactions. This could only be achieved if governments
provide enough information, not only on designated entities, but
also on suspected entities. In that regard, measures such as
preventive freezing of assets of suspected entities or individuals
could provide time to fully investigate and enforce sanction
measures, while preserving the banking institutions. Secrecy in
this field increases risks and uncertainty.
Ease designation criteria. International investigations have
identified several key institutions or individuals as cornerstones
in terrorism financing, while no specific public action has been
taken against them. Easing the designation criteria or implementing
specific regulations to such cases could help secure future
freezing of assets.
Promote international bodies. Our experience in the field
shows that the most
important task of the U.S. Government is to promote international
cooperation, mutual understanding and common tools to fight this
form of transnational terrorism. Most countries in the world are
uninformed or not knowledgeable enough to really fight these
networks. The implementation of an international information-
sharing body is a pressing demand of several important partners of
the United States in the war against terrorism. The effort carried
out for the September 11 families is also, on a day-to-day basis,
to share information with states around the world, that turn to us
for that purpose. Our independent and legitimate effort provides a
basis for cooperation, whether with states or international
organizations. I can announce today that as part of that effort, we
will implement in the future months a global organization, in
coordination with several states and international organizations,
for the purpose of information-sharing in a secure basis. We
strongly feel such an initiative is an imperative for the war
against terrorism, the international security, the prosecution of
those who funneled money to terrorists, and finally for the
families who have a right to know and understand.
I will leave my last words to Matthew Sellitto, who lost his son on
September 11, 2001. He, more than I can, synthesized our common goal
against terrorism financing: ``I will see my son again some day and I
truly believe he'll ask, `Dad, when they murdered me, what did you do
to find out who murdered me?' Well, I can tell him, look him right in
the eye and say I did everything I can . . . to find out who murdered
my son, why they murdered my son, who gave them the money to murder my
son.''
COUNTERTERROR INITIATIVES AND
CONCERNS IN THE TERROR FINANCE PROGRAM
----------
THURSDAY, APRIL 29, 2004
U.S. Senate,
Committee on Banking, Housing and Urban Affairs,
Washington, DC.
The Committee met at 10:05 a.m., in room SD-538, Dirksen
Senate Office Building, Senator Richard C. Shelby (Chairman of
the Committee) presiding.
OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY
Chairman Shelby. Good morning. The hearing will come to
order, and thank you for coming today.
This is the third in our continuing comprehensive review of
the Nation's ability to identify and track financial
transactions and other support which fuel terror organizations
and their operations. Over the course of this review, the
Banking Committee has heard from present and former officials
of the Treasury, the National Security Council, the Department
of State, and the Federal Bureau of Investigation. We have also
heard from experts who have studied terror groups and their
funding. This testimony serves as a foundation for the more
difficult work ahead. Today's hearing, I believe, will
exemplify what could be the best of what our Government offers
the people of this country--the dedication and hard work of
those charged with the responsibility to identify, track,
disrupt, and dismantle terrorist organizations that threaten
our way of life.
Make no mistake, the men and women represented by their
leaders, our panelists today, are executing their duties with
the skill and ingenuity we have come to expect. I am proud of
the accomplishments of the men and women of the Financial
Crimes Enforcement Network, FinCEN, the Office of Foreign
Assets Control, OFAC, and the Internal Revenue Service Criminal
Investigation Division, IRS-CID, as well as those in the
Department of the Treasury. These dedicated civil servants
remain focused on the important and complex task of finding,
following, and fracturing financial flows of money and support
that support terror.
Today's hearing is not about their work. Today's hearing is
about leadership. It is about harnessing the considerable power
of these dedicated men and women I have spoken of. It is about
Treasury's leadership focusing the efforts of these men and
women so that our citizens can trust that our financial systems
will not be violated by illicit funds. It is about charting the
way ahead and organizing the Treasury's vast but not limitless
resources to win that trust from the American people. The
choices that Treasury leaders make, guided by a comprehensive
vision and supporting goals, will make all the difference, I
believe, in this effort.
The swift implementation of the USA PATRIOT Act
demonstrated committed actions fueled by the passions aroused
when this Nation seeks to protect the very foundation of its
principles, life, liberty, and the pursuit of happiness.
In this post-September 11 world, though we might suffer the
vulnerability of complacency, this Congress and this Committee
I believe acted swiftly. Aware of shortcomings in the area of
Treasury's ability to fully use its unique expertise by
analyzing all relevant information, regardless of its
classification, we provided Treasury with a new office and
leader, an Assistant Secretary for Intelligence and Analysis,
in November 2003.
That same month Senator Sarbanes and I provided a framework
for the exercise of leadership in an agreement with Secretary
Snow, formalized in an exchange of letters. We have with us
today Deputy Secretary Bodman, at his Treasury post since 2004.
Today, we want to hear about the future. We want to hear, in
concrete terms, Mr. Secretary, how you will lead Treasury's
dedicated human resources, in the difficult task of adapting to
an ever-changing threat.
You have been a leader who has led the rise of large
companies. You studied the rise and fall of many more, big and
small. I am sure you agree with the wisdom of a past CEO of
AT&T when he said: ``When the pace of change outside an
organization becomes greater than the pace of change inside the
organization, the end is near.''
Please tell us, if you could, with as much specificity as
you can, how you will make Treasury's pace of change meet and
exceed the deadly pace of terror organizations that have
already demonstrated a resiliency and adaptability that exceeds
any threat to our national security faced in the past.
Senator Sarbanes.
STATEMENT OF SENATOR PAUL S. SARBANES
Senator Sarbanes. Thank you very much, Mr. Chairman.
I want to commend you for moving ahead with this series of
hearings. I strongly share your commitment to monitoring the
Government's efforts to deal with the financing of terrorism. I
also want to join you in welcoming the Deputy Secretary, who
comes before the Committee for the first time.
This Committee bears a significant oversight responsibility
for the subject matter of today's hearing. We are responsible
for both the Bank Secrecy Act and the Nation's economic
sanctions legislation, as well as for the Nation's financial
services laws more generally. This Committee reported a money
laundering and antiterrorist financing bill, which then became
a large part of Title III of the USA PATRIOT Act, less than a
month after the September 11 tragedy.
The threat of terrorism remains very real. If anything,
they are probably becoming more difficult to intercept. The New
York Times reported not too long ago that, ``[t]he landscape of
the terrorist threat has shifted, many intelligence officials
around the world say, with more than a dozen regional groups,
showing signs of growing strength and broader ambitions, even
as the operational power of Al Qaeda appears diminished.''
This makes the use of financial information potentially
more difficult to put together, but potentially much more
valuable if, in fact, we are successful in putting it together.
Today, we begin the hard work of determining where various
responsible agencies are in efforts to analyze, share, and use
relevant information to the greatest effect. It is appropriate
that we begin with the Department of the Treasury.
The Treasury Department was designated as a lead agency to
deal with terrorist financing after September 11. At that time
the Department of the Treasury possessed more than 30,000
enforcement personnel which are no longer at the Treasury. Part
have gone off to the Department of Homeland Security, part to
the Department of Justice. While Treasury continues to have
responsibility for the economic sanctions programs and the Bank
Secrecy Act, many are raising questions about whether it
possesses, or is seeking, the resources necessary to manage and
effectively carry out those programs. So we need a realistic
assessment of Treasury's capabilities, its problems, and its
future plans in this area.
Mr. Chairman, as you will recall, during the course of last
week's hearings on the condition of the banking system, I
expressed concern that the Nation's bank regulators were not
giving a sufficient priority to enforcement of the rules
designed to prevent money laundering and terror financing.
I am concerned why it has taken so long to expose some of
the problems which have appeared now in the daily press and we
are quite concerned about what other money laundering problems
may be lurking in the system that our regulators have failed to
detect.
Coming back to the issue of the importance of Treasury
meeting its lead responsibilities in this area. My concern is
that there is a mismatch now with the movement of this
investigative and enforcement personnel out of Treasury and
into the other departments, with respect to Treasury's capacity
to carry out its responsibilities.
Thank you very much.
Chairman Shelby. Senator Bennett.
COMMENTS OF SENATOR ROBERT F. BENNETT
Senator Bennett. Thank you, Mr. Chairman.
The war on terror is primarily an intelligence war, and we
traditionally think of the CIA, NSA, and other intelligence
agencies as they look for the bad guys, trying to figure out
where they are hiding and where we can apply military power or
law enforcement in the form of arrests and so on. But the
intelligence challenge to follow the money is equally as
daunting as it is important. So, I commend you for this series
of hearings on this issue and look forward to what Secretary
Bodman might be able to tell us with respect to how we are
doing in disrupting the money flow and what kind of
intelligence network we have in place that can work on that.
Thank you very much.
Chairman Shelby. Senator Dole.
COMMENTS OF SENATOR ELIZABETH DOLE
Senator Dole. Mr. Chairman, I thank you for holding this
hearing today on such a timely subject. I just want to welcome
all of the witnesses today and thank them for coming. I am sure
we will benefit from their knowledge.
Thank you.
Chairman Shelby. Senator Allard.
COMMENTS OF SENATOR WAYNE ALLARD
Senator Allard. Thank you, Mr. Chairman, for holding the
hearing, and look forward to hearing from the witnesses.
We have had a couple of hearings already on this. We had
them last fall. Looking forward to hearing what the comments
are today, and carefully reviewing how we are doing.
We had a new Deputy Secretary I think that was created for
that position, and seeing how things are going with that
position.
So, Mr. Chairman, I just look forward to the hearing. Thank
you for holding it.
Chairman Shelby. Secretary Bodman, welcome to the
Committee. Your written testimony, which we have reviewed, will
be made part of the record in its entirety. You proceed as you
wish.
STATEMENT OF SAMUEL W. BODMAN
DEPUTY SECRETARY, U.S. DEPARTMENT OF THE TREASURY
Mr. Bodman. Thank you very much, Chairman Shelby, Senator
Sarbanes, and distinguished Senators.
I am very pleased to be here to testify on behalf of
Treasury, and with particular note as to its role in the
international war against terrorist financing and financial
crimes.
Ever since September 11, 2001, all of us have been made
acutely aware that dirty money, tainted financial flows, can
corrupt our financial system, as the Chairman has already
alluded to. It can also threaten lives and incite economic and
political instability around the world.
President Bush has said that we are engaged in a global war
against terrorism that must be fought simultaneously on a
number of fronts and with unwavering determination.
I have been at the Treasury for about 2 months, having
arrived in mid-February, and it is already in that short period
of time clear to me that the people of this Department are well
positioned to continue to make a significant and an important
contribution to this challenge.
We have broad authorities. We have expertise in the
financial area, and as importantly as these things, we have a
cadre, as the Chairman has already mentioned, of very dedicated
and diligent individuals, some of whom are here with me and
will be on the subsequent panel, and I want you to know that I
am very proud to be here representing them and their people for
the fine work that they have done. They, along with countless
others in the U.S. Government, are fighting the financial war
on terror and are working to protect the integrity of our
financial system.
I have submitted written testimony, as has been mentioned,
and that written testimony focuses much attention on the very
significant efforts of the Treasury Department and the work
that these people have done over the last year. As I understand
it coming here today, however, the Members of this Committee
are particularly interested in not so much the past but the
future, and hearing about the establishment of the new Office
of Terrorism and Financial Intelligence. So, I will focus my
oral comments on that subject.
We have a very real and concrete set of successes in
fighting this war, but as the recent bombings in Madrid and
Riyadh have demonstrated, our work must continue at full force.
Our enemies are resourceful, dedicated, and they continually
adapt to a changing environment. We must do the same. We must
change even more rapidly, as the Chairman has suggested, and we
must use every tool at our disposal.
We also recognize, unfortunately, that we are in this fight
for the long-term, and so the Department must be organized to
reflect that reality. This is precisely why the Administration
has cooperated with Congress to develop a new Treasury
structure, and for us anyway, a very high-profile office led by
an Under Secretary, one of only three in the Department. That
is assuming this gentleman is confirmed by the Senate. He will
be joined by two Assistant Secretaries. This office will bring
together Treasury's intelligence, regulatory, law enforcement,
sanctions, and policy components all in one place.
I want to note at the outset the important contributions
made by the Chairman and the Ranking Member of this Committee
which resulted in an exchange of letters with Secretary Snow
that was alluded to at the end of last year, and I also want to
thank Congress for establishing this new Assistant Secretary
for Intelligence position. As you will hear momentarily, I
believe this will be a very important part of this program.
On March 8, 2004, Treasury formally announced the creation
of the Office of Terrorism and Financial Intelligence, so-
called TFI. On March 10, the President announced that he would
nominate Stuart Levey, who is currently the Principal Associate
Deputy Assistant Attorney General, and Stuart has been
nominated for the Under Secretary, for the leadership position
of this Department. The President also nominated Juan Zarate,
currently a Deputy Assistant Secretary at Treasury, for one of
the two Assistant Secretary positions. Their nominations have
been transmitted to the Senate.
I can tell you on a personal level, both Secretary Snow and
I can express to you the utmost confidence in these
individuals, in their ability, their dedication, and integrity.
We believe that they will be the kind of people you will be
proud to work with.
We are working diligently to identify the most qualified
individual to serve as the Assistant Secretary for
Intelligence. We have not yet found the right person, at least
in a formal way. We are still conducting interviews at a
regular level. In the meantime, however, we have appointed a
very capable Deputy Assistant Secretary in order to get this
office up and running.
The creation of TFI will augment Treasury's efforts in
several ways. First, it will allow us to better develop and
target our intelligence analysis and financial data to detect
how terrorists are exploiting the financial system and to
design methods to stop them. Second, it will allow us to better
coordinate an aggressive enforcement program, including the use
of important new tools that the USA PATRIOT Act gave to
Treasury. Third, it will help strengthen our international
coalition and intensify outreach to our counterparts in other
countries. Fourth, it will ensure accountability and help
achieve results for this essential mission.
TFI will have two major components. One Assistant Secretary
will lead the Office of Terrorist Financing. This office will
build on the functions that have been under way over the past
year. In essence, this will be policy and outreach apparatus
for the Treasury Department on the issues of terrorist
financing, money laundering, financial crime, and sanctions
issues. This office will help lead and integrate the important
functions which have been carried out very ably by both OFAC
and FinCEN. If you will, this will be the operating part of
this office.
The office will continue to assist in developing,
organizing, and implementing U.S. Government strategies to
combat these issues of concern, both internationally and
domestically. It will require increased coordination with other
elements of the U.S. Government including law enforcement and
regulatory agencies. The office will continue to represent the
United States at international bodies dedicated to fighting
terrorist financing and financial crime such as the Financial
Action Task Force, and will increase our multilateral and
bilateral efforts in this field. They will this office to
create global solutions to these evolving international
problems. In this regard, we will have a more vigorous role in
the implementation of measures that can affect the behavior of
rogue actors abroad.
Domestically, this office will be charged with continuing
to develop and implement money laundering strategies, as well
as other policies and programs to fight financial crimes. It
will continue to develop and help implement policies and
regulations in support of the Bank Secrecy Act and the USA
PATRIOT Act. We will further increase our interaction with
Federal law enforcement and continue to work closely with
criminal investigators at the IRS, including integration of
their lead development centers. In doing so we will deal with
emerging domestic and international financial crimes of
concern. Finally, this office will serve as a primary outreach
body to the private sector and other stakeholders to ensure
that we are maximizing the effectiveness of our efforts.
A second Assistant Secretary will lead the Office of
Intelligence and Analysis. In determining the structure of OIA,
as we are now calling it, we first focused on meeting our
urgent short-term needs. We have assembled a team of analysts
to closely monitor and review current intelligence threat
reporting. These analysts, who are sitting together in secure
space in the main Treasury building, are ensuring that Treasury
can track terrorist financial flows or other threats, and then
see to it that appropriate action is taken to counter those
threats.
In the near-term, the Department plans to further develop
our analytical capability in untapped areas such as strategic
targeting of terrorist financial networks. We also plan to
analyze trends and patterns and nontraditional targets such a
hawalas and couriers. In order to accomplish these goals, we
plan to hire several new analysts as well as to draw on
additional resources from OFAC and FinCEN. In addition,
enhancing our working relationships with other agencies will be
a key job for the new Assistant Secretary.
Overall, it is critical that this new office focus on
filling any gaps in intelligence targets and on adding value
and expertise, not on duplicating the efforts of other Federal
agencies. We should continue to, among other things, identify
and attack the financial infrastructure of terrorist groups. We
should identify and address vulnerabilities in domestic and
international financial systems and promote stronger
partnerships with the private sector and other governments by
sharing more complete and timely information.
We are currently confronting the question of staffing and
funding for TFI. As Secretary Snow wrote in an April 16 letter
to the Members of Congress, President Bush has proposed
significant spending increases in this area in his fiscal year
2005 budget. The Secretary also stated that the Department
would use currently appropriated fiscal year 2004 resources to
ensure that TFI has the necessary resources to staff the new
offices and bolster existing functions.
Regarding 2004 specifically, we believe that through a
combination of prudent and targeted use of resources, Treasury
will spend up to an additional $2 million and bring on board up
to 15 new personnel during the balance of this current fiscal
year.
Looking forward to next year, we have not yet made firm
decisions about the budget for the new office. We will evaluate
our needs and we are prepared to make the hard decisions on how
to allocate our limited resources from other parts of the
Department as those are required in this very important task.
Fighting the war on terror is a top priority for this
President and this Department, and we will spend whatever we
need to carry out our duties in a responsible manner.
Throughout this process we will continue to seek the input and
advice from Congress and from this Committee.
I thank you, Mr. Chairman, for the opportunity to be here.
I look forward to your comments and questions. I see this
hearing as a continuation of an ongoing dialogue with this
Committee, and I appreciate being here.
Thank you so very much.
Chairman Shelby. Thank you, Mr. Secretary.
Mr. Secretary, as your statement points out, the Department
of the Treasury has, by virtue of its history and its
expertise, a central role in investigating terrorist finance
issues. The establishment of the new positions of Under
Secretary for Enforcement, Assistant Secretary for Intelligence
and Analysis, and Assistant Secretary for Terrorist Financing
and Financial Crimes, will presumably further bolster or cement
that role.
However, there is a little confusion regarding the broader
U.S. Government structure for identifying, tracking, and
seizing funds destined for terrorist organizations. In May
2003, about a year ago, the Attorney General of the United
States and the Secretary of Homeland Security concluded a
memorandum of understanding that designated the FBI as the
Nation's lead agency responsible for investigating terrorist
financing. Obviously, absent from the signature blocks on that
memorandum is a representative from the Department of the
Treasury.
Could you tell the Committee how the Department of Treasury
views the broader U.S. Government structure for investigating
terrorist financing, and fully aware of the FBI-led Joint
Terrorism Task Force, which ostensibly brings together all
relevant Federal agencies, but I am not confident that a key
player, the Department you represent, is well integrated into
that broader structure as it should be, and I am far from
comfortable with the memorandum of understanding purportedly
designating a lead agency without the concurrence of your
agency that above all possesses the skills and the personnel
that is crucial to our overall effort.
Could you respond to that observation?
Mr. Bodman. Yes, sir.
Chairman Shelby. Where were you all on that memorandum of
understanding?
Mr. Bodman. I cannot speak to the memorandum of
understanding, sir.
Chairman Shelby. You were not there.
Mr. Bodman. I was not there, but I can tell you that this
Department and the people of the Department are quite
comfortable with their relationship with the FBI.
Chairman Shelby. There is a difference between being
comfortable and being at the table, is there not?
Mr. Bodman. Yes, sir. We are at the table, sir, in the
following sense. We view the FBI as having the lead in the
Government, we do not quibble with it, with respect to the
enforcement of terrorist finance activities. We are comfortable
with that. We work very closely with them. Particularly, you
will hear from Ms. Jardini later on in the second panel, that
the IRS has had for some years a memorandum of understanding of
working with the FBI. We work with them in a series of task
forces, terrorist task forces, joint terrorist task forces, one
in each U.S. Attorney's Office throughout the United States. We
have also had similar relationships of working with the FBI
specifically in Saudi Arabia, on working with issues related to
the Saudis' response to September 11 and to the terrorist
crimes that are reflected therein.
This is an example, Mr. Chairman, of the approach that we
have taken, which is to seek to leverage to put the requisite
organization in place within Treasury to take advantage of the
unique skills and knowledge of Treasury in the financial area.
That is really what this Department is all about, finance and
financial matters, and to leverage the relationship both within
the Department, which is within the IRS and Criminal
Investigation Unit as well as outside, whether it is with the
intelligence community, with the CIA, with the FBI, and with
others, we believe we will be successful in the future in
addressing the very problems you described at the opening of
this hearing.
Chairman Shelby. Mr. Secretary, your statement that has
been made part of the record, indicates, ``Treasury has not
made any final decisions regarding the staffing of the
Intelligence Office.'' I have a number of little questions
here.
Is the establishment and operational status of the new
office a high priority at Treasury? Is this statement limited
to the Office of Intelligence and Analysis only? And if not,
what are the decisions regarding the other offices? There is no
request in the fiscal year 2005 budget. Why? Is an initiative
really an initiative if there is no plan for allocation of
resources and no request for resources? How can we view this as
something other than a ruse?
It is troubling to me because on the Appropriations
Committee I sit as Chairman of the Appropriations over
Treasury.
Mr. Bodman. I am aware of that, sir.
Chairman Shelby. We have reviewed the 2005 and we see no
request there.
Mr. Bodman. First, I appreciate the directness of your
question, and if I may, will be equally direct in my answer.
Chairman Shelby. Yes, sir.
Mr. Bodman. As you are aware, I arrived on the scene in
February, and on my arrival the Secretary asked me to give
attention, priority in my attention to two areas. First was the
setting up and operation of this office, the Office of
Terrorist Financing. Second is the IRS. And I have, over the
last 2 months, devoted not all of my time, because I have
responsibilities for the entire Department and all of the
bureaus that are attached thereto, which are significant in
number, but I have given priority time. So it is a matter that
I consider front and center, and that is why I am the one here
speaking to you today about this. This is a matter that I pay a
lot of attention to. I do have some record of accomplishment
prior to my arrival here, some record at the Commerce
Department, which I believe is why I was asked to come over to
the Treasury, which was lacking some leadership.
Chairman Shelby. But, sir, is this a real priority is my
real question, and if not, why not?
Mr. Bodman. Sir, I am telling you that they were the two
priorities that the Secretary asked me to do the first time I
met him, and so that is comment one.
Comment two, it is in my statement that the funding for
this office has not been determined yet. That is a true
statement. There are tough decisions to make with respect to
what we will need to do internally and what budgetary support
we will need to ask this Committee for, as we are working on
the 2006 budget, for example, and I would like to have the
people who are going to be responsible for managing this make
those decisions, and Mr. Levey, Mr. Zarate, both of whom have
been nominated, I am hopeful will be here on deck I hope with
the support of the Members of this Committee to be confirmed
within the next month. I am hopeful that will be the case, and
that I will have the advantage of having the operating
personnel, who are knowledgeable and expert in this field, make
recommendations as to what they will need.
I have made, and the Secretary, I must say, was the first
to make the observation. I looked at it and I agreed with him,
that the Department and the leadership of the Department is the
recipient of a flow of information that comes from the
intelligence community that describes to us various events,
various things that are occurring in the world. We have
observed that there was not a link that will develop a
foolproof certainty that specific issues that flow from that
information are followed up on, either inside the Department or
outside the Department. So the first assignment of this
Intelligence Office is to get on top of that flow of
information and see to it that any specific issues is followed
up on because of the urgency that you have already described.
So we have done that. That is the first step. That it seemed to
me needed to be done irrespective of other issues.
The next issue that will be faced by the leadership of this
organization, and I mean leaderships because there is more than
one person involved in it, and I will certainly have a voice
in, is to make judgments as to how do we properly integrate
this intelligence activity, this new Intelligence Office with
intelligence activities that are already under way, that are
already a part of FinCEN, that are a part of OFAC, that are a
part of the Executive Office of Terrorist Finance. Each of them
have resources, have people who are very skilled. The idea is
to find a way to integrate those.
Chairman Shelby. Can you do that job? You should be able to
do the job.
Mr. Bodman. Yes, sir. I believe we can do that job, but
rather than having the Deputy make the judgment as to how we
are going to do the job, I want to hold those who will be in
position so that I can hold them accountable. I would rather
not create an organization, bring them in, put them in charge
of it. My experience in these matters in the past is that one
is better off, especially if I am going to have leadership here
available in the next month or so. So that has been the
attitude. That is why some of these judgments have not been
made.
Chairman Shelby. Mr. Secretary, I cannot assure you, but I
can tell you there would be strong support, strong, strong
support in the Appropriations Committee to fund the activities
where we are dealing with terrorist financing because this is
central to this fight.
Mr. Bodman. Thank you, sir. I appreciate that.
Chairman Shelby. Is it going to be one of your top
priorities?
Mr. Bodman. Yes, sir. I try to just express, sir, that it
is.
Chairman Shelby. Senator Sarbanes.
Senator Sarbanes. Thank you, Mr. Chairman.
Mr. Secretary, I want to follow along a path the Chairman
touched on right at the beginning. Last Tuesday, Secretary Snow
told the Appropriations Subcommittee that Treasury clearly has
the lead to deal with activities that involve penetrating the
financial system by terror financing and financial crime.
However, you have lost tens of thousands of enforcement
personnel since you were originally designated as the lead
agency in the fight against terror financing.
Secretary Ridge's website states that safeguarding the
integrity of America's financial systems is a key part of
Homeland Security. The Bureau of Immigration and Customs
Enforcement, ICE, of the Department of Homeland Security, has
undertaken an Operation Cornerstone, to prosecute and prevent
money laundering. The FBI has been given control over
investigations of terrorist financing in an agreement in which
Treasury was not even mentioned. The Chairman referred to that.
The FBI has created a special Terror Financing Operations
Section, TFOS, which appears largely to duplicate the work of
Treasury's FinCEN and OFAC offices. The CIA maintains its own
Counterterrorist Asset Tracking Center.
I have difficulty in seeing how Treasury is maintaining its
lead on these issues. Who is the accountable person for efforts
to use financial information to identify, disrupt the money
flows of terrorist operations, and seize their funds? Is there
an accountable person?
Mr. Bodman. Yes, sir, I am.
Senator Sarbanes. You are the accountable person.
Mr. Bodman. Yes, sir.
Senator Sarbanes. So that if there is another terrorist
event and we discover there was financial information that
might have provided clues ahead of time, that is to come on
your doorstep?
Mr. Bodman. Yes, sir.
Senator Sarbanes. But you are not doing the investigating.
I mean, as I understand it, you are sitting up here, and all
the people below who would in effect be charged with doing
these responsibilities are off somewhere else. Is that not
correct?
Mr. Bodman. No, that is not correct, sir. If I may try to
respond?
Senator Sarbanes. Yes.
Mr. Bodman. You have identified other organizations, and
let me just go back to the beginning. I see relatively little
overlap with anything that is taking place at the Office of
Homeland Security. I cannot speak to their website. I have not
looked at that. I will attempt to look at that. I have alluded
to our views vis-a-vis the FBI. I do not believe there is a
problem with respect to our relationships with the FBI. I
believe you will find that they have a high regard for the men
and women who are undertaking the exact type of work that you
describe. It has heretofore been undertaken by FinCEN, by OFAC,
and, in the last year, by the Executive Office of Terrorist
Financing, FinCEN having a responsibility for basically
communication, assembling data, both publicly available data,
as well as information coming from suspicious activity reports
that are generated under the Bank Secrecy Act and the
requirements thereof. That source of information is, in my
view, unparalleled and it is not replicated elsewhere in the
Government.
For its part, OFAC has primary responsibility for managing
the various sanctions programs of this Government. They have a
significant number of people working on terrorist financing
activities. I have been there. I have visited with them. I have
seen the results of their work, and this Committee will hear
from Mr. Newcomb and his colleagues later on I presume this
afternoon.
The Executive Office of Terrorist Finance focuses its
efforts in relations with our international colleagues. They
provided leadership for the Financial Action Task Force, which
has--this is a group of 33 countries--through this task force
and its staff, the goal of advising and ensuring that
legislative and regulatory environments of other countries are
at a level that they can detect and work toward the
interdiction of financial flows of terrorist networks.
Senator Sarbanes. Let me draw you back to focusing on the
structure within our Government. There are those who, in a
sense, said to our Committee or to some of us, that one of the
greatest efficiencies in the antiterrorist financing effort is
a failure to create a single financial information fusion
center. We know from the September 11 Commission hearings and
staff statements the need to break down barriers to joint
analysis and sharing of information by working level experts,
and between those experts and the policymakers. When I
enumerated these various operations here, it seems to we are
running the risk of recreating the stovepiping problem that has
hampered antiterrorism efforts in the past, and of course the
fusion center would be an effort to try to overcome that. I am
interested in your views of such a fusion center for financial
information.
Let me just note that last September, Treasury General
Counsel David Aufhauser told this Committee, ``Shortly after
the attacks of September 11, the National Security Council
established a Policy Coordinating Committee on terrorist
financing, the PCC, to examine what the world of law
enforcement and intelligence is learning about the sources and
uses of terrorist financing, and most importantly, to decide
the best way to go about exploiting the information that we
know so that we can prevent another calamity.''
Now, Mr. Aufhauser, then Treasury General Counsel, chaired
the Policy Coordinating Committee of the National Security
Council from October 2001 until November 2003. He told this
Committee that it was an absolute necessity that the Treasury
Department continue to chair the Policy Coordinating Committee.
But it is my understanding that Treasury no longer does so,
which of course again brings me back to this question of how
are we pulling all of this together, and specifically, why does
Treasury no longer chair the Policy Coordinating Committee?
Mr. Bodman. Senator, if I may, you have asked two questions
related to----
Senator Sarbanes. Maybe even more, if one really parses
what I said, yes.
Mr. Bodman. At least two. I will start with those two, and
then if I do not cover what you are interested in, sir, I will
try to respond to you in some other way.
First, as to the fusion center, that is really what this
Office of Intelligence and Analysis is all about, is to have a
centralized place within TFI that will serve as an integrating
force, as a place wherein financial information can come and
that can reach out within the intelligence community.
The Treasury, in the past, I think it is fair to say, has
not been viewed from the intelligence community as they look at
the various activities within the Government. Treasury has not
been looked at as a bastion of great knowledge in financial
intelligence activity per se. There are isolated components
where there is excellence that I think are recognized, but that
is why we are working very hard to identify that the Assistant
Secretary for Intelligence and Analysis is the kind of person
that will have standing and that can attract not only people,
but also knowledge, and be a center that will be something that
all of us, including this Committee, can be proud of. That is
what we are trying to create. Stuart Levy has been very active
in that regard.
Senator Sarbanes. Does all of the FBI's terror financial
intelligence come into this office?
Mr. Bodman. No, sir. What I can tell you, sir, is that we
believe that we have a unique capability of integrating
financial information and that we work very closely with the
FBI. And I do not believe we are replicating anything that the
FBI is doing. We have very close relationships with them and
work closely with them.
Senator Sarbanes. And what about the PCC?
Mr. Bodman. As to the chairmanship of the PCC, I know and
respect David Aufhauser. He is a very fine man. I do not agree
with him with respect to the necessity of Treasury chairing
that Committee, the PCC on Terrorist Financing is now chaired
by a deputy in the National Security Council. One of my
colleagues, Juan Zarate, sits on that Committee, meets with it.
Juan is the person that oversees both FinCEN and OFAC, as well
as the Executive Office for Terrorist Financing within
Treasury, which have been the primary actors in pursuing the
various specific goals and objectives that I have already
alluded to.
So he is involved with that, as well as with the so-called
CSG, which is a counterterrorism group within the White House
that is also chaired by the National Security Council, that
meets by conference call every day and reviews activities from
all parts of the Government related to terrorist financing,
terrorism, generally, and with specific focus, on our part, on
terrorist financing.
Senator Sarbanes. Would that person not be the accountable
person? When I asked the question earlier, who is the
accountable person for efforts to use financial information,
you said you were.
Mr. Bodman. Yes, sir.
Senator Sarbanes. But now I see that there is this National
Security Council person, who is the Chair of the Policy
Coordinating Committee on Terrorist Financing, and you have
also just told us that everything comes in to them. Who is that
person?
Mr. Bodman. These are Committees that are chaired by the
Deputy of the National Security Council that are responsible
for managing terrorism generally, sir, and so that they deal
with terrorism, generally. Our Treasury, for its part, focuses
on and brings to the table, at the Committee meeting, the
expertise in the financial aspects of terrorism.
Senator Sarbanes. But I thought the Policy Coordinating
Committee of the National Security Council was a Policy
Coordinating Committee on Terrorist Financing not on terrorism,
generally.
Mr. Bodman. It is on terrorism, generally, sir. That is my
understanding.
Senator Sarbanes. I see I have exceeded my time.
Thank you, Mr. Chairman.
Chairman Shelby. Senator Allard.
Senator Allard. Mr. Chairman, in my line of questioning, I
would like to get down into the weeds even a little bit
further. I would like to have a little clearer understanding of
how these Suspicious Activity Reports are filed. And I wondered
if you could just explain to me that process.
Mr. Bodman. The Suspicious Activity Reports are reports
that are issued subject to regulations that in turn have been
issued by FinCEN in connection with that act. And each bank is
required, when they observe transactions that have been
delineated in the regulation--for example, very large cash
transactions--that are either deposits or withdrawals that
could be viewed as suspicious. And they are required to issue a
Suspicious Activity Report, or SAR, to FinCEN under regulations
that have been issued by them.
That information then goes into a central system that
collects the data, and therefore is available to analysts
within FinCEN, and then part of FinCEN's job is to assemble
that information and then to distribute it to appropriate, and
make sure it is available for, appropriate agencies within the
Government that have a use for it, whoever that may be. Largely
law enforcement. So it would really be the FBI and other people
that would have an interest in that.
Senator Allard. Do you think that that is an effective
system that is working for us? Talk a little bit about whether
you think----
Mr. Bodman. I cannot tell you that, personally, sir. I have
talked to the people who are responsible for it. You will hear
this afternoon from Mr. Fox, who is responsible for FinCEN, and
he can speak to you about that. We have every reason to believe
that, where we have a regulated industry, we rely on the
regulators that are already there and have educated them. In
this case, if it is a bank, it is the Office of the Comptroller
of the Currency, if it is a National bank, a Federal bank, a
Federally chartered bank. And the OCC is charged with the
responsibility of making certain that there are controls in
place, operating procedures in place, that will cause the
reports that are required under law to be made.
And based on my discussions with both the OCC people and
the FinCEN people, this seems to be an obligation that they
take quite seriously. They have trained their personnel, and
that there are checks that they have put in place to make sure
that that is ongoing. So, to that extent, I can certify that
the people responsible for the organizations believe it and
have implemented programs and policies that will see to it that
we comply with the law.
Senator Allard. Here is my concern. There are some unfiled
suspicious transactions that have been reported and, to me,
this is very disturbing. Now, how does that happen in a system
that you just described?
Mr. Bodman. The ones that you allude to, the ones that are
in the newspaper, I really cannot comment on because that is
matter of a continuing investigation that is going on. I can
tell you that this Department takes very seriously the
responsibility to see to it that the words that I just used in
answering your question are true and that we do take it
seriously.
Senator Allard. You told me the regulators were doing their
job.
Mr. Bodman. And to the extent that they were not, we will
find out. I will tell you that, sir. I do not have more that I
can tell you on that until I know more.
Senator Allard. Does this raise any flags, in your mind? Do
we need to carefully review the whole system or do you think
this is just one or two individuals in a particular bank?
Mr. Bodman. I do not have an answer to that question, sir.
And until they finish their investigation and do whatever they
are going to do, I do not want to interfere with that, and I do
not think it is appropriate----
Senator Allard. I know you do not want to interfere with
that particular investigation, and I understand that, but it
seems to me that if I was in your shoes, I would want to know
what is happening in the other banks, and if we have similar
problems in other banks, and have you checked into that?
Mr. Bodman. I have asked the question, sir.
Senator Allard. And when do you expect a report back, an
answer to that question?
Mr. Bodman. I would gauge within the next couple of weeks
or a month or so that I would have an answer to that question.
Senator Allard. I think it would be helpful information for
this Committee to have that.
Chairman Shelby. Senator Allard, you are absolutely right.
Senator Allard. As soon as you get that, I hope you can
share that with us.
Chairman Shelby. Share it with the Committee.
Senator Allard. Share it with the Committee.
Mr. Bodman. I would be happy to do that.
Senator Allard. I see my time has expired. Thank you.
Chairman Shelby. There will be another round. Thank you,
Senator Allard.
Mr. Secretary, the Banking Committee is very concerned, as
you can tell from Senator Allard's questions, also Senator
Sarbanes' questions leading up to this, the Riggs Bank
situation. I am concerned that Riggs and other banks
disregarded their responsibilities under the Bank Secrecy Act.
I am concerned that Treasury's enforcement offices, as
Senator Allard alluded to, the Office of the Comptroller of the
Currency--OCC--and FinCEN were unable, Mr. Secretary, to
determine that Riggs failed to file numerous Suspicious
Activity Reports. This, I believe, is evidence of a regulatory
system that does not function effectively.
You are also aware that in the broader BSA--Bank Secrecy
Act--enforcement context, FinCEN is responsible for many other
financial services, entities, that have no other regulatory
bodies looking at their operations. It is well-known that
Western Union--yes, Western Union--was fined a total of $11
million for its failure to comply with the Bank Secrecy Act
requirements.
Troubling is the fact--listen to this--that this failure
was discovered not by Treasury, but by the New York State
Attorney General's Office. The Mirage Casino case, in which it,
too, was found to have seriously neglected its legal
responsibilities with regard to the Bank Secrecy Act reporting
requirements is further indication that something is seriously
wrong.
In light of the testimony we have previously heard here in
the Banking Committee concerning the lack of enforcement agents
at Treasury, how have you addressed--and if you have not, how
will you address--the ability of these entities to actually
enforce the Bank Secrecy Act? Because if you do not enforce the
Bank Secrecy Act, if you do not get in the weeds, as Senator
Allard mentioned with the suspicious activity, how are you
going to fight this terrorist financing? How will this new
office enhance the regulatory enforcement? And is not this
regulation and enforcement at the heart of your responsibility
at Treasury--yours, Secretary Snow, and others? Is it not
central to your job?
Mr. Bodman. Let me start at the end.
Chairman Shelby. You are the Treasury.
Mr. Bodman. Let me start at the end, and the answer is,
yes. The answer to the last question is, yes. I have, in my
time here, and Secretary Snow in his time on the job, have
evaluated, I have been out to FinCEN, I have visited with the
people there. I have looked at what they are doing, and I have
been satisfied that the approaches that they are using are
satisfactory.
Chairman Shelby. What about the results? Now, the approach
might be all right, but what about their performance?
Mr. Bodman. The approach is very good. There are various
ways to measure their performance, and there are large numbers
of reports that come in from banks that comply. The question
has got to be, when we have a failure, what is the cause of
that failure? And as I have said, I am hopeful of getting an
answer on two fronts; one, what happened with respect to that
specific bank----
Chairman Shelby. Absolutely.
Mr. Bodman. --which we all deserve an answer on and,
second, in general, as Senator Allard suggested, does this
suggest that we have a weakness throughout the system that
should be addressed? And it seems to me those are fair
questions to ask.
Chairman Shelby. Sir, let me ask you this question.
Mr. Bodman. Yes, sir.
Chairman Shelby. Was it the regulators, your regulators,
the examiners, bank examiners, that got into the suspicious
activity at Riggs and some other banks or was it the FBI that
got them into it? Do you know the answer to that question?
Mr. Bodman. Senator Shelby, I really cannot----
Chairman Shelby. Can you answer that question?
Mr. Bodman. No, sir, I cannot. I cannot comment on anything
related to any specific bank while this investigation is going
on.
Chairman Shelby. The OCC will comment and tell us things.
I would like to discuss two recent Treasury Inspector
General reports. A recent Treasury Inspector General report
noted that the IRS, Internal Revenue Service-run Detroit
Computing Center had, and these are their words, ``adequately
processed BSA, Bank Secrecy, BSA documents filed there.''
I understand that all BSA, Bank Secrecy Act, documents are
filed at the IRS Detroit facility and that FinCEN, which is
under you, has complete access, but no control, over the
facility. The Secretary has delegated the duties and
responsibilities of the Bank Secrecy Act to FinCEN, yet FinCEN
must rely on the IRS for the processing of the forms.
I am also aware, we have been told here at the Committee,
that the IRS's control of this facility is historical. In fact,
in 2004, the IRS budget for the BSA--Bank Secrecy Act--programs
was about $130 million. This is double FinCEN's entire budget.
Another IG report has called for considerable improvements
to be made in the Bank Secrecy Act compliance programs at the
Internal Revenue Service. This IG report, sir, followed one 3
years earlier calling for many of the same improvements 3 years
ago. I have been informed that there have been only two cases
referred for violation of the Bank Secrecy Act, and those have
not been deemed worthy of enforcement action.
If that is true, is it not time for the Department of the
Treasury to look at BSA compliance as a priority? And, if not,
why not?
Mr. Bodman. First of all, I have been, as I mentioned
earlier, I have been to FinCEN. I have heard their views vis-a-
vis their control over the Detroit operations that assembles
the data. I have spoken to the IRS people about it--IRS, of
course, being a part of Treasury as well.
It is not obvious to me that a highly clerical data entry
operation is something that necessarily should fall into the
bailiwick of FinCEN. FinCEN is a highly intellectual resource,
where we get the very best minds in the areas of systems, in
the areas of the law relating to international finance in one
place, and it is a very different kind of activity.
I have not personally been to Detroit. It strikes me that
there may well be a need for additional input, additional
relationship in terms of how that system is carried out of
having FinCEN personnel there----
Chairman Shelby. But you do have a deep interest in how it
is carried out, do you not?
Mr. Bodman. I certainly do, sir. I had a deep interest
before I walked in here this morning, and I now have a deeper
interest.
[Laughter.]
So this is a matter, if you will, of management, of making
certain that this function, this largely ministerial or
clerical function, is carried out in a fashion that is
satisfactory to the people who are using the data. That is the
goal.
Chairman Shelby. I understand, but it is Treasury. The IRS
is under Treasury.
Mr. Bodman. Yes, it is, sir.
Chairman Shelby. FinCEN is part of Treasury.
Mr. Bodman. Yes, sir.
Chairman Shelby. So, I guess it begs the question why it
has not, and if you have not considered it, you might want to
consider----
Mr. Bodman. Consider what, sir?
Chairman Shelby. This. Why have you not thought about
giving FinCEN complete control of the Bank Secrecy Act system,
including the collection of the BSA, the Bank Secrecy data,
thereby holding it accountable for the entire system, since it
is all under the house of Treasury----
Mr. Bodman. Yes, sir.
Chairman Shelby. Just in different rooms.
Mr. Bodman. Yes, sir.
Chairman Shelby. Mr. Secretary, does it make sense to match
FinCEN's responsibility given it by the Secretary of the
Treasury with the authority to make it work properly and
effectively. I mean, we are not talking about different
agencies. We are talking about agencies within Treasury.
Mr. Bodman. I understand, sir.
Chairman Shelby. Or subagencies in Treasury.
Mr. Bodman. My initial take of this--I have been here 2
months, Senator----
Chairman Shelby. I know that, and I am not directing all of
this on your record at Treasury----
Mr. Bodman. No, I am happy to have it on my record, but the
initial goal, I have talked to the FinCEN people. You will hear
from Mr. Fox this afternoon. I am sure you will ask him the
same question. The nature of the day-to-day work that goes on
in Detroit in assembling that information is very different
than that which goes on at FinCEN. They also have, it is a very
large data entry activity that happens to be located in
Detroit. This activity was put there.
It is not clear to me that we would be wise to separate out
that activity from everything else going on there, where I have
a management structure and a group of people who are used to
doing that. But what is clear to me is that there is, at a
minimum, a lack of feeling on the part of FinCEN that they have
adequate input, that they have adequate control in this area
for which they are ultimately responsible. And either we can
get that and leave the activity in Detroit----
Chairman Shelby. But you can change that internally, fast.
Mr. Bodman. No, sir.
Chairman Shelby. Why couldn't you? Both are under Treasury.
Mr. Bodman. But it is an integrated operation. This is just
part of what takes place in Detroit, and therefore splitting
out that activity from everything else that goes on in Detroit
would not be easy. I am not saying it could not be done, but it
would not be easy, and it would be costly. And I only want to
do that if we cannot solve the problem by putting, if you will,
the customer in charge of understanding and dealing with how
the work is done there. That is my first approach to that. It
is something that I have started working on, and I will
continue to work on.
Chairman Shelby. I hope you will look at it very closely.
Mr. Bodman. I will, sir.
Chairman Shelby. We are aware of FinCEN's request to fund a
new computer analysis tool----
Mr. Bodman. Yes, sir.
Chairman Shelby. Which it calls BSA Direct.
Mr. Bodman. Yes, sir.
Chairman Shelby. The Bank Secrecy Act Direct. It has been
described as a mission-essential tool that will allow FinCEN to
better analyze not only Suspicious Activity Reports, but also
the relative frequency and quality of information.
It appears to be a tool designed to alert FinCEN of
irregularities in filing Suspicious Activity Reports that could
prevent, hopefully, another Riggs Bank situation or a like
situation, for example, the Mirage Casino's failure to file
hundreds of Suspicious Activity Reports, yet this forward-
looking initiative has received, Mr. Secretary, only one-third
of the necessary funding this year, despite the fact that the
Treasury has the opportunity to fully fund it using the
Treasury Forfeiture Fund. The 2005 funds have been earmarked,
but once again only at a level of one-third of the funding
necessary.
Why has this initiative not been rewarded or funded and
encouraged? Is this a mission that is essential, that we need
it? And, if so, why would you request it in the 2005 budget? If
you do, I believe there is an excellent chance you will get
your money.
Mr. Bodman. First of all, the request, as you have
suggested, was funded to the extent I think $6 million were
requested, and we funded $2 million of it. My understanding is
that that was satisfactory to the people at FinCEN to get this
project going, up and going, this fiscal year and that we will
then be looking at that as we look on a going-forward basis.
We agree that this is a very important system to be able to
extract from the information or the data--it is not really
information--the data that are collected in Detroit and to
convert that data into information, and that is really what the
goal is, and we agree that it is important.
Chairman Shelby. Thank you.
Senator Sarbanes.
Senator Sarbanes. Mr. Chairman, The New York Times reported
at the end of March, ``The Bush Administration has scuttled a
plan to increase, by 50 percent, the number of criminal
financial investigators working to disrupt the finances of Al
Qaeda, HAMAS, and other terrorist organizations to save $12
million.''
What about this story? As I understand it, the IRS wanted
increases of criminal financial investigators looking into
terrorist financing. Did the Department delete that request or
did the OMB delete the request? How did this happen? We have
made this a high priority and yet we find that we are not
providing the investigators to carry through on that.
Mr. Bodman. Sir, I believe that article is misleading and
wrong.
Senator Sarbanes. Why don't you set the record straight?
Mr. Bodman. I will do so, sir.
Senator Sarbanes. Here is your opportunity.
Mr. Bodman. Thank you, sir. When you have Ms. Jardini here
this afternoon, you will have an opportunity to talk to her.
Chairman Shelby. We hope this morning.
Senator Sarbanes. Yes.
Mr. Bodman. And so do I, sir.
[Laughter.]
Senator Sarbanes. You better watch those commitments, Mr.
Secretary.
Mr. Bodman. But you will have the opportunity to ask her
what I asked her yesterday, and that is has there been any
request from the Treasury and from those who are responsible
for terrorist finance interdiction in the Treasury at the IRS
that has been declined, and the answer was, no. You will find,
I believe, when you talk with her, as I have done when I talked
with her and with others in the IRS, that they have responded
in every case when there has been a request for input and for
knowledge.
What they were attempting to do, and clearly when they do
that, and they have given that a high priority, it is about 3.5
percent of their workload. So it is not a matter that it is
detracting in a meaningful way from everything that they do,
that we have this rather what I consider to be awkward
relationship of an advisory committee that, under the law, has
access to certain budgetary information and requests that are
made.
And it is true that there was a request made, and when the
final budgets were determined, the IRS was given what I think
would be viewed, relative to virtually any other part of the
civilian Government, of the nonterrorism-type Government,
enormously favorable treatment, sir. Therefore, this was
something that they had, that they had identified that they had
spent the previous year that they were soliciting funds for,
but it does not suggest that the people responsible for this
activity, sir, are not making the investigators available to
pursue these matters.
Senator Sarbanes. Let me get the facts from you, if I can,
and then we will put on the interpretation. I know you just
made a major effort to ``put it in context,'' but was there a
request or a plan on the part of the IRS to increase
substantially the number of criminal financial investigators
working on terrorism financing?
Mr. Bodman. Senator, I have difficulty in dealing with
anything that is not included in the President's budget, and
what gets talked about and proposed I have difficulty in
responding to.
I can tell you that there was a request from the IRS
seeking significant increases in the number of agents. There
are currently, I think, 2,700, 2,800 agents in the Criminal
Investigation Unit, and they requested an increase in that.
They were given an increase in that. The increase next year I
think, in the 2005 budget I think that has been asked for, is
something like 400 additional agents on top of the 2,700 that
were there. So they have been granted that, at least by the
discussion that went on between them, Treasury and OMB, so that
that has been granted.
As to the specifics of how they will use those agents, all
I can tell you, sir, is that heretofore they have not turned
down any requests for making these agents available in dealing
with terrorist financing matters.
To the best of my knowledge, sir, those are the facts.
Senator Sarbanes. I still do not have an answer to my
question. Let me read from this article. ``The Internal Revenue
Service had asked for 80 more criminal investigators, beginning
in October, to join the 160 it has already assigned to
penetrate the shadowy network that terrorist groups use to
finance spots like the September 11 attacks and the recent
train bombings in Madrid. The Bush Administration did not
include them in the President's proposed budget for the 2005
fiscal year.''
I take it that is correct factually, is it not?
Mr. Bodman. No, sir, I do not believe it is correct. The
IRS asked for a substantial increase in the number of criminal
investigators that, and they identified areas in which they
could be utilized. They were granted, in the budgetary
discussions that went on between the Department and OMB, 400
new agents and 200 new analysts, 600 people on a total base--
the total number in the CI Unit is something like 4,300 in
total, of which 2,700 are agents, I believe, are described as
agents. Therefore, this is a very significant increase. And I
expect that on an ongoing basis, that to the extent that our
terrorist-financing colleagues need assistance from the CI
Unit, they will get it.
Therefore, it is my view this is a very high priority that
this President has and that this Administration has and that
the characterization of that article, in my judgment, sir, is
wrong.
Senator Sarbanes. You are just saying that they will get
help from somewhere else, but you are not denying that their
request for 80 additional investigators for the purpose of the
terrorist financing was turned down.
Mr. Bodman. Senator, I can only repeat what I know to be
the facts, and I do believe that the implication of that
article, which implies that this Administration has not been
supportive of the need to interdict terrorist financing
activities, is wrong, sir, in my opinion.
Senator Sarbanes. Well, now, Zarate, the Deputy Assistant
Treasury Secretary for Terrorist Financing said the following,
``The IRS certainly had a clear vision of how they wanted to
allocate the funds, but there is a clear balance that needs to
happen in the IRS, where they have to balance terrorist
financing investigations with other responsibilities like drug
trafficking, and perhaps more important, enforcement of the tax
laws.'' And he continued, ``The Administration has to keep its
hands on the pulse of that balance.''
Mr. Bodman. I cannot speak----
Senator Sarbanes. Now, I understand that statement. That,
in effect, says, Well, we turned them down, but we have to
balance our responsibilities here, and we have other
responsibilities, and so forth and so on. We have to deal with
a budget.
Now, I may disagree with that. I may say, Well, no, no. You
should have given the terrorism portfolio a greater priority.
But that statement seems to me to be pretty clear that this
was turned down, and the justification is that, as he puts it,
the Administration has the keep its hand on the pulse of that
balance. Now, I may take the pulse and conclude that there
should be a different balance, but I understand that argument.
You are not suggesting there was something different than
what your Deputy Assistant Treasury Secretary for Terrorist
Financing was saying, are you?
Mr. Bodman. Yes, I am, sir.
Senator Sarbanes. I see.
Mr. Bodman. I am saying that I think you will find, when
you talk to Ms. Jardini, that there has not been a request that
has been made by those responsible for pursuing the terrorists
through financial means that has been turned down. It
represents about 3.5 percent of their workload, sir, and it is
given a very high priority, and they do it when they are asked.
I have one more question.
Chairman Shelby. Go ahead, sir.
Senator Sarbanes. Last September, General Counsel Aufhauser
told the Committee, ``We do not have auditors to ensure
compliance with the USA PATRIOT Act. We do not have
investigators to pursue the priorities of the National Money
Laundering Strategy.''
Do you have the auditor investigators now to ensure
compliance with the USA PATRIOT Act and to pursue the
priorities of the National Money Laundering Strategy?
Mr. Bodman. We do not have those individuals that are
members of the Treasury Department.
Senator Sarbanes. Is there a plan to rebuild that force
within the Treasury?
Mr. Bodman. No, sir, at least not at this point because we
believe that by reaching out to other agencies within the
Government, rather than replicating it, and for example
creating an entire new organization to regulate the banks and
to be certain that the banks are complying with the Bank
Secrecy Act, that would be an example. Senator Allard had asked
that question before.
You then get to the question do you put in a whole
regulatory organization, thousands of people, presumably, that
would be required to do that, or do you try to take advantage
of people and operations that already exist within the
Government and to build within that the capability of dealing
with this problem?
We have elected to pursue the latter.
Senator Sarbanes. I guess the question that has been
raised, and we are obviously not going to answer it here today,
is whether, given that neither the auditors nor the
investigators are under your umbrella, whether you should be
the point person on terrorism finance and whether, when I put
the question to you right at the beginning, we ought not to be
exploring finding the accountable person somewhere else, where
they are more closely related and directly responsible for the
auditing and the investigating. That is the question.
Mr. Bodman. I understand.
Senator Sarbanes. It is all somewhere else, and of course
others claim this responsibility and everything. It is all
getting separated again. It is very clear in the September 11
Commission hearings that you had nowhere where all of this was
being brought together in one place and no responsible,
accountable person.
And of course a lot of the responsibilities have been
shifted away from Treasury Department in the Department of
Homeland Security reorganization, and the question then is
whether the ultimate accountability should shift as well.
Mr. Bodman. Senator Sarbanes, I can only say again, sir,
what I said before, and that is I believe that the primary
responsibility for pursuing financial terrorism or the
financial support for terrorism throughout the world resides
within the Treasury because we have unique knowledge in the
financial area, sir.
And the question is, it strikes me that, to me, a more fair
question, if I could say so, sir, is how effective is the
system working of relying on regulatory--we have regulatory
capability now because within FinCEN, for example, we issue
regulations, but how effective is the enforcement aspect of
relying on the FBI and relying on others that are outside the
traditional, that are outside Treasury?
I believe, sir, based on my 2 and a half months of looking
at this, that there is reason to believe that this is working.
Senator Allard asked a very legitimate question, well, what
about these one or two data points that we come up, are they
reflective of a broader and more general problem? And that is
something, it seems to me, we need to explore, which I have not
done yet, and we will endeavor to do that in order to respond
to you.
But I do not believe there is any meaningful overlap in the
financial area between Treasury, notwithstanding what a website
says, sir, but in terms of what is going on, on the ground, and
a very strong and capable group of men and women who work in
FinCEN, who work in OFAC, who work in the executive office of
the department related to terrorist financing.
We have 600 people working who are very good, who have had
a record of significant achievements----
Senator Sarbanes. I am not casting any aspersions on the
quality of your people.
Mr. Chairman, let me just close this out with this
observation. I am not so worried about the overlap. I am
worried about the ``underlap.'' And earlier, in response to a
question, you told me that Treasury did not get all of the
FBI's terror financial intelligence. I perceive that to be an
underlap, that the FBI is getting terror financial intelligence
and all of it is not being passed on to what I am told is the
accountable person or to the operation under the accountable
person, and that gives me concern about underlap.
Mr. Bodman. If I may, sir, I perhaps misunderstood the
question. I thought you were asking did the FBI intelligence
activity report to and were they a part of, intended to be part
of this new intelligence office, and I said, no.
As to whether there is available the output, the
intelligence that comes from whatever the work that the FBI
does, I do not know the answer to that, sir. It well could be--
there is a very good relationship--and it well could be that
the information flows, and I would be happy to get back to you
with information on that.
But when you asked me the question before----
Senator Sarbanes. You, by your own statement here today,
are the accountable person.
Mr. Bodman. Yes, sir.
Senator Sarbanes. That is what you told me.
Mr. Bodman. That is right, sir.
Senator Sarbanes. And then I asked you, I thought, a pretty
simple question, whether you get all of the FBI's terror
financial intelligence, and now you are telling me you do not
know.
Mr. Bodman. I misunderstood your question, sir.
Senator Sarbanes. No, no, no. You now put it in terms that
you do not know whether you get it or not.
Mr. Bodman. That is, in fact, correct, sir.
Chairman Shelby. Senator Allard, thanks for your patience.
I know you want to get back into this.
Senator Allard. Getting back to where I was pursuing the
Suspicious Activity Reports, how is that we are sure that the
banks are following along? What procedures are in place to
assure that they are following along as it applies to these
Suspicious Activity Reports?
Mr. Bodman. I have forgotten the frequency, Senator, but it
is something like every year or every 15 months, depending on
the bank. The Office of the Comptroller of the Currency visits
and does an internal audit of the bank as a part of their
normal cycle. They have been doing this for some time.
And what we have done is to work with the OCC to
incorporate into their audit program an audit of compliance
with the Bank Secrecy Act. And so that the internal auditors,
for example, of the bank would double check on that as a part
of the normal day-to-day activity that goes on inside the bank.
So that is what I was alluding to before. Rather than
trying to create a whole other regulatory body that would just
deal with the Bank Secrecy--with one law--we have attempted to
use those investigators that are already there or those
auditors that are already there and at work.
Senator Allard. I would hope you do that. That makes sense.
Mr. Bodman. We are trying to, sir.
Senator Allard. But the question--I want to understand. So
you have the internal auditors in the bank, and they are
constantly doing their work at the bank.
Mr. Bodman. Yes, they are intern--if I could correct, just
to make sure I am clear--we have auditors that work for the
Office of the Comptroller of the Currency. They work for the
Government, and they visit on a periodic basis----
Senator Allard. A year or----
Mr. Bodman. A year or 18 months I think depending on the
size of the bank. Sometimes I think they actually are there and
officed within the bank, depending on the circumstances. In
addition to that, I think all large organizations have internal
audit staffs that between times make sure that various internal
controls of all sorts are being pursued, and that whatever the
standards are that the board of directors or others set are
being adhered to.
Senator Allard. And so when the OCC auditor shows up in a
year or 2 months, they are prepared to explain to them that
they have done the procedures, I mean, if I understand this
correctly.
Mr. Bodman. That, in the hopes of now those who run these
institutions, is how it should work. But clearly it has not
always worked effectively based on some of the examples that
have been given.
Senator Allard. The internal auditors then are employees of
the banks?
Mr. Bodman. Yes, sir.
Senator Allard. And since this is a new program, the
question I have is: Do you think that perhaps maybe we need to
have a more frequent review of what is happening as far as this
particular program that is being put in place? Then once you
get it established, maybe you will get back to us?
Mr. Bodman. Yes. Any number of things could be. I think it
is fair to say we have a weakness, or at least a potential
weakness in the system that needs to be investigated. And that
is what I have committed to this Committee to do, and I will
endeavor to report back to you once I have done that.
Senator Allard. You do not think the problem is lack of
enforcement power of the bank regulators, is it?
Mr. Bodman. No, sir.
Senator Allard. We do not need more laws to enforce that or
anything. It is just a matter of just following through.
Mr. Bodman. For example, on the banks, I mean, I can assure
you that the bank that you referred to before has had a regular
visit from its regulatory body. It is not just OCC. It is the
Office of Thrift Supervision and other regulators that we have
worked with to train up their professional staffs to be able to
undertake these audits.
Senator Allard. I understand your efficiency. The question
is, you know, terrorists account--there are a lot of things
that can happen in a year. In a year and a half, a lot of
things can happen. And considering the priority of that, we
need to make sure, at least initially, with the times that we
have just gone through that we do not wait a year or maybe a
year and a half before that is discovered. I think in many
cases that has to be picked up much quicker than that, most
cases that I think of, at least. And I just think that that
needs a little bit of review, and I hope that you do that.
My final question is: Suppose we find a Government auditor
or something who did not do the job. Then what happens to that
individual, a Government employee, what happens to that
individual?
Mr. Bodman. There are procedures for dealing with
Government employees who fail that I am sure you are probably
more familiar with than I. They are disciplined as a first
level, and to the extent that there is then a follow-up as to
whether or not they have responded to discipline, after which
they are presumably relieved of their duties.
Senator Allard. My experience has been that lots of times,
because they are so protected, when you have somebody that
doesn't do their job, it is difficult to discipline them and
dismiss them in some cases. You cannot do it. And, you know, if
you run into a situation where you are--this is important
enforcement. It has to be done. We have to make sure people are
doing it and doing it properly. If you run into this problem, I
would like to know about that, because, you know, in the past I
have run across instances where we have Federal employees in
the civil service system that have not done their jobs, and
they do not get dismissed from the jobs. In some cases, they
get a promotion.
If that is there, I hope that this Committee can learn that
and respond appropriately if you need some power in that
regard, too. You know, we are not always talking about
regulating of the bank. There is also a responsibility on the
Government employee to make sure they do their job, and I just
want to make sure we have a proper balance here.
Mr. Bodman. Thank you, sir. I appreciate knowing that I
will have that kind of support, and I can assure you I will
take advantage of it, if the need arises.
Chairman Shelby. Mr. Secretary, I know you will probably
see Secretary Snow before we do, and we have him before one of
our Committees from time to time. But, again, it is troubling
to some of us up here about that May 2003 Memorandum of
Understanding between Homeland Security and the FBI. And
Treasury was not party to that, yet Treasury is the logical
agency to deal with terrorist financing, because I do not know
how Homeland Security is going to deal with it without
Treasury. I do not know how the FBI is going to deal with it
without Treasury.
So, I hope that the Secretary would revisit that issue,
because I do not believe that Homeland Security and the FBI,
without Treasury playing the central role, can win that war.
Mr. Bodman. Yes, sir. First of all, you may be sure that
the Secretary will hear that, among other things that have been
raised this morning. So you can be certain of that.
I would observe, as I did before, that at least it is my
understanding--and I will double-check this--that that
Memorandum of Understanding focuses on enforcement and not the
issue of intelligence and of the issuing of regulations.
Chairman Shelby. I think you need to revisit it in some
way, but make sure that we understand that you are not left out
of something that is central to Treasury and central to this
fight against terrorism.
Mr. Bodman. You have made that very clear. Thank you.
Chairman Shelby. Mr. Secretary, we appreciate you coming
here today. We are going to have a second panel, and as you
alluded to earlier, we might be here in the afternoon. Thank
you very much.
Mr. Bodman. All right. I did not mean to push that on you,
sir.
Chairman Shelby. You pushed it. Thank you a lot. We
appreciate your appearance.
Chairman Shelby. Our second panel will be Mr. William J.
Fox, Director, Financial Crimes Enforcement Network, Department
of the Treasury; Mr. Richard Newcomb, Director, Office of
Foreign Assets Control, Department of the Treasury; and Ms.
Nancy Jardini, Chief of Criminal Investigation, Internal
Revenue Service. These are all very important positions, and we
appreciate their patience in waiting here all morning to
testify before the Committee.
As I said earlier, the written testimony of all three of
you will be made part of the record in its entirety, and we
will go from there. I do want to say a few things about the
panel, if I could.
Mr. Fox became the fourth Director of FinCEN in December 1,
2003. Prior to his appointment as FinCEN's Director, Mr. Fox
served as Treasury's Associate Deputy General Counsel and
Acting Deputy General Counsel since September 11, 2001. He also
served as a Principal Assistant and Senior Adviser to
Treasury's General Counsel on issues relating to terrorist
financing and financial crimes. You bring a lot of experience
here. Mr. Fox has served at the Bureau of Alcohol, Tobacco, and
Firearms, first as an attorney in the ATF's Tobacco and
Firearms--first as an attorney in the Chicago office, then as a
Senior Counsel for Alcohol and Tobacco, and finally ATF's
Deputy Chief Counsel.
Ms. Nancy Jardini brings a great deal of experience here,
too. She has been the Chief of Criminal Investigations at the
Internal Revenue Service since January 9, 2004. Before that,
she was the Deputy Chief of Criminal Investigations, a lot of
experience.
Ms. Jardini, I want to note this: You are the first woman
to hold both these posts. That is a milestone.
She came to the IRS from the Criminal Division of the
Justice Department. She has been a lifelong Federal prosecutor
and defense attorney.
Mr. Rick Newcomb is Director of the Office of Foreign
Assets Control, and we welcome all three of you here today.
As I said, again, your written testimony will be made part
of the record. I do want to say just a little more about Mr.
Newcomb.
He has held this position since 1989. We are familiar with
him. As such, he has been at the forefront of the Nation's
effort in combating financial crime, enforcing sanctions on
foreign persons, states, and other entities for many years.
Prior to assuming his current position, he served the
Department in other capacities, including trade and customs.
Before joining Treasury, he served as Special Assistant to the
Administrator of the Law Enforcement Assistance Administration
in the Department of Justice.
You all bring distinguished backgrounds to this Committee.
Thank you a lot for your jobs.
Mr. Fox, you may proceed as you wish. As I said, your
statements will be made part of the Banking Committee hearing
record.
STATEMENT OF WILLIAM J. FOX
DIRECTOR, FINANCIAL CRIMES ENFORCEMENT NETWORK
U.S. DEPARTMENT OF THE TREASURY
Mr. Fox. Thank you very much, Mr. Chairman.
Chairman Shelby, Senator Sarbanes, and distinguished
Members of this Committee, I would like to thank you for the
opportunity to appear before you to discuss our vision for the
Financial Crimes Enforcement Network. This is my first
opportunity to testify before the Congress, and I consider it a
great honor to be here, sir.
I have an extended statement which we submitted for the
record, and thank you. I will keep these remarks very brief.
I wish to thank the Committee for the leadership that it
has provided to the country on issues related to terrorist
financing and financial crime throughout the past years. I
would particularly like to acknowledge the work of your staff,
which has really been outstanding for us, and we appreciate it
very much. It is a terrific staff to deal with.
I also wish to acknowledge you colleagues on this panel. I
am honored to appear with Rick and Nancy. I have worked very,
very closely with Rick particularly over the last 3 years on
issues related to terrorist financing, and I applaud the
substantial contribution that OFAC has made on these issues
under his leadership.
I do not know Nancy as well as I know Rick, but I am keenly
aware of the good work of her agents. In an earlier part of my
career, when I was working very closely with U.S. Attorney's
Offices around the country, there was always one uniform rule
from district to district--no matter which agency brought the
case--if it was financial and its complex, you called IRS-CID.
Based on what I know of Nancy, I am absolutely certain that
will continue.
As you mentioned, Mr. Chairman, I was appointed to be
FinCEN's fourth Director in December 2003. Before coming to
FinCEN, I was a principal assistant to David Aufhauser at
Treasury while he led the Treasury Department and, frankly, the
Government on issues relating to the financing of terror.
Working with David, I quickly gained a very keen appreciation
for the importance of what has been referred to as the
financial front of the war against terrorism. I think that
importance can be stated quite simply: Money does not lie.
A good part of the time, financial intelligence ``is''
actionable intelligence. It can be extremely useful for
identifying, locating, and capturing terrorists and defining
their networks. And perhaps just as important, financial
intelligence can lead to effective, strategic action that stops
or disrupts the flow of money to terrorists and their networks,
which in turn serves to halt or impede terrorist operations.
Let me submit to you, Mr. Chairman, that the Financial
Crimes Enforcement Network is right in the middle of these two
aspects of exploiting financial information. We have been
learning about, understanding, and exploiting financial
information for 14 years. My job is clear: To lead FinCEN in a
direction that ensures that we are the gold standard when it
comes to understanding, analyzing, and employing financial
information to combat terrorism and financial crime.
Let me tell you what I have found in my first 150 days on
the job. I have found an agency populated with highly motivated
employees with diverse, and in many ways, specialized talents
and skills who are very dedicated to FinCEN and its mission. I
have found an agency that is a responsive service provider to
law enforcement, an agency that is doing a great deal of very
good work, work that makes a difference in financial
investigations around the country. This is all very good news.
But I have also found an agency that is facing many significant
challenges. Whether FinCEN can rise to meet these challenges
will determine whether it can be the gold standard that it
needs to be. To meet these challenges, we are going to need the
help of the Treasury Department, the Administration, and the
Congress.
Let me highlight a few specifics. The most important and
fundamental challenge facing FinCEN, in my view, relates to the
security and dissemination of the data that we have been
charged to safeguard, the data collected under the Bank Secrecy
Act. If FinCEN does nothing else, it must ensure that this data
is properly collected, is kept secure, and is appropriately,
efficiently, and securely disseminated. This is FinCEN's core
responsibility. We believe our BSA Direct project, which you
have alluded to earlier and which is discussed at length in my
statement, will help address these issues.
Nearly as important is that FinCEN must enhance its
analytic capabilities. What we have found is that the analytic
work at FinCEN has been focused a little too much on data
retrieval and reporting at the expense of sophisticated
analysis that, in my view, should be done given the unique
window FinCEN has on information flowing through its
regulatory, law enforcement, intelligence, and international
platforms. I hold myself accountable for reengineering FinCEN's
analytic talent to ensure that its analytic products are, in
fact, at a level of sophistication that contributes better to
the broader goals of the Government in combating terrorist
financing and money laundering.
We must also ensure a more effective administration of the
regulatory regime promulgated under the Bank Secrecy Act, which
is critical to safeguarding our financial system from abuse
from terrorists and criminals. We need to work more closely
with the financial institutions that we regulate. We need to
work closer and better with our partners, the bank regulators
and the IRS, to design efficient and effective programs that
will ensure compliance, programs that are focused on bad actors
and not programs that demand compliance for compliance's sake.
Our goals in this arena are simple: To collect more
relevant and useful data and to enhance the anti-money
laundering programs established by the regulated community.
Last, but not least, FinCEN needs to take greater advantage
of the international network that it helped create nearly 10
years ago. We must move toward a more robust relationship with
the members of the Egmont Group to collaborate together to
proactively contribute in more creative ways to the
international conversation on the financing of terrorist and
money laundering.
These, Mr. Chairman, are some of the more important
challenges facing FinCEN today. I think you should hold me
accountable for meeting these challenges and for making FinCEN
the gold standard for financial intelligence. I am very excited
about the new leadership at the Treasury Department. Already
Deputy Secretary Bodman has engaged in these issues in a real
way and is dedicated to helping us meet these challenges. With
the help of the Treasury and the Congress, I am confident that
we can meet the challenges and truly make FinCEN what it should
be.
Mr. Chairman, I appreciate the opportunity you have given
me to discuss these issues with you here today, and I look
forward to working closely with you and your staff as we rise
to meet these challenges.
I will be happy to answer any questions that you may have.
Chairman Shelby. Mr. Newcomb.
STATEMENT OF R. RICHARD NEWCOMB
DIRECTOR, OFFICE OF FOREIGN ASSETS CONTROL
U.S. DEPARTMENT OF THE TREASURY
Mr. Newcomb. Thank you, Mr. Chairman. I deeply appreciate
the opportunity to testify. The work of the Office of Foreign
Assets Control and our efforts to combat terrorist support
networks form an important part of the Treasury and our
Government's national security mission. It is indeed a pleasure
to be here with you today and with my distinguished colleagues
on the panel, with whom we have worked very closely on a day-
to-day basis, and to discuss the new office and the role in
these areas.
I also want to take a moment to compliment your staff and
the good working relationship that we have developed in this
hearing and other long-term endeavors that we have had ongoing.
I want to discuss briefly our core mission and then talk
specifically about terrorist financing.
At OFAC, we administer and enforce economic sanctions and
embargo programs against targeted foreign governments, groups,
and individuals, including terrorists and terrorist
organizations and narcotics traffickers, which pose a threat to
the national security, foreign policy, and economy of the
United States. We act under the general Presidential wartime
and national emergency powers, as well as specific legislation,
to prohibit, that is, block or freeze transactions and freeze
assets subject to U.S. jurisdiction. Economic sanctions are
intended to deprive the target of the use of its assets and
deny the target access to the U.S. financial system and the
benefits of trade, transactions, and services involving U.S.
markets. These same authorities have been used also to protect
assets within U.S. jurisdiction of countries subject to foreign
occupation and to further important U.S. nonproliferation
goals.
We currently administer and enforce some 27 economic
sanctions programs pursuant to these Presidential and
Congressional mandates. They are a crucial element in
preserving and advancing the foreign policy and national
security objectives of the United States and are usually taken
in conjunction with diplomatic, law enforcement, and
occasionally military action.
Our historical mission has been the administration of
sanctions against target governments that engage in policies
inimical to U.S. foreign policy and national security
interests, including regional destabilization, severe human
rights abuses, and repression of democracy. For example, recent
programs in the Western Balkans, Zimbabwe, Sudan, and other
regions reflect that focus. But since 1995, the executive
branch has increasingly used its statutory blocking powers to
target international terrorist groups and narcotics
traffickers.
Many country-based sanctions programs are part of the U.S.
Government's response to the threat posed by international
terrorism. The Secretary of State has designated 7 countries--
Iran, Iraq, Libya, Cuba, North Korea, Syria, and Sudan--as
supporting international terrorism. Three of these countries
are subject to comprehensive economic sanctions--Cuba, Iran,
and Sudan. they have been imposed against Libya, Iraq, and
North Korea as well. They are in current stages of being
lifted. Syria is not currently subject to comprehensive
sanctions; however, certain financial transactions are
regulated.
We administer also a growing number of list-based programs,
targeting members of government regimes and other individuals
and groups whose activities are inimical to national security.
We have grown over the last 18 years since I have been
Director, beginning actually in 1987, from an office of a
handful of employees to now an operation of some 144
individuals administering the 27 programs I have mentioned. A
large percentage of our staff have had prior professional
experience in various areas of the law, financing, banking, law
enforcement, and intelligence. To accomplish our mission, we
rely on good, cooperative working relationships with other
Treasury components, Federal agencies, particularly State and
Commerce, law enforcement agencies, the intelligence community,
domestic and international financial institutions, the business
community, foreign governments, and especially our colleagues
here.
We are an organization that blends regulatory, national
security, law enforcement, and intelligence into a single
entity with many mandates but a single focus: Effectively
implementing economic sanctions programs against foreign
adversaries when imposed by the President or the Congress. In
order to carry out our mission, we have 10 divisions. They are
divided into primarily devoted to narcotics and terrorism
programs, while others are licensing, compliance, and civil
penalties division that are geared toward interaction with the
public. In these latter divisions, where primarily we serve as
liaison with the public, we are seeking to promote greater
transparency. I have a very high OFAC priority at this time
outlined in my prepared statement.
Finally, we have a Law Enforcement Division that cooperates
with the law enforcement community so that we enhance our law
enforcement mission.
We rely heavily on designation programs, authorities
derived from the Executive Orders we operate under to develop
specially designated terrorists, specially designated narcotics
traffickers, specially designated Nationals, and SDGT's, which
was formulated out of Executive Order 13224, ordered by the
President following the attacks of September 11 on September
23. This is an extraordinarily important element of the war on
terrorism.
Under this program, OFAC acting under this authority has
designated 361 individuals as the so-called SDGT's pursuant to
this Executive Order. More than 260 of these entities are
associated with either Al Qaeda or the Taliban, which provides
the basis for notifying then the United Nations, who would then
act on Executive Order--under UN Security Council resolutions
to take similar coordinated action. This similar coordinate
action is a key component of our antiterrorism efforts
worldwide.
One other important point I wish to make is that the U.S.
Government took a very important additional significant step in
November 2001 when the Secretary of State, in consultation with
the Secretary of the Treasury, designated some 22 foreign
terrorist organizations as specially designated global
terrorists. This action expanded the war on terrorism beyond al
Qaeda and the Taliban to other worldwide actors, such as Hamas,
Hizbollah, the FARC, the Real IRA, and others, and this did
truly create this global war on terrorism and terrorist
financing and demonstrated the U.S. Government's commitment to
continue and expand the efforts against all terrorist groups
posing a threat to the United States. Currently, there are some
37 terrorist organizations that are under this Executive Order.
I will conclude my oral remarks at this point. I just want
to make two or three key points.
It is critical in our efforts going forward that we
continue to have the ability to focus on the key nodes of the
terrorist support structure. These key notes are the target
sets that by focusing on worldwide, working with the
interagency community, we are able to
understand what truly makes them function and develop a
strategy where working with our other counterparts in the
United States and the UN we can bring down an entire network.
We have had great success working with our interagency
partners. I am particularly pleased about the steps we have
made with the U.S. military in staffing the six Combatant
Commands with OFAC individuals so that we are able to work with
them to share information and share tools that might not
otherwise be available to all of us in this war.
Thank you, Mr. Chairman. Again, it is my pleasure to be
here.
Chairman Shelby. Thank you.
Ms. Jardini.
STATEMENT OF NANCY JARDINI
CHIEF, CRIMINAL INVESTIGATION
INTERNAL REVENUE SERVICE
Ms. Jardini. Good morning, Mr. Chairman. I had hoped that
in 3 more minutes and I can say ``good afternoon,'' Mr.
Chairman.
Chairman Shelby. You take your time.
Ms. Jardini. Thank you very much for the opportunity to be
here today to highlight how the unique and specialized skills
of the Internal Revenue Service Criminal Investigation Division
are deployed to track terror financing. I am honored to be here
today on this panel with my partners from Treasury law
enforcement, with whom I work very closely. I would also like
to thank you for the fine work of your staffs that have been
very helpful in preparation for this hearing and have been very
cooperative with us in our efforts to develop appropriate
information.
The fundamental mission of CID, the Criminal Investigation
Division, is to serve the American public by detecting and
investigating criminal violations of the Internal Revenue Code
and
related financial crimes. To that end, we recruit only
individuals who have an educational background in accounting
and business and, through rigorous training, shape them into
law enforcement professionals who are experts in forensic
accounting, financial investigations, and computer forensics.
These highly skilled special agents are devoted to following
the money in tax and related investigations that involve
sophisticated schemes and complex transactions that span the
globe.
The unique sophistication of our 2,750 criminal
investigators are in demand throughout law enforcement because
we add value to any financial investigation. These are
precisely the same skills that make such a valuable
contribution to unraveling global terrorist financing networks.
In addition to bringing significant technical expertise to
these investigations, there is often a nexus between tax and
terror. For example, one significant investigation of an
international charitable foundation revealed ties to
international terrorist organizations. In that case, the crimes
that formed the basis for the search warrant related to the
filing of the foundation's tax return as well as Bank Secrecy
Act data. In another investigation, the Executive Director of
the Benevolence International Foundation, a purported
charitable organization, was sentenced to over 11 years in
Federal prison for fraudulently obtaining charitable donations
that were ultimately used to support violent activities
overseas.
Just as terrorists employ various methods to move money, we
are using various means to detect it. One of those is to
exploit the Bank Secrecy Act data. CID leads 41 suspicious
activity report review teams nationwide. These teams are
comprised of Federal, State, and local law enforcement
officials who evaluate over 12,000 SAR's each month.
An example of the usefulness of the SAR review teams is
illustrated in a case involving a fast-food employee who was
convicted for operating an unlicensed money services business.
This case was initiated after a SAR review team evaluated
numerous SAR's filed by several banks alleging the subject was
making cash deposits inconsistent with his occupation. It was
ultimately proven that the subject made numerous cash and check
deposits to several accounts and wired over $3 million out of
the country to locations in Asia, Europe, South America, and
the Middle East.
Another unique contribution of CID is the counterterrorism
project we are piloting in Garden City, New York, which, when
fully operational, will use advanced analytical technology and
data modeling of tax and other information to support ongoing
joint investigations and proactively identify potential
patterns. The center analyzes information not available to and
not captured by any other law enforcement organization. So far,
the Lead Development Center has helped identify individuals,
entities, and relationships amongst them previously unknown to
law enforcement.
As an example, the Lead Development Center began compiling
and analyzing financial data that culminated in the linking of
several individuals and businesses, some of whom are under
criminal investigation and one with ties to Al Qaeda. With no
identifiers other than listed names, the center established
significant connections to individuals and businesses
potentially involved in illegal activities, including heroin
smuggling and Iraqi artifact smuggling. The scope of this
criminal enterprise was previously unknown.
In conclusion, the men and women of IRS-CID are some of the
most skilled financial investigators in all of law enforcement,
and they are proud of the role they play in achieving these
successes. For all of us, it is one of the great rewards of
public service.
I thank you for this opportunity to appear before you
today, and I welcome your questions.
Chairman Shelby. Thank you.
I will start with Mr. Fox. First of all, I want to say
again we appreciate the jobs that all of you are doing and the
people that you work with. All of you alluded to the fact that
our staff here on the Banking Committee has worked hand in
glove with you on a lot of things, because I think our goal is
similar.
Mr. Fox, some of us are concerned that you do not have
adequate resources to accomplish the many and important
missions you have. I am aware that it is difficult to develop
analysts; it is tough and it takes time. But the question is:
Do we have that time in our fight against terrorists?
What initiatives are ongoing at FinCEN to bolster your
analytic capability? You alluded to this earlier, because it
doesn't matter what the data is if you do not analyze it
properly and disseminate it, in other words, act upon it. It is
useless, in a sense.
Are your analysts--well, go ahead and answer that. What
initiatives are going on to bolster your analytical capability?
You know, our other intelligence agencies are challenged, too,
but they always have been.
Mr. Fox. Thank you, Mr. Chairman. This is a very good
question. The good news is, I think, that what I have found, is
that FinCEN has some very good financial analytic talent. In
fact, it is some of the best I have seen, and I have had the
opportunity to view quite a bit of it because of my past life,
particularly on the financial end.
Chairman Shelby. Sure.
Mr. Fox. In my view, sir, the analytic talent at FinCEN,
however, has not been focused, I guess, on the right work. I
think we need to refocus those efforts to really get those
analysts back into sophisticated, strategic, or tactical
analytic work, if you will. They need to be working from all
sources of information, not just the BSA. BSA is incredibly
important and a wonderful source of information in this world,
but there are other sources of information that are just as
relevant.
Chairman Shelby. And there is a lot of synergy dealing with
the IRS on this. You know, you are all part of Treasury.
Mr. Fox. Absolutely, sir. That is precisely correct.
I think we are changing that at FinCEN. In fact, we are
going to change it at FinCEN. If we don't, you can call me and
tell me I should go somewhere else because I think it is that
important.
Chairman Shelby. We do not want you to go anywhere else. We
want to help you----
Mr. Fox. I know, sir, and I appreciate that.
I have to tell you one thing before I get into exactly what
we are doing. The very heartening thing for me is that this
change is very welcome at FinCEN. I have line analysts coming
up to me in the hallways saying, ``We thank you, we are really
anxious to do this work.'' So you have a lot of people there
that are really ready to break loose.
I think one thing we need to do is to reorganize ourselves
a little bit, sir. We have a reorganization plan that we
briefed your staffs on, and we also are working with the
Treasury Department to implement it right now. What we are
going to do is to really focus our analytic talent on analysis.
In other words, take responsibilities that do not relate to
analysis away from them and move them into another line of
responsibilities. Those responsibilities are very important,
but they are really not analytic work.
I believe that we have to meld our intelligence analysts,
if you will, if you want to use that term--the people who are
exploiting national security information--into our greater
analytic pool, take down the walls that exists currently at
FinCEN between those two.
And then, finally, sir, I think we need training, and I
think we need to really leverage the training that is available
out there. There is a plethora of it in Federal analytic
agencies, and we are going to take advantage of it. When it
comes to recruiting, sir, we are going to try to recruit the
absolute very best.
Chairman Shelby. When you analyze information, do you
ensure that is correct? Or you do the analysis first, and then
is it all in the same category?
Mr. Fox. Well, what is happening----
Chairman Shelby. You have to analyze some information, and
then you have got to make sure it is correct, to the best of
your----
Mr. Fox. What is happening at FinCEN--not completely, but
by and large, in my view, is that FinCEN is focused on data
retrieval. We get a lot of requests from law enforcement and
other parties for information that relates from the Bank
Secrecy Act. We go and we search that data pool, data set, and
then spit that back out. And, sir, I actually do not think that
is real analysis. We are employing a lot of our analytic talent
toward that end.
Chairman Shelby. You have to analyze this information to
make sure it is correct.
Mr. Fox. Yes, sir, absolutely, and so it is a cart before
the horse, if you will. So we are going to refocus our efforts
to do that, sir, and try to create those products that really
are useful to our customers and to the Government.
Chairman Shelby. How does the Bank Secrecy Act, or the BSA
Direct, we might say, how would that improve your analytical
products? Give your more information?
Mr. Fox. Sure. We think that the tools that will be
available, many of which we have available to us at FinCEN
right now, will be very helpful. But, sir, where BSA Direct
will really help is to free up our analysts and give our
customers the capability to search or mine the BSA data so that
we do not have to do it for them. We can then focus our
expertise and our resources on creating products that are
better and more valuable and add better to the conversation.
Chairman Shelby. Mr. Newcomb, OFAC and the military, we are
intrigued by your agency's interaction with the combatant and
regional commands. The Pacific and European Commands, as well
as others, are conversant with what you are doing and what you
can provide in the effort of defeating terrorists in foreign
countries, and I think that is a welcome development, and I
encourage you here. I believe this is an example of innovative
thinking and maximizing your limited resources. I think this is
on the right track, and I want to commend you here.
Could you expand on the nature of the relationship for us
here? Is this a two-way flow of information which is
intelligence? Or is it primarily one-way? And are there any
legal, bureaucratic, or cultural impediments that you have
discovered to sharing information with the CINC's that we could
help you with?
Mr. Newcomb. Thank you, Mr. Chairman. I am delighted you
asked me that question this morning. I am particularly excited
about this relationship because before September 11 we did not
have it, and now we do. And it was mutually seeking each other.
We needed to find new tools and force multipliers and ways we
could work together and utilize our existing resources to
complement one another.
I believe as one individual, the commander of the Office of
Naval Intelligence, once said, we have things we can do. There
are kinetic solutions. We can watch a target, a ship, we can
sink a ship or we can board a ship. Or we can put that shipping
company out of business and deploy that activity worldwide so
the entire UN takes steps under the UN Security Council
resolutions.
We have followed this strategy working with the Combatant
Commands through their Joint Interagency Counterterrorism
Groups. We currently have people assigned now to UCOM. I have
someone soon to be deployed to SOCOM as well as the four other
Combatant Commands. And as I said, I am particularly excited
about it.
I went to a conference in 2002 at PAYCOM and sat down for
an afternoon and really learned a great deal about what was
known on the ground by special ops officers in the various
countries we were working on, brought that back and was able to
use that as a key component of----
Chairman Shelby. That is a heck of a resource, is it not?
Mr. Newcomb. It is a tremendous resource, and I am just
delighted that JCS has offered to fund six positions so that we
can get individuals deployed to these areas. And we soon will
be doing that as soon as I can get them properly trained.
Finally, let me say it is truly win-win, and I hear things
back consistently. Just yesterday, people from PAYCOM came to
see us about a conference that they were having a regional
maritime security conference. It is where all groups working
together in that
region at the local level, working with people with hands-on
experience can develop areas where we can work jointly together
and then bring it back to Washington and integrate this into
the PCC process in our Key Nodes Effects-Based Targeting
Initiative.
So, I am delighted to be a part of it, and I look forward
to working with the JCS and the Combatant Commands to pursue
this program.
Chairman Shelby. Have you some indications that regional
governments, such as Indonesia, Malaysia, and perhaps others,
could be more cooperative?
Mr. Newcomb. I think the issue of cooperation is something
we face worldwide, and through our Office of Technical
Assistance, direct technical assistance and working through the
diplomatic community, this is always--wherever we are talking
about is a process----
Chairman Shelby. Could you help a lot of places and
different regions better police their banks, financial
institutions, and other organizations that are laundering
money?
Mr. Newcomb. Well, we do not do the money laundering area.
I would need to defer to my colleagues here at the table. But
what we do is work as far as enhancing credibility and
capability and the joint designation process. And we have had
great success worldwide. I have personally led delegations to a
dozen of 14 countries, and as we continue, this will be all
part of how we proceed.
Chairman Shelby. Thank you.
Ms. Jardini, I am hoping you can address some of the
concerns expressed in the recent article by Senator Sarbanes I
have read regarding the gap between the Criminal Investigation
Division's manpower levels and its workload, especially as the
issue of terrorist financing grows in importance--and I believe
it will--to national security.
Ms. Jardini. Thank you, Mr. Chairman. That is an extremely
important point. The Criminal Investigation Division's current
manpower level is the lowest level in over 12 years. Manpower,
special agent resources, is amongst the most critical aspects
of our progress going forward, continuing to deploy the expert
financial investigative work that we do.
That said, the President's 2005 budget as written allows
for the single largest expansion year in special agent hiring
in Criminal Investigation ever. If passed as written, Criminal
Investigation will acquire over 400 new special agents and
almost 200
analysts to assist those special agents and also to deploy
special skills in the analytical areas that are so critical for
supporting our criminal investigation mission.
So we look forward to 2005. It will go a long way if we get
those resources to bringing on the full strength that we will
use to deploy our mission effectively.
Chairman Shelby. That is the only way you are going to win
the terrorist financing war, is it not? You are going to have
to have the resources.
Ms. Jardini. We are going to have to have the resources to
win the war; that is for sure.
Chairman Shelby. We have a vote on the floor. You have been
very patient all day. We just kept you a few minutes into the
p.m., but we appreciate your work. We will continue to work
with you, and we will have you back up here.
[Whereupon, at 12:15 p.m., the hearing was adjourned.]
[Prepared statements, response to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF SENATOR WAYNE ALLARD
I would like to thank Chairman Shelby for holding this oversight
hearing to hear about the Department of the Treasury's progress on
their recent reorganization to counter the financing of terrorism. This
Committee held two hearings last fall which provided us with an
understanding of the difficulties that exist in tracing the origin and
use of terrorist funds. Last November, Congress approved the position
of Assistant Secretary for Intelligence and Analysis in the Department
of the Treasury, to allow access to, and analysis of, financial
information that is in the possession of the Government. I am hopeful
today's discussion will provide a positive update for the Committee on
steps that have been taken to implement this new office.
The Bank Secrecy Act and terror financing are important areas of
jurisdiction for the Banking Committee. The creation of the Department
of Homeland Security has greatly shifted the responsibilities of
departments and agencies, and it is vital that Congress maintain strict
oversight to ensure that the responsibilities--both old and new--of our
counterterrorism agencies, are being fulfilled.
I would like to thank our witnesses for coming to testify and look
forward to hearing what your office is doing to integrate and implement
counterterrorism systems.
----------
PREPARED STATEMENT OF SAMUEL W. BODMAN
Deputy Secretary, U.S. Department of the Treasury
April 29, 2004
Introduction
Chairman Shelby, Ranking Member Sarbanes, and Members of the
Committee, thank you for inviting me to testify today about the
Treasury Department's central role in the international war against
terrorist financing and financial crime. I welcome this opportunity to
discuss this subject with you, and to outline our vision for moving
forward in this vitally important fight.
Though I have only been at the Treasury Department for a short
period, it is clear to me that this Department is well placed to shape
policy and practice in areas of financial and economic interest that
affect our national security. Through its broad authorities and
expertise, the Treasury Department is charged with preserving the
integrity of the financial system and does so every day by charting our
counterterrorist financing campaign; setting and implementing anti-
money laundering and counterterrorist financing polices, regulations,
and standards at home and abroad; gathering and sharing financial
information with law enforcement and foreign counterparts regarding
financial crime; implementing our Nation's economic sanctions; and
enforcing relevant regulations and laws related to these missions. Of
course, this is done in close coordination with our partners at the
Departments of Justice, State, Homeland Security, and all other
relevant Federal departments and agencies.
Immediately after September 11, the President directed the Treasury
Department to guide the Federal Government's efforts in the global war
against the financing of terrorism. Since that time, we have continued
to devote our resources and extensive expertise to ensure that
financial intermediaries and facilitators who infuse terrorist
organizations with money, material, and support are held accountable
along with those who perpetrate terrorist acts. The war on terrorist
financing is a vital responsibility of the Department. Terrorists--like
any other organized criminals--rely on financial networks to fund and
support their activities. Disrupting and dismantling those networks can
make it more difficult for terrorists to carry out their deadly
activities. Our success, therefore, can save the lives of Americans and
of our friends and allies.
We know the U.S. Government has had an effect on the ability of Al
Qaeda and other terrorists to raise and move money around the world.
The designations and other actions we have taken have made it riskier
and costlier for them to try to use the formal financial system--which
previously provided an open gateway for their funds to be sent
instantly around the world. Our domestic and international efforts have
tightened the net in the international financial system--through
greater oversight, transparency, diligence, and capacity. Because of
these efforts, terrorists have had to change the way they do business
and are relying more on home-grown methods of raising money and slower
methods of moving money. These are signals of our success.
As the recent bombings in Madrid and Riyadh demonstrate, however,
we still have much work to do. Commitment to defeat terrorism is not
enough. We must ensure that our commitment to disrupt and dismantle
terrorist financing networks is matched by tangible results. I believe
that we have achieved important and considerable results, but that we
can and must do more, building not only upon our successes against
terrorist financing, but also upon our experience and expertise in
combating financial crime generally.
What is clear is that the rest of world has now begun to view the
world as Treasury and others in the U.S. Government have always seen
it. Dirty money and tainted financial flows not only corrupt the
financial system but also threaten the lives of innocents and the
economic and political stability of the world. Whether it is financing
raised and moved to fuel terrorism or financial networks created to
facilitate the proliferation of weapons of mass destruction, the global
mission is clear: To disrupt and deter criminal activity that threatens
our national security. In this endeavor, we must leverage all of our
power to dismantle the financial infrastructure of such networks and of
rogue regimes. This is now the axiom of the international community,
and it is so because the U.S. Government has helped reshape the way the
international community thinks about these issues.
In my testimony today, I will first explain how Treasury has helped
to lead our Nation's efforts in the campaign against terrorist
financing and financial crime more generally. I will then describe how
we have marshaled our resources over the past year to achieve
significant and meaningful results against terrorist financing and
other criminal networks. I will conclude by laying out some of our new
initiatives, the most important of which is the establishment of the
Office of Terrorism and Financial Intelligence.
During the past year, our people have worked extremely hard and
achieved many significant results. At the same time, we all recognize
that our enemies are sophisticated and determined, and so we must
continue to adapt and revitalize ourselves so that we can continue to
achieve results. This new office--which will bring together under one
roof: Intelligence, regulatory, law enforcement, sanctions, and policy
offices--will build upon our achievements over the past year, and allow
Treasury to be more effective in the war on terrorist financing and in
preserving the international financial system.
Treasury's Role in Combating Financial Crime
The Treasury Department has traditionally had the responsibility of
safeguarding the integrity of the United States and international
financial systems from all threats. This has resulted in the Treasury
Department's developing expertise in the wide range of disciplines
necessary to meet that responsibility. Today, Treasury has expertise in
disciplines that stretch across the entire counterterrorist financing
spectrum. These include:
application and implementation of sanctions and administrative
powers;
direct law enforcement action and law enforcement support,
international initiatives;
private sector outreach and engagement; and
financial regulation and supervision.
As reflected in Congress' decision 5 years ago to charge Treasury
with the leading role in the development of the National Money
Laundering Strategy, Treasury's wide range of authorities, skills, and
relationships makes it well-positioned to
devise, coordinate, and help to implement Government-wide strategies to
target, attack, and dismantle the financial networks that support
terrorism and other criminal activity. We take a targeted as well as a
systemic approach to these complex issues, using all possible
regulatory, economic, diplomatic, and strategic tools and policies to
ensure our systems are not abused by money launderers, terrorists, and
other criminals.
In an effort to consolidate these tools and policies against all
elements of financial crime, one year ago the Secretary of the Treasury
established the Executive Office for Terrorist Financing and Financial
Crime (Executive Office). This Office is responsible for developing
policies relating to the Department's anti-money laundering, terrorist
financing and financial crimes mission. It also oversees the offices
and Bureaus responsible for implementing and administering these
policies, for example, the Office of Foreign Assets Control (OFAC), the
Financial Crimes Enforcement Network (FinCEN), and the Treasury
Executive Office for Asset Forfeiture (TEOAF). It also works closely
with the Internal Revenue Service's Criminal Investigation Division
(IRS-CI) which possesses unparalleled financial investigation
experience.
Treasury's authorities and expertise relating to combating
financial crimes may also be leveraged to accomplish financial missions
of critical importance to our national security interests. This is
perhaps best seen in the hunt for Iraqi assets. I would like to briefly
explain our efforts in the campaign to identify and repatriate Iraqi
assets as one example of how Treasury has leveraged its resources and
coordinated those of the interagency community to advance a mission
critical to our national security interests.
On March 20, 2003, President Bush directed the Treasury Department
to a worldwide hunt for Saddam Hussein's assets and directed Treasury's
newly-formed Executive Office to lead the U.S. Government's efforts to
find, freeze, and repatriate Iraq's money for use in the reconstruction
of Iraq. Consequently, the Treasury Department established and chairs
the Iraqi Assets Working Group (IAWG), comprised of all the relevant
elements of this U.S. Government effort, including the National
Security Council, the Departments of State, Justice, Homeland Security,
Defense, and the law enforcement and intelligence communities. In this
context, the Treasury Department has coordinated the intelligence and
law enforcement efforts of this hunt--relying on IRS-CI investigators
and OFAC and intelligence analysts to unearth Saddam's hidden accounts
and front companies around the world--and our diplomatic actions--
leveraging the contacts and influence of the State Department and the
Treasury abroad to gain international cooperation.
Since Secretary Snow's announcement of the campaign to identify,
freeze, and repatriate stolen Iraqi assets on March 20 of last year,
the Treasury, working closely with other parts of the U.S. Government,
has achieved important results in returning assets to the Iraqi people
and in uncovering the schemes and networks used by the regime to steal
from Iraq:
Almost $2 billion of Iraqi assets has been newly identified
and frozen outside the United States and Iraq.
More than three-quarters of a billion dollars have been
transferred by foreign sources to the Development Fund for Iraq
(DFI). In total, the United States, foreign countries, and the Bank
for International Settlements have transferred back to Iraq over
$2.6 billion in frozen Iraqi funds.
Approximately $1.3 billion in cash and valuables has been
recovered in Iraq.
We continue to identify key individuals and entities whose
assets should be frozen. In the past few weeks, the Department of
the Treasury has undertaken the following important actions: (i)
designated 16 immediate family members of senior officials of the
former Iraqi regime pursuant to Executive Order 13315; (ii) listed
191 Iraqi parastatal (quasi-governmental) entities; (iii)
designated five front companies of the former Iraqi regime and four
associated individuals; (iv) redesignated three other front
companies and one individual previously designated by the Treasury
Department; and (v) through the U.S. Mission to the UN, submitted
the names of all of these entities and individuals to the United
Nations, requesting that they be listed by the UN 1518 Committee
under UNSCR 1483.
In Iraq, our financial investigators from IRS-CID have
conducted over 80 interviews of key individuals who have
information relating to Iraqi assets, ranging from the top
ministers of the State Oil Marketing Organization (SOMO), to the
laborers who buried Saddam's U.S. currency. These investigators are
finding and interrogating key financial facilitators like
accountants and bankers, who have knowledge about the movement of
Iraqi assets. Under IRS-CI questioning, these witnesses have
identified assets that can be recovered for the DFI, and which we
are aggressively pursuing.
While searching for Iraqi assets abroad, IRS-CI agents
determined that the former Iraqi Ambassador to Russia had stolen $4
million in Iraqi assets that had been entrusted to him. As a
result, that amount has been frozen in Russia, and we are working
to have it repatriated.
Working closely with the governments of Liechtenstein,
Switzerland, and Jordan, we are attempting to recover one of
Saddam's Falcon 50 corporate jets and to uncover a financial
network that had been used by the Iraqis to move money and people
in the heart of Europe.
The financial investigation teams have also uncovered
important leads for other IRS-CI financial investigators to follow
up on in jurisdictions outside of Iraq. We have identified bank
accounts and other assets held in over 20 countries, including
Switzerland, France, Germany, Liechtenstein, Russia, Spain, Egypt,
Thailand, Indonesia, Lebanon, Belarus, Iran, South Korea, Malaysia,
Japan, Morocco, Saudi Arabia, UAE, British Virgin Islands, Jordan,
Syria, and Yemen.
As a result of interagency cooperation and investigative and
other efforts in Baghdad and at headquarters, the Departments of
Treasury and State have provided identifying information on over
570 identified Iraqi bank accounts to 41 countries for review and
follow-up. Those accounts were identified as belonging to the
Central Bank of Iraq, Rafidain Bank, and Rasheed Bank.
The identification and recovery of stolen Iraqi assets is just one
area in which we have helped to drive key efforts and initiatives.
This--and other Treasury initiatives--demonstrate our ability to help
to coordinate government efforts and achieve positive results.
I would like to review briefly some of our successes under the U.S.
Government's strategy for combating financial crime.
Treasury's Recent Accomplishments in Combating Financial Crime
Background and Strategy
Treasury's success in combating terrorist financing and financial
crime reflects a strategic approach of developing and implementing
policies that utilize our administrative powers, law enforcement
resources, international relationships, engagement with the private
sector and regulatory authorities to attack financial crime on a
targeted and systemic basis. We have focused our efforts on identifying
and interdicting key financial networks that support terrorist and
other criminal activity, and on protecting financial systems from
terrorist and criminal infiltration. Our systemic efforts are improving
the transparency and accountability of financial systems around the
world, making it easier to identify, disrupt, and dismantle those
terrorists and criminal networks that continue to abuse such systems.
As we succeed in these goals, we have expanded our efforts to address
alternative and informal financial systems that are vulnerable to
terrorist and criminal abuse, including charities, alternative
remittance systems, and cash couriers.
Targeting money flows is among the best means of tracking,
exposing, and capturing terrorists and their facilitators, narco-
trafficking cartels and their supporting infrastructure, organized
crime networks, and deposed kleptocratic regimes and their ill-gotten
assets worldwide. Money flows leave a signature, an audit trail, and
provide a road map of terrorist and other criminal activity. Financial
investigations lead upstream to those who are generating the underlying
financial crimes, as well as downstream to provide a roadmap to those
financial professionals who facilitate the terrorist or criminal
activity itself. As we and our international partners work together to
follow and stop terrorist or illicit funds, we strengthen the integrity
of our financial systems and erode the infrastructure that supports
terrorists and other criminals.
Economic Sanctions and Administrative Powers
Treasury wields a broad range of powerful economic sanctions and
administrative powers to attack various forms of financial crime. We
have continued to use these authorities in the campaign against
terrorist financing, drug trafficking, money laundering, and other
criminal financial activity.
In combating terrorist financing, our primary, and most public,
tool is the ability to designate terrorists and those who support
terrorists, and to implement orders that freeze the assets of
terrorists through Executive Order 13224. These designation actions not
only prevent terrorist activity by freezing terrorist-related assets
and bankrupting terrorist operations, but they also:
identify existing terrorist activity through financial trails
evident in the accounts and transactions of designated parties;
shut down sources of and pipelines for terrorist financing;
force terrorists to expend resources developing alternative
and higher risk means of raising and moving money;
alienate terrorist supporters from the global economy by
shutting them off from the U.S. financial system and prohibiting
any U.S. person from engaging in any future financial or other
related services with such designated parties; and
deter those who might otherwise be inclined to support,
financially or otherwise, terrorist activities or organizations.
Through our designation actions, we have made it more difficult for
terrorist groups, like Al Qaeda, to raise and move money around the
world. Under EO 13224, we have designated a total of 361 individuals
and entities, as well as frozen or seized approximately $200 million of
terrorist-related funds worldwide. Designations under EO 13224 in the
past year include the following:
Ten Al Qaeda loyalists related to the Armed Islamic Group
(GIA) on March 18;
Shaykh Abd Al-Zindani (Al Qaeda-related) on February 24, 2004;
Four branches of the Al Haramain Islamic Foundation (Al Qaeda-
related) on January 22, 2004;
Abu Ghaith (Al Qaeda-related) on January 16, 2004;
Dawood Ibrahim (Al Qaeda-related) on October 17, 2003;
Al Akhtar Trust International (Al Qaeda-related) on October
14, 2003;
Abu Musa'ab Al-Zarqawi (Al Qaeda-related) on September 24,
2003;
Yassin Sywal, Mukhlis Yunos, Imam Samudra, Huda bin Abdul Haq,
Parlindungan Siregar, Julkipli Salamuddin, Aris Munandar, Fathur
Rohman A1-Ghozi, Agus Dwikarna, and Abdul Hakim Murad (members of
Jemaah Islamiyah) on September 5, 2003;
Sheik Ahmed Yassin (Gaza), Imad Khalil Al-Alami (Syria), Usama
Hamdan (Lebanon), Khalid Mishaal (Syria), Musa Abu Marzouk (Syna),
and Abdel Aziz Rantisi (Gaza) (Hamas political leaders) on August
22, 2003;
Comite de Bienfaisance et de Secours aux Palestiniens
(France), Association de Secours Palestinien (Switzerland),
Interpal (UK), Palestinian Association in Austria, and the Sanibil
Association for Relief and Development (Lebanon) (all Hamas-related
charities) on August 22, 2003;
The National Council of Resistance of Iran (including its U.S.
representative office and all other offices worldwide) and the
People's Mujahedin Organization of Iran (including its U.S. press
office and all other offices worldwide) on August 15, 2003;
Shamil Basayev (Al Qaeda-related) on August 8, 2003; and
The Al-Aqsa International Foundation (Hamas-related) on May
29, 2003.
Together with the State and Justice Departments and other agencies,
we are using our diplomatic resources and regional and multilateral
engagements to ensure international cooperation, collaboration and
capability in designating these and other terrorist-related parties
through the United Nations and around the world.
In combating drug trafficking, Treasury continues to apply its
authorities under the Foreign Narcotics Kingpin Designation Act to
administer and enforce the provisions of law relating to the
identification and sanctioning of major foreign narcotics traffickers.
The Kingpin Act, enacted in December 1999, operates on a global scale
and authorizes the President to deny significant foreign narcotics
traffickers, and their related businesses and operatives, access to the
U.S. financial system and all trade and transactions involving U.S.
companies and individuals. During 2003, the President named seven new
kingpins, including two U.S.-designated foreign terrorist
organizations--Revolutionary Armed Forces of Colombia and United Self-
Defense Forces of Columbia--and a Burmese narco-trafficking ethnic
guerilla army, bringing the total number designated to 38.
Since the inception of the Kingpin Act and after multiagency
consultations, Treasury has named 14 foreign businesses and 37 foreign
individuals in Mexico, Colombia, and the Caribbean as derivative (Tier
II) designations. These derivative
designations are flexible, and permit Treasury to attack the financial
infrastructure of these kingpins as their infrastructure changes. A
total of 104 organizations, individuals, and businesses in 12 countries
are now designated under the Kingpin Act. On February 19, 2004,
Treasury designated 40 key individuals and companies associated with
the Colombian narco-terrorist organizations, the FARC and the AUC.
These two organizations were previously named by the President on May
29, 2003 as drug kingpins. We are currently working with the
interagency community to develop a list of new designations to be
issued by the President later this spring.
Another weapon that our Government uses aggressively against narco-
traffickers and money launderers is that of seizure and confiscation.
In fiscal year 2003, Treasury's Executive Office for Asset Forfeiture
(TEOAF) received over $234 million in annual forfeiture revenue from
the combined efforts of the former Bureau of Alcohol, Tobacco, and
Firearms, the U.S. Secret Service (USSS), the Internal Revenue Service
(IRS), and the former U.S. Customs Service (USCS). This represents a
significant increase over fiscal year 2002, in which TEOAF received
over $152 million of forfeiture revenue. Such an increase is
particularly impressive when considering the transition undertaken by
three of these law enforcement bureaus in the Government reorganization
last year.
In combating money laundering and financial crime generally,
Treasury continues to direct its resources and coordinate efforts to
administer and enforce the Bank
Secrecy Act. Working through FinCEN, IRS, the Office of the Comptroller
of the Currency, the Office of Thrift Supervision and other outside
agencies, Treasury administers and enforces BSA provisions relating to
monetary transaction and transportation reporting and recordkeeping
requirements, suspicious activity, anti-money laundering programs and
other obligations as set forth in the Act.
In addition, Treasury, after appropriate interagency consultations,
has applied its new authority under Section 311 of the USA PATRIOT Act
(Patriot Act) to designate jurisdictions and institutions of primary
money laundering concern. Most
recently, we designated the jurisdiction of Burma, consistent with the
Financial Action Task Force's (FATF) demand for countries to impose
additional counter-measures against that country. At the same time,
Treasury designated the Myanmar Mayflower Bank and Asia Wealth Bank,
two Burmese banks that are linked to the United Wa State Army, a
notorious drug trafficking organization in Southeast Asia. It is
important to note that this is Treasury's first application of Section
311 against financial institutions. We are focused on identifying
additional foreign banks that either facilitate money laundering or are
otherwise involved in financial crime as potential Section 311 targets.
These accomplishments and responsibilities are just a few examples
that demonstrate the wide range of economic sanctions and
administrative powers that the Treasury continually applies and
implements in our ongoing mission to combat financial crime.
Law Enforcement
In addition to these economic sanction and other administrative
authorities, Treasury combats various forms of financial crime through
the direct law enforcement actions of IRS-CI and the law enforcement
support provided by FinCEN and Treasury's regulatory authorities.
Whether working with DEA on the money laundering component of
significant drug investigations, the FBI on terrorist financing cases,
or investigating offshore tax shelters and other tax-related matters,
IRS-CI brings an unparalleled financial investigative expertise to the
table. The financial forensic expertise of our IRS criminal
investigators around the country and the world is critical in the U.S.
law enforcement community's attack on sources and schemes of terrorist
financing.
A good example of our direct law enforcement action through IRS-CI
is evident in our efforts to attack terrorist financing emanating from
abroad. Since September 2003, IRS-CI agents have been actively
participating in a joint United States/Saudi counterterrorism task
force located in Riyadh. The Task Force both provides and
receives investigative lead information on various terrorist financing
matters. Additionally, the investigators seek assistance from Saudi
counterparts in following terrorist financing, and using that
information to identify and attack terrorist cells and operations.
Information received by U.S. agents is passed through FBI's Terrorist
Financing Operations Section in Washington to the interagency JTTF's
nationwide. As a part of this initiative and under the auspices of the
State Department chaired Terrorist Financing Working Group, IRS-CI
participated in two, week-long classes of financial investigation
training to Saudi Arabian criminal investigators. The courses delivered
by IRS-CI included the following specialized topics: Charitable
entities, money laundering, net worth method of proof, expenditures
method, documenting financial crimes, and computer sources of financial
information. A third class will be presented this spring.
We complement such direct law enforcement action with law
enforcement support. Through FinCEN, Treasury serves as a repository
and analytical hub for Bank Secrecy Act information, which aids
investigators across the interagency community in finding financial
links to criminal enterprises and terrorist networks. Since February
2003. we have also used Section 314(a) of the Patriot Act to enable law
enforcement, through FinCEN ``Blastfaxes'' to more than 31,800
financial institutions as of April 27, 2004, to locate quickly the
accounts and transactions of those suspected of money laundering or the
financing of terrorism. Since Section 314(a)'s creation, the system has
been used to send the names of 1,712 persons suspected of terrorism
financing or money laundering to financial institutions, and has
resulted in 12,280 matches that were passed on to law enforcement. We
understand the sensitivity of the use of this system, and will continue
to ensure through vigorous review that this system is used only in
cases where terrorist financing is suspected, or in the most egregious
money laundering cases.
As a result of these efforts, FinCEN has made 342 proactive case
referrals to law enforcement potentially involving terrorism based upon
analysis of information in the Bank Secrecy Act database. The Terror
Hotline established by FinCEN has resulted in 853 tips passed on to law
enforcement since September 11. FinCEN is also implementing an
Electronic Reports program that will further enhance law enforcement's
ability to utilize this information. Additionally, with the expansion
of the Suspicious Activity Report (SAR) regime, as of April 28, 2004,
financial institutions Nationwide have filed 4,294 SAR's reporting
possible terrorist financing directly to FinCEN, including 1,866 SAR's
in which terrorist financing represented a primary suspicion. This has
further enhanced our efforts to identify and vigorously investigate
terrorist financing webs and dismantle them.
International Initiatives
The success of our efforts to combat financial crime and
particularly terrorist financing, depends in large part on the support
of our allies and the international community. Treasury--working
through the Executive Office for Terrorist Financing and Financial
Crime and the Office of International Affairs--has worked with other
elements of the U.S. Government to engage the international community
to develop and strengthen counterterrorist financing initiatives and
regimes, and enhance the transparency and accountability of global
financial systems generally. Internationally, we have received support
from over 200 countries and jurisdictions, including blocking orders to
freeze assets from 170 countries and jurisdictions, and other direct
actions around the globe to deal with the common scourge of terrorism.
We are working constantly with other governments on a bilateral,
regional, and multilateral basis to focus their attention on this issue
and deal with identified risks.
We have developed and implemented a multipronged strategy to
globalize the campaign against terrorist financing and strengthen our
efforts to combat financial crime, using all of our authorities,
expertise, resources, and relationships with various international
bodies and other governments. Our strategy includes: (i) improving
global capabilities to identify and freeze terrorist-related assets;
(ii) establishing or improving international standards to address
identified vulnerabilities; (iii) ensuring global compliance with these
standards; (iv) addressing financing mechanisms of particular concern,
and (v) facilitating the sharing of information to defeat these
threats.
Improving Global Asset-Freezing Regimes
A focal point of our international efforts to combat financial
crime over the past year has been to improve the effectiveness of
global asset-freezing regimes in the campaign against terrorist
financing. After many months of negotiation and discussion at the FATF,
we successfully developed interpretive guidance to clarify and specify
international obligations and best practices in identifying and
freezing terrorist-related assets. In October 2003, the FATF issued an
Interpretive Note and Best Practices Paper to FATF Special
Recommendation III, describing these obligations and standards. This
accomplishment will provide a basis for countries to develop or reform
their existing asset-freezing regimes to improve their effectiveness.
We are currently using these obligations and standards to encourage
necessary
reforms to asset-freezing regimes in countries around the world,
including our European allies. Pursuant to these efforts, the European
Union is now considering adjustments to the EU Clearinghouse process
used to identify and freeze terrorist-related assets across the EU. We
are working with the Europeans, both bilaterally and collectively, to
assist in this process.
In addition to these international public sector efforts, we are
working with leading global financial institutions to develop a
technical assistance initiative within the private sector to enhance
capabilities in identifying and freezing terrorist-related assets. This
initiative seeks to leverage existing banking expertise through bank-
to-bank training, awareness and outreach.
Setting International Standards
Internationally, we have worked not only through the United Nations
on blocking efforts, but also through multilateral organizations and on
a bilateral basis to promote international standards and protocols for
combating terrorist financing and financial crime generally. Such
standards and protocols are essential to developing the financial
transparency and accountability required to identify and attack
elements of financial crime, including terrorist financing networks.
We have primarily focused our efforts to establish international
standards against terrorist financing and financial crime through the
FATF. The FATF is the premier international body in the international
effort against money laundering and terrorist financing. Created by the
G-7 in 1989, the FATF has since grown to 33 members, along with
numerous observers, including the United Nations, IMF, and World Bank.
The FATF's primary mission is to articulate international standards in
the areas of money laundering and terrorist financing, and to work
toward worldwide implementation. Treasury's Executive Office for
Terrorist Financing and Financial Crime heads the U.S. delegation to
the FATF and co-chairs the FATF's Working Group on Terrorist Financing.
We have worked with our counterparts in the FATF to revise the 40
Recommendations, thereby enhancing international standards of
transparency and accountability required to effectively combat money
laundering and other financial crimes. In June 2003, the FATF issued
the revised 40 Recommendations by adding shell banks, politically
exposed persons, correspondent banking, bearer shares, the regulation
of trusts, the regulation of trust and company service providers, and
the regulation of lawyers and accountants. These newly revised
Recommendations were endorsed by the G-7 Finance Ministers in a public
statement issued the same day the revised Recommendations were adopted
by FATF.
We have also capitalized on the FATF's expertise on money
laundering to specifically attack terrorist financing, largely through
the Eight Special Recommendations on Terrorist Financing developed and
adopted by the FATF in October 2001. As co-chair to the FATF's Working
Group on Terrorist Financing, the Treasury has worked closely with FATF
members to issue interpretive guidance on the Eight Special
Recommendations, particularly with respect to: Freezing terrorist-
related assets; regulating and monitoring alternative remittance
systems such as hawala; ensuring accurate and meaningful originator
information on cross-border wire transfers, and protecting nonprofit
organizations from terrorist abuse. We are currently directing the
FATF's Working Group on Terrorist Financing to further attack the
problem of terrorist financing through charities and cash couriers.
Through our efforts in the FATF, many countries have taken
important steps to improve their legal regimes and strengthen the
oversight of their financial sectors, acknowledging the need for strong
anti-money laundering requirements to fight terrorist financing.
Countries like Egypt, Guatemala, Indonesia, Israel, Lebanon, and the
Philippines have taken important strides to develop and implement
effective and comprehensive anti-money laundering regimes,
strengthening their institutions and their enforcement of anti-money
laundering and counter-terrorist financing laws and regulations.
Treasury has played an important role in the development of anti-money
laundering and counterterrorist financing regimes in each of these
countries.
Moreover, we have engaged the IMF and World Bank to gain their
recognition of the FATF 40 + 8 Recommendations as one of the 12 Key
International Standards and Codes. In March of this year, owing largely
to the leadership of the G-7, the IMF/World Bank made their AML /CFT
assessment program permanent and comprehensive, thereby ensuring that
all countries throughout the world are assessed against FATF standards.
Additionally, Treasury, along with the State and Justice Departments,
has furthered our efforts to globalize the FATF standards through our
work with various FATF-style regional bodies (FSRB's). We are currently
engaged in the development of two new FSRB's to cover the regions of
the Middle East/North Africa and Central Asia.
Promoting Worldwide Implementation of International Standards
Establishing international standards is only the first step toward
identifying and destroying terrorist and criminal networks and denying
these groups access to the international financial system. If these
standards are not implemented worldwide, terrorists and other criminals
will enter the international financial system at the point of least
resistance, and preventive national efforts will be rendered
considerably less effective.
The United States is working together with the international
community to ensure global compliance with improved international
standards through a three-prong approach that includes: (i) objectively
assessing all countries against the international standards; (ii)
providing capacity-building assistance for key countries in need, and
(iii) isolating and punishing those countries and institutions that
facilitate terrorist financing.
Our Federal Government has identified 24 countries as priorities
for receiving counterterrorist financing technical assistance and
training, and Treasury is a key supporter of the State Department-led
efforts of the interagency community to work bilaterally to deliver
such assistance to these priority countries.
Together with other Federal Government agencies and departments, we
are also working with our allies in the G-8 Counter-Terrorism Action
Group (CTAG) the IMF, World Bank, and the FATF to coordinate bilateral
and international technical assistance efforts to additional priority
countries in the campaign against terrorist financing. As part of these
coordinated international efforts, the FATF Working Group on Terrorist
Financing has completed terrorist financing technical needs assessment
reports in several priority countries. These reports will be used by
the CTAG to match appropriate donor states with identified needs in
each of these priority countries.
Moreover, we will continue to utilize domestic tools--including
those made available through the USA PATRIOT Act--to focus on
jurisdictions that are not taking adequate steps to address terrorist
financing, money laundering, and other financial crimes concerns. As
discussed above, Treasury is has used Section 311 of the USA PATRIOT
Act to address primary money laundering concerns on a jurisdictional
and institutional basis. Working in cooperation with the law
enforcement and intelligence communities, we have designated three
foreign jurisdictions and two financial institutions under Section 311.
In addition to the Burmese designations
described above, Treasury has also designated the jurisdictions of
Ukraine and Nauru under Section 311. Ukraine responded to this
designation almost immediately by enacting significant anti-money
laundering legislation. This quick response demonstrates the power of
Section 311 in promoting positive reform and
addressing vulnerabilities in the international financial system.
Moreover, even the possibility of a Section 311 designation can result
in other nations making important changes to their legal and regulatory
regimes that enhance the global anti-money laundering and antiterrorist
financing infrastructure. We will continue to seek out appropriate
opportunities to utilize these new powers to protect the U.S. financial
system.
Addressing Financing Mechanisms of Particular Concern
In addition to developing and implementing broad initiatives and
systemic reforms to increase the transparency and accountability of
international financial
systems, we have targeted specific financing mechanisms that are
particularly vulnerable or attractive to terrorist financiers. These
mechanisms include the abusive use of charities and NGO's, hawala, and
other alternative remittance or value transfer systems, wire transfers,
and cash couriers, as well as trade-based money laundering and cyber-
terrorist financing.
Our strategy for attacking terrorist financing and financial crime
perpetrated through these mechanisms is consistent with our global
strategy for combating financial crime in the formal international
financial system: We will continue working domestically and with the
international community to develop the transparency and accountability
required to identify, disrupt, and destroy terrorist financing and
other criminal networks embedded in these sectors. We will also
continue allocating resources to focus on high-risk elements of these
sectors and concentrate our efforts on high-value targets.
To effectively counter the threat of terrorist financing through
charities, we have engaged countries through the FATF to examine and
analyze existing oversight mechanisms and vulnerabilities in their
domestic charitable sectors. These efforts capitalize on the FATF's
expertise in promoting transparency and accountability in formal
financial sectors, as well as the experience gained in developing
international best practices to protect charities from terrorist abuse
in accordance with the FATF's Special Recommendation VIII.
We have also engaged the international community bilaterally and
multilaterally to combat the threat of terrorist financing and
financial crime through alternative remittance systems, such as hawala.
Over the past 2 years, we have achieved significant progress on this
issue, as reflected in the Abu Dhabi Declaration made at the conclusion
of the first International Conference on Hawala in May 2002, and the
adoption of interpretive guidance to FATF Special Recommendation VI in
February and June 2003. Earlier this month, Treasury led a delegation
to the United Arab Emirates to continue advancing these issues in the
second International Conference on Hawala.
We are also working with the international community to attack the
illicit use of cash couriers by money launderers and terrorist
financing networks. Treasury leads the United States delegation to the
Asia-Pacific Group and is working through that regional body to examine
various information sharing, criminalization, and reporting mechanisms
to identify and interdict the illicit use of cash couriers.
Facilitating International Information Sharing
Information sharing is critical to fighting terrorism and financial
crime. Domestically, we have taken advantage of important information-
sharing provisions of the USA PATRIOT Act to assimilate information
from the financial, intelligence, and law enforcement communities in
identifying and attacking terrorist financing networks. To improve the
global flow of financial information related to terrorist financing, we
have also worked to establish and expand formal and informal,
international information-sharing channels, both bilaterally and
multilaterally. Through FinCEN, the U.S. Financial Intelligence Unit
(FIU), we have persuaded the Egmont Group, which represents 84 FIU's
from various countries around the world, to leverage its information
collection, analysis, and sharing capabilities to support the global
war on terrorism. These ongoing efforts have greatly improved our
ability to identify and unravel terrorist financing networks by
tracking and tracing terrorist money trails through multiple
jurisdictions.
Our efforts to combat terrorist financing and financial crime also
depend upon promoting a greater understanding of the financial threats
we face. To facilitate such an understanding internationally, we have
worked bilaterally, regionally, and globally with other governments and
international bodies to develop and share case studies and typologies
of financial crime, including terrorist financing.
Private Sector Outreach
The private sector serves as the front-line in the campaign against
terrorist financing, money laundering, and other financial crime. To
date, cooperation with the private sector, including banks and trade
associations, has been essential to increasing our vigilance against
the abuse of our financial system by terrorists and criminal groups.
With the expansion of our anti-money laundering provisions to new
segments of the financial community pursuant to the USA PATRIOT Act, we
will
continue and expand such cooperation by working with our domestic
financial community, including banks, credit card issuers and
redeemers, and Internet service providers,\1\ as well as the charitable
sector, to enhance their abilities to detect and report possible
terrorist financing and money laundering activities.
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\1\ The list also includes insurance companies, security and
brokerage dealers, money order and traveler's check issuers and
redeemers, check cashers, wire remitters, currency exchangers, and a
myriad of other non-bank financial institutions.
---------------------------------------------------------------------------
Our ongoing outreach initiatives with the private sector promote a
greater understanding of terrorist financing, money laundering and
other criminal financial activity and assist us in designing effective
regulations and practices to defeat these threats. We will continue to
improve the effectiveness of our partnership with the private sector
by: (1) increasing the amount of information the U.S. Government
provides with respect to its ongoing efforts; (2) providing feedback on
the usefulness of the private sector's efforts; (3) educating the
private sector to recognize terrorist financing-related typologies and
``red flags;'' (4) reinvigorating the law enforcement-industry
partnership to develop ``best practices'' for corporations to follow to
avoid trade-based money-laundering transactions, and (5) enhancing
ongoing due diligence efforts, while balancing the demands on
institutions.
These goals will enhance the ability of both the public and private
sectors to insulate the financial system and charitable sector from
abuse, while ensuring the free flow of capital and commerce and the
continued practice of charitable giving. We will advance these goals
through existing mechanisms, such as the Bank Secrecy Act Advisory
Group (BSAAG), and publications, such as the SAR Activity Review issued
by FinCEN. In addition, Treasury officials are constantly engaged with
the private financial sector on money laundering and terrorist
financing issues through various conferences and meetings with trade
associations and industry professionals, both domestically and
internationally. We will continue to take advantage of these
opportunities whenever and wherever possible to advance our partnership
with the private sector in combating financial crime.
Treasury is also engaged in sustained outreach with the charitable
sector. In November 2002, the Treasury Department issued Anti-Terrorist
Financing Guidelines: Voluntary Best Practices for U.S.-Based Charities
to enhance donor awareness of the kinds of practices that charities may
adopt to reduce the risk of terrorist financing. Since then, Treasury
officials have participated in several conferences within the
charitable sector to explain these Guidelines and new developments in
the campaign against terrorist financing. Earlier this week, the
Treasury Department hosted an outreach event with representatives from
approximately 30 charitable organizations to further explain and
discuss the Guidelines and developments related to terrorist abuse of
the charitable sector. We anticipate conducting similar outreach
meetings with the charitable sector to continue advancing our
collective interests in facilitating charitable giving by protecting
charitable funds from terrorist abuse.
Regulation and Supervision
We have taken many steps to investigate and regulate sectors that
offer opportunities for terrorists and other criminals to raise and
move funds. Through outreach efforts such as those described above, we
have built relationships with the private sector to enlist their
support in broadening and deepening the regulatory structure and
reporting requirements in the domestic financial system. We are
creating a level-playing field and attacked money laundering and
terrorist financing through non-banking financial systems under the USA
PATRIOT Act, subjecting new sectors of the economy (the securities and
futures industries) to anti-money laundering controls like
recordkeeping and reporting requirements previously imposed primarily
on banks.
In addition to the successful implementation and applications of
Sections 314(a) and 311 as discussed above, a recent example of our
implementation of the USA
PATRIOT Act is Section 326. This provision mandates basic, uniform
customer identification and verification procedures for individuals and
businesses that open accounts with banks (including thrifts and credit
unions), securities brokers, mutual funds, and future commission
merchants.
The Future of Treasury's Efforts in the Battle Against Terrorist
Financing and Financial Crimes
The efforts and accomplishments of the past year have shown two
things. First, the Treasury Department plays and must continue to play
a critical role in driving national policies related to terrorist
financing, money laundering, financial crimes, and economic sanctions.
The is well placed--given its authorities, expertise, and contacts--to
deal with issues that cut across several disciplines and require
concerted attention to identify and interdict tainted financial flows.
Second, these
efforts have to be improved, amplified, and supported because of their
growing importance at home and abroad.
We have had real success in fighting this war, but as the recent
bombings in
Madrid and Riyadh demonstrate, there is no end to our work. Our enemies
are numerous, resourceful, and dedicated, and they continually adapt to
the changing environment. We must do the same. We can and must do
more--using every tool that we have. We must also recognize that--
unfortunately--we are in this fight for the long-term--and so the
Department needs to be organized to reflect that reality.
This is precisely why the Administration has collaborated with
Congress and this Committee to develop a new Treasury structure--a high
profile office led by an Under Secretary--one of only three in the
Department--and two Assistant Secretaries. It is an office that will
bring together Treasury's intelligence, regulatory, law enforcement,
sanctions, and policy components.
I want to specifically note the very important contributions made
by the Chairman and the Ranking Member of this Committee, which
resulted in an exchange of letters with Secretary Snow at the end of
last year. I also want to thank Congress for establishing the new
Assistant Secretary for Intelligence position. Since that time, the
Administration has worked very hard to implement the concepts described
in those letters.
On March 8, 2004, Treasury formally announced the creation of this
office, entitled the Office of Terrorism and Financial Intelligence
(TFI) in the Department of the Treasury. On March 10, the President
announced that he would nominate Stuart Levey, currently the Principal
Associate Deputy Assistant Attorney General, for the Under Secretary
position, and Juan Zarate, currently the Deputy Assistant
Secretary in charge of terrorist financing at Treasury, for one of the
two Assistant Secretary positions. Both of those nominations have since
been transmitted to the Senate. We are working diligently to identify
the most qualified individual to serve as the Assistant Secretary for
Intelligence. In the meantime, we have appointed a very capable Deputy
Assistant Secretary to get this office up and running.
The creation of TFI will redouble Treasury's efforts in at least
four specific ways. First, it will allow us to better develop and
target our intelligence analysis and financial data to detect how
terrorists are exploiting the financial system and to design methods to
stop them. TFI will be responsible for producing tailored products to
support the Treasury Department's contributions to the war against
terrorist financing. Second, it will allow us to better coordinate an
aggressive enforcement program, including the use of important new
tools that the USA PATRIOT Act gave to Treasury. Third, it will help us
continue to develop the strong international coalition to combat
terrorist financing. A unified structure will promote a robust
international engagement and allow us to intensify outreach to our
counterparts in other countries. Fourth, it will ensure accountability
and help achieve results for this essential mission.
TFI will have two major components. An Assistant Secretary will
lead the Office of Terrorist Financing. The Office of Terrorist
Financing will build on the functions that have been underway at
Treasury over the past year. In essence, this will be the policy and
outreach apparatus for the Treasury Department on the issues of
terrorist financing, money laundering, financial crime, and sanctions
issues. The office will help to lead and integrate the important
functions of OFAC and FinCEN.
This office will continue to assist in developing, organizing, and
implementing U.S. Government strategies to combat these issues of
concern, both internationally and domestically. This will mean
increased coordination with other elements of the U.S. Government,
including law enforcement and regulatory agencies. This office will
continue to represent the United States at international bodies
dedicated to fighting terrorist financing and financial crime such as
the Financial Action Task Force and will increase our multilateral and
bilateral efforts in this field. We will use this office to create
global solutions to these evolving international problems. In this
regard, we will also have a more vigorous role in the implementation of
measures that can affect the behavior of rogue actors abroad.
Domestically, this office will be charged with continuing to
develop and implement the money laundering strategies as well as other
policies and programs to fight financial crimes. It will continue to
develop and help implement our policies and regulations in support of
the Bank Secrecy Act and the USA PATRIOT Act. We will further increase
our interaction with Federal law enforcement and continue to work
closely with the Criminal Investigators at the IRS--including
integration of their Lead Development Centers, such as the one in
Garden City, New York--to deal with emerging domestic and international
financial crimes of concern. Finally, this office will serve as a
primary outreach body--to the private sector and other stakeholders--to
ensure that we are maximizing the effectiveness of our efforts.
A second Assistant Secretary will lead the Office of Intelligence
and Analysis. In determining the structure of OIA, we have first
focused on meeting our urgent short-term needs. We have assembled a
team of analysts to closely monitor and review current intelligence
threat reporting. These analysts, who are sitting together in secure
space in the Main Treasury building, are ensuring that Treasury can
track, analyze any financial angles, and then take any appropriate
action to counter these threats. Treasury will make sure to coordinate
with all relevant agencies, including the Terrorist Threat Integration
Center (TTIC).
In the near-term, the Department plans to further develop our
analytical capability in untapped areas, such as strategic targeting of
terrorist financial networks and their key nodes. We also plan to
analyze trends and patterns and nontraditional targets such as hawalas
and couriers. In order to accomplish these goals, we plan to hire
several new analysts as well as to draw on additional resources from
OFAC and FinCEN. The precise number of analysts has yet to be
determined--as we are still ensuring that we have the proper leadership
in place and that we do not disrupt our important ongoing efforts.
Certain specifics, such as the physical location of the analysts, will
be determined by a number of factors, including expertise, skills mix,
and lessons learned as we go.
This Assistant Secretary will focus on enhancing the Department's
relations with the intelligence community--making sure that we are not
duplicating the efforts of other agencies, but instead, are filling any
gaps in intelligence targets. Ultimately, we envision that all of
Treasury's intelligence analysis will be coordinated through the Office
of Intelligence and Analysis. This will include intelligence support
for Treasury's senior leadership on the full range of political and
economic issues
We are currently confronting the question of staffing and funding
for TFI. As Secretary Snow wrote in an April 16 letter to Members of
Congress, President Bush has proposed significant spending increases in
his fiscal year 2005 Budget to continue the fight against terror
financing and financial crimes. The Secretary also stated that the
Department would use currently appropriated fiscal year 2004 resources
to ensure that TFI has the necessary resources to staff the new
offices, as well as to bolster capabilities of existing functions.
I am able to provide some more detail today about those issues. We
believe that through a combination of prudent and targeted use of
resources, Treasury will be able to spend up to an additional $2
million on staffing and other start-up needs of TFI during the rest of
the current fiscal year. We anticipate that we will be able to bring on
board up to 15 new personnel during the remainder of the fiscal year.
Looking forward to the next fiscal year, we have not made firm
decisions about how much money we will devote to the new office. We
will evaluate our needs, and we are prepared to make the hard decisions
about how to allocate our limited resources. Fighting the war on terror
is a priority of the President and of this Department--and we will
spend whatever we need to carry out our duties in a responsible manner.
Of course, we will work with the Congress in making those decisions.
As can be seen from the description above, TFI will enhance the
Treasury Department's ability to meet our mission and to work
cooperatively with our partners in the law enforcement and intelligence
communities. We are confident TFI will compliment and not duplicate the
important work being done by the Department of Justice and Department
of Homeland Security, and by the various intelligence agencies, and
will be fully integrated into already established task forces and
processes.
President Bush and this entire Administration are firmly committed
to waging a relentless war on terrorists and those who offer them
support. Our fight is guided by 5 goals.
To leverage all of the Government's assets to identify and
attack the financial infrastructure of terrorist groups;
To focus Treasury's powers on identifying and addressing
vulnerabilities in domestic and international financial systems,
including informal financial systems;
To direct our Government's efforts on financial missions of
critical importance to our national security interests, such as
proliferation finance and identifying and recovering stolen Iraqi
assets;
To promote a stronger partnership with the private financial
sector by sharing more complete and timely information;
To improve domestic and international coordination and
collaboration by combating financial crime by increasing the
frequency and value of financial information shared across our
Government and with other governments.
These goals are critical to protecting and promoting our national
security interests. The new office of TFI will improve our ability to
advance these goals by further consolidating Treasury's unique assets
in the campaign against financial crime, and integrating and
coordinating these assets with those of the interagency community.
I look forward to continuing to work with the Congress and this
Committee in the creation of TFI and in advancing our mission in the
war on terrorism and financial crime.
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PREPARED STATEMENT OF WILLIAM J. FOX
Director, Financial Crimes Enforcement Network
U.S. Department of the Treasury
April 29, 2004
Chairman Shelby, Senator Sarbanes, and Members of the Committee,
thank you for this opportunity to appear before you today to discuss
the mission of the Financial Crimes Enforcement Network (FinCEN) and
the important role it plays in the U.S. Government's efforts to
understand, detect, and prevent terrorist financing. This Committee's
leadership on issues relating to terrorist financing and money
laundering has been essential. The guidance and support you have
provided to FinCEN through the years have been invaluable, and we hope
we can continue to draw upon them at this critical juncture in the
development of improved coordination within our Government of anti-
money laundering and counterterrorism efforts.
I became FinCEN's fourth director on December 1, 2003. Before I
came to FinCEN, I was working as the Principal Assistant to the General
Counsel of the Treasury Department on issues relating to terrorist
financing, which were issues that occupied a great deal of my time.
Coming from the Department, I understood, to a large extent, the nature
of FinCEN's responsibilities and what it was doing to carry out the
obligations imposed by these responsibilities. In these 5 months, I
have done a great deal of listening and learning from inside and
outside of FinCEN. I have met extensively with the law enforcement and
intelligence communities that we serve and the financial industry that
we help regulate. I have met with and listened to the staffs of
interested committees in the Congress--including this Committee. I have
met with some of my counterparts in foreign governments and
communicated with many more; and, of course, I have had a continuous
dialogue and received tremendous support from those at Treasury--
including Secretary Snow, Deputy Secretary Bodman, and Deputy Assistant
Secretary Zarate.
Let me tell you some of what I have found. I have found an
organization populated with employees with diverse and highly
specialized talents, who are extremely dedicated to the Agency and its
mission. I have found an agency that is a good steward of the human and
capital resources that have been provided by the Congress. However, I
have also found an agency facing many important challenges--challenges
relating to the effective and efficient management of the extremely
sensitive data collected under the Bank Secrecy Act; challenges
relating to its analytic staff and the analytic product they produce;
challenges relating to the administration of its regulatory programs
under the Bank Secrecy Act; challenges relating to refocusing its
important partnerships with financial intelligence units around the
world--the Egmont Group; and, challenges relating to the Agency's
present organizational structure. Since each of these challenges
relates to the specific topic of this hearing today, I will address
each of them in this statement.
FinCEN's mission is to help safeguard the financial system of the
United States from being abused by criminals and terrorists. FinCEN
works to accomplish its mission through: (1) administration of the Bank
Secrecy Act--a regulatory regime that provides for the reporting of
highly sensitive financial data that are critical to investigations of
financial crime; (2) dissemination of the data reported under the Bank
Secrecy Act to law enforcement and, under appropriate circumstances,
the intelligence community; (3) analysis of information related to
illicit finance--both strategic and tactical analysis; and, (4) the
education and outreach provided to law
enforcement and the financial industry on issues relating to illicit
finance. FinCEN has many attributes that are key to understanding the
Agency and how it works to achieve its mission:
FinCEN is a regulatory agency. FinCEN has an obligation to
administer the Bank Secrecy Act, the principal regulatory statute
aimed at addressing the problems of money laundering and other
forms of illicit finance, including terrorist financing. It is
responsible for shaping and implementing this regulatory regime
and, in concert with the functional bank regulators and the
Internal Revenue Service, for ensuring compliance with that regime.
The Agency is also charged with protecting the integrity and
confidentiality of the information collected under the Bank Secrecy
Act.
FinCEN is a financial intelligence agency. While not a member
of the intelligence community, FinCEN, with the help of the
Internal Revenue Service, collects, houses, analyzes, and
disseminates financial information critical to investigations of
illicit finance.
FinCEN is a law enforcement support agency. While FinCEN has
no criminal investigative or arrest authority, much of our effort
supports the investigation and successful prosecution of financial
crime.
FinCEN is a network. We are not directed to support one agency
or a select group of agencies. We make our information, products
and services available to all agencies that have a role in
investigating illicit finance. In fact, we network these agencies.
Our technology tells us when different agencies are searching the
same data and we put those agencies together--avoiding
investigative overlap and permitting the agencies to leverage
resources and information.
FinCEN fits perfectly in the Department of the Treasury; possibly
even more so after the Homeland Security reorganization rather than
before that reorganization. The creation of the Office of Terrorism and
Financial Intelligence within Treasury only enhances that fit. FinCEN
will be able to help ``operationalize'' Treasury's policy priorities on
these important issues and our operational analytic work will
complement the analysis that will eventually be done in the newly
created Office of
Financial Intelligence. I believe this coordinated effort will lead to
a greater emphasis and understanding of money laundering, terrorist
financing, and other forms of illicit finance not only at Treasury, but
also within the United States, and that will make us all safer. FinCEN
will also benefit from the Department-wide, policy-coordinating role
this office will provide.
FinCEN's Counterterrorism Strategy
The single, most important operational priority for FinCEN is
counterterrorism support to law enforcement and the intelligence
community. To emphasize the importance of this work we have improved
and are now implementing a comprehensive counterterrorism strategy that
draws from our analytic support to law enforcement, our regulatory
tools and expertise, and our international networking capabilities. We
believe the implementation of this strategy will strengthen our focus
and ensure that FinCEN is more active and aggressive rather than
reactive on issues relating to terrorism. The strategy has five basic
components.
Analysis of Terrorist Financing Suspicious Activity Reports
FinCEN analyzes suspicious activity reports for both tactical and
strategic value. At the tactical level, we are implementing a program
in which every report that indicates a connection to terrorism is
immediately reviewed and validated and then analyzed with other
available information. This information will be packaged and referred
to the Terrorist Threat Integration Center (TTIC), and to the JTTF's,
FBI-TFOS, and other relevant law enforcement. Moreover, this
information will be stored in a manner that facilitates its access and
availability for analysis. Just last week, this process resulted in
important information being passed along to an appropriate law
enforcement agency. On April 21, 2004, a bank in North Carolina
contacted FinCEN's Financial Institutions Hotline regarding the
suspicious financial activity of one of its customers. This person who
had been a customer of the bank opened an account in 1999, and
maintained an average balance of $1,200 to $1,500 until April 14, 2004,
when he deposited a total of $84,000 in less than a week. Through
analysis of all available information, we learned that this person was
a foreign national wanted by U.S. law enforcement authorities as a
``deportable felon.'' This matter was turned around in approximately a
day.
At the strategic level, we are also devoting analysts to study Bank
Secrecy Act data and all other available information to gain an
increased understanding of methodologies, typologies, geographic
patterns of activity and systemic vulner-
abilities relating to terrorist financing. These analysts will focus on
regional and systemic ``hot spots'' for terrorist financing, studying
and analyzing all sources of information. Such focus, which produced
the study mandated by the Congress on Informal Value Transfer Systems,
can significantly add to the knowledge base of law enforcement. For
example, we have begun a process to comprehensively study illicit trade
in diamonds and other precious stones and metals and the links to
terrorist finance. Although this initiative is currently underway, in
order to fully implement it, we will need to upgrade analysts' security
clearances and obtain equipment appropriate for the handling of
national security information.
USA PATRIOT Act Sections 311 and 314 Implementation
Some of the new tools afforded us through the USA PATRIOT Act are
proving to be invaluable in the war against terrorist financing,
particularly Section 314 of the Act. FinCEN also has initiated a
program to provide the analytic, regulatory, and legal resources needed
to support effective implementation of Section 311 by the Treasury
Department. While this program captures targets involved in money
laundering and other illicit finance, I have directed my staff to give
priority to the proactive targeting of those financial institutions and
jurisdictions that are involved, wittingly or unwittingly, in the
financing of terror. This prophylactic measure goes to the very heart
of FinCEN's mission--to safeguard the financial system of the United
States from money launderers and the financiers of terror.
Building on a successful pilot program that we began with the
Bureau of Immigration and Customs on a Section 314(a) money-laundering
request, FinCEN is now dedicating several analysts to apply this
program to all Section 314(a) terrorism requests. Specifically, the
analysts will run all Section 314(a) terrorism-related requests against
Bank Secrecy Act data concurrent with these requests being sent to
financial institutions. Based on this initial data review, the law
enforcement requester will then be able to request a more in-depth
analysis if desired.
International Cooperation and Information Sharing
FinCEN will increase the exchange of terrorist financing
investigative and analytical information with other foreign financial
intelligence units around the world. We are implementing a program
where FinCEN will automatically request information from relevant
financial-intelligence-unit counterparts as part of any terrorism
related analysis project. As part of this program, we are also
upgrading our response to incoming requests for information from
financial intelligence units by providing appropriate information and
analysis from all sources of information.
Terrorism Regulatory Outreach
We will continue our work in improving our ability to provide
information to the regulated community to better identify potential
terrorist financing activity. One area of particular focus will be
money services businesses. Money services businesses continue to
require more attention and resources, and FinCEN will undertake an
initiative to educate segments of the industry most vulnerable to
terrorist abuse. These segments include small businesses that typically
offer money remittance services, check cashing, money orders, stored
value products, and other informal value transfer systems. As we
learned from the attacks of September 11, funds used to finance
terrorist operations can be and have been moved in small amounts using,
for example, wire transfer, traveler's check, and automated teller
machine services. I have directed FinCEN's Office of Regulatory
Programs and Office of Strategic Analysis to enhance our outreach
program that will include training on how terrorists have used and
continue to use money services businesses; the reason for and
importance of the registration requirement for money services
businesses; and the importance of complying with reporting requirements
of the Bank Secrecy Act, especially suspicious activity reporting. We
are planning to streamline suspicious activity reporting for small
money services businesses with a simplified form.
Analytic Skill Development
I have directed that FinCEN make training of personnel the highest
human resource management priority. The top priority of this new
program will be analytic skill development relating to terrorist
financing. We plan to begin by seeking reciprocal opportunities for
terrorist finance analytic skill development within law
enforcement, the Egmont Group, the intelligence community, and the
financial industry. This initiative is intended to build a foundation
for continuous improvement of our analytic assets through cross
training and diversification; production of joint terrorist financing
threat assessments and other reports; understanding of intelligence
processes; the international context of terrorist financing; and the
financial industry perspective. In addition, we will need to support
training focused on financial forensics, language skills, and
geographically targeted studies that focus on culture, infrastructure,
and other unique aspects of a particular region.
I believe the full implementation of this strategy will materially
assist the Department of the Treasury and the United States in
addressing the financing of terror. Approaching this problem in a
systemic way with dedicated resources is, in our view, the best way to
make this strategy a success.
FinCEN's Near-Term Challenges
As I mentioned before, FinCEN is facing a number of significant
challenges. Because each of these challenges affects FinCEN's
effectiveness in contributing to the important issues addressed at this
hearing today, I would like to raise these challenges with the
Committee.
Security and Dissemination of Bank Secrecy Act Information
As the administrator of the Bank Secrecy Act, there is no duty I
view as critical as the effective collection, management, and
dissemination of the highly sensitive and confidential information
collected under that Act. If FinCEN does nothing else, it must ensure
that data are properly collected, are secure and are appropriately and
efficiently disseminated. This is FinCEN's core responsibility.
Regarding security of information, recent press reports have
reported the unauthorized disclosure of suspicious activity reports.
Such disclosures simply cannot be tolerated, as they undermine the
entire reporting program. Those who report this information will become
increasingly reticent to file what amounts to a confidential tip to law
enforcement if they believe their report will end up on the front page
of The Washington Post or The Wall Street Journal. The release of this
information by those to whom it was entrusted threatens everything that
we all have worked so hard to build. I know I do not have to convince
this Committee of the importance of this reporting system. It has
yielded, and will continue to yield, information that is critical to
the investigation of money laundering and illicit finance. I also wish
to assure this Committee and the American people that FinCEN is acutely
aware of the privacy interests implicated in this reporting and the
need to guard against inappropriate disclosure of such information.
Unauthorized disclosure of information will be immediately referred to
law enforcement for investigation and dealt with as severely as the law
permits. Our international partners who inappropriately disclose
information we have entrusted to them will jeopardize our agreements to
share information with them.
However, this issue goes deeper than unauthorized disclosures. In
my view, FinCEN must change the way it houses and provides access to
information collected under the Bank Secrecy Act. Currently, our data
are accessed by most of our customers through an outmoded data
retrieval system. This system does not have the robust data mining
capabilities or analytical tools we employ at FinCEN. This has led many
of our customers to ask for wholesale copies of the data, or direct
access to the data in a way that will not permit us to perform our
responsibilities relating to the administration and management of the
data. Accordingly, we must create a system that provides robust data
mining and analytical tools to our customers in law enforcement and
that preserves our ability to: (1) effectively administer and
secure the information; (2) network those persons who are querying the
data to prevent overlapping investigations and encourage efficient use
of law enforcement resources; and, (3) develop and provide adequate
feedback to the financial industries we regulate, which will ensure
better reporting. That system is called ``BSA Direct.''
When fully implemented, BSA Direct will make available robust,
state of the art, data mining capabilities and other analytic tools
directly to law enforcement. We plan to provide all access to these
data through BSA Direct, working with our law enforcement customers to
ensure their systems extract the maximum value from the Bank Secrecy
Act reporting. We will be exploring ways to enable these agencies to
integrate the Bank Secrecy Act reporting with their other systems while
maintaining, and even improving our ability to audit and network the
use of the data and obtain feedback concerning their value. This system
will provide us the capability to discharge our responsibilities
relating to the administration of these sensitive data: Security and
access control, networking, and feedback. This system will also
significantly enhance our coordination and information sharing
abilities, as well as our ability to safeguard the privacy of the
information. We have already started work on this system. Based on
preliminary studies, we estimate that this system will cost
approximately $6 million to build. We are in the process of developing
BSA Direct with resources in the fiscal year 2005 request and the
forfeiture fund.
Enhancing FinCEN's Analytical Capabilities
Another challenge FinCEN is facing relates to its analytic
capabilities. In my view, FinCEN must move away from its current
emphasis on data checks and data retrieval, and move its analytic
resources toward more robust and sophisticated analysis. FinCEN had
moved to data checks and data retrieval in response to criticisms about
turn around on often simple requests for information. Now, as our
systems improve, our customers will be able to retrieve data
themselves, which will give FinCEN more time and resources for
analysis.
I believe that FinCEN can and must provide value through the
application of our focused financial analytic expertise to mining
information and providing link analyses that follow the money of
criminals and terrorists, or identify systemic or geographic weaknesses
to uncover its source or the existence of terrorist networks. For
example, in addition to providing geographic threat analysis for law
enforcement, FinCEN has been studying systemic trends in money
laundering and terrorist financing. We were instrumental in bringing
the Black Market Peso Exchange system to the forefront of policy
decisions, and we are focusing on other trends and patterns that we now
see emerging in the global market. I recently made a trip to Dubai to
participate in the growing dialogue on the potential use of diamonds
and other commodities for illicit purposes, including money laundering
and terrorist financing. This is part of our focus on and study of what
may be another iteration of money laundering and terrorist financing--
commodity-based systems.
In my view, while FinCEN still has some of the best financial
analytic talent in the U.S. Government, the challenges we face will
require us to further develop that talent to enable the full
exploitation and integration of all categories of financial
information--well beyond Bank Secrecy Act information. I have directed
FinCEN's managers to concentrate on training, as well as the hiring of
new, diverse financial analytic expertise.
Enhancing FinCEN's Technology
As I have mentioned, information sharing is critical to our
collective efforts to detect and thwart criminal activity and that is
why I believe enhancing our technological capabilities is extremely
important. Section 314(a) of the USA PATRIOT Act allows law enforcement
to query U.S. financial institutions about suspects, businesses, and
accounts in money laundering and counterterrorism investigations.
FinCEN facilitates this interaction between the financial industry and
law enforcement by electronically sending law enforcement requests to
various banks who in turn check their records and relay the information
back to FinCEN to then provide to the requestor. This saves law
enforcement time and resources. We are currently enhancing the Section
314(a) electronic capabilities to allow for the originating request to
be made to FinCEN via a secure website. This system is an example of
how critical technology is to our law enforcement counterparts.
We must continue to work to enhance the development of the USA
PATRIOT Act Communications System, a system that permits the electronic
filing of reports required under the Bank Secrecy Act. This system was
developed and brought online under a very tight legislative deadline.
FinCEN received the E-Gov award for its work on this system. Filing
these forms online is not only more efficient, but it also will help
eliminate some of the data errors and omissions.
As of April 19, 2004, 1.2 million Bank Secrecy Act forms had been
electronically filed through this system. We now support nearly 1,100
users, which include 15 of the top 25 filers of Bank Secrecy Act
information. These top 25 filers accounted for approximately 50 percent
of all Bank Secrecy Act forms filed in fiscal year 2003. While this is
all good news, the bad news is that the current number of forms filed
electronically remains quite small on a percentage basis. The 1.2
million forms filed represents only approximately 5 percent of the
universe of all Bank Secrecy Act reports filed. I have directed our USA
PATRIOT Act Communications System team to reach out to the financial
industry and determine what needs to be done to convince them to file
electronically. As we learn about what is holding institutions back
from filing, I have directed our team to work closely with system
developers to build the system stability and tools necessary to improve
the overall percentage of filing.
FinCEN presently lacks the capacity to detect Bank Secrecy Act form
filing anomalies on a proactive, micro level. BSA Direct, which will
integrate Bank Secrecy Act data (including currency transactions
reports, currency transaction reports by casinos, and currency
transaction reports by casinos--Nevada) into a modern data warehouse
environment, will include tools to flag Bank Secrecy Act form filing
anomalies for action by FinCEN and/or referral to appropriate
authorities. In the meantime, FinCEN is developing a request to the
Detroit Computing Center to provide periodic exception reports on
financial institutions whose Bank Secrecy Act form filing-volume varies
beyond prescribed parameters during prescribed time frames. While we
will not be able to conduct the sophisticated monitoring that will be
available with BSA Direct, this interim step should produce an alert in
the event of a catastrophic failure to file forms, as was experienced
in the Mirage case in which the Mirage Casino in Las Vegas failed to
file over 14,000 currency transaction reports in an 18-month period.
Enhancing FinCEN's Regulatory Programs
The administration of the regulatory regime under the Bank Secrecy
Act is a core responsibility for FinCEN. Given the nature of our
regulatory regime--a risk-based regime--our partnership with the
diverse businesses in the financial services industry is the key to our
success. I must tell you that it is my perspective that the financial
industry is generally a model of good corporate citizenship on these
issues. The industry's diligence and commitment to the recordkeeping
and reporting requirements of the Bank Secrecy Act is by and large
outstanding. The industry's cooperation with FinCEN in implementing
many of the provisions of the USA PATRIOT Act has strengthened the
foundation of our efforts to safeguard the financial system from
criminal abuse and terrorist financing. I have met with many of our
industry partners in the last several months, both old and new, and I
have been struck with how concerned they are that the information they
provide is helpful and that it is being reviewed and used. In turn,
FinCEN is committed to enhancing the guidance they need as they strive
to meet the requirements and objectives of new regulations.
The challenge before FinCEN on this issue is simple: We must ensure
the remaining regulatory packages required by the USA PATRIOT Act are
completed and implemented. Moreover, as we work with our regulatory
partners to implement this regulatory regime, we must provide constant
feedback and guidance. We have asked the industry to create anti-money
laundering programs that are risk-based--custom tailored to each
institution based upon the business in which that institution engages
and the customers that institution has. We must find ways to help the
industry define that risk. Development of secure web-based systems that
will foster the communication discussed above is a step in the right
direction. But we must continue to find new and better ways to reach
out to the industry. They understand the threat money laundering and
illicit finance poses to our financial system and they are willing to
help.
Perhaps the most significant challenge lies in ensuring that
financial institutions are appropriately examined for compliance. As
you know, we have issued and will continue to issue anti-money
laundering program regulations that will bring new categories of
businesses under this form of Bank Secrecy Act regulation for the first
time. This reflects the judgment of this Committee embodied in the USA
PATRIOT Act, as well as ours, that to effectively guard against money
laundering and the financing of terrorism, we must ensure that
industries with potential vulnerabilities are taking reasonable steps
to protect themselves.
But the expansion of the anti-money laundering regime comes with
the additional responsibility and challenges of examining thousands of
businesses for compliance. We have relied on the Internal Revenue
Service to examine those non-bank institutions. The addition of the
insurance industry and dealers in precious stones, metals, and jewels,
two categories of financial institutions for which we will shortly
issue final anti-money laundering program regulations, will themselves
stretch the resources of agencies responsible for examination. We must
find ways to ensure that these regulatory programs are implemented in a
fair and consistent manner that is focused on achieving the goals of
the Bank Secrecy Act. Although difficult, this is an issue that must be
resolved.
Enhancing FinCEN's International Programs
FinCEN's international initiatives and programs are driven by a
stark reality: Finance knows no borders. Next year will mark the tenth
anniversary of the founding of the Egmont Group. The Egmont Group is an
international collection of ``financial intelligence units''--entities,
which, like FinCEN, are charged with the collection and analysis of
financial information to help prevent money laundering and other
illicit finance. The Egmont Group has achieved remarkable growth since
its inception in 1995. Membership has risen from 6 charter members to
84.
The Egmont Group serves as an international network, fostering
improved communication and interaction among financial intelligence
units (FIU's) in such areas as information sharing and training
coordination. The goal of the Group is to provide a forum for FIU's
around the world to improve support to their respective
governments in the fight against financial crimes. This support
includes expanding and systematizing the exchange of financial
intelligence information, improving expertise and capabilities of
personnel employed by such organizations, and fostering better, more
secure communication among FIU's through application of technology.
Egmont's secure web system permits members of the group to
communicate with one another via secure e-mail, posting and assessing
information regarding trends, analytical tools, and technological
developments. FinCEN, on behalf of the Egmont Group, maintains the
Egmont Secure Web. Currently, 76 of the 84 members (90 percent) are
connected to the secure website. I am very pleased to announce that
FinCEN will launch a new and more efficient secure website for Egmont
in June. We expect this new site will generate more robust usage, which
will enhance international cooperation between members.
FinCEN has played a significant role in the growth and health of
the Egmont Group and it maintains bilateral information sharing
agreements with financial intelligence units around the world. However,
in my view, this program has not received the priority it should have
in recent times. Merely because of the simple statement I made
earlier--that finance knows no borders--we must step up our
international engagement with our counterparts around the world. Our
plan is to do three principal things:
Lead the Egmont Group to begin focusing on actual member
collaboration. Egmont members should be collaborating in a more
systemic way together to address issues relating to terrorist
financing, money laundering, and other illicit finance at both a
tactical and strategic level.
Enhance the FinCEN analytical product we provide to our global
counterparts when asked for information. Today, we are principally
providing the results of a data check. We think we owe our
colleagues more. As noted before, we will also be making more
requests for information and analysis from our partners--
particularly when the issue involves terrorist financing or money
laundering.
Foster exchanges of personnel with financial intelligence
units around the world. We have already begun discussions with
certain counterparts about such an exchange and we are hopeful we
can begin this program soon. The benefits of this type of exchange
are obvious. It is the best way we can learn together how to
address a truly global problem.
FinCEN will also enhance its support for Treasury policy officials'
work in the Financial Action Task Force (FATF) and FATF regional
bodies. We will continue our work with the State Department in the
drafting and editing of the ``International Narcotics Control Strategy
Report.'' Finally, we will continue our important efforts on financial
intelligence unit outreach and training. Presently, we are working with
the United Arab Emirates on a South Asia FIU Conference for
Afghanistan, Bangladesh, India, Maldives, Pakistan, and Sri Lanka.
Additionally, FinCEN has given its support and participation to the
``3 + 1'' Working Group on terrorist financing in the tri-border area.
The issues of information sharing and the bolstering of FIU's in the
participating states of Argentina, Brazil, and Paraguay are critical
issues for the U.S. delegation to the ``3 + 1'' Working Group led by
the Department of State's Office of Counterterrorism.
FinCEN's Organizational Structure
We presently are working closely with Treasury on our efforts to
more effectively marshal our resources at FinCEN. I have proposed a
realignment of FinCEN that reflects my priorities to enhance FinCEN's
analytical component and improve its focus and services devoted to
outreach, education, and technology to both its clients and the
community related under the Bank Secrecy Act. We have briefed your
staff on our proposals and received valuable feedback, which we have
incorporated.
Essentially, we are proposing to pull out the nonanalytical
functions presently entangled in FinCEN's analytical units so that
those managers and analysts can focus exclusively on analysis. We are
proposing to combine all client services and systems under a single
manager in order to ensure that our technology is coordinated and
better focused on serving its users. Similarly, I want FinCEN's
organizational structure to highlight the importance of education and
training of our law enforcement clients and the regulated community.
Only by working closely and cooperatively with these groups can FinCEN
truly understand what services it must provide and what requirements it
must meet to assist in the detection, prevention, and dismantling of
terrorist financing.
Conclusion
Mr. Chairman, we look to this Committee for your continued support
as we endeavor to enhance our contributions to the war on financial
crime and terrorist financing. This concludes my remarks and I will be
happy to answer your questions.
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PREPARED STATEMENT OF R. RICHARD NEWCOMB
Director, Office of Foreign Assets Control
U.S. Department of the Treasury
April 29, 2004
Introduction
Mr. Chairman, Members of the Committee, thank you for the
opportunity to testify on the Office of Foreign Assets Control's
efforts to combat terrorist support networks forms an important part of
the Treasury Department and our Government's national security mission.
It is a pleasure to be here, as we discuss Treasury's new office and
its role in these areas. Please allow me to begin with an overview of
our overall mission and conclude with our strategies for addressing the
threat of international terrorism.
OFAC'S Core Mission
The primary mission of the Office of Foreign Assets Control (OFAC)
of the U.S. Department of the Treasury is to administer and enforce
economic sanctions against targeted foreign countries, and groups and
individuals, including terrorists and terrorist organizations and
narcotic traffickers, which pose a threat to the national security,
foreign policy, or economy of the United States. OFAC acts under
general Presidential wartime and national emergency powers, as well as
specific legislation, to prohibit transactions and freeze (or
``block'') assets subject to U.S. jurisdiction. Economic sanctions are
intended to deprive the target of the use of its assets and deny the
target access to the U.S. financial system and the benefits of trade,
transactions, and services involving U.S. markets. These same
authorities have also been used to protect assets within U.S.
jurisdiction of countries subject to foreign occupation and to further
important U.S. nonproliferation goals.
OFAC currently administers and enforces 27 economic sanctions
programs pursuant to Presidential and Congressional mandates. These
programs are a crucial element in preserving and advancing the foreign
policy and national security objectives of the Untied States, and are
usually taken in conjunction with diplomatic, law enforcement, and
occasionally military action.
OFAC's historical mission has been the administration of sanctions
against target governments that engage in policies inimical to U.S.
foreign policy and security interests, including regional
destabilization, severe human rights abuses, and repression of
democracy. Recent programs in the Western Balkans, Zimbabwe, Sudan, and
other regions reflect that focus. Since 1995, the Executive Branch has
increasingly used its statutory blocking powers to target international
terrorist groups and narcotics traffickers.
Many ``country-based'' sanctions programs are part of the U.S.
Government's response to the threat posed by international terrorism.
The Secretary of State has designated seven countries--Cuba, North
Korea, Iran, Libya, Iraq, Sudan, and Syria--as supporting international
terrorism. Three of these countries are subject to comprehensive
economic sanctions: Cuba, Iran, and Sudan (1997). Comprehensive
sanctions have been imposed in the past against Libya, Iraq, and North
Korea. Syria is not currently subject to comprehensive sanctions;
however, certain financial transactions involving Syria are regulated.
OFAC also administers a growing number of ``list-based'' programs,
targeting members of government regimes and other individuals and
groups whose activities are inimical to U.S. national security and
foreign policy interests. In addition to OFAC's terrorism and narcotics
trafficking programs, these include sanctions against persons
destabilizing the Western Balkans and against the regimes in Burma and
Zimbabwe. OFAC also administers programs pertaining to
nonproliferation, including the protection of assets relating to the
disposition of Russian uranium, and to trade in rough diamonds.
Administration and Transparency
Organization
OFAC has grown over the past 18 years from an office with 10
employees administering a handful of programs to a major operation of
144 employees administering 27 programs. A large percentage of OFAC's
professional staff have had prior professional experience in various
areas of the law, finance, banking, law enforcement, and intelligence.
To accomplish its objectives, OFAC relies on good cooperative working
relationships with other Treasury components, Federal agencies,
particularly State and Commerce, law enforcement agencies, the
intelligence community, domestic and international financial
institutions, the business community, and foreign governments.
OFAC is an organization which blends regulatory, national security,
law enforcement, and intelligence into a single entity with many
mandates but a single focus: Effectively implementing economic
sanctions programs against foreign adversaries when imposed by the
President or the Congress. In order to carry out OFAC's mission, the
organization is divided into 10 divisions, with offices in Miami,
Mexico City, and Bogata. OFAC's operations are also supported by
attorneys in the Office of Chief Counsel (Foreign Assets Control). Two
divisions are primarily devoted to the narcotics and terrorism
programs, while others, primarily the Licensing, Compliance and Civil
Penalties Divisions, are geared toward interaction with the public. It
is these latter divisions that primarily serve as OFAC's liaison with
the public and figure prominently in promoting the transparency of
OFAC's operations. Finally, OFAC's Enforcement Division provides
crucial liaison with the law enforcement community.
Licensing Division
OFAC's licensing authority serves to ``fine tune'' or carve out
exceptions to the broad prohibitions imposed under sanctions programs,
ensuring those transactions consistent with U.S. policy are permitted,
either by general or specific license. For example, working closely
with the Department of State, the Licensing Division played a critical
role in issuing specific licenses to facilitate humanitarian relief
activity by U.S. nongovernmental organizations in the wake of the Bam
earthquake in Iran. The primary focus of OFAC Licensing involves the
country-based programs, primarily Cuba and Iran. Major areas of
activity include issuing advisory opinions interpreting the
regulations; processing license applications for exports of
agricultural products, medicine, and medical devices to Iran and Sudan
pursuant to the Trade Sanctions Reform and Export Enhancement Act of
2000; license applications pertaining to travel and activities
involving Cuba; applications to unblock funds transfers blocked by U.S.
financial institutions; and the preparation of numerous legal notices
continuing statutory authority for OFAC's programs and semiannual
reports to the Congress on their administration. Licensing activity
involving the list-based programs centers primarily on the
authorization of payment for legal services provided to blocked
persons. OFAC's Miami Office, which coordinates Cuba travel licensing,
compliance, and enforcement matters, also reports primarily to the
Licensing Division.
The Licensing Division reviews, analyzes, and responds to over
25,000 requests per year for specific licenses covering a broad range
of trade, financial, and travel-related transactions, including those
related to the exportation and importation of goods and services and
the provision of humanitarian and banking and financial services. It
also provides written and oral guidance to the public and private
sectors on the application of OFAC's regulatory programs to specific
facts and circumstances. Redacted versions of interpretive rulings
prepared by the Licensing
Division are published on OFAC's website. During fiscal year 2003, the
Licensing Division made substantial progress in reducing the overall
response time to incoming correspondence, primarily through a net
increase of staff of 11 FTE's and
conversion to an Oracle database and the use of that database for
effective case management. The Licensing Division is also currently
implementing a new integrated voice response system to more efficiently
handle the large volume of calls it receives from the public.
Compliance Division
OFAC Compliance adds a unique dimension to the war against
terrorists and against other sanctions targets. Working with the
regulatory community and with industry groups, it expeditiously
publicizes OFAC's activities to assure that assets are blocked and the
ability to carry out transactions through U.S. parties is terminated.
OFAC's Compliance provides a valuable service through its toll-free
telephone ``hotline'' giving real-time guidance on in-process
transactions. As a result of its efforts, every major bank, broker-
dealer, and many industry professionals use software to scan and
interdict transactions involving sanctions targets. OFAC's hotline
averages 1,000 calls per week with at least $1 million and sometimes as
much as $35 million interdicted items each week. Just last Wednesday,
for example, OFAC worked with a U.S. bank to block a wire transfer for
close to $100,000 originating from a suspect and destined to an
organization associated with a Specially Designated Global Terrorist.
OFAC uses multiple formats and multiple platforms to get
information out on its targets and its programs--including on our
website which now has over 1,000 documents, over a million hits per
month, and over 15,000 email subscribers--so that banks, broker-
dealers, and others can stop transactions in mid-stream. OFAC's
Compliance also runs more than 100 training sessions per year around
the country and follows up with cases based on regulatory audits and
blocked and rejected items which have resulted in 4,250 administrative
subpoenas, 3,500 warning letters, and hundreds and hundreds of
referrals for Enforcement or Civil Penalties action over the past 5
years. Its positioning within the Treasury Department provides OFAC's
Compliance with an invaluable capability to dialogue with and oversee
industry groups as diverse as banking and securities, exporters and
importers, travel service providers, insurers, and even credit bureaus
and retailers.
Civil Penalties Division
OFAC's Civil Penalties Division acts as the civil enforcement arm
of OFAC by imposing civil penalties for violations of OFAC programs.
Penalties range from $11,000 to $1.075 million. Since 1993, the
Division has collected nearly $30 million in civil penalties for
sanctions violations and has processed more than 8,000 matters.
The Division reviews evidence and determines the appropriate final
OFAC penalty action--either a settlement, a penalty imposition, or the
decision not to impose a penalty. It also grants requests for an agency
hearing before an administrative law judge (ALJ) in case under the
Trading With the Enemy Act (TWEA). Three ALJ's have contracted with
OFAC to hear such cases. In addition to ALJ hearings and the
administrative civil penalty process, OFAC's Civil Penalties Division
resolves civil enforcement cases in conjunction with criminal
prosecutions by the Justice Department. OFAC also enters into global
settlements of violations in forfeiture actions brought by the U.S.
Customs and Border Protection (CBP) and works closely with CBP's Office
of Regulations and Rulings and the Fines, Penalties, and Forfeitures
Offices nationwide.
The Civil Penalties Division publishes information on completed
settlements and penalty impositions on OFAC's Penalties Disclosure
Website. Providing additional transparency, as recommended by the
Judicial Review Commission, OFAC has published in the Federal Register
its Enforcement Guidelines with Penalty Mitigation Guidelines.
Enforcement Division
OFAC/Enforcement concentrates on providing advice and assistance
concerning criminal and investigates civil violations of OFAC's
regulations and statutes.
Criminal Investigations. OFAC Enforcement officers provide
expert advice and assistance to Assistant United States Attorneys
and criminal investigators from the FBI, Bureau of Immigration and
Customs Enforcement (ICE) and the Department of Commerce's Office
of Export Enforcement (OEE) in the investigation of suspected
criminal violations of OFAC programs. The FBI has primary
investigative authority for terrorism cases, while ICE conducts
most investigations dealing with trade-related transactions. OFAC's
long-standing and close relationship with ICE has continued after
its transfer to the Department of Homeland Security (DHS). This
relationship works very well. ICE has field offices Nationwide,
covering all ports of entry, and agents assigned as attaches for
overseas investigative coverage. ICE agents, along with inspectors
from the Bureau of Customs and Border Protection (CBP) at DHS, have
seizure authority at U.S. ports and they are the front-line of
OFAC's efforts to interdict unlicensed goods being exported to, or
imported from, OFAC sanctions countries or persons. Since 1995,
there have been approximately 68 cases that resulted in criminal
enforcement action for TWEA and the International Emergency
Economic Powers Act (IEEPA) violations.
Civil Investigations. The Enforcement Division conducts civil
investigations as a result of voluntary disclosures, informant
information, internal research by OFAC staff, and referrals from
ICE and other agencies. The Division currently has over 2600 civil
cases opened. These cases range from complex export, re-export and
other trade transactions, to violations of OFAC Cuba travel
restrictions. Most such cases result in an internal referral to the
Civil Penalties Division for the possible imposition of civil
penalties.
Domestic Blocking Actions. OFAC officers serve blocking
notices and work to ensure the blocking of assets of entities in
the United States that are designated under the Foreign Terrorist,
Narcotics and country programs. These actions are accomplished with
assistance of special agents from the FBI and ICE as needed.
Law Enforcement Outreach Training. OFAC provides sanctions
enforcement training to ICE agents and CBP inspectors on a monthly
basis through in-service training courses at the Federal Law
Enforcement Training Center and at field offices and ports
Nationwide. We have also provided training presentations to agents
and analysts at FBI Headquarters and the FBI Academy at Quantico,
VA.
Transparency and Outreach
In January 2001, the Judicial Review Commission on Foreign Asset
Control submitted its final report to Congress, making several
recommendations with respect to OFAC. While some were specific to the
Foreign Narcotics Kingpin Designation Act and OFAC's designation
authority generally, others pertained to the ``transparency'' of OFAC's
operations and decisionmaking standards in order to facilitate greater
understanding of, and compliance with, the sanctions laws [OFAC]
administers.'' In response to the Commission's report, OFAC and the
three divisions described above have taken several measures to enhance
the transparency of OFAC's operations. Central to this initiative is
the use of OFAC's website, administered by the Compliance Division,
which currently contains more than 1,000 documents, including 96
program brochures, guidelines, and general licenses, 12 industry
brochures, and over 200 legal documents. Website usage statistics
indicate in excess of 1.3 million hits on per month. OFAC also
publishes reports, speeches, and Congressional testimony on its
website. Included among the reports are quarterly reports to the
Congress on the administration of the licensing regime pertaining to
the exportation of agricultural products, medicine, and medical devices
to Iran, Sudan, and, until recently, Libya. OFAC's Terrorist Assets
Reports for 2001 through 2003 are also available.
Interpretive rulings in redacted format prepared by the Licensing
Division are published on the website, extending the benefit of what
had previously been private guidance. OFAC has also published 95
questions of general applicability frequently asked by the public about
OFAC and its programs.
Publication of various OFAC guidelines is also an important
component of the transparency initiative. Along with the Enforcement
Guidelines, OFAC has issued comprehensive application guidelines
pertaining to the authorization of travel transactions involving Cuba.
These guidelines were instrumental in reducing a backlog of license
applications in this category from over 400 cases to fewer than 100,
with a current average processing time per application of fewer than 9
days. OFAC also issues a circular setting forth the regulatory program
governing travel, carrier, and funds forwarding services provided in
the context of the Cuba embargo.
Responding to one of the Judicial Review Commission's
recommendations, OFAC, wherever possible, has issued its regulations in
the Federal Register as interim final rules allowing for public
comments.
Finally, there are listings on the website for more than 100
sanctions workshops in the near future. These workshops provide a
significant outreach to the financial and other communities OFAC
regulates, further promoting transparency of agency operations.
OFAC'S Designation Programs
Designations constitute the identification of foreign adversaries
and the networks of companies, other entities, and individuals that are
associated with them; as a result of a person's designation pursuant to
an Executive orders (EO) or statute, U.S. persons are prohibited from
conducting transactions, providing services, and having other dealings
with them. Generically, those who are placed on OFAC's public list are
referred to as ``Specially Designated Nationals'' or ``SDN's.''
Typically, SDN's are the instrumentalities and representatives that
help sustain a sanctioned foreign government or adversary and commonly
include the financial and commercial enterprises, front companies,
leaders, agents, and middlemen of the sanctions target. In the
terrorism programs, they are known as SDGT's, SDT's, and FTO's; in the
narcotics programs they are SDNT's for the Colombian cartels and Tier I
and Tier II SDNTK's under the Kingpin Act. In the country programs,
they are SDN's.
OFAC's International Programs Division and Foreign Terrorist
Programs Division are the offices which research and identify and these
targets for designation.
Legal Authorities
International Emergency Economic Powers Act
In January 1995, the President first used his IEEPA to deal
explicitly with the threat to U.S. foreign policy and national security
posed by terrorism, declaring a national emergency with respect to
terrorists who threaten to disrupt the Middle East Peace Process. This
action, implemented through Executive Order 12947, expanded the use of
economic sanctions as a tool of U.S. foreign policy to target groups
and individuals, as well as foreign governments. During the late
1990's, IEEPA authorities were used to issue additional Executive
orders imposing sanctions on Al Qaeda and Osama bin Laden and entities
or individuals that are owned or controlled by, act for or on behalf
of, or that provide material or financial support to Al Qaeda or Osama
bin Laden.
Following this model, in October 1995, the President announced the
concept of using EO 12947 as a model for targeting significant foreign
narcotics traffickers centered in Colombia, for example, the Colombian
drug trafficking cartels. That IEEPA program, implemented in EO 12978
with the identification by the President of four Cali Cartel drug
kingpins, has expanded into a key tool in the fight against the
Colombian cartels. As of today, 14 Colombian drug kingpins, 381
entities, and 561 other individuals associated with the Cali, North
Valle, and North Coast drug cartels have been designated as Specially
Designated Narcotics Traffickers (SDNT's) under EO 12978.
Authorities in Response to September 11
The President harnessed the IEEPA powers and authorities in
response to the terrorist attacks of September 11. On September 23,
2001, President Bush issued Executive Order 13224, ``Blocking Property
and Prohibiting Transactions with Persons Who Commit, Threaten to
Commit, or Support Terrorism'' declaring that the grave acts of
terrorism and the threats of terrorism committed by foreign terrorists
posed an unusual and extraordinary threat to the national security,
foreign policy, and economy of the United States. EO 13224, as amended,
authorizes the Secretaries of the Treasury and State, in consultation
with the Department of Justice and the Department of Homeland Security,
to implement the President's authority to systemically and
strategically combating terrorists, terrorist organizations, and
terrorist support networks.
This order prohibits U.S. persons from transacting or dealing with
individuals and entities owned or controlled by, acting for or on
behalf of, assisting or supporting, or otherwise associated with,
persons listed in the Executive order. Those designated and listed
under the Executive order are known as ``Specially Designated Global
Terrorists'' (SDGT's). Violations of the EO with respect to SDGT's are
subject to civil penalties; and if the violation is willful, persons
may be criminally charged. The Executive order also blocks ``all
property and interests in property of [designated persons] that are in
the United States or that hereafter come within the United States, or
that hereafter come within the possession or control of United States
persons[.]''
To date, the United States has designated 361 individuals and
entities as SDGT's pursuant to EO 13224. More than 260 of these
entities are associated with either Al Qaeda or the Taliban which
provides the basis to notify these names to the UN for listing pursuant
to United Nations Security Resolutions (UNSCR's) 1267, 1373, and 1526.
The United States has worked diligently with the UN Security Council to
adopt international resolutions reflecting the goals of our domestic
Executive orders and providing the mechanisms for UN member states to
freeze terrorist-related assets.
Rolling FTO's into SDGT's Makes War on Terrorist Infrastructure Global
On November 2, 2001, the United States took an additional
significant step when the Secretary of State, in consultation with the
Secretary of the Treasury and the Attorney General, utilized the new
authorities in EO 13224 to designate 22 Foreign Terrorist Organizations
(FTO's) as Specially Designated Global Terrorists (SDGT's). This action
expanded the War on Terrorism beyond Al Qaeda and the Taliban and
associated individuals and entities to include Hamas, Hizballah, the
FARC, the Real IRA, and others. This action created a truly global war
on terrorism and terrorist financing and demonstrated the USG's
commitment to continue and expand our efforts against all terrorist
groups posing a threat to the United States, its citizens, its
interests, and its allies. Currently, there are 37 FTO's which are also
designated as SDGT's.
Foreign Narcotics Kingpin Designation Act
Building on the successes of the Colombian narcotics traffickers
program, in December 1999, Congress enacted the Foreign Narcotics
Kingpin Designation Act (Kingpin Act), originally introduced by Senator
Coverdell and Senator Feinstein and modeled on IEEPA and OFAC's
Columbia SDNT program. It provides a statutory framework for the
imposition of sanctions against foreign drug kingpins and their
organizations on a worldwide scale. Like its terrorism and narcotics
Executive order-based predecessors, the Kingpin Act is directed against
individuals or entities and their support infrastructure, not against
the countries in which they are imbedded. Since the first list of
kingpins was issued, 38 foreign drug kingpins (these are in addition to
the 14 Colombian drug kingpins designated under EO 12978), 14
derivative companies, and 52 derivative individuals have been
designated.
Antiterrorism and Effective Death Penalty Act
In 1996, the Congress passed the Antiterrorism and Effective Death
Penalty Act (AEDPA). AEDPA makes it a criminal offense to: (1) engage
in a financial transaction with the government of a country designated
as supporting international
terrorism; or (2) provide material support or resources to a designated
Foreign Terrorist Organization (FTO).
Thirty-seven FTO's are currently subject to OFAC-administered
sanctions. These FTO's have been designated by the Secretary of State
in consultation with the Secretary of the Treasury and the Attorney
General. Under the AEDPA and OFAC's implementing regulations, U.S.
financial institutions must maintain control over all funds in which an
FTO has an interest and report the existence of such funds to OFAC.
OFAC works with State and Justice on FTO designations, and with the
financial community, the FBI, State, and other Federal agencies in
implementing the prohibitions of the AEDPA.
Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001
The Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA
PATRIOT Act), passed in October 2001, amends IEEPA to provide critical
means and authority to OFAC to counter terrorist financing. The Act has
enhanced OFAC's ability to implement sanctions and to coordinate with
other agencies by clarifying OFAC's authorities to block assets of
suspect entities prior to a formal designation in ``aid of an
investigation.'' This critical authority helps prevent the flight of
assets and prevents the target from engaging in potential damaging
behavior or transactions. In addition, the USA PATRIOT Act explicitly
authorizes submission of classified information to a court, in camera
and ex parte, upon a legal challenge to a designation. This new USA
PATRIOT Act authority has greatly enhanced our ability to make and
defend designations by making it absolutely clear that OFAC may use
classified information in making designations without turning the
material over to an entity or individual that challenges its
designation.
OFAC'S Counter Narcotics Program
OFAC's Mission Against Foreign Drug Cartels
One of the primary missions of OFAC/IPD officers is to investigate,
through both ``all-source'' research and extensive field work with U.S.
law enforcement agents and Assistant U.S. Attorneys, and compile the
administrative record that serves as the OFAC case to designate
significant foreign narcotics traffickers and their networks of front
companies and individuals pursuant to the Specially Designated
Narcotics Traffickers (SDNT) program pursuant to EO 12978 and the
Foreign Narcotics Kingpin Designation Act (Kingpin Act).
Interagency Coordination
In its capacity to administer and enforce economic sanctions
against foreign narcotics traffickers, both traditional drug cartel and
narco-terrorist targets, OFAC's International Programs Division (OFAC/
IPD) works extensively with other U.S. agencies in the law enforcement
and intelligence communities, as well as the President's Office of
National Drug Control Policy. OFAC/IPD officers regularly are requested
to train DEA's financial investigators on OFAC's authorities to
designate and block foreign drug cartel's financial networks under EO
12978 and the Kingpin Act. In addition, OFAC/IPD officers have also
provided presentations for various ICE, FBI, U.S. Attorney's offices,
the Department of Justice, and the Department of Defense on OFAC
narcotics and other sanctions programs and how they can work jointly
with a U.S. criminal investigation. OFAC continues to expand its
relationships with U.S. law enforcement, including ICE, DEA, FBI, IRS
Criminal Investigation, U.S. Attorney's Offices, and with other
agencies including the Department of State, Department of Defense, and
Central Intelligence Agency. While some formal interagency coordination
is established by Executive order or legislation (the Kingpin Act), in
the day-to-day execution of these programs, interagency cooperation is
the result of experienced OFAC/IPD officers working closely with other
U.S. criminal investigators. These working relationships have led to
several successful sanctions designation actions over the past few
years.
OFAC's Enforcement Division and its International Programs Division
have distinct but complimentary relationships with the Federal law
enforcement community. OFAC/IPD is focused on investigations and on
research leading to designations, whether worked independently or
jointly with Federal law enforcement agencies and task forces, U.S.
Attorneys offices, or other U.S. Government agencies. In the programs
that OFAC enforces against foreign narcotics trafficking cartels and
drug kingpins, OFAC/IPD has been working with the Department of Justice
and DEA since 1995, with a significant contingent of OFAC/IPD personnel
cleared to work at DEA headquarters. Over the years those working
relationships have substantially broadened, bringing OFAC to the point
where OFAC/IPD officers, both in the field and at headquarters,
including OFAC's Attache Offices in Bogota and Mexico City, regularly
work with OCDETF task forces, multiple U.S. Attorneys' offices, DEA,
ICE, IRS-CI, and the FBI, on cases and broader operations of mutual
interest. This integrated operating method not only provides OFAC/IPD
with better background information and evidence for its targets, but
also makes OFAC's expertise in the business and financial structuring
by the cartels available as a resource to law enforcement and
intelligence agencies. This appropriate close working relationship with
law enforcement provides a successful conduit for the sharing of
information between law enforcement agencies and OFAC/IPD.
Since September 11, 2001, OFAC has played an integral role in the
terrorism-related investigations being conducted throughout the law
enforcement community. To coordinate efforts and actions, OFAC has
detailed a full-time liaison to the FBI's Terrorist Financing
Operations Section (TFOS) and a weekly liaison to the Terrorist
Screening Center (TSC) and participates on their interagency
enforcement teams. Information obtained through close interagency
coordination has been crucial in ``making the case'' to designate
particular targets domestically and internationally. Information
developed by OFAC has also proven useful for investigations being
conducted by TFOS, TSC, and other U.S. law enforcement agencies.
The Kingpin Act
Pursuant to Section 804(a) of the Kingpin Act, the Secretaries of
Treasury, State, and Defense, the Attorney General, and the Director of
Central Intelligence must consult and provide the appropriate and
necessary information to enable the President to submit a report to
Congress no later than June 1 each year designating
additional Kingpin Tier I targets. OFAC/IPD is responsible for
coordinating the interagency process for the Kingpin Act.
On May 29, 2003, President Bush announced the names of 7 foreign
persons that he determined were significant foreign narcotics
traffickers, or kingpins, under the Kingpin Act. These new drug
kingpins included 4 individuals involved in the Mexican and Brazilian
drug cartels and 3 foreign groups--a Colombian narco-terrorist
guerrilla army (the Revolutionary Armed Forces of Colombia or FARC), a
Colombian narco-terrorist paramilitary force (the United Self-Defense
Forces or AUC), and a Burmese drug trafficking ethnic guerrilla army
(United Wa State Army or UWSA). These were the first designations of
narco-terrorist groups under the Kingpin Act. The FARC and the AUC had
previously been named as Foreign Terrorist Organizations by the State
Department and designated as Specially Designated Global Terrorists by
OFAC pursuant to EO 13224.
A total of 38 Tier-I Kingpins designations have been made since
June 2000. Currently, development of the evidentiary basis for new
Kingpin Tier I targets for Presidential designation by June 1, 2004 is
underway. The previous designations of 38 drug kingpins remain; the
President does not have to redesignate them.
OFAC prepares and designates ``Tier II'' narco-terrorist leaders
under the Kingpin Act. On February 19, 2004, OFAC/IPD took action
against leaders and key figures of two narco-terrorist organizations in
Colombia, the FARC, and the AUC. Nineteen leaders of the FARC and
eighteen key figures of the AUC plus three AUC front companies were
added to OFAC's list of ``Tier II'' individuals and entities designated
under the Kingpin Act. These Kingpin Tier II designations reinforce the
reality that the FARC and the AUC are not simply terrorist/guerrilla
organizations fighting to achieve political agendas within Colombia.
They are part and parcel of the narcotics production and export threat
to the United States, as well as Europe and other countries of Latin
America.
Specially Designated Narcotics Traffickers
Since the inception of the Colombia program in 1995 under Executive
Order 12978, OFAC/IPD officers have identified 956 businesses and
individuals as Specially Designated Narcotics Traffickers (SDNT's)
consisting of fourteen leaders of Colombia's Cali, North Valle, and
North Coast drug cartels.
North Valle Cartel links to the AUC. In October 2002, OFAC
coordinated the designation of a Colombian cartel kingpin with the
FBI. A joint investigation by OFAC/IPD and the FBI Miami field
office led to the SDNT action against Colombia's North Valle cartel
leader, Diego Leon Montoya Sanchez and a network of front companies
and individuals in Colombia in conjunction with an FBI criminal
asset forfeiture action in South Florida. Diego Leon Montoya
Sanchez is closely associated with the AUC, a Colombian narco-
terrorist organization.
Continued Actions against the Cali Cartel. Since 2002, OFAC/
IPD has worked jointly with the U.S. Attorney's Office for Middle
District of Florida and Operation PANAMA EXPRESS, a multiagency
drug task force based out of Tampa, Florida. A 2-year investigation
by OFAC/IPD officers in conjunction with the PANAMA EXPRESS task
force led to the March 2003 SDNT action against two new Cali Cartel
leaders, Joaquin Mario Valencia Trujillo and Guillermo Valencia
Trujillo, and their financial network of 56 front companies and
individuals. Joaquin Mario Valencia Trujillo is indicted in the
Middle District of Florida and was recently extradited to the
United States from Colombia.
In 2003, OFAC/IPD investigations have focused on Cali cartel
leaders, Miguel and Gilberto Rodriguez Orejuela. In February 2003,
OFAC/IPD designated 137 companies and individuals comprising a
complex financial network in Colombia and Spain controlled by
Miguel and Gilberto Rodriguez Orejuela. This action exposed and
isolated a parallel network of Cali cartel front companies
established to evade OFAC sanctions. In March 2003, OFAC/IPD
officers targeted a Colombian money exchange business and a
prominent Colombian stock brokerage firm which facilitated the Cali
cartel network's financial transactions. In October 2003, OFAC/IPD
designated 134 new front companies and individuals including a
network of pharmaceutical companies extending from Colombia to
Costa Rica, Ecuador, Panama, Peru, and Venezuela with ties to
financial companies in the Bahamas, the British Virgin Islands, and
Spain. These SDNT actions were the result of a 3-year investigation
by OFAC/IPD officers and the OFAC Attache--Bogota.
These actions under the SDNT and Kingpin Act programs reflect the
increasing cooperation, coordination, and integration among the U.S.
counter-narcotics agencies in the battle against international
narcotics trafficking and narco-terrorism. On March 3, 2004, the U.S.
Attorney for the Southern District of New York issued a joint statement
with the DEA New York field office and the OFAC Director announcing the
indictment of two of Colombia's most important drug kingpins, Gilberto
Rodriguez Orejuela and Miguel Angel Rodriguez Orejuela, leaders of the
notorious Cali Cartel, under Operation DYNASTY, a joint investigation
involving the U.S. Attorney's Office for the Southern District of New
York, DEA, OFAC, and Colombian authorities. Both Cali cartel leaders
were designated under EO 12978 as Colombian cartel leaders in October
1995. The indictment charges the Rodriguez Orejuela brothers with money
laundering conspiracy based largely upon the predicate offense of
violating the IEEPA as a result of the drug kingpins' efforts to defeat
OFAC's designations of many of their companies as SDNT's.
OFAC's Counterterrorism Program
Foundations of Terrorist Financing and Support
The threat of terrorist support networks and financing is real, and
it has been OFAC's mission to help identify and disrupt those networks.
Though the vast majority of the world's Muslims are peaceful, a
committed, vocal, and well-organized minority is competing to mobilize
a new generation in the tools and trade of Jihad.
There is much we know about how such radical Islamic terrorist
networks were established and still thrive. OFAC's research has
disclosed the overall framework of the support structures that underpin
the most prominent Islamic extremist movements throughout the world.
``Deep pocket'' donors in the Middle East provide money either to
terrorist groups directly, or indirectly through trusted intermediaries
and nongovernmental organizations (NGO's), including charities. These
NGO's can, in turn, use the money to provide funding and logistical
services directly to terrorist groups, including transportation, cover
employment, and travel documentation. They also provide support
indirectly by using the funds for public works projects--wells, social
centers, and clinics--to reach disaffected populations susceptible to
radicalizing influences. These projects also often include religious
schools, which serve as fertile recruiting grounds for new members of
terrorist groups.
The terrorist networks are well-entrenched and self-sustaining,
though vulnerable to United States, allied, and international efforts.
Looking forward, please allow me to explain how we have arrived at this
view and present the strategy, being implemented in coordination with
other components of the Treasury Department and other Federal agencies
including the Departments of Defense, State, Justice, Homeland
Security, the FBI, IRS Criminal Investigation, the intelligence
community, and other agencies, to choke off the key nodes in the
transnational terrorist support infrastructure.
Research and Evidentiary Preparation
The primary mission of officers within OFAC's Foreign Terrorist
Programs Division is to compile the administrative record or
``evidentiary'' material that serves as the factual basis underlying a
decision by OFAC to designate a specific person pursuant to EO 13224 or
other counterterrorism sanctions authorities and to block its assets.
OFAC officers conduct ``all-source'' research that exploits a variety
of classified and unclassified information sources in order to
determine how the activities or relationships of a specific target meet
the criteria of the EO. As the implementing and administrating agency
for EO 13224 and other related programs, OFAC coordinates and works
with other U.S. agencies to identify, investigate and develop potential
targets for designation or other appropriate U.S. Government actions.
Officers use their considerable expertise to evaluate available
information in the critical process of constructing a legally
sufficient evidentiary record.
More broadly, OFAC officers compile research on multiple targets to
build a comprehensive schematic of the structure of particular
terrorist network. They then employ a ``key nodes'' methodology to
identify these high value targets within them that serve critical
functions. OFAC believes that by eliminating these key nodes or high
value targets the network would be disabled because without them the
network would not receive sustaining services such as recruitment;
training; logistical, material, financial, or technological support;
and leadership. OFAC selects specific targets to recommend for
designation based on the potential to cripple or otherwise dramatically
impair the operations of the overall network by economically isolating
these nodes. Economic sanctions are most effective against key nodes
such as donors; financiers (fundraisers, financial institutions, and
other commercial enterprises); leaders; charities; and facilitators
such as logisticians. OFAC already has targeted key nodes in terrorist
networks in several areas of the world including groups in Southeast
Asia and various parts of Africa. OFAC is currently engaged in new
research on groups in the Middle East, including Iraq, and the
Caucasus.
A completed OFAC evidentiary record on a particular target is
submitted first for legal review, then to the Executive Office of
Terrorist Finance and Financial Crimes, where OFAC officers work with
that office to prepare the package for the Policy Coordinating
Committee (PCC). The PCC determines whether the U.S. Government should
designate a particular entity or should pursue alternative legal or
diplomatic strategies in order to achieve U.S. interests. As part of
the PCC process, OFAC's designation proposal will usually be vetted by
the consultative parties specified by the EO.
In addition to the evidentiary package, OFAC and other Treasury
officers work with the interagency community to draft an unclassified
Statement of the Case (SOC) which serves as the factual basis for the
public announcement of a designation. The State Department uses it to
preconsult with countries which are directly impacted by a proposed
U.S. action. Upon a U.S. Government determination to designate, the SOC
is used to notify host countries and the UN of an impending U.S.
action. The UN is notified only if the designation is related to Al
Qaeda or the Taliban.
UN and Bilaterally Proposed Designations
Whenever an individual or entity is proposed by another country
through the UN or is proposed to the U.S. Government bilaterally, OFAC
is responsible for preparing the administrative record. In order to
designate a target proposed to the UN by a Member State or by another
government bilaterally to the U.S. Government, OFAC must develop an
administrative record that satisfies the U.S. domestic laws described
above. Quite often, due to a difference in legal authorities and the
type of or lack of information provided by a designating country, this
process may require several discussions with the initiating party and
often requires further coordination with the UN and other countries in
order to obtain sufficient information to meet domestic legal criteria.
Other Counterterrorism Activities
OFAC's role in the counterterrorism arena is not limited to
preparing designations, although this often serves as a key component
of its other activities. The transnational nature of terrorism support
networks requires engagement with allies and routine information
sharing. OFAC's direct engagement with allies on terrorism support
infrastructure began with officials from Saudi Arabia, Kuwait, and the
UAE in June 1999. Information and understandings developed from this
and other OFAC trips to the region significantly contributed to
formulating some of the strategies employed today.
Direct Treasury and OFAC engagement with foreign allies'
counterparts provides an opportunity for OFAC to gather information,
apply pressure, request support, or offer assistance. In some cases,
Treasury may seek joint action with an ally in an effort to disrupt or
dismantle an organization. In other instances, OFAC may use the threat
of designation to gain cooperation, forcing key nodes of financial
support to choose between public exposure of their support for
terrorist activity or their good reputation.
Of course, OFAC also collaborates extensively with other elements
within the Treasury Department. In particular, I want to mention our
excellent relationship with IRS Criminal Investigation. This
relationship has been especially important and productive in carrying
out the Treasury Department's authority under Executive Order 13315,
which blocks the assets of Saddam Hussein and other senior
officials of the former Iraqi regime. For many months now, OFAC has
been coordinating almost daily with Washington-based IRS-CI agents to
guide the efforts of IRS-CI agents on the ground in Iraq to identify
the ill-gotten assets of Saddam and his cronies. OFAC's partnership
with IRS-CI on this issue has developed important investigational leads
that would have been impossible if our organizations had not been so
closely synchronized.
Significant OFAC Designations Pursuant to EO 13224
The result of OFAC's research and coordination efforts over the
past 3 years has been several significant designations of charities,
terrorist financiers, and financial support networks.
OFAC Actions against Terrorist-Supporting Charities:
Holy Land Foundation (HLF). OFAC/IPD worked closely with the
FBI prior to September 11 to designate this charity located in
Richardson, Texas. HLF was a financial supporter of HAMAS, a
terrorist group originally designated in January 1995 pursuant to
Executive Order 12947. The FBI Dallas field office specifically
sought OFAC's involvement in its investigation and an OFAC/IPD
officer became part of the North Dallas Terrorism Task Force. As a
result of this close coordination, on December 4, 2001, OFAC
designated the Holy Land Foundation pursuant to EO 13224 and EO
12947. This designation was upheld in U.S. Federal district court,
affirmed on appeal, and on March 1, 2004, the Supreme Court denied
HLF's petition for certiorari in HLF's challenge to its
designation. As a result of the OFAC designation, IRS suspended the
tax-exempt status of HLF.
Benevolence International Foundation (BIF) & Global Relief
Foundation (GRF) Blocking in Aid of Investigation. On December 14,
2001, the Treasury blocked pending investigation (BPI) the property
of both BIF and GRF, two Islamic charities in Chicago, Illinois and
the first such action under EO 13224. After the December 2001 BPI
action, OFAC/IPD continued to work with other components of the
Treasury and the FBI, SFOR in the Balkans, the Department of
Justice, and the intelligence community to obtain additional
information which led to the designation of GRF on October 17, 2002
and BIF on November 18, 2002 pursuant to EO 13224. On February 25,
2003 the civil lawsuit filed by BIF against the United States was
voluntarily dismissed with prejudice and without costs. On November
12, 2003, the Supreme Court denied certiorari in GRF's appeal of
the denial of its motion for preliminary injunction. As a result of
the OFAC designation, IRS suspended the tax-exempt status of both
BIF and GRF.
Al Haramain Foundation. Treasury has worked closely with other
U.S. Government agencies and Government of Saudi Arabia in order to
coordinate the bilateral designation of six branches of this
prominent Saudi charitable organization. The Bosnian and Somali
branches were designated on March 11, 2002, while the Pakistani,
Indonesian, Kenyan, and Tanzanian branches were designated on
January 22, 2004.
OFAC Actions against Terrorist Financial Networks:
Al-Barakaat network. OFAC/IPD identified the Al-Barakaat
network as a major financial network providing material, financial,
and logistical support to Osama Bin Laden, Al Qaeda, and other
terrorist groups. On November 7, 2001, the President announced the
designation of the Al-Barakaat network pursuant to EO 13224. As a
result of that action, Barakaat's cashflow was severely disrupted
and the Emiratis closed down Barakaat's offices in their territory,
froze its accounts, and placed several individuals under an
informal house arrest.
Nada-Nasreddin/al Taqwa network. OFAC/IPD coordinated with
U.S. law enforcement and intelligence community, and worked closely
with its foreign partners in the Caribbean and Europe to target Al
Qaeda supporters, Yousef Nada and Ahmed Idris Nasreddin. OFAC
designated them and related companies in November 2001 and August
2002 pursuant to EO 13224, significantly disrupting another
network.
Wa'el Hamza Julaidan. OFAC identified Julaidan as a senior
figure in the Saudi charitable community, who provided financial
and other support, to several terrorist groups affiliated with Al
Qaeda operating primarily in the Balkans. OFAC worked with other
U.S. Government agencies and the Government of Saudi Arabia to
coordinate a bilateral designation of Julaidan on September 6,
2002.
OFAC's Key Node Strategy
Over the past year and a half, OFAC has should take a more
systematic approach to evaluating the activities of major terrorist
organizations in various regions. This approach has focused on
identifying ``key nodes'' discussed above, which when targeted and
economically isolated can cripple a terrorist network's ability to
function.
To implement this approach, OFAC staff has established
collaborative relationships with several Department of Defense agencies
and combatant commands in order to gain wider access to information
critical to developing evidentiary records in support of designations.
Working with DoD Commands and other DoD agencies provides OFAC and its
DoD partners a force multiplier that brings together a variety of
counterterrorism tools and resources. This will be an important model
of interagency coordination as well as strategic vision for the
Treasury Department as a whole, as we move toward greater integration
and amplification of our intelligence and analysis functions in the
Office of Intelligence and Analysis.
Jemmah Islamiyah (JI)/Southeast Asia. In October 2002, OFAC
began a joint project with the U.S. Pacific Command (USPACOM) and
other DoD elements that identified terrorist support networks in
Southeast Asia and selected key nodes, or priority targets, in
these networks. The project's geographic scope included Indonesia,
the Philippines, Malaysia, and Singapore, and eight terrorist or
Islamic extremist groups. The project focused special attention on
the Al Qaeda-affiliated JI, the Abu Sayyaf Group (ASG), and the
Moro Islamic Liberation Front (MILF), because of their relative
importance in the region and threat to U.S. interests. The project
identified the key leaders, fundraisers, businessmen, recruiters,
companies, charities, mosques, and schools that were part of the JI
support network. OFAC has sought to expand on this model through
collaboration with other DoD agencies including the combatant
commands. These efforts have included:
The Horn of Africa. OFAC analysts have worked with DoD
agencies, including analysts from the Office of Naval Intelligence
(ONI), to fully identify the terrorism support infrastructure in
the Horn of Africa. In this region, shipping and related drug
smuggling activities appear to be strengthening the terrorism
infrastructure. We were able to, in coordination with our
interagency partners; identify some of the key leaders, charities,
and businesses that appear to be critical to the overall
functioning of the network. In January 2003, we took joint action
with the Government of Saudi Arabia against two of these key
targets--the Kenya and Tanzania offices of the Saudi-based Al-
Haramain Islamic Foundation.
North Africa. In August 2003, I visited the U.S. European
Command headquarters (USEUCOM) and met with the Chief of Staff, to
begin a joint project including USEUCOM, OFAC Officers, and other
DoD elements to identify terrorist support networks in the North
Africa region and key nodes within this network. The geographic
scope of this project includes Morocco, Algeria, Tunisia, Libya,
Mauritania, and Mali, and nine terrorist or Islamic extremist
groups and their support networks. At the inception of this
project, the Director of USEUCOM's Intelligence Directorate
indicated that this region posed the most serious threat in
USEUCOM's area of responsibility and asked OFAC to devote available
resources to the project. The recent Madrid bombings and the
suspicion that North African terrorists may have been involved
illustrates the reality of the threat these groups pose not only to
the stability of the region but also the interests of the United
States and our allies.
Caucasus. In January 2004, the USEUCOM Chief of Staff visited
OFAC and was briefed on an OFAC initiative to identify terrorist
groups and their support networks in another region of USEUCOM's
area of responsibility. The Chief of Staff invited an OFAC analyst
to USEUCOM's Joint Analysis Center in Molesworth, England, to work
with a regional analyst there to further develop information on
terrorist activity in the region. The outcome of the week-long
visit was that it confirmed our preliminary analytical conclusions
of terrorist activity and support. We are now in discussion with a
DoD element, USEUCOM, and an U.S. Government agency to pursue a
collaborative effort to refine our understanding and determine if
the initiative justifies the commitment of limited resources for
the ultimate exercise of OFAC sanctions or other appropriate U.S.
Government authorities against priority targets we may identify.
Additional Initiatives. In March of this year, OFAC was
invited to brief the Headquarters North American Aerospace Defense
Command (NORAD) and U.S. North Command (USNORTHCOM) Interagency
Coordination Group (JIACG) on the subject of OFAC authorities under
Executive Order 13224 and OFAC efforts against terrorism. In
addition, the U.S. Southern Command (USSOUTHCOM) has also contacted
my office and expressed an interest in an OFAC analyst detailed to
the USSOUTHCOM JIACG. OFAC continues to explore collaborative
opportunities with both of these commands.
These efforts have been so successful that, in December 2003, the
Office of the Secretary of Defense requested the detail of six OFAC
employees to the headquarters of six DoD combatant commands. As a
result, we hope to detail OFAC analysts with the U.S. Central Command
(USCENTCOM) and U.S. Special Operations Command (SOCOM) in the near
future.
OFAC Attache Offices and Foreign Counterparts
OFAC's ability to successfully pursue counternarcotics and
counterterrorism missions has been greatly enhanced by assigning OFAC
officers to attache and liaison positions abroad with several U.S.
embassies and military commands.
OFAC Bogota office coordinates OFAC sanctions programs in
Colombia and conducts research on Colombian drug cartels and narco-
terrorists. The OFAC Attache and Assistant Attache in Bogota serve
as the liaison with U.S. Embassy elements and Colombian Government
agencies and have established solid relationships with the
Colombian banking and private sectors. OFAC/IPD officers travel
regularly to Colombia and have extensive knowledge of Colombian
drug cartel finances.
OFAC Mexico City office coordinates OFAC sanctions programs in
Mexico. The OFAC Attache in Mexico serves as the liaison with U.S.
Embassy elements and Mexican Government agencies.
In addition, OFAC's Attaches have established good working
relationships with foreign counterparts in Colombia and Mexico which
has supported U.S. interests in choking off drug cartel and narco-
terrorist finances through both joint investigations and actions. For
example, Colombian companies designated by OFAC/IPD to the SDNT list
are many times the targets of subsequent Colombian criminal asset
forfeiture investigations.
OFAC's Liaison Officer at the U.S. European Command (USEUCOM)
serves as OFAC's representative to the USEUCOM Joint Interagency
Coordination Group, as well as to targeting groups established by
USEUCOM. The liaison also coordinates joint projects underway
between USEUCOM and OFAC elements and travels regionally to provide
support to other OFAC programs, particularly the effort to block
the assets of Persons Indicted for War Crimes in the former
Yugoslavia.
OFAC's Manama office is nearing completion of its physical
construction and is slated to have an attache assigned to it this
summer. The attache Bahrain will be responsible for establishing
relations with local government bodies engaged in counterterrorism
efforts and of investigating a variety of terrorist support issues
throughout the Arabian Gulf.
OFAC'S Vision for the Future
In order to meet the increasing demands placed on OFAC as it
fulfills its multiple missions against governmental and organizational
targets, particularly its recent critical role in countering
international terrorism and narcotics trafficking, OFAC is addressing
specific challenges facing its component divisions described above.
Compliance Division
OFAC Compliance is in the process of building new customer
interaction capabilities, with a state of the art automated
telephone system, enhanced hotline capabilities, and improved web
forms to allow the public to transmit detailed live transaction
data for our real time analysis and response. We expect that the
new automated reporting systems we are developing will allow
financial institutions and others to provide OFAC more quickly with
comprehensive information on interdicted transactions.
Compliance is building a new Specially Designated Nationals
database that will allow enterprise-wide access to declassified
target information and permit analysts to directly link from a name
on the SDN list to the underlying declassified evidentiary material
for easy access.
Compliance intends, in the near future, to make a new DataMart
feature available on the OFAC website that will allow users of
OFAC's Specially Designated Nationals list to more easily ``shop''
for information that is tailored to their specific compliance
needs.
Licensing Division
OFAC's Licensing Division plans to further increase the
efficiency with which license applications and requests for
interpretive rulings are processed, with a goal of no longer than a
two-week turnaround for submissions which do not require review and
clearance outside the Division.
Licensing intends to develop enhanced capabilities for
scanning and e-mail connectivity to facilitate review and clearance
of licensing submissions requiring interagency consultation, with
the ultimate goal of developing a web-based system with interagency
access to avoid the need to transmit material altogether.
The Division also plans to develop and publish on OFAC's
website ``treatises'' on the various categories of commercial and
financial transactions subject to OFAC's jurisdiction. These
treatises will discuss OFAC's licensing practices with regard to
the application of OFAC's regulations to those transactions.
Redacted versions of the Division's interpretive rulings will be
appended to the relevant treatise, providing comprehensive guidance
and promoting consistency and transparency with respect to subjects
ranging from trade issues and financial instruments and services to
ownership and control and acquisition and divestiture.
Licensing will continue supporting OFAC's regulatory
implementation function by participating in the preparation of
draft regulations and promoting their timely clearance and
publication.
Enforcement Division
Enforcement will build on and improve upon OFAC's existing
relationships with Federal law enforcement agencies, principally
the FBI, ICE, Customs and Border Protection, Commerce Office of
Export Enforcement, and Offices of the United States Attorney, to
enhance the criminal enforcement of OFAC sanctions programs.
International Programs (Counternarcotics) Division
OFAC's continuing counternarcotics designation program
objectives are to identify, expose, isolate, and incapacitate the
business and financial infrastructures and penetrations into the
legitimate economy of foreign narcotics kingpins and drug cartels,
as well as their agents and functionaries. OFAC will continue to
develop its working relationships with Federal law enforcement
agencies, U.S. Attorneys' offices, intelligence community elements,
military commands, and select foreign enforcement and
counternarcotics units on a global basis.
OFAC will continue to develop operational relationships in the
field and at headquarters with Federal law enforcement agencies,
U.S. Attorneys' offices, Intelligence Community elements, and
military commands. This includes more
personnel to work with OCDETF's and other operational task forces
and more training of the other government components in OFAC
narcotics designation programs.
OFAC also plans to increase its participation in narcotics
fusion and targeting centers and related interagency programs.
Foreign Terrorism Division
OFAC plans to continue to expand its efforts to impede the
activities of terrorist organizations utilizing the key nodes
methodology. This will be done in concert with the new Office of
Intelligence Analysis (OIA), as the Treasury Department works to
integrate its analytical work product with all components of
Treasury and the intelligence community. The new OIA will work with
OFAC to develop analysis about the structure of terrorist groups
and their support networks and identify and isolate key nodes
within them that serve critical functions, building upon the work
with the military commands. This work product will be used to help
OFAC's mission of administering the terrorist sanctions program.
OFAC will seek to detail OFAC officers to six DoD combatant
commands for periods of 2 years to exploit the unique DoD resources
and abilities to identify terrorists, terrorist groups, and their
support networks, including DoD analytic
resources, data collection, and most importantly local knowledge.
IT Challenges
Improving OFAC's Information Technology capabilities remains one of
the greatest challenges to enhancing OFAC's ability to pursue its
mission. OFAC could
enhance current analytical capabilities by utilizing more advanced and
available information technologies and advance communications
capabilities. Communication and cooperation with participating unified
military combatant commanders and civil agencies; has shown great
promise in sharing information resources to identify terrorist targets,
nonstate enemy that functions within worldwide terrorist networks,
demands closer coordination by U.S. Government agencies and military in
the diplomatic, economic, intelligence, and law enforcement domains. To
enhance its capabilities, OFAC is pursuing the following communication
systems and technologies that would enable the coordination and
integration that is critical for agencies, military forces, and
coalition nations to effectively fight in this new war:
Database Application. OFAC could improve its ability to share
and store information with the development of an internal database
application. This application would reside on the ``classified''
networks and allow OFAC analysts to store and analyze information.
This information could be shared, as appropriate, through
classified communication networks and provide participating
partners (Intelligence Community, Military Commands, and Law
Enforcement Agencies) with substantive targeting information.
Enhanced Electronic Communication. This includes the
establishment of a multimedia infrastructure using the Defense
Messaging System cable communications servers, web servers, secure
e-mail, and data servers using Public Key Infrastructure (PKI) and
FORTEZZA national security information assurance for both the Joint
Worldwide Intelligence Communication System (JWICS) and the Secret
IP Router Network (SIPRNET) enclaves. Establishing connectivity to
the DoD interoperability of secure voice and data during periods of
heightened protection requiring rapid analytical reporting between
military and civil agencies.
Establishment of a robust e-mail system and database
infrastructure for the exchange of Sensitive But Unclassified (SBU)
information with the United States and international partner law
enforcement community. This infrastructure would take advantage of
emerging technologies with respect to repudiation with digital
signature, authentication, and PKI information assurance
protections. The access of law enforcement databases (NLETS, TECS,
etc) for the cross-analytical work required between intelligence
and law enforcement sensitive data. This enhanced communications
will allow OFAC to exploit ``open to government'' information
sources.
Developing Secure Video Teleconferencing (SVTC) capabilities
on both the JWICS for intelligence and SIPRNET for sanitized
information of a law enforcement nature. Completion of construction
on OFAC's Secure Video Teleconferencing facility will allow
officers in Washington to communicate and work more effectively on
joint projects involving civil agencies and U.S. military and
coalition forces. Ensuring the collaborative strategic planning of
a host of entities in the conduct of counterterrorism and
counternarcotic missions.
Better Communication Utilizing SIPRNET and ADNET Enclaves.
Both the International Programs Division (counternarcotics) and the
Foreign Terrorist Programs Division (counterterrorism) will seek to
improve their electronic communication with the law enforcement
community by utilizing systems as SIPRNET and the Anti Drug Network
(ADNET).
Increased OFAC Cooperation with Foreign Counterparts
OFAC's trips to target areas and its discussions with its
counterparts in other countries have afforded OFAC the opportunity
to work with these partners and provide guidance on the sanction
strategies it currently employs. In all these, and future efforts,
Treasury will take advantage of OFAC contacts and work abroad to
increase cooperative efforts and expand Treasury's its interaction
with other Government counterparts in order to deal with common
threats against the United States and our allies.
Mr. Chairman, I would like to thank you and the Committee for the
opportunity to speak on these issues. This concludes my remarks today.
I will be happy to answer your questions.
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PREPARED STATEMENT OF NANCY JARDINI
Chief, Criminal Investigation, Internal Revenue Service
April 29, 2004
Good Morning, Mr. Chairman and distinguished Members of the
Committee. I appreciate the opportunity to be here today to discuss the
Internal Revenue Service Criminal Investigation Division's (CI)
capabilities to combat money laundering and terrorist financing, a
grave threat to the Nation at home and abroad.
CI Mission
CI is the IRS law enforcement component charged with enforcing the
criminal provisions of the Internal Revenue Code and related financial
crimes. When the Criminal Investigation Division was formed in 1919,
IRS Special Agents were only responsible for investigating criminal
violations of the Internal Revenue Code. Over the years, our financial
investigative expertise has been recognized and increasingly sought by
prosecutors and other investigative agencies and, as a result, our
investigative jurisdiction has expanded to include money laundering and
Bank Secrecy Act criminal violations.
In 2000, IRS modernized its entire organizational structure,
including CI. A number of important changes significantly improved our
ability to carry out our mission effectively. For example, CI became a
line organization, reporting directly to the Chief of CI in Washington.
Previously, CI field offices reported to civil IRS managers. This
restructuring enabled us to more effectively manage the workload
balance in each of our 35 offices. Also, IRS Chief Counsel, Criminal
Tax, became more involved in our casework at the onset rather than at
the end of an investigation. This has helped reduce elapsed time on
investigations and has supported our continually high prosecution
acceptance rate at the Department of Justice. However, the most
important change was a reshifting of our focus back to tax
administration work. Over the years, as Judge Williams Webster said in
his review of CI, ``CI had a mission drift, working on narcotics and
money laundering investigations that were not focused on tax
administration.'' Judge Webster further said, ``Over the last 20 years,
Congress and the Department of Treasury have expanded CI's jurisdiction
to cover offenses not only under the Internal Revenue Code but also
under the money laundering and currency reporting statutes. The
apparent rationale for this expansion essentially has been that
effective investigation of these crimes requires the sophisticated
financial expertise that CI agents uniquely possess.''
As a result of the IRS modernization effort and Judge Webster's
report, CI began the process of moving its focus back to tax. Since
2000, CI's tax investigations have increased by 37 percent and
narcotics work is now focused only on the most critical counter drug
cases, amounting to about 15 percent of all investigations. CI is
reimbursed for its narcotics work by the Department of Justice.
Today, we continue to fine-tune our reorganization and our focus on
tax administration. The financial investigative skills used by our
special agents to investigate complex, convoluted tax schemes are the
same skills we use to assist our partners in Federal law enforcement in
the fight against terrorism.
Investigative Jurisdiction
In addition to our primary jurisdiction, which is set forth in
Title 26 of the United States Code (Internal Revenue Code), CI also has
investigative jurisdiction involving other financial-related statutes.
Beginning in 1970, Congress enacted a number of laws that led to
greater participation by CI in the financial investigative environment.
The Currency and Foreign Transactions Reporting Act of 1970 (Bank
Secrecy Act); The Comprehensive Crime Control Act of 1984; The Anti-
Drug Abuse Acts of 1986 and 1988; Crime Control Act of 1990; The
Annunzio-Wylie Anti-Money Laundering Act of 1992; The Money Laundering
Suppression Act of 1994; The Antiter-
rorism and Effective Death Penalty Act of 1996; The Health Insurance
Portability and Accountability Act of 1996; and the USA PATRIOT Act of
2001 all developed and refined the existing anti-money laundering and
antiterrorism laws under Titles 31 and 18 of the United States Code.
This expanded jurisdiction, in money laundering and Bank Secrecy
Act (BSA) violations, has permitted CI to effectively and efficiently
follow the money. For more than 85 years, CI has solved complex tax and
other financial crimes from Al Capone to John Gotti, Heidi Fleiss to
Leona Helmsley, from corporate fraudsters to fraud promoters. CI
Special Agents have developed, through specialized training and
investigative experience, the keen ability to identify, trace, and
document sophisticated and complex illicit transactions.
The IRS Special Agent's combination of accounting and law
enforcement skills are essential to investigating sophisticated tax,
money laundering, and financial crimes. By collecting and analyzing
financial records and tracing offshore transactions designed to hide
assets, we document the source and ownership of funds whether they are
controlled by a tax evader, a drug kingpin, corrupt corporate
executive, or a terrorist. This rigorous investigative process provides
the experience that makes the IRS Special Agent unique and a formidable
opponent to the financial criminal.
Our special agents are uniquely trained and skilled, possessing
particularly strong accounting, financial and computer skills. CI is
the only Federal law enforcement agency that has a minimum accounting
and business educational requirement for all prospective special
agents. Once hired, they endure a rigorous 26-week training course that
includes general criminal investigation techniques, as well as
intensive training in forensic accounting and financial investigations.
At the Federal Law Enforcement Training Center (FLETC), CI agents
routinely benefit from specialized antiterrorist financing training
designed ad provided by the Department of Justice's Counterterrorism
Section prosecutors. Their unique training and skills enable CI agents
to analyze complex, often unusual, financial transactions, and easily
equip them to investigate terrorism-financing involving:
The leadership and members of extremist groups who have
committed tax, money laundering, or currency violations;
Persons engaged in fundraising activities to support
terrorism, especially if tax exempt organizations are being
utilized; and
Terrorism investigations involving complex, extensive, or
convoluted financial transactions.
Intersection of CI Mission with War on Terrorism
Prior to the terrorist events of September 11, 2001, CI's role in
counterterrorism primarily involved the investigation of domestic
terrorists. Many domestic extremist groups have espoused antigovernment
and anti-taxation philosophies. Criminal Investigation is often
involved in investigations of individuals affiliated with these groups
because of their violations of Federal tax, money laundering, and
currency statutes.
The 1983 shoot-out between U.S. Marshals and Gordon Kahl, a
fugitive wanted on tax charges and a member of the Posse Commitatus
(Power of the Country), resulted in the death of two U.S. Marshals. The
Marshals were attempting to serve Kahl with warrants for violating the
terms of his probation from a 1977 conviction for failing to file
income tax returns. In the 1990's IRS offices were the targets of 61
bomb threats and three actual bombings. During the Oklahoma City
Bombing investigation, our agents were assigned to develop leads to
identify those responsible. Our agents obtained receipts documenting
the purchase of the fertilizer and dynamite used to manufacture the
bomb and the truck rental receipt. Using this evidence our agents were
able to construct a time line of the conspirators' whereabouts. Gordon
Kahl, Timothy McVeigh, the Montana Freeman, members of the anti-tax
movement, and other such groups derive their core beliefs from an anti-
tax, antigovernment movement and CI has been actively involved in the
investigation of these persons and organizations for many years.
Prior to September 11, CI participated on a selected basis in the
Federal Bureau of Investigation's (FBI) Joint Terrorism Task Forces
(JTTF's) in accordance with the Attorney General's 5-year
Counterterrorism and Technology Crime plan. However, the events of
September 11 significantly increased CI's counterterrorism commitment.
Financial investigations are a critical part of the total war on
terrorism and CI's expertise continues to be in high demand.
It is important to emphasize the nexus between our core mission and
terrorist financing. After September 11, CI developed plans to use the
unique information collected by the IRS to include BSA data to develop
and support terrorist financing investigations. In addition, we
instructed our field offices to work directly with the Joint Terrorism
Task Forces, the Department of Justice's Anti-Terrorism Task Forces,
and the FBI's Strategic Information Operations Center in response to
the Government's efforts to mobilize the resources of Federal law
enforcement agencies to combat terrorism. Statistics show that the work
we perform within our counterterrorism program is often related to our
tax administration mission. Of our current 150 active terrorism
investigations, 56 percent involve income tax violations, and over 18
percent involve purported charitable and tax-exempt organizations.
What CI is Doing in Counterterrorism Today
The disruption of terrorist financing mechanisms is critically
important. The detailed financial investigations aimed at terrorist
funding are capable of identifying the flow of money and the entities
and individuals who conspire to harm the United States. The link
between where the money comes from, who gets it, when it is
received, and where it is stored or deposited, are vital pieces of
information. By focusing on financial details, terrorism cells can be
identified and neutralized. To effectively conduct terrorism
investigations, strong cooperative relationships must exist between the
Federal law enforcement agencies to leverage the skills and
contributions of each.
The Department of the Treasury is aware of the need to ensure
appropriate
coordination among its regulatory and enforcement components to ensure
the most effective anti-money laundering and antiterrorist financing
infrastructure possible. Included in these overarching responsibilities
is the need to ensure effective BSA compliance and enforcement.
Responsibility for ensuring compliance with the BSA of all non-
banking and financial institutions not otherwise subject to examination
by another Federal functional regulator (for example, Money Service
Businesses (MSB's), casinos, and credit unions) was delegated to the
IRS by the Department of Treasury in December 1992. Under the
delegation, IRS is responsible for three elements of compliance--the
identification of MSB's, educational outreach to all three types of
organizations, and the examination of these entities suspected of
noncompliance. The IRS performs these compliance functions along with
its criminal enforcement role.
The processing and warehousing of all BSA documents into the
Currency Banking and Retrieval System (CBRS), including FBAR's,\1\
CTR's,\2\ 8300's,\3\ and SAR's,\4\ are also the responsibility of the
IRS. All documents entered into the CBRS (approximately 14 million
annually) are made available to other law enforcement and regulatory
agencies in addition to IRS. However, the IRS is the largest user of
the CBRS. The total projected IRS costs for BSA for fiscal year 2004 is
$132 million for both compliance and enforcement.
---------------------------------------------------------------------------
\1\ Foreign Bank & Financial Account Report (FBAR).
\2\ Currency Transaction Report--(CTR) FinCEN Form 104 and FinCEN
Form 103 (filed by casinos).
\3\ Report of Cash Payments Over $10,000 Received in a Trade or
Business (IRS and FinCEN form 8300).
\4\ Suspicious Transaction Reports--filed by financial institutions
when there is suspicious activity, as determined by the financial
institution.
---------------------------------------------------------------------------
Each of the IRS-CI's 35 field offices has a functioning Suspicious
Activity Report Review Team (SAR-RT) that works jointly with Federal/
State law enforcement representatives. Nationwide approximately 300-345
employees are assigned, either full or part-time, to the SAR-RT's.
These duties include proactive evaluation and analysis of the SAR's for
case development and field office support. Each month, the field office
SAR-RT's throughout the country review approximately 12,000-15,000
SAR's.
CI has fully utilized the tools now available under Title III of
the USA PATRIOT Act. For example, Section 314(a) of the USA PATRIOT Act
authorizes Federal law enforcement agencies to utilize the existing
communication resources of FinCEN to establish a link between their
respective agencies and over 26,000 financial institutions for the
purpose of sharing information concerning accounts and transactions
that may involve terrorist activity or money laundering. During the
time period from April 2003 through March 2004, CI submitted 15
requests pertaining to 63 individuals and 17 businesses. One thousand
eighty-two financial institutions had positive responses, resulting in
the identification of 635 positive account matches.
Section 319(a) of the USA PATRIOT Act provides that when a criminal
deposits funds in a foreign bank account and that bank maintains a
correspondent account in the United States, the Government may seize
and forfeit the same amount of money in the correspondent account.
Utilizing Section 319(a), CI has participated in two investigations
that together resulted in the seizure of approximately $3.5 million in
funds from accounts held at correspondent banks in the United States.
Sharing our Knowledge with Others
In addition to our financial investigative work, CI is also working
with many foreign governments to train their investigators in the area
of money laundering, financial investigative techniques, and terrorist
financing. We are an active member of the Department of State led
Terrorist Finance Working Group and we work in conjunction with the
Department of State and other governmental and law enforcement agencies
to provide a broad array of financial investigative training to foreign
governments related to money laundering and financial crimes. In
addition, CI also provides training jointly with the Department of
Justice.
Some specific current training conducted jointly with the
Department of State and other law enforcement agencies such as Alcohol,
Tobacco, and Firearms (ATF), FBI, Drug Enforcement Agency (DEA), and
Immigration and Customs Enforcement (ICE) includes:
Financial Investigative Techniques course at the International
Law Enforcement Academies in Bangkok, Budapest, and Gaborone;
Joint Terrorism Finance Training conducted by FBI and CI in
the United Arab Emirates, Pakistan, Malaysia, Colombia, Turkey,
Qatar, Jordan, and Indonesia; and
Department of State, International Narcotic and Law
Enforcement Affairs training is scheduled to be conducted in Egypt,
Paraguay, and Brazil later this year.
Internally, CI has delivered international, antiterrorism finance
training to our Special Agents who are assigned to the Joint Terrorism
Task Forces around the country. The goal of this training is to bring
the agents assigned to the task forces together to learn, discuss, and
share experiences.
We are working in partnership with Treasury's Executive Office for
Terrorist Financing and Financial Crimes, the Office of Foreign Assets
Control (OFAC), and the Financial Crimes Enforcement Network (FinCEN)
to leverage all of the tools and skills of the Department of Treasury
most effectively.
CI's long-standing relationship with FinCEN continues to be a
source of referrals that have resulted in significant financial
investigations. During the fiscal year, CI's Garden City
Counterterrorism Lead Development Center has received 101 potential
terrorism investigative leads from FinCEN. Both CI and the SB/SE have
permanent staff assigned at FinCEN to facilitate a continual flow of
information.
Our work with OFAC has increased dramatically since the Department
of the Treasury's ``trace and chase'' activities began with the search
for Iraqi assets. We are working closely with the Department of the
Treasury and OFAC in their efforts to recover Iraqi assets so that they
can be used for the reconstruction of Iraq. CI is also working with the
Terrorist Financing Working Group comprised of numerous intelligence,
law enforcement, and regulatory agencies to review the proposed anti-
money laundering and antiterrorist financing laws being drafted for
Iraq.
Some other CI efforts and partnerships focused on the investigation
of terrorism financing include:
Treasury Working Group on Terrorist Financing and Charities--
Both CI and IRS Civil Division Tax Exempt/Government Entities.
SAR Review Teams--designed to analyze and evaluate all
suspicious activity reports filed through CBRS.
Interpol--The CI Liaison to the U.S. National Central Bureau
of INTERPOL assists CI field offices and other Federal, State, and
local law enforcement officers in obtaining leads, information, and
evidence from foreign countries.
Defense Intelligence Agency Center (DIAC) (known as the Fusion
Center).
High Intensity Drug Trafficking Area (HIDTA).
Anti-Terrorism Advisory Council established by the Attorney
General.
Joint Terrorism Task Forces (JTTF)--On a national level CI is
embedded with FBI on both the JTTF's and Attorney General's Anti-
Terrorism Advisory Council, concentrating on the financial
infrastructure and fundraising activities of domestic and
international terrorist groups.
The High Intensity Money Laundering and Related Financial
Crime Area (HIFCA) Task Forces. HIFCA's analyze Bank Secrecy Act
and other financial data and analyze potential criminal activity,
including terrorist financing. Twenty-six percent of our 150 open
terrorism-financing investigations are the result of, or involve,
Bank Secrecy Act data.
Representation in FBI's Terrorist Financing Operations Section
(TFOS).
In addition to our participation on these groups, we also make a
unique contribution to counterterrorism efforts through the use of our
computer investigative expertise. IRS has a unique software tool used
by international, domestic, Federal, State, and local intelligence
agencies. This software tool has the capability of analyzing multi-
terabytes of data in multiple languages, including Farsi. We have used
this tool successfully in numerous investigations--from computers
seized in abusive tax schemes to those found in caves in Afghanistan.
Investigative Statistics
Since October 1, 2000, IRS CI has conducted 372 terrorism
investigations in partnership with other law enforcement agencies. Over
100 investigations have resulted in indictments. Of the 270 open
investigations, 120 have already been referred to the Department of
Justice for prosecution. Of the remaining 150 terrorism investigations
currently being worked by IRS CI Special Agents:
56 percent involve tax violations;
97 percent involve participation with other agencies;
26 percent either were results of, or involve, Bank Secrecy
Act data; and
18 percent involve purported charitable or religious
organizations.
What We are Doing Within IRS
Experience gained during the last 2 years has identified areas
where CI can have a greater impact addressing terrorism related
financial issues without duplicating the efforts of other law
enforcement agencies. CI is piloting a counterterrorism project in
Garden City, New York, which, when fully operational, will use advanced
analytical technology and leverage valuable income tax data to support
ongoing investigations and proactively identify potential patterns and
perpetrators.
The Garden City LDC was established in July 2000 to assist field
offices in ongoing income tax and money laundering investigations. Due
to the unique application of the skills and technology deployed to
develop investigations at Garden City, it has been converted to focus
exclusively on counterterrorism issues. When fully implemented, CI's
efforts at the Counterterrorism LDC will be dedicated to providing
nationwide research and project support to CI and JTTF terrorist
financing investigations. Relying on modern technology, the Center is
staffed by CI Special Agents and Investigative Analysts, in conjunction
with experts from the IRS' Tax Exempt/Government Entities (TE/GE)
Operating Division. Together these professionals research leads and
field office inquiries. Using data from tax-exempt organizations and
other tax-related information that is protected by strict disclosure
laws, the Center analyzes information not available to, or captured by,
any other law enforcement agency. Thus, a complete analysis of all
financial data is performed by the Center and disseminated for further
investigation.
This initiative supports the continuation of CI's response to
domestic and international terrorism, and ensures efficient and
effective use of resources through advanced analytical technology by
subject matter experts. Analytical queries and proactive data modeling
assist in identifying previously unknown individuals who help fund
terrorist organizations and activities, with particular focus on the
use of purported charitable organizations, hawalas, wire remitters, and
other terrorist funding mechanisms. Pending before Congress is
legislation that would extend the manner by which confidential tax
return information can be disclosed in terrorism-related matters.
Changes to the Federal tax disclosure laws dealing with terrorism
issues were made in the ``Victims of Terrorism Act of 2001.'' Those
changes, however, expired on December 31, 2003.
Following are examples of two terrorist investigations in which CI
was involved:
A Federal search warrant was executed FBI, DHS/ICE, and IRS-CI on
February 18, 2004, against the property purchased on behalf of an
Islamic Foundation in Oregon. The warrants were executed pursuant to a
criminal investigation into possible violations of the Internal Revenue
Code, the Money Laundering Control Act, and the Bank Security Act. The
U.S. Treasury and the Kingdom of Saudi Arabia had jointly designated
the Bosnian and Somalia Branches of this organization as supporters of
terrorism. An associate established a tax-exempt charitable
organization in the United States, and knowingly filed a materially
false information tax return in violation of Internal Revenue Code
Section 7206.
Benevolence Director Sentenced After Pleading Guilty To
Racketeering Conspiracy. On August 18, 2003, in Chicago, IL, Enaam M.
Arnaout, the Executive Director of Benevolence International
Foundation, Inc. (BIF), a purported charitable organization based in
south suburban Chicago, was sentenced to 136 months in prison after
pleading guilty in February 2003 to racketeering conspiracy, admitting
that he fraudulently obtained charitable donations in order to provide
financial assistance to persons engaged in violent activities overseas.
Arnaout was also ordered to pay restitution in the amount of $315,000
to the Office of the United Nation High Commissioner for Refugees.
Arnaout admitted that, for approximately a decade, the BIF was
defrauding donors by leading them to believe that all donations were
strictly being used for peaceful, humanitarian purposes while a
material amount of the funds were diverted to fighters overseas.
Arnaout specifically admitted providing items to fighters in Chechnya
and Bosnia.
International Arena
Aside from CI's association with domestic task forces, CI also
participates in the international arena. Through efforts developed by
the Department of the Treasury, CI participates in the newly created
Joint Terrorist Financing Task Force in Riyadh, Saudi Arabia along with
local Saudi investigators. Through this task force, agents from FBI and
Criminal Investigation have gained unprecedented access to Saudi
accounts, witnesses, and other information. The Task Force agents both
provide and receive investigative lead information on various
terrorist-financing matters. Investigations involving the use of tax-
exempt organizations to finance terrorist activities are a high
investigative priority for Criminal Investigation. This initiative
supports the continuation of CI's ability to identify and investigate
those who use U.S. organizations and financial institutions to fund
terrorist activities.
CI has seven law enforcement attaches assigned to American
Embassies or U.S. Consulates in Mexico City, Bogota, London, Frankfurt,
Bridgetown, Ottawa, and Hong Kong. Their primary mission is to
coordinate and support all field office requests for international
assistance.
CI is a permanent member of the U.S. Delegation to the Financial
Action Task Force (FATF) and its Caribbean equivalent (CFATF). CI is
involved in the drafting of the recently revised 40 recommendations
that set the standards for best practices to be adopted by countries to
combat money laundering.
CI has participated in the assessments of numerous Middle Eastern,
South American, and European countries anti-money laundering laws,
policies, and procedures. As a result, during fiscal year 2004, CI will
participate in follow up antiterrorism and anti-money laundering
training with the FBI in countries such as Saudi Arabia, Thailand,
Egypt, Pakistan, United Arab Emirates, Oman, Qatar, Bahrain, and
others. Our liaison to the U.S. National Central Bureau of INTERPOL has
provided urgently needed identifying information to the OFAC in
terrorist-related actions.
Among the myriad of tax evasion schemes facing law enforcement
today, those perpetrated through offshore transactions are some of the
most successful and difficult to detect and prosecute. The IRS has
investigated numerous schemes where individuals and businesses have
committed tax evasion involving both domestic and foreign source
income. Investigation has revealed that purported charitable
international organizations that support terrorism sometimes avail
themselves of these arrangements and hide their transactions through
similar sophisticated offshore arrangements.
Conclusion
Today we carry on our 85-year tradition of solving financial crimes
in concert with our other partners in the Department of the Treasury
and the rest of law enforcement, and we do that by following the money.
CI's achievements are the result of a collective effort and are a
tribute to what can be achieved when Government works together. I am
proud of the role that the Internal Revenue Service and CI, in
particular, have played in achieving those successes. It is one of the
great rewards of public service.
Mr. Chairman, I thank you for this opportunity to appear before
this distinguished Committee and I will be happy to answer any
questions you and the other Committee Members may have.
THE SEPTEMBER 11 COMMISSION
AND EFFORTS TO IDENTIFY AND
COMBAT TERRORIST FINANCING
----------
WEDNESDAY, SEPTEMBER 29, 2004
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:06 a.m., in room SD-538, Dirksen
Senate Office Building, Senator Richard C. Shelby (Chairman of
the Committee) presiding.
OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY
Chairman Shelby. The hearing will come to order.
Yesterday, the Committee looked at the role money service
businesses and casinos play in the effort to combat money
laundering and abuse of financial institutions by criminals and
terrorist organizations. Today, we will focus specifically on
the analysis and findings of two reports--the final report of
the National Commission on Terrorist Attacks Upon the United
States, or as it is also known, the September 11 Commission,
and the Council on Foreign Relations' Update on the Global
Campaign Against Terrorist Financing. While the September 11
Commission's report itself offers little by way of findings and
recommendations specific to terrorist financing, the history of
events leading up to the terrorist attacks of September 11,
2001, the report is replete with vital information on the
methods the hijackers and their logistical supporters used to
finance the operation. Of considerable value, though, is the
separate monograph on terrorist financing produced by the
Commission and released last month.
The monograph on terrorist financing constitutes an
indictment of a Government dangerously ill-prepared for the
tragedies that befell this country on that terrible day a
little more than 3 years ago. That remedial measures and
substantive fixes, for example, the FBI's establishment of its
Terrorism Finance Operation Section and the Treasury
Department's new emphasis on terrorist financing have since
been implemented, does not detract from the importance of the
lessons drawn from the fine work done by the
September 11 Commission.
The Council on Foreign Relations' Update on the Global
Campaign Against Terrorism Financing provides useful insights
into the status of this country's efforts to forge a more
effective multinational effort against terrorist organizations
and their financial supporters. Following the devastating
terrorist attacks in Riyadh in May and November 2003, the
Government of Saudi Arabia finally got serious about adopting
new policies and statutes with respect to official and
unofficial charitable activities and other means of providing
support to terrorist organizations. These policies and laws are
highly commendable. As the Council's report indicates, however,
the record on implementation remains questionable.
The Council's report provides equally useful analysis of
the status of efforts by various multinational organizations to
build a consensus with regard to measures to prevent money
laundering and terrorist financing. The Financial Action Task
Force and the IMF and World Bank systems for assessing
countries on their performance in passing and implementing laws
and regulations to combat money laundering remains, the Council
points out, an important tool in waging a battle against
terrorist financing.
Taken together, these two efforts offer valuable insight
into the state of play on an essential component of the war on
terrorism. We are pleased to have here this morning to discuss
their report Lee Hamilton, Vice Chairman of the September 11
Commission and my former colleague, and others, in U.S. House
of Representatives, and our former colleague, Senator Slade
Gorton. Gentlemen, welcome. We look forward to your testimony.
On the second panel, we will hear from Mallory Factor and
Lee Wolosky, a Vice Chair and Project Director, respectively,
of the Council on Foreign Relations' report. Mr. Factor is
currently President of Mallory Factor, Incorporated, an
independent merchant bank and financial relations consultancy.
Mr. Wolosky, in addition to practicing corporate and
international law with the firm of Boies, Schiller, and
Flexner, is an Adjunct Professor of International Affairs at
Columbia University and an Adjunct Fellow at the Center for
Strategic and International Studies.
Finally, our third panel is comprised of Stuart Levey,
Under Secretary for Enforcement and Director of the Office of
Terrorism and Financial Intelligence at the Department of the
Treasury; Michael Garcia, Assistant Secretary for Immigration
and Customs Enforcement, Department of Homeland Security; and
John E. Lewis, Deputy Assistant Director, Counterterrorism
Division, Federal Bureau of Investigation.
This is a lot of testimony for one hearing, but I am
confident it will prove beneficial to the Committee and to the
public. And I want to thank all of our witnesses for being here
today and for their forbearance as we proceed through the
panels.
Senator Reed.
COMMENTS OF SENATOR JACK REED
Senator Reed. Mr. Chairman, I simply want to commend Lee
Hamilton, Slade Gorton, and their colleagues for their
extraordinary contribution to our country in the Commission's
deliberations, and I look forward to your testimony. I thank
you very much, gentlemen.
Chairman Shelby. Senator Enzi.
STATEMENT OF SENATOR MICHAEL B. ENZI
Senator Enzi. Thank you, Mr. Chairman. I appreciate your
holding this latest in an ongoing series of hearings on money
laundering and terrorist financing. Today, we are privileged to
hear from Lee Hamilton, the Vice Chairman, and Senator Slade
Gorton, a Commissioner on the September 11 Commission. The
Commission's recently released report gave us great insight
into how the terrorist events of September 11 were carried out
and, more importantly, for this Committee how the activities
were financed. I have been recommending to people all over
Wyoming that they get a copy of that and read it. It is the
best Government report that I have ever seen. It reads more
like a novel, but most importantly it takes us back in time to
September 10, 2001 and puts us in the frame of mind that we
were there at that time and brings us forward so that we can
understand the changes that have occurred since that time. The
Commission and staff should be commended for preparing the
lengthy and detailed report in such a relatively short time
frame.
In addition, I would also like to recognize Mallory Factor,
the Vice Chair, and Lee Wolosky, the Co-Director, on their
efforts as part of the Council on Foreign Relations. Mallory is
an outstanding resource for information on anything on the
international banking community and provides a lot of
information that gives us insights into things that can be done
and, more importantly, things that should be done. The findings
in the Council's second report appears to complement the
findings of the September 11 Commission. One recommendation
that clearly stands out in both reports is the need for greater
international cooperation and engagement. Immediately following
the September 11 attacks, I had the privilege of working with
Sir Jeremy Greenstock, the British Ambassador to the United
Nations. Ambassador Greenstock was instrumental in the
establishment and leadership of the United Nations Security
Council Counterterrorism Committee or CTC.
Under his effective leadership, the CTC was able to gather
reports from over 170 individual nations. The reports were just
the first step in demonstrating the potential benefits the
international cooperation could obtain in his grouping of
countries so that peer pressure could be exacted against each
other, for each other, for the cooperation on sharing
information I think provides a great model. It is clear,
though, that there is a lot more work to be done.
While the Department of the Treasury has worked with
various international groups, including the Financial Action
Task Force, the United States' attention on bringing the
international partners to the table is critical in order to
stop terrorist financing at its source. Recently, the new head
of the Financial Action Task Force indicated that one of his
primary goals was to bring China and India into the group
before the end of next year. As these countries are fast
becoming major financial centers, we too must engage them in
our shared goal of ending terrorism financing.
The international standards developed by the Department of
the Treasury, the CTC, and the Financial Action Task Force are
essential to focus everyone's attention on the formal and
informal channels of money laundering and terrorist financing.
For us, the USA PATRIOT Act helped to provide our financial
regulators with the tools they needed to assist our financial
institutions from knowingly or inadvertently promoting illegal
financial activities.
At our hearing today, I anticipate that the witnesses will
be able to provide us clear guidance on how the United States
should work to coordinate and engage the international
community on these very important issues.
Thank you.
Chairman Shelby. Senator Stabenow.
COMMENTS OF SENATOR DEBBIE STABENOW
Senator Stabenow. Good morning, and thank you, Mr.
Chairman. I think this hearing is very timely, given the
intelligence reform bill that is on the floor of the Senate
right now, and I want to welcome both of our colleagues and
guests, Lee Hamilton and Slade Gorton. Lee, it was a pleasure
to have served with you in the House, and I know that you and
your colleagues have lived up to every one of our expectations
in terms of your thoughtfulness and bipartisan way that you
have conducted a very thorough investigation report. And so
thank you to both of you and to all of your colleagues on the
Commission.
We know that we need to act thoughtfully, but quickly, and
in a bipartisan manner on the recommendations of the
Commission, and I am certainly anxious to do that.
Mr. Chairman, one of the things that I think often gets
overlooked as we discuss flaws in the USA PATRIOT Act is that
this Committee's work on money laundering and tracking
terrorist financing I think was one of the important and
powerful parts of that Act. And I was pleased to sponsor some
of the successful amendments on money laundering. My colleagues
worked in a bipartisan way on this, but it is clear that
tracking and being able to disrupt the movement of money to
finance terrorist acts is an important part of the whole
picture.
And so I am pleased to be a part of a Committee that I
think did excellent work at the time, and I appreciate the
opportunity to hear from you this morning.
Chairman Shelby. Thank you, Debbie.
Senator Crapo.
COMMENTS OF SENATOR MIKE CRAPO
Senator Crapo. Thank you, Mr. Chairman. I have no opening
statement. I look forward to the interesting testimony we
expect to receive today.
Chairman Shelby. Senator Bunning.
STATEMENT OF SENATOR JIM BUNNING
Senator Bunning. Thank you, Mr. Chairman. I would like to
welcome all of our witnesses here today. I would especially
like to thank the two September 11 Commissioners who are former
colleagues of mine for all their hard work and service to our
Nation.
I applaud Chairman Shelby for holding these two very, very
important hearings on terrorist financing and the money
laundering problems. Obviously, these are very important issues
in fighting the war on terror, and I think yesterday's hearing
was a very good lead-in for today.
The Commission has done us a great service, both their
recommendations and their tracing of the monies used to pull
off the September 11 attacks. I think they cleared up a lot of
the misconceptions, particularly for me, how relatively little
money was used to pull off the attacks. For as long as the
terrorists lived here, how many there were, living expenses,
flight training, and travel, the fact that the operation only
cost between $400,000 and $500,000 is very surprising. The fact
that the U.S. Embassy bombings in Africa cost about $10,000 is
also very disconcerting. It shows how daunting the problem that
our money laundering and terrorist financing people have before
them.
Mr. Chairman, I have a long statement, so I would ask that
the rest of it be entered into the record.
Chairman Shelby. It will be included as part of the record
in its entirety without objection.
Senator Bunning. And I really welcome Mallory Factor, also
here, who is an old friend of mine and all of the good work
that he has done. I thank you for being here, and I intend to
be here for the second panel.
Chairman Shelby. Thank you. Your written statements will be
made part of the record in their entirety.
We will start with you Chairman Hamilton.
STATEMENT OF LEE H. HAMILTON
VICE CHAIR, THE NATIONAL COMMISSION ON
TERRORIST ATTACKS UPON THE UNITED STATES
A FORMER U.S. REPRESENTATIVE IN CONGRESS
FROM THE STATE OF INDIANA
Representative Hamilton. Thank you very much, Chairman
Shelby, and the other distinguished Senators who are Members of
the Committee on Banking, Housing, and Urban Affairs.
Chairman Kean would liked to have been with us this
morning. I think you all know he is President of Drew
University. He has commitments there and was unable to be here.
I am very, very pleased to be joined by Senator Gorton, who
was one of our most distinguished Commissioners, contributed
time and time again to the successful work of the Commission,
and I am pleased to be with Slade this morning before you. He
and I will share the presentation of the opening statement. I
will just say it is an honor to appear here. I know that this
Committee has been deeply involved in financial aspects of the
country's war on terrorism. I know you have a lot of real
expertise, and we are grateful to you for the prompt
consideration of our recommendations.
After September 11 attacks, the highest-level U.S.
Government officials publicly declared that the fight against
Al Qaeda financing was as critical as the fight against Al
Qaeda itself. It was presented as one of the keys to success in
the fight against terrorism. If we choke off the terrorists'
money, if we drain the swamp as it were, we limit their ability
to conduct mass casualty attacks.
In reality, stopping the flow of funds to Al Qaeda and
affiliated terrorist groups has proved to be essentially
impossible. Meanwhile, tracking Al Qaeda financing is an
effective way to locate terrorist operatives and supporters and
to disrupt terrorist plots.
Our Government strategy on terrorist financing has changed
significantly from the early post-September 11 days. Choking
off the money, of course, remains the most visible aspect of
our approach--it is still very important--but it is not our
only, probably not our most important goal. Making it harder
for terrorists to get money is a necessary, but it is not a
sufficient component of our overall strategy. Following the
money to identify terrorist operatives and sympathizers
provides a very powerful tool in the fight against terrorist
groups. Use of that tool almost always remains invisible to the
general public, but it is a critical part of the overall
campaign against Al Qaeda.
Today, the U.S. Government recognizes, quite appropriately
in our view, that terrorist financing measures are simply one
of many tools in the fight against Al Qaeda.
Senator Gorton.
STATEMENT OF SLADE GORTON
COMMISSIONER, THE NATIONAL COMMISSION ON
TERRORIST ATTACKS UPON THE UNITED STATES
A FORMER U.S SENATOR FROM
THE STATE OF WASHINGTON
Senator Gorton. The September 11 hijackers used United
States and foreign financial institutions to hold, move, and
retrieve their money. The hijackers deposited money into U.S.
accounts primarily by wire transfers and deposits of cash or
travelers checks brought from overseas. Additionally, several
of them kept funds in foreign accounts, which they accessed in
the United States through ATM and credit card transactions.
The hijackers received funds from facilitators in Germany
and the United Arab Emirates or directly from Khalid Sheikh
Mohammed as they transited Pakistan before coming to the United
States. The plot cost Al Qaeda somewhere in the range of
$400,000 to $500,000, of which approximately $300,000 passed
through the hijackers' bank accounts in the United States.
While in the United States, the hijackers spent money
primarily for flight training, travel, and living expenses such
as housing, food, cars, and auto insurance. Extensive
investigation has revealed no substantial source of domestic
financial support. Neither the hijackers nor their financial
facilitators were experts in the use of the international
financial system. They created a paper trail linking them to
each other and to their facilitators. Still, they were adept
enough to blend into the vast financial international financial
system easily without doing anything to reveal themselves as
criminals, let alone terrorists bent on mass murder.
The money laundering controls in place at the time were
largely focused on drug trafficking and large-scale financial
fraud. They could not have detected the hijackers'
transactions. The controls were never intended to, and could
not, detect or disrupt the routine transactions in which the
hijackers engaged.
There is no evidence that any person with advance knowledge
of the impending terrorist attacks used that information to
profit by trading securities. Although there has been
consistent speculation that massive Al Qaeda-related insider
trading preceded the attacks, exhaustive investigation by
Federal law enforcement and the securities industry has
determined that unusual spikes in the trading of certain
securities were based on factors unrelated to terrorism.
Al Qaeda and Osama bin Laden obtained money from a variety
of sources. Contrary to common belief, bin Laden did not have
access to any significant amounts of personal wealth,
particularly after his move from Sudan to Afghanistan. He did
not personally fund Al Qaeda either through an inheritance or
businesses he was said to have owned in Sudan. Al Qaeda's
funds, approximately $30 million a year, came from the
diversion of money from Islamic charities. Al Qaeda relied on
well-placed financial facilitators who gathered money from both
witting and unwitting donors primarily in the Gulf Region.
No persuasive evidence exists that Al Qaeda relied on the
drug trade as an important source of revenue, had any
substantial involvement with conflict diamonds or was
financially sponsored by any Federal Government. The United
States is not and has not been a substantial source of Al Qaeda
funding, although some funds raised in the United States may
have made their way to Al Qaeda and its affiliated groups.
Since September 11, terrorist financing was not a priority
for
either domestic or foreign intelligence collection.
Intelligence reporting on this issue was episodic,
insufficient, and often inaccurate. Although the National
Security Council considered terrorist financing important in
its campaign to disrupt Al Qaeda, other agencies failed to
participate to the NSC's satisfaction. There was little
interagency strategic planning or coordination. Without an
effective interagency mechanism, responsibility for the problem
was dispersed among a myriad of agencies working independently.
The FBI gathered intelligence on a significant number of
organizations in the United States suspected of raising funds
for Al Qaeda or other terrorist groups. The FBI, however, did
not develop an end game for its work. Agents continued to
gather intelligence with little hope that they would be able to
make a criminal case or otherwise disrupt the operations of
these organizations.
The FBI could not turn these investigations into criminal
cases because of, one, insufficient international cooperation;
two, a perceived inability to mingle criminal intelligence
investigations due to the wall between intelligence and law
enforcement matters; three, sensitivities to overt
investigations of Islamic charities and organizations; and,
four, the sheer difficulty of prosecuting most terrorist
financing cases.
Nonetheless, FBI street agents had gathered significant
intelligence on specific groups. On a national level, the FBI
did not
systematically gather and analyze the information its agents
developed. It lacked a headquarters unit focusing on terrorist
financing. Its overworked counterterrorism personnel lacked
time and resources to focus specifically on financing.
The FBI, as an organization, therefore, failed to
understand the nature and extent of the Jihadist fundraising
problem within the United States or to develop a coherent
strategy for confronting the problem. The FBI did not, and
could not, fulfill its role to provide intelligence on domestic
terrorist financing to Government policymakers. The FBI did not
contribute to national policy coordination.
The Department of Justice could not develop an effective
program for prosecuting terrorist-financed cases. Its
prosecutors had no systematic way to learn what evidence of
prosecutable crimes could be found in the FBI's intelligence
files to which it did not have access. The U.S. intelligence
community largely failed to comprehend Al Qaeda's methods of
raising, moving, and storing money. It devoted relatively few
resources to collecting the financial intelligence that
policymakers were requesting or that would have informed the
larger counterterrorism strategy.
The CIA took far too long to grasp basic financial
information that was readily available, such as the knowledge
that Al Qaeda relied on fundraising, not bin Laden's personal
fortune. The CIA's inability to grasp the true source of bin
Laden's funds frustrated policymakers.
The U.S. Government was unable to integrate potential
covert action or overt economic disruption into the
counterterrorism effort. The lack of specific intelligence
about Al Qaeda financing and intelligence deficiencies
persisted through September 11. The Office of Foreign Assets
Control, the Treasury organization charged by law with
searching out, designating, and freezing bin Laden assets, did
not have access to much actionable intelligence.
Before September 11, a number of significant legislative
and regulatory initiatives designed to close vulnerabilities in
the U.S.
financial system failed to gain traction. They did not gain the
attention of policymakers. Some of these, such as a move to
control foreign banks with accounts in the United States, died
as a result of banking industry pressure. Others, such as a
move to regulate money remitters, were mired in bureaucratic
inertia and a general anti-regulatory environment.
Since September 11, 2001, it is common to say that the
world has changed. This conclusion is particularly apt in
describing U.S. counterterrorist efforts regarding financing.
The U.S. Government has focused, for the first time, on
terrorist financing and devoted considerable energy and
resources to the problem. As a result, we now have a far better
understanding of the methods by which terrorists raise, move,
and use money. We have employed this knowledge to our
advantage.
With a new sense of urgency post-September 11, the
intelligence community, including the FBI, created new entities
to focus on and bring experts to the question of terrorist
fundraising and the clandestine movement of money. The
intelligence community uses money flows to identify and locate
otherwise unknown associates of known terrorists and has
integrated terrorist-financing issues into the larger
counterterrorism effort.
Equally important, many of the obstacles hampering
investigations have been stripped away. The current
intelligence community approach appropriately focuses on using
financial transactions in close coordination with other types
of intelligence to identify and track terrorist groups rather
than to starve them of funding.
Still, understanding Al Qaeda's money flows and providing
actionable intelligence to policymakers present ongoing
challenges because of, first, the speed, diversity, and
complexity of the means and methods for raising and moving
money; second, the commingling of terrorist money with
legitimate funds; third, the many layers and transfers between
donors and the ultimate recipients of the money; fourth, the
existence of unwitting participants, including donors who give
to generalized Jihadist struggles rather than specifically to
Al Qaeda; and, fifth, the U.S. Government's reliance on foreign
government reporting for intelligence.
Bringing Jihadist fundraising prosecutions remains
difficult in many cases. The inability to get records from
other countries, the complexity of directly linking cashflows
to terrorist operations and to groups, and the difficulty of
showing what domestic persons knew about illicit foreign acts
or actors all combine to thwart investigations and
prosecutions.
Domestic financial communities and some international
financial institutions have generally provided law enforcement
and intelligence agencies with extraordinary cooperation. This
cooperation includes providing information to support quickly
developing investigations such as the search for terrorist
suspects at times of emergency. Much of this cooperation is
voluntary and based on personal relationships.
It remains to be seen whether such cooperation will
continue as the memory of September 11 fades. Efforts to create
financial profiles of terrorist cells and terrorist fundraisers
have proved unsuccessful, and the ability of financial
institutions to detect terrorist financing remains limited.
Since the September 11 attacks and the defeat of the
Taliban, Al Qaeda's budget has decreased significantly.
Although the trend line is clear, the U.S. Government still has
not determined, with any precision, how much Al Qaeda raises,
from whom, or how it spends its money. It appears that the Al
Qaeda attacks within Saudi Arabia in May and November of last
year have reduced, some say drastically, Al Qaeda's ability to
raise funds from Saudi sources.
There has been both an increase in Saudi enforcement and a
more negative perception of Al Qaeda by potential donors in the
Gulf. However, as Al Qaeda's cashflow has decreased, so too
have its expenses, generally, owing to the defeat of the
Taliban and the dispersal of Al Qaeda. Despite our efforts, it
appears that Al Qaeda can still find money to fund terrorist
operations. Al Qaeda now relies to an even greater degree on
the physical movement of money and other informal methods of
value transfer which can pose significant challenges for those
attempting to detect and disrupt money flows.
Representative Hamilton. Technical recommendations are
beyond the scope of our remarks today, but let me stress four
themes in relationship to the work of this Committee.
One, continued enforcement of the Bank Secrecy Act rules
for financial institutions, especially in the area of
Suspicious Activity Reporting, is very necessary. The
Suspicious Activity Reporting provisions currently in place
provide our first defense in deterring and investigating the
financing of terrorist entities and operations. Financial
institutions are in the best position to understand and
identify problematic transactions or accounts.
Although the transactions of the September 11 hijackers
were small and innocuous and could probably not be detected
even today, vigilance in this area is important. It forces
terrorists and their sympathizers to raise and move money
clandestinely, thereby raising the costs and the risks
involved. The deterrent value in such activity is significant,
and while it cannot be measured in any meaningful way, it ought
not to be discounted.
The USA PATRIOT Act expanded the list of financial
institutions subject to the Bank Secrecy Act regulation. We
believe that this was a necessary step to ensure that other
forms of moving and storing money, particularly less-regulated
areas such as wire remitters, are not abused by terrorist
financiers and money launderers.
Second, investigators need the right tools to identify
customers and trace financial transactions in fast-moving
investigations. The USA PATRIOT Act gave investigators a number
of significant tools to assist in fast-moving terrorism
investigations. Section 314(a) allows investigators to find
accounts or transactions across the country. It has proved
successful in tracking financial transactions and could prove
invaluable in tracking down the financial component of
terrorist cells.
Section 326 requires specific customer identification
requirements for those opening accounts at financial
institutions. We believe both of these provisions are extremely
useful and properly balance customer privacy and the
administrative burden, on the one hand, against investigative
utility on the other.
Third, continuous examination of the financial system for
vulnerabilities is necessary. We spent significant resources in
examining the ways Al Qaeda raised and moved money. We are
under no illusions that the next attack will use similar
methods. As the Government has moved to close financial
vulnerabilities and loopholes, Al Qaeda adapts. We must
continually examine our system for loopholes that Al Qaeda can
exploit and close them as they are uncovered. This will require
constant efforts on the part of this Committee working with the
financial industry, their regulators and the law enforcement
and intelligence communities.
Finally, we need to be mindful of civil liberties in our
efforts to shut down terrorist networks. In light of the
difficulties in prosecuting some terrorist fundraising cases,
the Government has used administrative blocking and freezing
orders under the International Emergency Economic Powers Act,
or IEEPA, against U.S. persons, individuals, or entities
suspected of supporting foreign terrorist organizations. It may
well be effective and perhaps necessary to disrupt fundraising
operations through an administrative blocking order when no
other good options exist.
The use of IEEPA authorities against domestic organizations
run by United States citizens, however, raises significant
civil liberty concerns. IEEPA authorities allow the Government
to shut down an organization on the basis of classified
evidence, subject only to a deferential, after-the-fact
judicial review.
The provision of the IEEPA that allows the blocking of
assets during the pendency of an investigation also raises
particular concern in that it can shut down a U.S. entity
indefinitely without the more fully developed administrative
record necessary for a permanent designation.
Vigorous efforts to track terrorist financing must remain
front and center in the U.S. counterterrorism efforts. The
Government has recognized that information about terrorist
money helps us to understand their networks, search them out,
and disrupt their operations. These intelligence and law
enforcement efforts have worked. The death or capture of
several important facilitators has decreased the amount of
money available to Al Qaeda, increased its costs and
difficulties in moving money. Captures have produced a windfall
of intelligence.
Raising the costs and risks of gathering and moving money
are necessary to limit Al Qaeda's ability to plan and mount
significant mass casualty attacks. We should understand that
success in these efforts will not, of itself, immunize us from
future attacks.
Thank you very much. We are pleased to respond to any
questions you may have.
Chairman Shelby. Thank you, both.
The Commission seems to think that the reason the bits of
information that might have come together to foretell September
11 never came together is that no one person was in charge, but
is that really the reason or is it more accurate to think of
the reasons as being, the volume of information, especially
with regard to counterterrorism financing efforts, is so
voluminous that even with continued rapid advances in data
processing, it simply cannot be collected, stored, retrieved,
and analyzed either in a single database or in sufficient time
to make a difference or, legitimate security concerns limit the
degree to which confidential information can safely be shared
either among Government entities or with the financial
industry?
Mr. Gorton.
Senator Gorton. We listed 10 or a dozen missed
opportunities pre-September 11. I do not believe--I can be
corrected by my staff--that any of them were financial in
nature. They were intelligence mishaps. We have said in our
opening statement here that the transactions in which these
terrorists engaged were routine transactions that we probably
would not even be able to trace today.
Chairman Shelby. Under the screen.
Senator Gorton. Yes. But the missed opportunities were due,
at least in part, to the absence of a central point that could
collect all intelligence information on a particular subject.
The FBI, of course, did not even talk to itself between law
enforcement and intelligence much less to the CIA and to other
agencies. The head of the FBI never met with the President. We
had a frustratingly broken system, but the head that we are
talking about in this National Intelligence Directorate was
aimed more at that missed opportunity than it was at financial
transactions.
Chairman Shelby. Do you agree with that?
Representative Hamilton. Mr. Chairman, you identify of
course what we--I guess our principal finding in many ways was
that there was not sufficient sharing of information----
Chairman Shelby. That is right.
Representative Hamilton. --as you indicate in your question
and the fact that you highlight the voluminous data that the
U.S. Government deals with. We produce billions of bytes of
data every day, billions of bytes, and getting it collected and
analyzed is a horrendous task.
We had these two hijackers, Mindhar and Alhazmi, in San
Diego. They used the banking system, and if we had just been
able to pick up that information better and if we had had
someone in charge, that is the key here, and that is what we
found really lacking in our intelligence. You collect
information over here, you collect it over here. You have human
intelligence. You have signals intelligence. You have
intercepts. It comes in horrendous volumes, all of these people
doing very good work. They are highly capable.
They are patriotic people, but not only was there
insufficient sharing, but there was also an insufficient
management. No one really stepped forward and said, ``Okay, I
have my eye on these two guys out here in San Diego. They are
suspicious characters. We have bits and pieces of information
about them,'' but nobody really managed the case. So you have
to have somebody managing all that data.
Chairman Shelby. No one in charge.
Representative Hamilton. Nobody in charge. Nobody really
trying to put it all together.
Chairman Shelby. Thank you.
The Commission's report also suggests that currently
available enforcement powers are not being used to their
fullest extent to shut down suspected terrorist financing
networks and have failed to create an efficient bureaucratic
structure to combat the problem. Could you expand on the weak
use of enforcement powers and what you think needs to be done
to improve efficiency in this area of financial networks.
Representative Hamilton. Well, I think our general
impression, Mr. Chairman, may be counter to that. We think we
have come a long way since September 11 in improving our
enforcement powers. You can always get better, of course, in
anything that you do, but there is not any doubt that the law
enforcement agencies, the FBI and others, are much, much better
prepared today than they were prior to September 11 to apply
these enforcement powers.
In your area of financial transactions, it always seems to
me that the important thing is to try to get information
quickly that really comes in through the banking system and to
get that information as quickly as possible, to identify it, of
course, and to get it to the investigator as quickly as
possible. That is really the key so that they can enforce. I
think there has been improvement there, and the powers given in
the USA PATRIOT Act here that I identified in my statement are
helpful, but that is the best way I believe to improve the
quality of enforcement.
Senator Gorton. Mr. Chairman, I think that sometimes our
expectations are awfully high. Last night, I got back to the
hotel in time to watch one of my favorite one-hour television
shows, NCIS. And the subject was a kidnapping and an attempt to
transfer $2 million. And, of course, just in time for 9 o'clock
to come around, the $2 million seemed to have been transferred
to about eight different places all the way around the world,
and the heroes were there to catch the villain, you know, just
as the money came back to the United States.
Chairman Shelby. It has improved a lot, has it not, on TV.
Senator Gorton. Yes, a very impressive television program,
but I am thinking that is really not quite the way it is in the
real world. These transactions are very, very difficult to
trace. And as we point out, and in a sense this is
counterintuitive, our people, our law enforcement agencies now,
are using these transactions more to catch the terrorists than
they are to intercept the money. It is a very important part of
it because you are looking for the individual, and we are doing
a better job in that connection.
Chairman Shelby. But you want to do both, do you not--
intercept the money and catch the terrorists?
Senator Gorton. Of course, we want to do both, but even
these law enforcement agencies have to set priorities.
Representative Hamilton. We do think the FBI needs to
improve the gathering and the analyzing of the information that
is developed because what you said in your opening question,
there is such a voluminous amount of data, and they have to
create an analytical career track to enhance their analytical
capabilities.
Chairman Shelby. That is tough to do, is it not?
Representative Hamilton. Very, very tough to do. I think
the problems have been identified. We have commended Director
Mueller for trying to improve this greatly. It is a huge task,
so we cannot expect miracles, even in a matter of a couple of
years, but we think they are moving in the right direction.
Chairman Shelby. Thank you.
Senator Stabenow.
Senator Stabenow. Thank you, Mr. Chairman.
Just to follow up on the Chairman's questions, we know that
terrorist financing alone, in terms of the oversight, is in
many different departments. You have discussed all of the
different departments and agencies within departments where
just this one piece is tracked and enforced and so on.
We know there is a recommendation for a National
Intelligence Director to oversee everything, but do we need to
more specifically be looking at a more centralized way just for
terrorist financing? Is it enough to have someone bringing
together all of the pieces from financing to other kinds of
intelligence or did you find in your efforts that we should
more specifically bring together those agencies specifically
around terrorist financing?
Representative Hamilton. Go ahead, Slade.
Senator Gorton. Some people have suggested something of a
financing czar. We have not made that recommendation, Senator,
because we do not think that there is a distinction between
financing and other aspects of terrorism. One of the two
elements that are central to your considerations right now on
the bill on the floor is a National Counterterrorism Center,
and we think that this financing information and the people
working in that should be integrated into that rather than
dealt with separately.
Representative Hamilton. It is a very good question.
You have a lot of agencies involved. You have Treasury, you
have the Justice Department, you have the FBI, Homeland
Security, you have the National Security Council, and so you do
have to be alert to the questions you are raising about turf
consciousness and lack of coordination and all of the rest of
it, and we looked at that.
But we think that the way it is coordinated today, which is
in the National Security Council and under their Policy
Coordinating Committee, it works reasonably well. And one of
the fundamental views we had is that counterterrorism, in order
to have an effective counterterrorism policy, you really have
to emphasize integration. And by integration I mean
counterterrorism policy that has military aspects, covert
action aspects, diplomacy aspects, financing aspects, public
diplomacy, law enforcement, all in all, and the key to good
counterterrorism policy is integration, and that means
cooperation, and it has to be institutionalized.
In the area of financing, it is important that we
recognize, as Slade has said, that that is only a part of your
counterterrorism effort. And you do not want somebody up here,
a czar of financing, who is not integrated into the entire
structure, and so we rejected it and thought that to have a
stand-alone czar on terrorist financing would not be a good way
to do it.
Senator Stabenow. Thank you, Mr. Chairman.
Chairman Shelby. Senator Enzi.
Senator Enzi. Thank you, Mr. Chairman.
I think we have gone around the edge of this a little bit,
but the Department of the Treasury, in an effort to focus on
terrorism financing, established the Office of Terrorism and
Financial Intelligence. What are your thoughts on how this
office is operating and are there any special areas of focus
that that office should be targeting? And how do you see
Treasury and FinCEN's role under a new intelligence structure?
Should it be expanded or limited?
Representative Hamilton. One of the things that impressed
me, you raised it in your opening statement, Senator, and this
is a matter of international cooperation in dealing with
terrorist financing, you cannot cut off terrorist financing
without international cooperation. It just cannot be done. And
you are not here talking about 50 countries. You are talking
really about a handful of countries that we need to develop
much better cooperation and get their cooperation. And some of
these countries, Pakistan, for example, have what I am sure you
gentlemen would call very, very limited financial regulation,
very limited financial institutions. So this is a tough problem
in getting the cooperation of these countries that have a
rudimentary financial structure.
But I do think that it is an enormously important effort to
try to get international cooperation. And you see the
difference between the Saudis before the attacks in Saudi
Arabia. One was at 2003, I think, and the attacks afterwards,
when we began to get the cooperation. Chairman Shelby mentioned
that in his opening statement. And once you begin to get that
cooperation, things really begin to improve in terms of tracing
terrorist financing, and I think that is a very important
matter.
Slade, did you want to add to that?
Senator Gorton. No.
Senator Enzi. I appreciate your comments, too, on the
difference between freezing assets and following the assets. In
hearings before this Committee shortly after the September 11
attacks, we found that U.S.-based Islamic charities contributed
to the funding of Al Qaeda and other terror organizations. In
your report, you concluded that U.S. sensitivities to open
investigations of these charities have prevented our law
enforcement agencies from effectively preventing such practices
and that something needs to be done.
Have you seen increased cooperation by these groups since
September 11, and what is your opinion of the strengthened hand
of law enforcement officials in investigating those types of
organizations under the USA PATRIOT Act?
Senator Gorton. Well, all attitudes have changed since
then. And the overwhelming sensitivity that, for all practical
purposes barred that kind of work pre-September 11, does not
exist now. The sensitivities, however, are still there, and you
know perfectly well every time one of these freeze orders hits
the news, there is almost always a denial on the part of those
whose assets were frozen that, in fact, they were engaged in
any such activities.
And I think we are properly sensitive to an interference
with any type of freedom of religion, but we also have to be
extremely conscious of the fact that this is one of the ways in
which terrorism is financed, and we can go beyond Al Qaeda in
this case, to a Hamas, a Hezbollah, and a number of those other
areas.
So, I guess, our summary is we are doing a better job now.
We are getting some cooperation from some of these other
organizations. We still have very real sympathies, and this is
very likely a weak point in our armor.
Representative Hamilton. Senator, may I say the question of
freezing is one we did address, and I think all of us can
appreciate it is a very powerful weapon in the arsenal against
terrorism. You can also overuse it. I think that a tendency
usually would be to say, let us go in there and freeze those
assets and cut this off during this swamp right away, and that
is obviously a temptation.
What we concluded was that you really have to look at this
on a case-by-case basis. Sometimes it is better not to freeze
the assets and then to try to follow the money trail. It will
lead you to something bigger, to something more important. So,
I do not think you want a general rule here and say, okay, let
us always freeze the assets. I think you have to leave
discretion to the enforcement people on that question, and they
have to decide, on a case-by-case basis, whether to freeze or
not to freeze, and sometimes not to freeze may be the better
tool for you.
Senator Enzi. Banker cooperation probably----
Representative Hamilton. Yes, indeed.
Senator Enzi. --is more likely to happen if they are not
the one blamed for stopping the asset, but providing the
information.
Representative Hamilton. Absolutely.
Senator Enzi. I see my time has expired. Thank you, Mr.
Chairman.
Chairman Shelby. Senator Sarbanes.
STATEMENT OF SENATOR PAUL S. SARBANES
Senator Sarbanes. Thank you very much, Mr. Chairman.
First of all, I want to, Mr. Chairman, again thank you for
holding this hearing and others. This Committee, as you know,
has been pursuing a very active oversight agenda on the issue
of the financing of terrorism and its various aspects. We have
been pushing the regulators very hard to take seriously and
implement fully the Bank Secrecy Act. And we have also been
looking at whether the Government is properly organized to
analyze and use the information in order to identify terrorist
funding or laundered money.
In fact, we had a hearing yesterday addressing the question
of money services businesses and casinos, and we are waiting
for a reply, but I think it is probably going to come back and
tell us that the Secretary of the Treasury and the Commissioner
of Internal Revenue and the Treasury is delegated to the
Internal Revenue its authorities with respect to the money
service businesses and the casinos have probably not met at
that high level in order to focus their attention on this
problem and to coordinate their efforts.
So, I think the point that is being made about coordination
is extremely important and hopefully these oversight hearings
will help to induce a certain amount of that. We have had some
success in that the Treasury Secretary has now met and
apparently it is now scheduled to be done on a periodic basis
with the bank regulators with respect to the Bank Secrecy Act.
That had not been taking place before in an effort to
coordinate and focus the attention.
Mr. Chairman, before I ask any questions, I do want to take
a moment to thank Congressman Hamilton and Senator Gorton for
their service on the September 11 Commission. I think the
Commission has rendered a great service to the Nation. I am
impressed by the depth and breadth of their efforts, their
analysis, and by the report they have issued. Obviously, we are
hopeful that we will be able to implement changes paralleling
many of their findings. I think, in the Senate, we actually are
moving to implement a very substantial number of your
recommendations in order to bring about needed change in this
area.
I served with both of these gentlemen, and I want to thank
them for that contribution. I know it took a great deal of
effort, focus, and concentration. We hope we can achieve the
legislative changes or at least most of them, which you have
deemed necessary.
Let me pursue this point that Senator Enzi was pursuing. I
take it, from your report, that you feel that on occasions our
officials have been too quick to freeze the assets rather than
to continue a tracking process in order to discern and develop
the network through which the funds are moving; is that
correct?
Representative Hamilton. I do not think we made that
judgment, Senator Sarbanes. The judgment we made is not to have
a general rule and take each case by itself. We did not try to
examine 10 or 15 cases where assets were frozen or not frozen,
but we just saw the importance of using it for intelligence.
Senator Gorton. I think my own reflection on that is this
Committee stands in an almost unique position with its ability
to do just that. You have spoken of the Chairman's large number
of hearings on this subject. This was one aspect, an important,
but just one aspect, of the work that you have had us do. It is
something on which you concentrate. And to make judgments of
that nature is a very important part of oversight because,
clearly, there are times when freezing assets is going to
disrupt an operation or disrupt a whole training system, and
there are other times when a judgment not to do so, as Lee
Hamilton has said, may lead us to something bigger, and there
is no way in the world to have a general rule in advance. You
are going to have to have people of excellent judgment and real
experience.
Senator Sarbanes. Which I can see it is a very tough call
because if you do not freeze the assets and then the assets are
used, then you are subject to very intense criticism for not
having moved against the assets. On the other hand, if it is
not necessary to do so, and you do, you may lose very important
intelligence which serve a much broader purpose. I mean, I
think it is a very tough call. I recognize that.
Mr. Chairman, I was in and out, and I may have missed this,
but I wanted to ask our two former colleagues did you address
what the relationship should be between the Counterterrorism
Center and the components of the Department of the Treasury
that administer the Bank Secrecy Act? Did the Commission look
into that at all?
Representative Hamilton. We think that Treasury has to be a
part of the Counterterrorism Center, and they have to have a
seat at the table, so to speak, because it is an important part
of counterterrorism. So we did address it.
Senator Gorton. Judgments as to where intelligence went
pre-September 11, and even, to a certain extent today, were
largely the judgments of the unit or the agency that developed
the intelligence in the first place. They could share or not
share. And as you know, there is often a tendency not to share,
to hold information close. And NCTC, as a part of our
recommendations, will have the ability to demand the kind of
sharing that is necessary. That is something that is not there
in the law today, and Treasury, as well as many other agencies,
have to be a part of that system.
Senator Sarbanes. The information the Treasury is turning
up would, amongst other things, be rooted into the National
Counterterrorism Center; is that correct?
Senator Gorton. Precisely, yes.
Representative Hamilton. Let me pick up on your comments
about oversight for a moment. It is interesting, if you look at
the Commission report, that we do not make any legislative
recommendations with regard to terrorist financing. We point
out some of the things you all have already commented on, but
we do not think the problem here really is new legislation, we
think the problem is oversight, and your Committee, as you said
correctly, has been aggressive, robust oversight.
I just think that is terribly important to emphasize here
because one of the things we found out about the Al Qaeda
operatives is they are pretty doggone sophisticated, and they
are very entrepreneurial, and they know how to work between the
cracks of the system. They knew that they could get on that
airplane with a 4-inch blade, but not an 8-inch blade knife,
and they know how to exploit the gaps and the loopholes.
And so, in many ways, this is an activity that is not
subject to legislation. You just have to keep your eye on the
loopholes in the system, and we will move to close those
loopholes. You have to identify them. You have the expertise on
this Committee, and you have to call it to the attention of the
Executive Branch people and then they have to move to close the
loopholes. As soon as you close that loophole, you can bet your
life that they will be looking for another opportunity. And so
it is an ongoing process and oversight is just critical.
Senator Sarbanes. Mr. Chairman, I see my time is up, but
let me say I actually take Congressman Hamilton's comments in a
way to be a compliment to this Committee because, first, we are
pursuing an active oversight agenda and, second, the title in
the USA PATRIOT Act dealing with terrorist financing and money
laundering came from this Committee not from the other
Committees and was folded into the Act. You have made
reference, when you have discussed where do we need to go to
existing provisions of that title, which in effect address
problems that you saw.
And now you are telling us you think the legislative agenda
at the moment, at least, has been accomplished. Actually, we
brought that title out of this Committee with unanimous
support.
Chairman Shelby. Absolutely.
Senator Sarbanes. Thank you very much.
Chairman Shelby. Senator Crapo.
Senator Crapo. Thank you very much, Mr. Chairman.
Senator Sarbanes just went directly into the issue that I
wanted to raise, and so this will be a little bit repetitive.
But as I read the September 11 Commission report--and by the
way I want to commend you on an outstanding report. I have
encouraged everybody on my staff to read it, and frankly I
think everybody in America should read the report so that they
can better understand what happened and what the issues that we
need to face in the future are. So, again, thank you for an
outstanding job.
As I read it, in the context of the issue we have before
the Committee today, in fact, as you have said, Congressman
Hamilton, the Commission did not make any substantive
recommendations in terms of legislative action that was needed
with regard to terrorism financing. As Senator Sarbanes has
indicated, we put a lot of work into developing the financing
section of the USA PATRIOT Act. So, I just want to ask again
very specifically is it your testimony that, at this point in
time, you do not believe there is any need to revisit the
legislative side of the issue with regard to the authorities
that we must put in place for our Government to be able to
effectively combat terrorism in this arena?
Senator Gorton. In this financial arena.
Senator Crapo. Financial arena.
Senator Gorton. Our answer to that question would be, yes.
Representative Hamilton. Yes, that is correct.
Chairman Shelby. In that context, let me just go a little
bit further. One area where I think that we may need to look
and where we may need to achieve some further legislative
authorities is in the international context of the way in which
the United States deals with other nations on financial issues.
Now, this may end up being in trade negotiations or in some
other context, but it does seem to me that although we
currently seem to have the authorities, at a domestic level, in
place for us to do the necessary tracking and make the
determination as to whether we engage in seizing assets or in
tracking assets, that one of the biggest problems we face is
the fact that so much of the financing occurs, at least in
significant part, outside the borders of our Nation.
Congressman Hamilton, you indicated that there is a small
number of nations we need to deal with, but it seems to me
that, as we deal with that small number of nations, others will
simply become players if we do not have a significant system of
identifying and encouraging or developing banking relations and
financial transaction systems that, as a global community, we
adopt. I think that is a major undertaking, but I think it is
one that we cannot avoid, and I just would appreciate your
comments on that.
Representative Hamilton. I think you are right on the mark.
I really do. I think that we have to make terrorist financing
an important part of American diplomacy, and that means in all
kinds of fora. It means bilateral relations particularly with
some of these countries that we know are high on the list, but
as you point out, it could be another country the next year.
What that means is you have got to work with the Group of 8,
you have to work with the Financial Action Task Force, you have
to work with the IMF, you have to work with the World Bank.
Now, a lot of work has been done here, and they have set up
a number of--there is a strong international consensus, I
believe. They have set up a number of standards to deal with a
lot of these financial transactions.
That is a first step. What really now needs to be done is
the implementation of those standards, and that is a long-term
project.
But I do not think you are going to succeed in terrorist
financing efforts unless you engage the international community
in a very major way. I think it is an important point that you
make.
Senator Gorton. A lot of it still subjective, what happens
in a particular country. You know, cooperation from Saudi
Arabia increased far more dramatically after terrorism stopped
being an export only, you know, when terrorist attacks began in
Saudi Arabia, and they did after September 11. Cooperation with
Pakistan, which certainly improved dramatically after September
11, increased even more when the terrorists started going after
the president there. But many of the countries that we are
dealing with have still, at least by our standards, relatively
primitive financial institutions and controls themselves, even
when they would like to be cooperative, and that just adds
another layer to the challenge.
Representative Hamilton. We were talking about freezing
assets a moment ago. This also has a very large international
component. When you move in and start freezing assets, you can
create some big-time foreign policy problems along the way. So
you have to look at the question of freezing assets in a lot of
different contexts.
Mr. Chairman, I want to pick up on a point. I do not think
I answered Senator Sarbanes very well. I notice he has left the
room, but I want to make clear that the Treasury Department
has, we think, an enormously important role to play in
counterterrorism policy, and particularly on financing. And we
think it should have a seat--and this responds, I think, to his
question, it should have a seat in the National
Counterterrorism Center. But we do not change in any way the
current Treasury Department intelligence. That is maintained,
and it is maintained in part to keep maximum competitive
analysis and intelligence. And so we would not change that at
all today.
Chairman Shelby. Senator Carper.
STATEMENT OF SENATOR THOMAS R. CARPER
Senator Carper. Thanks, Mr. Chairman.
To my old--I started to say ``old colleague Lee Hamilton.''
To my esteemed colleague, former colleague Lee Hamilton, to
Senator Gorton, welcome to both of you.
Congressman Hamilton was good, along with Governor Kean, to
testify before our Governmental Affairs Committee, Senator
Gorton, actually almost 2 months ago now, right after the
September 11 Commission Report was released. I asked a question
of them, and I want to ask it today. It is not directly germane
to the issue before us, the financing of terrorism, but I want
to get your thoughts on this as well.
We are debating, as you know, the September 11 Commission
legislation on the floor today, which I think follows fairly
faithfully your recommendations as a Commission. One of the
questions I asked of Congressman Hamilton and Governor Kean was
how could this Commission, five Democrats, five Republicans,
take up an issue as difficult, contentious, and complex as you
did to work through a political year with elections bearing
down upon us, and to come up with a set of recommendations that
all of you could agree upon? And we are faced here at the end
of the legislative session trying to agree, and we have agreed
pretty much in Committee, the Senate Governmental Affairs
Committee, on what the policy should be. We are now going to
have some real tough debates and votes on the floor. But how
did you reach that consensus, and as one who served here, what
advice would you have for us as we try to find consensus in the
Senate this week and next?
Senator Gorton. Well, I am going to answer that question
because Lee Hamilton bore such a great responsibility for the
fact that we did come out that way. He and Tom Kean, as the
leaders of the Commission, decided very early on that they were
going to do their best to be unified themselves. They wanted no
votes in the Commission that ever split on party lines. They
were not only successful in that, but they were also successful
in keeping us from voting more than three or four times on any
subject.
And so from the very beginning, the attitude of the
leadership of the Commission was that we should do our very
best to do an objective job. And, of course, we had two jobs.
We are concentrating here today on the recommendations that are
before Congress, but we had to write a history that in a sense
was for the ages, that will be the basis of our history, the
way people look at this for a long, long time to come. And we
did that through a magnificent staff, some of whom are still
with us here today, and by stating facts and not opinions, by
trying to write as objectively as we could a history of what
happened and allowing you and you and everyone in America to
make up their minds, if they wanted to cast blame one way or
another or hold opinions one way or another.
I think the work in doing that just folded over into the
recommendations. We got to know one another well. We got to
respect one another well. There were no slackers among the 10
members. They worked very, very hard on it. As I said, we had
an absolutely magnificent staff, but I can tell you that 2
weeks before we finished, I was almost certain that while I was
going to sign the report, I would have some additional views,
and I suspect, I think that was probably true with six or seven
of us at that time. And just simply the personal dynamics, the
give and take caused one after another of us to say, no, the
most important thing to do is to be unified on a task that is
so important for the United States.
Now, Lee and I were together yesterday at a news conference
with Senators Collins and Lieberman, and I think the Senate has
followed our example. I think the bipartisan nature of what
went on in hearings during August with the two of them and many
other committees, the way that bill came out of Governmental
Affairs unanimously and the way you are dealing with it on the
floor, are a real tribute to all of you. And now I think the
House is following your example. I am optimistic that by the
end of next week we are going to have something on the
President's desk that a majority of both parties in both Houses
will have supported.
Senator Carper. Well, that may be the triumph of man's hope
over experience. Or that might be just a good prediction. I
sure hope it is.
Representative Hamilton. I thank Slade for his compliments,
but the Chairman deserves most of the credit, and, of course,
all of the Commissioners cooperated.
Two points, Senator Carper, in response. One is we had
something you do not have, and that is the luxury of time. We
could sit down and talk about this at some length, and I know
your schedules and I know how many issues press upon you. And
it is very, very difficult to reach consensus when you do not
have a lot of time, and we did have time to talk things out. We
were able to deliberate.
And the other thing I would just like to mention--and this
does apply to you, it applies to all of us, and that is--I
think all the Commissioners were very impressed with the
gravity of the task that we had. And I think we were impressed
with the fact that the American people were going to depend on
us. And we felt you were going to depend on us. And we took
that responsibility seriously, and we tried our very best to
come up with recommendations which would have broad support.
But we all recognized that September 11 was one of the most
traumatic events in the history of the country, and public
officials and Commissioners have a very, very special
responsibility in dealing with it.
Senator Carper. Our thanks to both of you.
Mr. Chairman, I think my time has expired. Is there going
to be a second round or is this the only----
Chairman Shelby. There will be if you want one.
Senator Carper. Thank you.
Chairman Shelby. Senator Bunning.
Senator Bunning. Thank you, Mr. Chairman.
Lee, you brought up the fact--or maybe it was Slade, I
cannot remember--about the Saudis and their alertness after the
attacks in 2003. My question is: Has the cooperation between
the Saudis and the intelligence-gathering information here in
the United States gotten even better, or has it fallen off from
those attacks?
Representative Hamilton. My impression, Senator Bunning, is
that it is much better after the attacks in Saudi Arabia.
Senator Bunning. Continuing?
Representative Hamilton. And that it continues. That is my
impression. Now, I do not pretend to be the expert on this, and
maybe Slade wants to comment on it. That is my impression.
Senator Gorton. I would have the same answer, but I have to
caution you that under our charge, we had total and complete
access to everything that took place up until about September
21, 2001. We did not have full authority after that and have
had none after our July 22 report. Nonetheless, our general
impression that it has continued at a relatively even keel
since those incidents of last year that threatened the Saudi
regime itself. And I think we can be pretty confident as long
as they feel threatened and feel that we can help them, that
cooperation will continue.
Senator Bunning. Okay. Both, either/or, do you believe
there is enough communication between our terrorist finance
regulators and the institutions that they are now regulating?
Representative Hamilton. I think we ran into this several
times, and I think it is much improved. I think the
communication is quite good, but it is not institutionalized, I
think, at this point. And so it needs more work, I guess is the
way I would put it.
Senator Bunning. In other words, it is not what you would
like it to be, but it has made some progress?
Representative Hamilton. I think that is correct. We got
complaints--it is the feedback problem. And we got some
complaints about insufficient feedback, I guess from the
Government back to the private financial community. And there
has been a good bit of effort and a lot of people who have
spent a lot of time working on that. But I do not think it is
where we want it to be even yet, and my general impression is
it is not very well institutionalized.
Senator Gorton. In our written statement, we caution
against a relaxation of these standards as more and more time
elapses after September 11 itself. And I think one can
generalize beyond financial institutions in that connection. It
is a paradox, at least to me, that the more successful we are,
the longer we are successful in preventing a terrorist attack
in the United States, the greater the problem of complacency is
going to become, and the more people will relax and the more at
least voluntary efforts will receive a lower priority. So
success itself will cause a price to be paid.
Representative Hamilton. I just want to emphasize the
importance of this because I think we said in our statement the
first line of defense here with regard to terrorism financing
is in the local banking institution. And it is a heavy
responsibility on the banking institutions to know their
customers. And if they have any suspicions, then they have to
be able to convey that very quickly.
So, I guess we would like to see a higher priority on the
Government side in terms of improving this system of
information flow between the private sector and the Government
regulator. I think it is much improved. I am still a little
uncomfortable with the complaints we had in this area.
Senator Bunning. We had testimony yesterday here in this
Committee from other than banks, and we had testimony from non-
bank banks, and we had testimony from private enterprise people
that were able to transfer money, you know, like Western Union
and like other people, like a problem at casinos where there is
a great deal of money transferred every day or every moment in
the casino. And the fact is they both--both entities--said it
is darn near impossible to track the monies that are less than
those that must be reported. In other words, if it is not
$10,000 or more, they have difficulty tracing.
Do you have any suggestions we have missed that might help
us?
Senator Gorton. Well, if you couple that with, as you
pointed out in your statement, as we did, too, the relatively
low investment not only in the September 11 attacks but also in
a number of other terrorist operations, with the conclusion
that we have right here in our written testimony, that the kind
of transactions in which these terrorists engaged in the United
States pre-September 11 still would probably not be traceable.
Senator Bunning. It would be under the radar.
Senator Gorton. Yes, they were just ordinary credit card
and bank transactions that take place by the tens of millions
every day. So the point is that what you are looking at, what
you oversee here in this Committee, is very important. But it
is only one element in the struggle to prevent terrorism in the
United States, and the human intelligence--you know, we
emphasize very strongly in our report that international
terrorists are most vulnerable when they travel. Getting across
international borders, travel documentation, the documentation
of who you are is overwhelmingly important because it is when
they are the most vulnerable and most likely to be caught. So
you always have to keep that in mind. This is important, but it
is one element in a pattern that we have got to integrate
together.
Senator Bunning. I want to thank you both for your work on
the Commission and for what a good report you have put out. And
I want you to know that I think this Banking Committee here is
going to be ever alert to the things that are going on.
Thank you.
Chairman Shelby. Thank you, Senator Bunning.
I have one last question. I know we have a couple more
panels, and you gentlemen have been very patient. When reading
the monograph on terrorist financing, one of the findings that
most interested me pertained to Osama bin Laden's financial
situation and the degree to which Al Qaeda operations were
funded completely through fundraising activities and not
personal wealth, which the report notes was essentially
nonexistent after 1994. Why was it only with the release of the
Commission's report that the public and its elected
Representatives in Congress were given a clear picture or a
clearer picture of Al Qaeda's funding situation? The
Commission's sources we know were quite recent. If its findings
are accurate--and I believe that they are--what does that tell
us about the challenge confronting us if a terrorist
organization with global reach is overwhelmingly funded through
individual donations? What does this tell us about our ability
to impede the flow of funding not just to Al Qaeda, but to
Hamas, Hezbollah, and other terrorist organizations? I see a
great challenge there.
Senator Gorton. Well, you have answered your own question,
Mr. Chairman.
Chairman Shelby. I would rather you answer it.
Senator Gorton. The more decentralized funding is in this
fashion from a myriad of different charitable organizations,
the more difficult it is to follow and to control. These were
not government actions. They were private actions. Some of them
were unconscious. Some people almost certainly made good-faith
contributions to what they considered to be a charity, which
turned out not to be the case. Heck, we have that here. What
was yesterday's story in the paper about allegations here that
someone has been collecting money and spending 1 percent of it
on its stated goals?
It does mean that this financing problem, to the extent it
is voluntary, is very deep, very serious, and very difficult to
deal with.
Chairman Shelby. It is also central to the whole fight
against terrorism, is it not?
Senator Gorton. Sure. They have to have at least some
resources in order to engage in their activities.
Representative Hamilton. You have to get your facts
straight, Mr. Chairman. I mean, there was a myth around this
town. The myth was that Osama bin Laden was financing all this
because he was a very wealthy guy.
Chairman Shelby. That is what I alluded to.
Representative Hamilton. I believed it, all of us believed
for a long time. One of the things we said to our staff over
and over again is: What are the facts? What are the facts? We
must have asked that question 20 times every session, and it
helped to try to build a consensus, as Slade mentioned a moment
ago.
But there are a lot of myths that get embedded in this
town, and that was a big one, and we just found it was wrong.
Chairman Shelby. You did great.
Representative Hamilton. And so you have to keep digging
for the facts.
Chairman Shelby. Thank you.
Senator Carper, I believe you said you had another
question.
Senator Carper. Mr. Chairman, you pretty much got to the
question I was going to ask. Can I just ask maybe a variation
of it?
Chairman Shelby. Absolutely.
Senator Carper. The amount of money that is involved in
terrorist activities--I do not know that anyone has tried to
quantify what it cost to finance the attacks on September 11. I
think that has been quantified. The amount of money that was
needed to stage the earlier attack on one of the World Trade
Center buildings, the amount of funds that are necessary to
bomb our embassies, I believe, in Africa, the cost of attacking
the U.S.S. Cole. What does it cost to actually blow up trains
just outside of Madrid? Car bombings, kidnappings,
assassinations, how expensive is it to run those operations?
And my guess is compared to the cost of maintaining our
presence in Iraq, the cost of all of those other activities is
very small by comparison. And the question that I was going to
ask is actually quite similar to what the Chairman just asked.
First of all, is my characterization of the relative cost
of those activities as being modest, is that a correct
characterization?
Senator Gorton. Certainly.
Senator Carper. Is that what you found during the course of
your investigations?
Senator Gorton. Yes.
Senator Carper. If the funds, the modest funds that are
needed for these purposes are being raised, as the Chairman
suggests, in fundraising operations outside of this country,
and we are unable to impede the flow of those funds because of
the nature of that fundraising, where should we focus our time
and attention if the effort is to disrupt the financial flow
and the dollars, the few dollars that are needed?
Senator Gorton. I guess we would have to go back to the
nature of our recommendations overall and our definition of the
nature of the enemy. But remember, we put this struggle or our
defenses against this struggle on three levels. First
essentially was preemption. A second level was trying to dry up
support in these Islamic societies themselves by presenting our
American ideas and ideals far more effectively than we have in
the past. Lee was central in that effort. And then third were
the defenses here in the United States itself, the things we
have to go through when we get on an airplane, and our
intelligence in trying to determine who the people are, which
is separate from determining where their money comes from, and
to stop them before they can engage in these activities. No one
level of response has any promise of overall success. They all
must be integrated together.
Senator Carper. Congressman Hamilton.
Representative Hamilton. I hope we do not leave the
impression that choking off money is not a good thing to do. It
is a very good thing to do. It is just very, very hard to do
it. And we ought not to have exaggerated expectations about
draining the swamp and about being able to cut it off.
We do not want to suggest that we should relax our efforts
to try to do it. We certainly have to do that. And we did
emphasize in the statement, and have repeatedly, that it is not
just a question of choking them off money; it is also a
question of developing intelligence, which becomes highly
important. But both aspects of terrorist financing are very
critical.
Senator Carper. Again, our thanks to each of you for your
stewardship and service and for your presence today. Thank you.
Chairman Shelby. Senator Enzi, do you or Senator Bunning
have any other comments?
Senator Enzi. I am anxious to get on to the next panel. I
do have some that I will submit to this panel.
Chairman Shelby. Thank you.
Gentlemen, we thank you both. Thank you for your work.
Representative Hamilton. Thank you very much.
Senator Gorton. Thank you.
Chairman Shelby. Our second panel will be Mr. Mallory
Factor. As I have said before, he is Vice Chair, Council on
Foreign Relations. Mr. Lee Wolosky, also on the Council on
Foreign Relations.
Let's have order in the room.
Audience Member. You know they have lied.
Chairman Shelby. We will have order in the room.
Audience Member. You know they have lied. Their book is
covered in child pornography and dirt from the hot network and
AT&T and you all know it. It is disgusting.
Chairman Shelby. If the second panel will come up----
Audience Member. You are being used, and this President
sends children to war for a game. Absolutely disgusting.
You want the technology? Go to Bill Gates. You want the
answers? Go to Donald Trump. You want the frequent flyer? See
Leo Mullin. You know exactly what I am talking about. Go to
American Express.
Chairman Shelby. Sorry about the disruption. Things like
that happen.
Mr. Factor, we welcome both of you to the Committee. Your
written testimony will be made part of the record. It is
already 11:30. If you would sum up briefly your testimony, we
appreciate your input into this and what you have to say. You
may proceed as you wish, Mr. Factor.
STATEMENT OF MALLORY FACTOR
CHAIRMAN, MALLORY FACTOR, INC.
Mr. Factor. Thank you. Chairman Shelby, Senator Sarbanes,
and distinguished Members of this Committee, thank you for
inviting me to testify today about my views on the critical
issue of curbing terror financing.
Chairman Shelby, I would like to commend you in particular
for your unwavering commitment to addressing the financing of
terror. The work that this Committee is undertaking is
extremely important to the United States and the entire world.
Thank you for your leadership.
I start with the premise, as I am sure that Members of this
Committee do, that no cause, however legitimate, justifies the
use of terror. All jurisdictions must explicitly reject the
notion that acts of terror may be legitimized by charitable
activities or political motivations of the perpetrator.
My recommendations are contained in a report of the
Independent Task Force on Terrorist Financing, sponsored by the
Council on Foreign Relations, on which I served as Vice Chair.
The task force addressed financing emanating from within the
Kingdom of Saudi Arabia because of the enormous resources that
flow to terrorist groups from within that state. Clearly,
numerous other states allow terror financing to continue and
that should be examined also.
Saudi Arabia has enacted new anti-money laundering laws
designed to impede the flow from Saudi Arabia to terrorist
groups. However, significant enforcement by Saudi Arabia of
several of these new laws appears to be lacking.
Furthermore, even if these laws were fully implemented,
they contain a number of exceptions and flaws which weaken
their effectiveness in curbing terror financing. Quite simply,
Saudi Arabia continues to allow many key financiers of global
terror to operate, remain free, and go unpunished within Saudi
borders.
The Bush Administration has made significant progress in
its approach to terror financing since September 11. The
Administration's efforts, combined with those of its
international partners, have significantly diminished Al
Qaeda's current and prospective ability to raise and move
funds. There is still much work to be done. My written
testimony explains each of the task force's nine
recommendations for improving U.S. efforts against terrorist
financing. In the interest of brevity, I will discuss only
three but welcome your questions on any of these
recommendations.
First, Congress should enact a Treasury-led certification
regime specifically on terrorist financing. Many governments
are working on shutting down terror financing from within their
borders, but many are not. Congress should adopt a
certification regime under which the Treasury Department
provides a written certification on an annual basis, classified
if necessary, of the efforts of foreign nations to combat
terror financing. Jurisdictions that do not receive
certification would be subject to sanctions provided by Section
311 of the USA PATRIOT Act.
These sanctions include special measures such as denial of
foreign assistance money and limitation on access to the U.S.
financial system. Presidential national security waivers can be
used to exempt a particular jurisdiction from sanctions.
The Administration has used these powers granted it by
Section 311 of the USA PATRIOT Act in the terror financing
context, but only once. A certification regime for terror
financing would ensure that Treasury officials evaluate on a
scheduled basis whether rogue jurisdictions exist which require
sanctioning. A similar sanction imposed in the money laundering
context resulted in the targeted jurisdiction promulgating
desired legislative and regulatory changes.
I commend Congresswoman Sue Kelly and others who have
introduced legislation in the House as H.R. 5124 that would
require a terror financing, Treasury-led certification regime.
Second, the U.S. Government should increase sharing of
information with the financial services sector as permitted by
Section 314(a) of the USA PATRIOT Act so that this sector can
cooperate more effectively with the U.S. Government in
identifying financiers of terror. Helping private sector
financial institutions become effective partners in identifying
the financiers of terror should be a top priority. The
procedures set forth in Section 314(a) of the USA PATRIOT Act,
which promote information sharing between the U.S. Government
and financial institutions to increase detection of terror
financing, are not working as well as they should.
The U.S. Government is still not providing adequate
information to enable institutions to detect terror financing
and identify unknown perpetrators. The U.S. Government is still
using financial institutions primarily to assist in
investigating known or suspected terror financiers, not in
identifying unknown ones. I recognize that the information that
would enable financial institutions to become effective
partners with the U.S. Government in identifying terror
financing may be highly protected intelligence information. In
other industries such as defense and transportation, however,
persons can be designated by the U.S. Government to receive
access to certain high value information as necessary. A
similar approach could be used to facilitate information
sharing and cooperation between U.S. Government and private
financial institutions.
Third, the National Security Council, NSC, and the White
House Office of Management and Budget, OMB, should conduct a
cross-cutting analysis of the budgets of all U.S. Government
agencies as they relate to terrorist financing. The NSC and OMB
cross-cut would allow policymakers to gain clarity about who is
doing what, how well and with what resources. With this
information in hand, the Administration and Congress can assess
the efficiency of existing efforts and the adequacy of
appropriations relative to this great threat.
I welcome your questions. Thank you.
Chairman Shelby. Mr. Wolosky.
STATEMENT OF LEE S. WOLOSKY
OF COUNSEL, BOIES, SCHILLER & FLEXNER, LLP
Mr. Wolosky. Thank you very much, Mr. Chairman, Senator
Sarbanes and distinguished Members of the Committee. Thank you
for affording me the opportunity to testify before you today on
an issue of fundamental importance to the Nation, terrorist
financing, and thank you for your continued dedication and work
on this issue.
I am testifying today in my personal capacity, although I
note that my testimony is heavily informed by the work of the
Independent Task Force on Terrorist Financing sponsored by the
Council on Foreign Relations, of which I have served as Co-
Director for the past several years.
I note at the outset that the issue of terrorist financing
is foremost a foreign policy issue because as was discussed on
the first panel this morning, most of the money funding Al
Qaeda and other Islamist groups originates and is disbursed
overseas. As described in the final report of the September 11
Commission, funds associated with the maintenance of cells and
other operational activities pass through the United States,
but these amounts are relatively small, making them difficult
for regulators and compliance officers to identify and to
distinguish.
As both the Council on Foreign Relations report and the
September 11 Commission concluded, individuals and
organizations based in the Gulf region have historically been
the single most important source of funds for Al Qaeda, as well
as for other terrorist organizations such as Hamas. Has the
Saudi Government itself funded terrorism? The September 11
concluded that there was no evidence of this, but it went on to
note, ``This conclusion does not exclude the likelihood that
charities with significant Saudi Government sponsorship
diverted funds to Al Qaeda.''
Widespread interest in searching for evidence of official
Saudi complicity in funding Al Qaeda tends to obscure glaring
sins of omission. Global Saudi-based charities controlling and
disbursing billions of dollars are a good example. For years,
there has been
little or nothing done to reign them in even though they have
benefited in some cases from the sponsorship or governance
participation of the Saudi Government or its officials.
The September 11 Commission Staff Monograph generally
concluded that, ``A lack of awareness of the problem and a
failure to conduct oversight over institutions created an
environment in which such activity has flourished.'' These
institutions have in some instances propagated Islamic
extremism, posing a grave strategic threat to the national
security of the United States. As the September 11 Commission
report noted, ``Saudi Arabia has been a problematic ally in
combating Islamic extremism.'' Although much has been done,
particularly since the bombings in Saudi Arabia in May 2003,
much more remains unfinished or even unstarted.
Before the September 11 attacks, even up through the May
2003 attacks in Riyadh, Saudi Arabia resisted any real
cooperation with the United States on terrorist financing. In
response to the May 2003 terrorist attacks, Saudi Arabia has
taken important actions to disable Al Qaeda cells and has
increased its tactical law enforcement intelligence cooperation
with the United States. Saudi Arabia has also largely improved
its legal and regulatory regime, announcing the enactment or
promulgation of a plethora of new laws and regulations and the
creation of new institutional arrangements to combat money
laundering, regulate charities, and control terrorist
financing.
As both the Council on Foreign Relations sponsored task
force and the September 11 Commission Staff Monograph
concluded, however, Saudi Arabia has not yet fully implemented
its new laws, regulations, or institutional mechanisms. These
actions must be taken on an urgent basis and require the
sustained vigilance of the Congress. Additionally, Saudi
enforcement actions directed against Al Qaeda have largely
avoided prominent financiers. There is no evidence, for
example, that since September 11, 2001, Saudi Arabia has taken
public punitive actions against any individual for financing
terror.
By largely remaining silent on these subjects, in my view,
the Bush Administration has resisted a core recommendation of
the September 11 Commission, which mirrored a core conclusion
of the 2002 task force report of the Council on Foreign
Relations Task Force. ``The problems in the United States-Saudi
relationship must be confronted openly.''
In the interest of time I will defer my comments on the
domestic regulatory structure--which Mallory largely addressed
in his remarks--to the question and answer period, and would be
happy to entertain your questions.
Chairman Shelby. Thank you very much. Banks that are
seeking to attract business from both the legal and illegal
alien communities have done so through the provision of
services historically left to companies in the wire transfer
and other non-bank money service businesses. With more and more
banks seeking to enter the realm of financial services that
extend beyond traditional banking activities, I think it would
be instructive to hear from the witnesses their views on
whether this trend has any implications, good or bad, on the
Government's ability to regulate the financial transactions
that are at issue in today's hearing.
For example, what are the implications of increased global
use of ATM's for money laundering and for the movement of
terrorist funds? Have you all got into that? Mallory?
Mr. Factor. Well, we did not look into it, the task force
did not address that. But we did look at things like CTR's and
SAR's, Currency Transaction Reports and Suspicious Activity
Reports. Something very interesting came to mind when we looked
at these. There was 12 million plus in 2003--Currency
Transaction Reports, well over 12 million. It has been
estimated it takes about a half an hour for each one to be
filled out. It took 6 million man hours to build the largest
floating vessel in the world, the Queen Mary II. After asking
Treasury on a couple of occasions could they show us how a CTR
led to any specific arrest and conviction, they could not. Not
that there has not been, but they could not tell us. That is
like taking 6 million man hours and sinking a Queen Mary II
each year.
I am concerned that the amount of information we are asking
for cannot be properly utilized, and we would be better off
honing the information that we ask for. It is a long way around
your question to say that I am not sure we have the ability to
control that unless we narrow what we are asking for.
Chairman Shelby. Let me ask you about certification. You
have touched on that, certification and sanctions. Would this
cooperation be institutionalized? In other words, would FinCEN,
in its role as the primary enforcer of the BSA be the one who
issues the certification?
Mr. Factor. I think it could be, but I think it should be
Treasury led, and I think who specific at Treasury--I am not
sure at this point, but it should be Treasury led. It could be
through FinCEN.
What I do think is important is that we bring into the open
these people, these criminal and rogue states that are not
helping us with stopping the mother's milk of terrorism,
terrorist financing.
Chairman Shelby. Under a certification regime that you
might envision, would a citizen of a sanctioned country be
permitted to open a bank account in a U.S. financial
institution?
Mr. Factor. We did not deal with that specifically, but the
answer would be yes, from my personal point of view.
Chairman Shelby. Would certification be renewed or be
subject to renewal each year?
Mr. Factor. Absolutely.
Chairman Shelby. Who would do the investigation to
determine whether a country merits certification under your
thoughts of----
Mr. Factor. It would be through Treasury, it would be led
by Treasury, and Treasury has the resources, we believe, to
handle that. It would be some additional. I will tell you that
since--if I may, sir----
Chairman Shelby. Go ahead.
Mr. Factor. It is very interesting. I read in U.S. News &
World Report. It is just two or three sentences. When Sue
Kelly, Congresswoman Kelly introduced her bill, they put on it
USNews.com: Washington is big on pointing the finger. Their
official black list for countries that support terrorism,
violate human rights and fail to crack down on narcotics. This
week Republicans Sue Kelly and Ed Royce are introducing
legislation to blacklist countries that failed to crack down on
terrorist financing. The State Department appears unenthused
because it could end up citing allies.
I think that is a reason that we want to do it.
Chairman Shelby. Sure. Mr. Factor, another recommendation
of the task force update is that the NSC and the White House
OMB should do a cross-cut analysis of the budgets of U.S.
Government agencies as they relate to terrorist financing to
determine whether resource allocation is optimal or functions
are duplicative. Where did the task force find, if you did,
that in the U.S. fight against terrorist financing that
agencies' resources are or may be duplicative?
Mr. Factor. We found a number of agencies that were
involved in the area of looking at terrorist financing, and
without having classified information, it is my belief there
are many duplicative efforts, and that a cross-cut would point
those out very strongly.
Chairman Shelby. I will ask a question of you. In the
months leading up to September 2001, Al Qaeda operated like a
multinational corporation by centrally funding specific
activities. They moved money through charities and other
networks and were able to exploit the western banking system by
using wires, credit and debit cards, and use of ATM's, as we
all know. As the organization has evolved into a more diffuse,
decentralized entity after September 11, 2001, with a more
overt means of raising funds under more scrutiny than ever
before, have we reached the point where terrorist financing is
becoming more difficult to track?
Mr. Wolosky. I think that that is probably true, Senator.
With the disbursal and decentralization and the reduction of a
command and control mechanism within Al Qaeda, I think we have
seen a corresponding set of circumstances existing with respect
to the financial structure of the organization, so that, for
instance, there is evidence in respect to the Madrid bombings,
that that cell that perpetrated those bombings relied primarily
on criminal activity and other activity which was specific to
the cell and not external.
Chairman Shelby. But on our best days we are still deeply
challenged by problems with monitoring the Islamic charities as
a possible vehicle, or probable vehicle of terrorist financing,
are we not?
Mr. Wolosky. Yes, sir. The findings of our task force,
along with the findings of the September 11 Commission really
related--in this respect I would point you to the mechanisms
that are or are not being put in place to try to tighten the
control of regulatory oversight of those charities. We have
concluded, and I personally believe, that this is a fundamental
issue for the national security of our Nation, the regulatory
steps that are being taken or avoided in Saudi Arabia, how
closely and how tightly those charities and those measures are
in fact being implemented.
Mr. Factor. If I may add on to that?
Chairman Shelby. Sure.
Mr. Factor. In April 2003, the Saudi Government adopted
rules governing opening of bank accounts in Saudi Arabia and
general operational guidelines. The interesting part was--first
of all, I am not sure about the implementation. We could not
find very good implementation. Even if there was full
implementation, within their own rules in a little paragraph,
buried deep in at
300-1-6-5 they exempt the Muslim World League, the
International Islamic Relief Organization, IIRO, and the World
Assembly of Muslim Youth as multilateral organizations. They
exempt them, three of the largest charities.
Chairman Shelby. Thank you.
Senator Sarbanes.
Senator Sarbanes. Thank you very much, Mr. Chairman.
What lessons do you draw with respect to your discussion of
the certification regime from the experiences with the drug
certification regime?
Mr. Factor. I believe that is has been helpful, but I want
to emphasize that the drug and terror financing issues are
different and the political will is much more behind the war on
terror financing and I believe as long as the President has the
power to waive the sanctions----
Senator Sarbanes. Well, now, let me ask you that question.
We had the drug certification regime. Country after country,
the sanctions would be waived by the President. The message
that seemed to be drawn from that was really the drug issue was
not that important because it clearly was outweighed by other
considerations, and demonstrated by the invocation of the
waiver by the Executive Branch of the Government. So instead of
sending a message that we were really tough on the drug issue,
we were sending a message that we were not so tough on the drug
issue. So, I raise this issue here in the context of you making
this recommendation. I mean what do we do if you have a
certification regime and the President starts giving these
waivers to country after country? If we had such a regime,
should Saudi Arabia not be certified in your view?
Mr. Factor. In my personal view I am not sure that Saudi
Arabia could be certified.
Senator Sarbanes. You do not think it----
Mr. Factor. I do not believe Saudi Arabia could be
certified as cooperating with us on fighting terror financing.
Senator Sarbanes. As cooperating?
Mr. Factor. Correct. We are agreeing.
Senator Sarbanes. How does that square with everything else
you say here in your statement about Saudi Arabia and the role
they are playing?
Mr. Factor. I think it is consistent, sir. What we are
saying is that they have not been implementing to the extent--
we could not find evidence of implementation.
Senator Sarbanes. Oh, I see. I am missing----
Mr. Factor. We are agreeing. I am saying they could not be
certified as----
Senator Sarbanes. Do you think the President would give
them a waiver?
Mr. Factor. I would never guess what the President would
do.
Senator Sarbanes. They just agreed the other day to jump
their oil production. With oil at $50 a barrel, they came in
and agreed the other day they were going to take it up. I
forget the figure. It was a large percentage of their current
production.
Mr. Factor. You raise a good----
Senator Sarbanes. All right.
Mr. Factor. If I may address that, you made a very
important point. Historically, we have had a relationship with
Saudi Arabia, and it is not this Administration, it goes back
many Administrations, where we provide for security, they
provide help with oil, and we do not get involved with their
domestic issues. I think the relationship with Saudi Arabia has
to change. It has to be similar to the relationship we had with
the U.S.S.R., that we have now with Russia and that we have
with China, where nothing is off the table any longer, and that
all issues, even domestic issues, are now on the table and all
have to see the light of day.
I believe a certification regime would help us move in that
direction with Saudi Arabia and other countries as well. I
believe it would be very important in moving in that direction.
Senator Sarbanes. I am anxious to come down hard on this,
but I think we have to think it through very carefully because
in the drug certification area, it has not worked very well.
Let me ask you, what about emphasizing the role of the
Financial Action Task Force? They, of course, had a non-
cooperative countries project. It was a prominent feature of
their policy in the 1990's, and that seemed to have some
salutary impact in that countries made changes in order to get
off the non-cooperative list, and that is of course an
international thing. What is your view of that?
Mr. Factor. I happen to have with me a copy of Financial
Action Task Force, called FATF commonly, their review of the
Kingdom of Saudi Arabia. And it is very consistent with what we
have said. We have said that Saudi Arabia has promulgated
rules, regulations, and laws. What we have also said is we
could not find implementation of them. FATF does not check
thoroughly for implementation. Also, FATF does not look at the
individual countries and their specific needs in terms of their
antiterrorism actions, financing terrorism. As an example,
charitable institutions were not looked at as heavily as they
should have been, in my opinion with regard to Saudi Arabia.
The bottom line is they did not look at implementation. They
did look at rules and regulations.
Senator Sarbanes. So is your view that we should consider
them irrelevant or that there is a role to play if they can be
appropriately activated?
Mr. Factor. There is a role to play. Absolutely, there is a
role to play if appropriately activated.
I am sorry, please.
Mr. Wolosky. If I may chime in on the non-cooperative
jurisdiction process, the NCCT process of the FATF. This was an
effective naming and shaming mechanism by which the United
States strongly urged, and the international community more
broadly strongly urged, under threat of sanction, countries
that did not comply with international best practices regarding
money laundering, to take effective action to do so promptly.
Senator Sarbanes. That judgment was not just a U.S.
judgment. It was an international judgment, correct?
Mr. Wolosky. Absolutely, and that made it even stronger.
Remarkably in my view the Bush Administration, after September
11, or even prior to September 11, but certainly continuing in
the post-September 11 period just dropped this entirely,
dropped support for the FATF name and shame process. It is
inexplicable. The first year that we did this in the Clinton
Administration, the FATF process designated 15 countries. The
next year, 8 of them stepped up and had in place adequate anti-
money laundering regimes to get off the list. It was a very
effective mechanism, and it has been dropped without comment or
explanation by the current
Administration.
Senator Sarbanes. Mr. Chairman, my time is up. Thank you.
Chairman Shelby. Senator Enzi.
Senator Enzi. Thank you, Mr. Chairman. I want to thank this
panel for presenting us with a lot of useful information in a
very useful form. I want to particularly thank Mr. Factor for
the conciseness of his 9 recommendations and the explanation
that goes with them.
The second report on terrorism financing should be a very
useful document for us. In that report there is a lot discussed
about international cooperation, and while we have achieved
quite a bit in that area, there is still a long way to go. And
international cooperation and engagement, can it be done with a
carrot or does it just have to be done with a stick? Are there
any carrot alternatives or persuasive alternatives that the
Council considered that did not make it into the report?
Mr. Wolosky. Well, the carrot, in my view--and I do not
think the report addresses this explicitly--is technical
assistance. Technical assistance to enable states that do not
have the ability on their own to put in step measures to
implement, for instance, UN sanctions, to do so. That is the
carrot.
The stick is the threat of being named and shamed, so the
process should be, in my personal judgment, put in place the
laws and regulations that are necessary and implement them
appropriately. We will give you the help if you cannot do it
yourself. And if you do not comply, you are going to be on the
blacklist. But that mechanism, as I spoke to a moment ago,
through the FATF, has been removed. That last punitive
component to it has been removed.
Senator Enzi. Thank you. In a recent news article, the
Financial Action Task Force stressed the importance of getting
India and China to become members of the International
Antiterror Finance Group. How important is it for us to get
these economies involved in the fight to stop terrorism
financing activities? Should the primary focus of our attention
be on countries with large financial centers, or should we
equally engage the countries with smaller economies who have
informal capital markets?
Mr. Factor. I think they are both vital. I think when you
are talking about terrorist financing--and again I mentioned
this--it is really the mother's milk of terrorism, and it is
vital that we get the growing economies as part of the
cooperative effort, but it is also very, very vital that we
name and shame those people that do not cooperate.
The best example that I find is in the money laundering
area, when we actually used Section 311 of the USA PATRIOT Act
against the Ukraine, they immediately worked to comply. We have
just not used those mechanisms enough, and I am not sure why,
but we just have not done it, and I think it is vital that this
Committee, in its oversight, look at that.
Senator Enzi. Thank you. The Council recommended that the
National Security Council and the White House Office of
Management and Budget conduct a cross-cutting analysis of all
the various U.S. Government agencies' terrorism financing
budgets. What aspect of the various budgets should we be
looking at to increase or decrease? Should future budgets be
focused more on intelligence gathering or on enforcement of
money laundering laws?
Mr. Wolosky. I believe Mallory spoke to this issue broadly,
but generally in my view, no one has done it to date, so we do
not know what is being spent. We have a very poor sense of
overall U.S. Government commitment to the issue on a cross-cut
basis. So the point of doing the cross-cut, in my own view, is
not to go into it with any assumptions, Senator, but to take
the first look ever of what is being done on an agency by
agency basis, so that we can make judgments as to what is being
overfunded, what is being underfunded, what is duplicative,
what is not being done at all, and to proceed from that basis.
Mr. Factor. I would agree. I think there is a number of
areas that you have to look at as part of this cross-cut:
Intelligence collection analysis and operation, law enforcement
operations, regulatory activities including policy development,
enforcement, international standard setting and implementation,
analysis of sanctions, who has been using diplomatic activity
of which there are many, and contributions made by the Defense
Department. I think you will find numerous pockets engaged in
this, and I think that with this cross-cut it will give us a
better idea of how to begin to assess the efficiency of our
existing efforts and the adequacy of the appropriations
relative to this very, very grave threat.
Senator Enzi. Thank you. My time has expired, but I do want
to particularly thank both of you for again the conciseness,
and comprehensiveness of your answers. We usually do not get it
quite that concise, and normally cannot even do that many
questions. So thank you very much.
Chairman Shelby. Senator Bunning.
Senator Bunning. Thank you, Mr. Chairman.
Mr. Factor, what more can the U.S. Government do
internationally under the USA PATRIOT Act to combat terrorist
financing?
Mr. Factor. I believe that Section 314(a), which is the
information sharing is not being utilized, to say the least, to
its fullest. You cannot just have the information flowing in
one direction. The information has to flow in both directions.
We have to learn the lesson from the transportation industry,
from the defense industry, where we have to share sometimes
high-value information with a person or multiple people within
a major organization. We are not being able to find terrorist
activity in the financial area as well as we could. What we are
doing is we are only able to utilize the information that we
know already, and I think sharing some of this high-value
information would let us, as Section 314(a) of the Act tells us
to do, would allow us to find many, many more people that are
financing terror.
Senator Bunning. Are you suggesting that the information
flow is United States to or from the other side to the United
States?
Mr. Factor. From the other side to the United States
without----
Senator Bunning. That is where we are lacking?
Mr. Factor. We are lacking in not bringing it back down.
Senator Bunning. That is correct, okay. I just wanted to
get a handle on it.
Mr. Factor. I am sorry. I should have been clearer.
Senator Bunning. That is okay. What can the Government do
to improve cooperation between law enforcement and financial
institutions? Do you believe also that the testimony we had
yesterday, that casinos have any cooperation at all with what
we are trying to accomplish here?
Mr. Factor. I did not see the----
Senator Bunning. Well, we were there. If you have any
information, we would like to pull it out of you.
Mr. Factor. Again, I think that casinos, for all intents
and purposes, they are financial institutions, and I think we
should possibly look at them as we look at some of the other
non-bank banks, and use the power set forth in the USA PATRIOT
Act, particularly the information sharing which we are grossly
underutilizing. I think we need the mechanisms in place to do
it.
Senator Bunning. Mr. Wolosky, in your testimony you talked
about an Al Qaeda cell in Spain being self-sufficient, and
using--you did not say this, but I have information that they
used drug trafficking money to help fund their attack there. Is
this a pattern that you might think that is being repeated
around the world by other cells?
Mr. Wolosky. The staff of the September 11 Commission, I
believe, came to a conclusion that in their judgment that that
probably was not the case, in other words, that there was not
substantial evidence of drug trafficking activity being used to
fund Al Qaeda on a systematic basis. I think the broader point
that I would highlight is that in many respects we do not know
how local sales are being financed, certainly in the context in
which Al Qaeda is increasingly disbursed, and lacks a coherent,
I believe, command and control mechanism. In many respects
cells that are part of Al Qaeda, that are part of affiliated
groups are out freelancing, essentially, financing themselves
and in many cases planning their own attack. And in that
context it makes the job of tracking terrorist financing all
the more difficult because we are forced to look at a variety
of different methods including common criminal activity as a
means by which operational activities in cells might be
maintained and financed.
Senator Bunning. I asked this question earlier of
Congressman Hamilton and Senator Gordon, and I am going to ask
both of you to comment. After the spring of the 2003 attacks by
Al Qaeda in Saudi Arabia, and I asked if they thought the
cooperation was either greater or less than, immediately after
the attacks? Does your report, or do you have any personal
knowledge that Saudi Arabia is cooperating better or not as
good as they did immediately after the attacks?
Mr. Factor. I believe the Saudi Arabian Government is
cooperating better, and I see some evidence of that, but I also
see some of the same problems going on. As you know, as I am
sure you know, that they have blamed many of the attacks on the
Zionists and said they are 95 percent sure that it was Zionists
that did it. This is the Saudi Government speaking. The Saudi's
are having a civil war there between fundamentalist extremists
and the Government, and the Saudi Government believes that if
they can stop the war on their own--this is my belief--that if
they can stop it within their own country, that everything will
be fine. But the fight has to go beyond their country. It has
to include the wahabism that the Saudi's are exporting. It has
to go to the charities that they are funding, that also can
fund terrorists. I think that the Saudi Government is looking
at it more within their country.
Senator Bunning. Internally only.
Mr. Factor. But they are cooperating more globally with us.
Senator Bunning. Mr. Wolosky.
Mr. Wolosky. I would agree with that. By all accounts there
is much improved and substantial cooperation on law enforcement
intelligence to counterterrorism issues. I do think though that
on the financing I would point you toward two problems in my
estimation. First is the failure, as I indicated in my prepared
remarks, to provide a public punitive penalty or sanction for
those who have supported Al Qaeda, even if it is in the past.
In my judgment those people need to be punished. They should go
to jail. They should have whatever public punitive action is
necessary in order to create a broad deterrent effect, so as to
deter the type of conduct that has historically funded Al Qaeda
and other extremist organizations and activities.
The second thing I would point you to is looking at the
technical minutiae of the laws and regulations in the
institutions and how they are or are not being implemented.
Mallory correctly pointed out a problem in a bank law, which on
its face exempts three of the major global charities from its
purview with respect to disbursements of receipts. This is
truly a case of the exception eating up the rule.
The other problem is in respective institutions, that the
Saudi Government has said will be created to address the
charities problem. There is an institution that was announced
in February 2004 called the Saudi National Entity for
Charitable Work Abroad. It was re-announced in Washington in
June 2004. The intention, so far as we could tell from the
public statements was to fold all external to Saudi Arabia
charitable activities into this entity. But as of this date, I
am aware of the fact that several of the charities that Mallory
indicated are still operational. Since that day to the present
day they continue to maintain websites and disburse many
millions of dollars overseas. So it is a question of when and
how these steps are actually going to be implemented beyond
announcements that new institutional mechanisms are going to be
created to address them.
Senator Bunning. Thank you very much.
Chairman Shelby. Gentlemen, thank you both. We appreciate
your input here today and your patience.
Mr. Wolosky. Thank you.
Mr. Factor. Thank you for the great work you are doing for
our country.
Chairman Shelby. Thank you.
On our third panel will be Stuart Levey, Under Secretary of
the Office of Terrorism and Financial Intelligence and Under
Secretary of the Enforcement, U.S. Department of the Treasury;
Michael Garcia, Assistant Secretary, U.S. Immigration and
Customs Enforcement, U.S. Department of Homeland Security; John
E. Lewis, Deputy Assistant Director, Counterterrorism Division,
the FBI.
Gentlemen, we welcome all three of you for our third panel
today. Your statements will be made part of the record in its
entirety, and we will start with Mr. Levey.
Welcome back to the Committee, Mr. Levey.
STATEMENT OF STUART A. LEVEY
UNDER SECRETARY, TERRORISM AND
FINANCIAL INTELLIGENCE
UNDER SECRETARY FOR ENFORCEMENT
U.S. DEPARTMENT OF THE TREASURY
Mr. Levey. Thank you, Mr. Chairman. It is good to be back
in a slightly different role than last time, more pleasant.
Mr. Chairman, Members of the Committee, thank you for
inviting me to testify before you today about our efforts to
combat terrorist financing and the September 11 Commission's
report.
There is little need to underscore the importance of our
campaign against terrorist financing before this audience. As
Senator Sarbanes and others discussed this morning, both in the
USA PATRIOT Act and in many other ways, this Committee has
already demonstrated its commitment to fighting the financial
war against terror, and I think this Committee would agree, as
I do, with the September 11 Commission's central recommendation
that vigorous efforts to track terrorist financing must remain
front and center in the U.S. counterterrorism effort.
Those of us who work on this issue are indebted to the
Commission and to the excellent staff for the work that they
have done. It is also an honor for me to testify alongside
Assistant Secretary Garcia and Deputy Assistant Director Lewis
today. As you know, I just left the Justice Department a few
weeks ago, where I had the privilege of working directly with
Mr. Lewis and his team at the FBI. They are very dedicated
public servants. I am also a long-time admirer of Michael
Garcia, whom I first met when the Attorney General asked him to
take over at the helm of the Immigration and Naturalization
Service. In addition to the excellent financial investigative
work done by his current organization, ICE, he also has the
daunting responsibility of enforcing our Nation's immigration
laws and had made fantastic strides in attempting to restore
the rule of law to our immigration system.
I have submitted a written statement. I would just like to
highlight a couple of issues for you. First, I think it is
important to underscore one point that the Commission made,
which is that the terrorism financing campaign is one part of
an overall mission to combat terrorism. Put another way, the
goal is not so much to stop the money as it is to stop the
terrorists who use the money to murder innocents.
That seems obvious when you say it, but it has real
implications for the tactics we choose in a particular
situation. As people have alluded to today, in some cases the
best strategy for the overall counterterrorism mission may be
just to observe the financier covertly to identify the next
link in the chain, rather than to freeze the money or cut it
off.
Our goal must always be to choose the action as a
government that will do the most to cripple a terrorist
organization, and in pursuing that goal we need to draw on the
full range of weapons in our arsenal without concern for turf
or reputation of a particular agency.
As the Commission recognized, the teamwork among the
interagency group that focuses on terrorist financing is
excellent, and I believe that all involved are committed to the
same guiding principle. But to act in accordance with that
principle requires an active understanding of each of the tools
at our disposal.
I would like to highlight just briefly the value of public
designations which are sometimes misunderstood. Designating and
freezing of assets are a powerful tool. We must use them
judiciously, but when fully implemented, a designation
excommunicates the supporter of terrorism from the formal
financial system, either incapacitating them or driving them to
more expensive, riskier, or more cumbersome channels.
The benefits of designations cannot be measured simply by
totaling the amount of frozen assets. Terrorist related
accounts are not pools of water awaiting our discovery, as much
as they are rivers with funds constantly flowing in and out. By
freezing accounts we dam that river, not only capturing
whatever monies happen to be present at that moment, but also
more importantly, ensuring that the individual organization can
never in the future act as a conduit of funds to terrorists. In
addition, designations deter others who might otherwise be
willing to fund terrorist activity.
In short, the flexibility of designations makes them a very
useful tool in our efforts to combat terrorist financing. We
should also remember that designations are not used, or need
not be used to the exclusion of other tools. Indeed they work
best when they are used in conjunction with other tools such as
law enforcement action, as evidenced by our joint actions both
in the Holy Land Foundation case and in the Al Haramain
Foundation case.
It is also important to distinguish between terrorist
financing and money laundering. While they are related, they
are not exactly the same, and what works for money laundering
may not work for terrorist financing. I think we have had some
discussion of that already today. In the money laundering arena
investigators are trying to detect the movement of large
amounts of cash through our financial system. Compliance
officers and financial institutions are often well positioned
to detect such activity. Terrorist financing transactions, by
contrast, may bear no inherently suspicious trademarks since
such transactions often involve the clandestine movement of
relatively small amounts of ostensibly clean money that is
intended for an evil purpose.
This difference has important policy implications. At
Treasury we have begun to study where we can devise tools or
systems aimed more particularly at terrorist financing. We need
to work closely with the private sector on this task.
As the Commission pointed out, the financial industry is
eager to cooperate, but we need to help them help us by
building on the information sharing relationships that FinCEN
has developed under Section 314 of the USA PATRIOT Act. In that
sense I find myself intrigued and in agreement with the gist of
the comments made by the gentlemen from the Council on Foreign
Relations, both in their report and today, and I noticed their
comment in the report that we need to explore ways to share
classified information with the private sector in this context.
This is precisely the issue that we intend to take up in
the Bank Secrecy Act Advisory Group, chaired by Bill Fox, the
Director of FinCEN. Director Fox has made information sharing a
top priority, and I am confident that our coordination with the
private sector will broaden and deepen under his expert
command.
I look forward to working with the Committee on this
important issue and to answering any questions that you may
have.
Chairman Shelby. Thank you.
Mr. Garcia.
STATEMENT OF MICHAEL J. GARCIA
ASSISTANT SECRETARY, U.S. IMMIGRATION
AND CUSTOMS ENFORCEMENT
U.S. DEPARTMENT OF HOMELAND SECURITY
Mr. Garcia. Thank you, Mr. Chairman, Senator. It is a
privilege to appear before you today with Under Secretary
Levey, with Mr. Lewis, to discuss terrorist financing issues
arising out of the September 11 Commission report, and to
specifically address how U.S. Immigration and Customs
Enforcement, or ICE, is using its border and interior
enforcement authorities in the war on terror.
ICE is a new agency. It is the largest investigative agency
in the Department of Homeland Security, and it is comprised of
some of our Nation's oldest and most recognizable law
enforcement agencies. ICE is responsible for enforcing customs
and immigration laws among other authorities, and is charged
with using these authorities in new ways to protect the
homeland.
With respect to money laundering, the U.S. Customs special
agents who conducted financial investigations under the
Department of the Treasury are now within ICE. I am pleased to
join my colleagues from the Department of the Treasury and the
FBI to talk about how our agencies work closely together and
routinely exchange information in the course of our
investigations. ICE and the FBI have established a joint
vetting unit staffed by senior personnel from each agency to
identify financial investigations that may have a nexus to
terrorism. As a result, the agencies here today have worked
together cooperatively on a number of cases that we believe
have stemmed the flow of funds into the hands of terrorists.
Case examples include a JTTF case against AZZAM.com, and
affiliated websites that promoted Jihad against the United
States, provided instructions on evading U.S. currency
reporting requirements and instructions for sending funds to
Jihadists in Chechnya and Afghanistan through Pakistan. This
case was developed from leads from the ICE Cyber Crime Center.
Another example is the arrest of Abdurahman Alamoudi, who
in July of this year pleaded guilty to conducting prohibited
financial transactions with Libya, making false statements in
his application for U.S. citizenship, and violating U.S. tax
laws. The case was the result of a long-term investigation by
the FBI, ICE, and the IRS. ICE, the FBI, and Treasury also
worked together to indict the Holy Land Foundation for Relief
and Development, or HLF, a foundation that was, as charged in
the indictment, providing financial and material support to the
Hamas group.
These cases are examples of how the U.S. Government has
pursued terrorist financing in the immediate aftermath of
September 11, but as the September 11 Commission report and
other studies have found, we must continually adapt our
countermeasures and use our enforcement tools and authorities
to full effect. For ICE that means addressing vulnerabilities
that could be exploited by terrorists to raise money.
As an Assistant United States Attorney, I prosecuted the
case against the terrorists who bombed the World Trade Center
in 1993. From that experience and from my experience at DHS, I
can tell you two thing that I have learned about terrorist
financing. The first is that terrorism comes relatively cheap.
The September 11 Commission report estimates that the hijackers
spent approximately $400,000 to $500,000 over 2 years preparing
for the attacks. I roughly estimate the cost of the 1993 World
Trade Center bombing at about $50,000. These are relatively
small amounts of money compared to the high cost to the United
States in terms not only of loss of loved ones and damage to
property, but also the psychological damage inflicted on our
Nation.
The second lesson is that terrorist funds are hard to
trace, particularly when we are trying retroactively to piece
together where the money was raised or how it was moved around
the world. No one has been able to successfully explain exactly
where the money came from in either the 1993 World Trade Center
bombing or the September 11 attacks. Moreover, past practice is
not always indicative of future operations. What methods are
terrorists using today, what methods will they use in the
future to earn or move money? We have ideas and we can make
assumptions based on past practices, but above all we must
assume that terrorists are creative and adaptable, as they have
already shown themselves to be. That is why our enforcement
approach must employ the same flexibility.
Several of the September 11 Commission's recommendations
suggest steps that are already being taken by ICE to enhance
the
Nation's counterterrorism initiatives, restore integrity to the
U.S. Immigration system, enforce laws that protect U.S.
financial systems from exploitation, and strengthen the
Nation's border in the effort to prevent future terrorist
attacks. These recommendations track with the findings of a
recent Government Accountability Office Investigation, which
found that, ``Terrorists earn assets through illicit trade in
myriad commodities, such as drugs, weapons, cigarettes, and
systems such as charities, owing to their profitability. Like
other criminals, terrorists can trade any commodity in an
illegal fashion, as evidenced by their reported involvement in
trading a variety of counterfeit goods.'' Many of the examples
cited in the GAO report fall within the traditional law
enforcement jurisdiction of ICE.
ICE is targeting each of these areas of vulnerability as
part of Cornerstone, an initiative that targets the alternative
financing mechanisms that terrorist and other criminal
organizations could use to earn, move, and store funds. Let me
give you some examples of how we are doing this.
First, we target methods that terrorist and other criminal
organizations could use to earn funds through investigations of
intellectual property rights violations, counterfeit
pharmaceuticals, human smuggling, commercial fraud, export
violations, and cyber crime. A recent ICE IPR investigation
identified a large scale smuggling network of counterfeit
trademark merchandise from China that was brokered through a
middle man in Lebanon. ICE agents arrested 14 subjects, seized
containers valued at approximately $24 million, and seized
nearly $100,000.
ICE targets the movement of funds derived from criminal
activity into and out of the United States by identifying
financial and trade systems that are vulnerable to exploitation
by criminal organizations. That could include bulk currency
smuggling, trade-based money laundering, courier hubs, and
money service businesses.
We are aggressively targeting bulk cash smuggling by using
provisions of the USA PATRIOT Act. Since July 2003, ICE and our
sister agency, Customs and Border Protection, have collectively
seized $40.5 million before it could be illegally exported.
Finally, we target commodities that are imported and
exported from the United States that can be used to store the
proceeds of illegal activity. In one operation called Meltdown,
ICE and the IRS uncovered a scheme in which the proceeds of
drug sales were converted into the equivalent value of gold.
These Cornerstone cases and our work in the JTTF's with our
partners, illustrate the approach that ICE is taking to
homeland security and specifically to terrorist financing.
I would like to thank you, Mr. Chairman, and the other
distinguished Members of this Committee for the opportunity to
testify before you today, and I will of course be happy to
answer any questions you might have.
Chairman Shelby. Thank you.
Mr. Lewis.
STATEMENT OF JOHN E. LEWIS
DEPUTY ASSISTANT DIRECTOR
COUNTERTERRORISM DIVISION
FEDERAL BUREAU OF INVESTIGATION
Mr. Lewis. Good afternoon, Chairman Shelby. Thank you for
inviting me the to speak today regarding the September 11
Commission's recommendations regarding terrorist financing. As
you know, the FBI has worked closely with the Commission and
its staff, and we commend it for the extraordinary effort.
Among the successes achieved thus far in the war on
terrorism, the FBI has made significant progress against both
the operational and support arms of terror networks. With
respect to the support arms, an essential component of the
global strategy against terrorism has been to counter the
manner in which terror networks recruit, train, plan, and
effect operations, each of which requires a measure of
financial support. Inherent requisites of this financial
support are the raising, movement, and expenditure of
resources. Those requisites leave traceable and identifiable
trails through our global financial systems. The FBI follows
those trails backward to identify and dismantle existing
funding sources and facilitators.
The FBI is also endeavoring to extrapolate and project
those trails forward in extensive proactive efforts to prevent
future terrorist attacks by identifying perpetrators,
facilitators, and systemic vulnerabilities in the financial
system at large.
The September 11 hijackers used both domestic and foreign
financial institutions to maintain, transfer, and retrieve
money. Al Qaeda funded the hijackers in the United States by
primarily three unremarkable means: Wire transfers from
overseas to here, physical transport of cash or traveler's
checks into the United States, and the accessing of funds held
in foreign financial institutions by debit or credit cards.
Neither the hijackers nor the facilitators overseas were
experts in the use of the international financial system or
sophisticated money laundering techniques.
They caused a paper trail to be created which linked them
to each other and to their facilitators. Still, they were able
to avoid the scrutiny of law enforcement, government
regulators, private sector compliance authorities by conducting
transactions in a fairly routine manner that failed to raise
any flags in the international financial system. The hijackers
and their facilitators used the anonymity provided by the vast
international and domestic financial system to both move and
store their money.
Before September 11, Al Qaeda moved money through both
formal and informal banking systems. In those instances where
the banking system was not dependable or where the transactions
were susceptible to scrutiny from international law
enforcement, money was moved through the informal or hawala
system. Al Qaeda also used couriers to move money because they
provided a more secure way to move the funds.
Prior to the events of September 11, the FBI had no
mechanism to provide a comprehensive centralized or proactive
approach to terrorism finance matters. While the FBI routinely
examined financial records at the time of the previous attacks,
the events of September 11 identified a critical need for us
and that was a need for a more comprehensive approach to
financial matters.
The Terrorist Financing Operations Section or what we call
TFOS, which resides in our Counterterrorism Division was formed
in response to that need. The mission of TFOS has evolved into
a broad strategy, to identify, investigate, disrupt, and
dismantle all terrorist related financing and fund raising
activities. The TFOS mission specifically includes: Conducting
full financial analysis of terrorist suspects and their
financial support structures in the United States as well as
abroad; coordinating joint participation liaison and outreach
efforts to exploit financial resources of private, government,
as well as foreign entities; utilizing the FBI and our Legal
Attache expertise around the world in relationship to fully
development financial information from foreign law enforcement
and private agencies; working jointly with our colleagues in
the intelligence community to fully exploit intelligence
information to further our investigations; working jointly with
prosecutors and law enforcement as well as regulatory
communities; developing predictive models and conducting data
analysis to facilitate the identification of previously unknown
or what have been referred to as sleeper cells; and finally,
providing the financial component to classified
counterterrorism investigations in support of our counter-
terrorism responsibilities.
Intelligence gathering and information sharing is critical
to these efforts. The intelligence community, including the
Bureau, produces and obtains tremendous amounts of classified
intelligence information. While much of this information can be
of significant value in terrorism financing investigations, the
value will not be realized or maximized absent the ability to
filter this information, analyze it, and then disseminate in an
appropriate manner to those who can make the best use of that
information.
Toward this end, TFOS participates in joint endeavors with
Treasury, DOJ, Department of State, NSA, DHS, and others,
involving potential terrorist-related financial transactions,
and we have personnel detailed to the CIA's Counterterrorism
Center who work directly with our TFOS on financial
intelligence matters. Each JTTF throughout the United States
also has a designated Terrorism Financing Coordinator to
facilitate the financial component of investigations being
conducted there.
Currently the FBI possesses a greater understanding of
terrorism finance methods than we did prior to September 11.
More sophisticated and effective processes and mechanisms to
address and target terrorist financing have been developed and
continue to evolve. Proactive approaches are increasingly
utilized. Global awareness on the part of law enforcement,
Government agencies, regulators, policymakers, and the private
sector of terrorism finance methods, suspicious financial
activity and vulnerabilities has greatly increased since
September 11.
International cooperation has reached unparalleled levels.
Outreach with, and cooperation from, the private sector has
been outstanding and it continues to strengthen, particularly
in the form of bilateral interaction between law enforcement
and our financial
institutions. The ability to access and obtain this financial
information quickly has significantly enhanced our ability to
identify, investigate, and resolve immediate threat situations.
Success in the war on terrorism cannot be measured merely
in the form of assets seized or funds blocked, but in the
ability of law enforcement to prevent future acts of terrorism,
whether through prosecution, disruption, the blocking or
freezing of funds, or allowing a funding mechanism to actually
remain in place in order to further an investigation,
prevention remains the prevailing focus.
Since different circumstances demand different approaches,
the best strategy in any given circumstances can only be
determined from an overall assessment of the situation at hand
in conjunction with careful coordination, with the cooperation
of all law enforcement and intelligence agencies.
I wish to thank you for the opportunity to be here today to
testify and to highlight our efforts and the role of the FBI in
combating terrorism finance, and look forward to any questions
that you might have, sir.
Chairman Shelby. Thank you, Mr. Lewis.
Secretary Levey, if the report of the September 11
Commission has, among other things, one overarching theme, it
revolves around the state of the Nation's intelligence
structure and the absolute need for fundamental reform even
before the report's completion almost a year earlier. In fact,
legislation was signed into law creating within the Department
of the Treasury, an Office of Intelligence and Analysis to be
led by a new Assistant Secretary. Here we are more than 9
months later, and that position is still vacant. In fact, there
has not even been a nomination announced for the position, and
we realize in the closing days of this Congress there is
probably not going to be one.
A vital position in the effort to combat terrorist
financing is inexplicably vacant. You are over there now in a
new job, and I think you are well qualified for the position. I
appreciate that the intelligence community has its plate full
these days, but this situation existed long before the current
drive to restructure the intelligence community.
When can the Banking Committee anticipate a nomination for
the position of Assistant Secretary for Intelligence and
Analysis?
Mr. Levey. Mr. Chairman, I think you know that that
decision is one that is well above my pay grade as a----
Chairman Shelby. I understand you do not make the
nomination, but you, in your position, will have some influence
in that regard, and should have.
Mr. Levey. Thank you for saying that, sir. What we are
doing, of course, is standing up the office to the best of our
ability. We have a highly qualified Deputy Assistant Secretary,
who is helping us to put the foundations in place for that
office pending a nomination. Of course, we are anxious to have
a nominee and to have the vacancy filled. All I can say is that
that will occur in due course, and we are encouraging that.
Chairman Shelby. Is that an important position?
Mr. Levey. It is a vital position.
Chairman Shelby. Is that a position that would help you
immensely?
Mr. Levey. It absolutely would. What needs to be done, and
which we are trying to start to do is to pull together--as we
have heard today, there is an enormous volume of information
coming into the Treasury Department. It is all of the
classified information from the intelligence community. It is
all of this information that Mr. Factor was describing that is
filed by the financial institutions in the United States. We
need to pull it together. We need to integrate it to make sure
that we are not--to make sure that we are using appropriately,
and provide the feedback that I think we owe the private sector
with respect to that information.
I think it is a critical position and look forward to
having----
Chairman Shelby. I know you and I know you are professional
and I am glad you are where you are. I have said this before.
Mr. Secretary, The Wall Street Journal this morning--and I
am sure you saw it--finally provided some details on the ABN
AMRO case that heretofore had not been made available. I would
like to take a moment to address this.
This case involves one of the world's largest banks, and
also involves foreign financial institutions previously
associated with the Bank of New York, the target of a major
money laundering investigation during the 1990's. Apparently,
once having been compelled to shift their activities away from
the Bank of New York, Russian and East European banks with
questionable records simply relocated their illicit activities
to another bank's New York branch.
The issue of money laundering through correspondent
accounts has been a concern of this Committee for many years,
and I am sure a concern for Treasury. Given the apparent trend
that has emerged involving the First Bank of New York, and now
ABN AMRO, what is the Treasury Department, particularly in
coordination with the Federal Reserve Bank, doing to ensure
that a potentially systemic problem like this is under control?
Also, are the Baltics replacing Switzerland as the go-to
destination for organizations and tax evaders seeking to
conduct financial transactions without adequate oversight or
lax oversight? Do you want to address that?
Mr. Levey. Sure, Mr. Chairman.
Chairman Shelby. That is an arm full.
Mr. Levey. I will give it a shot.
Chairman Shelby. I am sure you will do it.
Mr. Levey. Let me know if I do not satisfy you.
As I said when I was up here last time as a nominee, when
we had the Riggs case recently come to light, what we need to
know is whether we have a few isolated bad actors out there or
whether we have a systemic problem, as the Chairman words it.
In order for us to make that determination, we need to get
the information from the banking regulators. What are they
finding when they go out and do bank examinations? We are
working very diligently with the banking regulators to put that
formalized relationship in place, and I believe we are on the
verge of doing that.
That is really the first step because without that
information, we do not know whether we are overacting to
something that might be isolated or----
Chairman Shelby. Are you going to get that information?
Mr. Levey. Pardon me?
Chairman Shelby. Are you going to get that information?
Mr. Levey. We will.
Chairman Shelby. I believe that.
Mr. Levey. We will.
Chairman Shelby. What is the second problem there, if you
get the information?
Mr. Levey. I am sorry, sir?
Chairman Shelby. If you get the information, the second
thing is what do you do with it, right?
Mr. Levey. Well, in part, that goes back to our prior
discussion about having the right structure in place in the
Treasury Department. But we are committed to working very
diligently to enforce the Bank Secrecy Act. I do not think that
we can concentrate on terrorist financing without having the
structure in place, the anti-money laundering system in place.
You cannot really fight terrorist financing unless you have
in place a viable, rigorous anti-money laundering enforcement
mechanism, which the Bank Secrecy Act, and as this Committee
added to it in the USA PATRIOT Act, gives us. We need to
enforce it.
Chairman Shelby. Mr. Lewis, the Commission states that the
Saudis still need considerable technical assistance and that
they must be more vigilant in taking the initiative, without
United States prompting, in combating terrorist financing.
What is the state of the joint United States-Saudi Task
Force? Are there impediments to the provision of technical
assistance that can be addressed or need to be addressed? We
know that after May 2003, and we had testimony here earlier
today from the Commission members, that the Saudis have taken
major steps in the right direction since becoming the target of
Al Qaeda-directed or inspired attacks, especially with regard
to regulating charities. What is the status of their actually
implementing these steps, if you can talk about it in this
setting?
Mr. Lewis. As you know, we do have a task force over there,
made up of a couple of ours and a couple of different agencies
there that contribute manpower to this. That, in and of itself,
is a large step forward, at least in my judgment, for that part
of the world. Enabling two different cultures, two different
types of investigative entities to actually get to know one
another, share the same space and work cases--that is
inevitably going to lead to better things as we go forward
everyday.
Chairman Shelby. Is it evolving in the right direction?
Mr. Lewis. I think it is. As I sit here listening and
thinking about this question, I am aware of absolutely nothing
in the last 4 or 5 months that has come across my desk that
suggests our terrorism finance representatives over there have
any problems.
Chairman Shelby. Was May 2003 a wake-up call for the
Saudis?
Mr. Lewis. There is no doubt about it, no doubt about it. I
still think there is a lot of room for their cooperation to
grow. There is a whole set of different issues over there, as
you are well aware, than we have here.
Chairman Shelby. Thank you.
Secretary Garcia, the Commission's report determined that
since September 11, Al Qaeda relies to an even greater extent
than before on the physical movement of money and other
informal methods of value transfer, which falls right into your
area.
As the head of the agency directly responsible for guarding
the Nation's ports of entry, can you tell the Committee the
challenge this pattern poses for ICE? Can you accomplish your
mission with the manpower and resources currently available to
your agency? Is ICE so intent on spending resources on
activities like Operation Cornerstone, when we have the
Treasury Department and the FBI to investigate, regulate,
inform, and advise financial institutions on money laundering
and terror finance issues? Do you want to just comment on that?
Mr. Garcia. Yes, thank you, Mr. Chairman. Again, a lot in
that question and I will try to hit all the points.
We do have jurisdiction of the USA PATRIOT Act and other
statutes on unlicensed money service businesses. We have a very
robust financial crimes program. Cornerstone, as I tried to
describe in my opening remarks, is really an umbrella program
that looks to bring those traditional customs authorities
together in an approach to terrorist financing that tracks the
recommendation made by the GAO in their November 2003 report on
terrorist financing; that is, we have to look at ways that
these terrorist organizations could earn, move, and store
funding.
If you look at the types of criminal activity the GAO
discusses, most of those line up with traditional customs
authorities. So if you look at some of our unlicensed money
broker cases--and there is one I like to use as an example, a
case up in Newark where $100 million was going through
unlicensed money brokers into Pakistan. Where it went in
Pakistan----
Chairman Shelby. One hundred million dollars?
Mr. Garcia. One hundred million dollars. Where it went in
Pakistan is very difficult to say. As you know, Mr. Chairman,
and the FBI is well aware that the most difficult part of those
terrorist financing cases is tracking that money overseas. But
in an area where Al Qaeda has been active, it causes us great
concern.
What we were able to do after vetting that case with the
Bureau was take down the money brokers under this new authority
in the USA PATRIOT Act, seize money in that case, bring felony
charges, and disrupt a potential source for funding. That, I
think, in a nutshell, is the approach of Cornerstone, using
traditional authorities where it lines up with FBI cases or
there is a possible terrorism nexus, coordinating that through
our joint vetting unit and our JTTF participation.
But where it doesn't, where there is no established nexus,
certainly very aggressively looking to shut down those
mechanisms, as you point out, that could be used to get money
overseas.
Chairman Shelby. How well are you working with Treasury and
the FBI in regard to this over in Immigration? That is so
important to work together.
Mr. Garcia. Absolutely, Mr. Chairman, and I will give a few
examples. I gave some case examples which I think are the
ultimate test, but we have an MOA with the FBI that was signed
in 2003. And quoting from a more recent GAO report describing
that MOA, it says ``It represents a partnering commitment by
two of the Nation's premier law enforcement agencies, the FBI
and ICE.''
I think that is exactly right. It is a partnering
commitment by our agencies. We have established a joint vetting
unit which vets all leads in these cases. We have exchanged
high-level managers in TFOS and in our financial program. In
fact, I think the deputy of the FBI's TFOS group is an ICE
manager right now, and they have a very high-level person in
our financial crime shop with full access across both ways into
all systems. Again, the recent GAO report looking at how that
implementation was going gave it very high marks, and I fully
agree with that assessment.
Treasury, obviously a newer entity stood up under----
Chairman Shelby. Do you happen to have a Memorandum of
Understanding with Treasury?
Mr. Garcia. No, we do not.
Chairman Shelby. Are you working on one?
Mr. Garcia. We are working very closely with Treasury and
with my colleague, Under Secretary Levey.
Chairman Shelby. Do you need a Memorandum of Understanding,
or do you just have a good relationship?
Mr. Garcia. I think a Memorandum of Understanding can be
very helpful, as it is in the case of the Bureau. I do not
think it should be looked at as the silver bullet for all
issues. I think you look at what are the factors, how are we
working together, is there a need. And we will continuously do
that.
I have tremendous respect for Under Secretary Levey. I have
dealt with him, and he had a great hand in some of those
measures that restored integrity to the immigration enforcement
system when he was at the Department of Justice. So, I look
forward to working with him in this new role.
Everybody agrees on what the end game is here in getting at
terrorist financing. As Under Secretary Levey defines his shop
and moves forward, we will be working together on a number of
issues. I know there is a meeting scheduled in the near future
on some of those that Mr. Levey has called and I look forward
to participating in that.
I think, obviously, with the FBI, there is a longstanding
MOA now in relative terms, going back to 2003. And with
Treasury, it is a very positive relationship that is
developing.
Chairman Shelby. Good.
Mr. Lewis, let's discuss the FBI's analytical ability, if I
can get into that. How long will it be before TFOS and the
Bureau as a whole will improve their ability to systematically
gather and analyze the information developed in their
investigations and create high-quality analytic products and
finished intelligence?
For example, the September 11 Commission found, among other
things, that as late as the spring of 2004, a few months ago,
the Bureau still had generated very little quality, finished
intelligence with respect to Al Qaeda financing; that TFOS must
establish its own formal system for tracking and evaluating the
extent of terrorist fundraising by various groups in the United
States.
Can you comment on that?
Mr. Lewis. Sure. Let me throw out a couple of things. The
absence of reporting on Al Qaeda, in particular, I do not think
has direct correlation to how far along we might be with
respect to what our analysts do today. I will tell you, having
been around this effort now for 27 years, there has been a
remarkable change in the last couple of years particularly on
the analytical front.
Chairman Shelby. You had to make a change, hadn't you?
Mr. Lewis. Absolutely, there is no question about it, and I
see this everyday. The amount of information that is being
generated in the division and pushed out not only to other
divisions and the field, but also beyond that into law
enforcement here in the country and beyond is just an
incredible shift over the last few years.
Now, with respect to TFOS, in particular, please bear in
mind that this is a component of overall investigation. I would
rather see the need for intelligence products that deal with
just more than a financial aspect of a case than not. The vast
majority of intelligence products that move out of the Bureau
deal on that level; with a larger case, who the individuals are
and multiple facets about what this investigation is. Does that
answer your question, sir?
Chairman Shelby. Yes, sir.
Secretary Levey, I asked this question earlier of the other
panel. With more and more banks seeking to enter the realm of
financial services that extend beyond what we know as
traditional banking activities, we would like to hear your
views on whether or not this trend has any implications on the
Government's ability, your ability, to regulate the financial
transactions that are at issue in today's hearing. For example,
what are the implications of increased global use of ATM's for
money laundering and for the movement of terrorist funds?
Mr. Levey. Mr. Chairman, I think the issues like the one
you raised are huge challenges for us. There is no question
about it. In fact, I think of the USA PATRIOT Act, in general,
as being very forward-looking in terms of recognizing that
there are an enormous number of ways that people can move
money, and calling upon us to bring them into our regulatory
umbrella. That is a long-term challenge that we have before us.
Chairman Shelby. Moving it from somebody's pocket just
going through immigration is a major problem, isn't it?
Mr. Levey. Absolutely, and law enforcement agencies, and
particularly the great work ICE does, is critical in creating
the deterrent here in the United States. In terms of the global
use of these types of mechanisms, we have to continue to think
ahead and realize that as we continue to improve our systems of
enforcement here that terrorists and other criminals will
continue to adapt. It is a never-ending measure/countermeasure
battle that we are in and we are going to have to brace
ourselves for the long-term.
Chairman Shelby. Mr. Levey, should wire transfer companies,
casinos, banks, securities dealers, and other financial
institutions have access to terrorist watchlists? If they did,
would it help them? What would be some of the problems with
doing that?
Mr. Levey. I think that there is probably good potential
there for better information-sharing on our side. There are
issues that that presents in terms of privacy, and so forth,
and the types of false positives that I think we have all heard
about in the news. I think the issue you raise, though, is one
that we do need to grapple with and determine if there is
something more we can do. I do not have a pat yes or no answer
to that. I am sorry.
Chairman Shelby. Secretary Levey, high policymakers express
frustration at not being able to get, on a consistent basis,
solid information to block assets. The CIA contends it has
excellent terrorist financing information, and in the CIA's
view it is Treasury that is unhappy because the CIA's
information is extremely sensitive so it cannot be released to
support public designation.
Is current USA PATRIOT Act legislation sufficient to
overcome this problem now? Is this a problem?
Mr. Levey. I think that in some ways the situation that you
allude to is somewhat more of a problem that occurred prior to
the USA PATRIOT Act. But now that we can use classified
information, we do not have the same problem. There is still
the need to make some information public when we make a
designation and do an asset-blocking and that sometimes does
present issues. It is a Government-wide problem that we have to
grapple with: What can we make public in a particular
situation.
Chairman Shelby. Do you need any other legislation in this
area or can you just work with what you have?
Mr. Levey. I do not believe that there is a legislative fix
that would be helpful.
Chairman Shelby. Secretary Levey--and I am not picking on
you. You have been here a lot.
Mr. Levey. That is why I am here.
Chairman Shelby. I know that.
With respect to OFAC evidence, what is needed by way of
evidence to convince the courts, here and abroad, that
individuals or entities are tied to terrorist activity? I know
it is a burden of proof. Proof problems often arise when
policymakers base decisions to freeze or block funds on limited
evidence based on intelligence information only, for example,
when evidence is simply ``linking the funds to terrorist
organizations.''
In other words, are intelligence agents being forced more
into a law enforcement role in supporting their assessments
now, or are policymakers holding off prosecuting a matter until
more reliable information is unearthed? Is it a wise thing to
thrust the intelligence collector into a role of law
enforcement? All of it is based on information and you have got
to use the information to take a big step forward, do you not,
in this regard?
Mr. Levey. Absolutely, Mr. Chairman. I recognize those
concerns as echoing some of the sentiments expressed in the
Monograph.
Chairman Shelby. These are big challenges for you, aren't
they?
Mr. Levey. These are challenges. I think that one thing I
would like to point out is that while there have been some
suggestions that we are designating on too thin of evidence,
there have been challenges in the courts and we have won in
every single case. All these arguments have been raised saying
that it violates due process to do it the way we have been
doing it; that we should not be able to use classified
evidence, and so forth.
All those challenges have been aired in the courts. We have
won every single case. They have been affirmed by the courts of
appeals. There hasn't been a single dissent. And if there is
one area where I would say I would disagree with some of the
concerns of the monograph written by the staff of the September
11 Commission, which is otherwise an excellent piece of work, I
would say this is an area where I do find myself in
disagreement with some of their concerns. They did not give, in
my view, enough credit to the fact that the courts have sided
with us in every single case.
Chairman Shelby. So we need to give you the tools first,
and then you do the job and you will get the credit. I think
so.
Mr. Levey. We have the tools, and now we have defended the
tools and the courts have upheld our use of the tools.
Chairman Shelby. I know you are challenged, but all of you
are doing a good job. We appreciate your patience today. It is
one o'clock. These hearings are important, as is our oversight
and we will continue to work with all of you. Thank you very
much.
The hearing is adjourned.
[Whereupon, at 12:56 p.m., the hearing was adjourned.]
[Prepared statements and response to a written question
supplied for the record follow:]
PREPARED STATEMENT OF SENATOR JIM BUNNING
I would like to welcome all of our witnesses here today. I would
especially like to thank the two September 11 Commissioners, who are
both former. Colleagues, for all of their hard work and service to our
nation. I applaud chairman Shelby for holding these very important
hearings on terrorist financing and money laundering. Obviously, these
are very important issues in fighting the war on terror.
And I think yesterday's hearing was a good lead in for today.
The Commission has done us a great service, both their
recommendations and their tracing of the monies used to pull off the
September 11 attacks. I think they cleared up a lot of misconceptions.
Particularly for me, how relatively little money was used to pull off
the attacks.
For as long as the terrorists lived here, how many there were,
living expenses, flight training and travel, the fact that the
operation only cost between $400,000 to $500,000 is very surprising.
The fact the us embassy bombings in Africa cost around $10,000 is also
very disconcerting. It shows how daunting the problem that our money
laundering and terrorist finance people have before them is.
I think our law enforcement officials are coming together. I think
cooperation and coordination has improved. International cooperation
has improved, obviously it can get better. Since the spring of 2003,
when they were attacked internally by Al Qaeda, cooperation with the
Government of Saudi Arabia has improved. But we still have problems.
The Commission has listed a number of their recommendations that we
will obviously take a very close look at. Though things have improved,
we can do better.
And we need to do better. There have been problems. The financial
institutions need to do a better job in complying with the regulations.
But the regulatory bodies also have to do a better job. We must
implement the rules governing financial institutions.
We also must aid the financial institutions, especially those who
have never been subjected to this type, of regulation before in
implementing the new rules.
I also think it's very important for the regulators to work with
the institutions they are regulating. I think most of the financial
institutions want to be a partner. I would guess that most want to do
their part in combating terrorism.
I think this is especially true of the smaller institutions. Many
of the money service businesses or MSB's know their customers well. And
they have a tradition of working with local law enforcement.
For me, one of the most sobering conclusions in the terror
financing portion of the Commission Report is that Al Qaeda knew our
system and didn't do anything to raise red flags as they were funding
their attacks.
It is also very worrisome that some of these cells have now become
self-sufficient.
We face a daunting task in combating terrorism. We need to make
sure we do this right. I think these hearing will go a long way in
determining the correct way to go.
This Committee has a great tradition of bipartisanship, especially
on these types of matters; I know we will all work together to find the
best solution for the problems facing us in terror financing.
Once again, thank you Mr. Chairman and I welcome all of our
witnesses today.
----------
JOINT PREPARED STATEMENT OF:
LEE H. HAMILTON, VICE CHAIRMAN \1\ AND
SLADE GORTON, COMMISSIONER \2\
National Commission on Terrorist Attacks Upon the United States
September 29, 2004
Chairman Shelby, Ranking Member Sarbanes, and distinguished Members
of the Committee on Banking, Housing, and Urban Affairs, it is an honor
to appear before you this morning. This Committee has been deeply
involved in the financial aspect of our country's war on terror, and we
are grateful to you for the prompt consideration of our
recommendations.
---------------------------------------------------------------------------
\1\ A former Representative in Congress from the State of Indiana.
\2\ A former U.S. Senator from the State of Washington.
---------------------------------------------------------------------------
After the September 11 attacks, the highest-level U.S. Government
officials publicly declared that the fight against Al Qaeda financing
was as critical as the fight against Al Qaeda itself. It was presented
as one of the keys to success in the fight against terrorism: If we
choke off the terrorists' money, we limit their ability to conduct mass
casualty attacks.
In reality, stopping the flow of funds to Al Qaeda and affiliated
terrorist groups has proved to be essentially impossible. At the same
time, tracking Al Qaeda financing is an effective way to locate
terrorist operatives and supporters and to disrupt terrorist plots.
Our Government's strategy on terrorist financing has changed
significantly from the early post-September 11 days. Choking off the
money remains the most visible aspect of our approach, but it is not
our only, or even most important, goal. Making it harder for terrorists
to get money is a necessary, but not sufficient, component of our
overall strategy.
Following the money to identify terrorist operatives and
sympathizers provides a particularly powerful tool in the fight against
terrorist groups. Use of this tool almost always remains invisible to
the general public, but it is a critical part of the overall campaign
against Al Qaeda. Today, the U.S. Government recognizes--appropriately,
in our view--that terrorist-financing measures are simply one of many
tools in the fight against Al Qaeda.
Financing of the September 11 Attack
The September 11 hijackers used U.S. and foreign financial
institutions to hold, move, and retrieve their money. The hijackers
deposited money into U.S. accounts, primarily by wire transfers and
deposits of cash or travelers checks brought from overseas.
Additionally, several of them kept funds in foreign accounts, which
they accessed in the United States through ATM and credit card
transactions.
The hijackers received funds from facilitators in Germany and the
United Arab Emirates or directly from Khalid Sheikh Mohamed (KSM) as
they transited Pakistan before coming to the United States. The plot
cost Al Qaeda somewhere in the range of $400,000-500,000, of which
approximately $300,000 passed through the hijackers' bank accounts in
the United States.
While in the United States, the hijackers spent money primarily for
flight training, travel, and living expenses (such as housing, food,
cars, and auto insurance). Extensive investigation has revealed no
substantial source of domestic financial support.
Neither the hijackers nor their financial facilitators were experts
in the use of the international financial system. They created a paper
trail linking them to each other and their facilitators. Still, they
were adept enough to blend into the vast international financial system
easily without doing anything to reveal themselves as criminals, let
alone terrorists bent on mass murder.
The money-laundering controls in place at the time were largely
focused on drug trafficking and large-scale financial fraud. They could
not have detected the hijackers' transactions. The controls were never
intended to, and could not, detect or disrupt the routine transactions
in which the hijackers engaged.
There is no evidence that any person with advance knowledge of the
impending terrorist attacks used that information to profit by trading
securities. Although there has been consistent speculation that massive
Al Qaeda-related ``insider trading'' preceded the attacks, exhaustive
investigation by Federal law enforcement and the securities industry
has determined that unusual spikes in the trading of certain securities
were based on factors unrelated to terrorism.
Al Qaeda Fund-Raising
Al Qaeda and Osama Bin Laden obtained money from a variety of
sources. Contrary to common belief, Bin Laden did not have access to
any significant amounts of personal wealth, particularly after his move
from Sudan to Afghanistan. He did not personally fund Al Qaeda, either
through an inheritance or businesses he was said to have owned in
Sudan.
Al Qaeda's funds, approximately $30 million per year, came from the
diversion of money from Islamic charities. Al Qaeda relied on well-
placed financial facilitators who gathered money from both witting and
unwitting donors, primarily in the Gulf region.
No persuasive evidence exists that Al Qaeda relied on the drug
trade as an important source of revenue, had any substantial
involvement with conflict diamonds, or was financially sponsored by any
foreign government. The United States is not, and has not been, a
substantial source of Al Qaeda funding, although some funds raised in
the United States may have made their way to Al Qaeda and its
affiliated groups.
U.S. Government Efforts Before the September 11 Attacks
Before September 11, terrorist financing was not a priority for
either domestic or foreign intelligence collection. Intelligence
reporting on this issue was episodic, insufficient, and often
inaccurate.
Although the National Security Council considered terrorist
financing important in its campaign to disrupt Al Qaeda, other agencies
failed to participate to the NSC's satisfaction. There was little
interagency strategic planning or coordination. Without an effective
interagency mechanism, responsibility for the problem was dispersed
among a myriad of agencies, each working independently.
The FBI gathered intelligence on a significant number of
organizations in the United States suspected of raising funds for Al
Qaeda or other terrorist groups. The FBI, however, did not develop an
endgame for its work. Agents continued to gather intelligence, with
little hope that they would be able to make a criminal case or
otherwise disrupt the operations of these organizations. The FBI could
not turn these investigations into criminal cases because of:
insufficient international cooperation;
a perceived inability to mingle criminal and intelligence
investigations due to the ``wall'' between intelligence and law
enforcement matters;
sensitivities to overt investigations of Islamic charities and
organizations; and
the sheer difficulty of prosecuting most terrorist-financing
cases.
Nonetheless, FBI street agents had gathered significant
intelligence on specific groups.
On a national level, the FBI did not systematically gather and
analyze the information its agents developed. It lacked a headquarters
unit focusing on terrorist financing. Its overworked counterterrorism
personnel lacked time and resources to focus specifically on financing.
The FBI as an organization therefore failed to understand the
nature and extent of the Jihadist fund-raising problem within the
United States or to develop a coherent strategy for confronting the
problem. The FBI did not, and could not, fulfill its role to provide
intelligence on domestic terrorist financing to government
policymakers. The FBI did not contribute to national policy
coordination.
The Department of Justice could not develop an effective program
for prosecuting terrorist finance cases. Its prosecutors had no
systematic way to learn what evidence of prosecutable crimes could be
found in the FBI's intelligence files, to which it did not have access.
The U.S. intelligence community largely failed to comprehend Al
Qaeda's methods of raising, moving, and storing money. It devoted
relatively few resources to collecting the financial intelligence that
policymakers were requesting, or that would have informed the larger
counterterrorism strategy.
The CIA took far too long to grasp basic financial information that
was readily available--such as the knowledge that Al Qaeda relied on
fund-raising, not Bin Laden's personal fortune.
The CIA's inability to grasp the true source of Bin Laden's funds
frustrated policymakers. The U.S. Government was unable to integrate
potential covert action or overt economic disruption into the
counterterrorism effort. The lack of specific intelligence about Al
Qaeda financing, and intelligence deficiencies, persisted through
September 11. The Office of Foreign Assets Control (OFAC), the Treasury
organization charged by law with searching out, designating, and
freezing Bin Laden assets, did not have access to much actionable
intelligence.
Before September 11, a number of significant legislative and
regulatory initiatives designed to close vulnerabilities in the U.S.
financial system failed to gain traction. They did not gain the
attention of policymakers. Some of these, such as a move to control
foreign banks with accounts in the United States, died as a result of
banking industry pressure. Others, such as a move to regulate money
remitters, were mired in bureaucratic inertia and a general anti-
regulatory environment.
Where Are We Now?
It is common to say the world has changed since September 11, 2001.
This conclusion is particularly apt in describing U.S. counterterrorist
efforts regarding financing. The U.S. Government focused, for the first
time, on terrorist financing and
devoted considerable energy and resources to the problem. As a result,
we now have a far better understanding of the methods by which
terrorists raise, move, and use money. We have employed this knowledge
to our advantage.
With a new sense of urgency post September 11, the intelligence
community
(including the FBI) created new entities to focus on, and bring
expertise to, the question of terrorist fund-raising and the
clandestine movement of money. The intelligence community uses money
flows to identify and locate otherwise unknown associates of known
terrorists, and has integrated terrorist-financing issues into the
larger counterterrorism effort.
Equally important, many of the obstacles hampering investigations
have been stripped away. The current intelligence community approach
appropriately focuses on using financial transactions, in close
coordination with other types of intelligence, to identify and track
terrorist groups rather than to starve them of funding.
Still, understanding Al Qaeda's money flows and providing
actionable intelligence to policymakers present ongoing challenges
because of:
the speed, diversity, and complexity of the means and methods
for raising and moving money;
the commingling of terrorist money with legitimate funds;
the many layers and transfers between donors and the ultimate
recipients of the money;
the existence of unwitting participants (including donors who
give to generalized Jihadist struggles rather than specifically to
Al Qaeda); and
the U.S. Government's reliance on foreign government reporting
for intelligence.
Bringing Jihadist fund-raising prosecutions remains difficult in
many cases. The inability to get records from other countries, the
complexity of directly linking cashflows to terrorist operations or
groups, and the difficulty of showing what domestic persons knew about
illicit foreign acts or actors all combine to thwart investigations and
prosecutions.
The domestic financial community and some international financial
institutions have generally provided law enforcement and intelligence
agencies with extraordinary cooperation. This cooperation includes
providing information to support quickly developing investigations,
such as the search for terrorist suspects at times of emergency. Much
of this cooperation is voluntary and based on personal relationships.
It remains to be seen whether such cooperation will continue as the
memory of September 11 fades. Efforts to create financial profiles of
terrorist cells and terrorist fund-raisers have proved unsuccessful,
and the ability of financial institutions to detect terrorist financing
remains limited.
Since the September 11 attacks and the defeat of the Taliban, Al
Qaeda's budget has decreased significantly. Although the trend line is
clear, the U.S Government still has not determined with any precision
how much Al Qaeda raises or from whom, or how it spends its money. It
appears that the Al Qaeda attacks within Saudi Arabia in May and
November 2003 have reduced--some say drastically--Al Qaeda's ability to
raise funds from Saudi sources. There has been both an increase in
Saudi enforcement and a more negative perception of Al Qaeda by
potential donors in the Gulf.
However, as Al Qaeda's cashflow has decreased, so too have its
expenses, generally owing to the defeat of the Taliban and the
dispersal of Al Qaeda. Despite our efforts, it appears that Al Qaeda
can still find money to fund terrorist operations. Al Qaeda now relies
to an even greater extent on the physical movement of money and other
informal methods of value transfer, which can pose significant
challenges for those attempting to detect and disrupt money flows.
Where Do We Need To Go?
While specific, technical recommendations are beyond the scope of
my remarks today, I would like to stress four themes in relation to
this Committee's work:
First, continued enforcement of the Bank Secrecy Act rules for
financial institutions, particularly in the area of Suspicious Activity
Reporting, is necessary.
The Suspicious Activity Reporting provisions currently in place
provide our first defense in deterring and investigating the financing
of terrorist entities and operations. Financial institutions are in the
best position to understand and identify problematic transactions or
accounts.
Although the transactions of the September 11 hijackers were small
and innocuous, and could probably not be detected today, vigilance in
this area is important. Vigilance assists in preventing open and
notorious fundraising. It forces terrorists and their sympathizers to
raise and move money clandestinely, thereby raising the costs and risks
involved. The deterrent value in such activity is significant and,
while it cannot be measured in any meaningful way, ought not to be
discounted.
The USA PATRIOT Act expanded the list of financial institutions
subject to Bank Secrecy Act regulation. We believe that this was a
necessary step to ensure that other forms of moving and storing money,
particularly less regulated areas such as wire remitters, are not
abused by terrorist financiers and money launderers.
Second, investigators need the right tools to identify customers
and trace financial transactions in fast-moving investigations.
The USA PATRIOT Act gave investigators a number of significant
tools to assist in fast-moving terrorism investigations. Section 314(a)
allows investigators to find accounts or transactions across the
country. It has proved successful in tracking
financial transactions and could prove invaluable in tracking down the
financial component of terrorist cells. Section 326 requires specific
customer identification requirements for those opening accounts at
financial institutions. We believe both of these provisions are
extremely useful and properly balance customer privacy and the
administrative burden, on the one hand, against investigative utility
on the other.
Third, continuous examination of the financial system for
vulnerabilities is necessary.
While we have spent significant resources examining the ways Al
Qaeda raised and moved money, we are under no illusions that the next
attack will use similar methods. As the Government has moved to close
financial vulnerabilities and loopholes, Al Qaeda adapts. We must
continually examine our system for loopholes that Al Qaeda can exploit,
and close them as they are uncovered. This will require constant
efforts on the part of this Committee, working with the financial
industry, their regulators, and the law enforcement and intelligence
community.
Finally, we need to be mindful of civil liberties in our efforts to
shut down terrorist networks.
In light of the difficulties in prosecuting some terrorist fund-
raising cases, the Government has used administrative blocking and
freezing orders under the International Emergency Economic Powers Act
(IEEPA) against U.S. persons (individuals or entities) suspected of
supporting foreign terrorist organizations. It may well be effective,
and perhaps necessary, to disrupt fund-raising operations through an
administrative blocking order when no other good options exist.
The use of IEEPA authorities against domestic organizations run by
U.S. citizens, however, raises significant civil liberty concerns.
IEEPA authorities allow the Government to shut down an organization on
the basis of classified evidence, subject only to a deferential after-
the-fact judicial review. The provision of the IEEPA that allows the
blocking of assets ``during the pendency of an investigation'' also
raises particular concern in that it can shut down a U.S. entity
indefinitely without the more fully developed administrative record
necessary for a permanent IEEPA designation.
Conclusions
Vigorous efforts to track terrorist financing must remain front and
center in U.S. counterterrorism efforts. The Government has recognized
that information about terrorist money helps us to understand their
networks, search them out, and disrupt their operations.
These intelligence and law enforcement efforts have worked. The
death or capture of several important facilitators has decreased the
amount of money available to Al Qaeda, and increased its costs and
difficulties in moving money. Captures have produced a windfall of
intelligence.
Raising the costs and risks of gathering and moving money are
necessary to limit Al Qaeda's ability to plan and mount significant
mass casualty attacks. We should understand, however, that success in
these efforts will not of itself immunize us from future terrorist
attacks.
We would be pleased to respond to your questions.
----------
PREPARED STATEMENT OF MALLORY FACTOR
Vice Chair, Council on Foreign Relations'
Second Report of the Independent Task Force on Terrorist Financing
Chairman, Mallory Factor, Inc.
September 29, 2004
Chairman Shelby, Senator Sarbanes, and distinguished Members of
this Committee, thank you for inviting me to testify today about my
views on the critical issue of curbing terror financing.
Chairman Shelby, I would like to commend you in particular for your
unwavering commitment to addressing the financing of terror. The work
that this Committee is undertaking is extremely important to the United
States and the world. Thank you for your leadership.
My testimony will focus on terror financing emanating from within
the Kingdom of Saudi Arabia. Clearly, there are numerous other states
that allow terror financing to continue and that should be examined
also. I have chosen to focus on Saudi Arabia because of the enormous
resources that are funneled from within Saudi Arabia to terrorist
groups around the world.
My recommendations are contained in a report of an Independent Task
Force on Terrorist Financing, sponsored by the Council on Foreign
Relations, on which I served as Vice-Chair. Since the report, along
with its various appendices, is almost 300 pages in length, I will only
be able to highlight core points and ask that the full report and its
appendices be placed into the record.
I would like to thank the Task Force Chairman, Maurice R.
Greenberg, who has been a leader in bringing this issue to the Nation's
attention. I would also like to thank Council President Richard Haass
for his commitment to this topic and to the Task Force's mission. I am
testifying in my personal capacity, as is customary, and not on behalf
of the Task Force or the Council on Foreign Relations.
Among the core findings of the first Terrorist Financing Task Force
report, released in October 2002, was that, ``For years, individuals
and charities based in Saudi Arabia have been the most important source
of funds for Al Qaeda; and for years, Saudi officials have turned a
blind eye to this problem.''
It should be noted that the Task Force found no evidence that the
Saudi Government--as an institution--participated in the financing of
terror directly. However, the Saudi Government has clearly allowed
individual and institutional financiers of terror to operate and
prosper within Saudi borders.
The Bush Administration has accomplished a great deal since
September 11. Some of the Administration's achievements in this area
have been integrating terrorist financing into the U.S. Government's
overall counterterrorism effort, securing unprecedented international
support for UN sanctions against Al Qaeda, strengthening international
standards for financial supervision through the Financial Action Task
Force (FATF), issuing significant and meaningful regulations under the
USA PATRIOT Act and implementing a wide-ranging strategy to engage
Saudi Arabia on the subject of financial and ideological support of
extremists. Still, there is much work to be done.
I would like to set forth the following framework of constructive,
forward looking recommendations for improving U.S. efforts against
terrorism financing.
First, U.S. policymakers must build a new framework for United
States-Saudi relations. The terror financing issue is situated in the
complex and important bilateral relationship between the United States
and Saudi Arabia. For
decades, United States-Saudi Arabia relations have been built upon a
consistent framework understood by both sides: Saudi Arabia would be a
constructive actor with regard to the world's oil markets and regional
security issues, and the United States would help provide for the
defense of Saudi Arabia, work to address the Israeli-Palestinian
conflict, and not raise any significant questions about Saudi Arabian
domestic issues, either publicly or privately.
More recently however, this framework has come under strain because
Al Qaeda, a terrorist organization rooted in issues central to Saudi
Arabian domestic affairs, has murdered thousands of Americans. Al Qaeda
and similar organizations continue to conspire to kill even more
Americans and to threaten our way of life.
Changed circumstances require a new policy framework for United
States-Saudi relations. When domestic Saudi issues threaten Americans
at home and abroad, the United States must pay attention to those Saudi
``domestic'' issues that impact United States security such as
terrorist financing and the global export of Islamic extremism. These
issues can no longer be ``off the table;'' they must be front and
center in our bilateral relationship.
This transition is already well underway, as evidenced by
turbulence in the bilateral relationship since September 11. Some Bush
Administration officials have privately characterized the current state
of affairs in Saudi Arabia as a ``civil war'' and suggested that the
appropriate objective for United States policy in this context is to
help the current regime prevail. I agree, but believe the domestic
Saudi problem will not be solved by dispersing Al Qaeda cells and
members in Saudi Arabia alone. Rather, the ``civil war'' will be won
only when the regime confronts directly and unequivocally addresses the
ideological, religious, social, and cultural realities that fuel Al
Qaeda, its imitators, and its financiers all over the world.
Second, Saudi Arabia must fully implement its new laws and
regulations and take additional steps to further improve its efforts to
combat terrorist financing. In addition to implementing its recently
enacted laws and regulations in this area, Saudi Arabia should also
deter the financing of terrorism by publicly punishing those Saudi
individuals and organizations that have funded terrorist organizations.
Although a recent report by FATF noted several prosecutions in Saudi
Arabia under the terror financing laws, arrests and punitive steps
against financiers of terror have only taken place in the ``shadows.''
I am not aware of any publicly announced arrests, trials, or
incarcerations in Saudi Arabia relating to the financing of terrorism.
Saudi Arabia must also increase the financial transparency and
programmatic verification of its global charities and publicly release
audit reports of those charities. Saudi Arabia should ratify and
implement treaties that create binding international legal obligations
relating to combating money laundering and terrorist financing.
Third, multilateral initiatives need to be better coordinated,
appropriately funded, and invested with clear punitive authorities. The
need for a new international organization specializing in terrorist
financing issues, as recommended by the Task Force's initial report,
has diminished as a result of significant efforts being undertaken by a
variety of international actors. The need for proper coordination and
clearer mandates has increased for the same reason. It is now time to
minimize duplicative efforts and reallocate resources to the most
effective and appropriate lead organization.
Fourth, the executive branch should formalize its efforts to
centralize the coordination of U.S. measures to combat terrorist
financing. My understanding is that, in practice, responsibilities for
the coordination of terrorist financing issues have shifted from the
Treasury Department to the White House. I
commend the Bush Administration for this action. However, setting up a
formal allocation of responsibilities is crucial to maintain continuity
and focus as the specific individuals involved in these efforts turn
over. Therefore, allocation of responsibility to the White House needs
to be formalized through a National Security Presidential Directive
(NSPD) or otherwise.
Fifth, Congress should enact a Treasury-led certification regime
specifically on terrorist financing. Many governments are working on
shutting down terror financing from within their borders, but many are
not. Congress should adopt a certification regime under which the
Treasury Department provides a written certification on an annual basis
(classified if necessary) detailing the steps that foreign nations have
taken to cooperate in U.S. and international efforts to combat terror
financing. In the absence of a Presidential national security waiver,
jurisdictions that do not receive this certification would be subject
to sanctions provided by Section 311 of the USA PATRIOT Act--including
denial of U.S. foreign assistance monies and limitations on access to
the U.S. financial system.
The Administration has used the powers granted to it by Section 311
of the USA PATRIOT Act--but only once in the terror financing context.
Section 311 allows Treasury to require domestic financial institutions
and agencies to take ``special measures'' against certain parties,
including both institutions and jurisdictions, believed by the Treasury
to be engaged in money laundering/terror financing. These special
measures can include placing prohibitions or conditions on
``correspondent'' or ``payable through'' accounts involving the parties
engaged in the money laundering/terror financing.
Of course, foreign financial institutions and jurisdictions that do
not have significant financial relations with the United States would
not be meaningfully impacted by Section 311 sanctions imposed by the
United States. However, a similar sanction imposed in the money
laundering context resulted in the targeted jurisdiction promulgating
desired legislative and regulatory changes.
A certification regime for terror financing would ensure these
special measures are used appropriately and thoughtfully against
``rogue'' jurisdictions. A separate certification regime for terror
financing--distinct from any other reporting requirements on the
promulgation of terror itself or money laundering--ensures that
stringent requirements are maintained specifically with respect to each
jurisdiction's practices on terror financing without consideration of
other issues.
I commend Congresswoman Sue Kelly and others who have introduced
legislation in the House, as H.R. 5124, that would require a terror
financing certification regime.
Sixth, the UN Security Council should broaden the scope of the UN's
Al Qaeda and Taliban Sanctions Committee. The UN Security Council
should specifically impose international sanctions on other groups and
individuals that have been designated as terrorists, as Hamas has been
by the United States and E.U. I understand that these UN committees
continue to discuss various actions but have not taken any affirmative
action as yet. Furthermore, the UN should require, as a matter of
international law, that member states take enforcement action against
groups, persons, and entities designated by the Sanctions Committee.
The enabling resolution for these expanded authorities should
explicitly reject the notion that acts of terror may be legitimized by
the charitable activities or political motivations of the perpetrator.
The UN should make it clear that no cause, however legitimate,
justifies the use of terror.
Seventh, the U.S. Government should increase sharing of information
with the financial services sector as permitted by Section 314(a) of
the USA PATRIOT ACT so that this sector can cooperate more effectively
with the U.S. Government in identifying financiers of terror. Helping
private sector financial institutions become effective partners in
identifying financiers of terror should be a top priority. The
procedures set forth in Section 314(a) of the USA PATRIOT Act, which
promote information sharing between the U.S. Government and financial
institutions to increase detection of terror financing, are not working
as well as they should. The U.S. Government is still not providing
financial institutions with adequate information to enable the
institutions to detect terror financing and identify unknown
perpetrators. The Government is still using financial institutions
primarily to assist in investigating known or suspected terror
financiers, not in identifying unknown ones. In addition, our
Government does not currently have the appropriate resources to process
and make full use of information that is flowing to it from financial
institutions.
I recognize that the information that would enable financial
institutions to become effective partners with the U.S. Government in
identifying terror financing may be highly protected intelligence
information. In other industries such as defense and transportation,
however, persons can be designated by the U.S. Government to receive
access to certain high value information as necessary. A similar
approach could be used to facilitate information sharing and
cooperation between the U.S. Government and private financial
institutions.
Eighth, the National Security Council (NSC) and the White House
Office of Management and Budget (OMB) should conduct a cross-cutting
analysis of the budgets of all U.S. Government agencies as they relate
to terrorist financing. Monitoring the financial and human resources
that are actually devoted to the various tasks involved in combating
terrorist financing will facilitate fully informed, strategic decisions
about whether resource allocations are optimal or functions are
duplicative. For this reason, the NSC and OMB should conduct a cross-
cutting analysis of all agencies' budgets in this area, to gain clarity
about who is doing what, how well, and with what resources. With such a
cross-cut in hand, the Administration and Congress can begin to assess
the efficiency of existing efforts and the adequacy of appropriations
relative to the threat.
Ninth, the U.S. Government and private foundations, universities,
and think tanks should increase efforts to understand the strategic
threat posed to the United States by radical Islamic militancy,
including specifically the methods and modalities of its financing and
global propagation. At the dawn of the cold war, the U.S. Government
and U.S. nongovernmental organizations committed substantial public and
philanthropic resources to endow Soviet studies programs across the
United States. The purpose of these efforts was to increase the level
of understanding in this country of the profound strategic threat posed
to the United States by Soviet Communism. A similar undertaking is now
needed to understand adequately the threat posed to the United States
by radical Islamic militancy, along with its causes, which we believe
constitutes the greatest strategic threat to the United States at the
dawn of this new century. To be commensurate with the threat, much more
will need to be done by private U.S. foundations, universities, and
think tanks in a sustained, deliberate, and well-financed manner.
I look forward to your questions.
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PREPARED STATEMENT OF LEE S. WOLOSKY
Of Counsel, Boies, Schiller & Flexner LLP
September 29, 2004
Mr. Chairman, Senator Sarbanes, and distinguished Members of the
Committee, thank you for affording me the opportunity to testify before
you today on an issue of paramount importance to our Nation--curtailing
the flow of funds to terrorist organizations--and for your continued
dedication and leadership on this matter. The Committee's continued
efforts are necessary to ensure the safety of our Nation.
I am testifying before you today in my personal capacity, although
I note that my testimony is heavily informed by the work of the
Independent Task Force on Terrorist Financing sponsored by the Council
on Foreign Relations, which I have
directed along with William F. Wechsler. That task force has published
two reports--the first in October 2002 and the second in June 2004.
Today, however, I would note that I am not testifying on behalf of the
Council on Foreign Relations, the Task Force, its Chairman, or any of
its members.
I note at the outset that the issue of terrorist financing is,
foremost, a foreign policy issue and not a domestic regulatory issue.
That is because most of the money funding Al Qaeda and other Islamist
groups originates and is disbursed outside the United States. Funds
associated with the maintenance of cells and other operational
activities pass through the United States, but these amounts are
relatively small, making them very difficult to identify and
distinguish. That said, I will offer at the conclusion of my remarks
brief views regarding certain regulatory matters.
Theory of the Case
Especially in the post-September 11 environment, the financial
network that supports Al Qaeda is multifaceted and ever-changing,
taking advantage of diverse opportunities to raise, hold, and move
funds. Yet there exists a central ``theory of the case'' that
characterizes the U.S. understanding of the Al Qaeda financial network
and that guides U.S. actions to disrupt it and track it back to
specific terrorist cells and leaders.
The September 11 Commission concluded that before the 2001 attacks,
Al Qaeda received about $30 million per year. Contrary to once-popular
myths, this sizable fund was not simply the wallet of just one man,
Osama Bin Laden. If that were the case, it would be a much easier
problem to address.
Instead, Al Qaeda obtained money, continuously, from a variety of
sources. Money was--and is--raised through Islamic charities and
notable financial facilitators and also through legitimate businesses
and criminal enterprises. Money is moved through formal banking
channels, less formal alternative remittance systems, such as the
centuries-old hawala network, and the very oldest method, bulk cash
couriers and other smugglers. And more recently, Al Qaeda and its
affiliates appear to be relying more on other methods to support their
operations. Funding for the cell responsible for the Madrid bombings
earlier this year, for example, appears to have depended on common
criminal activity and drug trafficking.
The best publicly available descriptions of the Al Qaeda financial
network can be found in two publications of the September 11
Commission: its Report and its subsequent ``Monograph on Terrorist
Financing.'' The 2002 and 2004 reports of the Council on Foreign
Relations Independent Task Force on Terrorist Financing contain similar
analyses.
For years, U.S. policymakers were poorly served by weaknesses in
our intelligence on Al Qaeda's finances. As the September 11
Commission's Monograph accurately described, ``even after the September
11 attacks, the intelligence community could not estimate the total
income or the relative importance of any source of Bin Laden's revenue
stream.'' Even to this day ``the U.S. Government still has not
determined with any precision how much Al Qaeda raises or from whom, or
how it spends its money.''
Prior to September 11, the intelligence community had an
``incomplete understanding of Al Qaeda's methods to raise, move, and
store money,'' which ``hampered the effectiveness of the overall
counterterrorism strategy.'' Moreover, ``the CIA also arrived belatedly
at an understanding of some basic operational facts that were readily
available--such as the knowledge that Al Qaeda relied on fund raising,
not Bin Laden's personal fortune.''
For its part, the FBI ``did not systematically gather and analyze
the information its agents developed'' and ``as an organization failed
to understand the nature and extent of the problem [and] to develop a
coherent strategy for confronting it.''
As a result, according to recently declassified intelligence
reporting, Bin Laden's finances on the eve of the September 11 attacks
were ``steady and secure.''
The Particular Problem of Saudi Arabia
Still what we knew then--and know now--about this financial network
showed that, not withstanding its global reach, individuals and
organizations based in the Gulf region have historically been the
single most important source of funds for Al Qaeda, as well as other
terrorist groups such as Hamas.
As the September 11 Commission concluded in its final report: ``Al-
Qaeda appears to have relied on a core group of financial facilitators
who raised money from a variety of donors and other fund-raisers,
primarily in the Gulf countries and particularly in Saudi Arabia.'' And
back in 2002 the Council on Foreign Relations-sponsored task force
concluded that ``for years, individuals and charities based in Saudi
Arabia have been the most important source of funds for Al Qaeda; and
for years, Saudi officials have turned a blind eye to this problem.''
Has the Saudi Arabian Government itself funded terrorism? The
September 11 Commission concluded: ``Saudi Arabia has long been
considered the primary source of Al Qaeda funding, but we have found no
evidence that the Saudi Government as an institution or senior Saudi
officials individually funded the organization. (This conclusion does
not exclude the likelihood that charities with significant Saudi
Government sponsorship diverted funds to Al Qaeda).''
Widespread interest in searching for evidence of official Saudi
complicity in funding Al Qaeda tends to obscure the Saudis' glaring
``sins of omission.'' Saudi-based charities controlling billions of
dollars are a good example; for many years there has been little or
nothing done to reign them in even though they have benefited in some
cases from the sponsorship of the Saudi Government.
As the September 11 Commission Monograph wrote in 2004, ``the Saudi
Government turned a blind eye to the financing of Al Qaeda by prominent
religious and business leaders and organizations, at least before
September 11.'' The Monograph further concluded that ``a lack of
awareness of the problem and a failure to conduct oversight over
institutions created an environment in which such activity has
flourished.''
Before the September 11 attacks, Saudi Arabia resisted any real
cooperation with the United States on terrorist financing. And even
later, as the September 11 Commission Monograph aptly described, ``from
the September 11 attacks through spring 2003, most U.S. officials
viewed Saudi cooperation on terrorist financing as ambivalent and
selective.'' Only after Al Qaeda bombed targets within the Kingdom in
May and November 2003 did the Saudis finally focus on the problem and
improve their cooperation with the United States, an evolution that is
described both in the Second Report of the Council on Foreign
Relations-sponsored Task Force and in the Monograph. As the Monograph
stated, however, ``We cannot underplay . . . the reluctance of the
Saudi Government to make the necessary changes between September 11 and
late spring 2003.''
At its core, successful efforts to combat terrorist fundraising
also require fighting a ``war of ideas'' to denounce and discredit--and
financially diminish--the ideology that attracts foot soldiers,
supporters, and potential donors to extremism. Here too Saudi Arabia is
a central front, as the government and Saudi-based organizations spend
huge amounts of money around the world spreading an intolerant and
anti-Western version of Islam.
The bottom line, as the September 11 Commission Report noted, is
that ``Saudi Arabia has been a problematic ally in combating Islamic
extremism.'' And although much has been done--particularly since May
2003--much more remains unfinished or even unstarted.
What Has Been Done
Immediately after September 11, the United States took a number of
actions to combat terrorist financing, including a prominent series of
``blocking actions'' against suspected terrorist assets. These tend to
capture a small amount of actual funds, but are very useful in
``encouraging'' other countries to take their own actions against
suspected terrorist financing elements. The issue became much more
prominent in U.S. diplomacy, international law enforcement, and
intelligence activities. The United States also worked through
multilateral organizations like the Financial Action Task Force to
build a global consensus on the oversight of charities, among other
issues. And at home, despite unsuccessful prior attempts, the Congress
finally added vastly expanded anti-money laundering provisions to the
USA PATRIOT Act.
Momentum slowed notably only months later, however, as the Bush
Administration appeared to put this issue on the proverbial ``back
burner.'' The Treasury Department coordinated day-to-day interagency
efforts, and a ``second phase'' in the
effort was announced that would be characterized by fewer public
designations of terrorist financiers. As preparations for the war on
Iraq took center stage in the Administration, the heat was turned down
on Saudi Arabia. The United States continued to impose ``blocking
actions'' against Saudi persons and institutions, but only in the
context of ``joint'' designations with Saudi Arabia.
As the September 11 Commission Monograph put it, during this period
the interagency process was ``often driven by force of personality
rather than by any structural mechanism.'' The Policy Coordination
Committee (PCC) on Terrorist Financing, although an improvement from
what came before it, ``often was not fully integrated into the United
States' broader counterterrorism policy and Saudi relations.'' The
Monograph concluded: ``U.S. efforts to overcome Saudi recalcitrance
suffered from our failure to develop a strategy to counter Saudi
terrorist financing, present our requests through a single high-level
interlocutor, and obtain and release to the Saudis actionable
intelligence.''
However, in response to the May 2003 terrorist attacks, Saudi
officials started to address the mindset that enables and condones acts
of terrorism. These measures have included steps toward educational
reform and limited measures intended to discipline (or ``re-educate'')
certain extremist Islamic clerics--at least those operating in Saudi
Arabia. There has been less decisive or verifiable action taken to curb
the billions of dollars funding extremism abroad.
Saudi Arabia has taken important actions to disable domestic Al
Qaeda cells and has increased its tactical law enforcement and
intelligence cooperation with the United States. Interior Ministry and
other Saudi law enforcement and intelligence officials are now
regularly killing Al Qaeda members and sympathizers in violent
confrontations.
Saudi Arabia has also largely improved its legal and regulatory
regime. Since September 11--and particularly since the May 2003 Riyadh
bombings--Saudi Arabia has announced the enactment or promulgation of a
plethora of new laws and regulations and the creation of new
institutional arrangements to combat money laundering and terrorist
financing.
As the Council on Foreign Relations-sponsored Task Force and
September 11 Commission staff concluded, Saudi Arabia has not yet fully
implemented its new laws, regulations, and institutional mechanisms.
The first step toward the creation of an effective AML/CTF regime is
the passage of laws and regulations, and the establishment of new
institutions--but that is just the first step. Just as important--and
more important over the longer-term--is effective implementation and
execution of these laws. Some aspects of such implementation, such as
comprehensive compliance with recordkeeping provisions, may take time.
But other aspects of implementation, such as standing up and funding
new organizations and oversight bodies, can be accomplished more
readily.
According to the Monograph, ``Saudi Arabia has worked hard to
institute an improved legal and regulatory regime. It remains to be
seen if the new laws and regulations will be fully implemented and
enforced, and if further necessary legal and regulatory changes will be
made. The Saudis still have not established the National Commission as
they promised in February 2004 and have not demonstrated that they are
willing and able to serve as the conduit for all external Saudi
donations in lieu of Saudi charities.''
Additionally, Saudi enforcement actions directed against Al Qaeda
have largely avoided prominent financiers. There is no evidence that,
since September 11, Saudi Arabia has taken public punitive actions
against any individual for financing terror. Saudi Arabia says that it
has taken nonpublic actions against financiers. But actions taken in
the shadows may have little consistent or systemic impact on ingrained
social or cultural practices that directly or indirectly threaten the
security of the United States.
And the Bush Administration remains unusually and unconstructively
reluctant to criticize Saudi Arabia on this subject. President Bush
even remained silent earlier this year when the Saudi Crown Prince and
other senior Saudi officials repeatedly suggested that Israel and
Zionists were behind Al Qaeda and the bombings in their country.
The Way Forward
U.S. Government Organization
The U.S. Government is still not organized properly to combat
terrorist financing at home or abroad.
For several years after September 11, the General Counsel of the
Treasury Department led the Bush Administration's efforts in this
regard. In my view, even the most competent Treasury General Counsel--
and the Nation was fortunate to have an extraordinarily competent one
at the time--is poorly equipped from an institutional standpoint for
leading such work. This is a job for the White House. As the Monograph
noted, ``the NSC is better able than any individual agency to integrate
terrorist financing into counterterrorism through its leadership of the
Counterterrorism Security Group; the NSC is better able to see how the
different terrorist-financing tools fit together; the NSC is better
able to task agencies and force agencies to reallocate resources; NSC
leadership is more efficient because it has the authority to resolve
more issues rather than forcing them up to the DC level; the NSC has
the best access to information, especially regarding covert action; and
the NSC is not operational and is therefore more neutral.''
From good organization comes good policy. The President--or the
next President--should immediately designate a senior National Security
Council official with the specific mandate to lead U.S. efforts on
terrorist financing issues. Such an official would direct, coordinate,
and reaffirm the domestic and international policies of the United
States on a day-to-day basis, with the personal authority of the
President of the United States. He or she would report to the President
through the National Security Advisor.
In practice, responsibilities for this coordination have recently
shifted back from the Treasury Department to the White House. However,
there has been no formal designation of the NSC's lead role. That
should happen forthwith, so leadership on this important issue becomes
a matter of institutional permanence rather than a function of
individual personalities and relationships. Moreover, such a
designation will go a long way toward putting issues regarding
terrorist financing front and center in every bilateral diplomatic
discussion with every ``frontline'' state in the fight against
terrorism--at every level of the bilateral relationship, including, on
a consistent basis, the highest. As the Monograph concluded, ``it was
not until the appointment of a senior White House official that the
U.S. engagement of the Saudi Government on terrorist financing yielded
its most concrete results. A PCC participant said the Saudis did not
take terrorist financing seriously until [Frances] Townsend was
appointed. She has been able to apply consistent pressure, over a
period of time, with the full backing of the White House.''
Earlier this year, Ms. Townsend became the President's Homeland
Security Advisor. Presumably, the effective role she previously played
in this regard has shifted to other officials.
United States-Saudi Relations
U.S. policymakers should seek to build a new framework for United
States-Saudi relations. The September 11 Commission, mirroring the core
recommendation of the Council on Foreign Relations-sponsored Task
Force, concluded: ``The problems in the United States-Saudi
relationship must be confronted, openly. The United States and Saudi
Arabia must determine if they can build a relationship that political
leaders on both sides are prepared to publicly defend--a relationship
about more than oil . . . It should include a shared interest in
greater tolerance and cultural respect, translating into a commitment
to fight the violent extremists who foment hatred.''
For decades, the United States-Saudi relationship was predicated
upon a consistent framework understood by both sides: Saudi Arabia
would be a constructive actor with regard to the world's oil markets
and regional security issues, and the United States would help provide
for the defense of Saudi Arabia, work to address the Israeli-
Palestinian conflict, and not raise any significant questions about
Saudi Arabian domestic issues--publicly or privately. This tacit
framework, riddled with tensions, held for decades and served both the
United States and Saudi Governments well.
However, time has passed and in that time, Al Qaeda, a terrorist
organization rooted in issues central to Saudi Arabian domestic
affairs--about which the United States previously remained silent--has
murdered thousands of Americans and
aspires to kill more. As a result, the historical framework of United
States-Saudi relations is obsolete and must change. When domestic Saudi
problems--such as financial support for terrorism--threaten Americans
at home and abroad, then focused and unabated U.S. attention on
domestic Saudi issues that were previously ``off-the-table'' must
become a governing principle of this bilateral relationship.
United States-Saudi relations can and should come to resemble more
closely the U.S. bilateral relations with other large, important
regional powers where the bilateral agenda is indeed complex, but
difficult issues are discussed openly and with candor. China and Russia
have been forced to confront domestic issues they would otherwise have
chosen to ignore due to pressures derived from open and frank
discussions in the context of their bilateral relations with the United
States. Just as the United States has placed demands on these states
for increased human rights or enhanced political or economic freedom,
the United States must also place demands on Saudi Arabia regarding
``domestic'' issues like terrorist financing and the propagation of
extremism.
Saudi Propagation of Extremism
The September 11 Commission Report notes that ``Saudi Arabia has
been a problematic ally in combating Islamic extremism.'' As a core
tenet of its foreign policy, Saudi Arabia funds the global propagation
of Wahabism, a brand of Islam that, in some instances, supports
militancy by encouraging divisiveness and violent acts against Muslims
and non-Muslims alike. In my view, this massive spending is helping to
create the next generation of terrorists and therefore constitutes a
paramount strategic threat to the United States. Through support for
madrassas, mosques, cultural centers, hospitals, and other
institutions, and the training and export of radical clerics to
populate these outposts, Saudi Arabia has spent what could amount to
hundreds of millions of dollars around the world financing extremism.
Although the United States is not and should not be at war with any
religion or any religious sect, in my judgment U.S. policy should
affirmatively seek to drain the ideological breeding grounds of Islamic
extremism, financially and otherwise. To do so, we will need more
demonstrable cooperation from Saudi Arabia, which so far has not been
sufficiently forthcoming.
We must continue to demand such cooperation, notwithstanding
broader imperatives of our counterterrorism cooperation with the
Saudis. As the Monograph correctly points out: ``the highest levels of
the U.S. Government must continue to send an unequivocal message to
Saudi Arabia that the Saudis must do everything within their power to
substantially eliminate Al Qaeda financing by Saudi sources.'' The
Monograph also correctly advises that ``the U.S. strategy to combat
terrorist financing must be to monitor, encourage, and nurture Saudi
cooperation while simultaneously recognizing that terrorist financing
is only one of a number of crucial issues that the United States and
Saudi Governments must address together. Managing this nuanced and
complicated relationship will play a critical part in determining the
success of U.S. counterterrorism policy for the foreseeable future.''
Role of Financial Institutions
International financial institutions subject to U.S. jurisdiction
are among our best sources of raw financial intelligence--if they know
what to look for. As the Monograph noted, ``[f]inancial institutions
have the information and expertise to detect money laundering, but they
lack the information and expertise to detect terrorist financing.''
This is a function, in part, of the fact that the government is not
telling them where to look.
Section 314(a) of the USA PATRIOT ACT was intended to address this
problem. It requires the Treasury Department to encourage further
cooperation among financial institutions and regulatory authorities and
to share information about
suspected terrorists and their financial activities. Though nice in
theory, these procedures are not working as well as they might and very
little information flows back from the government to financial
institutions that spend considerable resources on compliance programs
they wish to be effective.
As some have suggested, one way to address this problem might be to
provide security clearances to a broad spectrum of bank compliance
personnel. At a minimum, these issues are worthy of the further
sustained attention of this Committee. I would repeat a suggestion made
to you at similar hearings last October, that this Committee may
consider holding an oversight hearing on Section 314 of the USA PATRIOT
Act.
Thank you very much for your time and consideration. I would now be
honored to take any questions that you might have.
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PREPARED STATEMENT OF STUART A. LEVEY
Under Secretary, Terrorism and Financial Intelligence
Under Secretary for Enforcement
U.S. Department of the Treasury
September 29, 2004
Chairman Shelby, Senator Sarbanes, and Members of the Committee,
thank you for inviting me to testify before you today about the
September 11 Commission Report and our efforts to identify and combat
terrorist financing.
The members of the September 11 Commission and staff deserve our
gratitude for their thoughtful report as well as for the monograph that
their staff prepared on terrorism financing. These studies are
extremely valuable both for the perspective they bring to these issues
and for the opportunity that they present to reflect on our progress
and our priorities. In my remarks today, I would like to give a brief
overview of the Administration's collaborative efforts to combat
terrorist financing and how they augment and intersect with the broader
war on terror. I will highlight the role played by the new Office of
Terrorism and Financial Intelligence at the Treasury Department.
Finally, I will describe our perspective as we look ahead, detailing
some of the challenges that lie before us. In the course of my
testimony, I will address what I believe are the central issues raised
by the September 11 Commission regarding our efforts to combat
terrorist financing. Let me say at the outset that I agree with most of
the Commission's report as it relates to terrorist financing, and I
again commend the Commission and its staff for a job well done.
Terrorist Financing: A Key Front in a Global War on Terror
There is little need to underscore the importance of our campaign
against terrorist financing before this audience. This Committee has
demonstrated its deep commitment to the financial campaign in the war
on terror and I think would agree, as I do, with the September 11
Commission's recommendation that ``vigorous efforts to track terrorist
financing must remain front and center in U.S. counterterrorism
efforts.''
As this statement reflects, the September 11 Commission recognized
that the U.S. Government's campaign against terrorist financing must be
viewed as but one of many fronts in the global war on terror, rather
than an as an end in itself. Our ultimate target is not the money, but
the terrorists who use it to murder and intimidate. That said, our
counterterrorism financing efforts are a vital part of the overall war.
Terrorists require money to train, travel, communicate, indoctrinate,
procure weapons, carry out attacks, and conceal themselves. Starving
them of money debilitates every aspect of their operations and,
ultimately, their ability to survive.
Some have questioned the effectiveness of attacking terrorist
financing networks. They note that terrorist attacks themselves cost
relatively little to carry out and argue that because such sums are
easily procurable, our efforts to combat terrorists by attacking their
resources are futile. This is a dangerously flawed argument for two
main reasons, and it is a view that the September 11 Commission wisely
rejected. In the first place, the terrorists' budgets are not measured
by the cost of a primitive destructive act. The real operating costs of
terrorists inhere in maintaining and perpetuating their networks, and
these costs are considerable. As we choke off the terrorists' money
flow, we degrade their capabilities and render them less dangerous.
Second, tracking the financing of terrorists is quite often the best
way to identify and actually locate terrorists and their facilitators.
Every time terrorists raise, move, and store money, they potentially
expose themselves to surveillance and attack. It is imperative that we
continue to exploit these vulnerabilities.
The Interagency Character of Our Campaign Against Terrorist Financing
The U.S. Government campaign against terrorist financing involves a
broad array of weapons, from intelligence collection and operations to
diplomatic pressure, from regulatory actions and administrative
sanctions to criminal investigations and prosecutions. If we are to
achieve success, we must bring all of these powers to bear in a
coordinated and target-appropriate manner. If the most effective
strategy with respect to a known facilitator is to observe him covertly
so as to trace the money flow upstream to the original donor or
downstream to the ultimate terrorist end-users, then we must do so. If
the most effective strategy is instead to designate a facilitator in
order to freeze terrorist-related assets and shut down a conduit of
terrorist financing, then we will do so. We have an interagency process
in place to perform just this type of evaluation, assessing which
action or set of actions will inflict the maximum damage to a terrorist
network's capabilities. Our goal is not to boost the number of times
that we exercise the tools of a particular agency, but to think and act
as a single government with a shared set of goals.
The interagency team that has applied itself to this issue since
September 11 is truly extraordinary. The Department of Justice, my
former home, and the FBI have done heroic work, transforming themselves
over the past 3 years to best tackle the terrorist financing problem.
The FBI's financial investigators, coordinated out of the Terrorism
Financing Operations Section (TFOS), have shown dedication and
resourcefulness, marshaling the shared resources of law enforcement
through Joint Terrorism Task Forces (JTTF's) across the country,
integrating intelligence through unprecedented cooperation with the
CIA, and building successful cases that would not have been thought
viable a mere 4 years ago. Bringing these cases to court are a corps of
talented Assistant U.S. Attorneys across the country, working under the
guidance of a group of experienced prosecutors at DOJ's Counter-
Terrorism Section (CTS). Over the past months, the public has received
dramatic reminders of this group's effectiveness, with the indictments
of the Holy Land Foundation's leadership echelon and the convictions of
Abdulrahman Alamoudi and the Elashi brothers. The powerful, public
effect of successful prosecutions is simply unrivaled.
Other law enforcement agencies play vital roles in these cases
alongside the FBI. The premier financial investigators in IRS Criminal
Investigation (IRS-CI) have demonstrated their ability to unravel
intricate money laundering and tax evasion schemes that feature in
terrorist financing investigations, and work closely with the FBI under
the auspices of JTTF's. U.S. Immigration and Customs Enforcement (ICE)
at the Department of Homeland Security also participates in JTTF's, and
plays a crucial role in investigating bulk cash smuggling, unlicensed
money remitters, and money laundering through insurance and other
nontraditional financial mechanisms. Also, the Secret Service has done
a fantastic job investigating counterfeiting as well as high-tech
cyber-crimes, credit card fraud, and identity theft that can under gird
a money laundering or terrorist financing ring.
The Civil Division of the Department of Justice plays a key but
often unnoticed part in our Government's overall effort. A team of
skilled legal experts in the Civil Division has successfully defended
every challenge to the Government's law enforcement and administrative
authorities in the terrorism financing arena. In light of the September
11 Commission staff monograph's discussion of potential due process
concerns in the designation of entities as Specially Designated Global
Terrorists (SDGT's), it is useful to highlight two of these cases in
more detail. After September 11, the Treasury Department designated the
Holy Land Foundation and the Global Relief Foundation--two large U.S.-
based charities--as SDGT's. The charities filed lawsuits against the
Government, raising a litany of claims, including allegations that the
Government had deprived them of due process. These cases were heard by
Federal judges who examined the evidentiary records underlying the
designations in detail. All of the charities' constitutional claims
were soundly rejected, and--to the extent that the courts have ruled on
the challenges to the evidence underlying the designations--those
challenges have been rejected as well. The charities both appealed,
with the same result. Notably, every judge to consider the charities'
claims, including the appellate judges of the District of Columbia and
the Seventh Circuits, have upheld the legality of Treasury's actions,
without a single dissent. See Holy Land Foundation for Relief &
Development v. Ashcroft, 333 F.3d 156 (D.C. Cir. 2003); Global Relief
Foundation, Inc. v. O'Neill, 315 F.3d 748 (7th Cir. 2002).
Diplomatic action is another of our primary tools in combating the
financing of terrorism, and the State Department naturally stands at
the forefront of these efforts. The money flows we are tracking largely
emanate from and flow through countries overseas. Since September 11,
the State Department has built a worldwide coalition against terrorist
financing--a monumental achievement--and endeavors every day to
strengthen it. I will discuss their crucial role in one aspect of this
process in more detail below.
Of course, none of these actions would be possible without the
intelligence products that are the starting point and the guideposts
for everything we do. As the September 11 monograph correctly notes,
the individuals leading the counterterrorist financing efforts at the
CIA possess extensive expertise in the clandestine movement of money.
Since September 11, the CIA and the broader intelligence community have
reconstituted themselves to address the threat of terrorist financing
in a collaborative and unified manner, and they currently wield an
exceptional depth of knowledge and experience.
I can report that the coordination across the Government in the
terrorist financing arena is excellent. Our greatest achievements to
date have been shared, and we are increasingly finding new and better
ways to combine our resources and authorities to pursue a single
mission.
The Office of Terrorism and Financial Intelligence--Enhancing
Treasury's Contribution
The Congress and the President have given the Treasury Department
the responsibility to safeguard the integrity of the U.S. and
international financial systems from abuse by terrorists, rogue states,
money launderers, and criminals. Domestically, Treasury's role as
guardian of the financial sector is manifest--Treasury regulates,
oversees, and interacts with the banking and finance sectors on a daily
basis, and has served in this role for over a century. Internationally,
as the United States' finance ministry, Treasury has cultivated close
relationships with finance ministries, central banks, financial
intelligence units, and international financial institutions, as well
as with the international private sector.
To safeguard financial systems both at home and abroad, Treasury
draws upon a range of capabilities that cut across various categories:
Sanctions and Administrative Powers: Treasury wields a broad
range of powerful economic sanctions and administrative powers to
attack various forms of illicit finance, including E.O. 13224
issued under the International Emergency Economic Powers Act
(IEEPA), which allows for swift action to freeze terrorist assets.
Treasury's Office of Foreign Assets Control (OFAC) administers and
enforces the
various economic sanctions and restrictions imposed under the
Secretary's IEEPA authority.
Financial Regulation and Supervision: Treasury, through its
Financial Crimes Enforcement Network (FinCEN), administers the Bank
Secrecy Act (BSA) and issues and enforces anti-money laundering/
counterterrorist financing regulations. Treasury also maintains
close contact with the Federal financial regulators to ensure that
these regulations are being implemented consistently throughout the
financial sectors.
International Initiatives: Treasury is part of, and has access
to, an extensive international network of finance ministries and
multilateral bodies such as the Financial Action Task Force (FATF)
and various FATF-Style Regional Bodies, the International Monetary
Fund (IMF), the World Bank, the G-7, and various regional
multilateral development banks. In addition, FinCEN is the
facilitator for international relationships among financial
intelligence units organized through the Egmont Group.
Private Sector Outreach: Through the BSA Advisory Group
(BSAAG) and other regulatory and educational seminars and programs,
Treasury maintains a close relationship with U.S. financial
institutions to ensure a smooth exchange of information related to
money laundering and terrorist financing. Further, FinCEN
administers Section 314 of the USA PATRIOT Act (Patriot Act), which
mandates
enhanced information sharing among government, law enforcement, and
the financial sector.
Law Enforcement and Law Enforcement Support: Treasury combats
various forms of financial crime through the direct law enforcement
actions of IRS-CI and the analytical support provided by FinCEN.
These assets position the Treasury Department as a leader in the
Government's efforts to combat terrorist financing. And, since the
September 11 attacks, Treasury has diligently applied these assets as
part of a comprehensive campaign against terrorist financing.
At the time that the Commission was preparing its final report, the
Treasury Department was preparing a new office structure to improve its
ability to combat terrorist financing. The creation of the Office of
Terrorism and Financial Intelligence (TFI) at the Treasury Department
will enable the Department to bring all of its assets to bear more
effectively than it ever has before and to play the leadership role
that it should play in combating terrorist financing. This fight will
be a long and difficult one, and TFI is structured to direct Treasury's
resources, authorities, and expertise against supporters of terrorism
in a sustained and coordinated manner.
One key function of TFI is to assemble and analyze intelligence.
The war on terror remains a war of information and TFI's Office of
Intelligence and Analysis (OIA) is helping us meet this challenge. OIA
will integrate, for the first time, all of the Department's information
and intelligence streams, including BSA data at FinCEN, OFAC sanctions
enforcement data, and all of the intelligence flowing into the
Department from the intelligence community. Frankly, this is an area in
which significant improvement is needed because, prior to the creation
of OIA, these data were generally kept in separate ``stovepiped''
channels. OIA will ensure that these data streams are reviewed,
synthesized, and presented to policymakers for appropriate action, and
that appropriate security and privacy protections are in place to
safeguard sensitive data.
TFI also includes the Office of Terrorist Financing and Financial
Crimes (OTF), which is the policy and enforcement arm for the
Department on terrorist financing, money laundering, financial crime,
and sanctions issues. Building on earlier Treasury efforts, OTF
integrates the important functions of OFAC and FinCEN with other
components of the Department. OTF represents the United States at
international bodies dedicated to fighting terrorist financing and
financial crime, such as the FATF, and will increase our other
international efforts in this field. Domestically, OTF will continue to
develop and implement strategies against money laundering and other
financial crimes. For example, OTF is working closely with FinCEN,
which has the responsibility to enforce the BSA and related provisions
of the USA PATRIOT Act, to enhance public-private cooperation against
money laundering and terrorist financing. OTF is also working with
Federal law enforcement, including the criminal investigators at IRS-
CI, on emerging trends in domestic and international financial crime,
through such projects as the Garden City Lead Development project.
Both the intelligence and operational functions are under my
direction, and it is my responsibility to ensure that they support and
inform each other's missions. If I do my job well, TFI will become more
than the sum of its parts and significantly enhance Treasury's
contribution to our Government's campaign against terrorist financing.
The Value of Judiciously Applied Designations
I made clear earlier that those of us engaged in the financial war
against terrorism should, in every instance, utilize the best-suited
tool to advance the overall mission to disable terrorist groups. Acting
in accordance with that principle, however, requires an accurate
understanding of each of the relevant tools. In that regard, I would
like to highlight the value of the public actions the Treasury
Department can take--particularly public designations. The September 11
Commission states that ``public designation of terrorist financiers and
organizations is still part of the fight, but it is not the primary
weapon. Designations are instead a form of diplomacy, as governments
join together to identify named individuals and groups as terrorists.
They also prevent open fundraising.'' While I agree with the first
quoted sentence, I think that the September 11 Commission does not give
enough credit in this passage to the true power of public designations.
In addition to being a form of diplomacy and stopping open fundraising,
designations--if wielded properly--achieve the following ends:
shutting down the pipeline through which designated parties
raise and move money;
informing third parties, who may be unwittingly financing
terrorist activity, of their association with supporters of
terrorism;
deterring non-designated parties, who might otherwise be
willing to finance terrorist activity; and
forcing terrorists to use potentially more costly, less
efficient and/or less reliable means of financing.
The benefits of designation cannot be measured simply by totaling
an amount of frozen assets. Terrorist-related accounts are not pools of
water awaiting discovery as much as they are rivers with funds
constantly flowing in and out. By freezing accounts, we dam that river,
not only capturing whatever monies happen to be present at that moment
but also, more importantly, ensuring that this individual or
organization can never in the future act as a conduit of funds to
terrorists. If fully implemented, a designation excommunicates
supporters of terrorism from the formal financial system,
incapacitating them or driving them to more expensive, more cumbersome,
and riskier channels.
I say ``if fully implemented'' because, as the September 11
Commission recognized, implementation is vital in this context but not
at all assured. The great majority of terrorist financiers and
facilitators operate and store their money overseas. For designations
to have their maximum impact, we must persuade other nations to take
action alongside us. This is not a simple task. In some cases there is
a failure of will, and in others there are insufficient means for
foreign countries to take administrative action. In either case, we
must continue to persuade, cajole, or provide needed technical
assistance to make sure that our designations are more than just words
on paper in the international sphere. Over the past 3 years, the State
Department has labored tirelessly in this cause, and its persistent
work has yielded results: Dozens of countries have joined us in
submitting over 285 Al Qaeda-linked targets for designation at the
United Nations; 87 countries in every region of the world have either
adopted new laws and regulations to fight terrorist financing or are in
the process of doing so; and 20 different U.S. Government offices and
agencies have provided technical assistance and training to help high-
priority states develop counterterrorist financing and anti-money
laundering regimes. But, as a UN Monitoring team recently found, there
is much more to be done, and as the terrorists adapt so must we.
In assessing the potential value of designations, it is also
important to recognize that designations are not necessarily applied at
the expense of other actions. A recent and powerful illustration is the
integrated U.S. Government approach taken with respect to the U.S.
branch office of Al Haramain, in Oregon. In February, Federal agents
executed a search warrant on Al Haramain, pursuant to a joint
investigation by IRS-CI, the FBI, and DHS/ICE. Immediately thereafter,
Treasury's OFAC blocked the accounts of the organization pending
investigation. This locked the organization's assets in place, ensuring
that no money would flow from this group to illicit purposes during
Treasury's investigation. Earlier this month, Treasury formally
designated the U.S. Al Haramain office as a supporter of terrorism,
adding it to a list of other designated Al Haramain branches around the
world. In the meantime, the joint law enforcement investigation
continues. This combination of administrative and law enforcement
actions provides the U.S. Government with the utmost flexibility to
address the threat of terrorist financing, using complementary tools in
such a way as to concentrate their impact.
Behind all OFAC designations, such as the recent Al Haramain
designation, are a team of tremendously capable foreign terrorist
programs officers at OFAC. These individuals search out and synthesize
wide-ranging streams of intelligence to map out terrorist groups and
their support networks. They also draft the evidentiary packages that
provide the legal bases for designations. Their dedication and
expertise are, by now, widely known to those within the Government who
work on terrorist financing issues, but these individuals are rarely
acknowledged in public. They merit special mention alongside those
others working in the trenches of the terrorist financing campaign, be
they analysts, agents, prosecutors, or Foreign Service officers.
The Need for International Cooperation and Engagement
As I mentioned, the capital fueling terrorist activity principally
emanates from and flows abroad, and our counterterrorist financing
campaign depends upon the coordinated action of many countries. Over
the past 3 years, the U.S. Government has successfully moved the
campaign against terrorist financing to the top of the world's priority
list.
Treasury has worked with the State Department and others in the
interagency community in numerous international fora--including the
United Nations, G-7, G-8, G-20, the Financial Action Task Force on
Money Laundering (FATF), and the Egmont Group--to promote balanced
regulatory regimes that provide for financial transparency. Thanks to
these efforts, scores of countries are now held to FATF's
Recommendations, which call upon member jurisdictions to regulate
informal banking systems like hawalas; include originator information
on cross-border wire transfers; freeze and seize terrorist-related
funds; overtly criminalize terrorist financing; and increase vigilance
over the nonprofit sector. Treasury has also pressed the FATF to
address the risk of cash couriers, and anticipates the issuance of a
new Special Recommendation calling upon jurisdictions to implement
measures to detect and confiscate cash traveling across borders that
may be related to terrorist financing.
These principles and practices are being further promulgated by the
International Monetary Fund and the World Bank, which recently adopted
the FATF Recommendations as part of their anti-money laundering
principles used in assessing jurisdictions. In addition, the
forthcoming creation of FATF-style regional bodies in Central Asia and
the Middle East/North Africa will hold a range of new countries to the
standards of the international community. These advances are extremely
encouraging.
In addition to the important work being done at the FATF, FinCEN's
leadership in the Egmont Group has helped spur a rapid expansion of
financial intelligence units (FIU's) around the world, with 94 such
FIU's now operating internationally. This network plays a pivotal role
in international arena, as it supplies a forum for the rapid, global
exchange of information and training. This network will only grow in
importance as the FIU's continue to develop projects and conduits to
detect and prevent terrorist financing and financial crimes.
Congress gave the Treasury a powerful tool to encourage
international compliance with anti-money laundering and
counterterrorist financing standards in Section 311 of the USA PATRIOT
Act. This provision provides us the authority to prevent jurisdictions
and foreign financial institutions found to be of ``primary money
laundering concern'' from doing business with U.S. financial
institutions, thus protecting our financial systems from entities that
subvert or ignore international money laundering standards. This past
May, the Treasury Department designated the Commercial Bank of Syria as
a ``primary money laundering concern,'' based on a lack of financial
transparency and other concerns about that institution, including
terrorist financing. Pursuant to this designation, we have issued a
proposed rule that, when adopted in final form, will oblige U.S.
financial institutions to sever all correspondent
relations with this bank. The Commercial Bank of Syria will either take
effective steps to address our concerns or we will cut it off from our
financial system. In late August, we designated two more foreign
financial institutions: Infobank, of Belarus, which had been used to
subvert the United Nation's Oil-for-Food program, and First Merchant
Bank of the ``Turkish Republic of Northern Cyprus,'' which participated
in fraudulent activity on an international scale. These institutions
will face the same choice as the Commercial Bank of Syria.
Actions of this type spur jurisdictions and institutions to
introduce reforms and create greater financial transparency. They also
protect the integrity of our financial system. We will continue to
apply Section 311 aggressively against rogue jurisdictions and
institutions when we have reason to believe that our financial system
is being threatened by terrorist financing or other criminal networks.
These efforts have yielded considerable results, but more can and
should be done. Treasury will continue to press the international
community to implement robust counterterrorist financing regulations
and standards. Treasury will also continue to provide technical
assistance and training abroad, in conjunction with the State
Department and our interagency colleagues, to ensure that our partners
have the requisite capacity to regulate vulnerable industries, enforce
laws, and share financial information.
Current Challenges
Congress was forward-looking in enacting the USA PATRIOT Act,
mandating not just better oversight of regulated sectors but also an
expansion in regulatory scope, to encompass whole sectors that had not
previously been subject to Federal anti-money laundering or
counterterrorist financing regulation. Implementing Congress' vision
will take sustained effort, to which we are committed. Our challenges
in this arena fall into two broad categories. First, in crafting new
regulations, we must ensure that they will provide for transparency,
accountability, and enhanced flow of information between the private
sector and the Government. They must also be practicable. This requires
great care, as the particular sectors covered by the USA PATRIOT Act
span a wide range--from credit unions to casinos--each with its own
character, organization, and practices. This challenge becomes more
acute when regulating businesses, such as pawn shops or jewelers, which
do not behave like traditional financial institutions.
Once regulations are in place, we face a second-order challenge:
Our regulations are only valuable to the extent that we can ensure they
are being followed. In several compliance areas, we are faced with
unknowns. How do we assess the extent to which relevant regulations are
being observed? With limited resources and a vast community of
regulated entities, how do we most effectively encourage and monitor
compliance? One area of particular challenge here is money service
businesses (MSB's). The universe of large, established MSB's, such as
Western Union or Moneygram, is familiar to us and its vulnerabilities
are largely known. But informal money or value transfer systems and
alternative remittance systems, such as hawalas, may consist of a
single individual with a telephone and a ledger. Over 19,000 MSB's have
complied with the law requiring them to register with the Treasury
Department; we know that this is but a small fraction of the total
number of MSB's in this country. It would be excessively difficult and
a poor use of resources to locate every one of these unregistered
MSB's, the overwhelming majority of which are not facilitating any
illicit ends. At the same time, we cannot allow ourselves to become
resigned to the risks of this situation. Our best approach is risk-
based, doing smart outreach and targeted enforcement--wielding
education and deterrence where they will do the most good. This effort
is informed by FinCEN, which develops targets for examination and
outreach, and by a strategic partnership between IRS and DHS/ICE. IRS
civil examiners conduct BSA compliance examinations, cataloging money
laundering schemes and tracking developing patterns. They also refer
appropriate cases for criminal investigation. On the criminal side,
IRS-CI and DHS/ICE bring their respective areas of money laundering
expertise to the investigation of illegal MSB's, and participate in 42
multiagency Suspicious Activity Report Review Teams nationwide. Section
373 of the USA PATRIOT Act, which makes it a crime to operate an
unlicensed money service business, is a critical tool in this fight.
All of these efforts hold promise. Still, the number of entities, in
this and in other regulated industries, is staggering. We hope to work
with Congress on this difficult and important task.
Another challenge we face is adapting to a shift in the focus of
financial regulation. The current financial regulatory regime was
forged out of nearly 20 years of experience in detecting and preventing
money laundering. Money laundering and terrorist financing, however,
differ in significant ways. In the money laundering field,
investigators look through a telescope trying to detect the movement of
large amounts of dirty cash. When investigating terrorist financing,
investigators use a microscope in order to track the movement of
relatively small amounts of often ``clean'' money, intended to support
a nefarious purpose. Financial experts in the private sector have
developed a set of typologies to detect money laundering activity;
terrorist financing transactions, by contrast, may bear no inherent
identifying trademarks whatsoever.
We have commenced a study of whether we can devise tools or systems
that are tailored to terrorist financing. It is already clear, though,
that one of the most useful avenues we can pursue will be to expand our
coordination with the private sector. The financial industry has been
tremendously helpful in combating terrorist financing and is eager and
willing to do more. But banks and other financial institutions cannot
help if they are working blindly. To the extent possible, the
Government must provide more detailed information to the private sector
so that financial entities know specifically what and whom to look out
for. This will not be an easy task. Much of the information in this
arena is classified. Law enforcement is properly reticent about sharing
information that could compromise an investigation. And we also need to
be sensitive to the significant privacy and reputational interests of
our citizens and ensure that appropriate controls are in place to
safeguard information.
Mediating this public/private relationship is the BSA Advisory
Group, chaired by FinCEN. This group is comprised of high-level
representatives from financial institutions, Federal law enforcement
agencies, regulatory authorities, and others from the private and
public sectors, and acts both as an intermediary and as a think tank
focused on ways to improve the flow of information to both sectors.
FinCEN's Director, William Fox, has adopted information sharing as a
top priority and I am confident that our coordination with the private
sector will broaden and deepen under his expert command.
Congress also facilitated aspects of public-private coordination
through Section 314 of the USA PATRIOT Act. This provision mandates the
sharing of information with and among the financial sector, both
vertically (among regulatory agencies, law enforcement, and industry)
and horizontally (providing a safe harbor that allows industry members
to share with each other). In implementing this section, Treasury
created a ``pointer'' system for law enforcement. This system allows
law enforcement, in appropriate cases, to transmit names of persons of
interest to the financial sector through FinCEN and determine whether
those institutions have any relevant transaction or account
information. The industry reports back only when it has information
and, if it does, law enforcement may follow up with appropriate
process. The system has been quite successful to date and law
enforcement agencies attest to its value. But we will continue to
explore new ways of increasing information flow to and among the
private sector, and I look forward to working with this Committee in
this endeavor.
One final concern that I would like to draw attention to has been
the lack of movement against Hamas fundraisers in Europe. So often in
this field, our challenge is to simply find those who are moving money
to terrorists. In the case of Hamas, though, many of the culpable
parties are known. In 2003, the United States identified and designated
a collection of European NGO's that are demonstrably funding Hamas.
These include Interpal in the United Kingdom, the Al Aqsa Foundation
with offices across northern and western Europe, Comite' de
Bienfaisance et de Secours aux Palestiniens (CBSP) of France, and the
Palestinian Association (PVOE) of Austria. Despite our designations,
though, and the hard work of the State Department, these offices
continue to operate in their home countries. I find this extremely
troubling and I intend to continue to press this issue in the strongest
terms with our allies in Europe.
Conclusion
In preparing for my new position, I have repeatedly confronted
questions about our effectiveness in the campaign against terrorist
financing. Put simply, are we making progress? How can we know? How do
we measure success?
These are important questions, and difficult ones. Al Qaeda does
not release financial statements, and we will never know precisely how
much money is flowing to a terrorist group in a given year or how much
money intended for terrorists never reached their hands due to our
efforts. We therefore often find ourselves discussing proxies for these
ultimate questions: How many donors and facilitators are captured or
behind bars; how much money has been frozen or seized; how many
countries are joining us in freezing assets or upgrading their laws to
make it harder to move money illegally. Each of these benchmarks points
to only one aspect of the problem, though, and imperfectly at that.
Far more revealing, to my mind, is intelligence, even if anecdotal,
about the condition of terrorists' financial networks. The news there
is encouraging: It has become costlier, riskier, and more difficult for
Al Qaeda and like-minded terrorist groups to raise and move money
around the world. Intelligence reports suggest that many terrorist
financial networks are hurting for cash, as financiers and facilitators
are killed, caught, or cut off from the financial system, and as the
conduits of the international financial system become more transparent
and less hospitable to those who seek to stay hidden. Also playing a
major role is the deterrent effect of public actions like prosecutions
and designations, and prospective donors now think twice about
contributing to disreputable or shady organizations.
Our successes breed new challenges, though, as the terrorists
continue to adapt to our efforts and devise new and more sophisticated
ways to move money. We must not become reliant on familiar methods or
comfortable ways of thinking. On the whole, I believe we are headed in
the right direction. I look forward to working with you to enable us to
become stronger, more perceptive, and more nimble in countering the
evolving threats to the financial sector and our Nation.
PREPARED STATEMENT OF MICHAEL J. GARCIA
Assistant Secretary, U.S. Immigration and Customs Enforcement
U.S. Department of Homeland Security
September 29, 2004
Good morning, Chairman Shelby, Senator Sarbanes, and distinguished
Members of the Committee. It is a privilege to appear before you to
discuss terrorist financing issues arising out of the September 11
Commission Report. I am pleased to join my colleagues from the Federal
Bureau of Investigation (FBI) and the Department of the Treasury to
discuss the recommendations of the Commission, and specifically, to
address how U.S. Immigration and Customs Enforcement (ICE) is using its
border and interior enforcement authorities in the war on terror.
The September 11 Report details how 19 terrorists exploited a
number of vulnerabilities in order to bring their plot to fruition:
Traveling between countries to train and recruit; engaging in document
fraud to cover their tracks and move freely from place to place;
earning and transferring money in support of the plot; exploiting the
U.S. immigration system; and defeating security measures in the
transportation system.
The Department of Homeland Security (DHS) was created after the
attacks of September 11 to address these vulnerabilities. ICE is the
largest investigative agency of DHS and is comprised of some of our
Nation's oldest and most recognizable law enforcement agencies. Under
the Homeland Security Act of 2002, ICE is responsible for enforcing
customs and immigration laws (among other authorities), and is charged
with using these authorities in new ways to protect the homeland.
Terrorist Financing: Interagency Cooperation
I am pleased to join my colleagues at this hearing today to talk
about how our agencies are working together to ensure that we have the
needed flexibility and creativity in our enforcement strategy to shut
down vulnerabilities in our financial systems and disrupt terrorist
attacks.
We work closely with and routinely exchange information among the
Federal agencies that investigate financial crime. Pursuant to a
Memorandum of Agreement between the Department of Justice and the
Department of Homeland Security, ICE vets all potential terrorist
financing leads through the FBI. ICE and the FBI have established a
Joint Vetted Unit staffed by senior personnel from each agency to
identify financial investigations that may have a nexus to terrorism.
ICE also has assigned a senior manager as the Deputy of the FBI
Terrorist Financing Section (TFOS) to provide better coordination in
terrorist financing investigations. The Deputy of TFOS has a fully
integrated role in the evaluation and determination of ICE financial
leads that are vetted through TFOS.
As a result, the agencies here today have worked together,
cooperatively, on a number of cases that we believe have stemmed the
flow of funds into the hands of terrorists. I would like to briefly
mention three cases that illustrate the success of our cooperation.
The first case was developed out of leads from the ICE Cyber Crime
Center, one of our key investigative tools that look at risks
associated with the cyber border. Based on the information developed,
ICE, through the Joint Terrorism Task Force (JTTF), developed a case
against AZZAM.com and affiliated websites that promoted ``Jihad''
against the United States and provided instructions on how to evade
U.S. currency reporting requirements and deliver funds to ``Jihadists''
in Chechnya and Afghanistan through Pakistan. The investigation
resulted in the recent arrest in the United Kingdom of Babar Ahmad.
Ahmad's websites provided explicit instructions on how to raise and
illegally move funds to the Taliban through hawalas and other methods,
and also instructed individuals on how to obtain visas to travel to
Afghanistan to fight for the Taliban.
The second case involved Abdurahman Alamoudi, who in July of this
year pleaded guilty in the Eastern District of Virginia to conducting
prohibited financial transactions with Libya, making false statements
in his application for U.S. citizenship, and violating U.S. tax laws by
concealing his foreign bank accounts, concealing his transactions with
Libya, and omitting information from tax returns filed by his
charities. The arrest and subsequent indictment of Alamoudi were the
result of a long-term investigation by ICE, the FBI, and the Internal
Revenue Service (IRS).
The final example is a case in which ICE, the FBI, and IRS worked
to indict the Holy Land Foundation for Relief and Development (HLF), of
Dallas, Texas. This foundation was created to provide financial and
material support to the Hamas movement. It is estimated that since
1995, HLF and its members have illegally sent $12.4 million to support
Hamas.
Lessons of September 11
These cases are examples of how the U.S. Government has pursued
terrorist financing in the immediate aftermath of September 11. But as
the September 11 Commission Report and other studies have found, going
forward we must continually adapt our countermeasures and use all of
our enforcement tools and authorities to full effect. For ICE, that
means addressing vulnerabilities that could be
exploited by terrorists to raise money.
As an Assistant United States Attorney, I prosecuted the case
against the terrorists who bombed the World Trade Center in 1993. From
that experience and from my experience at DHS, I can tell you two
things about terrorist financing. The first is that terrorism comes
relatively cheap. The September 11 Commission Report details the amount
of money--approximately $400,000 to 500,000--that the hijackers spent
over the 2 years they were preparing for the attacks. I would estimate
the cost for the 1993 World Trade Center bombing at only about $50,000.
These are relatively small amounts of money compared to the high cost
to the United States in terms of not only the loss of loved ones and
damage to property, but also the psychological damage inflicted on our
Nation.
The second is that terrorist funds are hard to trace, particularly
when we are trying retroactively to piece together where the money was
raised or how it was moved around the world. We tried to trace back the
money in the 1993 World Trade Center bombing, and we were not
particularly successful in that instance. The September 11 Report
states that the origin of the funds remains unknown, but the best
estimate is that prior to September 11 Al Qaeda raised its roughly $30
million operating budget through donations.\1\
---------------------------------------------------------------------------
\1\ The September 11 Commission Report, p. 169-170.
---------------------------------------------------------------------------
Moreover, past practice is not always indicative of future
operations. What methods are terrorists using today, and what methods
will they use in the future to earn or move money? We have ideas, and
we can make assumptions based on these past practices, but above all we
must assume that terrorists are creative and adaptable, as they have
already shown themselves to be. That is why our enforcement approach
must employ the same flexibility.
Several of the September 11 Commission's recommendations suggest
steps that are already being taken by ICE to enhance the Nation's
counterterrorism initiatives, restore integrity to the U.S. immigration
system, enforce laws that protect U.S. financial systems from
exploitation, and strengthen the Nation's border security in the effort
to prevent future terrorist attacks. These recommendations track with
the findings of a recent Government Accountability Office (GAO)
investigation which found that: ``Terrorists earn assets through
illicit trade in myriad commodities, such as drugs, weapons,
cigarettes, and systems, such as charities, owing to their
profitability. Like other criminals, terrorists can trade any commodity
in an illegal fashion, as evidenced by their reported involvement in
trading a variety of counterfeit goods.'' Many of the examples cited in
the GAO report fall within the traditional law enforcement jurisdiction
of ICE.
Cornerstone
ICE is targeting each of these areas of vulnerability as part of
Cornerstone, an initiative that targets the alternative financing
mechanisms that terrorist and other criminal organizations use to earn,
move, and store funds. Our goal is to disrupt or dismantle these
alternative funding mechanisms before these organizations can exploit
them for their own purposes.
Through Cornerstone, ICE has made tremendous progress in the fight
against financial crime and money laundering. In just over 1 year, ICE
has seized nearly $300 million in suspect currency and effected more
than 1,800 arrests. Let me give you some examples of how we are doing
this.
ICE targets the methods through which terrorist and criminal
organizations earn their illicit funds through investigations of
intellectual property rights (IPR) violations, counterfeit
pharmaceuticals, human smuggling and trafficking; narcotics, commercial
fraud, export violations, and cyber crime. A recent IPR investigation
conducted by ICE New York, ``Operation Executive,'' identified
individuals and organizations that were responsible for the large-scale
smuggling of counterfeit trademark merchandise into the United States
from the People's Republic of China. The deals were brokered through
middlemen in Lebanon. This organization is suspected of being
responsible for the importation of 100 containers of counterfeit goods
with a retail price of $400 million. ICE agents arrested 14 subjects,
seized containers valued at approximately $24 million, and seized
nearly $100,000 in currency.
Tobacco smuggling also provides a lucrative source of potential
funding for terrorists. In January of this year, ICE dismantled the
largest nationwide tobacco smuggling organization to date and arrested
15 defendants. The 92-count indictment charged the defendants with
tobacco smuggling and money laundering, among other offenses. The
organization was responsible for the movement of more than 10,000 cases
of counterfeit and contraband cigarettes and over 100 cases of liquor
worth approximately $20 million. As in Operation Executive, no link to
terrorism was uncovered in this case, but the potential for reaping
large profits by exploiting an area where there is a perception of lax
enforcement and weak penalties must be addressed.
ICE targets the movement of funds derived from criminal activity
into and out of the United States by identifying financial and trade
systems that are vulnerable to exploitation by criminal organizations
and terrorist financiers. These systems include bulk currency
smuggling, trade-based money laundering, courier hubs, money service
businesses, alternate remittance systems, and charities. Earlier this
year in New York, ICE and the IRS investigated an unlicensed money
remitter and discovered the illegal transfer of $105 million to
Pakistan, and millions more to Europe and South Asia. While we could
not prove a direct link to terrorism in this case, we do know that the
money was going to a region of Pakistan where Al Qaeda and others are
active and that this is the type of alternative funding mechanism
terrorist networks have turned to in order to avoid detection by law
enforcement. Using our unique authorities, including new powers under
the USA PATRIOT Act related to unlicensed money brokers, ICE shut down
the brokers, made arrests, and seized money.
Another USA PATRIOT Act provision, in this instance a provision
that criminalizes bulk cash smuggling, has given ICE an effective tool
to combat this vulnerability. Since July 2003, ICE and CBP have
collectively seized $40.5 million before it could be illegally exported
and ICE has arrested more than 133 individuals for bulk cash smuggling
violations as a result of follow-up investigations to these seizures.
The majority of these cases were narcotics related, but some had
elements of alien smuggling as well.
ICE targets commodities that are imported and exported from the
United States and that can be used to store the proceeds of illegal
activity. For example, criminal organizations have used commodities
such as gold and precious metals to disguise their ill-gotten gains. In
Operation Meltdown, ICE agents worked with the IRS to uncover a scheme
in which jewelers were converting the proceeds of drug sales into the
equivalent value in gold. They then melted the gold and fashioned it
into items such as nuts, bolts and wrenches, and then shipped the items
to Colombia where it was melted down and converted back to cash. Our
investigation of this case resulted in 23 arrests.
Cornerstone and our work in the JTTF's with our partners illustrate
the approach that ICE is taking to homeland security, and specifically
to terrorist financing.
Terrorist Travel and the Border
Finally, let me briefly address an issue raised in the invitation
letter for this hearing, namely, how prepared the U.S. immigration
system is to meet the challenges of terrorist travel as well as
comments on controlling the cross-border movement of people.
Maintaining the integrity of the border--both in terms of cross-border
movement of people and goods as well as interior enforcement of
immigration laws--underpins our homeland security mission. Smuggling is
a direct threat to our border security. In partnership with U.S.
Customs and Border Protection (CBP), ICE focuses on the identification,
disruption, and dismantling of smuggling organizations because
organizations that exploit our borders to bring in illegal aliens or
drugs could, for the right amount of money, employ those same routes
and networks to smuggle terrorists or weapons of mass destruction.
ICE's combined customs and immigration authorities allow us to
match the smuggling organizations step-by-step as they move from one
criminal enterprise to
another. One example of how we are using our combined border and
immigration authorities to shut down these smuggling organizations is
Operation ICE Storm in Phoenix, Arizona. In ICE Storm, we are helping
to stop the surge in violent crime in Phoenix through the
identification and dismantling of organizations that are smuggling
humans, drugs, currency, and weapons; the prosecution of smugglers and
the seizure of assets. Phoenix police are crediting ICE Storm with a
dramatic decrease in violent crime as a result of this operation. In
its first year of operation, ICE has arrested 256 people and seized
$5.3 million in connection with these smuggling operations--a dollar
amount that is unprecedented for seizures in cases of alien smuggling.
ICE's enforcement of immigration laws goes beyond the border and
investigations of smuggling. As a September 11 Commission Staff
monograph on terrorist travel notes, at least 3 of the 19 hijackers
violated the terms of their visa. If these 3 terrorists had somehow
landed in the custody of U.S. law enforcement before September 11, it
is likely that the only charges that could have been brought against
them at the time would have been immigration charges. One of the ways
that we are addressing this vulnerability is through compliance
enforcement of the US-VISIT program and the Student and Exchange
Visitor Information System (SEVIS). Enforcement action against SEVIS
violators gives us an important law enforcement tool to detect and
deter those who seek to abuse the system. Such exploitation has led to
serious harm to our national security in the past: Hani Hanjour, one of
the September 11 hijackers, as well as the driver of the van who blew
up the World Trade Center in 1993 both exploited their student visa
status to remain in the United States.
Conclusion
The September 11 Commission Report contains a number of
recommendations aimed at preventing the next terrorist attack that
focus on shutting down terrorist financing. The Report also notes that
targeting travel is at least as important as targeting the money. Our
mandate under the Homeland Security Act of 2002 is to address
vulnerabilities--vulnerabilities that expose our borders to
infiltration and our financial systems to exploitation--through strong
enforcement of customs and immigration laws. Through Cornerstone and
our other homeland security enforcement programs we are doing just
that.
I would like to thank Chairman Shelby and the other distinguished
Members of this Committee for the opportunity to testify before you
today. I would be happy to answer any questions you may have at this
time.
----------
PREPARED STATEMENT OF JOHN E. LEWIS
Deputy Assistant Director, Counterterrorism Division
Federal Bureau of Investigation
September 29, 2004
Good afternoon Chairman Shelby, Ranking Member Sarbanes, and
Members of the Committee. Thank you for inviting me to speak to you
today regarding the September 11 Commission's Recommendations regarding
terrorist financing, specifically the FBI's findings concerning
terrorist financing mechanisms used in the September 11 plot and those
in use today. As you know, the FBI has worked closely with the
September 11 Commission and its staff and we commend it for an
extraordinary effort. Throughout this process, we have approached the
Commission's inquiry as an opportunity to gain further input from
outside experts. We took its critiques seriously, adapted our ongoing
reform efforts, and have already taken substantial steps to address its
remaining concerns. We are gratified and encouraged that the Commission
has embraced our vision for change and recognized the progress that the
men and women of the FBI have made to implement that vision. We agree
with the Commission that much work remains to be done, and will
consider its findings and recommendations as we refine our continuing
transformation efforts.
Introduction
Among the successes achieved thus far in the war on terrorism, the
FBI has made significant progress against both the operational and
support arms of terror networks. With respect to the support arms, an
essential component of the global strategy against terrorism has been
to counter the manner in which terror networks
recruit, train, plan, and effect operations, each of which requires a
measure of financial support. Inherent requisites to this financial
support are the raising, movement, and expenditure of resources. Those
requisites leave trails, albeit complex, but nonetheless traceable and
identifiable, through the global financial systems. The FBI follows
those trails backward to identify and dismantle existing funding
sources and facilitators. The FBI is also endeavoring to extrapolate
and project those trails forward in extensive proactive efforts to
prevent future terrorist acts by identifying perpetrators,
facilitators, and systemic vulnerabilities in the financial system at
large.
Discussion of the FBI's proactive efforts in terrorist financing
investigations would be incomplete without referencing the financing
mechanisms employed by the September 11 conspirators and
contextualizing the FBI's subsequent actions.
Financing the September 11 Conspiracy
The September 11 hijackers used both domestic and foreign financial
institutions to maintain, transfer, and retrieve money. The hijackers
deposited money into United States bank accounts, primarily by wire
transfers and deposits of cash or travelers checks purchased overseas.
Additionally, several hijackers maintained funds in foreign accounts,
which they accessed in the United States through ATM and credit card
transactions. The hijackers received funds from facilitators in Germany
and the United Arab Emirates or directly from Khalid Sheikh Mohamed
(KSM) as they transited Pakistan before coming to the United States.
The plot cost the Al Qaeda network approximately $400,000-$500,000, of
which approximately $300,000 passed through the hijackers' established
bank accounts in the United States.
Al Qaeda funded the hijackers in the United States primarily by
three unremarkable means: Wire transfers from overseas to the United
States; the physical transport of cash or traveler's checks into the
United States; and the accessing of funds held in foreign financial
institutions by debit or credit cards.
Once in the United States, all of the hijackers used the formal
banking system to store funds and facilitate transactions. The
hijackers spent money primarily for flight training, travel and day-to-
day living expenses, such as food, lodging and transportation.
Extensive investigation has identified no significant source of
domestic self-sustenance.
Neither the hijackers themselves nor the financial facilitators
overseas were experts in the use of the international financial system
or sophisticated money laundering techniques. They caused a paper trail
to be created, which linked them to each other and to their
facilitators. Still, they were able to avoid the scrutiny of law
enforcement, government regulators and private sector compliance
authorities by conducting transactions in a routine manner that failed
to raise any red flags in the international financial system. The
hijackers and their financial facilitators used the anonymity provided
by the vast international and domestic financial system to move and
store their money. The money-laundering controls in place at the time
were largely focused on drug trafficking and large-scale financial
fraud and did not detect the routine transactions in which the
hijackers engaged.
Nothing the hijackers did alerted any bank personnel to the
terrorist plot. Their wire transfers, in amounts from $5,000 to
$70,000, remained anonymous in the billions of dollars moving through
the international financial system on a daily basis. Their bank
transactions, typically large deposits followed by many small ATM or
credit card withdrawals, appeared routine, especially for purported
foreign students living in the United States. Not one financial
institution filed a suspicious activity report (SAR) pursuant to any
transaction made by or on behalf of the hijackers.
The focus of the September 11 financial investigation centered upon
the genesis of the hijackers' funding. Contrary to conventional
thought, Osama Bin Laden did not access significant amounts of personal
wealth and did not personally fund the Al Qaeda plot from family
inheritance. Understanding the full extent of Al Qaeda's resources and
providing actionable intelligence did, and still does, present
challenges because of the fast and myriad means and methods for raising
and moving relatively small amounts of money. Additional concerns to
the FBI in the investigation and gathering of intelligence are
instances of commingling of terrorist money with legitimate funds; the
many layers and transfers between donors and the ultimate recipients of
the money; the existence of unwitting participants; and the United
States' Government's reliance on foreign government reporting for
evidence and intelligence.
The FBI and other domestic law enforcement and regulatory agencies
have expended considerable effort on the extent to which charities fund
terrorist networks. Islamic charitable giving, known as zakat, is one
of the five pillars of Islamic faith and results in billions of dollars
raised annually. In some instances, investigation and intelligence
revealed that Al Qaeda facilitators corrupted specific foreign branch
offices of large, internationally recognized charities. In many cases,
lax oversight and the charities' own ineffective financial controls,
particularly over transactions in remote regions of the world, often
made it easy for Al Qaeda facilitators to divert money from charitable
uses.
Before September 11, Al Qaeda moved money through both formal and
informal banking systems. In those instances where the banking system
was not dependable or where the transactions were susceptible to
scrutiny from international law enforcement, money was moved through
the informal, or hawala system. Al Qaeda also used couriers to move
money because they provided a secure way to move funds. The use of
couriers is advantageous because no outsiders, such as bank officials,
are aware of transactions.
The hijackers, using several means, returned the remainder of their
allowances, approximately $26,000, to the financial support network in
the UAE in the days just prior to the attack. The hijackers' efforts
during their final days to consolidate and return funds to Al Qaeda
demonstrates their understanding of the importance of money, in any
sum, to the organization and demonstrates the existence of a
centralized support network that existed at that time.
Terrorist Financing Operations Section
Prior to the events of September 11, the FBI had no mechanism to
provide a comprehensive, centralized, and proactive approach to
terrorist financing matters. While the FBI routinely examined financial
records at the time of previous terrorist attacks, the events of
September 11 identified a critical need for a more comprehensive
approach to financial matters. The Terrorist Financing Operations
Section (TFOS) of the FBI's Counterterrorism Division was formed in
response to this critical need. TFOS combines the FBI's traditional
expertise in conducting complex criminal financial investigations with
advanced technologies and the critical legislative tools provided
through the USA PATRIOT Act. TFOS has built upon these
established mechanisms by developing cooperation and coordination among
law enforcement, regulatory and intelligence agencies, both domestic
and foreign, to an internationally effective terrorist financing
investigative operation.
The mission of TFOS has evolved into a broad strategy to identify,
investigate, disrupt, and dismantle all terrorist related financing and
fund-raising activities. The TFOS mission specifically includes:
Conducting full financial analysis of terrorist suspects and their
financial support structures in the United States and abroad;
coordinating joint participation, liaison and outreach efforts to
exploit financial resources of private, government and foreign
entities; utilizing FBI and Legal Attache expertise and relationships
to fully develop financial information from foreign law enforcement and
private agencies; working jointly with the intelligence community to
fully exploit intelligence information to further terrorist
investigations; working jointly with prosecutors and with the law
enforcement and regulatory communities; developing predictive models
and conducting data analysis to facilitate the identification of
previously unknown or ``sleeper'' terrorist suspects; and providing the
financial component to classified counterterrorism investigations in
support of the FBI's counterterrorism responsibilities.
Intelligence gathering and information sharing is critical to these
efforts. The intelligence community, including the FBI, produces and
obtains tremendous amounts of classified intelligence information.
While much of the information can be of significant value in terrorist
financing investigations, the value will not be realized or maximized
absent the ability to filter the information, analyze it, and
disseminate it in an appropriate manner to those who can make the best
use of the information. Toward this end, TFOS participates in joint
endeavors with the Treasury Department, the Department of Justice, The
Department of State, and the Department of Homeland Security involving
potential terrorist related financial transactions. TFOS also has
personnel detailed to the CIA's Counter Terrorist Center, who work
directly with TFOS on financial intelligence matters. Immigration and
Customs Enforcement (ICE) executive managers are also assigned directly
to TFOS to coordinate
investigations. In addition, each Joint Terrorism Task Force has
designated a Terrorism Financing Coordinator to facilitate the
financial component of terrorism investigations.
TFOS has access to data and information from established contacts
at a variety of entities including: Banking Institutions, the Credit/
Debit Card Sector, Money Services Businesses, the Securities/Brokerages
Sector, Insurance Companies, Travel Agencies, Internet Service
Providers, the Telecommunications Industry, Law Enforcement, State/
Federal Regulatory Agencies, Public and Open Source Data
Providers, the Intelligence Community and International Law Enforcement
and Intelligence Contacts. Access to this type of information is
governed by the Right to Financial Privacy Act, Fair Credit Reporting
Act, and other applicable statutes.
TFOS faces unique challenges in achieving the mission of
identifying terrorist support networks and transactions. The inability
to obtain records from other countries in a timely manner, the
complexity of directly linking cashflows to terrorist operations or
groups, and the difficulty of showing what domestic persons actually
know about overseas foreign acts or actors all combine to heighten the
difficulty of conducting investigations and prosecutions.
Post-September 11 Financing Mechanisms
Currently, the FBI possesses a greater understanding of terrorist
financing methods than prior to September 11. More sophisticated and
effective processes and mechanisms to address and target terrorist
financing have been developed and continue to evolve. Proactive
approaches are increasingly utilized. The global awareness on the part
of law enforcement, government agencies, regulators, policymakers, and
the private sector of terrorist financing methods, suspicious financial
activity and vulnerabilities has greatly increased since September 11.
International cooperation has reached unparalleled levels. Outreach
with and cooperation from the private sector has been outstanding and
continues to strengthen, particularly in the form of bi-lateral
interaction between law enforcement and the financial institutions. The
ability to access and obtain this financial information quickly has
significantly enhanced the FBI's ability to identify, investigate, and
resolve immediate threat situations involving potential terrorist
activity.
Past terrorist financing methods have included the use of informal
systems for transferring value in a manner that is difficult to detect
and trace. The intense international scrutiny on transactions focused
on suspect accounts has led to the increased use of the informal
banking system by terror networks. Efforts to counter the use of the
informal banking system include: increased regulations for
correspondent bank accounts; requiring securities brokers and dealers
to file SARS; and requiring money transmitting businesses, which
include any person who engages as a business in the transmission of
money, to register with the Financial Crimes Enforcement Network
(FinCEN).
As a result of intense domestic and international efforts, the Al
Qaeda financing network has been disrupted. Some terrorist operations
may no longer rely on outside sources of money and individual cells may
now be self-sufficient. Terrorist groups only remotely affiliated with
Al Qaeda, and dependent on Al Qaeda as a source of inspiration rather
than operational funding, continue to pose a significant threat. Given
the relatively small amounts required for the commission of a terrorist
act, serial transactions still make the formal banking system a viable
option. TFOS is also committed to proactively identifying potential
vulnerabilities in the financial infrastructure that terrorist groups
could exploit.
Strategy--International Cooperation
The FBI recognizes the value of the experience and knowledge of our
law enforcement colleagues around the world. Even before the tragic
events of September 11, the FBI worked closely with our international
counterparts in law enforcement through our Legal Attaches (LEGAT's)
and international partners whose liaison offices in the United States.
The FBI has long understood the need for greater international
cooperation in the war against terror, and a large part of the mission
of the FBI has been to establish better relations and closer ties with
law enforcement agencies in other countries. Only through greater
international cooperation can the FBI achieve its primary mission of
preventing terrorism. The U.S. Government recognizes the value of
enlisting the international community in efforts to stop the flow of
money to Al Qaeda entities. To this end, TFOS has engaged in extensive
coordination with authorities of numerous foreign governments in
terrorist financing investigations.
Extensive training and support of international investigations by
TFOS has led to Agent visits/exchanges and training programs involving
a variety of countries from Europe, Southeast Asia, the Middle East,
and South America. In support of specific high profile joint terrorist
financial investigative matters, a number of countries and agencies,
including the United Kingdom, Switzerland, Canada, and Europol, have
detailed investigators to TFOS on a temporary basis. TFOS has engaged
in extensive coordination with authorities of numerous foreign
governments in terrorist financing matters, leading to joint
investigative efforts throughout the world. These joint investigations
have successfully targeted the financing of several overseas Al Qaeda
cells, including those located in Indonesia, Malaysia, Singapore,
Spain, and Italy. Furthermore, with the assistance of relationships
established with the central banks of several strategic countries,
successful disruptions of Al Qaeda financing have been accomplished in
countries such as the UAE, Pakistan, Afghanistan, and Indonesia.
TFOS has developed a specific terrorist financing/money laundering
crimes
curriculum for international training which includes topics such as:
Acquiring and handling evidence in document intensive financial
investigations; major case management techniques; forensic examination
tools; and methods of terrorist financing. At the request of the U.S.
Department of State, TFOS has led an interagency team to provide this
curriculum to a number of countries identified as needing law
enforcement training on conducting terrorist financing investigations.
The FBI, in coordination with the Treasury Department and the
Department of Homeland Security, pursues an aggressive agenda on the
international level to promote the enactment, implementation and
enforcement of comprehensive and global anti-money laundering and asset
forfeiture laws as well as regulatory measures. The Department of
Justice is involved, with the Treasury Department and the Department of
Homeland Security, in the Financial Action Task Force's (FATF) mutual
evaluation process, which has been adopted by other FATF-like regional
bodies. This has proven to be effective for motivating nations to
improve their anti-money laundering laws and enforcement. More than 100
nations drafted and passed laws addressing terrorist financing and
money laundering. Moreover, the FBI has assisted in a broad diplomatic
and educational effort to increase awareness in other countries of some
of the basic methods of raising and moving money in support of
terrorist activities.
Unfortunately, various nations have critical deficiencies in their
anti-money laundering regimes. They have not enacted laws that prohibit
money laundering, nor do they aggressively enforce existing anti-money
laundering legislation. Furthermore they fail to cooperate
internationally with the investigation and prosecution of money
launderers and terrorism financing organizations. It cannot be
overstated that noncompliant countries have the potential to put the
entire international financial system at risk.
Conclusion
Success in the war on terrorism cannot be measured merely in the
form of assets seized or funds blocked, but in the ability to prevent
future acts of terrorism. Whether through prosecution, disruption, the
blocking and freezing of funds or allowing a funding mechanism to
remain in place in order to further an investigation, prevention
remains the prevailing focus. Since different circumstances demand
different approaches, the best strategy in any given circumstances can
only be determined from an overall assessment of the situation at hand,
in conjunction with careful coordination with and the cooperation of
all agencies involved.
The war on terrorism will likely consist of many battles. It will
not be won overnight nor will it be won without the highest levels of
cooperation among law enforcement and intelligence agencies around the
globe. Terrorism knows no borders or boundaries. This threat is not
limited to any one region of the world. Therefore it is essential for
all law enforcement and intelligence agencies throughout the world to
ally their tremendous resources and expertise against the common enemy
of terrorism.
Thank you for the opportunity to testify before you today and to
highlight the FBI's investigative efforts and the role of the FBI in
combating terrorist financing. It would be my pleasure to answer any
questions you may have.
RESPONSE TO A WRITTEN QUESTION OF SENATOR ENZI
FROM STUART A. LEVEY
Q.1. Immediately after September 11, SAR filings related to
terror financing jumped from around 100-200 every 3 months to
over 985 in the fourth quarter 2001. Since then, that number
has shrunk back down to around 100 to 200. This has raised
questions over the consistency of these fillings and how they
are treated by financial institutions.
According to the November 2003 SAR Activity Review, the
number of suspicious activity reports filed by financial
institutions jumped considerably after September 11. Since
then, however, the volume has continued to creep back down
toward its pre-September 11 numbers. What do you believe is the
cause of the spike and then retreat of the number of filings?
In addition, what is being done to make sure these reports are
accurate, thorough, and taken seriously by our financial
institutions?
A.1. There are a number of factors that contributed to the
initial post-September 11 spike and subsequent decrease in the
number of suspicious activity reports referencing terrorism. In
the wake of the attack, financial institutions were erring on
the side of caution in filing such reports. This resulted from
the well-intentioned thinking that it was better to file a
suspicious activity report on even marginal activity rather
than risk not providing the Government with some shred of
information that might make a difference in a financial
investigation related to terrorism. A second cause of over-
filing was confusion and initial lack of guidance on how to
handle the multiple ``watch'' lists of names issued. by various
governmental entities, some of which contained multiple entries
on the same individuals, each with different spellings. This
led many financial institutions to file large numbers of
unnecessary or duplicative suspicious activity reports.
While the number of suspicious activity reports has
declined--particularly in 2002--from the number filed shortly
after September 11, we believe the decline is the result of
more and better guidance from the Government on when to file a
suspicious activity report and increasingly sophisticated
transaction monitoring methods within financial institutions,
particularly large banks.
FinCEN reviews every suspicious activity report filed that
references terrorist activity. Based on what we know, we
believe that most financial institutions take seriously their
responsibilities to identify and report suspicious transactions
that may be linked to terrorism. Likewise, we believe that the
reduction in the number of such suspicious activity reports
filed results from an appropriate increase in the
sophistication of SAR filers, informed, at least in part by
improved Government guidance and industry initiatives to
improve terrorism-related risk assessment and transaction
monitoring systems by the filers of the largest numbers of
suspicious activity reports, which in turn leads to
improvements in separating out reportable suspicious activity.