[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
SURVEY OF TERRORIST GROUPS
AND THEIR MEANS OF FINANCING
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON TERRORISM
AND ILLICIT FINANCE
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 7, 2018
__________
Printed for the use of the Committee on Financial Services
Serial No. 115-116
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
_________
U.S. GOVERNMENT PUBLISHING OFFICE
31-576 PDF WASHINGTON : 2018
HOUSE COMMITTEE ON FINANCIAL SERVICES
JEB HENSARLING, Texas, Chairman
PATRICK T. McHENRY, North Carolina, MAXINE WATERS, California, Ranking
Vice Chairman Member
PETER T. KING, New York CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California
STEVAN PEARCE, New Mexico GREGORY W. MEEKS, New York
BILL POSEY, Florida MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri WM. LACY CLAY, Missouri
BILL HUIZENGA, Michigan STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin DAVID SCOTT, Georgia
STEVE STIVERS, Ohio AL GREEN, Texas
RANDY HULTGREN, Illinois EMANUEL CLEAVER, Missouri
DENNIS A. ROSS, Florida GWEN MOORE, Wisconsin
ROBERT PITTENGER, North Carolina KEITH ELLISON, Minnesota
ANN WAGNER, Missouri ED PERLMUTTER, Colorado
ANDY BARR, Kentucky JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania BILL FOSTER, Illinois
LUKE MESSER, Indiana DANIEL T. KILDEE, Michigan
SCOTT TIPTON, Colorado JOHN K. DELANEY, Maryland
ROGER WILLIAMS, Texas KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine JOYCE BEATTY, Ohio
MIA LOVE, Utah DENNY HECK, Washington
FRENCH HILL, Arkansas JUAN VARGAS, California
TOM EMMER, Minnesota JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York VICENTE GONZALEZ, Texas
DAVID A. TROTT, Michigan CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia RUBEN KIHUEN, Nevada
ALEXANDER X. MOONEY, West Virginia
THOMAS MacARTHUR, New Jersey
WARREN DAVIDSON, Ohio
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana
Shannon McGahn, Staff Director
Subcommittee on Terrorism and Illicit Finance
STEVAN PEARCE, New Mexico, Chairman
ROBERT PITTENGER, North Carolina, ED PERLMUTTER, Colorado, Ranking
Vice Chairman Member
KEITH J. ROTHFUS, Pennsylvania CAROLYN B. MALONEY, New York
LUKE MESSER, Indiana JAMES A. HIMES, Connecticut
SCOTT TIPTON, Colorado BILL FOSTER, Illinois
ROGER WILLIAMS, Texas DANIEL T. KILDEE, Michigan
BRUCE POLIQUIN, Maine JOHN K. DELANEY, Maryland
MIA LOVE, Utah KYRSTEN SINEMA, Arizona
FRENCH HILL, Arkansas JUAN VARGAS, California
TOM EMMER, Minnesota JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York RUBEN KIHUEN, Nevada
WARREN DAVIDSON, Ohio STEPHEN F. LYNCH, Massachusetts
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
C O N T E N T S
----------
Page
Hearing held on:
September 7, 2018............................................ 1
Appendix:
September 7, 2018............................................ 33
WITNESSES
Friday, September 7, 2018
Bauer, Katherine, Blumenstein-Katz Family Fellow, Washington
Institute for Near East Policy................................. 4
Clarke, Colin P., Senior Political Scientist, RAND Corporation... 10
Fanusie, Yaya J., Director of Analysis, Center on Sanctions and
Illicit
Finance, Foundation for Defense of Democracies................. 6
Segal, Oren, Director, Center on Extremism, Anti-Defamation
League......................................................... 7
Soufan, Ali H., Chairman and Chief Executive Officer, The Soufan
Center......................................................... 9
APPENDIX
Prepared statements:
Bauer, Katherine............................................. 34
Clarke, Colin P.............................................. 57
Fanusie, Yaya J.............................................. 66
Segal, Oren.................................................. 77
Soufan, Ali H................................................ 118
SURVEY OF TERRORIST GROUPS
AND THEIR MEANS OF FINANCING
----------
Friday, September 7, 2018
U.S. House of Representatives,
Subcommittee on Terrorism
and Illicit Finance,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 9:22 a.m., in
room 2128, Rayburn House Office Building, Hon. Stevan Pearce
[chairman of the subcommittee] presiding.
Present: Representatives Pearce, Pittenger, Rothfus,
Tipton, Hill, Emmer, Zeldin, Davidson, Budd, Kustoff,
Perlmutter, Maloney, Himes, Foster, Sinema, Vargas, Gottheimer,
Kihuen, Lynch, and Waters.
Chairman Pearce. The subcommittee will come to order.
Without objection, the Chair is authorized to declare a
recess of the subcommittee at any time. Members of the
committee who are not members of the Subcommittee on Terrorism
and Illicit Finance may participate in today's hearing. All
members will have 5 legislative days within which to submit
extraneous materials to the Chair for inclusion in the record.
This hearing is entitled, ``Survey of Terrorist Groups and
Their Means of Financing.'' I will now recognize myself for 2
minutes to give an opening statement.
I want to thank everyone for joining us today. Today's
hearing will examine the current landscape of terrorism around
the world and the ways that these groups are financing their
operations.
Terrorist organizations cannot function without financial
resources to organize and carry out violent actions. Congress
must understand the full nature of the current threats facing
our Nation and the globe. We must remain vigilant in
identifying and cutting off the funding mechanism of these
organizations that pose a threat to global safety. This vital
piece of our Nation's antiterrorist strategy cannot be
overlooked.
On April 22, 2015, the Terrorism Financial Task Force of
the 114th Congress held a similar hearing to examine which
terrorist groups posed the greatest threats to global
stability. In the 3 years since that initial hearing, terrorist
organizations have adapted and changed their ways of managing
their operations.
I would like to bring up the example of the Islamic state,
better known as ISIS, to highlight how the global landscape has
changed since that hearing. At their peak in 2014, ISIS was
generating around $81 million a month through taxes, oil sales,
smuggling, and extortion. Additionally, during this time, the
group controlled 41,000 square miles of territory in Iraq and
Syria and ruled over 8 million people.
Currently, ISIS has lost 98 percent of their territory in
these two countries, and more than 7.7 million people have been
liberated from ISIS' oppression. While the loss of this
territory has caused their revenues to plummet greatly, the
group still is able to pay terrorist cells and spread violence
globally.
While ISIS may be one of the most glaring examples of a
terrorist organization being forced to change their operations
as a result of global intervention, there are many more
throughout the world, from al-Qaida running fundraising
operations and campaigns with cryptocurrencies to Hezbollah
operating drug trafficking rings in South America. We must
ensure that Congress understands the full nature of the threats
that we are currently facing.
This hearing will provide up-to-date information about
which terrorist groups represent the highest threat and the new
ways that they are financing their operations and
infrastructure. I would like to thank our witnesses for being
here today, and look forward to their expert testimony on these
important issues.
I now would recognize the gentleman from Colorado for 2
minutes for an opening statement.
Mr. Perlmutter. Thank you, Mr. Chairman.
I will keep my remarks brief because we are going to have
votes on the floor pretty early this morning.
Thank you, Mr. Chairman. And thank you to all the panelists
for being here to share your insight on major terrorist groups
and how they finance their operations.
Terrorism takes many different forms, and bad actors
finance their operations in many different ways. While there is
no one silver bullet to shut down all of this financing, the
United States and its allies must remain vigilant and adapt to
a continually changing landscape.
Additionally, we must ensure law enforcement at the local,
State, National, and international levels have the tools and
information sharing necessary to reduce and prevent terrorism.
This subcommittee has learned a great deal about emerging
technologies like cryptocurrencies, which present new
challenges to law enforcement, but traditional financing
methods such as drug trafficking, extortion, and kidnapping
remain prevalent. We have to ensure we are devoting attention
to both these age-old and emerging financing methods in our
anti-terror efforts.
I look forward to the panelists' testimony today to update
us on current terrorist groups and steps we can take to cut off
their money.
Thank you, Mr. Chairman, and I yield back.
Chairman Pearce. The gentleman yields back.
The Chair now recognizes the gentleman from North Carolina
for an opening statement for 1 minute.
Mr. Pittenger. Thank you, Mr. Chairman.
I want to just thank each of you for being here today. It
is important for us to hear from you. And I would rather hear
from you than listen to me, so I would like to waive my
remarks. Thank you.
Chairman Pearce. Thank you.
Now we would like to recognize our guests, our witnesses
today. First of all, Katherine Bauer. Ms. Bauer is the
Blumenstein-Katz Family Fellow at the Washington Institute for
the Near East Policy. She is a former Treasury official who
served as the Department's financial attache in Jerusalem and
the Gulf.
Before leaving Treasury in late 2015, she served several
months as Senior Policy Adviser for Iran in the Office of
Terrorist Financing and Financial Crimes. Prior to working at
the Treasury, Ms. Bauer was a nonproliferation graduate fellow
at the Department of Energy's National Nuclear Security
Administration. A graduate of Macalester College, she received
her master's degree in Middle East Studies and International
Economics at Johns Hopkins University.
Mr. Ali Soufan is the Chief Executive Officer of The Soufan
Center. Mr. Soufan is a former FBI supervisory special agent
who investigated and supervised highly sensitive and complex
international terrorism cases, including the East African
Embassy bombings, the attack on the USS Cole, and the events
surrounding 9/11.
Mr. Soufan also serves as a member of the Homeland Security
Advisory Council. He is an honors graduate from Mansfield
University of Pennsylvania and also received a master of arts
from Villanova University.
Yaya Fanusie is the Director of Analysis for the Foundation
for Defense of Democracies' Center on Sanctions and Illicit
Finance. Yaya spent 7 years as both an economics and
counterterrorism analyst in the CIA where he regularly briefed
the White House-level policymakers, U.S. military personnel,
and Federal law enforcement.
After government service, Yaya worked with a small
consulting firm where he led a team of analysts working on
multibillion dollar recovery efforts involving a global
corruption ring. He received a master's degree in international
affairs from Columbia University and received his bachelor's
degree in economics from UC Berkeley.
Mr. Oren Segal is the Director of the Anti-Defamation
League, Center on Extremism, which combats extremism,
terrorism, and all forms of hate in the real world and online.
Much of Mr. Segal's time with ADL has been devoted to
evaluating the activity and the tactics of extremist groups and
movements, training law enforcement officers, and publishing
reports and articles on a wide range of extremist topics.
In 2006, Mr. Segal was recognized by the FBI for his
exceptional service in the public interest. He is a graduate of
Wheaton College in Massachusetts.
Now I would like to recognize Mr. Rothfus to introduce our
last guest witness today.
Mr. Rothfus.
Mr. Rothfus. Thank you, Mr. Chairman.
It is a real privilege today to welcome Dr. Colin Clarke,
all the way from western Pennsylvania. And it is great to have
you here today. We just met last week talking about some of
these very issues.
Dr. Clarke is a Senior Political Scientist at the RAND
Corporation where his research focuses on terrorism,
insurgency, and criminal networks. At RAND, Dr. Clarke has
directed studies on ISIS financing, the future of terrorism,
and transnational crime, and lessons learned from all
insurgencies between the end of World War II and 2009. He is
also an Associate Fellow at the International Center for
Counterterrorism, a nonresident senior fellow at the Foreign
Policy Research Institute, and a member of the Pardee RAND
Graduate School Faculty, and a lecturer at Carnegie Mellon
University.
He received his BA in communications from Loyola College,
an MS in international relations from New York University, and
a Ph.D. in international security policy from the University of
Pittsburgh.
Welcome, Dr. Clarke.
I yield back.
Chairman Pearce. The gentleman yields back.
Now it is time to hear from our witnesses and their
testimony.
Ms. Bauer, you are recognized for 5 minutes. Thank you
again for being here.
STATEMENT OF KATHERINE BAUER
Ms. Bauer. Good morning. Thank you, Chairman.
Chairman Pearce, Ranking Member Perlmutter, and
distinguished members of the subcommittee, it is an honor to be
testifying before you today.
Although the threat of terrorism spans the globe, my
written testimony focuses on Middle East-based groups, notably
the so-called Islamic state, al-Qaida, and Iranian support for
terrorism, tracing the evolution of their financing
methodologies, and the U.S. and foreign government responses,
as well as discussing the effectiveness of the CFT, or
counterterrorist financing toolkit.
In the next few minutes I will summarize some of the key
trends, challenges, and opportunities, which I discuss in
greater detail in my written testimony.
The threat of extremism and terrorism across the Middle
East is increasingly complex. Since 9/11, the U.S. and its
allies have dramatically improved their capacity to detect,
disrupt attacks through increased information sharing, and to
undermine such groups through the deployment of sophisticated,
diplomatic, military, and financial initiatives.
Nonetheless, years of conflict in Syria, Iraq, Yemen, and
elsewhere have provided fertile ground for terrorist groups and
extremist ideologies. These conflicts have spurred humanitarian
crises and stoked sectarianism. Although al-Qaida historically
relied on external donations as it and, more recently, the
Islamic state, established global networks of affiliates, their
methods of financing have diversified.
A number of dynamics underlie these changes, including
counterterrorism efforts broadly and counterterrorist financing
efforts specifically, but also the breakdown of political
systems and the proliferation of ungoverned spaces that have
allowed terrorist organizations to increasingly hold territory
to tax and extort the local population and to even control,
extract, and sell resources.
Terrorist organizations have also capitalized on trends of
globalization that facilitate even greater movement of ideas,
people, and funds. Disrupting foreign sources of financing
alone, therefore, will not bankrupt such groups. As terrorist
financing methodologies evolve, responses from the
international community to counter such threats must also
adapt.
Despite the fact that many terrorist organizations appear
better resourced than ever before, counterterrorist financing
remains a valuable endeavor. To counter the threat of terrorist
financing, the United States and its partners deploy an
increasingly sophisticated toolkit marshaling actionable
financial intelligence, regulatory and sanctions authorities,
and engagement with public and private stakeholders.
Such measures are deployed alongside other elements of
power, such as diplomatic and military efforts. Consider the
Islamic state, which in many ways represented unprecedented CFT
challenge. Building on the extension of the U.N. 1267 mandate,
the U.S.-led counter-ISIL coalition developed and implemented a
dual-track approach that relied on isolating IS-controlled
territory from the global financial system and depriving the
group of access to revenue.
While the former included supporting government of Iraq-led
measures to cut salaries and take offline banks and exchange
houses in IS-controlled territory, the latter involved military
strikes on IS oil infrastructure and cash depots.
Private sector financial data gleaned by finance ministries
and shared with U.S. military and law enforcement agencies
helped to identify such targets by providing insight into which
refineries and oil pumps were generating cash for the group.
Despite these successes, sustained attention is required.
Today, IS remains well-resourced, able to pay salaries, and
send funds abroad to its affiliates, as well as mount attacks.
Regional regulators have taken important steps to try to ensure
that the financial system is a hostile environment for such
activity, but there is much more that needs to be done.
Even so, counterterrorist financing alone will not defeat
the threat of terrorism, and it is not meant to. In order to
achieve durable counterterrorism successes, counterterrorist
financing must proceed alongside efforts to counter extremist
ideologies and promote good governance.
Critics are right to highlight the high cost of anti-money
laundering (AML) and CFT regulation on financial institutions,
as well as in pointing to the need to better balance some of
the competing but equally important priorities, such as the
efficient delivery of timely humanitarian aid amid concerns
that terrorists continue to abuse charity as a way to raise,
launder, and move funds, as well as protecting access to
banking and remittent services in conflict zones and high-risk
areas.
Both have been the subject of intense discussion on ways to
ease the CFT burden on banks and charities, including in
hearings before the subcommittee. More progress can and should
be made on both of these fronts. It is in the interest of
broader counterterrorism objectives to do so.
Thank you for the opportunity to testify today, and I look
forward to your questions.
[The prepared statement of Ms. Bauer can be found on page
34 of the appendix.]
Chairman Pearce. Thank you.
Mr. Fanusie, you are recognized for 5 minutes.
STATEMENT OF YAYA J. FANUSIE
Mr. Fanusie. Good morning Chairman Pearce, Vice Chairman
Pittenger, and Ranking Member Perlmutter. On behalf of the
Foundation for Defense of Democracies and its Center on
Sanctions and Illicit Finance, CSIF, thank you for the
opportunity to testify today.
Cryptocurrencies may become the way we transact in the
future, but they are also becoming a part of the illicit
financing toolkit available to terrorists. CSIF has documented
multiple jihadist cryptocurrency fundraising campaigns on
social media.
Cryptocurrencies and blockchain technology are not innately
illicit and should not necessarily be feared. Like most
technological innovations, they can be utilized for good or
ill, depending on the user. The good news is that most
terrorists, particularly those operating on jihadist
battlefields, inhabit environments that are not currently
conducive to cryptocurrency use. Still, there are multiple
examples of terrorist cryptocurrency funding campaigns in my
written statement, but in the interest of time, I will
highlight one.
Late last year, CSIF began monitoring a jihadist funding
campaign on Telegram, calling itself al-Sadaqah, Arabic for the
charitable giving. The group claimed to be raising bitcoin
funds for fighters in Syria. We monitored al-Sadaqah's social
media channels and analyzed their bitcoin address, which it
would highlight regularly asking followers to donate
anonymously with bitcoin.
In its initial campaign, it sought $750 for camp
reinforcements. Within weeks, we noticed the address, the
bitcoin address received $685 worth of bitcoin. The group
continued requesting funding for logistical supplies, but only
received a handful of bitcoin transactions, none of them as
large as the $685 early in the campaign.
However, as the address lagged in receiving donations, they
introduced techniques for supporters to give funds--or new
techniques. At one point, the group encouraged followers to
purchase bitcoin vouchers for a website that took payment in
euros. The group posted sites where supporters could use
bitcoin ATMs to buy cryptocurrencies. Clearly, the campaign
organizers were trying to make the bitcoin process easier for
novices.
Their most significant adaptation, though, was eventually
branching out beyond bitcoin. By early 2018, the group posted
on Telegram that they were accepting cryptocurrencies like
Monero, Verge, and Dash. These are tokens that are less
traceable than bitcoin.
The above case makes a few things clear: One, some
terrorist organizations are looking to add cryptocurrency
donations to their funding streams; but, two, their efforts
thus far have not been very fruitful, probably because
cryptocurrency's technical complexities, extremist preference
for cash, and the traceability of most public blockchain
protocols deters wider use.
Terrorist adoption of cryptocurrencies, in a way, simply
mirrors that of the general public. This also means that if
public cryptocurrency adoption increases, terrorist groups will
probably begin to transact more in digital tokens. So the U.S.
must keep up with this technology and address new risk emerging
from an evolving financial ecosystem.
I have a few actions, recommended actions that policymakers
and also the tech industry should take to mitigate risk. One,
counterthreat financing units must learn blockchain analysis.
All units and agencies that investigate terrorist funding need
to become proficient in analyzing cryptocurrency transactions.
Two, financial authorities should engage more
cryptocurrency exchanges. Most people purchase their digital
currency from exchanges. Many of these exchanges have ramped up
their AML compliance the past few years, but many smaller
exchanges trade in a greater variety of alternative tokens,
especially these privacy coins. Many within the industry do
want to keep terrorists and bad actors off their platforms, and
authorities should work with those firms to protect citizens
from terrorism without stifling technological innovation.
Three, cryptocurrency enthusiasts themselves should flag
illicit wallets. Enthusiasts who care about the integrity of
the cryptocurrency industry should flag illicit activity
associated with terrorists and other illicit actors. In a
sense, there should be a repository, perhaps developed by
entrepreneurs in the private sector, where everyday users can
flag illicit addresses from various blockchain systems. Such a
site could be built with protocols to review--or should be
built to review and vet submissions for credibility before
publishing. But such a resource would make it easier for
investigators to find illicit activity and help everyday users
stay clear of problematic wallets. This could also be applied
to ransomware and other illicit cyber criminals.
Cold hard cash, in conclusion, is still king. But jihadist
groups are building diverse portfolios. Illicit actors adopt
new technologies earlier than the wider public. When paper
checks, credit cards, and PayPal each emerged, criminals
exploited them early on. There are enough case studies of
jihadist groups experimenting with cryptocurrencies to suggest
that law enforcement and the intelligence community must
prepare for terrorists to try to exploit digital tokens as the
technology spreads.
On behalf of the Foundation for Defense of Democracies and
its Center on Sanctions and Illicit Finance, thank you for the
opportunity to testify. I look forward to your questions.
[The prepared statement of Mr. Fanusie can be found on page
66 of the appendix.]
Chairman Pearce. Thank you, Mr. Fanusie.
Mr. Segal, you are recognized for 5 minutes.
STATEMENT OF OREN SEGAL
Mr. Segal. Good morning, Chairman Pearce, Ranking Member
Perlmutter, and members of the subcommittee. My name is Oren
Segal, and I serve as the Director of the Anti-Defamation
League Center on Extremism. Thank you for the opportunity to
testify today.
Since 1913, the mission of the ADL has been to stop the
defamation of the Jewish people and to secure fair treatment
and justice for all. For decades, ADL has fought against anti-
Semitism and all forms of bigotry by monitoring and exposing
extremists who spread hate and commit acts of violence.
America continues to face these threats of crime, of
violence from a number of different extremist movements,
including white supremacists, antigovernment extremists,
individuals who are motivated by radical interpretations of
Islam, left-wing extremists, and others. ADL's research into
these threats demonstrates that hatred and violence is not the
sole domain of any one extremist movement, and we ignore any
one of these movements at our peril.
ADL tracks murders and terrorist plots by these groups
every year, with data stretching back to the 1970's. Over the
past 10 years, domestic extremists of all kinds have killed at
least 387 people in the United States. Of those deaths, the
vast majority, approximately 71 percent, were at the hands of
right-wing extremists, such as white supremacists and
antigovernment extremists. These statistics are available in
our report, which I have attached to my testimony.
Although extremist-related killings comprise a fraction of
the total number of homicides in the United States each year,
they often have an outsize impact, creating fear and anxiety in
entire communities or even the entire country.
Just last month, ADL launched an interactive heat map which
provides data on various extremist activity in the country,
including murders and plots, shootouts with police, public
displays of white supremacist propaganda, and anti-Semitic
incidents nationwide. It can be filtered by region and by type.
And this may be a useful tool to see what incidents have
occurred in your own districts.
Unlike some foreign terrorist organizations that receive
large amounts of financial resources from state sponsors,
extremist movements in the United States are generally self-
funded. In response to recent white supremacist activity, we
conducted a study of the ways that white supremacists raise
their money.
I would like to provide just a few details on these
findings because this movement is in the midst of a resurgence
and also because the dynamics are reflected in the way other
violent extremists operate within the country. Recent
advancements in online funding and social media usage have
provided white supremacists with more fundraising and
recruitment opportunities.
White supremacists quickly discovered for themselves the
usefulness of these dedicated social media internet platforms
like GoFundMe, Kickstarter, and others. Certain funding
modalities like bitcoin and other cryptocurrencies are ripe for
exploitation as extremists get more tech savvy.
But as mainstream funding platforms become aware of the
exploitation of their services, they have increasingly moved to
shut these extremists out. And we welcome these efforts. In
fact, ADL helps identify these cases for the industry to assure
that they are adhering to their own terms of services. And
while these companies need to police their own platforms, there
is a role for civil society in government.
My written testimony outlines several policy
recommendations geared toward better understanding and
preventing extremism from across the ideological spectrum.
These include government officials and civil society leaders,
who must use their bully pulpit to send loud, clear, and
consistent messages that hatred and violent extremism is
unacceptable.
The Administration should resource a full range of CVE
programs to counter all forms of violent extremism. Congress
should pass legislation directing executive agencies to track
statistics and regularly report on domestic violent extremism,
including the extremism discussed today. And policymakers
should urge tech companies to continue to provide and improve
their terms of service and rigorously enforce their own
guidelines.
Thank you very much for the opportunity to testify today. I
would be pleased to answer any questions that any of the
members may have. Thank you.
[The prepared statement of Mr. Segal can be found on page
77 of the appendix.]
Chairman Pearce. Thank you.
Mr. Soufan, you are recognized for 5 minutes.
STATEMENT OF ALI H. SOUFAN
Mr. Soufan. Thank you, sir.
Chairman Pearce, Ranking Member Perlmutter, distinguished
members, thank you for hearing my statement today.
During this session on terrorist financing, you will hear a
great deal about the means by which terrorists fund their
organizations, taxation and extortion, sales of stolen oil,
looted artifacts, opium, organized crime, donations, and
ransoms. These are all vital mechanisms to understand. And my
fellow witnesses here represent some of the leading experts in
the field.
In my statement, however, I would like to take a step back
and invite members to consider the wider geopolitical factors
that together afford terrorists the opportunity to raise money.
I am speaking of the many conflicts around the world in which
such groups participate, especially those in Syria, North
Africa, and Yemen.
Terrorists use these wars to boost their resources in
several ways. Let me briefly highlight two.
First, they systematically embed themselves in the messy
specifics of each conflict to the point where it becomes
difficult to separate them from legitimate local combatants.
They may use this cover to create front organizations through
which to funnel funds. For example, one example was a Ahrar al-
Sham, which means free people of the Levant. As its name
suggests, Ahrar al-Sham wanted to be seen as a nationalist
group rather than a jihadi one. In reality, it cooperated with
al-Nusrah, and its leader was a man whom the Treasury
Department called al-Qaida's representative in Syria. Yet their
rebranding stuck. The group reportedly received funds and
material from sources in the Gulf states and Turkey, all
American allies.
The logic behind such support is as old as the conflict
itself: My enemy's enemy is my friend. But in this case, it
represents an extremely dangerous line of thinking.
Today, in the complex civil war in Yemen, Saudi Arabia and
its allies finds themselves, in effect, on the same side of al-
Qaida in the Arabian Peninsula. AQAP has strengthened its ties
to Yemen's Sunni tribes and militias, to the point where it
would be difficult, if not impossible, to support those groups
without indirectly supporting al-Qaida.
Last month, the Associated Press reported that the Saudi-
led coalition had resorted to paying AQAP to retreat from
strategic holdings, in the process allowing them to retain
their weapons and stolen assets. This is worrying, especially
given active U.S. support for the coalition.
Second, terrorist groups benefit from heavy-handed foreign
intervention. In the Middle East today, Saudi Arabia has set
itself as a Sunni counterweight to Iran. But in doing so, both
regional powers, Saudi Arabia and Iran, have prolonged already
bloody conflict and lent them a vicious sectarian edge.
Bloodshed plays into the jihadis' overall game plan, which
has always been exploiting these conflicts and weaponizing
sectarianism. In the chaos of war, jihadi groups have seized
territory from across the region, opening the door to all kinds
of fundraising opportunities from taxation and extortion to
outright robbery.
Regional conflicts have also provided a recruitment
bonanza. For example, almost 45,000 foreign fighters from
around the globe had joined the so-called Islamic state in Iraq
and Syria. Another example, as one AQAP commander has been
quoted as saying with respect to the front lines in Yemen, ``If
we send 20 fighters, we come back with 100.'' Indeed, AQAP has
grown from around 1,000 members before the Yemen conflict to
about 7,000 today.
Seventeen years ago, almost to the day, the United States
was attacked by a terrorist organization of around 400 members
based primarily in Afghanistan. We responded swiftly and
defeated that version of al-Qaida. Today, however, a new jihadi
threat has emerged around the world. It consists of many
different radical organizations deeply embedded in local
conflict that has made them difficult to target.
But there is a common factor linking these groups,
including the so-called Islamic state, as well as every al-
Qaida franchise. That factor is the ideology of salafi jihadism
that manifests itself in the narrative of Osama bin Laden. We
must dedicate ourself to destroying that narrative. Only when
we do so we finally defeat them.
Thank you once again, and I welcome your questions.
[The prepared statement of Mr. Soufan can be found on page
118 of the appendix.]
Chairman Pearce. Thank you, Mr. Soufan.
Dr. Clarke, you are recognized for 5 minutes.
STATEMENT OF COLIN P. CLARKE
Mr. Clarke. Thank you, Chairman Pearce, Ranking Member
Perlmutter, and distinguished members of the subcommittee, for
inviting me to testify today.
As you will hear from my testimony, I believe ISIS is going
to be around for a long time, enabled in part by its finances,
which means that countering its ability to operate is critical
to U.S. national security.
My testimony will address three fundamental issues. First,
what is terrorist financing and where does it fit within the
broader historical context; second, how do terrorists generate
income, how have their methods changed over time, and what are
the current trends; third, with ISIS as the most significant
terrorist threat we are facing today, how might this group
attempt to finance a renewed campaign of terror in the future.
Terrorist financing is the raising, storing, and movement
of funds acquired through licit or illicit methods for the
purpose of committing terrorist acts or sustaining the
logistical structure of a terrorist organization. Financing is
used to augment militant groups' ability to execute attacks and
fund organizational components aimed to increase group
cohesion.
The way terrorist groups have earned funds has shifted
drastically over time. During the cold war, superpowers funded
proxy groups that engaged in insurgencies and committed acts of
terrorism. In the aftermath of the dissolution of the Soviet
Union, great-power geopolitical competition came to a temporary
halt, as did the sponsorship of terrorist proxy groups.
Several high-profile groups no longer benefited from the
largesse of state sponsorship and turned to criminal activities
to fund their organizations. There were changes in the
frequency and strength of cooperation among terrorists and
criminals who were forced into a marriage of convenience to
survive.
To insulate their organizations from shocks similar to
those like losing an external sponsor, terrorist groups moved
to insource the bulk of their financing, giving rise to terms
like ``do-it-yourself organized crime'' and the ``crime-terror
nexus.'' ISIS has embraced the notion of the crime-terror nexus
going to great lengths to recruit members from the criminal
underworld. We saw this with the individuals involved in the
Paris November 2015 and Brussels March 2016 attacks.
ISIS is different from previous terrorist groups because
the territory it controlled provided extremely lucrative
resources such as oil and a renewable funding source in the
form of a taxable population. ISIS generated its wealth from
three primary sources: Taxation and extortion, the looting of
banks, and oil and gas. Like other terrorist groups, ISIS also
relied on a range of criminal activities, including kidnapping
for ransom and antiquity smuggling.
External state sponsorship, at least to date, has not been
a major source of ISIS financing.
The struggle against ISIS has proven that serious
challenges remain. As its territory is further reduced, ISIS
will compensate for losses in certain revenue streams by
increasing revenue generation elsewhere. Every facet of ISIS
revenue should be nominated for targeting or sanctioning, with
the most difficult areas to counter, namely taxation and
extortion, a longer-term objective tied to postconflict
reconstruction.
This is especially important given the group's history with
extorting construction companies. Reconstruction aid to newly
liberated cities will provide an attractive target for ISIS to
make money without holding or controlling territory.
At present, there are no law enforcement or security
service entities capable of preventing ISIS from making large
sums of money from reconstruction contract skimming. The
policing assets that do exist are underfunded and their
resources are already strained.
As the caliphate disappears, much of the counter-ISIS
mission in Iraq should transition from military force to law
enforcement. This means investing more resources in training
Iraqi and other law enforcement entities, an effort that must
be more comprehensive than simply supplying equipment.
In Syria, the situation is far more difficult, since Assad
remains in power and there is no semblance of state security
services capable of policing rebel-held pockets of the country.
Traditional counterterrorism financing tools must be used
to continue to keep ISIS isolated from external patrons and
state sponsors of terrorism, even though, as I mentioned, to
date, the group has largely avoided external state sponsorship.
Many terrorist groups attempt to circumvent the form of
financial system, but their transactions occasionally intersect
with various touch points, including corresponded banks in the
region. Therefore, bank regulators and financial intelligence
units of partner nations must be intimately involved in
monitoring and identifying suspicious transactions.
In short, the coalition must continue to track financial
flows into ISIS-held territory to monitor whether changes are
occurring and closely monitor financial flows from countries
where wealthy individuals have historically funded jihadist
causes.
Thank you for the opportunity to testify today.
[The prepared statement of Mr. Clarke can be found on page
57 of the appendix.]
Chairman Pearce. Thank you, Dr. Clarke.
This is now time for us to move to questions from the
committee members. I would recognize myself for 5 minutes.
Mr. Soufan, you mentioned that the only thing to do is to
change the narrative of Bin Ladenism. How would you recommend
that we go about that?
Mr. Soufan. Yes, sir. That is a good question. I think we
need to recognize what kind of threat are we facing, and the
threat today is a narrative by Osama bin Laden, and that
narrative has different components. Component number one, it
hijacked religious terminology in order to put out a political
message. Number two, it created a conspiracy narrative in the
Muslim world that the United States and the West are against
Islam, and there is a crusade between the Christians and the
Jews to defeat the Muslim world. And not a lot of people, in
the beginning, believed in that but, unfortunately, that
narrative is becoming more and more popular in the Middle East.
I think the intelligence operations that we do are
extremely important. The law enforcement is extremely
important. The military is extremely important. But we need to
have a diplomatic effort to have a message out to counter what
al-Qaida is saying, to counter what ISIS is saying and from a
political perspective. But also we need to force our so-called
allies to have the religious establishment to stand up and
counter the religious arguments that these guys are doing.
Unfortunately, 17 years after 9/11, we still did not do that
successfully.
Chairman Pearce. OK. Thank you.
Dr. Clarke, according to some press today, one could be led
to the idea that ISIS has effectively been removed from the
territory. Your testimony moves in the opposite direction from
that, and you are saying that still, oil is a significant
source of revenue for ISIS. Is that more or less--am I hearing
you correctly?
Mr. Clarke. So I think it is correct that ISIS has lost the
majority of its territory. I think 98 percent of its territory
from--at one point, they controlled territory the size of Great
Britain. They are still active in the Euphrates River Valley,
and within the last month, month and-a-half, have moved back in
and around Deir ez-Zor in parts of northeastern Syria and are
once again attempting to regain--
Chairman Pearce. Any estimates of how much, say, the oil
revenues are? Are they still engaged in the archeological
antiquities, the sale of those?
Mr. Clarke. To a lesser extent, but they are seeking to
regain control of the oil because it is so lucrative in and
around Deir ez-Zor.
Chairman Pearce. You mentioned in, I think it is page 6 of
your testimony, that there are very little law enforcement
efforts to counteract. If there are law enforcement efforts
from any of the countries worldwide, who would be one of the
examples of good interaction on the part of the police and the
funding of the agencies?
Mr. Clarke. So I would look to the Italian Carbonari,
because they actually have experience combatting organized
crime, and from what I understand, they actually are somewhat
active in Iraq. My statement that there is an absence of law
enforcement refers more so to Syria, where there is just a
giant vacuum and large swaths of rural eastern Syria outside
the writ of control of Assad. But also, there are Kurdish
groups operating, there is the SDF and others in it, so in many
ways an ungoverned space.
Chairman Pearce. Ms. Bauer, are you seeing any activities
in Central or South America from the terrorist organizations?
As we raise the pressure in the Middle East, are you seeing
that eruption other places?
Ms. Bauer. Hezbollah networks in Central and South America
have long been an interest and a focus. The Treasury
Department, for example, identified a network in the tri-border
area in the middle part of the last decade, the Barakat Clan,
and it sanctioned them. But beyond the financing of course,
operational networks and Hezbollah's work with criminal
networks and drug traffickers in that region are also of
concern.
One thing that I think is positive to note, there has been
some recent action by countries in the region. For example,
with regard to Barakat, the Argentinians have taken up the
issue. They froze assets of the Barakat Clan over the summer,
and have also committed to cooperation with the U.S. to go
after Hezbollah funding in the tri-border area.
Chairman Pearce. Thank you. My time is expired.
I would recognize the gentleman from Colorado for 5
minutes.
Mr. Perlmutter. Thanks, Mr. Chairman.
My first question is to you, Mr. Fanusie. While the
Financial Action Task Force, FATF, has issued guidance,
currently its formal recommendations do not cover
cryptocurrencies. So with terrorist finance in mind, should the
U.S. Department of Treasury be pushing FATF or other
international bodies for more targeted action on
cryptocurrencies?
Mr. Fanusie. Yes. The short answer is yes. I do believe
that FATF has signaled that it wants to update its
recommendations to actually specify virtual currencies in a
more precise way. Right now, there is definitely a loophole
there.
But, there should be clarity on the issue of how do virtual
currencies differ from wire transfers. Right now, there is
language within FATF's recommendations that do talk about wire
transfers, but you can't really apply those to virtual
currencies. So there should be that.
I believe even the G20 has recently said that by October,
they are planning to have a session where they are going to
provide a better definition of virtual currencies and how that
should relate to anti-money laundering. But they are going to
base their decision or their language off of FATF. So I know
that there is some movement there, but it just hasn't been
fleshed out.
Mr. Perlmutter. Thank you. Because we have had other panels
that have talked about the cryptocurrencies and, bitcoin and
Litecoin are pretty easy, through their blockchain, to follow,
but others get more and more obscure and opaque. So I would
hope that we take all of that into consideration too.
Mr. Fanusie. Yes. And one thing I would say, there is
actually benefit in looking at what the U.S. has done when
FinCEN in 2013 put out guidance, which was very clear about how
cryptocurrency businesses should operate, basically under
mostly the same laws that money transmitters and money service
businesses operate.
We have actually done some studying where we saw that
guidance, it appears, accounted for there being less illicit
finance in North American exchanges compared to Europe. So much
of the world is catching up in terms of implementing
regulation. So I think as the U.S. model becomes perhaps more
of a standard, the Europeans, the EU is actually trying to
follow up and update their regulations. So I think it is
trickling down, but it has to happen sooner.
Mr. Perlmutter. All right. Mr. Segal, and to the rest of
the panel--and I am probably stealing Mrs. Maloney's thunder
here, but I would be curious whether it is domestic terrorists
or international, jihadist, whatever, whether or not you are
seeing them use shell companies, phony front men, women,
whatever, to shield their financing and what you might suggest
we do about that.
Mr. Segal. Yes. Most of the domestic extremists, whether
they are white supremacists, antigovernment, or even those who
are inspired by ISIS and al-Qaida but who have lived here or
raised here, they are able to mask in some ways some of their
online donations.
So if you have an online crowdfunding site, you don't
always necessarily have to even use your real name. Or in some
cases what they do is pretend to raise money for some cause
that doesn't sound particularly volatile or extremist as a way
to fool people into providing them money.
Sovereign citizens in this country who pose a very
significant violent risk are engaged in all sorts of scams from
mortgage fraud to fake money, essentially monopoly money where
they convince people that they are able to pay off their
student loans, et cetera.
Yes, in some ways they are hiding behind fake entities, but
in many ways they don't really have to, because a lot of their
activity and their beliefs are not illegal in this country.
Mr. Perlmutter. Anybody else?
Ms. Bauer. Yes. I think that one of the interesting ways
that terrorist groups use front companies is for procurement.
So if you think as organizations get more globalized and have
these global networks and are buying things more in bulk, they
are acting like a lot of other illicit actors in terms of
setting up false fronts to get dual-use goods.
Some of these have been exposed. Hezbollah has used front
companies in the Gulf to procure parts for UAVs that were being
deployed in Syria. The Islamic state has procured IED
components in bulk and other precursors and things like that.
So I actually see this as a vulnerability, because from an
intelligence standpoint, if you can identify them, once you can
make that public through a sanctions action, then they are
exposed, and they are no longer valuable, and they are hard to
set up, and this takes effort and resources to do it. And so
you force them to change their modus operandi and do something
slightly different.
Mr. Perlmutter. All right. My time is expired, so I thank
you all for your testimony, and I yield back.
Chairman Pearce. The gentleman yields back.
The Chair now recognizes the gentleman from North Carolina,
Mr. Pittenger, for 5 minutes.
Mr. Pittenger. Thank you, Mr. Chairman. I thank each of you
again for being here.
I think we all recognize that terrorists receive funds from
various sources. We have state sponsors, extortions,
antiquities, foundations, oil, trade-based money laundering,
drugs, taxes, bank looting. I think we also recognize that they
transfer money in many ways. There is hawalas. You have, of
course, some measure of cryptocurrencies, cash. We are able
to--they do wire transfers.
What I am trying to understand is, at the end of the day,
how much of those funds need to ultimately get into the
international financial system? How much do they need to
receive cash to help them fund their requirements? And to that
end, how capable are we in tracking those funds? How capable
are we with technology and software? How capable are certain
countries? How capable are our various embassies? Do we have
adequate attaches?
Anybody. Who would like to start out?
Ms. Bauer, we are just going to go down the line. We will
start with you, if you want.
Ms. Bauer. OK. Thank you. There are a lot of questions
there. I think that the question of how much they use the
international financial system, it is incredibly efficient. And
if they are confident that they can use it in a way that they
won't be detected, I think that is often a choice that illicit
actors make.
Their needs are--
Mr. Pittenger. At the end of the day, do you believe that
they ultimately need to cash out? Whether they have gone
through antiquities or have diamonds or oil or whatever, at the
end of the day, do they need cash?
Ms. Bauer. At the end of the day, they usually need cash,
but cash, it depends on geography, cross-border, cash smuggling
is an issue. If you look at networks in the Gulf that were at
the beginning of the Syrian conflict, aggregating funds and
moving them likely not through the financial system.
I wanted to address your question also about whether or not
we are well enough resourced in terms of financial attaches,
since that is a role that I have been in, and it is an
important issue to me.
Mr. Pittenger. Quickly, if you can.
Ms. Bauer. OK. I think that attaches play a critical role
in being able to engage in a technical conversation with their
counterparts at finance ministries and at central banks. And so
I think it is very important in the countries where we do need
to have a robust bilateral conversation that there is an
attache there.
Mr. Pittenger. Mr. Fanusie.
Mr. Fanusie. I will just say quickly, or I will point out
that I think one way to think about this is, I think it is
understood that much money laundering, much illicit finance
activity does pass through the financial system. A lot of it
does. It is very difficult to catch this.
The thing I will say, though, is, the volume is what is
important. So the bigger the activity, the easier it is to find
and to disrupt. The big issue is the onesies and twosies, the
small transactions.
To pivot back on the cryptocurrencies issue, I think that
is where we are there, that if you have small transactions, it
is going to be much more difficult to intercede. But, generally
speaking, yes, a lot still does go through, but the bigger it
is, the more--
Mr. Pittenger. How capable is our software and how adept
are we in effectively using that? And how capable are our
allied countries in embracing and utilizing the available
technology?
Mr. Fanusie. Depends on--if we are thinking about the
banking system, the traditional banking system--
Mr. Pittenger. Yes.
Mr. Fanusie. --it totally--it varies. The financial
intelligence units in different countries have different
capabilities. That is one of the things that the Egmont Group
works on. It really depends. And that is the issue, that you do
have a lot of anti-money laundering arbitrage that happens in
jurisdictions where they don't have the same level--maybe they
have the software but perhaps not the same level of training
that we have in the U.S.
Mr. Pittenger. Quickly, does FATF create through its peer-
to-peer accountability? Is that a good model?
Mr. Fanusie. I am not familiar--I am sorry.
Mr. Pittenger. FATF, Financial Action Task Force.
Mr. Fanusie. Correct. Correct.
Mr. Pittenger. It does peer-to-peer review of its 40
requirements to be fully engaged with it. Is that a good
structure?
Mr. Fanusie. I am not sure I have that much insight on
their review model, so I can't speak in depth to that.
Mr. Pittenger. My time has expired. Thank you.
Chairman Pearce. The gentleman's time is expired.
The Chair now recognizes Mr. Lynch for 5 minutes.
Mr. Lynch. Thank you, Mr. Chairman.
We had a chance to meet with some of the rebel groups that
are fighting in Syria against Bashar al-Assad a couple of years
ago, and we asked each of these five or six rebel leaders what
they were using to communicate with inside Syria. They all said
the WhatsApp. So they are all using that. They had end-to-end
encryption back then. I think they may still have it to a
certain extent.
But more recently, we have seen that they have switched
over to Telegram. Some of these terrorist groups are using that
because of a couple of features. One is, they have self-
destruct, automatic self-destruct on some of their messaging
platforms, so that after a certain amount of time or after the
message is read, it is automatically destroyed.
And they also can change out the SIM card. The SIM card can
be swapped out. It makes it increasingly difficult for FBI--
thank you, Mr. Soufan--and others to actually track them down.
So what is the status right now in terms of our ability to
track some of this terrorist financing and terrorist activity
in terms of social media? Are we still one step behind them?
Are we getting full cooperation from Facebook and others and
Twitter?
I saw the interviews over the past couple of days of their
CEOs, but they said we will have to get back to you when we
asked them questions of this nature. But what do you see, Mr.
Soufan, in terms of that?
And by the way, thank you. Thank you all for your service
to the country and to protecting our democracy.
Mr. Soufan. Thank you, sir. I don't know the capabilities
of the intelligence community now. I am out of the government.
But I trust my former colleagues in the intelligence community
and in the FBI and the military. I think they have a really
good handle on how to deal with their communication, especially
when it is on WhatsApp or other encrypted platforms,
However, there was a big problem between the intelligence
community and the law enforcement community and Silicon Valley
on the issue of encryption. And I don't think that is solved.
The same thing goes with the platforms. If you go and see how
these groups, groups like al-Qaida or ISIS, or any of these
extremist jihadi groups communicate, they use these platforms a
lot.
Most of the recruitment that we see here in the United
States is not a face-to-face recruitment. We don't have what,
for example, they have in Europe. What we have are people
getting recruited, being brainwashed because they are watching
YouTube videos, because they are spending time on a WhatsApp
group. So you don't need training camps or safe houses in order
to brainwash folks now--
Mr. Lynch. I need to reclaim my time because I have another
question for you.
You said at the outset that really what we have to do is
change the narrative, change this bin Laden narrative that the
Christians in the U.S. and the Jews in Israel are against
Islam, that is the central narrative that he uses to recruit
and to perpetuate terrorism.
Do you think that--you look at some of our recent action,
do you think that the Muslim ban that was announced by
President Trump, do you think that feeds the narrative that the
U.S. is against Islam?
Mr. Soufan. Sir, the narrative is based on a conspiracy.
Mr. Lynch. Come on, now. I need a yes or no answer. I only
have 44 seconds. Do you think it feeds--I am just asking your
professional opinion. Do you think that feeds the narrative?
Mr. Soufan. Absolutely it feeds the narrative.
Mr. Lynch. OK. I have another question for you. Do you
think cutting off the funding to Palestinians, do you think
that feeds the narrative?
Mr. Soufan. That does not help, because somebody else will
get the money.
Mr. Lynch. Right, it doesn't. OK. Do you think moving the
U.S. Embassy to Jerusalem, do you think that helps, or does it
feed the narrative that the U.S. is against Islam?
Mr. Soufan. It does not help, no.
Mr. Lynch. OK. That is all I have to ask. OK. Now, if you
would like to extrapolate, expand on your answers, go right
ahead. You have 13 seconds.
Mr. Soufan. If we view this conflict as a clash of
civilization, then the conspiracy of bin Laden wins. If you
view it as it really is and enter civilizational clash where we
see Shia fighting Sunnis, Kurds fighting Arabs, Persians
fighting Turks, or whatever--and I think that is how we need to
view it--then we will be dealing with the roots of the
conflicts. And if we don't deal with the roots of the conflict,
that threat will continue to mutate as it has been mutated in
the last 20 years.
Mr. Lynch. Thank you very much. I yield back.
Chairman Pearce. The gentleman's time is expired.
The Chair would now recognize the gentleman from Colorado,
Mr. Tipton, for 5 minutes.
Mr. Tipton. Thank you, Mr. Chairman. And I thank the panel
for taking the time to be able to be here.
Mr. Clarke, you had mentioned earlier that we must be able
to monitor cash-flows into ISIS-controlled areas. We have a
pretty robust system here in the United States to be able to
track some of those dollars with FATF that we have. Are we
really seeing that coordination with our allies? Others have a
real concern about terrorism. Are there any consequences if
they don't employ those methods to be able to do it?
Mr. Clarke. So the most difficult part, sir, about
monitoring ISIS finances is that the group is largely self-
contained. So a lot of money wasn't flowing from outside, from
external state sponsors like it had with al-Qaida a decade and-
a-half earlier. Part of that is because terrorist groups are
learning organizations, and they have seen how effective
Treasury and other partners have been.
The other piece to that is that ISIS, unlike previous
terrorist groups, controlled such large swaths of territory
that they didn't need to go out looking for other methods of
fundraising and financing. The other piece to that, back in
Europe with the foreign fighter piece, is that these
individuals were taking advantage of what I call small dollar
terrorism.
So they were through petty theft, robbery, minor drug
trafficking, sales of counterfeit items, and defaulting on
loans, getting enough money to go, quote/unquote, ``take a
holiday in Turkey,'' which was enough to pay for their one-way
ticket to actually show up and fight.
I was questioned once, they said, someone asked me--it was
a journalist--well, aren't these people concerned they are
defaulting on all these loans? And I joked, I said, well, when
your plan is to martyr yourself, you are not really concerned
about your credit score. And I think--I said it tongue in
cheek, but it is largely true.
Three-quarters of terrorist attacks cost less than $10,000.
And so if you are aware of that and you are purposely trying to
stay under the radar and you can raise funds through small
dollar terrorism--Magnus Ranstorp called it micro financing the
caliphate--and that poses a really significant threat to
monitoring these transactions because they are in such small
denominations.
Mr. Tipton. Thank you.
Mr. Fanusie, you talked a little bit about some of the
blockchain end of this. Given we have gotten some internal
transfers that are going on, it is a little problematic for us
to be able to track that with blockchain, if they are making
transfers, small dollar amounts or otherwise. I think you had
cited $685, is that correct, in terms of one of the largest
ones? Is there a real challenge that we need to be looking at?
Are there some methods we should look at in terms of
blockchain, given the disparity that we would have in terms of
how that money can now move?
Mr. Fanusie. The way to think about or to approach the
blockchain transactions is, one, to think about there is a
public ledger. So you can actually see transactions right as
they move across the blockchain, and actually this is what we
did. I think there is a different way to think, though, about
these type of payments compared to what we are used to in the
conventional banking system.
So if I identify a terrorist group that has made a
transaction, my problem, whether I am law enforcement or
regulators, we do not have the ability to freeze an account or
freeze a cryptocurrency address like we do with regular bank
accounts. So it calls for even a new way of thinking.
The only way that you could access those funds, if you are
a third party, if you are an outsider, is if you have a private
key with--I won't get too technical, but you have to have
something that person--even if you arrest the person, you may
not be able to get at those funds. So we have to actually think
differently about how do we approach illicit finance and
getting to terrorists who are using it.
It is a really different ball game. The analysis that we
outlined that we need, we need tools where you do more of this.
You can't just rely on looking at a transaction manually. You
need to use software that actually uses algorithms to help you
track and trace and maybe de-anonymize a little bit on the
blockchain. That is something that I know people are looking
at, but I would say that we actually need more expertise in
that type of analysis in the government.
Mr. Tipton. Great. And thank you for that.
And regarding some of the international communities, is
there any type of suspicious activity that is identified really
that generally is going to point to terrorism financing?
Mr. Fanusie. So in terms of maybe, you mean, state sponsors
being involved not so much with terrorism or terrorist
financing. But I will say that we are concerned about this
experimentation with some state actors, Venezuela, Iran most
recently, and Russia in particular, to create alternative
blockchain systems.
There is a long-term issue there. In the short term, I am
not worried about a terrorist maybe using the Venezuelan petro,
which probably doesn't really even exist. I am not worried
about that, but I am worried about these states getting
together and making an alternative system that could be
resistant to sanctions in the long term.
Chairman Pearce. The gentleman's time is expired.
The Chair would now recognize the Ranking Member of the
full committee, Ms. Waters, for 5 minutes.
Ms. Waters. Thank you very much, Mr. Chairman, for
scheduling today's hearing to examine the current state of
terrorism and financing of these terrible acts. While the types
of terrorist attacks have changed since September 11, 2001, the
need for terrorists to raise funds and pay for their activities
has not.
As we contemplate new or improved programs to counter the
financing of terrorism, our efforts must not forget the
continuing threat from domestic terrorists and extremists.
These include the ISIS-inspired attack in San Bernardino, which
killed and injured 36 people, the deadly white supremacist mass
shooting at the historic Emanuel AME Church in Charleston, and
last year's murder of Ms. Heather Heyer as white nationalists
marched in Charlottesville.
The Anti-Defamation League has determined that over the
last 10 years approximately 71 percent of the U.S. deaths from
extremists were at the hands of right-wing extremists such as
white supremacists, antigovernment extremists, and so-called
sovereign citizens.
The financing methods that these terrorists and extremists
use can be harder to uncover. For example, they raise money for
organization and operations with credit card overpayments, cash
and even cryptocurrency payments sent by mail, petty crime, and
simple fraud or tax evasion.
What is concerning to me is whether the Administration
understands the present and growing threat from these right-
wing extremists and is taking appropriate action to thwart
them. The President's own comments strongly suggest otherwise.
I hope this hearing will consider all of these terrorist groups
and the individuals who seek to harm us.
So I am very pleased that the witnesses are here today.
And to Mr. Segal, I would like to raise a question. ADL has
done exhaustive work in reviewing decades of terrorist acts by
extremists of all kinds. As I have noted in my opening
comments, your Center on Extremism found that, of all
extremist- or terrorist-related murders in the U.S. over the
last decade, including attacks in San Bernardino and
Charleston, nearly three-quarters were committed by right-wing
extremist groups. This is an astonishing number. What do these
statistics tell us about domestic terror now and in the future?
Mr. Segal. Thank you, Congresswoman.
Yes, I think one of the realities in this country is, when
people think of the threat of terrorism, in many ways they are
still thinking of the threat from abroad and foreign terrorist
organizations and their ability to influence, as Mr. Soufan
said, with the narrative that they are creating.
There are narratives in this country that are being created
every day by individuals living in this country that are as
equally evil or equally trying to stereotype particular
communities in order to uplift the extremist ideologies that
they represent.
For example, white supremacists believe that, whether it is
multiculturalism or liberalism or, frankly, the Jews, that they
need to fight back in order to win their country back to what
it once was or what they perceive it once was.
While that is protected speech in this country, most
domestic extremists are not actually affiliated with any group.
And that is why you see many of the attacks that have been, for
lack of a better term, successful, that have been deadly, have
been carried out by people who share this ideology but may not
actually be linked to any specific group.
The Congresswoman mentioned Dylann Roof, for example.
Again, very much influenced by these ideologies of violence and
hate that are very much homegrown and created in this country,
but he was not affiliated with a particular group that is easy
to, say, designate and try to deal with.
When you look, whether it is the past 10 years, 71 percent
of terrorist attacks--excuse me, terrorist murders have been
carried out by right-wing extremists, whether you look at 25
years and over 150 right-wing terrorist plots and attacks in
this country, it is something that we do believe is ignored but
we don't have the luxury to ignore any longer.
Ms. Waters. In the last few seconds that I have, of course
there has been a lot of discussion about how they acquire money
and resources, and I heard some talk about the cryptocurrency.
And the gentleman who just responded to that question, I
was just going through blockchain with someone last evening,
trying to get up to speed on it. And unless you have a token or
you have a key, you can't get in there and determine what
people are doing, whether they are investing or they are
raising money or trading or what have you.
So I am very interested in what methods are being used to
raise money for these domestic terrorist acts.
Mr. Segal. Yes, so domestic terrorists essentially are
primarily self-funded. Some of them have jobs. Some of them are
looking to raise money online through donations. Some, indeed,
are using social media sites and cryptocurrencies to try to
raise some money.
Ms. Waters. Are they using GoFundMe?
Mr. Segal. They sure are. I will say GoFundMe, Kickstarter,
and others have done a pretty good job, though, when they are
made aware, of kicking them off and enforcing their terms of
service. So that is one way to prevent that.
But, again, the cost of actual--the fundraising that occurs
within white supremacists, for example, does not necessarily
correlate with the violence they commit. They don't need all
that much money, frankly, in order to create fear and anxiety
in our communities.
Ms. Waters. Thank you very much.
And I yield back.
Chairman Pearce. The gentlelady's time has expired.
Be advised that we have votes. We have 8 minutes left in a
vote series. There is just one vote. It is my understanding
that we have members of the committee who will ask questions
after the vote series. If you do not have the ability to stay
afterwards and to reconvene, then you can submit your questions
in writing. We will accept those.
And we will ask that you all respond to them.
But, for the moment, we will recess and go to the floor,
vote, and come back. We have just one vote, so cycle as fast as
we can.
The committee stands in recess.
[Recess.]
Chairman Pearce. The committee will come to order.
The Chair would now recognize Mr. Rothfus for 5 minutes for
questions.
Mr. Rothfus. Thank you, Mr. Chairman.
Thank you for your patience, panel. We do get interrupted
from time to time with those votes. I am glad it was just a
quick one-vote series.
I would like to maybe ask Ms. Bauer about this. It has been
said by some in the intelligence community that they believe
AQAP still poses a considerable risk to the U.S. homeland in
terms of a terror attack. What are the local sources of income
for AQAP?
Ms. Bauer. So AQAP is engaged in a variety of different
sorts of raising funds. Most recently, they had a financial
windfall when they were able to take control of the Port of
Mukalla and raised a reported, I believe, $2 million a day off
of port fees. They also robbed a branch of the central bank of
Yemen and may have recovered as much as $100 million. So they
have been well-resourced at this point.
In the past, they have relied on kidnapping for ransom and
were able to more than double their budget during a short
period--or their revenue, I should say--during a short period
around 2013. So their financial status has just been on an
upward trend for several years. And now they have been pushed
out of Mukalla, but they are believed to have a substantial
cushion.
Mr. Rothfus. What U.S. policies, what resources, what
programs do we have that are disrupting AQAP's ability to
gather resources right now?
Ms. Bauer. So there have been a number of designations of
financiers related to AQAP. I would say, notably, one was part
of a tranche of sanctions actions that was done under the
Terror Finance Targeting Center, which is an initiative between
the U.S. and the GCC states to cooperate both on information-
sharing as well as taking joint actions. And they have taken
actions against a number of Yemen-based financiers and
facilitators from both AQAP and the Islamic state. So I think
those are notable because it shows that the Gulf states are
taking some ownership of the issue themselves and are closer to
the conflict.
Also, the UAE, in particular, has been involved in the
Saudi-led coalition in Yemen and, I would say, sees the
counterterrorism mission as equally important, if not
interrelated to the mission of pushing back Iranian influence
there. And so I think that the regional efforts have been very
important.
Mr. Rothfus. We can switch to Hezbollah a little bit and
particularly what has been going on in Latin America and the
Politico article that came out last year. What is your
understanding regarding how Hezbollah is raising funds
currently to sustain its organization and pursue terrorism-
related operations?
Ms. Bauer. So Hezbollah receives a significant amount of
funding from Iran. Recently, the U.S. Government has said that
could be as much as $700 million to $800 million a year.
But they have also always relied on a worldwide network for
financing as well as for operational support. That network has
come under considerable pressure. And if you look at
Hezbollah's financial status right now, going back to 2016,
then-Acting Under Secretary of the Treasury Adam Szubin said
that Hezbollah was in its worst financial shape in decades. And
I think that there is every indication that continues.
In fact, Secretary General Hassan Nasrallah just recently
admitted, according to Lebanese press, that Hezbollah is
experiencing a financial crisis. And I think that is because of
this concerted effort to go after commercial fronts that were
magnified by HIFPA, by the Hezbollah International Financing
Prevention Act, which extended secondary sanctions to
Hezbollah-related entities.
And so it really has pushed them out of the financial
system. It is trying to drive a wedge between Hezbollah and its
allies that provide commercial and operational cover. And I
think it has made it harder for them to get funds from their
global network as well.
Mr. Rothfus. I wonder if anybody can answer this question.
I am running out of time. But, this country continues to watch
the situation in Afghanistan. And we recently lost another one
of our servicemembers. And we are spending considerable sums
over there, and it continues to have significant instability in
the operation of many terrorist organizations.
We look at Pakistan and what they have been doing. We look
at Russia. We look at Iran and these countries seeking to
destabilize Afghanistan through whatever means.
Are there things that we should be doing with respect to
Iran, Russia, Pakistan that would help stem the flow of funds
to these terrorist organizations in Afghanistan?
That is an open-ended question, I guess, maybe if one wants
to take a crack. And I might want to follow up with all of you
and seek some guidance on this very serious--
Mr. Soufan. Sir, I think the war in Afghanistan has been
the longest war, and I think what we do is we are depending a
lot on our military. I think we need to bring also the
diplomats into this, because you need a political solution in
Afghanistan that includes the Taliban, the Afghan Government,
and a lot of the regional powers that have so much equity in
the future of Afghanistan. And as long as we don't have this
kind of a political engagement, then I think this is going to
continue.
Chairman Pearce. The gentleman's time has expired.
The Chair would now recognize the gentleman from Arkansas,
Mr. Hill, for 5 minutes.
Mr. Hill. Mr. Chairman, thank you for holding this hearing
and having these quality witnesses to give us this overview of
all the networks.
It has been very helpful to our work to hear your testimony
today.
Following up on my friend from Pennsylvania's question on
Hezbollah, I am curious, in terms of the ways and means of
financial resources there, are they coming principally overland
into Syria and Lebanon, or is it still principally in and out
of Lebanon?
And give me some geographic focus on the flow of the money.
No matter where the global organization is deriving that money,
Africa or South America or wherever, how is it--tell me about
the geography of how those funds are getting into the ground in
either Lebanon or Syria.
Ms. Bauer.
Ms. Bauer. So I think it is hard to know exactly how the
funds are moving. I think if you broaden the aperture a little
bit and you look at how Iran resources its proxies in the
Levant, a big part of that is through an airbridge that has
been more active during the Syrian conflict but existed before,
moving fighters and goods and arms to and from Iran, often
fighters for training, and funds as well.
But a lot of the funding, I would say, just to clarify a
point that I made before about Hezbollah's financial crisis, is
in part because, despite the fact that they get so much money
from Iran, their expenses have increased. And that is because
of the conflict in Syria and that the funding is going not just
to support Hezbollah's military efforts but Iranian proxies
more broadly.
So I think I would just leave it at that.
Mr. Hill. All of us are concerned with Iran's engagement
there and the expansion of their ground forces and air force
and support of Hezbollah in terms of targeting Israel. I think
all of us share our concern there. And trying to cut off the
money flow there is equally important to our military
objectives.
Mr. Fanusie, I was very intrigued by your testimony. Thanks
for being here today.
Would you think that expanding--and I am asking this as a
hypothetical question, so perhaps it is already expanded and
that is something I am not aware of--expanding the idea of
reporting a SAR (suspicious activity report) or on the crypto
exchanges or wallet aspects or even miners, that they have some
obligation to report a SAR over in the cryptocurrency arena?
And then can you envision how one would have a parallel to
a currency transaction report in that arena? So I am presuming
in my question that this is an exchange that is not affiliated
with a commercial bank or someone who is already subject to the
AML/BSA laws.
Can you share some thoughts on that?
Mr. Fanusie. So most exchanges, if they are under U.S.
jurisdiction, even if they are not affiliated with a bank, if
they are a cryptocurrency exchange, they do have to file SARs.
So they have to look at transactions, they have to do a lot of
the same things that Western Union or MoneyGram would have to
do. So that already does exist. And for U.S. exchanges, that
has been in effect since 2013.
But, again, when you go outside the U.S., then you do have
the issue where you have exchanges, and anyone, whether they
are in the U.S. or not, they technically could anonymously
access one of these other exchanges where you don't have those
built-in requirements. So there is still a gap; there is a
global gap.
Mr. Hill. And this idea of an exchange, of course, is just
almost in the eye of the beholder. We refer to it as an
exchange. It could be just a digital site that is setting
itself out as an exchange of this cryptocurrency, perhaps of
their own creation.
Mr. Fanusie. Yes.
Mr. Hill. And so those are in--are they found in
jurisdictions that we either have an MLAT with or who have a
fairly robust securities regulatory apparatus?
Mr. Fanusie. So they are--it runs the gamut. They are all
over.
But even to follow up on your point about how informal this
can be, even though I said there has been guidance and folks in
the U.S. have to follow FinCEN guidance on this, but there have
been examples of folks who have been very informal, because
they held a lot of bitcoin, have served as basically money
transmitters, without registering. That has happened. In fact,
there was a recent prosecution of someone who laundered
millions of dollars just doing it on his own.
The biggest thing to maybe look out for is there are
different types of exchanges now that are being developed,
smaller ones where the trading happens more by software and
there is less need for customer identification. That is
something that is experimental, but it is one of the things
that I would flag as something to watch, because that is going
to be even more difficult to get the entity to follow AML
requirements.
Mr. Hill. Thank you for your contribution.
And thank you, Chairman.
Chairman Pearce. The gentleman's time has expired.
The Chair would now recognize Mr. Davidson for 5 minutes.
Mr. Davidson. Thank you, Chairman.
And thank you all for your written testimony and for the
dialog that we have had. It is very helpful and greatly
appreciated.
Mr. Fanusie, I really appreciate the crypto side. I am
working on a bill with initial coin offerings. Of course, lots
of these aren't currencies. Most of them really aren't--even
bitcoin is more of a commodity than a true currency so far. But
there are a lot of voids, as you have highlighted.
I guess, once you have identified an address, how easy is
it, what tools are necessary, what legal framework is necessary
to detect and prosecute the--you highlight a case where you
have flagged this address. Once that is converted--the off-ramp
basically--to hard currency, whatever it is, how can we detect
that?
Mr. Fanusie. So this is where the framework is really very
similar to what we already have in place, because--you are
right in asking that. Once they off-ramp, they have to go
through--anyone that is acting illicitly still, if they want
cash, if they want euros, if they want dollars, they have to go
through somewhere, and those endpoints are the chokepoint,
because there--
Mr. Davidson. And that is the best place to catch them, to
identify the person behind this otherwise fairly anonymous IP
address.
Mr. Fanusie. Right. Because usually they would have to
register somewhere in order to do that. Because they are going
into the regular banking system. So those are the chokepoints.
Mr. Davidson. Right. So I was impressed with the ability to
detect the address. Now, if we can continue to monitor that
address for the off-ramp, I am hopeful that we can have some
successful prosecutions.
Mr. Segal, I appreciate the work that you have done, and
the written testimony, to highlight threats domestically. You
did allude to this political spectrum but spent a lot of the
topic on right-wing groups and whatnot. But I am particularly
curious, I didn't see a single mention of the group Antifa. How
do they get their money?
Mr. Segal. Right. So Antifa, just like any other movement
in this country, is self-funded. To show up at a white
supremacist rally to protest, or even if they want to engage in
physical confrontation, maybe you get a bus ticket, maybe you
get a ride from a friend, you need to spend some money on food.
It is not--they are getting money the way I think most people
would get money who want to join a protest.
Mr. Davidson. Just bring your bike lock and you are ready.
Mr. Segal. Right.
Mr. Davidson. OK. Thank you.
Ms. Bauer, I appreciate the--really, the Politico story
gets lots of press, but, frankly, the head of our committee in
February 2017, you had highlighted that this Operation
Cassandra had been stalled due to concerns about the impact on
the Iran negotiations. So thank you for your expertise in that
matter and, frankly, some ongoing dialog with my colleagues.
I am curious about the progress with Cassandra and the
prosecutions related to this and particularly with Hezbollah's
ongoing activity with drug trafficking or other types of
trafficking.
Ms. Bauer. So I can say, first of all, I think that the
situation was much more nuanced than the media portrayed it to
be. And I think that the thrust of the point I was making in
the testimony that was cited there was, first of all, to note
all of the actions and the sustained attention to the issue
under the Obama Administration. Because, really, as I said just
earlier, Hezbollah has been put in a difficult financial
position, and that is because of concerted effort on that
front.
And I would encourage you, if you want to look at a
chronological approach to the different issues related to this,
that my colleague Matt Levitt wrote a detailed piece in Lawfare
that came out a few months ago that goes over really every step
of the way. But I think there are often plenty of reasons why
things aren't done, and he goes through a lot of those
different reasons.
Today, Hezbollah does likely continue to engage in criminal
activity, or at least individuals affiliated with them. That
has always been part of the question, how close the affiliation
is. And that is something that has drawn a lot of attention, as
you mentioned, from the law enforcement community, from other
parts of the U.S. Government, as well as from Congress.
Mr. Davidson. OK.
As my time expires, I guess, ideally, for all, but if
someone can mention, the link between drug trafficking and
illicit finance. Frankly, with 72,000 dead Americans due to
overdoses, it is hard for me to not see drug traffickers as
real threats to our national security. Any comment on the funds
there?
Chairman Pearce. The gentleman's time has expired.
The Chair would now recognize the gentleman, Mr. Himes, for
5 minutes.
Mr. Himes. Thank you, Mr. Chairman.
And thank you all for being here.
I had a bunch of questions about terrorist finance, but I
got to thinking about a broader question that I would love to
just get your opinions on.
My other committee is Intelligence. I spend a lot of time
looking at the remarkable tactical capability we have,
including our ability to disrupt financing when we want. And it
is really remarkable tactically and spectacularly unsuccessful
strategically. And what I mean by that is that 10 years have
gone by and we have more groups and more places and more
ungoverned space, particularly with respect to radical Sunni
groups.
So my question is: As good as we are tactically, what are
we getting wrong strategically?
And we have 4 minutes and 15 seconds. That is a Ph.D.
thesis. But I didn't want to miss this opportunity to just get
40 seconds from each of you about a tangible thing, not
abstractions, not more soft power and better diplomacy, a
tangible thing we can do.
I look at this and I see us lining up with appalling
dictators and quirky monarchies in ways that probably have
blowback for us. I don't see us really helping to generate the
economic growth that provides opportunity.
So let me just start on the left, and I would love to hear
some tangible things that we could do that would change the
strategic picture and actually begin to shrink the threat
globally from Sunni radicals.
About 30 seconds each.
Ms. Bauer. OK. So I think, in the short time provided, that
one of the things we can do better, since the lack of rule of
law, these ungoverned spaces is part of the problem, is to
focus more on rule-of-law efforts and specifically financial
regulation, since that is my area of focus, I think, in
conflict and post-conflict areas.
I think the Iraqi Central Bank has done a good job to try
to take on this issue in just the last couple of years and that
this contributes to efforts to try to constrain the Islamic
state financially.
Mr. Himes. Thank you.
Mr. Fanusie.
Mr. Fanusie. I would point to engaging elements of our
communities that should be engaged more in counterterrorism,
so, let's say, the Muslim American community. This narrative
that is out there that we have discussed, there is also a
narrative where folks within our communities are hesitant to--
actually, let me phrase this properly.
There is a sense that counterterrorism efforts impact the
Muslim community improperly. And I think there should be more
engagement with Muslim counterterrorism offices, Muslim
counterterrorism analysts and folks in law enforcement who can
articulate what it is like to work in counterterrorism and be
of the faith. And that is something that you don't hear about,
you don't see it that much, and I think it is missing in our
narrative about counterterrorism.
Mr. Himes. Thank you.
Mr. Segal.
Mr. Segal. I would just add perhaps, in a similar vein,
using former extremists to deliver the messages to those who
are potentially at risk of believing these narratives. They
have been there, they know what it is like, they have gotten
out. And that could serve as a good model.
Mr. Himes. Thank you. Thank you.
Mr. Soufan. I think, as you correctly mentioned, these
groups are way bigger in numbers than they used to be on the
eve of
9/11. The ideology showed a lot of resiliency. I think I will
say that sectarianism now is a new nature of the conflict and
the new banner for recruitment. I think the Arab Spring shifted
the calculus of a lot of these groups to be involved through
their own strategy of management of savagery to have control of
land, as we have seen in Iraq and in Syria and in other places.
And I think these conflicts that are happening today in
Yemen, in Syria, in North Africa are giving a new oxygen for
these groups. In order to have a better strategic picture for
the United States, we need to work on solving these conflicts.
And without solving these conflicts, I think the military, the
intelligence alone can only best, I think, marginally, really,
affect the outcome of what is happening.
Mr. Clarke. Thank you, Congressman.
We talk all the time about ungoverned space. Just a note on
that. And I use that term myself, but I think we should better
think about it as alternatively governed space. Because that
space is governed; we just don't like who is governing it. And
that gives you a sense of what is going on there.
What could we do to be less myopic? Annunciate a clear and
cogent policy for Syria beyond destroying the Islamic state. I
don't know what our Syria policy is. Amazingly, 17 years into
Afghanistan, I don't know what the policy is there.
Mr. Himes. Yes.
Thank you. You have all done the impossible. That was
actually really interesting.
I will just close by noting that--I don't know how to
evaluate all of that; I will take it you are all experts. But
it is striking to me that what you listed--better working with
local Muslims, better working with ex-extremists trying to tamp
down conflict--we are actually doing the opposite of many of
those things, or at least not talking about those things. I
would just highlight that. Because, again, I think tactically
we are stunningly good at what we do, but we are just not
moving the strategic picture on this issue.
Anyway, thank you, Mr. Chairman, for your indulgence.
And thank you all.
Chairman Pearce. I would recognize now the gentleman from
North Carolina, Mr. Budd, for 5 minutes.
Mr. Budd. Thank you, Mr. Chairman. I appreciate you holding
this hearing.
Mr. Himes, I appreciate your line of questioning. That was
very insightful.
And all of our witnesses and panelists today, a lot of
talent up there. So we appreciate you coming in, for your time.
I want to start by giving a special shout-out to you, Yaya
Fanusie, for the Foundation for the Defense of Democracies. You
have been very helpful to us, and you have been nothing but
excellent in our requests to you. So whenever we have a
question on terrorism/illicit financing, you have been
excellent and responsive.
Anyone else, any of my colleagues over here, I wish they
would use you. And as I have found out today, lots of other
talented panelists, so thank you.
Yaya, after that high praise, I want to ask you some
questions. So I want to start with Hezbollah and move into
crypto.
First, how would you describe Hezbollah's current financial
activities and sources of support in West Africa, also East
Africa, and then Southern Africa.
Mr. Fanusie. So this is something that we are looking at
closely at FDD. In fact, my colleague, who you may be aware of,
Emanuele Ottolenghi, who is a big expert on Hezbollah outside
of the Levant--Hezbollah is active. Hezbollah, for a long time,
has had networks within Africa, going from all the places that
you mentioned--west, southern, central, and east.
So Hezbollah, I would assess, is still very active there,
as it is in Latin America. It relies on its networks, business,
businessmen, particularly who may have ties to Lebanon,
historical ties to Lebanon.
Also, Africa serves as an intermediary point for
trafficking and laundering. The drug trafficking that emanates
from South America has to make its way to Europe, and Africa is
actually a stopping ground for some of those routes. So Africa
continues to be a part of their narcotrafficking network.
Mr. Budd. Yaya, particularly in South America, you
mentioned--and then I heard this area come up--Ms. Bauer, you
mentioned the tri-border area, or the Triple Frontier. Is it
that area, in particular, or is it broader than that in South
America?
Mr. Fanusie. That is a key nexus, a key location because
there is so much illicit activity that happens there, and you
have a lot of Hezbollah folks who participate in it. It is
almost free rein for a lot of illicit activity.
But the networks do go throughout South America because of
the drug trafficking. So where you see the drug trade, you are
going to see a lot of Hezbollah influence emanating up further,
Colombia, Venezuela, and other parts of Latin America.
Mr. Budd. I understand. Thank you.
So what new U.S. efforts are we doing to interdict all that
support?
Mr. Fanusie. I think we have mentioned some of the things
in terms of HIFPA going through. We recently had--almost a year
ago, we had the narcotrafficking Department of Justice task
force or investigation group, and that is operating.
I don't know. You could say it has probably been a mixed
bag, in a sense, in that there have been more designations. I
don't think we have had as many Latin America designations,
though, so I think maybe there is a gap there.
So there is still more work to do, and it is likely that
there is going to continue to be pressure for Hezbollah to ramp
up its efforts because of the rising drug trade and what is
going on with Iran, as we have mentioned, that there actually
may be a financial crunch on Hezbollah with Iran facing more
financial pressure itself.
Mr. Budd. In your mention of Hezbollah, I want to use that
as a shifting-over point to go over to cryptocurrencies. What
are you seeing Hezbollah do in regards to cryptocurrencies, in
particular?
Mr. Fanusie. Yes, this is something that we have our eye
on. We have not seen much. There is some scant reporting about
some perhaps shady businessmen connected to Hezbollah who may
be trying to get into the fintech space. This is actually
something that we are trying to investigate more.
Mr. Budd. OK.
Mr. Fanusie. So it is something that is on our radar.
Mr. Budd. Let me transition to state actors who are
increasingly creating national cryptocurrencies. Venezuela,
Iran, Russia--those come to mind.
Can you describe in detail how the efforts of state actors
to create national cryptocurrencies impacts terror financing?
And if you need to lay, in the time we have remaining, a little
bit of a backdrop of who is doing what there.
Mr. Fanusie. OK. I would also say there is a long term and
the short term. Venezuela tried to create a cryptocurrency. It
is not clear if it is even in existence. Russia says it wants
to do--Iran also--a type of cryptocurrency system.
I would say, in the short term, this is not a major issue
for terrorist financing, because a terrorist is not going to
want Venezuelan Petro more than it wants bitcoin or Monero.
The only issue, I would say, is, in the long term, the
potential for these groups for these states to maybe coordinate
and create an alternative financial system--I am not saying
that is going to happen, and I think there are a lot of
barriers to that. But that would be the risk, that there is an
alternative method of financing and transacting that is global.
And right now that doesn't exist, but that is a thing that we
should prevent.
Mr. Budd. Very good.
It seems my time has expired. Thank you to each of you.
Chairman Pearce. The gentleman's time has expired.
I would like to thank each one of our witnesses for your
testimony today and for the gracious time you spent while we
were in recess.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
I just ask that, if you would please, respond as promptly
as you are able.
Chairman Pearce. This hearing is adjourned.
[Whereupon, at 11:11 a.m., the subcommittee was adjourned.]
A P P E N D I X
September 7, 2018
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