[Senate Hearing 108-802]
[From the U.S. Government Printing Office]



                                                        S. Hrg. 108-802

 
                       COUNTERTERROR INITIATIVES
                     IN THE TERROR FINANCE PROGRAM

=======================================================================

                                HEARINGS

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                       FIRST AND SECOND SESSIONS

                                   ON

 COUNTERTERROR INITIATIVES IN THE TERROR FINANCE PROGRAM, FOCUSING ON 
    THE ROLE OF THE ANTI-MONEY LAUNDERING REGULATORY REGIME IN THE 
FINANCIAL WAR ON TERRORISM, BETTER UTILIZATION OF TECHNOLOGY, INCREASED 
 INFORMATION SHARING, DEVELOPING SIMILAR INTERNATIONAL STANDARDS, AND 
   THE FORMATION OF THE TERRORIST FINANCING OPERATIONS SECTION (TFOS)

                               __________

    SEPTEMBER 25, OCTOBER 22, 2003, APRIL 29, AND SEPTEMBER 29, 2004

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs




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                                 ______

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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  RICHARD C. SHELBY, Alabama, Chairman

ROBERT F. BENNETT, Utah              PAUL S. SARBANES, Maryland
WAYNE ALLARD, Colorado               CHRISTOPHER J. DODD, Connecticut
MICHAEL B. ENZI, Wyoming             TIM JOHNSON, South Dakota
CHUCK HAGEL, Nebraska                JACK REED, Rhode Island
RICK SANTORUM, Pennsylvania          CHARLES E. SCHUMER, New York
JIM BUNNING, Kentucky                EVAN BAYH, Indiana
MIKE CRAPO, Idaho                    ZELL MILLER, Georgia
JOHN E. SUNUNU, New Hampshire        THOMAS R. CARPER, Delaware
ELIZABETH DOLE, North Carolina       DEBBIE STABENOW, Michigan
LINCOLN D. CHAFEE, Rhode Island      JON S. CORZINE, New Jersey

             Kathleen L. Casey, Staff Director and Counsel

     Steven B. Harris, Democratic Staff Director and Chief Counsel

                 Skip Fisher, Senior Professional Staff

               John O'Hara, Senior Investigative Counsel

              Stephen R. Kroll, Democratic Special Counsel

   Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator

                       George E. Whittle, Editor

                                  (ii)


                            C O N T E N T S

                              ----------                              

                      THURSDAY, SEPTEMBER 25, 2003

                                                                   Page

Opening statement of Chairman Shelby.............................     1

Opening statements, comments, or prepared statements of:
    Senator Bunning..............................................     2
    Senator Schumer..............................................    12
    Senator Corzine..............................................    13
    Senator Sarbanes.............................................    14
    Senator Grassley.............................................    30

                               WITNESSES

David D. Aufhauser, General Counsel, U.S. Department of the 
  Treasury.......................................................     3
    Prepared statement...........................................    31
John S. Pistole, Assistant Director, Counterterrorism Division, 
  Federal
  Bureau of Investigation........................................     5
    Prepared statement...........................................    36
E. Anthony Wayne, Assistant Secretary for Economic and Business 
  Affairs,
  U.S. Department of State.......................................     8
    Prepared statement...........................................    42

                              ----------                              

                      WEDNESDAY, OCTOBER 22, 2003

Opening statement of Chairman Shelby.............................    47

Opening statements, comments, or prepared statements of:
    Senator Sarbanes.............................................    48
    Senator Bunning..............................................    49
    Senator Allard...............................................    56
        Prepared statement.......................................    87
    Senator Schumer..............................................    59

                               WITNESSES

Richard A. Clarke, former National Counterterrorism Coordinator, 
  National
  Security Council...............................................    49
    Prepared statement...........................................    87
Louise Richardson, Executive Dean, Radcliffe Institute for 
  Advanced Study,
  Harvard University.............................................    67
    Prepared statement...........................................    91
Jean-Charles Brisard, CEO, JCB Consulting International..........    70
    Prepared statement...........................................    95
Matthew A. Levitt, Senior Fellow in Terrorism Studies, The 
  Washington
  Institute for Near East Policy.................................    74
    Prepared statement...........................................   110

              Additional Material Supplied for the Record

Letter to Senator Richard C. Shelby and Senator Paul S. Sarbanes 
  from Stephen J. Brogan, Managing Partner, Jones Day, dated 
  October 30, 2003...............................................   128

                              ----------                              

                        THURSDAY, APRIL 29, 2004

Opening statement of Chairman Shelby.............................   133

Opening statements, comments, or prepared statements of:
    Senator Sarbanes.............................................   134
    Senator Bennett..............................................   135
    Senator Dole.................................................   136
    Senator Allard...............................................   136
        Prepared statement.......................................   169

                               WITNESSES

Samuel W. Bodman, Deputy Secretary, U.S. Department of the 
  Treasury.......................................................   136
    Prepared statement...........................................   169
William J. Fox, Director, Financial Crimes Enforcement Network, 
  U.S.
  Department of the Treasury.....................................   159
    Prepared statement...........................................   181
R. Richard Newcomb, Director, Office of Foreign Assets Control, 
  U.S.
  Department of the Treasury.....................................   161
    Prepared statement...........................................   187
Nancy Jardini, Chief, Criminal Investigation, Internal Revenue 
  Service........................................................   163
    Prepared statement...........................................   201

                              ----------                              

                      THURSDAY, SEPTEMBER 29, 2004

Opening statement of Chairman Shelby.............................   209

Opening statements, comments, or prepared statements of:
    Senator Reed.................................................   210
    Senator Enzi.................................................   210
    Senator Stabenow.............................................   212
    Senator Crapo................................................   212
    Senator Bunning..............................................   212
        Prepared statement.......................................   260
    Senator Sarbanes.............................................   223
    Senator Carper...............................................   227

                               WITNESSES

Lee H. Hamilton, Vice Chair, The National Commission on 
  Terrorists Attacks
Upon the United States, A Former Representative in Congress from 
  the
  State of Indiana...............................................   213
    Prepared statement...........................................   260
Slade Gorton, Commissioner, The National Commission on Terrorists 
  Attacks
Upon the United States, A Former U.S. Senator from the State of
  Washington.....................................................   214
    Prepared statement...........................................   260
Mallory Factor, Chairman, Mallory Factor, Inc....................   234
    Prepared statement...........................................   264
Lee S. Wolosky, Of Counsel, Boies, Schiller & Flexner, LLP.......   236
    Prepared statement...........................................   267
Stuart A. Levey, Under Secretary, Terrorism and Financial 
  Intelligence,
  Under Secretary for Enforcement, U.S. Department of the 
    Treasury.....................................................   245
    Prepared statement...........................................   272
    Response to a written question of Senator Enzi...............   288
Michael J. Garcia, Assistant Secretary, U.S. Immigration and 
  Customs
  Enforcement, U.S. Department of Homeland Security..............   247
    Prepared statement...........................................   280
John E. Lewis, Deputy Assistant Director, Counterterrorism 
  Division,
  Federal Bureau of Investigation................................   250
    Prepared statement...........................................   283


                      COUNTERTERROR INITIATIVES IN



                       THE TERROR FINANCE PROGRAM

                              ----------                              


                      THURSDAY, SEPTEMBER 25, 2003

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.

    The Committee met at 10:06 a.m., in room SD-538, Dirksen 
Senate Office Building, Senator Richard C. Shelby (Chairman of 
the Committee) presiding.

        OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY

    Chairman Shelby. Good morning. The hearing will come to 
order.
    Today is the first in a series of hearings concerning the 
difficult issues surrounding the financing of terror. The 
unique and broad jurisdiction of this Committee will allow us 
to conduct a comprehensive review of the administration's 
campaign to ``starve the terrorists of their funding.'' Indeed, 
President Bush recognized the need for this campaign, and 
within 2 weeks of September 11, 2001, stated, ``Money is the 
lifeblood of terrorist operations today. We are asking the 
world to stop payment.'' Terror financing takes on an 
international dimension that seeks to use to its advantage the 
global economy and a financial industry that freely crosses 
borders under the cover of legitimate transactions and the ease 
and convenience of wire and computer technology.
    If money is the ``lifeblood'' of the terrorist, it is also 
his poison. Money leaves a trail and a signature which can and 
must be used to identify, track, disrupt, and dismantle the 
terrorist organizations which support those who would target 
innocent people and our way of life. As important as a military 
campaign, the enforcement effort, and the intelligence 
collection, it is not possible to overstate the importance of 
following the money as an equal partner in our coordinated war 
against terror. Without the efforts of the United States and 
the world community to develop and to implement comprehensive 
programs which target all aspects of the use of terror funds 
and share each bit of information from the single wire transfer 
to the bulk cash smuggling operation, the other mandates may 
well fail.
    The importance of the issue welcomes a bipartisan effort. 
The leadership of Senator Sarbanes, the former Chairman and now 
the ranking Democrat on this Committee, has exemplified the 
kind of cooperation this issue demands. This kind of unity 
allowed the Congress to pass the USA PATRIOT Act. The 
legislation was historic, not only for the speed with which it 
was designed and passed, but also for its focus on the 
multiagency cooperation needed for effective and efficient 
implementation.
    As these hearings progress, the Banking Committee will 
explore all aspects of the terror finance issue. It will be 
important to educate the American people about the complexity 
of addressing the demands of cutting funds off from the 
terrorist wherever he is located and whatever case he avows. 
Our witnesses today will speak about those demands since they 
are in the forefront of the Administration's fight.
    Future witnesses will testify about how terror groups are 
organized. We will also hear about alternative methods 
terrorists resort to when our financial industry denies them 
clandestine use of its banks. The Committee will look at the 
charade of so-called charities which raise considerable monies 
for a scourge that is the antithesis of charitable giving. We 
will also address the effective use of the tools Congress 
created in the USA PATRIOT Act. All this will be with a view 
toward our oversight function here. Is the system being used to 
full advantage? However, as the American people have seen with 
other issues this Committee has addressed, like responsible 
corporate governance, we have an independent duty to see where 
improvements to the system can be made, and I believe we will 
not shirk that responsibility.
    We have to assure the American people that every action, 
every technique, every fraud or ruse used by those who seek to 
harm us will be anticipated, met, and countered swiftly and 
effectively.
    Today, we have some very distinguished witnesses here, and 
I would like to introduce them at this time. I will then call 
on some of my Members who are here.
    David Aufhauser is the General Counsel for the Department 
of Treasury. Mr. Aufhauser is also the head of an informal 
group known as the Policy Coordination Committee, or FCC. 
Supervisory Special Agent John Pistole is the Assistant 
Director for the FBI's Counterterrorism Division. He has had a 
distinguished career in fighting organized crime and 
terrorists. Finally, we have Tony Wayne, Department of State's 
Assistant Secretary for Economic and Business Affairs. He 
served as the Director for Regional Affairs in the 
Counterterrorism Office of the State Department. His current 
position puts him in the middle of our diplomatic efforts in 
this arena.
    I want to call on Senator Bunning for any remarks he may 
have.

                STATEMENT OF SENATOR JIM BUNNING

    Senator Bunning. Thank you, Mr. Chairman. I thank you very 
much for holding this important hearing, and thanks to our 
witnesses today as well for appearing.
    After September 11, we all know that the United States is 
not immune to terrorist attack. In order to prevent another 
horrific attack, not only must we track down those who 
performed these terrorist acts, but we must hit the terrorist 
organizations where it hurts them the most--in their 
pocketbooks. No matter how many terrorists we capture, as long 
as terrorism has a funding source, there will always be another 
one waiting to step in and take their place.
    The United States needs to be able to investigate and 
prosecute terrorist financiers wherever they hide. To do this, 
we must have the cooperation and support of the international 
community. We have made some progress in finding and blocking 
some of these funds, but there is still a lot more that we can 
do. We must turn off the terrorism funding faucet and force 
these terrorists to dry up and wither away.
    Once again, Mr. Chairman, thank you for holding this 
important hearing.
    Chairman Shelby. Thank you.
    All of your written statements will be made part of the 
record in their entirety as we move along in this very 
important endeavor.
    I first want to acknowledge that Senator Grassley, the 
Chairman of the Finance Committee, has a statement for the 
record, and without objection, it will be entered here.
    Chairman Shelby. Mr. Aufhauser, we will start with you. You 
proceed as you wish. Welcome to the Committee.

                STATEMENT OF DAVID D. AUFHAUSER

        GENERAL COUNSEL, U.S. DEPARTMENT OF THE TREASURY

    Mr. Aufhauser. Thank you, Mr. Chairman. It is a distinct 
honor to appear before you. You and I actually have previously 
discussed Treasury enforcement and terrorist financing matters 
in closed hearings before the Senate Intelligence Committee 
when you served on that Committee. And I am actually very 
grateful for the chance to debate these issues in the daylight 
because I think we can all profit from an informed debate on 
something that is central, I think, to the lives of the 
country.
    Senator Sarbanes, whom you commended for also being a major 
participant in this hearing, I am grateful for the attention he 
has paid to it, particularly through my good friend, Steve 
Kroll, on his staff. I live in the District of Columbia, so 
Senator Sarbanes is the closest I have ever come to a Senator. 
And I am particularly grateful that he has people like Steve 
working for him.
    Chairman Shelby. We are also grateful to Senator Sarbanes, 
as I said, the former Chairman of the Committee, now the 
ranking Democrat, for his interest in this because we are 
approaching this in a bipartisan fashion, not only with our 
Committee members and the leaders of the Committee but with our 
staffs, too.
    Mr. Aufhauser. Well, on the staffs, I would be remiss if I 
did not mention the good industry of Steve Harris and Kathy 
Casey.
    Chairman Shelby. Absolutely.
    Mr. Aufhauser. And particularly John Smith. I think we are 
all safer because of it.
    Mr. Chairman, terror traffics in three forms of currency: 
hate, counterfeit religion, and money. The first two are born 
out of a deficit of hope, particularly in the Middle East, the 
most naked symbol of which, I think, is the failure to resolve 
the question of Palestine. But the malevolence preys on a 
dynamic that extends far beyond those borders, the corners of 
the world where you find the Islamic Diaspora: hunger, torn by 
civil war, living in near-permanent refugee camps, looking for 
remedy where reason seems to beggar that notion. There, 
hopelessness is forged into hate by merchants of the false cure 
called terror.
    These are problems writ large that must be addressed if we 
hope to bring our children up in a world no longer haunted by 
killers with political agenda. But it will take years to win 
hearts and minds, and the challenge may be beyond my personal 
ken.
    I have a more immediate and, if you will, pedestrian 
calling, which is to deal with the third leg of terror, which 
is its funding. The task came to me with some irony. I joined 
the Treasury Department in March of 2001, challenged by Paul 
O'Neill to help him put good money to good account, 
particularly in development aid. We wanted real-world 
consequence, and our model was water wells in 1,000 villages 
rather than the narcotic of grand master plans.
    After September 11, 2001, I was asked to deal with the 
distorted mirror image of that ambition, no longer responsible 
for money intended to enrich people but to destroy them. It is 
something that we have never done before in this country, at 
least in a systemic way, and a legitimate subject perhaps for 
examination and research.
    I say that because almost nothing is more important on the 
battlefield of the war on terror than diminishing the flow of 
money, and there is additional irony that it took the 
destruction of a temple of commerce to teach us that lesson.
    Why is it important?
    First, it is doable and it is within our reach. Al Qaeda's 
cashflow has been Balkanized and cut by two-thirds since we 
started this campaign.
    Second, it provides infinite leverage to prevent calamity. 
You cannot limit the imagination or design of a terrorist cell 
that is rich with money in its pockets. But all their invention 
is forfeit if the funds never materialize.
    Third, in this uncommon shadow war of terror, virtually 
every source of information we have is suspect. It is the 
product of treachery or deceit or bribery or interrogation. But 
financial records do not lie, and they bring integrity to the 
process of threat assessment and the prevention of mayhem.
    Fourth, a man who straps a bomb to his chest is an 
implacable foe. He is beyond redemption and certainly beyond 
deterrence because of any threat of economic or physical 
sanction. But his banker is a coward and can be made wary and 
apprehensive and a bankrupt source of future funding.
    Fifth, intelligence on future terror acts is a compound of 
genius, sweat equity, and serendipity. I do not like the 
serendipity part. The prospect of collecting and successfully 
analyzing intelligence on 100 events at the end of the pipeline 
of the terrorist enterprise would be nothing short of 
miraculous. Stopping the capital formation of that enterprise 
before all such invention, while a daunting challenge, is our 
more promising strategic choice and goal.
    There will be no surrender on a Battleship Missouri in this 
particular war. There is no flag to capture, no uniformed army 
to corral, no clod of earth that our enemies will wish to 
preserve in the event of defeat. Rather, we will count our 
victories one at a time, measured in single captures or 
killings. We will defeat them, however, in a systemic way only 
by denying them the lifeline of their mobility and stealth, 
which is their financing.
    It cannot be done alone, as you said. Virtually all of our 
concerns, save for John Pistole's good industry on domestic 
threat here in America, are abroad. We, therefore, mark our 
successes by building new laws, new capacities, and political 
will globally to stem the flow of terrorist financing, whether 
it is Syrian and Iranian support for Hezbollah, whether it is 
money flowing out of Europe for Hamas, or whether it is money 
flowing out of the Gulf States for Al Qaeda. There has been a 
sea change because of our efforts. Let me close this opening 
statement with an example.
    Over the past 1,700 years, any member of the Islamic faith 
could walk into one of tens of thousands of mosques that 
populate Saudi Arabia and reaffirm a covenant with God, at 
least in some small part, by depositing coin or currency in a 
collection box known as ``sikhada.'' It is an intensely private 
act, Senator, what you might call a very good secret--nothing 
vainglorious, just a simple act of faith and charity. In a 
world of peace, it would not be the business of governments. 
Indeed, to regulate it could be called sacrilege.
    We do not, however, live in a world of peace, and some of 
these collection boxes have been found in the hands of Al 
Qaeda. And today, thanks in part to our dialogue with Saudi 
Arabia, the keeper of Mecca, cash collection in sikhada is 
banned.
    That kind of change in even the most fundamental acts of a 
society or a faith has taken enormous resources and the kind of 
industry that would make this Committee proud of a government 
and an interagency process that works as one. For a while 
there, we were spinning gold out of straw. It was all new, and, 
we can still make substantial improvements. But with colleagues 
like Tony and John here, the campaign against terrorist 
financing will bring more peace, in my judgment, to our 
citizens than an army of soldiers in the war against terror. 
Maybe if I get the privilege to return to public service, I can 
work on those village wells that Paul and I spoke about 3 years 
ago when the world was a very different place.
    Thank you.
    Chairman Shelby. Thank you.
    Mr. Pistole.

                  STATEMENT OF JOHN S. PISTOLE

         ASSISTANT DIRECTOR, COUNTERTERRORISM DIVISION

                FEDERAL BUREAU OF INVESTIGATION

    Mr. Pistole. Chairman Shelby, Senator Bunning, thank you 
for the opportunity to be here this morning representing the 
FBI. My name is John Pistole, Assistant Director of the 
Counterterrorism Division.
    Director Mueller is changing the focus of the FBI, as you 
are well aware. As Assistant Director of Counterterrorism, I 
have the privilege and the responsibility for ensuring that our 
56 field offices, our 84 Joint Terrorism Task Forces, and our 
45 legal attache offices overseas, all of whom are working 
toward countering terrorist activity, are aware of the mandate 
that we focus on intelligence primarily, with law enforcement 
sanctions as an ancillary avenue of disruption to terrorist 
organizations. With that in mind, we have changed the focus of 
the FBI to ensure that we do everything we can to collect, 
analyze, exploit, and then disseminate on a timely basis all 
information that we have collected.
    One of the things that has changed in the FBI since 
September 11 is our focus on terrorism financing. Prior to the 
events of September 11, we simply did not have a comprehensive, 
centralized, focused, or proactive approach to terrorism 
finance matters.
    The events of September 11 identified a critical need for 
this comprehensive, centralized approach. In response to that, 
we created what is known as the Terrorism Financing Operations 
Section, TFOS, headed by Dennis Lormel, who is here with me 
today. The mission of TFOS has since evolved into a broader 
strategy to identify, investigate, prosecute, disrupt, and 
dismantle incrementally all terrorist-related financial and 
fundraising activities.
    In forming this TFOS, we built upon the traditional 
expertise the FBI has in conducting complex criminal financial 
investigations and long-established relationships with the 
financial services communities in the United States and abroad. 
Integrating these skills and resources with the 
Counterterrorism Division allows the FBI to bring its full 
assets to bear in the financial war on terrorism.
    In terms of context, the September 11 hijackers utilized 
slightly over $300,000 through formal banking channels to 
facilitate their time in the United States. We assessed that 
they used another $200,000 to $300,000 in cash to pay for 
living expenses, which brings us to the challenge of how we 
identify terrorist funding in all venues.
    We have conducted significant liaison and outreach since 
September 11, both within our domestic partners as represented, 
of course, with Treasury and State here, through the JTTF's, 
but also significantly with our international law enforcement 
and foreign intelligence partners.
    We have done much, but there is still much to be done. We 
have initiated several proactive projects through the Terrorism 
Financing Section, where we are focusing on more sophisticated 
and effective processes and mechanisms to address and target 
terrorism financing as it develops and evolves. These proactive 
approaches are predicated on this cooperation we have with 
other agencies, and especially with our partners in private 
financial services. To that end, we have engaged in significant 
information sharing of FBI information, obviously on an as-
needed basis, with those in the intelligence community and also 
with our law enforcement partners and private partners.
    Under the tutelage of Mr. Aufhauser, through the National 
Security Council's Policy Coordinating Council, we have been 
able to allocate resources in an organized and focused approach 
where we are prioritizing the matters as best assessed.
    I want to spend just a moment, if I could, Chairman Shelby, 
on the issue of Saudi Arabia and the war on terrorism. The 
Kingdom of Saudi Arabia has taken a number of steps, both 
demonstrable and measurable, since September 11 but, most 
significantly, since the three bombings in Riyadh on May 12 of 
this year. I have been to the Kingdom twice since May 12 to 
assess the possibilities of greater interaction and cooperation 
between the FBI and the Mabahith, the Saudi equivalent of the 
FBI. Saudi Arabia has put new laws and regulations in place in 
terms of trying to strengthen existing laws and regulations 
regarding, for example, money laundering. They have also 
assisted in trying to block funds and gathered evidence and 
arrested terrorism suspects.
    One of the individuals I wanted to highlight this morning 
is an individual who the Saudis have been looking for for some 
time in connection with his probable participation in the May 
12 bombings in Riyadh, which killed 34 individuals, including 
some Americans, and the 9 individuals who were the suicide 
bombers. This individual, Zubayr al-Rimi, we have been looking 
for also. We did not believe he was in the United States, but 
on September 5 of this year, we put out what we call a BOLO, be 
on the lookout for this individual. And 2 days ago, the Saudis, 
through intelligence, cooperative intelligence activity, were 
able to locate him near the 
border with Yemen in southern Saudi Arabia, and in a fierce gun 
battle eventually led to Mr. al-Rimi's death, where a Mabahith 
officer was also killed and two critically wounded. That brings 
the number of Mabahith officers and security forces in the 
Kingdom to over a dozen now who have been killed in trying to 
pursue and locate Al Qaeda members in the Kingdom.
    In those terms, there has been a lot of rhetoric. People 
have referred to the rhetoric. They are now also spilling their 
blood in terms of trying to locate and capture Al Qaeda.
    Also in the last several days, there has been a sensitive 
operation which resulted in a number of very positive law 
enforcement intelligence collection and disruption of 
individuals in the Kingdom, which I would be glad to provide in 
a classified format.
    We have engaged significantly in training of Mabahith 
officers. In fact, we have FBI agents, Treasury agents on the 
ground right now in Riyadh who are training 20 Mabahith 
officers in terrorism financing, specific issues there.
    We had also initiated joint investigative efforts with 
Mabahith in Riyadh where we, again, have Treasury agents and 
FBI agents who are actually working hand in hand with Mabahith 
to identify and disrupt terrorist financing in the Kingdom. So 
there are a number of positive steps that we see and assess in 
dealing with the Kingdom of Saudi Arabia.
    We had a number of successes with our partners represented 
at the table here and others not represented in terms of 
disrupting terrorism financing here in the United States. There 
have been a number of indictments, a number of cases still 
pending. Certain 
individuals have pled guilty and received fairly lengthy prison 
sentences in regard to their fundraising on behalf of terrorist 
organizations here in the United States.
    We have also been able to disrupt overseas four planned 
terrorist attacks because of our relationship with a particular 
foreign intelligence service and with certain financial 
services entities in the United States that were able to 
provide almost real-time information that led to the specific 
identification of individuals picking up money overseas that 
was going to be used in terrorist attacks. So we are seeing a 
number of successes in that regard.
    I want to publicly thank the financial institutions here in 
the United States who have done an incredible amount of work 
with us in the law enforcement and intelligence communities to 
ensure that we are doing everything humanly possible to disrupt 
and prevent the next terrorist act.
    One issue I would like to raise Chairman, is one thing that 
we would like to see improved upon, and that is the production 
of documents, financial documents, in electronic format. And I 
can go into more detail on that. Historically, of course, we 
have subpoenaed documents from a bank, and several weeks later, 
we get a banker box of paper documents. And then we have to 
sift through those and try to analyze those by hand.
    We are seeking--and some financial services companies have 
provided those documents in electronic format, but we are 
seeking to have a uniform approach to that where we could have 
all documents provided in an electronic format to allow us to 
analyze, exploit, and disseminate as appropriate, as we can.
    In the war on terrorism financing, in conclusion, I would 
say that it is a long, difficult road, as David Aufhauser said. 
Will we ever be able to disrupt and prevent every dollar going 
to terrorists? I do not believe so. Every dollar that we are 
able to prevent, that is one less dollar that is going to buy 
bullets or bombs for terrorists.
    Thank you, Mr. Chairman.
    Chairman Shelby. Mr. Wayne.

                 STATEMENT OF E. ANTHONY WAYNE

              ASSISTANT SECRETARY FOR ECONOMIC AND

           BUSINESS AFFAIRS, U.S. DEPARTMENT OF STATE

    Mr. Wayne. Thank you, Mr. Chairman, Senator Bunning. It is 
a great pleasure to be here and have this opportunity to talk 
about this important front in this war against terrorism.
    I would like to begin by recognizing how far the U.S. 
Government has come in interagency coordination when it comes 
to deal with terrorist financing. We have made enormous steps 
forward in the degree to which we can bring all the equities of 
the various U.S. agencies together to coordinate our efforts 
and to go after this very complex set of factors, of aspects, 
as we try to cut off the flow of funds to terrorists.
    I would also like to express my appreciation for the 
leadership David Aufhauser has brought to the Policy 
Coordinating Committee, which has helped bring us all together. 
As he said, at first we were getting a lot of straw and seeing 
what gold we could spin, but we have actually started spinning 
gold out of this process, and that is becoming more and more 
fruitful as we go forward.
    Our task has been to identify, track and pursue the 
financing targets and to work with the international community 
to get them to take measures along with us to thwart the 
ability of terrorists to raise and channel funds to carry out 
their heinous acts. A key weapon in this process has been the 
Executive Order which the President signed shortly after 
September 11, Executive Order 13224. Under that order we have 
frozen the assets of 321 individuals and entities. The agencies 
working together on this are daily in contact, evaluating new 
names, looking at targets for a possible asset freeze, but we 
are also looking at other forms of action, not just the public 
action of asset freeze. We have used these actions, as Mr. 
Pistole was saying, very effectively.
    Often we will start off by a diplomatic initiative to get 
other governments to start conducting the audits that need to 
be taken, to undertake the investigations themselves, to start 
exchanging information with us, the kind of financial records 
that Mr. Aufhauser cited, to get better cooperation between law 
enforcement and intelligence agencies, and to put new laws and 
regulations in place. It is surprising how many countries in 
the world did not have the legal authority to really act in 
these areas.
    In every approach that we have adopted in the PCC regarding 
a specific target, there has been very extensive, very careful, 
painstaking work that has taken place. We want to make sure we 
have very credible evidence that links that target to 
terrorism. We want to weigh all the various options for going 
after a target. We need to identify the most effective way. A 
number of times we will shift gears as we go forward in 
pursuing a certain target. We want to be right. We want to be 
legal, and we want to be effective as we move ahead. In some 
cases that means we support public action, but in other cases 
we have chosen other methods, including law enforcement, 
intelligence, or getting another government to undertake the 
action that is needed.
    Internationally, let me just note that the United Nations 
has been very important in this effort. It helped give the 
international impetus and legitimacy to asset freezes that are 
needed for us to help persuade others to come together. This is 
important because, one, most of the assets, of course, that 
terrorists use are not flowing through the United States. They 
are flowing through other countries. Second, when it comes to 
Al Qaeda in particular, it means that when an individual or an 
entity is listed on the UN sanctions list, all 191 members of 
the UN are obligated to implement those sanctions including 
asset freezes of those individuals and entities. So far on that 
list at the UN there are 217 names.
    Another important organization to mention in this effort is 
the Financial Action Task Force, which we call FATF in our love 
for acronyms. There are 33 members in this group, and what they 
initially were devoted to doing was combating money laundering. 
But after September 11 they expanded their focus and came up 
with additional recommendations on fighting terrorist finance. 
It is in large part because of the action of this group, for 
example, that Indonesia has just recently passed a very strong 
set of anti-money laundering and antiterrorist financing laws, 
that the Philippines recently also very much strengthened their 
regulation and legal structure for being able to act against 
terrorist financing. Right now, there is a FATF team that is 
working with the Saudi Government to review its recently 
drafted regulations and pending legislation as well.
    Saudi Arabia has been a particular focus of our 
counterterrorist finance efforts. On October 12, 2001, we and 
the UN designated for asset-freezing the assets of a Saudi 
millionaire, Yasin al Kadi, because of his links to Al Qaeda. 
Subsequently, we and the Government of Saudi Arabia submitted 
to the United Nations the names of the Somali and Bosnian 
branches of a Saudi-based charity, Al-Haramain, and that was 
listed for, those branches were listed in the UN for worldwide 
asset freezing. We and the Saudis have also submitted the name 
of Wael Julaidan, a prominent Saudi Al Qaeda financier to the 
UN in September 2002. These are a few examples of the public 
activity that has taken place.
    In January, we launched a reinvigorated senior-level 
dialogue designed to improve communications and concrete 
cooperation with Saudi Arabia. The United States told the Saudi 
Government forthrightly that they would be judged by their 
actions. As a result of the May 12, 2003 bombings in Saudi 
Arabia that left 34 dead, including 8 Americans, that dialogue 
has intensified.
    Our strategy with Saudi Arabia has three parts: interaction 
between key U.S. Government and Saudi officials; presenting 
packages of useful and usable information to the Saudis to help 
them take action against individuals and organizations involved 
in the funding and support of terrorism; and applying 
diplomatic pressure to ensure effective and timely Saudi action 
based on the information. All of this requires follow up in the 
building of relationships of trust and confidence.
    But it is important to recognize that Saudi Arabia has made 
fundamental and necessary changes in its banking and its 
charity systems to help strangle the funds that are keeping and 
have been keeping Al Qaeda in business. Saudi Arabia is working 
with us very closely, as Mr. Pistole mentioned, in a number of 
ongoing efforts. The new banking regulations place strict 
controls on accounts held by charities. Charities cannot 
deposit or withdraw cash from their bank accounts, nor can they 
make wire transfers abroad via their bank accounts. As David 
Aufhauser mentioned, they have now banned in Saudi Arabia the 
collection of donations at mosques and instructed retail 
establishments to remove charity collection boxes from their 
premises. This is something that is undoubtedly very 
challenging for the government of Saudi Arabia to do.
    I want to stress, however, this is a work in progress. We 
have reason to believe that our new cooperative work with the 
Saudis on terrorist financing will be effective, but we need to 
see results. We believe the Saudi Government is implementing 
its new charity regulations, but there too we need to see 
results.
    Let me stress one point here. The Saudis have been and are 
still limited by their own lack of expertise, and this is a 
situation, as Mr. Pistole mentioned, that we are working to 
address. They are now receptive to our assistance and our 
efforts to help them boost their capacity. The Saudis are not 
yet where they need to be. They have much work to do. However, 
we believe they are headed in the right direction and are 
committed to countering the threat of terrorist financing, and 
are giving us very strong cooperation at this time in the war 
on terrorism.
    Let me just mention one other key focus of our terrorist 
finance efforts: Hamas. Recently, on August 22, President Bush 
announced the designation for asset freezing of five Hamas fund 
raisers and six top Hamas leaders. Earlier in the year, the 
United States had also designated for asset freezing another 
Hamas charity operating in various parts of Europe, the al Aqsa 
Foundation.
    Hamas' recent suicide bombings demonstrate the 
organization's commitment to undermining any real efforts to 
move toward permanent peace between Israel and the 
Palestinians. Shutting off the flow of funds to Hamas is 
crucial to reducing Hamas' ability to carry out its activities 
and to thwart the progress toward peace. In light of this, the 
United States welcomed the European Union's recent decision to 
designate Hamas in its entirety as a terrorist organization. We 
have also urged governments throughout the region of the Middle 
East to take steps to shut down both Hamas, its operations, and 
its offices and to do everything possible to disrupt the flow 
of funds to Hamas and the other Palestinian organizations that 
have engaged in terror.
    I think it is worth briefly noting that there has been a 
lot of other activity going on in the Middle East region. A 
number of governments, the UAE, Bahrain, Egypt and Qatar have 
passed new money laundering legislation. The Gulf Cooperation 
Council has been an active member of the FATF group. They have 
taken fresh looks at their banking systems. All of these 
countries are taking new looks at how they have regulated 
charities. They are also looking at the informal money exchange 
systems in the Middle East called hawalas because these pose a 
specific and special challenge to the flow of money between 
regions, between countries in the world. We have been working 
with them and others in this effort.
    I want to note just for a moment that arrests, that asset 
freezes get the headlines because they are public, but we do do 
a number of things that we put under the rubric of diplomatic 
activity, and I just want to stress that diplomatic activity is 
not about just going in and having tea with an official from 
another government. We are talking about getting other 
governments to cooperate concretely. We are talking about 
including law enforcement actions, intelligence actions, 
getting them to speak out publicly, getting them to prosecute 
terrorists, getting them to extradite terrorists, getting them 
to put new laws in place that they did not have before, 
prohibiting funds that are flowing to charities illicitly or 
for wrong purposes, making sure that their companies are not 
allowing funds to flow through them to terrorists. We are also 
working hard in what we call diplomatic activities to make it 
much easier for our colleagues in the law enforcement and the 
intelligence agencies to work with their colleagues.
    The results of all of this action together and all of the 
agencies working together is vital for our long-term success. 
Now, we are going to keep working hard at this in all the 
regions of the world, and I am very happy, Mr. Chairman, that 
you are having an ongoing series of hearings and examinations 
of this problem, because it is complex, it is going to take a 
long time, and it touches many different regions and many 
different aspects of financial flows.
    One of the key things that we try and do in this process is 
identify the vulnerabilities, not only in our own system but in 
other countries' systems, and in that context I just want to 
point out the vital importance of the capacity building and 
technical assistance that we can offer others. It is surprising 
when you actually go to other countries and talk to them, how 
much help they need even if they want to do the right thing.
    Thank you very, very much, Mr. Chairman, Members of the 
Committee. We have a long way to go. We are started in the 
right direction and we very much appreciate all of your support 
as we move down this road. Thank you.
    Chairman Shelby. Thank you, Mr. Secretary.
    Senators Schumer, Corzine, and Sarbanes have joined us.
    Senator Schumer, do you have an opening statement you would 
like to make?

            STATEMENT OF SENATOR CHARLES E. SCHUMER

    Senator Schumer. Thank you, Mr. Chairman. I appreciate that 
because I have another place I have to go. I am going to try to 
come back and ask some questions as well because I appreciate 
your doing this and all of the hearings. This is much needed 
because this is a very serious issue, one, as you know, that I 
care a whole lot about. We all know that money is the lifeblood 
of terrorism. We have said that so many times it seems like old 
hat. But you cut off the funds that allow terrorists to carry 
out their deeds and you go a long way to shutting down their 
operations and that is why it is so appropriate to start with 
Saudi Arabia.
    I believe that Saudi Arabia has done more to fund terrorism 
and more to fund, to empower and enable terrorism than any 
other country. In fact, I would argue that if you want to trace 
how much damage countries do to us, probably Saudi Arabia does 
at least as much damage as many countries on the terrorist 
watch list, even though they profess to be much greater allies.
    I do not have a long time to go into a whole lot of things, 
but it is my basic view--I am going to focus on two--that the 
Saudi royal family struck a deal with the devil a long time 
ago, offering to sponsor the teachings of the country's hard-
line clerics and propagate them around the world, wahabiism, 
militancy, a hijacking of a peaceful religion, Islam. It is a 
remarkably peaceful religion, and the vast majority of Muslims 
in this country are patriotic citizens who came here because 
they loved our values, and you cannot state that enough. But 
the Saudi royal family, who probably does not even represent 
the Saudi people, struck a deal with the devil, and said: Leave 
us alone here, and we will help you propagate this in Pakistan 
and in Indonesia and everywhere else. Of course, all of that 
changed at September 11. It has changed a little more after the 
bombings in Riyadh, but it sure has not changed enough.
    The two places I want to focus right now--and I hope the 
witnesses will address it--one is the Saudi interior minister, 
the man in charge of antiterrorism in Saudi Arabia, the man you 
are supposed to cooperate with--Mr. Wayne, I do not agree with 
you. This is not a question of their not having the tools but 
wanting to help. They want to do as little as possible to 
assuage the West, and they keep doing the same things. The 
Minister, the Interior Minister, repeatedly continues to block 
American investigations. He singlehandedly blocked the trial of 
the 13 Saudis indicted in the American courts for killing 19 
Americans when they bombed Khobar Towers.
    After September 11--this is not a rabble-rouser on the 
streets. This is the Interior Minister. I believe he is the 
brother of Abdullah. He insisted that Zionists were responsible 
for September 11 and insisted that Saudi citizens could not 
have been involved, even after the Saudi Government admitted 
that 15 of the 19 hijackers were Saudi. That is not a lack of 
technical ability, in all due respect, Mr. Wayne.
    Even as I speak, Nayef appears up to his old tricks, 
because they for months denied American agents access to a 
Saudi with knowledge of extensive plans to release poison gas 
into New York City subways. So that is point one. How the heck 
can this Government cooperate in cutting off finances in 
stopping terrorism when their Interior Minister seems to have 
no desire, and in fact professes things that you would think 
would only come from extremists and terrorists themselves.
    Then the second issue is the enabling, the empowerment, the 
schools that are funded around the world. Why is it that in 
places as far away as Indonesia and Pakistan there are so many 
young people who seem to feel that it is their mission in life 
to create a religious war against the infidel, who are not only 
all non-Muslims but members of other Muslim sects that are not 
as extreme? We know why. Because the Saudi royal leadership, 
aided and abetted by the Saudi Government has funded these 
schools. Are they stopping the flow of funding to the 
madrassas? No. If any one has evidence that they are, I would 
like to know it. I believe that if there were no madrassas you 
can make an argument that September 11 might not have happened, 
that Al Qaeda would not be either in existence or as strong as 
it is today. That funding comes from the leadership of Saudi 
Arabia. We all know that Al Qaeda is funded by Saudi citizens.
    Let me read you something from the Council on Foreign 
Relations Report. This is a year after September 11, chaired by 
Hank Greenberg, head of AIG, hardly a rabble-frouser or 
anything like that. The report said:

    It is worth stating clearly and unambiguously what official 
U.S. Government spokespersons have not. For years individuals 
and charities based in Saudi Arabia have been the most 
important source of funds for Al Qaeda, and for years Saudi 
officials have turned a blind eye to the problem.

    If the Saudis want to show that they are part of the family 
of Nations and are not being two-faced, telling the West they 
hate terrorism and allowing the funding, I would suggest that 
they cut off the funding of these madrassas immediately, which 
teach hatred and take poor starving kids who know nothing 
better, feed them, and then teach them that their mission in 
life is to kill other people who do not believe what they 
believe, inimical to the freedom and plurality that we hold, 
and again I hasten to add, the vast majority of Muslim-
Americans hold dear.
    Thank you for allowing me to make this statement and I hope 
I can return to ask questions about Nayef and about these 
madrassas and if there has been any progress made.
    Chairman Shelby. Thank you, Senator Schumer.
    Senator Corzine.

               COMMENTS OF SENATOR JON S. CORZINE

    Senator Corzine. Thank you, Mr. Chairman.
    I appreciate you holding this hearing on a most complex 
subject. We obviously hear the intersection of diplomacy and 
the need for detailed effort in the area of our financial 
system.
    I have a formal statement that I will put in the record.
    Chairman Shelby. It will be made part of the record in its 
entirety.
    Senator Corzine. But one of the points that I make in that, 
which is reinforced with the opening statements, which I think 
is so important in the greater war on terrorism, is the 
emphasis on coordinated multilateral action. The simple fact is 
interruption of funds flows that these funds and the efforts 
that are being made would not occur without a multilateral 
approach to how we are dealing with it.
    I will now quote from the General Counsel of Treasury's 
view: ``Acting unilaterally is often an empty gesture, an 
action without effect.'' I think that is an approach that needs 
to be taken in the war on terrorism.
    Chairman Shelby. Senator Sarbanes.

              COMMENT OF SENATOR PAUL S. SARBANES

    Senator Sarbanes. Thank you very much, Mr. Chairman.
    I am sorry I was not able to be here right at the outset of 
the hearing, but I had a conflicting responsibility.
    First, I want to commend you, Chairman Shelby, for calling 
for an in-depth review of the financing of terrorism. I think 
this is an extremely important subject, and I am pleased to 
join with you in this shared effort. In fact, your chairmanship 
first of the Intelligence Committee and now of this Committee I 
think gives you a unique perspective to come at this issue, and 
I fully support your plans to make this a high priority for our 
Committee.
    I strongly share your commitment to focusing on ways to 
improve the detection and prevention of terrorist financing. I 
think it is generally acknowledged that following the money can 
be the key to the most difficult of investigations. That is why 
this Committee moved to report a Money Laundering and Anti-
Terrorist Financing bill on October 4, 2001, less than a month 
after the September 11 tragedy, and held two oversight hearings 
last year on the implementation of the resulting legislation.
    We need to look at how money is used to pay directly or 
indirectly for the work of terrorists around the world, where 
the money comes from, how it passes through the global payment 
system, how it is disguised. That knowledge, of course, is 
necessary if we are to examine how the U.S. Government deals 
with the terrorist money flow, whether our agencies are 
organized effectively to do so and whether our international 
arrangements are adequate to the task.
    Breaking up the infrastructure through which terrorists are 
recruited, trained, and sustained is essential to reducing the 
threat of terrorism. Cutting down--or, hopefully, cutting off--
the money on which terrorists rely to construct and maintain 
that infrastructure is one of the best ways to do so.
    But economic sanctions, seizure of funds and other means 
will work to deprive terrorists of financing only when those 
efforts reflect the sophisticated knowledge of terrorism's 
financial backers, the regions from which they come, and the 
methods they rely on.
    The Chairman has indicated that the Committee is now 
undertaking a comprehensive review of all aspects of terror 
financing. Subjects will include implementation of Title III of 
the USA PATRIOT Act, methods and means of terror financing, the 
relationship and cooperation of the various executive 
departments and agencies in countering terrorist financing, and 
the cooperation of the international community, and privacy and 
civil liberties issues.
    This is a comprehensive and ambitious agenda, but it is my 
own view that it can make a very significant and substantial 
contribution to the fight against terrorism.
    A lot of people think it is somewhat off to the side or not 
right in the middle, but the fact of the matter is that if we 
can succeed in this fight, if we can dry up the financial 
resources, this may well be the most effective way to get at 
this problem.
    Mr. Chairman, I strongly share your commitment to this 
series of hearings, and we look forward to carrying through 
with it, and I want to welcome our three witnesses today.
    Chairman Shelby. Thank you, Senator Sarbanes.
    Mr. Aufhauser, you have recently traveled--probably many 
times--to Saudi Arabia with a multiagency group to coordinate 
closer cooperation with the Kingdom of Saudi Arabia, among 
other things. What has Saudi Arabia accomplished regarding 
terrorist financing, in a frank and candid way, if you can say 
so here, and would you assess for us the cooperation of Saudi 
Arabia with our efforts, real time, in the past and in the 
future?
    Go ahead.
    Mr. Aufhauser. Let me begin if I can by rehearsing some of 
the strides that have been made as a result of the dialogue 
with Saudi Arabia.
    Chairman Shelby. Sure.
    Mr. Aufhauser. And it is a litany of specifics. There have 
been, one, arrests of six to eight prominent fundraisers that 
have been identified to us by detainees.
    Two, there has been, as Mr. Wayne has noted, significant 
designations of prominent merchants, particularly out of Jeda. 
This has profound deterrent effect, as I stated in my opening.
    Three, they agreed to shutter the offices in Bosnia, in 
Kosovo, of two significant Al-Haramain charity outposts which 
are financing terror as opposed to underwriting eleemosynary 
purposes.
    Four, they have agreed indeed to restructure that of their 
largest charities, Al-Haramain, to conduct a criminal 
investigation of its head, and have agreed further to cut off 
all support, all financial support, of Al-Haramain and eight 
additional offices around the world where we again demonstrated 
to them that those offices were perverting the purposes of 
charity to do violence to communities.
    They have also adopted an ambitious charities regime, which 
Mr. Wayne testified to, which basically exercises more control 
over the remittance of cash or money across borders. In fact, 
it indeed needs to be vetted now by Saudi authorities, 
effectively.
    They have also adopted extensive anti-money laundering 
legislation and regulations which are now under scrutiny by 
international auditors in the form of FATF, again as alluded to 
by Mr. Wayne.
    And as I have stated, they have taken the profound step of 
prohibiting cash collections in their own mosques, something 
which is at war with 1,700 years of their heritage.
    I will also say that they tell us that they have begun the 
vetting of clerics for extremism and indeed have told us that 
as many as 1,200 domestically have essentially been canned 
because of such vetting.
    And they have also begun to police money remittance outfits 
and closed more than 100 of them which were previously 
unregulated and responsible for cross-border changing.
    The most important thing that they have agreed to do is 
this joint task force, which gives us a window of transparency 
and a tester on their true resolve to use the evidence that we 
give them, to use their compulsory process to get at things.
    Now, that is extraordinary stuff from where we were before 
September 11, but it is far from enough in my judgment. I would 
characterize--and I am a little bit more Spartan on this than 
most--I would characterize the cooperation as halting, lacking 
all initiative, responsive, sometimes insincere. Let me give 
you an example of the insincerity. The adoption of the 
charities regime was widely announced here in Washington last 
fall or winter, but it was not implemented until Ambassador 
Black and I went to Riyadh and urged them to follow through and 
put their money where their mouths were.
    Similarly, on the designations of Julaidan, which was 
referred to by Mr. Wayne, to be sure, they designated him, they 
conducted interrogations, but they failed to share material 
information about those interrogations with us.
    I also think there has been a too convenient reliance on 
systemic change there. It is both laudable and troubling, 
because it gives them the opportunity to say ``We are changing 
our system,'' but it also gives them the opportunity to avoid 
the hard issue of who is personally accountable for what has 
been going on.
    Chairman Shelby. What do you think could be accomplished if 
the Saudis are serious and want to sustain this effort to 
cooperate fully in the war against the terrorists, as 
referenced in the financing of terrorism? In other words, what 
do they need to do? I am not saying they will do it, but what 
would they need to do?
    Mr. Aufhauser. Well, let me first say I effectively agree 
with Senator Schumer in saying that if we can get full 
cooperation out of the Saudi Government in policing what are 
undoubtedly significant money flows to Hamas and others out of 
Saudi Arabia that we would significantly deplete the financial 
resources of terrorists, particularly in Al Qaeda and Hamas but 
indeed in other parts of the world, other terrorist 
organizations.
    What is most needed is to start taking personal 
accountability and holding people personally accountable and to 
police their charity system in a meaningful way. There was a 
reference to Prince Nayef. He actually sits as a fiduciary if 
you look at the structure of Al-Haramain yet, in a very un-
Sarbanes-Oxley-type way, apparently failed to note what was 
happening in his own shop.
    Chairman Shelby. But they cannot have it both ways; they 
have had it both ways for a while--but not in the future, can 
they?
    Mr. Aufhauser. I do not want to sound too harsh. I want to 
be clear. What they have done, particularly post May 11, is 
nothing short of a new era for our dialogue with them. The 
Joint Task Force on Terrorist Financing is the tester. And we 
have a reciprocal obligation, by the way, in connection with 
that. We have to share our information with them. But we now 
for the first time have the opportunity to use their compulsive 
process to follow leads and investigate what we now suspect.
    Chairman Shelby. Given your experience as Chair of the 
Policy Coordinating Committee and for the American people who 
will be looking at this now, tell us what the PCC is.
    Mr. Aufhauser. It is an interagency group that gathers 
almost weekly to examine what the world of law enforcement and 
intelligence is learning about the sources and uses of 
terrorist financing; and most importantly, it is a group that 
decides what is the best way to go about exploiting the 
information that we know so that we prevent another calamity.
    We are not governed by any prejudice of prosecution or 
designation or diplomacy. We do it on a case-by-case basis to 
decide based on as real world effect rather than political 
theatrics. And most 
importantly, most importantly, it represents an integrated 
government on a battlefield. It is also the recommender of 
strategic direction to the National Security Council--what 
parts of the world should we focus on, what networks should we 
focus on, and the principled way we should focus on those 
networks. It also makes strong recommendations about how to 
allocate our intelligence collection resources.
    Chairman Shelby. Should we keep it as it is? Should we 
improve it? Are there ways to improve the PCC?
    Mr. Aufhauser. It effectively probably needs more of an 
executive secretariatship than it has had in the past, and I 
think Secretary Snow is intent on doing that as long as the 
Treasury Department continues to chair the committee, which in 
my judgment is an absolute necessity.
    Let me make one point on that. The President made Treasury 
the chair of the PCC because he had the intuitive wisdom to 
know that in fighting a war, the tactical sometimes trumps the 
strategic. And he gave it to Treasury because we are like 
terriers with a bone on one issue--we focus on the sponsors, 
the donors, the wellspring of money, not on the use of 
financial information so much to stop episodic, everyday, 
anticipated events. I leave that to the FBI and the CIA, but we 
give it strategic direction.
    Chairman Shelby. It sounds like it should stay in Treasury.
    Mr. Aufhauser. Yes, sir.
    Chairman Shelby. Why will additional assets within the 
intelligence community make a difference, a real difference, in 
the kind and quality of information that you and Treasury 
assets receive when you should have this information in the 
first place?
    Mr. Aufhauser. Well, the most significant disability in the 
war on terrorist financing is actionable intelligence, and by 
``actionable intelligence,'' I mean not information but 
information that we can share with our allies and friends 
abroad.
    Chairman Shelby. And do something with.
    Mr. Aufhauser. And do something with. But mostly that it is 
sharable, that it gets declassified in a manner that we can 
convince allies that we have enough to move on, because as Mr. 
Wayne said, this is a feckless act if we do it alone.
    Second, in terms of increased assets, it is worth noting 
both the CIA and the FBI have stood up these new terrorist 
financing units basically from ground zero to well over 200 
full-time employees, and those assets are well-employed and 
well-exploited by the PCC.
    Chairman Shelby. Senator Sarbanes.
    Senator Sarbanes. Thank you very much, Mr. Chairman.
    Mr. Aufhauser, I want to explore--it is not directly on the 
subject of this hearing--but Treasury's traditional enforcement 
arms, except for the Criminal Investigation Division of the 
Internal Revenue Service, were transferred out of the Treasury 
Department in March when the Department of Homeland Security 
was created. In fact, at present, the position of 
Undersecretary for Enforcement as I understand it is unfilled, 
and you supervise as General Counsel both the Financial Crimes 
Enforcement Network and the Office of Foreign Assets Control.
    I understand there is an internal study going on at 
Treasury about the issues raised by the loss of enforcement 
capability at Treasury. Without revisiting the Homeland 
Department issue--and I had considerable concern at the time 
about this loss of enforcement capability at Treasury--how can 
we address this question? I mean, you still have important 
responsibilities, but my perception is that a lot of the 
enforcement capability that Treasury previously had has been 
shifted somewhere else. It seems to me that that leaves you 
with a problem on your hands.
    Mr. Aufhauser. Let me characterize it as an opportunity.
    Senator Sarbanes. All right.
    Mr. Aufhauser. You are correct. We have--the Treasury 
Department has--a profound responsibility to try to promote and 
sustain the integrity of the domestic and indeed international 
financial system particularly from forces of corruption, or 
people who would like to turn it into a weapon of violence 
against us.
    We also have substantial statutory authority to do so. But 
we have been limited in the resources that we can apply to do 
both, particularly in the area of national security interest. 
If you 
rehearse for a minute our five main areas of interest in 
national security--economic sanctions, anti-money laundering, 
terrorist financing, guaranteeing that critical financial 
infrastructures are 
secure, and guaranteeing the integrity of our currency, that 
is, counterfeiting, which is a tool of choice of the sponsors 
of terror--we have significant responsibilities, and we have 
done very well in my judgment during the last 2 years largely 
because of the talent of the people who work with me and 
largely because of their sweat equity and largely because they 
are the creators of good ideas, and good ideas have force.
    But their opportunities to continue to put those ideas into 
action would profit, I think, in my judgment, from more 
resources committed to Treasury enforcement. We are somewhat 
handicapped in what we have been doing and what I think we need 
to do. Let me give you some examples because examples speak 
much better than my thoughts.
    We do not have auditors to ensure compliance with the USA 
PATRIOT Act. We do not have investigators to pursue the 
priorities of the National Money Laundering Strategy. We do not 
have an intelligence office that is fully integrated into the 
national intelligence community. And as a consequence, 
sometimes priorities and programs championed by Treasury can 
become easily subordinate to the daily travails of other 
agencies.
    Secretary Snow and I have been talking. I have made some 
recommendations. There are some quite explicit recommendations 
that I would make, including an undersecretary for enforcement, 
including an assistant secretary for intelligence so our ad hoc 
participation in the intelligence community is made formal, and 
then a host of other recommendations which I think are quite 
doable and quite affordable which would help us guarantee the 
financial integrity of the system.
    Senator Sarbanes. Well, I for one would welcome Treasury 
sending to the Congress proposals in this arena in order to 
reconstitute or enhance its enforcement capabilities.
    One of the arguments that was made for not shifting 
everything over was that Treasury has a particular role in 
dealing with financial markets and has established contacts all 
over the world with significant actors in other countries, and 
that if Treasury were not in the middle of this, we would 
really lose a great deal if the whole thing went over to 
Homeland Security.
    On the other hand, to leave that with you for very good 
reason, I think, since you have these other responsibilities 
that clearly belong to Treasury and interact with finance 
ministries in other countries, but not give you the tools down 
below in order to carry out the job it seems to me is pretty 
short-sighted. So whatever the study comes through with, we 
would certainly welcome it.
    Mr. Aufhauser. Can I emphasize, that the job is being done; 
what we are talking about is now to enhance what we are doing. 
So it is not completely forfeit. I do not want to leave you 
with that impression. But there are many specifics that I think 
would enhance our ability to perform what the President and 
Congress have asked us to do, particularly in the area of the 
USA PATRIOT Act.
    Senator Sarbanes. Let me just ask one more question, and 
then I will stop. One important effect of Title III of the USA 
PATRIOT Act was to extend the basic anti-money laundering 
control regulations to many types of financial institutions 
that had previously not been subject to the rules.
    Mr. Aufhauser. Right.
    Senator Sarbanes. For example, insurance companies and 
hedge funds in addition to the money service businesses and 
casinos already subject. Who is responsible for auditing all of 
these institutions for compliance?
    Mr. Aufhauser. Well, it is precisely my point. In the past, 
the Bank Secrecy Act requirements, of course, have applied to 
financial institutions that are the subject of various Federal 
financial regulators. And we have delegated the responsibility 
and the authority and the power to conduct compliance audits to 
those regulators, like the Federal Reserve and the OCC.
    They do well, although my intuition on the matter is that 
the BSA part of the bank audit might be stepchild to the rest 
of the audit, whereas if we had our own people performing those 
audits out of the Treasury Department, they would have a matter 
of priority and primacy.
    Now that we have extended, under the USA PATRIOT Act, the 
responsibilities to comply with the Bank Secrecy Act through a 
myriad of industries which are not subject to Federal financial 
regulators, we now have to depend on them honoring the law, but 
we have no power or resource or people to audit them.
    Senator Sarbanes. Well, that is not a very happy situation, 
is it?
    Mr. Aufhauser. No, sir.
    Senator Sarbanes. Thank you, Mr. Chairman.
    Chairman Shelby. Senator Bunning.
    Senator Bunning. Thank you, Mr. Chairman.
    Mr. Aufhauser, you recently testified that Saudi Arabia was 
``the epicenter of terrorist financing.'' That is a quote--
``epicenter.'' Do you actually think any kind of an agreement 
with the Saudis will actually succeed, or will it be just more 
rhetoric?
    Mr. Aufhauser. No. I think it will succeed, but we have to 
be religious about policing the agreements and the plans and 
going forward.
    Senator Bunning. Does the new agreement with the Saudis 
allow the United States of America to actively pursue suspected 
terrorists in Saudi Arabia, or are we still in limbo like we 
have been, with our hands tied behind us, until the Saudi 
Government makes the first move?
    Mr. Aufhauser. I would actually like to defer to Mr. 
Pistole, but I will give you two sentences on it. Number one, 
we have never not investigated any Saudi individual's 
complicity in terrorist financing. What we are talking about is 
whether or not we can now marry up our own independent efforts 
with the compulsory process and police powers of Saudi Arabia. 
And the Joint Terrorism Task Force that they have agreed to do 
does precisely that.
    Senator Bunning. It allows the United States to act 
without--or, it must use Saudi Arabia and the United States?
    Mr. Aufhauser. John is actually orchestrating this, so if I 
can, I will defer to John.
    Senator Bunning. All right. John, I will be more than happy 
to listen.
    Mr. Pistole. Senator, yes, sir. Actually, there are two 
initiatives that the FBI is working with the Saudi Government 
through the Mabahith, and Treasury is part of that, the CIA is 
also a part in one aspect, and that is what we basically call a 
``fusion cell,'' which is an operational arm of intelligence 
from both the United States and Saudi intelligence and law 
enforcement communities to actually try to locate and identify 
Al Qaeda and other terrorists who may be in the Kingdom, such 
as the individual I referenced before, Zubayr Al Rimi.
    The second aspect, which David mentioned, is the Joint 
Terrorism Financing Task Force, which was recently stood up in 
Riyadh. It is led by Mabahith, but it is comprised of FBI and 
Treasury agents who are working with Mabahith on specific, 
actionable intelligence to identify and follow the trail of 
money.
    It is not being done unilaterally, obviously. We need the 
cooperation of the Saudis to pursue both through Mabahith and 
through the Saudi Monetary Agency, SAMA, to trace the funds 
through Saudi accounts to wherever they may go in the world. So 
it is a collaborative effort.
    Senator Bunning. Thank you.
    All of you most likely know that a University of Southern 
Florida professor was arrested and charged with raising money 
for the Palestinian Islamic Jihad. What is the Government doing 
to prevent this type of reverse money laundering, money 
apparently raised legally and going to existing terrorist 
operations--anybody?
    Mr. Pistole. I will be glad to start. Yes, he was arrested 
earlier this year and of course has not been convicted of 
anything yet, but the charges in that investigation and others 
similarly situated around the country focus on two aspects. One 
is the legitimate, from the perspective of fundraising for 
supposedly legitimate causes, or humanitarian relief and 
associated aspects of that. The other aspect is the illegal 
activity that is being conducted here in the United States, the 
proceeds of which then are sent overseas in furtherance of 
terrorist activity.
    In that case and in a number of other cases around the 
country, we have investigations which we believe have enough 
evidence to demonstrate that these individuals are operating 
illegally either through the acquisition of funds which are 
sent to terrorist organizations, perhaps by contributors who 
are witting or unwitting in the eventual end-use of those 
funds.
    The other aspect again is that underlying criminal 
activity, whether it is drug trafficking, credit card fraud, 
infant formula fraud, cigarette tax fraud--any illegal activity 
you can think of, we have investigated or have current 
investigations on where we believe those funds are then being 
sent overseas for terrorist activity.
    The key is trying to determine, once they go overseas, how 
they are being used, and again, that goes back to my analogy--
if they say all this money----
    Senator Bunning. I want to get one more question in before 
you have talked me out of my time.
    Mr. Pistole. Yes, Senator.
    Chairman Shelby. We will give you the time, Senator.
    Senator Bunning. Thank you. I appreciate it.
    Mr. Pistole. My point is trying to determine, once the 
money goes overseas, how is that money being used. And again, 
if $100 goes overseas and $99 goes to humanitarian relief, that 
is fine, but if that extra dollar goes to buy the bullets or 
bombs, that is where we have a problem, because that is 
supporting terrorist activity.
    So we will investigate, and through the Department of 
Justice, we will attempt to charge those individuals who are 
supporting funds in that way.
    Senator Bunning. Okay. This is more personal because it 
affected a bunch of people in the 101st Division that is 
stationed in Fort Campbell, Kentucky. There have been 
allegations that Saudi-financed organizations, specifically 
mosques, here in the United States actually trained Army 
Sergeant Asan Akbar, a Muslim engineer with the 101st Airborne 
Division who killed two of his peers and injured 15 others in 
Kuwait.
    What are we doing about those kinds of things? If we are 
going to stop terrorism at its roots, how do we get hold of 
these supposed charitable mosque organizations that are 
collecting illegally and training people to do illegal acts?
    Mr. Pistole. If I could respond to the initial part of 
that, one of the things that we are doing through our Joint 
Terrorism Task Force is trying to identify those mosques where 
that type of hatred, that violence, is being espoused. In 
certain situations, we have been able to conduct convert 
investigations, including having either cooperating witnesses 
or undercover agents go into those mosques to personally assess 
what is being espoused.
    In terms of the financing aspect, we have worked with the 
Saudi Embassy here in Washington to obtain a list of all the 
individuals that the Saudi Government supports through monthly 
stipends who may be imams, clerics, other individuals and 
community centers who may be espousing that violence or hatred.
    We have identified certain of those individuals from our 
investigations to the Embassy and requested that the Saudi 
Government curtail any additional funding, which they have done 
in certain situations.
    There was one individual similar to this individual--his 
name is Adnan El Shukrajumah--who was in South Florida. His 
father was an imam of a radical mosque. El Shukrajumah was one 
of the individuals identified by senior Al Qaeda detainees as 
being the next individual to conduct a terrorist attack in the 
United States because of his fluency in English, his pilot 
skills. He was not a Saudi citizen but was identified as such. 
His father was receiving money through the Saudi Government. We 
identified that, and they curtailed the funding to him.
    They have also provided us a list of every student in the 
United States whom the Saudi Government has supported, and some 
of those individuals we have under investigation for their 
support of radical Islam.
    There are a number of initiatives which I could go into in 
more detail in a classified hearing.
    Senator Bunning. It seems to me we have just started to 
push the envelope down the field, and we have a long way to go.
    Thank you.
    Mr. Pistole. Agreed.
    Senator Sarbanes. When you say ``curtail,'' do you mean 
eliminate or limit it?
    Mr. Pistole. Stop; stop the funding.
    Senator Sarbanes. Stop it.
    Mr. Pistole. Yes.
    Senator Sarbanes. Thank you.
    Chairman Shelby. Thank you.
    Senator Corzine.
    Senator Corzine. Thank you, Mr. Chairman.
    I would like to get a general sense of the international 
cooperation we are having with respect to the kinds of 
activities that we are now pursuing under the USA PATRIOT Act 
and with respect to our own financial institutions.
    When we were originally debating and discussing the money 
laundering issue, for instance, Swiss bank secrecy was a major 
issue that we were attending to, and there have been some 
changes in the law. How effectively has our pursuit of this 
terrorist trail been able to be implemented with our allies and 
participants internationally in the official chains of 
financial institutions?
    Mr. Wayne. Senator, generally, we have had very, very good 
cooperation, particularly in the case of Al Qaeda, and that is 
certainly the case--you mentioned Switzerland, and a number of 
my colleagues from the Treasury Department have traveled to 
Switzerland and had detailed discussions with their 
authorities. Their authorities have been very cooperative in 
this effort. That is similarly true in other parts of Europe as 
we are going after Al Qaeda.
    It has generally been practically everywhere in the world 
that we have gone to talk, people have been cooperative. A 
number of places, we have run into limits because of the legal 
and regulatory framework that other countries have as to what 
they can do in their specific cooperation with us, and that has 
varied country to country.
    There, we have focused on encouraging them to get their 
regulation and laws in place that allows them to go further. 
But the spirit of wanting to cooperate has been quite pervasive 
certainly post-September 11 on Al Qaeda.
    I do not know if David has some more specifics, 
particularly in the financial area.
    Mr. Aufhauser. First, I want to affirm what Tony has said. 
On official channels, there has been perfect cooperation. The 
one major hurdle has been differences of administrative law, 
issues of evidence, that permit a freezing of assets on less 
than ``beyond a reasonable doubt.'' Here, as you know, Senator, 
we have a lesser standard for proceeding under IEPA and under 
the powers given to OFAC, which basically is an ``arbitrary and 
capricious'' standard. That is a standard that is alien in many 
parts of the world.
    For that reason, you frequently have to try to share and 
develop more evidence than otherwise you think is required. A 
lot of the dialogue officially is to convince them that this is 
enough for them to act.
    In terms of private channels, we have been in near-weekly 
if not daily contact with private banking associations and, 
where we have specific evidence and where appropriate with 
specific banks on private matters, and achieved remarkable 
degrees of cooperation.
    I think everybody knows that one of the great ironies of 
what happened on September 11 is that our enemies used the very 
tools of commerce, particularly the increasingly borderless 
financial world, to strike at the heart of it. And they are 
angry about it, and they are committed to join us in fighting 
it.
    Senator  Corzine. So you are having no roadblocks in your 
ability to reverse-engineer the maps and flows across 
international boundaries.
    Mr. Aufhauser. My biggest disability is actionable 
intelligence, enough to share people to push the envelope in 
their own jurisdictions.
    Senator Corzine. The corresponding banking issue that was 
so much a centerpiece of much of what we discussed when we were 
writing Title III has been open to your ability to pursue and 
to understand the flows of funds, whether it is to charitable 
organizations or through business----
    Mr. Aufhauser. Yes. Where necessary, we have a pretty deep 
understanding of what happens in the documented banking world 
today.
    Senator Corzine. Usually, when there is pressure in one 
area, other elements of transaction flow develop. Are we 
identifying, and is it becoming clear, or are there channels 
that are developing that have nontraditional, if one would say, 
that we are onto--we all heard about the hawala issue when we 
were debating--but are there other channels that are becoming 
more apparent--people used couriers as an example in one of the 
testimonies. Are we seeing new avenues of transfer without 
trying to--and I am not asking you for a revelation of 
classified material.
    Mr. Aufhauser. You are right to state that there has been a 
return to couriers, but couriers are not new; they are the most 
ancient form of value transfer, of course. That is actually 
good news, because that is less mobility, that is less transit, 
and they have to carry volumes of cash, and that is actually a 
handicap for them.
    And we have hundreds of years, all of us, as police 
officers and enforcement officers, of trying to police borders 
against couriers.
    In terms of turning to other forms of value transfer, 
hawala has probably always been the most significant challenge 
because it is an undocumented way, as you know, for 
transferring money, and a traditional way in much of the 
developing world and transitional world for transferring money 
at very little transaction cost.
    There are only two really good ways to deal with hawala. 
One is to regulate them, which is a modest advance, and the 
second is to penetrate them.
    Senator Corzine. Thank you.
    Chairman Shelby. Secretary Wayne, I will start with you on 
this question, which is kind of a follow-up question to Senator 
Bunning and Senator Corzine regarding charitable giving.
    On Monday, I understand that the UK unfroze the assets of 
Interpal, a so-called charity which the United States believes 
is aligned with terrorists. The UK Charity Commission said, 
``The American authorities were unable to provide evidence to 
support their allegations.''
    How does this happen, Secretary Wayne? Is it timely and 
usable information? Is it being shared? Is this a result of 
intelligence which cannot be used, or just not enough 
information? Sometimes you just do not have enough. Is there 
some more authority that you need?
    I will start with you, but I would like to hear from David 
and John.
    Mr. Wayne. Sure. Let me say a few things, and of course, we 
can be more explicit in closed session.
    Chairman Shelby. Sure, I understand that.
    Mr. Wayne. One of the challenges here was that Interpal, 
the UK Charity Commission, in response to our actions put a 
temporary freeze on the funds of Interpal that they had under 
their authority, and they asked for unclassified information, 
again, that would show that these funds were going to fund 
terrorism.
    There are two challenges there. One is to show the link to 
terrorism, and two is to make it in an unclassified format. We 
did share information with them about Interpal and Hamas and 
Hamas charities. The challenge to make that link was in a 
unclassified format.
    They have told us that they appreciate what we gave them; 
it was not enough for them to make that decision in their 
system, which all has to be public and unclassified, but they 
would be open to us providing more information to them in the 
future. But it does go to the challenge that David Aufhauser--
--
    Chairman Shelby. The expression of future problems, then.
    Mr. Wayne. --that David Aufhauser pointed to, which is 
actionable information and then information--there are two 
levels of that--first, information that you can share 
confidentially with another government, and there is 
information that because of their system, they ask to be 
public, and that is a challenge, and it was a challenge in this 
case.
    Chairman Shelby. Mr. Aufhauser, do you have any comment on 
this?
    Mr. Aufhauser. My reaction actually was almost visceral. 
They do not get it. Once the EU finally came around to our view 
that it was complete sophistry to say that Hamas' left arm is 
not its right arm in terms of distinguishing between the 
military end----
    Chairman Shelby. It was the same body, wasn't it?
    Mr. Aufhauser. --yes--between the military and the 
political end, once that decision was made, there should be no 
evidentiary burden in demonstrating that Interpal knew that the 
money was going for violent purpose. It is enough to 
demonstrate that the money went to Hamas, period. So I do not 
get it.
    Chairman Shelby. Mr. Pistole.
    Mr. Pistole. This is one of the benefits of the USA PATRIOT 
Act is the use of classified information in criminal 
proceedings or proceedings such as this, which is to our 
benefit in the United States. Unfortunately, with the UK 
system, they are basically, as has been described, wanting 
classified information that could be declassified. We are in 
the process of doing that, but it is not there yet.
    Mr. Wayne. If I could just add a little bit about the 
debate that is going on in Europe in regard to this----
    Chairman Shelby. Yes, go ahead.
    Mr. Wayne. As Mr. Aufhauser mentioned and as I mentioned in 
my statement, the EU finally recently agreed to designate all 
of Hamas as a terrorist organization. Previously, they had 
designated what they called the military wing of Hamas, but 
refused to designate the political or the charitable or the 
other wing of Hamas.
    Chairman Shelby. Are they deceiving themselves here?
    Mr. Wayne. Well, there are a couple of things, as I was 
just going to add. They have just done that. What they did not 
agree to do was then automatically designate all the charities 
that we believe are Hamas charities. Indeed, they are still 
debating that. I will be very honest. Some countries in Europe 
think they should do that, others have questions. There are a 
number of different questions. Some are still raising the issue 
of the evidence. Part of our challenge and our need will be 
indeed to convince them that if the whole organization is a 
terrorist organization, then the whole is a terrorist 
organization.
    They also do face in their legal systems, however, some 
different challenges. The Germans had earlier this year, for 
example, frozen the funds of the al Aqsa Foundation. That 
decision is now being challenged in their courts, with people 
arguing in the court that you have to show real links to 
terrorism to do that.
    So part of it is persuading people that this is all part of 
the whole, and part of it is that they do have different 
standards and legal systems which they have to adjust and work 
with.
    Chairman Shelby. But it cripples the effort.
    Mr. Wayne. It does, and that is why we are going to 
continue vigorously to work with our friends and close allies 
to show them what we very much believe is the right way to be 
fighting terrorism in this case.
    Chairman Shelby. Senator Sarbanes.
    Senator Sarbanes. I was just going to make the point--Mr. 
Aufhauser talked about ``actionable intelligence.'' I am not 
quite sure how you are using the word ``actionable.'' We may 
have good intelligence, but we do not get the response that it 
deserves or warrants or justifies, because the people we are 
dealing with abroad come at it with a different mindset or a 
different standard or a different attitude. How much is that a 
part of your problem? I mean, this instance would seem to 
rather dramatically illustrate that, but how extensive is this?
    Mr. Aufhauser. Two answers, both responsive. When I use the 
term ``actionable intelligence,'' I mean what I can share with 
people to convince them to act, because if I cannot get 
somebody abroad to act, what we are doing is political theater. 
I have got to be able to share it.
    Second, what happened with Interpal in Britain is really 
quite chilling. These are the best of our friends. If we cannot 
convince them to join us against one of the primary funders of 
Hamas, in the millions of dollars, within weeks after the 
designation by the EU of Hamas as a foreign terrorist 
organization, it gives you some taste of how difficult it is to 
get other, less friendly Nations to join us in the Gulf or 
elsewhere.
    The short answer to your question is that it is a question 
of political will, but political will is frequently reinforced 
and overcome with actionable, shared, significant intelligence.
    Chairman Shelby. I will start again with you, Secretary 
Wayne. I believe it is given that the terrorist finance issue 
is as much diplomatic in a sense as it is enforcement. I think 
that has been made clear here. There are material differences 
in many countries' views of ``support for terrorism.'' In fact, 
the President's Executive Order states that those individuals 
and groups ``otherwise associated with terrorists will be 
subject to sanctions.'' This is almost--we have some good 
lawyers around here--a strict liability standard, using the 
legal phrase.
    In addition, it appears that much of our effort has been to 
focus on the Muslim world. And as you look around the world, 
can we convince our allies, whom you have alluded to, that the 
present standard, that our standard, is, one, appropriate? Have 
we helped or hurt our long-term efforts for a short-term 
benefit, and how have we been able to do this? And what are the 
biggest challenges that we face in this war?
    I will start with you, Secretary Wayne.
    Mr. Wayne. Thank you, Mr. Chairman.
    Well, indeed, a lot of what we do in what we call 
``diplomatic activity'' is take the information that we have 
and persuade people what the linkages are and why they need to 
act. And the further you get down that chain from terrorism to 
supporting terrorism, the harder it is to convince people, no 
question about that.
    Chairman Shelby. They have to want to be convinced.
    Mr. Wayne. They have to want to be convinced, yes.
    Chairman Shelby. If they start with a premise that maybe 
they do not want to be convinced, you have a difficult task.
    Mr. Wayne. Right. There is no question that the easiest of 
a difficult task is when we are talking about Al Qaeda, because 
with Al Qaeda, there was a broad-based and still is a broad-
based international consensus embodied in UN Security Council 
resolution after resolution, with a committee establish at the 
UN with a list there of Al Qaeda supporters that countries must 
act against with asset freezing and travel banning; and once 
this committee has approved a name, countries are obligated to 
enforce sanctions.
    Early on, we were worried in that case, for example, that 
we were the only one putting names forward. But other countries 
have now been joining us. Just the other day, Germany put 
forward a list of a number of names which we joined, just a 
couple of days ago, that came into effect. That makes it much 
easier in those cases to go into countries and say ``You need 
to act against this.''
    And although there has still been a lot of persuading to 
do, we have been able to rally governments to do things 
publicly and privately.
    When we get to other terrorist groups, it is harder, but we 
did pass a UN Security Council Resolution 1373 with others 
support that makes it a broader effort, an obligation for all 
countries to put laws in place to fight terrorism. We need to 
be building that consensus, and it is harder in some cases than 
others to do so.
    Chairman Shelby. Is it insurmountable?
    Mr. Wayne. No, it is not, but it is a long-term effort, and 
in a number of countries, with a number of regimes, it is more 
of a challenge than in other places. It is like every 
international effort we face--sometimes it is harder----
    Chairman Shelby. It takes sometimes a wake-up call--all of 
you alluded to the Saudi situation in May, where they were 
attacked on their own soil and sustained deaths, and so did we. 
Does it take that sometimes to change mindsets?
    Mr. Wayne. Sometimes it does. As with all of us as 
individuals, sometimes--I remember my parents telling me 
something I should not do because it would have bad 
consequences. Well, until I did it and felt those bad 
consequences, sometimes I did not really learn it. It is 
sometimes that way.
    Chairman Shelby. The hard way.
    Mr. Wayne. The hard way. That is right.
    Chairman Shelby. Mr. Aufhauser.
    Mr. Aufhauser. Surely the immediacy of the threat emboldens 
people to raise their standards of care in their banking 
systems, particularly as it goes to terrorist financing. That 
was the wisdom that informed us to write that Executive Order 
the way we did.
    You asked whether I think it was wise to do it. Yes, I do 
think it is wise to do it. I also think it is unwise to use 
that power except in the most judicious and prudent 
circumstances. It is a situation where the threat is probably 
more potent than the execution.
    Also, it has been, in my judgment and talking with 
international bankers over the last 3 years, very useful in 
raising the standards of due diligence of fiduciaries, and that 
is significant, because we need gatekeepers, because as good as 
my colleagues at the CIA are, or John Pistole is at the FBI, we 
cannot capture every piece of misconduct occurring in the 
digital electronic system.
    Senator, you asked the largest challenge. I think we need 
to demonstrate when we ask people to act that we have 
credibility in the asking. It goes back to--and you are tired 
of this mantra from me this morning, I am sure--it goes back to 
that we have evidence, that we have intelligence to act upon. 
And equally----
    Chairman Shelby. And evidence that you can share with them, 
perhaps.
    Mr. Aufhauser. --evidence we can share with them--but 
equally important is that the action will have real world 
impact and will not be derided as political theater.
    Mr. Pistole. One of the items, Mr. Chairman, that is not in 
my written statement--I talk about some of the indictments and 
convictions here in the United States, again, some of the 
fundraisers, some of those who have engaged in material support 
for terrorism by going to overseas training, jihadist camps, 
and so on--those are all good successes. One of the 
frustrations of this job is that we are not able to herald some 
of the untold successes that we have, and in that arena, since 
September 11, we have been able to engage with, for example, 
the central banks of certain countries in a proactive way to 
help us identify possible accounts and funds that are being 
used.
    We have been able to exploit documents and pocket litter, 
if you will, from high-value detainees from Al Qaeda from 
around the world in a way that those ongoing, sensitive methods 
and techniques or sources that we use will never be on the 
front page of The Washington Post or on CNN--hopefully not, 
anyway----
    Chairman Shelby. They should not be.
    Mr. Pistole. --to allow us to continue those successes so 
we have those--and you are very aware of those from your tenure 
on the Intelligence Committee. But it is those types of 
activities.
    We do have a number of building blocks that we put in place 
that we are now building on. The foundation is there with that 
cooperative agreement with some of these bankers around the 
world, with the Saudis especially. With so much focus on what 
has come out of Saudi, whether the 15 of the 19 hijackers or 
the funding, the new era that we see there is giving us 
cautious optimism that we are moving in the right direction.
    Chairman Shelby. But without cooperation--and now I use the 
term ``diplomatic'' which represents the State Department--but 
without diplomatic recognition of how important cooperation is, 
it is going to be hard to meet this challenge, is it not, Mr. 
Aufhauser?
    Mr. Aufhauser. Yes, and to his great credit, the President 
has made it a presidential priority and agenda, and he makes it 
plain everywhere.
    By way of example, we bring that message to every gathering 
and forum of the World Bank and the IMF, particularly Secretary 
Snow. It was part of his agenda and part of the calendar and 
part of the talking points that I wrote for every meeting that 
he had--dozens and dozens and dozens of bilateral meetings.
    It is a priority of the United States because it is 
recognized as the only systematic way that we can go about 
reducing the threat of terror on our soil again.
    Chairman Shelby. To find the money, right?
    Mr. Aufhauser. Yes.
    Chairman Shelby. To find the money.
    We would contemplate as we go down the road on these 
hearings to get into some closed hearings where we could share 
a lot of the things at the proper time you are doing that we do 
not need to relay here.
    Mr. Aufhauser. Right. We look forward to that, Senator.
    Chairman Shelby. I want to thank all of you for being here. 
As you know, this is the first of a lot of hearings on this 
subject. We on the Committee believe that this is very 
important, as you do, and we will continue to work with you.
    Gentlemen, thank you for your patience, and thank you for 
your participation.
    Mr. Aufhauser. Thank you, Mr. Chairman.
    Mr. Pistole. Thank you.
    Mr. Wayne. Thank you, Mr. Chairman.
    Chairman Shelby. The hearing is adjourned.
    [Whereupon, at 11:45 a.m., the hearing was adjourned.]
    [Prepared statements supplied for the record follow:]
              PREPARED STATEMENT OF SENATOR CHUCK GRASSLEY
                 A U.S. Senator from the State of Iowa
                           September 25, 2003
    Thank you, Mr. Chairman and Members of the Banking Committee, for 
inviting me to submit a statement during your hearing on our 
counterterrorism efforts and terrorist financing programs. As you know, 
I have been very supportive of the Banking Committee's continued 
efforts to halt money laundering and terrorist financing in order to 
ensure the stability of our financial system. This is an issue of 
profound importance to our national security and the stability of our 
financial institutions. It is also one of great concern to me and I 
appreciate your giving me the opportunity to speak to you today.
    Money laundering is a significant threat to our country because it 
undermines our national security, promotes corruption, and funds 
terrorism. Money laundering operations as a whole include such 
mechanisms as structured transactions, wire fraud, over and 
underinvoicing, and other activities designed to defraud and hide 
profits from illegal activities. All of these transactions undermine 
legitimate financial institutions by promoting corruption, funding 
criminal operations, and by providing a method of profiting from 
illegal transactions such as drug trafficking and weapons sales. At the 
same time, they provide no economic benefits to our national economy.
    I agree with the Administration's sentiment that identifying and 
halting the mechanisms that fund terrorist activities is just as 
important as eliminating the terrorists themselves. The financing of 
terrorist organizations is one aspect of a larger challenge--that of 
halting all money laundering. The effort to halt terrorist financing is 
an important aspect our comprehensive and coordinated approach to 
combating all forms of money laundering and those criminal 
organizations that benefit from these systems.
    Money laundering is the functional equivalent of a war industry for 
terrorist groups. Terrorist groups will use whatever means available to 
obtain funding for their cause. Our attention is focused on identifying 
and halting those mechanisms used specifically by terrorist 
organizations such as charitable organizations, money service 
businesses, and alternative remittance systems which are often referred 
to as hawalas. The tools used to launder and disguise funds for 
terrorist organizations are similar, and quite often identical to, 
those used by many drug traffickers and criminal organizations to clean 
their own dirty money.
    For example, a cigarette smuggler based in North Carolina was 
recently sentenced to 155 years in prison for using his illicit earning 
to send thousands of dollars to Hezbollah, an organization that has 
been designated by the State Department as a Foreign Terrorist 
Organization. In addition, we know that the proceeds from the sale of 
illegal narcotics on the streets of the United States is funneled right 
back into the pockets of terrorist organizations in Colombia--namely 
the FARC, ELN, and the AUC--which have also been designated as Foreign 
Terrorist Organizations by the State Department. These Colombian 
terrorist organizations rely heavily on the Black Market Peso Exchange, 
as well as on the purchase and sale of commercial goods on the black 
market.
    The best response to the money laundering threat is a comprehensive 
and coordinated response which must be laid out in an effective 
strategy. The strategy must identify the risks and threats that we, as 
a Nation, face from this insidious problem. Without the identification 
of specific risks and threats, we cannot begin to implement laws and 
regulations that will effectively combat the sources and shut down the 
system as a whole.
    An effective strategy must also clearly define the leadership and 
support roles that should be played by each department and agency with 
jurisdiction over money laundering regulations and investigations. In 
some respects, the level of cooperation demonstrated by terrorist 
financing task forces is unprecedented. At the same time, there are 
signs of bureaucratic infighting, one-upmanship, and duplication of 
efforts still exist and continue to plague law enforcement. We cannot 
afford to have each department and agency pursue its own agenda without 
regard to the operations of others. The surest way to resolve this 
problem is by defining it in the strategy.
    Right now, we have the goals and objectives for addressing the 
threat, and we have numerous tools at our disposal to meet those goals, 
such as the Bank Secrecy Act and the USA PATRIOT Act. What we do not 
have right now is the effective coordination among our agencies that 
will provide effective implementation of these tools. We need 
coordination not only between Federal law enforcement agencies but also 
between regulators, industry experts, and policymakers as well. Only 
when we have a systematic approach to money laundering will we be able 
to avoid the duplication and inconsistencies that currently plague our 
efforts.
    I encourage the members of the panel today, including officials 
from Treasury Department, State Department, and the FBI to focus on 
coordination. We must formulate a comprehensive approach to money 
laundering.
                               ----------
                PREPARED STATEMENT OF DAVID D. AUFHAUSER
            General Counsel, U.S. Department of the Treasury
                           September 25, 2003
    Chairman Shelby, Senator Sarbanes, and distinguished Members of 
this Committee, thank you for inviting me to testify today about the 
U.S. Government's efforts generally, and the efforts of the Department 
of the Treasury in particular, to address the financing of terror.
    Shortly after the September 11 attacks, President Bush gave those 
of us who work on these issues very clear orders. He told us to starve 
the terrorists of funding. Since that mandate over 2 years ago, the 
United States has waged a ``war'' against global terrorism. We at 
Treasury are principally involved in the financial front of that 
``war.'' But this ``war'' is profoundly uncommon. There is no known 
sovereign; no uniformed army; no hill to take; no target that is 
seemingly out of bounds. Indeed, terrorists obscenely place a premium 
upon the death of innocents. It is shadow warfare, and a key source of 
the stealth and mobility necessary to wage the war is money.
    Money is the fuel for the enterprise of terror. It may also be its 
Achilles' heel. It can leave a signature, an audit trail, which, once 
discovered, might well prove the best single means of identification 
and capture of terrorists and pinpointing their donors. Financial 
records are literally the diaries of terror. Stopping the flow of money 
to terrorists may be one of the very best ways we have of stopping 
terror altogether. That is a dramatic statement, but it is not possible 
to overstate the importance of the campaign against terrorist 
financing. If you follow and stop the money, you have gone a long way 
to diminish the killing and destruction.
    That being said, it is unwise to understate the difficulty of this 
endeavor. Our economy is deliberately open and porous. The ways to game 
restrictions on the flow of capital within the banking system are 
nearly infinite, and the endeavor becomes more difficult when money is 
moved outside the banking system. Moreover, the challenge is worldwide 
in scope. The overwhelming bulk of the assets we seek to freeze; the 
cashflow that we hope to strangle; and the records that we aspire to 
exploit are beyond the oceans that surround us. To act alone would 
justly invite critique.
    In the United States, the program to wage the financial front of 
the war includes:

 an Executive Order using the powers granted by the Congress 
    through the International Emergency Economic Powers Act that raises 
    the standards of conduct and due diligence of financial 
    intermediaries, and explicitly targets underwriters of terror for 
    the freezing of their assets;
 UN Security Council resolutions and conventions that 
    internationalize asset freezes and mandate the criminalization of 
    terrorist financing;
 more scrutiny at the gateway to U.S. financial markets that 
    has been provided under the USA PATRIOT Act;
 law enforcement criminal investigations and foreign 
    intelligence operations aimed at terrorist supporters and terrorist 
    financiers;
 extensive diplomatic efforts, including the engagement of 
    central bankers and finance ministries, to champion the need and 
    wisdom for international vigilance against terrorist financing and 
    the taking of appropriate action to address it;
 outreach to the private sector for assistance in the 
    identification, location, and apprehension of terrorists and their 
    bankers; and
 bilateral and multilateral efforts to build laws and systems 
    that will help prevent terrorists from corrupting the financial 
    system in developing countries around the globe, followed by 
    training missions dispatched to those countries to help their 
    officials administer those laws.

    Perhaps the most visible weapon on the financial front of the war 
has been the public designation of terrorists and their support network 
coupled with the freezing of their assets. Publicly designating 
terrorists, terrorist supporters and facilitators, and blocking their 
abilities to receive and move funds through the world's financial 
system have been, and continue to be, a crucial component in the fight 
against terrorism. The Executive Order imposing economic sanctions 
under the International Emergency Economic Powers Act permits the 
public designation of not only terrorists and terrorist organizations, 
but also supporters, facilitators, and underwriters of terror as well. 
Once designated, this order freezes the assets of the designee held by 
U.S. persons. Action under this order is not ``criminal'' and does not 
require proof beyond a reasonable doubt. Currently, we have publicly 
designated 321 individuals and entities as terrorists or terrorist 
supporters and over $136.8 million dollars have been frozen around the 
world.
    This is not, however, a ``box score'' game. Only a small measure of 
success in the campaign is counted in the dollars of frozen accounts. 
The larger balance is found in the wariness, caution, and apprehension 
of donors; in the renunciation of any immunity for fiduciaries and 
financial intermediaries who seek refuge in notions of benign neglect 
and discretion, rather than vigilance; in financial pipelines that have 
gone dry; in the flight to old ways of value transfer, such as the use 
of cash couriers, in the ability to focus our resources on those 
avenues of last resort; and in the gnawing awareness on the part of 
those who bank terror that the symmetry of borderless war means that 
there is no place to hide the capital that underwrites terror.
    Notwithstanding the power of this tool, it is important to remember 
that it is only potent when we can pull the rest of the world with us, 
through coordinated multilateral action, in identifying and freezing 
the assets of identified terrorists and their supporters. The simple 
fact is that most of the funds we are attempting to freeze are beyond 
the reach of the United States. Acting unilaterally is often an empty 
gesture; an action without effect. Therefore, we need our allies to 
join with us and act in concert and in a coordinated way. This is no 
easy task. And this is a task that occupies much of our time on the 
financial front of the war against terrorism. The most critical aspect 
of this task is the ability to develop and provide our allies in the 
war with sufficient actionable information--information that is often 
thin and also derived from extremely sensitive sources. The predicate 
for everything we do is actionable information about a target.
Organization of the Effort
    Shortly after the attacks of September 11, in furtherance of 
developing and implementing a coordinated attack on terrorist 
financing, the National Security Council established a Policy 
Coordinating Committee on Terrorist Financing. The purpose of the 
Committee is to (i) recommend strategic policy direction to the 
National Security Council on issues relating to terrorist financing; 
(ii) vet and approve proposed public action against targeted terrorists 
and terrorist financiers; and (iii) coordinate the United States' 
efforts on issues relating to terrorist financing. I have chaired that 
Committee since October 2001.
    The Committee has sufficient structure to ensure we are working 
toward achieving the goals of the Committee; however, we have 
purposefully kept the process flexible, informal, collaborative, and 
iterative. It is a process that has worked well to vet and coordinate 
proposed action by the United States on the financial front of the war 
on terrorism.
Challenges Ahead
The Kingdom of Saudi Arabia
    I have testified before that Saudi Arabia has been an ``epicenter'' 
of terrorist financing. Financing emanating from Saudi Arabia and a 
balance of Gulf States has been a central focus of our efforts at 
collection and prevention. The Saudi Government has taken action and 
implemented systemic changes--both before and after the May 12 bombings 
in Riyadh--that are promising and constructive. More initiative, 
follow-through on systemic change, and personal accountability are 
required.
    The May 12 bombings in Riyadh appear to have given life to such a 
sea change. A sense of urgency now informs Saudi efforts. The promising 
change on the financial front of the war is the agreement to create a 
Joint Task Force with the United States to investigate terrorist 
financing and follow financial leads. The dialogue and dynamic in this 
task force will be ``cop to cop''--taking place on the ground rather 
than between diplomats at 30,000 feet. The task force will share 
financial leads on a real time basis and begin meaningful--and 
hopefully productive--investigations to track down the ``banking of 
terror.'' This will be an important proving ground to determine Saudi 
commitment on the financial front of the war. We must watch diligently 
as the task force is established and moves forward.
Hamas, etc.
    We must continue to focus our resources on Hamas and similar 
terrorist organizations. We must work as hard as we can to convince the 
rest of the world that it cannot stand by and do nothing against groups 
that are sending suicide bombers onto buses or into plazas to kill 
innocent children. Unlike Al Qaeda, we do not enjoy a UN Sanctions 
program mandating the freezing of these organizations' and their 
operatives' and supporters' assets. What is required is unrelenting, 
consistent, well-informed diplomatic outreach using well developed 
facts--actionable intelligence--to bring a principled discipline to 
countries that now stand on the sideline refusing to act because the 
purpose of acts of terror are believed to be politically laudable, not 
withstanding the moral obscenity of the means of reaching any such 
goal.
Global Systemic Change
    We must continue to work bilaterally and multilaterally to build 
financial safeguards throughout the globe to do all we can to ensure 
terrorists cannot game the financial system. Charities and informal 
money transfer operations, or hawalas, are of particular concern. We 
have done much in this area, but we need to continue to do more.
Address Root Causes
    In the long-run, the war on terror will be like Sisyphus toiling to 
push the stone up the hill if the community of nations does not do 
something to address the despair and economic misery that permits false 
prophets to preach hate and killing and terror as remedy.
    Those are some of the more significant challenges we see as we move 
forward on the financial front of the war. We have come a long way, but 
we have a long way to go. The President has said on many occasions that 
this will be a long battle. I can validate that statement. But you 
should know I see tremendous commitment to this battle every day.
    Because of this Committee's jurisdiction, we think it is important 
to spend some time discussing what we have done with the tools Congress 
provided to us nearly 2 years ago in the USA PATRIOT Act.
The Role of the Anti-Money Laundering Regulatory Regime
in the Financial War on Terrorism
    After the attacks of September 11, it seemed as if we were looking 
at the world through the wrong end of a telescope. Worldwide efforts to 
combat money laundering were focused, rightly so, on identifying large 
scale criminal enterprises that were injecting millions of dollars into 
the financial system. In the world of the financing of terrorism, 
however, we were reminded that the deadliest of operations can be 
financed with relatively paltry sums of money that would give even the 
best of financial institutions not the slightest hint of their illicit 
purpose. An integral part of the financial war on terrorism over the 
past 2 years has focused on enhancing the ability of financial 
institutions to better identify and guard against the financing of 
terrorism. The first step, however, is recognizing our limitations. We 
are still discovering the many different ways in which our enemies use 
the recorded financial system to fund their operations. While we have 
developed considerable information on their methods, we still have much 
to learn.
    This we do know--even the most unsophisticated of terrorism 
financing operations will likely intersect the regulated financial 
system at some point. Title III of the USA PATRIOT Act mandates many 
substantial changes to the U.S. anti-money laundering regulatory 
regime. We wish to thank this Committee for its work in developing and 
securing passage of these provisions. Title III, in our view, reflects 
the realities of today's global financial marketplace and the new 
threats to our financial system. As you know, for the past 2 years we 
have been engaged in the most extensive revision of the anti-money 
laundering regulatory regime in recent memory.
    Once complete, if properly enforced, these changes will go far to 
prevent not only the laundering of illicit proceeds, but also aid the 
financial system in preventing the use of clean money to finance 
terror. The Act's principal focus on financial intermediaries, the 
international gateways to the U.S. financial system, the expansion of 
due diligence and monitoring requirements, enhanced reporting 
obligations, and renewed commitment to information sharing comprise the 
elements of a comprehensive antiterrorist financing regime. While the 
end goal of devising systems capable of proactively identifying 
potential terrorist financing activities remains elusive, we are 
creating the necessary infrastructure within financial institutions 
that will 1 day support such systems. For example, several sections of 
the Act focus on the correspondent account, the international gateway 
to the U.S. financial system. These provisions require financial 
institutions to conduct greater due diligence both before opening such 
accounts and while they are open. The scrutiny given to these accounts 
not only augments the audit trail, but also serves to deny certain 
foreign financial institutions access to the U.S. financial system in 
the first place. Uniform customer identification regulations recently 
issued will require all financial institutions to take important steps 
to verify the identity of their customers. Additionally, we have 
created a system pursuant to Section 314(a) of the Act to enable law 
enforcement to locate quickly the accounts and transactions of those 
suspected of money laundering or the financing of terrorism. While we 
are still working closely with law enforcement and the financial 
community on the operation of the system, since its creation, the 
system has been used to send the names of 256 persons suspected of 
terrorism financing to financial institutions. This has resulted in 
1,739 matches that were passed on to law enforcement.
    A particularly important provision is Section 311 of the Act, which 
provides the Secretary with the necessary ability to protect the U.S. 
financial system against specific terrorist financing threats posed by 
foreign financial institutions, accounts, transactions, or even entire 
jurisdictions. The Secretary can require U.S. financial institutions to 
take appropriate countermeasures against such threats, countermeasures 
which include requiring the termination of any correspondent accounts 
involving the threat. We have utilized this authority in the money 
laundering context, and we are presently considering its use in 
connection with the financing of terrorism.
    I thought it would be helpful to bring you up-to-date on where we 
are in the process of implementing Title III of the Act. Since its 
passage, Treasury, the Financial Crimes Enforcement Network (FinCEN), 
the financial regulators, and the Department of Justice have worked 
together to draft and issue extensive regulations that implement the 
Act's provisions. Among other things, we have published regulations 
that:

 Permit and facilitate the sharing of critical information 
    between law enforcement and the financial community, as well as 
    among financial institutions themselves;
 Close off our financial borders to foreign shell banks, 
    require additional due diligence for correspondent accounts 
    maintained for foreign financial institutions, and require foreign 
    banks with correspondent accounts in the United States to supply 
    the name of a U.S. agent for service of process as well as the 
    identities of their owners;
 Require U.S. financial institutions to establish customer 
    identification and verification procedures for all new 
    accountholders;
 Expand the universe of financial institutions reporting 
    potentially suspicious activities to FinCEN; and
 Expand our basic anti-money laundering regime to include a 
    wide range of financial service providers, such as the securities 
    and futures industry and money services businesses.

    Our work is not yet finished. We are working to complete several 
regulatory packages. First on the list is the issuance of a final 
regulation that will delineate the scope of the obligation of U.S. 
financial institutions to conduct due diligence and 
enhanced due diligence on correspondent accounts maintained for foreign 
financial institutions and private banking accounts for high net worth 
foreign individuals. Although the banking, securities, and futures 
industries have been operating under an interim rule since last year, 
important questions regarding the application of this statutory 
provision remain.
    We will also complete final regulations requiring other categories 
of financial institutions, such as those in the insurance and hedge 
fund industries, to establish anti-money laundering programs. This is 
an integral component of our anti-money laundering and antiterrorist 
financing efforts--to ensure that all available avenues for financial 
crime are blocked by this basic protection. Similarly, now that we have 
issued final regulations requiring the banking, securities, futures, 
and mutual fund industries to establish customer identification 
programs, we will be drafting regulations applicable to financial 
institutions in other industries that offer their customers accounts. 
Finally, we are continuing to explore the appropriate expansion of the 
suspicious activity reporting regulations to additional categories of 
financial institutions. We have already proposed to require mutual 
funds, futures commission merchants, and insurance companies to file 
such reports.
    Let me provide you with some sense of how we are using the USA 
PATRIOT Act and the implementing regulations to combat terrorist 
financing. While it is still relatively premature to evaluate their 
impact, we do have some indication of their effectiveness. For example, 
as I noted above, the Section 314(a) system has been used in many cases 
and has resulted in a substantial number of leads. The additional 
reporting and recordkeeping authorities have enhanced the database 
FinCEN uses for its research and analysis in supporting terrorism 
investigations--since September 11, FinCEN has supported 2,692 
terrorism investigations. The Terror Hotline established by FinCEN has 
resulted in 789 tips passed on to law enforcement. Since the World 
Trade Center Attacks, FinCEN has made 519 proactive case referrals to 
law enforcement based upon an analysis of information in the Bank 
Secrecy Act database. With the expansion of the suspicious activity 
reporting regime, financial institutions have filed 2,655 suspicious 
activity reports (SAR's) reporting possible terrorist financing. In 
addition to passing these reports on to law enforcement, FinCEN has and 
will continue to analyze the SAR's to report on systemic patterns in 
the financing of terrorism.
    Finally, I cannot neglect mentioning our partnership with the 
financial community. Since passage of the Act, the willingness of the 
financial community to work with us in this fight has been remarkable. 
Cooperation comes in the form of formal and informal feedback on new 
regulations, one-on-one assistance with specific investigations, and 
the proactive identification of potential instances of the movement of 
funds to finance terrorism. While we expect the financial community to 
join us in this fight--and they have done so--we also recognize and 
appreciate these efforts, from the largest of financial institutions to 
the smallest of the community banks.
    While it is appropriate on this occasion to reflect on what we have 
accomplished, it is essential that we map out a strategy for 
proceeding. The plan is straightforward--do a better job of leveraging 
the regulatory regime to maximize the protections against the financing 
of terrorism. We will do so in the following manner:
Better Utilization of Technology
    Technology holds one of the keys to our success in the financial 
war on terrorism. This involves the ability to marshal and synthesize 
all available information to proactively identify possible instances of 
the movement of illicit funds. Now more than ever we require our 
financial institutions to produce data and information. Several 
initiatives are already under way within Treasury and FinCEN. For 
example, FinCEN will be receiving assistance from the Business 
Executives for National Security and the Wharton School of the 
University of Pennsylvania in developing technology that will allow 
financial institutions to report suspicious transactions more easily 
and quickly. As part of an overall plan to enhance our technological 
platform, FinCEN is also developing a new system to manage the Bank 
Secrecy Act (BSA) database. ``BSA Direct'' will involve a significant 
upgrade to the platform on which the BSA database is maintained, and 
will provide users with web-based, secure access that allows for faster 
and easier searching. Finally, we will continue to work to assist 
financial institutions in developing proactive software to better 
identify potential terrorist financing activities.
Increased Information Sharing
    A central theme of the USA PATRIOT Act is to enhanced information 
sharing. While we have taken substantial steps toward this goal, our 
challenge remains to find better ways of providing information and 
feedback. This is not simple. Often the information we develop is 
highly protected intelligence information that cannot be disclosed, and 
we are always wary of providing our enemies with a roadmap or a ``how-
to'' guide to manipulating our defenses. That said, we understand the 
importance of, and are searching for, better ways to share information 
with the private sector.
Developing Similar International Standards
    For our regulatory efforts to be effective, standards should be 
internationalized as much as possible. Thus, we will continue to devote 
ourselves to encouraging the development of international money 
laundering and terrorism financing standards that reflect the 
principles of our domestic regime. We have already done this in several 
areas. In conjunction with the Financial Action Task Force, in addition 
to 
securing the promulgation of the Eight Special Recommendations on 
Terrorist Financing, the FATF recently completed the revision of the 40 
Recommendations on Money Laundering. The changes reflect many of the 
concepts of the USA PATRIOT Act. For example, key changes to the 40 
Recommendations include: (1) enhanced due diligence with respect to 
correspondent banking accounts; (2) increased scrutiny for politically 
exposed persons; and (3) prohibition on the use of shell banks.
Ensuring Compliance with International Standards
    Assessing jurisdictions against these standards and cultivating 
their compliance with them are important components of our work. 
Without vigorous and consistent implementation of these standards 
throughout the globe, terrorists and criminals will enter the 
international financial system at the point of least resistance, and 
preventive national efforts will be rendered considerably less 
effective. Ensuring global compliance with international standards is 
accomplished through a three-prong strategy that includes: (i) 
objectively assessing every country's standards against the 
international standards; (ii) providing capacity-building assistance 
for key countries in need; and (iii) ensuring appropriate consequences 
for countries and institutions that fail to take reasonable steps to 
implement standards to prevent terrorist financing and money 
laundering.
    Treasury is participating in a variety of global assessments 
sponsored by the IMF and the World Bank, the FATF, and FATF-Style 
Regional Bodies. We are also seeking to build the capacity of 
jurisdictions to combat money laundering and the financing of terrorism 
through a robust regulatory regime. This is done through bilateral and 
multilateral outreach and training. Finally, recalcitrant jurisdictions 
face potential sanctions pursuant to Section 311 of the USA PATRIOT 
Act.
Evaluating the U.S. Regulatory Regime
    As we complete regulations implementing the USA PATRIOT Act, our 
next and perhaps most important task is to take a critical look at what 
we have done and ask the difficult questions of whether they are 
effective and what additional regulations may be necessary. We will 
work through both formal and informal means to conduct this evaluation, 
and look forward to working with this Committee during the process.
    We are, in our judgment, on the right path. We have much work left 
to do. We appreciate the support we have received from the Congress--
particularly this Committee--on these important issues. I believe what 
I have said time and again, stopping the flow of money is one of the 
very best ways to stop the terror.
                               ----------
                 PREPARED STATEMENT OF JOHN S. PISTOLE
             Assistant Director, Counterterrorism Division
                    Federal Bureau of Investigation
                           September 25, 2003
    Good Morning Chairman Shelby, Senator Sarbanes, and other 
distinguished Members of the Committee. On behalf of the FBI, I would 
like to thank you for this 
opportunity to address the FBI's role in ensuring greater integrity of 
our country's financial institutions with respect to terrorist 
financing. I will discuss the FBI's efforts in identifying, tracking, 
and dismantling the financial structure supporting terrorist groups to 
include forward thinking proactive and predictive capabilities. I will 
speak about our evolving liaison, sharing and outreach relationships 
with the financial community as well as with foreign governments and 
their respective financial and regulatory institutions (to include 
Saudi Arabia). I will conclude with some recent terrorist financing 
successes and the challenges we as well as private industry still face 
in following the money and obtaining and analyzing financial records, 
especially in emerging threat situations.
FBI Change in Focus
    As Director Mueller stated during his June 18, 2003 testimony 
before the House of Representatives Committee on Appropriations it is 
critical that the FBI transform it is ``intelligence effort from 
tactical to strategic . . . if the FBI is to be successful in 
preventing terrorism and more proactive in countering foreign 
intelligence adversaries and disrupting and dismantling significant 
criminal activity.''
     Following the events of September 11, 2001 (September 11), the FBI 
changed it is focus making counterterrorism it is highest priority and 
redirecting resources accordingly. The emphasis was placed on 
intelligence with prevention as our primary goal. Counterterrorism 
investigations have become intelligence driven. Criminal investigation 
into these matters is considered a tool to achieve disruption, 
dismantlement, and prevention.
Formation of TFOS
    Prior to the events of September 11, the FBI had no mechanism to 
provide a comprehensive, centralized, focused, and proactive approach 
to terrorist financial matters. While the FBI examined financial 
records at the time of previous terrorist 
attacks, as part of the investigation into each of the attacks, the 
events of September 11 identified a critical need for a more 
comprehensive, centralized approach to financial matters. The Terrorist 
Financing Operations Section (TFOS) of the FBI's Counterterrorism 
Division was formed, immediately after September 11, in response to 
this critical need. The mission of the TFOS has since evolved into a 
broader strategy to identify, investigate, prosecute, disrupt, and 
dismantle incrementally, all terrorist related financial and 
fundraising activities.
     Identifying, tracking, and dismantling the financial structure 
supporting terrorist groups is critical to successfully dismantling the 
organizations and preventing future terrorist attacks. As is the case 
in most investigations, locating and ``following the money'' plays a 
critical role in identifying those involved in the criminal activity, 
establishing links among them, and developing evidence of their 
involvement in the activity.
     Terrorists, their networks and support structures, require funding 
in some form to exist and operate. Whether the funding and financial 
support is minimal or substantial, it usually leaves a financial trail 
that can be traced, tracked, and exploited for proactive and reactive 
purposes. Being able to identify and track financial transactions and 
links after a terrorist act has occurred or terrorist activity has been 
identified, represents only a small portion of the mission; the key 
lies in exploiting financial information in efforts to identify 
previously unknown terrorist cells, recognize potential terrorist 
activity/planning, and predict and prevent potential terrorist acts.
     In forming the TFOS, the FBI built upon its traditional expertise 
in conducting complex criminal financial investigations and long 
established relationships with the financial services communities in 
the United States and abroad. Integrating these skills and resources 
with the Counterterrorism Division, allows the FBI to bring its full 
assets to bear in the financial war on terrorism.
     The TFOS is both an operational and coordinating entity with 
proactive and reactive responsibilities. As a coordinating entity, the 
TFOS is responsible for ensuring that a unified approach is pursued in 
investigating terrorist financing networks. The TFOS achieves this 
directive by: (1) coordinating the financial aspects of FBI Field 
Office and Legat terrorism investigations; (2) establishing overall 
initiatives, policy and guidance on terrorist financing matters; (3) 
participating in the National Security Council's Policy Coordinating 
Committee (PCC) on Terrorist Financing; (4) coordinating national 
liaison with the financial services sector; (5) cooperating in and 
coordinating criminal terrorist financing investigations with the 
Department of Justice; and (6) providing support and training to Field 
Offices to include the designated Terrorism Financing Coordinator (TFC) 

     It is critical that the financial aspects of terrorism 
investigations be adequately addressed and that a concerted, 
coordinated effort is made to investigate terrorist finance issues by 
experienced financial investigators. Rarely will a terrorist financing 
investigation be confined to the territory of one field office, rather 
they normally span not only multiple field office jurisdictions, but 
also the globe; for example, these types of investigations will 
frequently be linked to investigations and/or issues in other 
jurisdictions and other countries. It is imperative these investigative 
efforts be effectively coordinated, placed into perspective with other 
counterterrorism efforts, prioritized in accordance with national and 
global strategies, and addressed in concert rather than in a 
disjointed, inefficient manner. Prior to the establishment of the TFOS, 
there did not exist within the FBI a mechanism to ensure appropriate 
focus on terrorist finance issues and provide the necessary expertise 
and overall coordination to comprehensively address these matters.
     So how far have we come in the war on terrorist financing since 
September 11? There currently exists a much better understanding of 
terrorist financing methods. More sophisticated and effective processes 
and mechanisms to address and target terrorist financing continue to 
develop and evolve. Proactive approaches are 
increasingly being utilized. The awareness around the world on the part 
of law enforcement, government agencies, regulators, and policymakers, 
and the private sector of terrorist financing methods, suspicious 
financial activity and vulnerabilities is much higher since September 
11. International cooperation has reached unparalleled levels. Outreach 
with, and cooperation from, the private sector has been outstanding and 
continues to develop, particularly the level of two-way interaction 
between law enforcement and the private sector. The ability to access 
and obtain this type of information in a timely fashion has 
significantly enhanced the FBI's ability to identify, investigate, and 
resolve immediate threat situations involving potential terrorist 
activity. However, we still face significant challenges in obtaining 
and analyzing financially related records in a timely fashion, 
especially in emerging threat situations, which I will discuss later in 
my testimony. The ability to conduct near real-time monitoring of 
specifically identified financial activity has been invaluable to not 
only investigations ongoing in the United States, but also to foreign 
law enforcement and intelligence agencies in related investigations. 
This illustrates another example of not only more proactive measures 
but also of increased cooperation and coordination with the 
international community.
Liaison and Outreach
    Extensive training and support of international investigations by 
the TFOS has led to agent visits/exchanges and training programs 
involving a variety of countries from Europe, Asia, the Middle East, 
South America, and Africa. In support of specific high profile joint 
terrorist financial investigative matters, a number of countries and 
agencies, including the United Kingdom, Switzerland, Canada, Germany, 
and Europol, have detailed investigators to the TFOS on a TDY basis. 
The TFOS has engaged in extensive coordination with authorities of 
numerous foreign governments in terrorist financing matters, leading to 
joint investigative efforts throughout the world. These joint 
investigations have successfully targeted the financing of several 
overseas Al Qaeda cells, including cells located in Indonesia, 
Malaysia, Singapore, Spain, and Italy. We have also disrupted Al Qaeda 
financing in the UAE, Pakistan, Afghanistan, and Indonesia with the 
assistance of relationships established with authorities in those and 
other countries.
     The TFOS has developed a specific terrorist financing/money 
laundering crimes curriculum for international training which includes 
topics such as: Acquiring and handling evidence in document intensive 
financial investigations, major case management techniques, forensic 
examination tools, and methods of terrorist financing. At the request 
of the U.S. Department of State, the TFOS has led an interagency team 
to provide this curriculum to a number of countries (and is scheduled 
to provide to approximately 38 countries) identified as needing law 
enforcement training on conducting terrorist financing investigations.
     Through these training and outreach initiatives the TFOS has been 
able to build relationships with foreign counterparts that improves the 
FBI's ability to obtain access to financial records held by foreign 
financial institutions.
     The TFOS has cultivated and maintains a contact database of 
private industry and government sources/persons who can provide 
financial data, including near real-time monitoring of financial 
transactions. Many of these contacts can be reached or accessed on 24 
hour/7 days a week emergency basis allowing the TFOS to respond rapidly 
to critical incidents. In all cases, TFOS follows applicable legal 
procedures in obtaining access to financial data.
     Through these contacts and with legal process the TFOS has access 
to data and information from a variety of entities including: Banking, 
Credit/Debit Card Sector, Money Services Businesses, Securities/
Brokerages Sector, Insurance, Travel, Internet Service Providers, 
Telecommunications Industry, Law Enforcement, State/Federal Regulatory 
Agencies, Public and Open Source Data Providers, the Intelligence 
Community, and International Law Enforcement and Intelligence Contacts. 
The timeliness and accessibility of the data is contingent on a variety 
of factors including whether the acquisition of the information 
requires legal process, the search capabilities of the data provider, 
and the size and depth of the data request. The ability to access and 
obtain this type of information in a time sensitive and urgent manner 
has significantly enhanced the FBI's ability to identify, investigate, 
and resolve immediate threat situations involving potential terrorist 
activity. For example, the ability to conduct near real-time monitoring 
of specifically identified financial activity has been invaluable to 
not only investigations ongoing in the United States, but also to 
foreign law enforcement and intelligence agencies in related 
investigations.
     Being able to identify and track financial transactions and links 
after a terrorist act has occurred or terrorist activity has been 
identified represents only a small 
portion of the mission. The key lies in exploiting financial 
information in efforts to identify previously unknown terrorist cells, 
recognize potential terrorist activity/planning, and predict and 
prevent potential terrorist acts. Prior to September 11, there was not 
enough emphasis placed on addressing the mechanisms and systems 
associated with terrorist financing and disrupting them before they 
could be utilized to further terrorist activities.
Proactive TFOS Projects
    The TFOS has a responsibility to be not only reactive but also 
proactive as well, to think strategically about potential threats and 
future case development. As a result, the TFOS, together with the 
Counterterrorism Section (CTS), Criminal Division of the Department of 
Justice (DOJ), have begun a number of proactive initiatives to identify 
potential terrorists and terrorist related financing activities.
     The overriding goal of these projects is to identify potential 
terrorists and terrorist related individuals/entities, mechanisms or 
schemes through the digital exploitation of data. To accomplish this, 
the TFOS seeks to (1) identify potential data sources; (2) create 
pathways and protocols to legally acquire and analyze the data; and (3) 
provide both reactive and proactive operational, predictive and 
educational support to investigators and prosecutors.
     It is important to understand that these projects and similar 
initiatives by the TFOS seek only to more fully exploit information 
already obtained by the FBI in the course of it is investigations or 
through the acquisition of new data through the appropriate channels 
and legal process. The FBI does not seek access to personal or 
financial information outside these constraints.
Information Sharing
    Information sharing is critical to all of our efforts. The 
intelligence community, including the FBI, produces and obtains 
tremendous amounts of classified intelligence information. While much 
of the information can be of significant value in terrorist finance 
investigations, the value will not be realized nor maximized absent the 
ability to filter the information, analyze it, and disseminate it in an 
appropriate manner to those who can make the best use of the 
information. Toward this end, the TFOS participates in joint endeavors 
involving the CIA, FBI, Treasury Department, Department of Justice, and 
the Department of Homeland Security involving potential terrorist 
related financial transactions, in addition to other joint 
participation between the TFOS and the intelligence agencies. The TFOS 
has personnel detailed to the CIA/CTC and personnel from there work 
directly with the TFOS on financial intelligence matters.
     A Policy Coordinating Committee (PCC) on Terrorist Financing was 
formalized at the end of 2001. The PCC generally meets at least once a 
month to coordinate the U.S. Government's campaign against terrorist 
financing. The meeting generally focus on ensuring that all relevant 
components of the Federal Government are acting in a coordinated and 
effective manner to combat terrorist financing.
Saudi Arabia and the War on Terrorism
    Following the September 11 attacks, it became apparent that the 
role of nongovernmental organizations (NGO's) and charitable 
organizations, as a potential source of funding for terrorist groups, 
needed closer scrutiny. This included any role that may have involved 
Saudi Arabia or its citizens in the support of terrorism, both directly 
and indirectly, through the financial support of these charitable 
organizations.
     The Kingdom of Saudi Arabia has taken important steps to deter 
global terrorism, and has redoubled its efforts following the deadly 
car bombings in the Kingdom on May 12, 2003. Prior to the May 12 
bombings, Saudi Arabia put new laws and regulations in place for all 
charitable organizations, ensuring that they are audited to prevent the 
flow of funds to entities other than charity. Saudi Arabia has also 
strengthened its laws and regulations regarding money laundering. These 
efforts include new rules concerning the verification of customers' 
identities as well as restrictions on nonresidents' ability to open 
accounts in the country. These measures are being reviewed this week by 
an international team of experts from the Financial Action Task Force.
     In March 2002, Saudi Arabia and the U.S. Government jointly 
blocked the accounts of Bosnia and Somalia branches of Al-Haramain 
Islamic Foundation, and of Wa'el Hamza Julaidan, an associate of Osama 
bin Laden who provided financial and logistical support to Al Qaeda.
     Since the May 12, 2003 bombings of the three western compounds in 
Riyadh, Saudi Arabia, cooperation with the Kingdom of Saudi Arabia has 
significantly improved. The FBI sent an investigative team to the 
Kingdom and worked with the law enforcement and intelligence services 
to conduct the appropriate post incident investigation and evidence 
collection. Cooperation with the Saudi Arabian Government continues on 
this and other terrorism investigations. Saudi Arabia has contributed 
to the break up of a number of Al Qaeda cells, the arrests of key Al 
Qaeda leaders, and the capture of Al Qaeda members in Saudi Arabia.
     The Saudi and U.S. Governments have recently agreed to focus 
increased investigative attention on identifying and eliminating 
sources of terrorist funding within the Kingdom and around the world. 
The FBI and our counterparts in the Saudi Ministry of Interior have 
established a joint terrorism financing task force.
The USA PATRIOT ACT and Other Legislation
    Our efforts to combat terrorism have been greatly aided by the 
provisions of the USA PATRIOT Act. The success in preventing another 
catastrophic attack on the U.S. homeland would have been much more 
difficult, if not impossible, without the Act. It has already proved 
extraordinarily beneficial in the war on terrorism, and our 
opportunities to use it will only increase. Most importantly, the USA 
PATRIOT Act has produced greater collection and sharing of information 
within the law enforcement and intelligence communities.
     Title III of the Act, also known as the International Money 
Laundering Anti-Terrorist Financing Act of 2001, has armed us with a 
number of new weapons in our efforts to identify and track the 
financial structure supporting terrorist groups. Past terrorist 
financing methods have included the use of informal systems for 
transferring value in a manner that is difficult to detect and trace. 
The effectiveness of such methods should be significantly eroded by the 
Act, which establishes stricter rules for correspondent bank accounts, 
requires securities brokers and dealers to file SAR's, and certain 
money services to register with FinCEN and file SAR's for a wider range 
of financial transactions.
     There are other provisions of the Act that have considerably aided 
our efforts to address the terrorist threat including: Strengthening 
the Government's position in defending suits brought by those who 
provide material support; and the power to seize money subject to 
forfeiture in a foreign bank account by authorizing the seizure of a 
foreign bank's funds held in a U.S. correspondent account.
     The FBI has utilized the legislative tools provided in the USA 
PATRIOT Act to further its terrorist financing investigations. Some 
examples of how the TFOS has used the provisions in the USA PATRIOT Act 
to obtain foreign bank account information by issuing subpoenas on 
those foreign bank's U.S. correspondent bank and to corroborate 
financial data obtained through criminal investigative techniques with 
intelligence sources. All of these techniques have significantly 
assisted ongoing terrorism investigations and would not have been 
possible, but for the enactment of the USA PATRIOT Act.
     It is important for the Committee and the American people to know 
that the FBI is using the USA PATRIOT Act authorities in a responsible 
manner. We are making every effort to effectively balance our 
obligation to protect civil liberties with our obligation to protect 
Americans from terrorism.
Terrorist Financing Successes
    The FBI has achieved several recent and notable successes. These 
are the direct results of our ongoing efforts to cultivate more 
meaningful and more productive international relationships, and 
increase emphasis on sharing relevant financial information 
domestically between law enforcement, government agencies, and private 
financial institutions. In concert with other U.S. Government agencies, 
the FBI has deployed advisers and trainers on numerous missions around 
the world to assist countries in the crafting of legislation to combat 
terrorist financing, further strengthen financial oversight controls, 
and encourage closer scrutiny of suspicious financial transactions.
     On four separate occasions, the FBI has received financial 
information from a foreign government directly related to the funding 
of a pending terrorist attack. On these occasions the FBI was able to 
provide near real-time tracking of the funds and provide the foreign 
government with specific and identifiable information regarding the 
parties involved in the financial transactions more explicitly the 
exact location and time the transactions occurred. Based on this 
critical information, the foreign government was able to locate members 
of terrorist cells and prevent them from executing their intended 
terrorist attacks.
     In January 2003, German law enforcement authorities that had been 
working closely with the FBI arrested Mohammed Al Hassan Al-Moayad, a 
Yemeni national, on charges of conspiring to provide material support 
to Al Qaeda and Hamas. Al-Moayad was a significant financial 
contributor to Al Qaeda and Hamas and boasted that he provided over $20 
million dollars to Osama bin Laden. Al-Moayad had participated in 
several fund-raising events at the Al-Farouq Mosque in Brooklyn, New 
York. Al-Moayad has been arrested and is awaiting extradition to New 
York from Germany.
     In December 2002, a Federal grand jury in Dallas returned an 
indictment against a senior Hamas leader, Mousa Abu Marzouk, for 
conspiring to violate U.S. laws that prohibit dealing in terrorist 
funds. Also arrested and charged by the FBI were Ghassan Elashi, 
chairman of the Holy Land Foundation for Relief and Development (HLF). 
Elashi and four of his brothers, all of whom are employees of the 
Richardson, Texas, based InfoCom Corporation, were charged with selling 
computers and computer parts to Libya and Syria, both designated state 
sponsors of terrorism. The indictment alleged that the Elashi brothers 
disguised capital investment from Marzouk, a specially designated 
terrorist for his admitted leadership role with Hamas. The indictment 
and subsequent arrests have disrupted a U.S.-based business, which was 
conducting activities with a known Hamas leader, and international 
state sponsors of terrorism.
     In support of other FBI field office cases, the TFOS provided 
intelligence and criminal financial investigative assistance through 
various mechanisms such as: (a) financial analytical support; (b) 
financial link analysis; (c) field deployment of financial experts; and 
(d) major case management support. This support aided investigators in 
a variety of cases such as:

 The FBI Joint Terrorism Task Force (JTTF) in Charlotte, NC, 
    utilized racketeering and terrorist financing statutes to disrupt, 
    and then dismantle a Hizballah procurement and fund-raising network 
    relying on interstate cigarette smuggling.
 The FBI, supported the Treasury's Office of Foreign Asset 
    Control (OFAC), in blocking assets of U.S. offices for Holy Land 
    Foundation for Relief and Development (HLF). This resulted in the 
    closure of Hamas' largest fund-raising entity in the United States 
    (The HLF has been linked to the funding of Hamas terrorist 
    activities, and raised $13 million dollars of support in 2000).
 Joint FBI-OFAC cooperation shut down U.S.-based offices of 
    Benevolence International Foundation (BIF). Assets and records were 
    blocked after it was determined that the charity was funneling 
    money to Al Qaeda. In February 2003, Enaam Arnaout, the head of 
    BIF, pled guilty to racketeering conspiracy and fraud charges.
 The FBI, with cooperation from the U.S. Intelligence Community 
    and a foreign government, apprehended a principle money launderer 
    of Osama bin Laden's, responsible for funneling approximately tens 
    of millions of dollars through international accounts to Al Qaeda 
    and the Taliban.
 In February 2003, the FBI arrested Sami Al Arian, the alleged 
    leader of U.S.-based Palestinian Islamic Jihad (PIJ), and three 
    other members of his organization. They also closed several front 
    companies suspected of providing material support to PIJ members in 
    operations against Israel.
Participation of Financial Institutions
    Since the events of September 11, private industry and particularly 
the financial services industry have made great efforts to assist law 
enforcement in the investigation of terrorism and terrorist financing 
related matters. Their corporate patriotism and desire to work more 
closely with Government in protecting America is recognized and 
appreciated. They are literally on the ``front lines'' in the financial 
war on terrorism. Because it takes money to travel, communicate, and 
carry out terrorist acts it is the bank teller, manager, or broker that 
is more likely to interact with the next terrorist or terrorist 
financier, maybe even before law enforcement or the intelligence 
community does. For this reason, it is critical that the financial 
services industry receive the necessary training and awareness of the 
``Things to Look For'' as it relates to terrorism and that they have a 
vehicle or mechanism to report their suspicions to the Government in a 
timely and efficient manner. This is accomplished through the use and 
electronic filing of SAR's. Conversely, the Government needs to have a 
way to communicate these ``Things to Look For'' with the private sector 
as well as a mechanism to publish names of individuals, entities and/or 
organizations reasonably suspected of engaging in terrorist activity. 
Outreach and training combined with the utilization of USA PATRIOT ACT 
Section 314(a) facilitates the timely sharing of information between 
law enforcement and financial institutions. As mentioned earlier, the 
TFOS has sponsored and participated in a series of conferences and 
training forums with representatives from the financial services 
industry and regulators to educate them of the ``Things To Look For'' 
but more coordination and law enforcement outreach is needed.
Production of Financial Records in Electronic Format
    One of the biggest challenges facing law enforcement when it comes 
to financial records analysis is the unavailability of financial 
records in electronic format. In the past, it was common for 
investigators to request and financial institutions to provide copies 
of financial records such as statements, copies of checks, or deposit 
slips in hard-copy (that is, paper) form. The delays inherent to their 
production and forwarding to law enforcement was complicated by the 
fact that the records were not readily accessible by the financial 
institution and because they are often in paper form they are not 
readily searchable or retrievable. This is especially true when time is 
of the essence during emerging threat situations where access to and 
analysis of the records is critical. Some financial institutions have 
made great strides in converting and storing their transactional and 
customer records in electronic format. The credit card industry is a 
good example of this. Many banks and institutions even allow their 
customers to view and download their account transactional data via the 
Internet into financial management programs. However, others because of 
the nature of their business or the costs involved do not digitally 
store or are not capable of producing records electronically.
     Future law enforcement investigations would be significantly 
enhanced if financial institutions were to develop and adopt standards 
of best practices for the storage and production of financial records 
in electronic format. Countless hours and resources on the part of 
private industry and the Government could be saved if these records 
were stored and produced in a format that eliminated the need for 
investigators to re-input or type the information back into financial 
analysis programs.
     Currently when records are not available in a digital format, we 
utilize high-speed scanners to scan and copy the records. Text is 
thereby converted to optical character recognition (OCR) searchable 
text. By ``digitizing'' the documents into scanned, searchable images 
they become immediately available to all with a need or interest in the 
records. Digitizing the records not only facilitates rapid 
dissemination of the documents but also provides for enhanced searching 
and analysis. Storage, retrieval, and discovery production costs are 
also thereby reduced. Once the records are digital, then advanced 
searching tools may be applied against them to identify key 
information, patterns, or trends.
     However, as long as relevant records remain in paper form whether 
held by the financial institution or the Government, investigators are 
impeded in their timely dissemination and analysis. This can have an 
impact on our preventative efforts.
     In summary, the increased promotion of antiterrorist financing 
training both domestically and internationally would go a long way 
toward furthering cooperation and raising awareness of patterns in 
terrorist financing. Efforts to interdict illegal money remitters which 
undermine our financial institutions and provide a potential avenue for 
illicit funds to be transferred should be pursued. Finally, the 
production of financial records in electronic format would facilitate 
not only sharing and analysis, but also increase our ability to 
tactically respond to emerging threats.
Conclusion
    Terrorism is a global problem. The solution is grounded in what we 
have experienced since September 11--unprecedented international 
cooperation and coordination. The threat terrorism poses must always be 
considered imminent. In addition to considerable financial 
investigative expertise, addressing terrorism and the finances that 
support and propagate it requires the ability to both implement 
proactive and preventive approaches to disrupt and dismantle as well as 
the ability to conduct highly reactive immediate response financial 
investigations to address potential imminent threats. As stated herein 
and in conjunction with more and more of the international community 
and other aspects of the U.S. Government, the FBI has made considerable 
progress toward achieving and implementing these abilities.
     Again, I offer my gratitude and appreciation to you, Chairman 
Shelby, Senator Sarbanes, and the distinguished Members of the 
Committee, for dedicating your time and effort to this issue and I 
would be happy to respond to any questions you may have.
                               ----------
                 PREPARED STATEMENT OF E. ANTHONY WAYNE
         Assistant Secretary for Economic and Business Affairs
                        U.S. Department of State
                           September 25, 2003
U.S. Interagency Efforts to Combat Terrorist Financing
    Mr. Chairman and distinguished Members of the Committee, thank you 
for the opportunity to testify on U.S. efforts to combat terrorist 
financing.
    The United States remains engaged in a long-term war against 
terrorism. I thank you for your support and for providing the necessary 
tools for waging this war. This fight requires actions on several 
fronts. A critical front is the effort to defeat, disrupt, and destroy 
the financial networks that sustain terrorists and finance their 
operations.
    I would like to begin by recognizing how far we have come in terms 
of U.S. Government interagency coordination when it comes to dealing 
with terrorist financing. We have made enormous strides in improving 
the degree to which all U.S. agencies with equities related to the 
pursuit of terrorist financing cooperate and coordinate their efforts. 
This strong interagency teamwork involves the intelligence and law 
enforcement communities, as well as State, Treasury, Homeland Security, 
and Justice collectively pursuing an understanding of the system of 
financial backers, facilitators, and intermediaries that play a role in 
this shadowy financial world. It involves the Treasury Department, 
coordinating the policy process by which we examine actions to disrupt 
these financial networks. It involves the Department of Justice leading 
the investigation and prosecution in a seamless, coordinated campaign 
against terrorist sources of financing. And, it involves the State 
Department leading the interagency process through which we develop and 
sustain the bilateral and multilateral relationships, strategies and 
activities, including, in coordination with Justice, Treasury, and 
Homeland Security, the provision of training and technical assistance, 
to win vital international support for and cooperation with our 
efforts.
    A Policy Coordination Committee established under the framework of 
the National Security Council and chaired by the Department of the 
Treasury ensures that our activities are well-coordinated. The 
Department of State, the Department of the Treasury, the Department of 
Justice, the Department of Homeland Security, intelligence agencies, 
and law enforcement agencies all work very closely together in this 
effort. The Department of Homeland Security is a recent addition to the 
framework and we look forward to involving them in the disruption of 
networks bearing also on homeland security. Our task has been to 
identify, track, and pursue terrorist financing targets and to work 
with the international community to take measures to thwart the ability 
of terrorists to raise and channel the funds they need to survive and 
carry out their heinous acts.
    A key weapon in this effort has been the President's Executive 
Order 13224, which was signed on September 23, 2001, just 12 days after 
the terrorist attacks of September 11. That Order provided the basic 
structure and authorities for an effort, unprecedented in history, to 
identify and freeze the assets of individuals and entities associated 
with terrorism across the board. Under that Executive Order, the 
Administration has frozen the assets of 321 individuals and entities. 
The agencies cooperating in this effort are in daily contact, looking 
at and evaluating new names and targets for possible asset freeze. 
However, our scope is not limited to freezing assets. We have very 
successfully used other actions as well, including developing 
diplomatic initiatives with other governments to conduct audits and 
investigations, exchanging information on records, cooperating in law 
enforcement and intelligence efforts, and in shaping new regulatory 
initiatives. We recognize, however, that designating names is--along 
with arrests--the action that is most publicly visible. But, 
designations are, in no way, the only action underway. Allow me to 
stress this point, particularly because some questions have been raised 
by commentators in this regard: Every approach the PCC has adopted 
regarding a specific target has involved extensive, careful work. We 
need to make sure we have credible information that provides a 
reasonable basis linking the individual or entity to terrorism; we need 
to weigh the options available to us for addressing the target; we need 
to identify the most effective approach, realizing that we may shift 
gears and adopt a different strategy later on. We want to be right, 
legal, and effective. In some cases we support public action, such as 
designations, in other cases we choose other methods, including law 
enforcement, intelligence, or getting another country to undertake law 
enforcement or intelligence action. At the end of the day, all our 
actions combined, and the efforts of countries around the world, have 
succeeded in making it more difficult for terrorists to move and 
collect funds around the world, in particular through regular banking 
channels.
    Internationally, the UN's role in responding to the challenge of 
terrorist financing has been crucial: The UN helped to give 
international impetus and legitimacy to asset freezes and to underscore 
the global commitment against terrorist financing. This is extremely 
important, because: (1) most of the assets making their way to 
terrorists are not under U.S. control; and (2) when it comes to Al 
Qaeda in particular, it means that when an individual or entity is 
included on the UN's sanctions list, all 191 UN member states are 
obligated to implement the sanctions, including asset freezes against 
these individuals and entities. It has added a total of some 217 names 
to its consolidated list since September 11.
    Another very important actor in international efforts to combat 
terrorist financing has been the Financial Action Task Force (FATF), a 
multilateral organization of 33 members individually and collectively 
devoted to combating money laundering that has adopted 40 
recommendations on the elimination of money laundering and an 
additional, complementary eight special recommendations on combating 
terrorist finance. FATF is monitoring compliance with its 
recommendations in coordination with regional bodies, the UN Counter-
Terrorism Committee, and the G-8-initiated Counterterrorism Action 
Group. FATF is planning assessments of country-needs for technical 
assistance to improve local ability to combat terrorist financing. It 
is in large part due to FATF's focus and efforts on terrorist 
financing, for instance, that the Indonesian Parliament passed 
important amendments to its anti-money laundering law on September 16, 
amendments that will improve the country's ability to take actions 
against terrorist financing. Similarly, it was FATF's efforts that led 
the Philippines to pass legislation in March that will significantly 
increase that country's ability to carry out meaningful antiterrorist 
financing measures. A FATF team is working closely with the Saudi 
Government to review recently drafted regulations as well as pending 
legislation. FATF will advise on whether such regulations and 
legislation meet international standards of effective instruments to 
combat money-laundering and terrorist financing.
    Saudi Arabia has been a particular focus of our counterterrorist 
finance efforts. On October 12, 2001, we and the UN froze the assets of 
Saudi millionaire Yasin al Kadi because of his links to Al Qaeda. 
Subsequently, we and the Saudi Government submitted on March 11, 2002, 
the names of the Somali and Bosnian branches of the charity Al Haramain 
to the UN for worldwide asset-freezing. We and the Saudis also 
submitted the name of Wael Julaidan, a prominent Saudi Al Qaeda 
financier, to the UN for freezing on September 6, 2002. These are a few 
examples of actions that have been publicly visible.
    Launched in January, our senior-level dialogue designed to improve 
communications beginning in January, the United States has told the 
Saudi Government forthrightly that they would be judged by their 
actions. As a result of the May 12, 2003 bombings in Saudi Arabia that 
left 34 dead, including 8 Americans, the dialogue has intensified. Our 
strategy with the Saudis has three parts:

 interaction between key U.S. Government officials with Saudi 
    officials;
 presenting packages of usable information to the Saudis to 
    help them take action against individuals and organizations 
    involved in the funding and support of terrorism; and
 applying diplomatic pressure to ensure effective and timely 
    Saudi action based on the information. This requires follow-up and 
    the building of relationships of trust and confidence.

    Saudi Arabia has made fundamental and necessary changes to its 
banking and charity systems to help strangle the funds that keep Al 
Qaeda in business. It is important to note that many of the changes 
implemented by Saudi Arabia go beyond what we would have legal 
authority to do. As I mentioned earlier, the FATF is in the process of 
reviewing the effectiveness of these new laws and regulations. Saudi 
Arabia is working with us closely in the context of the new task force 
on terrorist financing, led on the U.S. side by the FBI. Experts from 
the FBI and IRS have just completed the first part of a training model 
designed to strengthen the financial investigative capabilities of the 
Saudi security forces. In the UN, as mentioned above, Saudi Arabia 
submitted, jointly with the United States, the names of two branches of 
a major Saudi NGO, as well as that of a major Saudi financier, for 
worldwide asset-freezing because of their links to Al Qaeda. Saudi 
Arabia's new banking regulations place strict controls on accounts held 
by charities. Charities cannot deposit or withdraw cash from their bank 
account, nor can they make wire transfers abroad via their bank 
account. And Saudi Arabia has banned the collection of donations at 
mosques and instructed retail establishments to remove charity 
collection boxes from their premises, something that is undoubtedly 
extremely challenging for Saudi Arabia, but that the Saudi Government 
has undertaken because it understands that terrorists are more likely 
to use such funds than those channeled through regular banking 
channels. Having said all this, I want to stress that this is a work in 
progress. We have reason to believe that the new task force on 
terrorist financing will be effective but we will need to see results. 
We believe the Saudi Government is implementing its new charity 
regulations, but there too, we will need to see results.
    Again, please allow me to stress a point, because sincere and 
concerned questions have been raised in this regard: The Saudis have 
been and still are limited by their own lack of expertise, a situation 
we are working to address. They are receptive to our assistance and 
efforts to help them boost capacity to combat terrorist finance. The 
Saudis are not where they need to be, and they have much work to do. 
However, we believe they are headed in the right direction, are 
committed to countering the threat of terrorist financing, and are 
giving us very strong cooperation in the war on terrorism.
    Another key focus of terrorist finance effort has been Hamas. I 
would like to highlight the recent U.S. designations related to Hamas. 
On August 22, the President announced the designation for asset-
freezing of the following five Hamas fundraisers: CBSP (Comite de 
Bienfaisance et de Secours aux Palestiniens), ASP (Association de 
Secours Palestinien), Interpal, Palestinian Association in Austria 
(PVOE) and Sanabil Association for Relief and Development. He also 
announced the designation of six top Hamas leaders (Sheikh Yassin, Imad 
al Alami, Usama Hamdan, Khalid Mishaal, Musa Abu Marzouk and Abdel Aziz 
Rantisi). Earlier this year, the United States also designated for 
asset-freezing another Hamas charity operating in various parts of 
Europe, the al Aqsa Foundation.
    Hamas' recent suicide bombings demonstrate the organization's 
commitment to undermining any real efforts to move toward a permanent 
peace between Israel and the Palestinians. Hamas and other Palestinian 
rejectionist groups must not be permitted to undermine the aspirations 
of the Palestinian people for a viable, secure state living side-by-
side with Israel in peace and security. While the Palestinian Authority 
and Arab states have endorsed the road map devised by the Quartet, 
Hamas continues to reject constructive efforts toward a peaceful 
solution to the Middle East conflict.
    Shutting off the flow of funds to Hamas is crucial to reducing 
Hamas' ability to carry out its activities and to thwart progress 
toward peace. Hamas is also clearly a threat to Palestinian reform, 
including Palestinians committed to a negotiated peace. Hamas has used 
its charities to strengthen its own standing among Palestinians at the 
expense of the Palestinian Authority.
    In light of this, the United States welcomed the EU's recent 
decision to designate Hamas in its entirety as a terrorist 
organization. Previously, the EU had only designated Izzadin al Kassem, 
Hamas' ``military wing'' as a terrorist entity.
    We have also urged governments throughout the region to take steps 
to shut down both Hamas operations and offices, and to do everything 
possible to disrupt the flow of funding to Hamas, and other Palestinian 
organizations that have engaged in terror to disrupt peace efforts. 
Some of these financial flows may be used to support charitable 
activities, but some of this money frees up funds used to support 
Hamas' rejectionist and terrorist activities. We will continue to 
engage with regional governments to prevent all funding of Hamas and 
other groups that have engaged in terror.
    In all our discussions with EU Governments on this matter, EU 
states have raised serious concerns about addressing the basic 
humanitarian needs of the Palestinian population. Even as we try to 
shut off the flow of funds to Hamas, it is important to remember that a 
significant portion of this money has gone to provide some basic 
services to the Palestinian population--services the Palestinian 
Authority has not yet successfully provided. This is a concern that the 
U.S. shares and is working with our Quartet partners and others to 
address. However, as long as Hamas continues to rely on terrorism to 
achieve its political ends, we should not draw a distinction between 
its military and humanitarian arms, since funds provided to one can be 
used to support the other.
    Also worth noting are actions taken elsewhere in the Middle East. 
The United Arab Emirates, Bahrain, Egypt, and Qatar have also passed 
anti-money laundering legislation and all Gulf Cooperation Council 
member states have increased oversight of their banking systems. 
Kuwait, Saudi Arabia, Bahrain, Qatar, and Oman are devising ways to 
prevent the misuse and abuse of charities for terrorist purposes.
    Hawalas, or informal money remittance systems, have posed special 
challenges in the Middle East and South Asia. Similar systems operate 
around the world, often beyond the purview of bank regulators. They 
have existed for thousands of years and are not necessarily illegal 
undertakings, but are susceptible to misuse. We have made a special 
effort to engage countries on Hawalas and other informal networks, 
encouraging innovative solutions, including via technical assistance 
and regulatory oversight. In April 2002, the United Arab Emirates 
hosted a major international conference to make countries aware of how 
Hawalas operate and steps that might be taken to ensure they are not 
used to support terrorism. Follow-up continues wherever Hawalas are 
common by United States and internationally sponsored technical 
assistance and training teams.
    Asset-freezes and arrests get the headlines, but ``diplomatic 
action'' also makes a difference in the world of terrorist finance. Let 
me just briefly characterize for you the forceful types of actions that 
we refer to under the rubric ``diplomatic action,'' a phrase that we 
well know is not always assumed to be a synonym for ``armed and 
dangerous.'' But we would consider ourselves second to no agency in the 
forcefulness and persuasive potential of the tools at our disposal, as 
validated by the fact that, often, there is interagency consensus on a 
recommendation to wield diplomacy as a weapon against terrorists. When 
we talk about diplomatic approaches for dealing with targets, we are 
talking about getting other governments to cooperate in the war against 
terrorist financing by taking concrete actions of their own, including 
law enforcement and intelligence actions, as well as getting them to 
speak out publicly against terrorist groups. It has involved 
encouraging foreign governments to prosecute key terrorists and 
terrorist financiers; to extradite a terrorist financier; to pass 
strong antiterrorist financing legislation; to prohibit funds from 
being sent to a charity; and to make sure companies funneling funds to 
terrorists are shut down. Diplomatic action also means improving 
conditions for our colleagues in other agencies to work more 
effectively with their foreign counterparts in the fight against 
terrorist financing. The results obtained through such diplomatic 
strategies are crucial to our long-term success.
    As we move forward with refined strategies, we will continue to 
work actively with other governments in different regions of the world 
to make further progress in our fight against terrorist financing. In 
Saudi Arabia, we will continue our cooperation to achieve actions such 
as the joint submission to the UN for asset freezing of the Bosnian and 
Somali branches of the Saudi charity Al Haramain, and the similar 
designation of Wael Julaydan, a prominent Saudi Al Qaeda financier. 
These actions as well as other important initiatives such as 
cooperation in building a joint task force on terrorist financing, we 
believe are, and will continue to be, productive and in the interest of 
protecting and saving American lives. In Asia, we will continue to work 
with governments to confront Jemaah Islamiyah (JI), including its 
sources of funding. In the last few weeks, the UN has listed 20 new 
names of individuals associated with JI whose assets UN member states 
are obligated to freeze. In this hemisphere, the OAS/CICAD Money 
Laundering Experts Group is drafting model laws and regulations that 
nations may adapt, enact, and implement to fulfill their FATF 
commitment to combat terrorist financing. We continue to identify 
vulnerabilities around the world and to work with other countries to 
address them effectively. Our capacity-building and technical 
assistance is vital in this effort. We have made it more difficult for 
terrorists to move and collect funds, but we still have a long way to 
go given the dimensions of this challenge.
    Mr. Chairman, thank you for the opportunity to address this 
important issue.


                      COUNTERTERROR INITIATIVES IN



                       THE TERROR FINANCE PROGRAM

                              ----------                              


                      WEDNESDAY, OCTOBER 22, 2003

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.

    The Committee met at 10:07 a.m., in room SD-538, Dirksen 
Senate Office Building, Senator Richard C. Shelby (Chairman of 
the Committee) presiding.

        OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY

    Chairman Shelby. The hearing will come to order.
    Today is the second in a series of hearings concerning the 
difficult issues surrounding the financing of terror. This 
Committee's comprehensive review of the United States' campaign 
to ``starve the terrorists of their funding'' began with a look 
at the Administration's current organization for this task. Our 
first hearing began to develop the theme that diplomacy is the 
equal partner of enforcement and that intelligence used in the 
analysis for prevention of terror acts is every bit as 
important as evidence garnered for criminal prosecution. The 
testimony from the first hearing also will allow the Committee 
to review the effective organization of the many agencies of 
our Government which address terror finance issues.
    Today, the Committee will hear from experts in terror 
organizations and their allies. For many years, the United 
States focused on state sponsors of terrorism. Later, faced 
with the threat of organizations beyond mere political 
boundaries, we began to look at the international actors who 
would threaten our citizens worldwide. With terrorism on our 
shores, we see that terror organizations, using both simple and 
sophisticated schemes to infiltrate the United States, must 
make alliances, even with entities not sharing their ideology. 
Our witnesses today will assist us in understanding the 
underpinning of these relationships. It will be important to 
explore the ``soft underbelly'' of terrorist support so that we 
may ``dismember and gut'' this scourge.
    We are privileged today, very privileged, to have as our 
first panel Richard A. Clarke. Mr. Clarke has spent a career 
relentlessly pursuing terrorists, while suffering the day-to-
day frustrations of this complex pursuit. He has spent an 
unprecedented 11 years service in the White House for three 
different Presidents. His positions included Special Assistant 
for Global Affairs, Special Adviser for Cyber Security, and 
National Coordinator for Security and Counterterrorism. His 
remarkable tenure was distinguished by hard work, dedication, 
and frank yet sophisticated advice. Mr. Clarke, we welcome you 
and thank you for your important service to our country over 
the years.
    Our second panel will look at the shifting alliances within 
the terror world and, in some instances, with professional 
criminal elements. They will address the relationships with 
legitimate businesses and other entities that terror groups, of 
necessity, must 
employ. Our witnesses will also explore the practical 
complexity of ``following the money'' as it makes its way to 
and from the hands of those who would do us and our way of life 
harm.
    I believe we must assure the American people that every 
action, every technique, every fraud or ruse used by those who 
seek to harm us will be anticipated, met, and countered 
swiftly.
    Senator Sarbanes.

             STATEMENT OF SENATOR PAUL S. SARBANES

    Senator Sarbanes. Thank you very much, Mr. Chairman. I am 
pleased to join you today as the Committee continues its review 
of the financing of terrorism.
    In our hearing last month, the General Counsel of the 
Department of the Treasury, David Aufhauser, and officials from 
the FBI and the State Department underscored the importance of 
identifying the methods by which terrorists are financed and of 
tracking and seizing terrorist funds. Finding the channels 
through which these monies move can illuminate the 
relationships among terrorist cells and planners. If we can 
significantly restrict the flow of funds used to recruit, 
train, and sustain terrorists, the threat they pose can be 
diminished accordingly.
    To reach these goals, relevant information must be 
collected, analyzed, and shared, and decisions must be made 
about how to use that information to the greatest effect. 
Focusing on how well the Government is organized to perform, 
and is actually performing, these tasks requires a broad focus. 
There are many kinds of terrorist groups, and these groups 
operate in different cultures and circumstances.
    We now know that Osama bin Laden used first the Sudan and 
then Afghanistan to build the Al Qaeda infrastructure during 
the mid-1990's, when only a few officials were focused on the 
potential risk from those activities. One of those officials 
was Dick Clarke, and we are very pleased to have him as our 
first witness this morning. Terrorism today affects many 
nations across the world, in Africa, South America, the Middle 
East, Asia, as well as the United States and Europe. Its 
funding involves a growing alliance between terrorism and 
traditional criminal activity, such as narcotics trafficking, 
as well as many kinds of undocumented economic activity, for 
example, the trade in raw gems, to which terrorists have 
turned. Understanding the diversity of this problem can help us 
to manage our vulnerability to future terrorist threats.
    Our witnesses today will survey the terrain on which United 
States and international efforts to identify and restrict 
terrorist financing must operate. We are looking forward to 
their recommendations to the Committee.
    Mr. Chairman, I again want to thank and commend you for 
making this subject a priority for the Committee.
    Chairman Shelby. Thank you.
    Senator Bunning.

                STATEMENT OF SENATOR JIM BUNNING

    Senator Bunning. Thank you, Mr. Chairman, for holding this 
very important hearing. I would also like to thank all of our 
witnesses for testifying today.
    Everyone on this Committee is very concerned with what is 
the best way to cut off terrorist funding. I think we have a 
set of witnesses in front of us today that will help us delve 
into these problems. Hopefully they will not just tell us what 
we are doing right and what we need to do in the future, but 
what we can and are doing wrong and how we can better use our 
resources.
    Obviously, there are no easy answers, and I applaud you, 
Mr. Chairman, for holding this series of hearings so we can 
really dig into this problem. I look forward to hearing from 
all our witnesses. Thank you again.
    Chairman Shelby. Thank you.
    Mr. Clarke, your written testimony will be made part of the 
record in its entirety. You proceed as you wish. Welcome to the 
Committee. We thank you very much.

                 STATEMENT OF RICHARD A. CLARKE

          FORMER NATIONAL COUNTERTERRORISM COORDINATOR

                   NATIONAL SECURITY COUNCIL

    Mr. Clarke. Thank you, Mr. Chairman. I will summarize the 
written testimony, but first I would like to thank you for this 
opportunity to appear before this Committee. It is a privilege 
and it is a pleasure to come back before you. You, as Chairman 
of the Intelligence Committee, pursued this issue and pursued 
the overall issue of terrorism long before September 11. I want 
to thank you for your efforts over the years, and they are 
continuing, obviously.
    We have come a long way since the beginning of the 
Government's focus on terrorist financing. When I first asked 
the CIA in 1995, in that era, to look into terrorist financing, 
they said, Well, after all, you have to understand, it does not 
take a lot of money to do a terrorist act. What they failed to 
understand was it took a lot of money to be a terrorist 
organization.
    The questions we asked then of the CIA were never answered, 
and we asked them for 6 years. How much money does it cost to 
be Al Qaeda? What is their annual operating budget? Where do 
they get their money? Where do they stash their money? Where do 
they move their money? How?
    Those questions, asked from the White House at high levels 
for 5 or 6 years, were never answered because, according to the 
intelligence community, it was too hard. We have come a long 
way since then.
    Mr. Chairman, let me make five quick points and then 
entertain your questions.
    The first point, I think, is one that you all understand, 
but I think we need to make the public and other governments, 
the media, and the banking industry understand, and that is, Al 
Qaeda has not gone away. We all have our scorecard of Al Qaeda 
leaders that we mark off as they are arrested or killed, and we 
get the impression perhaps that we are eliminating the 
organization. Well, it is certainly on the ropes, but it is not 
eliminated by any means, and it will not be for many years. So 
it remains a threat, and its financing remains an issue.
    The second point is that we now know, much more clearly 
than ever before, that Al Qaeda is just a small piece of a 
network of organizations, of concentric circles of terrorist 
organizations, those that Al Qaeda spun off or adopted, the 
regional affiliates of Al Qaeda that have been carrying out the 
attacks in Indonesia and elsewhere. But now I think we can also 
see that there are other terrorist groups, traditional 
terrorist groups like Palestinian Islamic Jihad, Hamas, and 
Hezbollah, that are engaged in a mutual support network. And 
the funding mechanisms for PIJ and Hamas appear also to have 
been funding Al Qaeda.
    The third point is that although we have made significant 
progress in the Federal Government, there are still significant 
organizational problems created by the reorganization with the 
Department of Homeland Security. For years, we tried to get a 
single entity to be in charge of all of the terrorist financing 
issues and to give that entity all the capabilities it needed--
forensic accounting, investigation, and whatnot. We do not have 
that today. We have, unfortunately, an MOU signed by the 
Department of Homeland Security and the FBI saying the FBI is 
in charge. That MOU was signed by the Department of Homeland 
Security without ever telling the key components of the 
Department that were working on terrorist financing, like 
Secret Service and the Customs intelligence units.
    And so we have today the FBI, the TTIC, FinCEN, OFAC, the 
Secret Service, the Customs Service, the banking examiners, the 
State Department, all coordinated by the White House now but, 
nonetheless, all doing their own thing in their own space. Once 
again let me say that I believe there should be a single fusion 
center where all of those agencies move personnel on a 
permanent basis to work together.
    There is also an organizational problem in the Treasury 
because so much of the Treasury enforcement arm was ripped out 
and sent to the Department of Homeland Security. The Office of 
the Under Secretary for Enforcement was eliminated, and so we 
now have two key aspects to the war on terrorism financing 
problem--the Office of Foreign Asset Control and FinCEN, the 
Financial Crimes Enforcement Network--reporting to a Deputy 
Assistant Secretary. This may sound like trivia, but trust me, 
in the executive branch it is not. Those two organizations have 
great professional staff. They need to be integral to this 
struggle, and they need to have an Assistant Secretary of the 
Treasury for Enforcement to whom they report. They also need 
their forensic accounting and bank examination staffs expanded.
    The fourth point regards the USA PATRIOT Act which, in 
Section 314, calls for a three-way flow of information within 
the United States: from the U.S. Government to the financial 
institutions, from the financial institutions to the U.S. 
Government, and, third, between and among the financial 
institutions. Only one of those three paths is now being 
utilized. Financial institutions are providing information to 
the Government. They are getting almost no information back 
from the Government to help them know where to look or what to 
look for. And they have yet to establish a sharing mechanism to 
allow them to share the information among each other 
effectively. Although there has been much talk about it, there 
has been no progress yet in giving the bank officials security 
clearances so that they can have access to the intelligence 
lead information that they would need to go look for this 
money.
    The financial institutions all want to do a good job. They 
have not been given the tools nor the assistance by the Federal 
Government to do a good job. I would like to suggest that one 
thing this Committee may want to think about in the future is 
an oversight hearing on Section 314 of the USA PATRIOT Act.
    Fifth, and finally, many governments around the world are 
now doing a much better job of cooperating with us post-
September 11 or, in the case of Saudi Arabia, post the attack 
in Riyadh. But there are still holdouts. While I was in the 
White House, I always wanted to ask the Congress to take the 
model of the drug certification process and use it for 
financing of terrorism. It is at least as important an issue. 
What is that model? That model is that the President would 
annually report to the Congress on what every nation is doing 
to assist us in finding and seizing terrorist funds. If the 
President found that any nation was grossly not cooperating, he 
would have to impose sanctions.
    I know that in any one of these things the President also 
has to have a waiver for national interest. But the process of 
preparing that report, the process of going to other countries 
and saying: We have a report to the Congress that the President 
has to certify. What would you like us to say about it, about 
your cooperation? Mr. Chairman, that was extraordinarily 
helpful in dealing with the counternarcotics problem. It would 
be extraordinarily helpful in dealing with this problem as 
well.
    There are sanctions that the President could impose. He 
could prevent financial institutions in a non-cooperating 
country, after due notice, from clearing dollar accounts with 
the United States or with correspondent banks. That effectively 
kills a financial institution. It is the nuclear bomb of the 
international finance industry. I trust it would never have to 
be used. But if it were used once, it would send an important 
message to other states.
    While we are getting cooperation, I do not think we should 
rest on our laurels. I think we should, in fact, step up the 
pressure because this problem is not going away. Financing is 
the necessary fuel for terrorist organizations, and if we are 
to win what will probably be a generation-long struggle against 
the terrorist threat that faces us today, it is a necessary 
precondition that we dry up the money.
    Thank you, Mr. Chairman.
    Chairman Shelby. Thank you, Mr. Clarke.
    You mentioned or alluded to the National Security Council 
Policy Coordination Commitment, the PCC. Currently, Mr. 
Aufhauser chairs the group. He testified before this Committee 
very recently--a very able man.
    What are your basic thoughts on PCC? You know, when you 
create an ad hoc group, it remains that way sometimes, as 
opposed to defining something that is more permanent in nature, 
I guess.
    Mr. Clarke. Mr. Chairman, perhaps I am prejudiced from my 
personal experience, but I think the only way departments and 
agencies pay attention to important national goals is if there 
is someone at the White House who is a pain in the rear end and 
that perhaps has the power and trust of the President.
    I think the new arrangement is that the Deputy National 
Security Adviser, Mrs. Townsend, has taken on the role of 
coordinating the interagency process with regard to this issue. 
Now, I think that is important and I think that is a good 
thing, and she is certainly well experienced and well equipped 
to make it work, and she has the trust of the President.
    But I think what is missing, the second element for 
success, in addition to having a nudge in the White House, is 
having an interagency center that is activist and that has all 
the capabilities and skills it needs to carry out what the PCC 
and the President want. We do not have that. We do not have 
this one place where all the assets of the banking examiners in 
the eight regulatory organizations--and there are eight at the 
Federal level--where people from the Office of Foreign Asset 
Control, FinCEN, Secret Service, and Customs intelligence are 
all working together with the FBI.
    I cannot stress enough how valuable these skills are at the 
Secret Service. People think of them as bodyguards. They are 
much more than that. They do one of the best jobs in the 
Government on financial crime and have for years. We need them 
to be integral to this effort.
    The progress that we made, such as it was, prior to 
September 11 on terrorist financing was done almost exclusively 
by the Customs intelligence branch, and we need them integral 
to this effort.
    So, I would say the two key elements are a strong Chair in 
the White House and a strong interagency fusion center. You 
cannot just rely on the FBI.
    Chairman Shelby. Mr. Clarke, you mentioned the flow of 
information from the financial institutions to the Government, 
but no backflow in a sense. If there is no feedback on what 
they are getting, it seems like it is a one-way street and it 
seems like it is inadequate. Do you want to elaborate on that a 
little more? How do we change that?
    Mr. Clarke. I think it is very frustrating for compliance 
officers and security officers at U.S. banks and financial 
houses who want to do the right thing but do not know what to 
look for. And when they do find a suspicious activity and they 
file a suspicious activity report as required by law, nothing 
happens as far as they know.
    Now, do they continue sending in that information? Maybe 
they should be told, no, that was not helpful, look somewhere 
else. Or they should be told that was exactly right and we need 
to have more of that. They are not given any of this 
information, and the reason they are not is they are told 
either it is grand jury information, potentially, covered by 
the Federal Rules of Criminal Procedure, or it is classified 
information and you do not have a security clearance.
    Those objections can be overcome. We can provide clearance 
to these personnel. We can provide them with secure phones. We 
can provide them with access to information so that they can do 
their job better.
    Chairman Shelby. Mr. Clarke, you referenced the drug 
certification program. It sounds good, you know, if we could do 
this with countries and say, gosh, we will investigate who is 
really cooperating with us on fighting terrorism through the 
financial institutions in their country and who is not. I have 
been told that there are only two countries currently on the 
drug list, Haiti and Burma, so many waivers are involved.
    If we were to come forth with something like this, how do 
we tighten it up to where we take the political elements out of 
it?
    Mr. Clarke. That is always going to be difficult, but while 
there are only two countries now on the decertified list, there 
have been other countries in the past. And the fact that they 
have moved off the list means that we have made progress with 
them.
    There is always going to be political interference and the 
State Department saying that we do not want to say this country 
is doing things improperly. But I think if you have a criteria 
list in the law, then there is less wiggle room for that type 
of political interference.
    Chairman Shelby. Senator Sarbanes.
    Senator Sarbanes. Thank you, Mr. Chairman.
    Let me first just follow along with the Chairman's last 
question. Administrations have brought tremendous pressure to 
bear on the Congress and actually repealed the drug 
certifications. And as the Chairman pointed out, they often 
render it useless because they give these waivers out all the 
time. In fact, some argue that it weakens the perception of our 
fight against drugs rather than strengthens it because we come 
right up to it and then they say, oh, well, for other reasons, 
you know, we are going to give a waiver here, we give a waiver 
there and so forth. And the attitude finally--I mean, you know, 
we have Haiti and Burma on this list. End of list. We would 
have to think about whether the same thing would happen on the 
money trafficking. But it is an interesting suggestion.
    Some of us have the perception that the creation of the 
Department of Homeland Security may well have set us back with 
respect to addressing this issue of the financing of terrorist 
organizations rather than move this forward. How do you see 
that?
    Mr. Clarke. I think there is no doubt that it did. 
Reorganizing the Federal Government in the middle of a war on 
terrorism was perhaps not the brightest thing we could have 
done. And as someone who spent 30 years as a Federal 
bureaucrat, I know that bureaucrats' tendency is to worry first 
about their desk, their office, their boss, their building, and 
their parking space. And when you start changing all of that, 
it takes them off the substantive work they should be doing.
    The organizational changes with the Customs Service, with 
the Secret Service, with the ripping out of the enforcement arm 
from the Treasury Department, I think all of that 
discombobulated many of the key agencies in the fight to 
identify terrorist fundraising. It is unfortunate. We lost 
time. We still have not put Humpty Dumpty back together again 
because we still have not got the Treasury Department with 
someone really in charge of the residual enforcement elements, 
OFAC and FinCEN.
    Senator Sarbanes. Plus they have lost a lot of their tough-
minded investigators, have they not, at Treasury?
    Mr. Clarke. They have lost almost all of them to the 
Customs reorganization, and within Customs. Customs 
intelligence, which was so key, has been broken up into two 
different pieces.
    So, yes, I think it is absolutely right that the 
reorganization did not help and probably set us back.
    Senator Sarbanes. Where would you put the fusion center? 
Where would it be located if you had something like that?
    Mr. Clarke. I think organizationally it should probably be 
in the Treasury Department, but it does not matter a great 
deal, as long as all of the key elements are represented and 
they are really reporting to someone in the White House who 
chairs an interagency committee.
    Senator Sarbanes. Would you say that is the single most 
important thing we could do in terms of organizing the U.S. 
Government to address this problem?
    Mr. Clarke. I think it is absolutely the most important 
thing that we could do. Having the current structure where the 
FBI is in charge and tells everybody else what to do is a 
recipe, I think, for failure. We need an integrated 
organization.
    Senator Sarbanes. Why do you think that?
    Mr. Clarke. Well, because the FBI, by tradition, does not 
cooperate well with other Federal agencies and does not share 
information and treats other Federal agencies as second-class 
participants in the overall effort.
    I think if we create a neutral center with the FBI, 
obviously there and playing a key role, but the other elements 
of the Government that have the legal authorities and the 
skills necessary, and also gives us a second opinion, which we 
desperately need on all of these questions.
    Senator Sarbanes. How would you assess the effectiveness of 
the major banking centers outside the United States in 
enforcing economic sanctions and antiterrorist financing rules?
    Mr. Clarke. I think they are much better now, obviously, 
than they were prior to September 11, and the Saudis have 
gotten better since the Riyadh bombing. But it is difficult for 
me, outside the Government, to know the extent of that progress 
in the last year.
    Senator Sarbanes. Mr. Chairman, my time has expired.
    Chairman Shelby. Senator Bunning.
    Senator Bunning. Thank you, Mr. Chairman.
    Let me do a little follow-up on what my Chairman and 
Ranking Member have talked about as far as the Department of 
Homeland Security and the ability to gather the information 
necessary.
    One of the main reasons we created the Department of 
Homeland Security was to centralize the ability to gather all 
intelligence and localize it in one Department. We fought the 
ability of a Deputy Secretary in the Department of Homeland 
Security to be in charge of the intelligence gathering and were 
successful in defeating that. My gut feeling is that if all of 
the people that are involved in this type of intelligence you 
are talking about as far as financing and raising money and all 
the things that are involved in the financing of terrorist 
activity could report directly to the Secretary of Homeland 
Security, Tom Ridge, who obviously has the right connections at 
the White House and the Department of the Treasury, we would 
not have this maze of people, including the FBI, CIA, or Secret 
Service and/or all that you are talking about.
    Do you think that that might, even if it were directly to 
the Secretary of the Treasury--I am trying to get out from 
under somebody being a bureaucrat first and responsible for the 
overall 
aspects of collection of this information.
    Mr. Clarke. Well, Senator, I know that many in the Congress 
thought that by creating a Department of Homeland Security and 
having an intelligence division or an information analysis 
division with an Under Secretary in charge, that coordination 
and centralization would occur. It has not occurred. There are 
many hundreds of unfilled jobs in the Department of Homeland 
Security. The intelligence analysis capability has not yet been 
created.
    I am not sure it matters a great deal what department this 
fusion center is in, but I think it is important that there be 
a fusion center, a large center with good people, not just the 
kind of people you want to get out of your organization and so 
you assign somewhere else, but good people in a center with all 
of the skills necessary, all of the agencies that can bring 
something to the table, represent it, and that there be a 
senior Federal official who does nothing but run that center, 
and then a White House-led committee that does oversight and 
policy direction. And I think those two elements are key--
someone senior at the White House, not somebody who has 27 
other jobs at the White House but a senior-level person at the 
White House with experience, and I think Fran Townsend is 
absolutely the right person. The President has appointed the 
right person to do that job, and she is the Deputy National 
Security Adviser, and she has got great experience in this 
issue going back 12 years.
    What she lacks is the center, and whether it is in Treasury 
or Homeland Security I do not think, frankly, makes much 
difference.
    Senator Bunning. Okay. To go back to the Chairman's 
question about banks and other financial institutions, back and 
forth, a lot of going to but nothing coming from, we have some 
privacy problems that we have to solve, and you well know that 
there are privacy problems that this Committee deals with on a 
daily basis. How do we overcome them?
    Mr. Clarke. Part of the privacy problem is part of the 
classification, the secrecy problem in general. We have in the 
past given secret-level clearance to corporate officials. The 
head of security for every major airline has a secret if not a 
top-secret clearance. There are people throughout the defense 
industry in the private sector, Northrop Grumman, Lockheed, and 
Raytheon, all have top-secret clearance. I do not know why we 
cannot take the chief compliance officer or the chief security 
officer of a major bank or financial institution and give them 
a top-secret clearance. They are all former Secret Service and 
FBI agents. They have all had top-secret clearance before, 
anyway. They are people who we know we can trust because they 
have spent 25 years with clearances in the past.
    Senator Bunning. Where were you suggesting that we add that 
to? The Department of the Treasury or the Department of 
Homeland Security?
    Mr. Clarke. Who gives them the clearance I think is less 
important than the fact that they get it.
    Senator Bunning. That they get it.
    Mr. Clarke. Now, it costs money to give someone a security 
clearance. These days a full-field investigation costs 
$100,000. So someone is going to have to get an appropriation 
if we are going to clear 50 people. That is going to be some 
money. But it will bring us back great benefits because then 
they will know what to look for.
    Senator Bunning. A last question. You mentioned Section 314 
of the USA PATRIOT Act. Tell me why we should re-examine that 
Section or examine it to start with, and what progress can we 
make if we do it?
    Mr. Clarke. I am not suggesting it be modified. I am just 
suggesting that you have an oversight hearing to see how it is 
being implemented.
    Senator Bunning. Thank you very much, Mr. Chairman.
    Chairman Shelby. Senator Allard.

                COMMENTS OF SENATOR WAYNE ALLARD

    Senator Allard. Thank you, Mr. Chairman. I would like to 
follow up on Senator Bunning's questioning about Section 314. 
You suggested we hold a hearing. There are many parts of the 
USA PATRIOT Act you have suggested need no hearing. What is 
going on in Section 314 that drives you to think that we should 
take a look at it?
    Mr. Clarke. This hearing today has as its subject terrorist 
financing, and that is what Section 314 is about. It does seem 
to me that if you want to have a series of hearings on 
terrorist financing that one of them should at least in part 
focus on how well this part of the law is being implemented. 
What I suggested was I think it is being well implemented by 
the banks in that they are providing the Government 
information. It is not being well implemented by the Government 
in that the Government is not providing them information.
    Senator Allard. So we need to take a hard look at the 
Government's side of Section 314 and how it is being managed.
    Mr. Clarke. And I think you also need to ask the banks if 
there are things that they could do to exchange information 
among each other, as they are authorized to do by Section 314. 
Section 314 is well written. It authorizes the banks to 
exchange information amongst each other without any fear of 
monopoly, antitrust, or privacy problems.
    Senator Allard. And you think Section 314 is essential?
    Mr. Clarke. I think it is very essential, very well 
written, and I think we need to make it work. I am not sure it 
is working.
    Senator Allard. You state in your testimony that the United 
States should sanction governments that do not cooperate in the 
search for terrorism financing. Has the cooperation of our 
current partners been effective in your view?
    Mr. Clarke. I suspect they are always going to be hold 
outs, there are always going to be these offshore banking 
centers that are scofflaws. Senator Sarbanes said there were 
problems with narcotics certification. There absolutely were 
problems with narcotics certification. If you were to do a 
certification process for terrorist financing I think it would 
be written differently. But the process of going to a 
government and saying, ``We have to send the U.S. Congress a 
document every year that says how you are doing, you, the Isle 
of Mann, or you, Kiribati,'' there is going to be a document go 
before the U.S. Senate saying how you are doing. The very fact 
that you have that capability as a U.S. diplomat to say that to 
another country brings progress.
    Even if the threat of sanctions is remote, even if there is 
only one country on the list, the threat that you could be put 
on the list helps enormously. It has helped enormously in the 
drug area. The measure of merit here is not how many countries 
are on the list. The measure of merit is how many countries are 
not on the list because we scared them into progress and 
cooperation.
    I know what it is like for a U.S. diplomat to go into one 
of these countries and try to get their attention and try to 
get their cooperation. It is hard. And if you have no stick, it 
is very hard. I think we need to give our diplomats that stick, 
and hopefully they will never have to use it.
    Senator Allard. Do you believe that the existing antiterror 
conventions and treaties are effective?
    Mr. Clarke. There are, I think, 13 of them. Most of them 
are very effective, but I think in the area of terrorist 
financing there has not always been a willingness to share 
information, a willingness to open up accounts. One of the 
problems, frankly, is if we are going to ask other countries to 
open up their banks for international inspection, we have to do 
that too.
    There has to be, as there is, a system for doing this that 
is already in place, where three countries get together and 
inspect another country, audit another country, and file a 
report. That is a good process. Structurally that is a good 
process, but it needs to go down to an additional level of 
detail which it has not in the past.
    Senator Allard. It sounds to me like if we would do that, 
we might grant privileges to a foreign power that we do not 
even grant to our own agencies here in the United States about 
the sharing of banking information.
    Mr. Clarke. No. It would be limited, and it is now, limited 
to the banking examination authorities that the Federal 
Government already has.
    Senator Allard. I see my time has expired, Mr. Chairman.
    Chairman Shelby. Thank you.
    Mr. Clarke, in your written testimony you outline numerous 
examples of terrorists and their agents leveraging or abusing 
our First Amendment protections of the free exercise of 
religion in pursuit of their fundraising efforts. Where do you 
see the balance of the Government's intrusion into suspected 
abuse, a front, organizations, or false religious 
organizations?
    Mr. Clarke. It is not coincidence that the terrorists have 
chosen to wrap themselves in religion, particularly in this 
country, because they know how difficult it is for law 
enforcement to go after them if they have wrapped themselves in 
a religious cloak. Under the former Attorney General guidelines 
that General Ashcroft changed after September 11, but under the 
guidelines that date back to the Watergate era, FBI agents were 
not allowed to go into mosques or church.
    Chairman Shelby. This is previous restrictions?
    Mr. Clarke. Previously. There were a whole series of 
restrictions like that. Many of them have been modified now. 
But I think we have to walk a fine line here of obviously 
continuing to respect the rights of religious institutions, but 
knowing that the enemy has decided to hide himself in the 
camouflage of religious institutions. If we know that, and we 
do, then we have to examine them.
    Chairman Shelby. We have to it and do it well. I understand 
that. Can we fashion, and how do we fashion an investigative 
guidance to balance the constitutional interests with our 
investigative pursuit of financing? Knowing this, which, you 
know you have people hiding behind the religious organization 
to raise money for terrorist activities.
    Mr. Clarke. I always believe that the Government has 
greater credibility, the Executive Branch has greater 
credibility when it has people who are not in the Executive 
Branch doing some advice and oversight. In other words, an 
outside advisory board. It would seem to me that in general the 
Justice Department would be well advised to have a body of 
people who are well-respected in the academic community for 
their interest in civil rights, civil liberties, and religious 
protection giving advice on an ongoing basis, and having access 
to what it is that the Justice Department and other agencies 
are doing.
    Chairman Shelby. Mr. Clarke, in your view, and based on all 
your experience, which is vast, what is the greatest challenge 
in creating a terror finance program with some teeth in it, 
where information is shared? You mentioned the lack of a real 
fusion center before, lack of feedback to institutions, but 
what is our greatest challenge?
    Mr. Clarke. I think the greatest challenge, place where we 
have failed the most and the place where had we succeeded we 
would have gotten the greatest reward is in the area of 
developing human intelligence. If the intelligence agencies 
were able to tell us where to look for this money, it would be 
a lot easier, because what we are doing now is we are going 
through the haystack looking for the needle. And if you do it 
that way it is terribly expensive, terribly time-consuming, and 
frequently not productive. But if you have an intelligence tip 
as to what bank account, what bank, then you do not have to go 
rummaging through everybody's privacy.
    Unfortunately, the U.S. intelligence community has not done 
a good job of placing agents, particularly in human 
intelligence, in these terrorist organizations that are able to 
answer the simple questions, where is the money?
    Chairman Shelby. Mr. Clarke, how do we, the United States, 
address, I guess we would call it the informal value transfer 
systems, for example real estate transactions--that is just one 
you have mentioned, the illegal diamond exchanges, is it 
hawalas?
    Mr. Clarke. Hawalas.
    Chairman Shelby. Explain how the hawalas works, if you 
will.
    Mr. Clarke. Hawalas are fascinating. They are a system of 
ledgers. A network of people around the world who trust each 
other and keep ledgers, and the ledger may just be this, it may 
just be a notebook they keep in their pocket. You walk into a 
hawala in Brooklyn and you say, ``I want $10,000 to go to my 
brother in Rawalpindi,'' and you pay a 3 or 4 percent carrying 
fee, and you are given a code word. You give that code word 
then to your brother in Rawalpindi. He shows up at the 
designated hawala there.
    It does not say hawala on the door. It says rugs or coffee 
beans.
    Chairman Shelby. Or money shop.
    Mr. Clarke. Money shop, exactly. The brother goes in and he 
gives the code word and he gets the $10,000. And money has not 
moved. That is why we cannot find it moving because it has not 
moved. The hawala in Rawalpindi is using its own resources.
    Chairman Shelby. You have a debit and a credit though.
    Mr. Clarke. It is a ledger system and they clear the ledger 
at the end of the quarter or the end of the year with each 
other. And then money may physically move. The way it moves is, 
as you suggested, goods are bought and sold, and so a rug 
shipment moves and they pay $1 million for a rug shipment that 
is worth $10,000, very, very hard to find.
    When we first asked the FBI to find the hawalas in the 
United States, of course the first question was, ``What is a 
hawala?'' The second was a statement that there were not any. 
So we went online and Googled hawalas in Brooklyn and Googled 
hawala Queens, and we found lots of hawalas. They are still 
here. They are more under cover than they were before, but it 
was not even clear in most States that they were illegal at 
that time. They are now.
    Chairman Shelby. Are they real prevalent in the Gulf 
States?
    Mr. Clarke. Throughout the Arab and Islamic world.
    Chairman Shelby. Is that the way they move money back and 
forth to their families and so on?
    Mr. Clarke. That is exactly how they do remittances. There 
is a separate system in the Chinese ethnic community that is 
very similar to the hawala system in the Islamic community. 
They are very difficult to find. They are now illegal in the 
United States, but there is not any international standard by 
which they are illegal.
    Chairman Shelby. How much money is moved, in your judgment, 
through the hawalas? Is it hundreds of millions?
    Mr. Clarke. That is very difficult. It is clearly hundreds 
of millions, but putting it even parametrically saying how much 
money it is, we really do not know.
    Chairman Shelby. Senator Sarbanes.
    Senator Sarbanes. Senator Schumer has not had a chance.
    Chairman Shelby. I was going through the names. If you want 
to yield, we will do it. We will have a second round. It is up 
to you.
    Senator Sarbanes. He has not had a round yet.
    Senator Schumer. I have questions, but I will wait.
    Chairman Shelby. Go ahead Senator Schumer.

            STATEMENT OF SENATOR CHARLES E. SCHUMER

    Senator Schumer. Thank you. I thank both of my colleagues.
    I want to thank Mr. Clarke, whose service to his country is 
just stellar and we thank you for being a voice on this long 
before just about anybody else was, and I wish you were back in 
Government, but I am glad you are still speaking out and being 
involved.
    First question is it seems that this is not new in terms of 
the American Government having tried to crack down on Saudi 
participation in terrorist financing. As I understand it, there 
was a report in the July 2003 New York Times that said that 
Vice President Al Gore arranged to meet with Saudi officials in 
1999 and 2000, threatening Saudi Arabia with severe sanctions 
if they did not stop participating in funding terrorism. Were 
you aware of the meetings? How did the Saudis respond to the 
threat? Did they make any moves to stop terrorist financing at 
that point?
    Mr. Clarke. That report is essentially true. What the 
Saudis did prior to September 11 and even after September 11, 
up until the Riyadh bombings, was to say that they took this 
seriously and promised cooperation. They then asked us for lead 
information. ``Fine. Mr. American, if you believe there is 
money in our banks, tell us what bank account. Tell us the name 
of the individual.'' When on rare occasions we were able to do 
that, they said they would look into it and for the most part 
nothing happened.
    That has changed since the Riyadh bombings.
    Senator Schumer. It did not change in the period between 
September 11 and the Riyadh bombings much?
    Mr. Clarke. My impression is that the wake-up call was not 
September 11.
    Senator Schumer. How much has it changed?
    Mr. Clarke. I am told by my former colleagues in the White 
House and elsewhere that it has changed quite a bit.
    Senator Schumer. Did they react? Did they do anything after 
Vice President Gore went to them and said, change things around 
a little bit?
    Mr. Clarke. They certainly agreed to a number of meetings 
where Treasury Department officials and CIA and FBI officials 
gave them lead information and gave them ideas about how you do 
bank auditing and how you set up a suspicious activity 
reporting system. They said they were going to look into all of 
those and perhaps adopt them. I am not sure whether they 
actually did anything.
    Senator Schumer. Next question is somewhat related. We have 
seen reports everywhere that this is not just some little small 
group of rogue Saudis funding this, but rather that there are 
officials at the highest levels of Saudi society, including 
royal family, including present or former ministers in 
financing terror. Some of these officials are the same ones, as 
I understand it, who have some say in helping us with our 
investigations of terror with Saudi Arabia.
    First question is, have leading Saudi officials, either in 
public or private capacity, funded terrorism and if so, do they 
continue to do so today?
    Mr. Clarke. I do not know the answer to that, Senator, but 
I think this is a general answer.
    Senator Schumer. Could you give us some context to this? 
How could so many high up people be involved in this kind of 
thing?
    Mr. Clarke. Again, I do not know that high up people were 
knowingly involved in terrorist financing, but I think the 
context is this. There were some Saudis and people from other 
countries who knowingly provided money to terrorist fronts. 
There were others who knowingly provided money to Islamic 
charities. The Saudi Government, as a matter of policy, was 
providing money to Islamic charities around the world and to 
the creation of mosques, not just the building of them but the 
staffing of them and the running of them. The Saudi Government 
was in effect an evangelical organization pushing its religion 
around the world.
    Many of those mosques and many of those religiously 
affiliated charities that were receiving government money were 
used by Al Qaeda as fronts, as sanctuaries, as places to raise 
money, hold meetings, recruit personnel, employ people who were 
really terrorists, and give them cover. The unknown question, 
at least unknown to me, is the extent to which that knowledge 
of the abuse was held at high levels of the Saudi Government. I 
have to believe that if high levels of the Saudi Government 
knew that that abuse was going on, they would want to stop it, 
because after all, Al Qaeda's goal is to have them all hang 
from telephone poles. There is no reason why the Saudi 
Government wants to help Al Qaeda because the first thing Al 
Qaeda will do is kill them all.
    I think we have to distinguish between the evangelical 
nature of the Saudi Government's support for Islam around the 
world, on the one hand, and the abuse of the system the Saudis 
created. Clearly, there were people who knew that the abuse was 
going on, but I do not know who they were or how numerous they 
were or how high level they were.
    Senator Schumer. Does our intelligence have better 
information now on who they would be? It would seem to be an 
important thing to know.
    Mr. Clarke. I think our intelligence has gotten much better 
with it on that issue.
    Senator Schumer. May I ask one more question, Mr. Chairman?
    Chairman Shelby. Go ahead, Senator.
    Senator Schumer. And this is one that Mr. Clarke and I had 
talked about a little bit in Judiciary. He has been before 
Judiciary because of his great knowledge on these things.
    Again, we had talked about this. I am not sure if we did it 
publicly or privately. But one thing I am really troubled about 
is the planeload of Saudi citizens that was allowed to leave 
the country right after September 11. They might have been 
people either involved in terrorism or people who knew 
something about terrorism. As I understand it, most of the 
people who were on that plane now cannot be questioned by our 
own authorities because the Saudis are very reluctant to allow 
our authorities to question freely Saudi citizens who might be 
involved in terrorism. Do you know how it all happened? Why it 
was allowed, when we were not allowing anything else, and how 
much damage did it do us and are we able to recoup some of that 
now with this new change post Riyadh in being able to question 
some of these people, albeit a couple of years later?
    Mr. Clarke. Senator, I think this is really a tempest in a 
teapot. What happened was that shortly after September 11 when 
it became clear that most of the terrorists of September 11 
were Saudis, the Saudi Government feared that there would be 
retribution and vigilantism in the United States against 
Saudis. That seemed to be a reasonable fear. The Saudi 
Government therefore did what we do all the time in these kinds 
of circumstances. It organized an evacuation flight for Saudi 
citizens who wanted to be evacuated. I have done this several 
dozen times, where we have arranged evacuation flights to 
evacuate Americans under similar circumstances.
    The list of personnel that were being evacuated was 
provided to the FBI. We asked the FBI to see if there was 
anyone on the evacuation list that they wanted to detain and 
question, and the FBI told us there was no one on the list that 
they wanted to detain.
    Since this has become a matter for speculation I understand 
that there are people in the FBI who say they did not really 
have a chance. They had a chance.
    I think the real test of whether or not this is a serious 
issue is, is there anybody who was evacuated on that flight 
that the FBI has subsequently tried to question, subsequently 
found any value in questioning? As far as I know--I would be 
pleased to hear otherwise--but as far as I know there was no 
one on that flight that the FBI wanted to investigate or 
interrogate then or wanted to investigate or interrogate 
subsequently.
    Part of the brouhaha is that there were members of the bin 
Laden family on that flight, and there is a guilt by 
association implication here. The bin Laden family is enormous, 
number one. Number two, the members of the bin Laden family who 
were living in the United States we were aware of. Without 
going into more, in open testimony, let me just say we were 
aware there were members of the bin Laden family living in the 
United States, and had they been doing anything wrong we would 
have known about it. Let me stop there.
    Senator Schumer. Thank you, Mr. Chairman.
    Chairman Shelby. Senator Bunning.
    Senator Bunning. I am going to try get a handle on the 
expansiveness of Al Qaeda and other terrorist organizations. In 
your opinion is the widespread diversion of terrorist 
organizations, Jihad, Hamas, and other organizations, is it a 
coordinated unit, or is somebody coordinating as best as they 
can? What happens with the funding and with the direction of 
these terrorists?
    Mr. Clarke. Senator, I think there was a great deal of 
coordination among the two inner circles. Let me describe my 
model of three circles here. The most central circle was Al 
Qaeda itself. The circle around it was organizations that they 
created or expanded and funded and trained, regional 
affiliates. The third circle is groups that really have nothing 
to do organizationally with Al Qaeda and predated it in many 
ways, Hamas, Hizbollah, PIJ, and the others. Prior to our 
dismantling efforts at Al Qaeda in 2001 and 2002 the inner two 
circles did get direction from the leadership of Al Qaeda. In 
other words, a regional affiliate in Algeria, Italy, or 
Indonesia did take orders from the leadership of Al Qaeda.
    The leadership of Al Qaeda cannot communicate, so the 
regional affiliates are much more on their own. I think there 
is a still informal, non-centralized, non-leader directed 
relationship among all of these components. We have gone from 
having something that was hierarchical to having something that 
is more dispersed.
    The American Right Wing Militia in this country talked 
often about the concept of the leaderless revolution, and the 
beauty of that to them was that you could arrest people you 
thought were leaders and it would not affect the movement. The 
same model is now working in the fundamentalist Islamic 
terrorist circles, that it is more of a leaderless 
organization, and you can pick off individual leaders in 
individual cells. The other ones are still out there, and 
sometimes communicate and cooperate with each other.
    Senator Bunning. Would you say that as far as unit within 
this country, with the United States, there is no specific one 
person leading except the fact that they are individual cells 
that are operating on their own?
    Mr. Clarke. I suspect there are cells in the United States. 
I do not know that for certain, but I think there are, and many 
of them are operating on their own or are operating with regard 
to regional terrorist organizations back in their home 
countries. I do not think there is much of a hierarchical 
system here.
    Senator Bunning. The funding that Senator Schumer and 
others have talked about, these cells, whether they be in the 
United States or otherwise, are somehow funded, and whether it 
be the Saudis or whoever, but through a series of charitable 
foundations or other types similar to that?
    Mr. Clarke. I think there are two things going on with 
charitable foundations and apparent nongovernmental 
organizations. One, there are some NGO's and charitable 
organizations that were created by Arab governments, and 
sometimes their local chapters have been taken over or abused 
by terrorists as fronts, without the Arab governments knowing 
it. There is another kind of charitable front that is created 
by the terrorist group and does not have a governmental 
affiliation, and we have seen both of those.
    Sometimes the money does not flow to the cells in the 
United States. Sometimes the money flows from the cells in the 
United States.
    Senator Bunning. If we kill the money do we kill the cells?
    Mr. Clarke. No. But I think it makes it much more difficult 
for these organizations to do recruiting and training if they 
do not have the money.
    Senator Bunning. In other words, it is central to our 
success long term?
    Mr. Clarke. It is a necessary precondition.
    Senator Bunning. Thank you very much, Mr. Chairman.
    Chairman Shelby. Senator Sarbanes.
    Senator Sarbanes. Thank you, Mr. Chairman. I know we have 
another panel and I will be very brief.
    Mr. Clarke, first of all, let me again repeat my comments 
and those of my colleagues in thanking you for coming and for 
your efforts in this field.
    When we did the title for the money laundering, we did that 
in this Committee and had it included in the USA PATRIOT Act, 
we put in a Section 311, special measures for jurisdictions, 
financial institutions, or international transactions of prime 
money laundering concerns. This was an effort to examine what 
was happening elsewhere, declare it, and thereby bring a focus 
to bear, and there were certain penalties that went with such a 
designation.
    Many of us feel that the Executive Branch has not--it is 
the power in the Treasury--really utilized that power to the 
extent that we thought it would be and to the extent that 
circumstance would seem to warrant. What is your view on this 
question?
    Mr. Clarke. I think your assumption is correct, that the 
Section 311 powers have not been used, and that is why I come 
back to this notion of an annual report to the Congress where 
every nation gets a page or more describing what they have 
done. It is harder for the Executive Branch to cover up a lack 
of cooperation from another country if it has to give you a 
written report on that country.
    Senator Sarbanes. My final question is: How much success 
have we had in drying up funding sources for terrorism?
    Mr. Clarke. It is very hard to know the extent as a 
percentage or to describe our success overall when we do not 
know what the whole was to begin with. We can point to what we 
have done, but we do not know what the overall size of the 
problem was to begin with. So have we eliminated 10 percent of 
it or 90 percent of it? We do not know.
    Senator Sarbanes. Do you see any evidence that we have 
impacted sufficiently, that we have markedly affected their 
ability to function?
    Mr. Clarke. I think their ability to move funds has been 
markedly affected. I think their ability to communicate has 
been markedly affected. I think it is much more difficult for 
them to do it. That does not mean it is impossible.
    Let me give you an example. In the past they might have 
picked up the telephone and called each other from one country 
to another, or they may have gotten on an e-mail and sent an e-
mail from one country to another. They probably are very 
reluctant to do that today, and they probably have to use 
couriers to communicate, and those couriers have to be clean, 
people without any record in any of our databases. You can 
still communicate that way, but it is much more difficult and 
much slower.
    I think probably by analogy the same kind of thing is 
happening with fund raising and fund moving. You can still 
stash hundred dollar bills in boxes and ship them from country 
to country, but that is riskier, it is slower, it is more 
cumbersome. You can still do it.
    Senator Sarbanes. Thank you very much, Mr. Chairman.
    Chairman Shelby. Mr. Clarke, I am going to pick up on 
something that Senator Schumer was into, and that is the 
evacuation of a lot of the Saudis following September 11. Has 
there ever been a published list of who all these people were? 
Is that classified?
    Mr. Clarke. I do not know whether it is classified, 
Senator, but I have never seen a published list.
    Chairman Shelby. I never have either. Do you know if there 
was a manifest listing.
    Mr. Clarke. Yes, sir.
    Chairman Shelby. There was a manifest.
    Mr. Clarke. Yes, sir, there was.
    Chairman Shelby. And it is not classified that you know 
about? If it is classified, I would want to know why it was 
classified.
    Mr. Clarke. I do not think it was then. I cannot imagine 
any reason why it would be classified now.
    Chairman Shelby. Do you know how many planes were involved 
in spiriting out or evacuating these people from the United 
States in the wake of September 11?
    Mr. Clarke. No.
    Chairman Shelby. Could it be more than one or you just do 
not know?
    Mr. Clarke. I do not recall. I do recall that we had a 
manifest. That manifest was passed to the FBI and the FBI was 
asked to do name checks on everyone on the manifests.
    Chairman Shelby. But the FBI never interviewed any of these 
people?
    Mr. Clarke. The FBI said it didn't want to and didn't need 
to.
    Chairman Shelby. Who made that decision? Was that made at 
the Director's level at that time?
    Mr. Clarke. It was at least at the number two level.
    Chairman Shelby. Do you know what dates this evacuation 
occurred?
    Mr. Clarke. I think it occurred within the first week 
following September 11.
    Chairman Shelby. Were these the only planes flying around 
for a few days in the United States?
    Mr. Clarke. Oh, no. I mean we were granting exceptions to a 
number of people.
    Chairman Shelby. What other exceptions, do you know?
    Mr. Clarke. There were exceptions granted to a number of 
government organizations.
    Chairman Shelby. Our Government or other governments?
    Mr. Clarke. Our Government.
    Chairman Shelby. Okay.
    Mr. Clarke. The Saudis were the only country that requested 
an evacuation.
    Chairman Shelby. That has been troubling to a lot of people 
in the country, who left, why they left, and especially because 
in view of the fact that there were thousands and still are 
thousands of Saudi citizens going to school, doing business, 
that remain in this country. Yet somebody made the decision to 
let these people out even before they were vetted in any way.
    Was this done at the request of the Ambassador, Prince 
Bandar?
    Mr. Clarke. That is my recollection, but it is not entirely 
true that they were let out before they were vetted in any way.
    Chairman Shelby. But they were never interviewed?
    Mr. Clarke. There was no need to interview them. According 
to the FBI, they were not people they wanted to interview.
    I understand how this becomes a very sexy issue, but I 
think the real test of whether or not it is a real issue is 
whether or not the FBI, in retrospect, looks at that list and 
sees anybody they would want to interview today.
    Chairman Shelby. Do you know if they have looked at the 
list and tried to interview them?
    Mr. Clarke. My understanding is, and again you would have 
to ask them to get a better answer, but my understanding is 
there is no one on that list they wanted to interview then, and 
there is no one on that list they want to interview now.
    Chairman Shelby. I know the bin Laden families--and there 
are a lot of people involved in the bin Laden family--and I am 
sure most of them are not terrorists anyway. But was there one 
member of the bin Laden family that actually was a brother or a 
cousin that worked at the Saudi embassy here? Can you testify 
to that?
    Mr. Clarke. I do not recall precisely how many members of 
the family were here or what they were doing. I do know that 
they were subjects of interest to the U.S. Government long 
before September 11.
    Chairman Shelby. The people that were evacuated, was it 
limited to diplomats and their families, or was it an ad hoc 
group put together by the Saudi ambassador?
    Mr. Clarke. It was a group put together by the Saudi 
embassy.
    Chairman Shelby. Senator Sarbanes, do you have any other 
questions?
    Senator Sarbanes. Yes, I have one more. When we evacuate 
our people overseas and bring them out, is that generally any 
American who shows up and wants to come out when we do that 
kind of emergency operation?
    Mr. Clarke. There are two kinds of emergency evacuations 
that we use. One is an official evacuation, and one is anyone 
who is an American citizen. Depending upon the threat, it is 
one or the other.
    Chairman Shelby. Mr. Clarke, we appreciate your testimony 
here today. We appreciate, as all of us have said, your service 
to this country.
    Mr. Clarke. Thank you, Senator.
    Chairman Shelby. Thank you very much.
    We are going to call up our second panel. Dr. Louise 
Richardson, Executive Dean, Radcliffe Institute for Advanced 
Studies, Harvard University; Dr. Jean-Charles Brisard, CEO, JCB 
Consulting; and Mr. Matthew Levitt, Senior Fellow, Washington 
Institute for Near East Policy.
    I just want to say a few words about Dr. Richardson and 
others. Dr. Richardson is the Executive Dean of the Radcliffe 
Institute for Advanced Studies at Harvard. She has studied and 
written extensively on the alignment of terror groups 
throughout the world. We look forward to her views on the 
shifting alliances among, in some instances, what we call 
``strange bedfellows.''
    Dr. Jean-Charles Brisard is the CEO of JCB Consulting. In 
that position, he is also the lead investigator for the law 
firm of Ronald Motley, representing many of the families of the 
victims of the attack on September 11. He has written and 
studied extensively, not only regarding the attack, but also 
generally concerning the movement of funds necessary to support 
terror organizations.
    Finally, we will hear from Mr. Matthew Levitt. Mr. Levitt 
is a Senior Fellow for the Washington Institute for Near East 
Policy. He has a unique perspective concerning these issues 
built in no small part by his work as a Special Agent at the 
FBI for many years. Mr. Levitt was in the International 
Terrorism Section of the FBI and he has expanded that work into 
his present position. He will assist us today in looking at the 
transition from the conceptual analysis to the practical 
complexity of identifying, tracking, and disrupting terror 
organizations, using the trail that money leaves.
    Dr. Richardson, Mr. Brisard, Mr. Levitt, your written 
testimony will be made part of the hearing record in its 
entirety. You may proceed as you wish.
    Dr. Richardson.

                 STATEMENT OF LOUISE RICHARDSON

              EXECUTIVE DEAN, RADCLIFFE INSTITUTE

             FOR ADVANCED STUDY, HARVARD UNIVERSITY

    Ms. Richardson. Good morning, Chairman Shelby, Senator 
Sarbanes, and other distinguished Members of the Committee. I 
am honored to have this opportunity to speak to you about my 
understanding of the nature of terrorism and how lessons can be 
derived from that understanding for the disruption of their 
operations. As will readily become apparent, I am not an expert 
on terrorist financing; rather, I am someone who has thought 
about and taught about terrorist movements for many years.
    I think the first point to be made in any discussion of 
terrorism is to be clear about what it is precisely that we are 
discussing, so in my written testimony I have suggested what I 
take to be the seven crucial characteristics of the term 
``terrorism''. I believe that, until we can forge some 
agreement on what precisely it is we are talking about, 
international cooperation against terrorism will remain 
disappointing.
    My argument is that it is the means that are employed, not 
the ends that are pursued, not the political context in which 
they operate, that determines whether or not a group is a 
terrorist group.
    The next point I think to be made about terrorist groups is 
that there are very real differences between them. I believe 
that if we want to fashion an effective counterterrorism 
strategy, we must understand these differences. I believe that 
terrorist groups can broadly be defined as belonging to one of 
several types, and in my work I define them in accordance with 
what I take to be their primary political motivation.
    There are ethno-nationalist movements, there are social 
revolutionary movements, there are Maoist movements, and there 
are radical religious movements. A few words on the latter, 
which are the groups which concern us most today.
    I think that while the mixture of religious and political 
motives has been a growing trend over the past 30 years, I 
think that if one takes a longer perspective, it looks very 
different. Prior to the French Revolution, indeed, religious 
and political motives were invariably intertwined in terrorist 
ideology. There have always been two characteristics which have 
marked religiously motivated terrorist groups. First, they have 
exercised less restraint than other terrorist groups. If the 
audience is God, there really is no need to be constrained by 
the desire to avoid alienating one's supporters. Second, they 
have always been more transnational, because as we know, 
religions transcend political boundaries, so these groups tend 
to have broader bases of support and broader bases of 
operation. Consequently, it requires effective collaboration 
between governments to counter them.
    Again, not all religious groups are the same. I think 
religion plays at least one of three roles in different 
terrorist groups. Sometimes it is simple a badge of ethnic 
identity, as in the Northern Irish case. Sometimes it is a mask 
for political motives, as in a number of Palestinian cases--and 
I believe Mr. Clarke's comments this morning suggested that he 
believed most of the groups we currently face are in this 
category. And third, it sometimes serves as the defining 
ideology and guide to action, as in religious sects.
    Now, these types of terrorist movements I believe differ in 
significant respects from one another. They differ in their 
primary political motives and how they organize themselves to 
achieve them. I believe that one can sensibly generalize within 
the different types of movements, but only in very limited 
respects across them. I was asked specifically to address the 
issue of alliances or networks among terrorist groups. I 
believe that it should come as no surprise to us to see 
collaboration among different movements which share similar 
primary motivations. The IRA in Northern Ireland, for example, 
and the Basque ETA, are known to have had close links, and I 
expect it was those links which led to the more recent revealed 
connection between the IRA and the FARC in Colombia.
    It would come as a surprise to me to learn of significant 
alliances across these types of organizations. When cross-type 
alliances have occurred, historically, to my knowledge, they 
have been exclusively between social revolutionary and 
nationalist movements. Islamic organizations could not 
countenance the social views of social revolutionary or 
nationalist groups. Members of nationalist groups tend to see 
themselves as utterly different from what they would consider 
the more depraved groups, which try to kill as many people as 
possible. By and large, nationalist groups have wanted, in the 
memorable words of Brian Jenkins, ``lots of people watching, 
not lots of people dead.''
    In trying to anticipate alliances among terrorist groups, I 
think that a knowledge of the ideology of the group would help 
anticipate the nature of the alliances they are likely to make.
    Many of these groups with very different ideologies do 
share some secondary motivations. These are the more immediate 
or mundane motives and they are shared across types of groups. 
By far the most common motive of any terrorist group and any 
individual terrorist is the desire for revenge. The second most 
common is publicity. They also, of course, seek funding. In 
these organizational ways, one finds terrorist groups I think 
operating much like other, more conventional organizations, 
concerned for their own survival and their own expansion.
    In none of these cases do the memberships seek personal 
enrichment. For this reason, there are, in fact, limits to the 
usefulness of the tools we have developed for anticipating and 
countering criminal elements. The members of terrorist groups 
believe in their cause. They are often, far from seeking self-
enrichment, are, in fact, willing to sacrifice everything they 
have for the cause in which they believe.
    Just as I believe it is important to draw distinctions 
between different types of terrorist groups, It is also 
important to draw distinctions between different types of 
relationships between terrorist groups and their state 
sponsors. These relationships range from relationships in which 
the state exercises considerable control over the movements it 
sponsors to relationships in which the state and the movement 
simply share an enemy.
    In every case, the terrorist movement is rendered more 
effective and more lethal by the support provided by the 
sponsoring state, but in every instance, the state is 
capitalizing on a pre-existing movement rather than creating 
one. The terrorist movements do not rely on the state for their 
survival. Rather, state sponsorship is one of several means of 
generating financial support for the movement. Other forms of 
support we have heard about this morning. They include raising 
money from the Diaspora as Islamic and nationalist groups the 
world over have done successfully. Another popular fundraising 
mechanism is the operation of legitimate front businesses to 
generate money for the cause. I believe the Tamil Tigers in Sri 
Lanka have perfected this technique.
    In other cases, terrorists raise money through extortion 
from the members of the societies they claim to represent, a 
Maoist specialty, and in still other cases they raise funds 
through criminal 
activity. Bank robberies and kidnapping were once traditional 
favorites; today, credit card fraud and in some cases drug 
dealing has become more popular. But raising money through 
criminal activity is a high-risk strategy for terrorist groups. 
It exposes their membership to corruption and to capture. It 
fudges the distinction they seek to draw between themselves and 
criminals, and it undermines the basis of their popular 
support.
    The crucial point, of course, to bear in mind about 
terrorism is that it is cheap. This is part of its appeal. The 
attack on September 11 is probably the most expensive terrorist 
operation in history. It is estimated to have cost a half-a-
million dollars. It takes a great deal less to buy some 
fertilizer, rent a truck, and use them to bring down a 
building. If a group has a generous sponsor, as say Hamas does 
in Iran, they can afford to run charities and thereby secure 
popular support. Such a group can also afford to support the 
families of imprisoned or killed members. But it is not 
necessary at all to have this level of support in order to 
conduct terrorist operations. Terrorism is, above all, a 
tactic, and its appeal as a tactic is precisely that one can 
get so much ``bang'' for one's ``buck''.
    Again, sophisticated weaponry, such as weapons of mass 
destruction, is, of course, expensive. Aum Shinrikyo 
demonstrated this fact. One way for terrorists to secure these 
weapons is to be handed them by a state sponsor. My own view is 
that this fear is very much overblown. The act of ceding to a 
terrorist group one did not completely control, weapons of mass 
destruction would be an act of such folly as to appear 
incomprehensible to me.
    My own prediction is that we will see far more Bali type 
attacks than we will see September 11 type attacks. I worry 
sometimes that our concern to prevent the less likely and more 
expensive type of actions may deflect our attention from the 
need to prevent the more likely, less expensive, and more 
conventional attack.
    I believe that the first priority in undermining terrorist 
organizations is to understand how they see themselves, not how 
we see them. To achieve this, we must be inside their cells and 
inside the societies that produce them. We must read all their 
communications and their propaganda in order to anticipate 
their actions, but also to understand their appeal.
    I think we can learn from terrorists, as they have learned 
from us. We can learn to have patience and to wait for results. 
The brilliance of the September 11 attack was its use of our 
own strength against us. They turned our civilian airlines into 
weapons for use against us. I think we must do the same. We 
must understand their ideology and their tactics and use them 
against them.
    Terrorist organizations operate under conditions of 
considerable uncertainty, and are constantly fearful both of 
external attack and internal betrayal. We should exploit this 
by keeping them under constant pressure and exploiting their 
fissiparous tendencies. Their need to raise funds through 
criminal activity, of course, increases their exposure and 
gives us another avenue to pursue them.
    If we undermine their support of charities, this won't 
prevent terrorism, per se. Many donors to the charities 
genuinely want to support the poor, and many of these charities 
do a great deal of good for the beneficiaries. However, over 
the longer-term, these charities serve to win and to sustain 
support for those providing the charity. I believe, for 
example, that the support for Hamas has to be seen in this 
light.
    I think that we should ensure that it is our friends who 
are meeting the social needs of the potential recruits of the 
terrorists. This is a long-term strategy, but terrorism as a 
tactic has been around for a very long time and is likely to 
remain. What is new is the existence of organizations willing 
to kill as many civilians as they can, and the increasing 
availability of the technical means to do so. Strangling their 
financial assets will make it increasingly difficult for 
terrorists to function, but I do not believe it will ever 
eliminate terrorism.
    Thank you.
    Chairman Shelby. Mr. Brisard.

               STATEMENT OF JEAN-CHARLES BRISARD

               CEO, JCB CONSULTING INTERNATIONAL

    Mr. Brisard. Chairman Shelby, Senator Sarbanes, and 
distinguished Members of this Committee, thank you for inviting 
me today to testify about the global war on terrorism.
    Since June 2002, I have been leading an international 
investigation for the September 11 Families United to Bankrupt 
Terrorism in the course of an action brought by 5,600 family 
members before the U.S. District Court of Washington, DC 
against several entities and individuals that provided 
financial support to the Al Qaeda network.
    In that respect, our investigation is today active in 
various regions of the world and has been able to recover a 
considerable amount of information on Al Qaeda's support 
networks through procedures of judicial or political 
cooperation established with more than 30 states.
    I would like today to share some of our findings with you. 
This network, Al Qaeda, receives as its foundation massive 
financial support of about $500 million from businesses, banks, 
charities, or wealthy sponsors. This money primarily originates 
from donors in the Middle East.
    One single example can demonstrate the reach of this 
support. In the course of our investigation, and as part of a 
judicial cooperation process with Bosnia-Herzegovina, we 
uncovered an internal document, known as the Golden Chain, that 
lists the top 20 Saudi financial sponsors of the group, 
including 6 bankers, 12 businessmen, and 2 former ministers, 
whose assets were valued at $85 billion. They include leading 
Saudi bankers and businessmen who represent the backbone of the 
Saudi economy.
    The institutional confusion existing in Saudi Arabia 
between religious aims and financial instruments has created 
over the years a window of opportunity for fundamentalist 
organizations to consolidate and expand their reach. Most of 
the financial revenue of Al Qaeda was raised through a 
religious tax instrument and duty, known as Zakat, initially 
conceived to cope with poverty and charity among Muslims that 
have been abused by terrorists and their support, with the 
implicit consent of a state unwilling to regulate the use of 
religious money.
    Al Qaeda operates behind a traditional economic and 
financial network and mostly uses well-established channels to 
transfer money. Documents made available to the September 11 
families clearly established that major Saudi banks have helped 
transfer funds to Al Qaeda by direct donations or by providing 
the infrastructure and the means to do so.
    This scheme is a perfect example of the way Al Qaeda 
penetrates the business sector to operate. Beginning in 1996, 
several business associates of Al Qaeda developed a money 
laundering scheme in Spain involving Saudi and Spanish 
companies to finance Al Qaeda operational cells or affiliates. 
Several front companies, described as covers for Al Qaeda by a 
Spanish Judge Baltasar Garzon, received more than $1 million in 
Zakat from Saudi companies or individuals. This scheme, 
financed in part, the Hamburg cell hijackers and the 
preparatory filming of the World Trade Center.
    Since September 11, Saudi Arabia has repeatedly stated that 
its charities were legitimate organizations. Prince Sultan Bin 
Abdulaziz, Saudi Minister of Defense, and an important donor to 
several of these charities, recently stated that they were 
``legitimate and well-established Muslim charities.''
    Such statements are overturned by an array of facts and 
evidence made available by several countries for the 
investigation of the September 11 families, suggesting that 
most of these so-called charities were, at best, fronts of 
terrorist organizations, if not terrorism backbone, but in any 
case, and for most of them, fictitious charities.
    We recovered thousands of documents from Saudi charities 
which are archives of Al Qaeda, showing their involvement in 
every stage of terrorism, acting as an umbrella, safe houses, 
and even military bases for Al Qaeda operatives, to the point 
of creating a symbolic relationship with the terrorist 
organization through its resources, management, members or 
facilities.
    Charities have, for example, provided military training for 
Al Qaeda terrorists. From intelligence sources, the 
investigation of the September 11 families established that 10 
terrorist training camps in Afghanistan have been funded by 
Saudi charities. The International Islamic Relief Organization 
funded at least six terrorist training camps, including the 
Darunta camp, a facility used for chemical and biological 
weapons testing. Others, such as the Muslim World League and 
the Saudi Red Crescent, were part of an Al Qaeda financial 
committee.
    Saudi Arabia has become a major concern in the war against 
terrorism financing. The kingdom is still harboring essential 
and constitutional elements of Al Qaeda: The ideology, the 
human vector, and the financial tools.
    In June 2001, the late FBI Chief of Antiterrorism, John 
O'Neill, told me that all the answers, all the keys enabling us 
to dismantle bin Laden's network, are in Saudi Arabia. Today, 
all of our leads and much of the evidence collected for the 
September 11 families put Saudi Arabia on the central axis of 
terror, and shows that this government was aware of the 
situation, was able to change the path of its organizations, 
whether banks, businesses, or charities, but voluntarily failed 
to do so. Rather, the Saudi Government facilitated the reach 
and involvement of the charities and incited its citizens to 
support the terror fronts when the highest ranking members of 
the royal family are pouring tens of millions of dollars each 
year to Islamic charities known for diverting money to Al 
Qaeda.
    Saudi Arabia also has been fully informed and warned by its 
United States and European counterparts since at least 1994, 
that several major charities sponsored by the Kingdom were 
supporting terrorism.
    In 1994, French Interior Minister Charles Pasqua visited 
Saudi Arabia and met with the highest ranking Saudi officials 
to express his deep concern on the role of charities in funding 
terrorist organizations in the Middle East. In 1996, a CIA 
report indicated that one-third of the Islamic charities were 
linked to terrorism. In 1997, a joint security committee to 
share information on terrorism was established with the United 
States, involving the CIA, the FBI, and the NSA. In 1999 and 
2000, several United States officials finally traveled to Saudi 
Arabia to raise the same concern.
    Despite clear warnings, Saudi Arabia's support to charities 
has been continuous and extensive over time, even after 
September 11. To date, most of the financial infrastructure is 
still in place from banks to charities, including front 
companies and wealthy donors.
    While United States Treasury Department officials claim 
Saudi Arabia is the epicenter of terrorism financing, the 
Kingdom has only frozen a ridiculous amount of terrorist funds: 
41 bank accounts belonging to 7 individuals, representing 4 
percent of the total amount of terrorist-related funds frozen 
around the world.
    The major issue regarding Saudi Arabia concerns its 
unwillingness until a recent period to face Islamic terrorism 
as a threat. ``We have never worried about the effect of these 
organizations on our country''. These were the words of Prince 
Bandar Bin Sultan in September 2001.
    This stand, indeed, had nothing to do with misconception on 
the part of Saudi Arabia. We believe it was part of a clear, 
calculated, and determined policy.
    The same Saudi official acknowledged that the Kingdom might 
have paid the price of its own protection. This is a major 
revelation of our investigation, substantiated by several 
testimonies and documents emanating from members of the Saudi 
governmental apparatus or foreign intelligence. Since 1994, 
Saudi Arabia has funneled money to bin Laden to preserve the 
political power of the Al-Saud family in the Kingdom. Prince 
Bandar refuses to call it ``protection money,'' and prefers the 
notion of ``paying some people to switch from being 
revolutionaries to be nice citizens,'' which is leading to the 
very same consequence for us.
    This trend also reverses a major argument of Saudi Arabia 
when it claims to be the first target of Al Qaeda. The Kingdom 
never faced Al Qaeda terrorist threats since May 12 of this 
year. Osama bin Laden has targeted western interests in the 
Kingdom, while surprisingly avoiding to hurt any symbol of the 
monarchy. On the contrary, we believe Al Qaeda served for years 
the very religious interests of its godfather in disseminating 
the wahabi ideology in various regions of the world.
    The truth is, since the beginning of the war against 
terrorism financing, Saudi Arabia has been misleading the 
world, and we are still awaiting the Saudis to apply for 
themselves the very strong message of their ruler, Crown Prince 
Abdallah, who in August 2003 made it clear that whoever harbors 
a terrorist is a terrorist like him; whoever sympathizes with a 
terrorist is a terrorist like him; and those who harbor and 
sympathize with terrorism will receive their just and deterrent 
punishment.
    Saudi Arabia still maintains freely on its soil thousands 
of individuals or entities who provide financial support to 
terrorism, and the September 11 families are still waiting for 
them to be investigated, sought, and prosecuted with the same 
determination as the one applied to those who were carrying the 
guns and bombs that they have paid for.
    The point has been reached where the only alternative is 
for the Kingdom to show clear evidence of its willingness to 
terrorize the terrorists--in other words, to dismantle the 
financial backbone of Al Qaeda, or to face liability for its 
negligence. This liability could pass through several measures, 
including designating Saudi Arabia as a state sponsor of 
terrorism, if this country still maintains and provides roots 
of terrorism, including the religious substrates with wahabism, 
a radical doctrine that calls for intolerance and violence, 
charities, with organizations offering full service to 
terrorist organizations, and financed with banks, companies, 
and businessmen still able to fund extremists.
    Until now, the war against terrorism financing has been 
mainly focused on the end-users entities and individuals, 
primarily to prevent further terrorist attacks. While this 
objective has been successful in many areas, I doubt it could 
stand as a long time pattern to win this war.
    At the operational level, Al Qaeda and its affiliates have 
been more active since September 11 than in all their history, 
with more than 40 bombings, causing 1,000 deaths. Al Qaeda has 
been able to consolidate and spread its forces through other 
organizations.
    I see several major obstacles in the war against terrorism 
financing, mostly related to its national nature, creating 
international legal and cultural differences. Another obstacle 
is based on political and diplomatic reluctances to address the 
issue of the sources of funding.
    The time has come to raise the final question of the 
finality of the war against terrorism financing. This war will 
only succeed if there is a clear intention from all the parties 
involved to disrupt the entire chain of financing, including 
above all, its sources. We can dismantle all the fronts, all 
the intermediaries, and all the channels of terrorism funding, 
but it will not be enough to disrupt its financing if we do not 
cut the roots of it and prosecute the shareholders of Al Qaeda.
    Several cases demonstrate that this war, until now, has 
been selective, if not discriminating and avoiding to address 
its roots. For example, I question the interest of designating 
Yasin Al-Qadi as Chairman of the Muwafaq Foundation, an Al 
Qaeda front, according to the U.S. Government, if its principal 
founder and donor, Saudi banker Khalid Bin Manfouz, is still at 
large.
    The same applies to the Al Aqsa Islamic Bank, described as 
the ``financial branch of Hamas,'' while its main shareholder, 
Saudi businessman Saleh Abdallah Kamel, is not affected by any 
measurable amount.
    To extend the reach of current investigations, several 
measures could be taken at the national and international 
level, including the implementation of preventive designation 
and freezing of assets of suspects to provide time for 
investigations, while preserving the banking institutions.
    The most important task of the U.S. Government is to 
promote international cooperation, mutual understanding, and 
common tools to fight this form of transnational terrorism. The 
implementation of an international information-sharing body is 
necessary to boost the worldwide investigations. The 
independent and legitimate effort of September 11 families 
provides a basis for cooperation, and I can announce today that 
we will create in the upcoming months a global information 
sharing body, in coordination with several governments and 
international organizations.
    Finally, I will leave my last words to Matthew Sellitto, 
who lost his son on September 11. He, more than I can, 
synthesized our common goal against terrorism financing: ``I 
will see my son again some day, and I truly believe he will 
ask, `Dad, when they murdered me, what did you do to find out 
who murdered me?' Well, I can tell him, look him right in the 
eye and say, I did everything I can . . . to find out who 
murdered my son, why they murdered my son, and who gave them 
the money to murder my son.''
    Thank you.
    Chairman Shelby. Mr. Levitt.

                 STATEMENT OF MATTHEW A. LEVITT

               SENIOR FELLOW IN TERRORISM STUDIES

         THE WASHINGTON INSTITUTE FOR NEAR EAST POLICY

    Mr. Levitt. Thank you very much, Mr. Chairman, Senator 
Sarbanes, distinguished Members of the Committee. Let me thank 
you for inviting me to appear before you today and commend you 
on holding this series of very important hearings.
    I would like to give you, in brief, a conceptualization of 
the issue of the crossover between terrorist groups, really a 
very brief summary of my more detailed written testimony, so as 
to leave you as much time as possible for questions. I would be 
happy to answer any questions afterwards.
    It is a painful reality that no counterterrorism technique 
or 
effort, as you have heard already today, however extensive, 
international or comprehensive, will uproot terrorism. That is 
the bottom line. There will always be people and groups with 
entrenched causes, an overwhelming sense of frustration, a 
self-justifying world view, and frankly, a healthy dose of 
evil, who will resort to violence as a means of expression.
    The goal of counterterrorism, therefore, should be to 
constrict the operating environment, to make it increasingly 
difficult for terrorists to carry out their plots of 
destruction and death, more difficult to travel, more difficult 
to recruit, to train, to procure weapons, to have day jobs, 
safe houses, et cetera.
    Constricting the operating environment includes cracking 
down not only on the operational cells, but also on their 
logistical and financial support networks as well, not only on 
the ``trigger pullers,'' the people who detonate the bombs and 
crash the airplanes, but also on the people who make it 
possible for them to do so.
    Networks and relationships best describe the current state 
of international terrorism. This matrix of relationships 
between terrorists who belong to one or another group is what 
makes the threat of international terrorism so dangerous today. 
For example, while there are no known headquarters-to-
headquarters links between Al Qaeda and Hezbollah, U.S. 
officials recently revealed that Al Qaeda operational commander 
Abu Musab al-Zarqawi not only has ties to Hezbollah, but also 
that plans were in place for his deputies to meet with the 
Lebanese group Asbat al Ansar, with Hezbollah, and ``any other 
group that would enable them to smuggle mujaheddin into 
Palestine,'' in an effort to smuggle operatives into Israel to 
conduct operations. In fact, Zarqawi received more than $35,000 
in mid-2001 just for work in Palestine, which included, 
according to the Treasury Department, ``finding a mechanism 
that would enable more suicide martyrs to enter Israel'' as 
well as ``to provide training on explosives, poisons, and 
remote controlled devices.''
    Clearly, inattention to any one part of the web of militant 
Islamist terror undermines the effectiveness of measures taken 
against other parts of that web. In fact, the ethno-nationalist 
Jihadists and other breakdowns that you heard Dr. Richardson so 
eloquently describe have been blurred. For example, Palestinian 
terrorists plotted to target the Azrielli Israeli Towers in Tel 
Aviv, Israel's equivalent to the Twin Towers, in an attack 
that, contrary to what Brian Jenkins used to say, did intend to 
have many dead.
    We need to debunk the myth that there are distinct wings to 
terrorist groups--good wings that may be engaged in charitable 
or political activity, and bad wings that do terrorist attacks. 
In fact, the very wings of Hamas, Hezbollah and other groups, 
that some are reluctant to recognize as terrorists, are the 
very ones engaged in terrorist financing. Hamas trigger pullers 
are not criss-crossing Europe with their hands out for funds. 
It is the members of the Hamas dawa, the social service 
network, that are doing it.
    The case in Northern Virginia right now, of the myriad of 
companies, charities, and other suspected terrorist front 
organizations now under investigation there, highlights the 
fact that there is a critical need to break away from the 
tendency to adhere to a strict compartmentalization of 
terrorist groups and investigating terrorism cases. We can no 
longer look at terrorist groups as being in perfect little 
square boxes that do not bleed into one another, that do not 
cross over into one another, because they do.
    Investigating the family of organizations in Northern 
Virginia, including the Safa Group, the SAAR Foundation, 
Success Foundation and many, many more, investigating them 
strictly as Hamas or as Palestinian Islamic Jihad or Al Qaeda 
cases clearly did not work. Indeed, the tentacles of this 
entrenched network are suspected of providing tremendous 
logistical and financial support to a variety of international 
terrorist groups and likely not limited to these three.
    Tracing these financial trails proved immensely difficult, 
given the various groups' proactive efforts to layer their 
transactions and obfuscate terrorist intentions of their myriad 
financial dealings. More than anything, the links between the 
various personalities involved with these organizations on the 
one hand, and the laundry list of terrorist groups, fronts, and 
operatives with which they were involved on the other, keyed 
investigators into the network's terror financing and support 
activities.
    Progress on this complex web of front organizations appears 
to have developed only with the passage of the USA PATRIOT Act, 
which facilitated the sharing of intelligence with prosecutors 
and, critically, cross referencing of information across 
previously compartmentalized terrorism investigations.
    To be sure, money is not an issue, not for Al Qaeda, not 
for Palestinian terrorist groups, not for the Jihadists, and 
Baathists working together fighting coalition forces in Iraq. 
And this will continue to be the case until we do something 
about it.
    The fact is that while any given terrorist attack is 
inexpensive, running a terrorist group is extremely expensive. 
In the context of the war on terror, the road map to Mideast 
peace, the liberation and liberalization of Iraq and many other 
national security initiatives, failure to effectively combat 
the financing of terrorist groups will translate into nothing 
less than the failure of our best efforts to combat terror, and 
secure peace and stability in the Middle East.
    The principal terrorist threat today stems from the web of 
shadowy relationships between loosely affiliated groups. The 
sponsors of such groups further complicate that web, be they 
states or sub-state actors. Indeed, there is no precise 
organizational or command structure to the assemblage of groups 
that fall under Al Qaeda's umbrella or that cooperate with the 
organization.
    In conclusion, given the multifarious links between 
international terrorist groups, including Al Qaeda, Hamas, 
Hezbollah, and others, and their relationships to state 
sponsors of terrorism, such as Iran and Syria and more, the war 
on terror must have a strategic focus on the full matrix of 
international terrorism, not a tactical focus on Al Qaeda. The 
next phase of the war on terror demands greater attention to 
the web of logistical and operational interaction among these 
various groups and state sponsors.
    Thank you very much.
    Chairman Shelby. Mr. Levitt, thank you.
    This is a question for Dr. Richardson. You talked about the 
concept of terrorists as transnational actors. We have seen 
examples of this around the world. We know that members of the 
Provisional Irish Republican Army have been tracked in the area 
controlled by FARC in Colombia. We have also seen Hamas and 
Hezbollah operatives in the tri-border area of Brazil, 
Paraguay, and Argentina. And I am sure, Dr. Richardson, you 
could cite many others.
    In your opinion, where is the future of these so-called 
alliances going? In other words, can you, or anyone, predict 
where the terrorists will turn next? Is there an effective 
model that would assist our analysts?
    Ms. Richardson. Well, Mr. Chairman, the one that concerns 
me most is actually one that I take from a reading of the cold 
war when communist groups very successfully exploited 
nationalist movements and made them much more difficult for us 
to counter. I worry that the radical Islamic movements, 
particularly in the areas of the former Soviet Union, might 
exploit nationalist movements there and radicalize them and 
infuse them with training and money and make them altogether 
more dangerous.
    Chairman Shelby. Is that all of Central Asia, not just 
Chechnya?
    Ms. Richardson. Right, it has already happened in Chechnya. 
But that is the area that I would be most concerned with.
    Chairman Shelby. Dr. Brisard, you have written and 
testified about Al Qaeda's annual income. The estimates range 
from $16 million to $50 million. You later say that this is 
evidence of ``massive support from other means.'' You discount 
credit card fraud and other petty money laundering schemes. How 
much income, Doctor, do you believe is attributable to 
misdirection of charitable giving, which Mr. Clarke talked 
about, petty criminal frauds, direct donations, and other 
methods?
    Mr. Brisard. First, there is a recent estimate by a U.S. 
Treasury Department official; Mr. Aufhauser has stated that the 
annual income of Al Qaeda before September 11 was around $35 
million a year. So the figure of $500 million I gave you for 
the entire period since 1998 is quite substantiating what Mr. 
Aufhauser said.
    Al Qaeda itself distinguishes between organizational funds, 
the funds they need for their infrastructure, protection, 
training camps, communication, to move people, to pay also 
protection to some governments, and to entertain the broad 
network of affiliates and other organizations. It distinguished 
organizational funds from the operational funds, and several 
estimates around the world, intelligence estimates, believe 
that operational funds only account for 10 percent of the 
global Al Qaeda budget because, in fact--and in that regard, I 
can join Ms. Richardson on the fact that simple devices do not 
cost a lot of money. The problem is that Al Qaeda is totally 
different. It has created what no other organization has 
created before, a separate structure, an infrastructure for its 
training purposes, for its movement of money purposes, and also 
for communication, and it has needed to resettle in several 
states, including Sudan and then later Afghanistan. They needed 
a lot of money.
    Chairman Shelby. Do you see Al Qaeda forming so-called 
alliances outside of its ideology with other terror groups, 
perhaps organized crime?
    Mr. Brisard. No. They have tried in the past, in fact, to 
extend the reach of the supports, even with some organizations, 
as pointed out by Mr. Levitt, the Hezbollah, for instance, in 
various regions of the world, but also other political 
movements and dissident movements in Saudi Arabia, for 
instance, yes.
    Chairman Shelby. Mr. Levitt, you have a lot of experience 
as a special agent in the FBI. Please tell us about what I call 
the tyranny of the case file. If you know, has the organization 
of the FBI's terrorism sections changed to account for what we 
have heard today is a series of so-called shifting alliances 
among terror groups and criminal elements? In other words, has 
the Government become nimble and agile in its ability to 
identify and track terrorists? And if not, are they greatly 
challenged still?
    Mr. Levitt. I do not think there is any part of the U.S. 
Government we could call nimble.
    Chairman Shelby. Or agile.
    Mr. Levitt. Correct.
    Chairman Shelby. Okay.
    Mr. Levitt. First, let me just correct that when I was at 
the FBI, I was a counterterrorism intelligence analyst. That is 
a big difference from an agent, and that was a decision that I 
made. And I would also point out that I have now been out of 
the Bureau for almost 2 years.
    Chairman Shelby. Okay.
    Mr. Levitt. I worked September 11. I worked one of the 
teams on one of the four flights, and it was painful but an 
honor to do so. But then I left. And so I can share my 
impressions with you, but I do not want to mislead you into 
thinking that this is my experience from there.
    Chairman Shelby. We appreciate you doing that for the 
record.
    Mr. Levitt. I believe that the FBI and other parts of the 
U.S. intelligence community have begun a laudable process of 
change. There is tremendous ways yet to go. The FBI is made up 
of a group of people who are unbelievably committed and 
dedicated, and I applaud them.
    Having said that, they are not, I believe, properly 
structured to be able to cope with this theme that I am trying 
to lay out, which is the overall strategic nature of 
international terrorism, the fact that these groups interact 
together. It seems to me that if information is kept 
specifically organized by case, which you have very aptly 
termed ``the tyranny of the case file,'' then others who are 
working similar and related cases may not, even within the 
Bureau, have access to that information, let alone the whole 
issue of whether or not the Bureau----
    Chairman Shelby. There is no fusion there, is there?
    Mr. Levitt. There is a significant lack of fusion. Let 
alone whether or not the Bureau has changed enough to now be 
sharing sufficient information with the rest of the community, 
which is also something that needs to happen. The Bureau needs 
to function more as part of the national security 
infrastructure, feeding information to people on the National 
Security Council and elsewhere.
    Now, I believe that that change is going to be slow in 
coming, not because of any poor intentions on the part of 
people at the Bureau but because the Bureau is a dinosaur of an 
organization that is slow to change and is set in its ways.
    I like to joke that there are really three FBI's: there is 
FBI headquarters; there are the FBI field offices, which are 
pretty much fiefdoms unto themselves; and then there is FBI New 
York, which is an entity unto itself.
    Getting all these and other components of the FBI to work 
together to get the changes that need to be done is going to be 
a long process.
    Chairman Shelby. Plus the mission of the FBI has changed a 
little bit, has it not?
    Mr. Levitt. I do not know if the mission has necessarily 
changed so much. I worked purely in the counterterrorism 
intelligence side of the house long before September 11, but 
that was a very small side of the house. At one point the 
entire FBI headquarters unit focused on international terrorism 
was 30-something analysts for all the terrorist groups.
    Chairman Shelby. As opposed to how many other agents 
focusing on everything else?
    Mr. Levitt. It is not a comparable number to compare to 
agents because you will have agents in headquarters and agents 
in the field. You will have very few analysts in the field. But 
if you compare it, say, to the CIA, which would have, you know, 
many times that number of analysts working the same number of 
groups, it gives a sense of the scope of the problem.
    Chairman Shelby. What culture change do you believe is 
necessary to effectively collect and analyze information 
concerning financial transactions?
    Mr. Levitt. The first thing I think is that there needs to 
be a greater appreciation of the need for analysis of 
information, timely analysis of information, sharing that 
information with everybody and anybody who has a role in that 
analysis. That means both in the case of the FBI, within the 
FBI, where it was not uncommon for the analysts who were 
supposed to be analyzing specific types of information not to 
have timely access to that information, and throughout the 
intelligence community, and I am not now pointing just at the 
FBI but elsewhere as well.
    We know that there was a tremendous amount of information 
that was collected throughout the community prior to September 
11 that was not analyzed in a timely manner, and it is not just 
the intelligence community. We know that there were suspicious 
financial transactions that produced suspicious activity 
reports, SAR's reports, that languished in the system and did 
not actually arrive on anybody's desk until after the tragedy 
of September 11. That is mind-boggling.
    Chairman Shelby. It is.
    Senator Sarbanes, thanks for your indulgence.
    Senator Sarbanes. Thank you, Mr. Chairman.
    I want to try to see if you can help me to focus in my own 
mind on what we should do moving ahead. I would like to ask 
each of you to give me the three concrete things that you think 
need to be done and could be done to move against terrorism 
financing.
    Ms. Richardson. As they say in real estate, it is location, 
location, location. I think in counterterrorism it is 
intelligence, intelligence, intelligence. To me, by far and 
away the most important thing for us to do is to get inside 
these organizations, understand what they want, how they 
organize themselves, and how they win supporters.
    Even though I have said ``intelligence'' three times--let 
me say the fourth, then, would be to engage in a campaign of 
public diplomacy. We are never going to change the minds of the 
members of Al Qaeda, but we can appeal to their potential 
recruits, and I think we should. I believe that we should wage 
a campaign of public diplomacy with the same skill and the same 
relentlessness and, indeed, the same resources as we devote to 
our military campaign, because I think we are losing the 
argument on the ground. And over the longer-term, the only way 
we will defeat these groups is to keep them small, to keep them 
isolated, and to prevent them appealing to larger numbers.
    We have a very strong case we could be making, and I do not 
think we are making it. So intelligence and public diplomacy I 
think far outweigh everything else.
    Senator Sarbanes. Before I move on, I just want to ask a 
follow-up question to Dr. Richardson. I am not clear. Is it 
your view that drying up the money, while helpful, would not 
really--that these groups, these terrorist groups, would 
function in any event even if they were very short of resources 
just by the nature of the groups?
    Ms. Richardson. Yes, Senator, I do. I think we can 
certainly undermine them, we can weaken them, but they will 
continue to survive. They have done throughout history. 
Terrorism is a tactic, and I think by just dealing with the 
finances, worthwhile as it is, we are dealing with a symptom. 
We have to address this problem by going much deeper and 
dealing with the root causes, in my view.
    Senator Sarbanes. And is there a new dimension in terms of 
the kind of organization and structure that Al Qaeda developed? 
It seems to me it brought a whole new dimension into this 
terrorism situation, did it not?
    For that, do not they really need resources? I mean, they 
have these failed states. They used Sudan, then they used 
Afghanistan. When you have those factors on the scene, aren't 
you dealing with something of an entirely different dimension?
    Ms. Richardson. I think, Senator, we have seen them 
practice in an entirely different dimension because they have 
had these resources. But their most important resource is that 
they have an ideology that is able to win them recruits. They 
have an argument that they are making successfully by depicting 
us as their enemy, and we are letting them make that argument. 
That is their most important resource, the fact that they have 
got an argument that people find attractive and that they can 
use to win recruits.
    They can function without vast amounts of money. I realize 
I am disagreeing with several of the other testimonies this 
morning in which others have said that one needs money to run 
an organization. That is undoubtedly the case. But one does not 
need a sophisticated organization to run a terrorist movement. 
They can survive on very little. The world is full of a myriad 
of cases of deadly terrorist groups which have survived on very 
little money.
    This is not to say that I do not think it eminently 
worthwhile to try and minimize their financial resources, but I 
simply do not think that is the solution to the problem.
    Senator Sarbanes. Mr. Brisard.
    Mr. Brisard. I think the first thing to do is essentially 
to take preventive actions on suspected entities or 
individuals. There are hundreds of investigations around the 
world carried out by governments or by public or private 
entities, and all those investigations have uncovered a lot of 
documents of evidence against several Al Qaeda sponsors. And, 
still, there is nothing public, no action publicly taken 
against those entities and individuals. And I think in this 
field secrecy increases risks, especially the risk of other new 
terrorist attacks being carried out.
    For instance, in the Spanish investigation and prosecution, 
several people have been linked with Jamiyah Islamiyah, an 
organization in Indonesia. And it is only a year and a half 
after they are mentioned in this prosecution that the United 
States has designated several of these individuals that were 
clearly linked to terrorists, Al Qaeda terrorists, in Spain and 
other parts of the world.
    The second thing is, I think, preventive freezing of assets 
to prevent money to be moved to safe places by several 
entities, known or under current investigations.
    The third and most important measure I would take is on the 
cooperation field. We cross every day and we speak every day 
with governments around the world that are uninformed or not 
knowledgeable enough to go after these entities and these 
individuals, even on designated entities. And some question the 
U.S. Treasury Department designated that individual or that 
entity, and they do not know why they were designated. So it is 
important to share information on a regular basis, to take 
information where it is. And information is everywhere on those 
networks. Our own effort, again, is able to recover a lot of 
documents from sources themselves that could help governments 
around the world, are actually helping governments around the 
world that sometimes turn to us to have indications on specific 
entities and individuals.
    Senator Sarbanes. Mr. Levitt.
    Mr. Levitt. First, before I give you my list of three, I 
think it is important to say that the reason, I think, the 
financing is so key is because traditionally in the 
intelligence community, the way we define ``threat'' is intent 
plus capability. The intent, the ideological drive is there, no 
question, and the need to deal with this ideology, which I 
concur with Dr. Richardson is their most valuable asset, is 
very much an underrated issue. But the funding goes directly to 
their capability to--fill in the blank--recruit, train, get on 
airplanes, have day jobs, safe houses, et cetera.
    When I talk about constricting the operating environment, I 
want to point out that you can successfully do so to the point 
that you actually suffocate an organization. Terrorism will 
always be here. I state this very clearly in my written 
testimony. But the Abu Nidal organization in its day was the 
greatest threat we faced from international terrorism, and 
today it is not. We successfully suffocated that organization, 
and I submit that someday we will have done the same to Al 
Qaeda, and yet we will still be facing an international 
terrorist threat, perhaps one even as great as the one we face 
today, but from a group with a perhaps similar but different 
name.
    Having said that, if I had to list, standing on one foot--
which I now am, but sitting--three issues, I would point out 
first this conceptual issue, this need to understand that there 
are these overlapping relationships bleeding between one group 
and another. This has led to very tangible failures so far in 
the war on terrorism. I go into some of them in the written 
testimony. We sent a senior United States delegation to Europe 
at one point asking them to assist us in freezing the funds of 
approximately a dozen terrorist financiers, mostly but not 
solely from Saudi Arabia. Because of the nature of the sources 
and methods involved in the information we had about their 
financing of Al Qaeda, we did not provide the Europeans with 
much of that information. And because in the Middle East in 
particular there is nothing to be ashamed of if you are 
financing groups like Hamas, there was an abundance of 
information about their financing of that and other similar 
terrorist organizations. And what we were told by the 
Europeans, as I understand it from United States officials, is 
that if all we, the United States, could show is that these 
individuals were financing Hamas, we would have to do better 
than that. That led to a concrete failure where the funds of 
people who were also financing Al Qaeda were allowed to remain 
unfrozen.
    The second thing I would point to is both international and 
domestic restructuring and some thought about our laws. 
Domestically, I think you heard from Mr. Clarke some ideas that 
he can articulate better than I can. Clearly, we need to focus 
our ability specifically when it comes to terrorist financing 
to bring all the necessary parties, especially the analysts, to 
one table, as it were, and have access to the information to be 
able to deal--we have competing investigations, as I understand 
it, even now and certainly before Operation Green Quest was 
disbanded.
    Internationally, we have a long laundry list of 
international organizations from the UN on down--a Financial 
Action Task Force on Money Laundering, the Egmont Group, and 
others--who all have some hand in stirring this pot, but there 
is insufficient coordination. And I think that the Council on 
Foreign Relations Task Force on Terrorist Financing, of which I 
am a member, its recommendation to have one large organization 
dedicated just to this one issue is a very useful idea that 
needs to be pursued.
    Domestically, I think--and, frankly, an international 
organization could help coordinate this--many countries, our 
own included, need to think about passing some laws. For 
example, in this country we have multiple and not necessarily 
complementary terrorism lists. There is a whole laundry list of 
groups that appear on Treasury's list, but not on States' 
lists. There are other lists. Our lists do not match 
necessarily with Europe's list. In Europe, there are individual 
Hezbollah members who are on the list, but Hezbollah is not--
there needs to be some coordination there. I think, for 
example, we also need to encourage countries to pass laws 
criminalizing things like money laundering which are already 
illegal, but criminalizing them when they are specifically done 
in the support of terror and having higher penalties.
    And, finally, the third, I think, is you cannot have a list 
like this without, as Dr. Richardson noted, mentioning 
intelligence, human in particular.
    Senator Sarbanes. Thank you, Mr. Chairman.
    Chairman Shelby. Mr. Levitt, first of all, I appreciate the 
panel staying. We know it is past noon. At our first hearing, 
we heard testimony that diplomacy is an equal partner with 
enforcement in the efforts to ``follow the money.'' I know you 
have addressed this issue abroad, most recently at a 
conference, I believe, in Garmisch, Germany. You were involved 
in that. I have about three things to ask you here.
    One, do you see a change in the international cooperation 
that we receive concerning terrorist financing?
    Two, how would you implement your suggestion that there be 
a specialized international organization which would combat 
terrorist financing?
    And, three, Mr. Clarke testified earlier today that he 
would recommend that the U.S. sanction non-cooperating 
countries. Do you see this as a possible effective tool? And 
how would you implement or expand the idea, if you would? That 
is three questions in one.
    Mr. Levitt. Sir, I have to wonder how sorry you are that we 
are late, because you asked three questions that are going to 
take us a long time.
    Chairman Shelby. That is all right.
    Mr. Levitt. So, very briefly, if I may, I think there has 
been a marked improvement in international cooperation overall. 
I disagree with Mr. Clarke and others. I think on the specific 
issue of Saudi Arabia in particular, there have been individual 
instances of marked improvement. The fact that there are FBI 
and IRS agents on the ground now is tremendous and unheard of. 
There are a long list of issues the Saudis have promised to do 
that they have not done. There are a long list of organizations 
about which we have given them very specific information that 
they have not acted on.
    David Aufhauser I know has testified before this Committee 
and elsewhere about the fact that the Account 98 accounts that 
we know not only fund Palestinian humanitarian efforts but also 
serve, in Mr. Aufhauser's terminology, as sources of blood 
money for Hamas. And based on what I told you earlier in terms 
of the overlapping relationships and links between these 
organizations, that means the money is going elsewhere, too. 
There is a lot more that has to be done.
    In terms of implementing this concept of a larger 
international group, this has to be, I think, the focus or one 
of the foci of this diplomatic effort. The diplomatic effort 
has to be involved in getting people to participate in law 
enforcement intelligence efforts with us, and it cuts both 
ways. We need to be providing more detail to our European 
partners, I believe. There has to be a way to do that.
    The details of that are something that I do not think we 
have time for now, and it is something that the Council on 
Foreign Relations Task Force I believe is going to be taking up 
in its next report, which is going to be coming up soon.
    In terms of the issue of sanctions, I think it is a good 
idea, and I would point out as another example the fact that 
there is a money laundering blacklist. I believe--I may be 
wrong, but I think it was the Financial Action Task Force on 
Money Laundering that drew up the blacklist, and that has 
proven to be extremely effective in shaming nations into 
cooperation--nations that are our friends and nations that are 
not, nations that were intentionally and proactively allowing 
money laundering to go on for whatever reason and others that 
were not--but shaming them into action that they would not 
otherwise take. That is an important factor here. No one wants 
to have to use sanctions. No one wants to force the Executive 
Branch's hand and get involved, have Congress get involved in 
their ability to conduct foreign policy. I think this is a tool 
that the Executive could use to its benefit.
    Chairman Shelby. Thank you.
    Dr. Brisard, you have testified about the misuse and abuse 
of the Islamic banking system. You said that attempts to detect 
and control money laundering have been largely ineffective.
    One, explain the shortfalls in the Islamic banking system 
as you have seen them. Also explain how these banks are 
regulated, if they are, by governments or the banking industry.
    And, two, is this a matter of negligence or indifference on 
the part of government regulators, or is it a complicity with 
the terror organizations, or some of both? And what can we do 
about this?
    Mr. Brisard. As far as the banks are involved, the Islamic 
banking system is involved, we have seen a lot of money 
originating from banks through the Zakat system. That means 
through the nations, and a lot of banks, including the most 
important banks in Saudi Arabia and elsewhere, have donated 
money to several organizations. We have clearly identified 
transfers of money originating from those banks or transferred 
through those banks.
    Inside those banks, every bank had a Zakat committee able 
to receive the money and then to transfer the money to a list 
of charities they agreed on. Most of these charities were for 
years on the suspect watch list or have been knowingly involved 
in terrorism.
    As far as regulation is involved, you know, with Saudi 
Arabia it is always the same. You have a lot of announcements 
from that country. You were previously referring to questions 
regarding the 1999 and 2000 trips in Saudi Arabia. We have 
affidavits from people that were involved in those trips, and 
what they clearly say is, well, we had a lot of promise from 
the Saudis. And they were saying to us, well, we did what we 
had to do, we made it necessary to regulate the charities, but, 
in fact, 1 year later nothing has changed. This country has 
turned to a PR company. Every day you have a new announcement, 
something new coming out. Sometimes it is even contradictory 
with previous statements. But in terms of regulating the banks, 
they have--the very important problem with the Islamic banking 
system is that the banks are regulated under totally different 
rules than in most of the Western countries. And it is very 
difficult to, for instance, ask for auditing a bank and access 
records of the banks, and plus you have the various types of 
religious or Islamic tools, including the Zakat system, which 
is very difficult to regulate for Saudi Arabia.
    Was it negligence? To some point we may say, yes, it was 
negligence. But when we see that the Saudi Government has been 
informed several times repeatedly by Western countries, 
especially the United States, on the involvement of those 
banks, of those businessmen and charities in funding terrorism, 
I think we can speak, you know, of something else, the 
unwillingness of this country to fully go after terrorism 
financing, and complicity in some way.
    Chairman Shelby. Thank you.
    Dr. Richardson, you have testified that our first priority 
in attacking terror organizations is to understand how they see 
themselves and also how we see them. In light of what we have 
heard from our witnesses today, yourself included, concerning 
the use of organized crime connections and in some instances 
shifting ideol-
ogies, tell us how you see your first priority assisting our 
policymakers in preventing the next terror attack.
    Ms. Richardson. Again, I would go back to the question of 
intelligence. That is how we are going to anticipate what we 
are going to face next.
    Chairman Shelby. Human intelligence?
    Ms. Richardson. Human intelligence, absolutely. We have to 
have friends in every cell. We have to have friends in every 
village in which these cells recruit, or at least we have to 
have contacts who are willing to talk to us. That is the only 
way we are going to know what they are going to do next. And it 
seems to me----
    Chairman Shelby. That is a tall order, is it not?
    Ms. Richardson. Absolutely, an enormously tall order.
    On the other hand, if we want to solve this problem, as I 
think we can, and other countries have successfully solved in 
the past, even when it looked, as in cases like Peru or Italy, 
as if the government was about to be brought down. They did 
succeed by being smart as well as by being strong, they did 
manage through a multifaceted strategy to defeat terrorism. But 
they did it. The Peruvian case I think is a very illustrative 
example, if I could mention it. Year after year, wave after 
wave of the military was dispatched into the countryside to try 
to defeat the Sendero Luminoso. It was only when a 70-man 
intelligence unit was created inside the police force that they 
were ultimately able to bring down Abimael Guzman. This unit 
studied the group, went out to the villages, understood their 
appeal, and understood how they organized themselves. They 
discovered that the Achilles heel of this movement was that it 
was based on the intellect and prowess of one man. They 
realized that they had to capture him, and decapitate the 
movement and they did.
    So this 70-man unit did what thousands upon thousands of 
the military were not able to do, and I think that is a lesson 
for us. I think many other countries around the world provide 
many other similar lessons to us.
    Chairman Shelby. The British spent years trying to 
infiltrate the IRA, and I am not sure that they were ever 
really successful.
    Ms. Richardson. The Irish case is a case dear to my heart. 
In recent years, in fact, British intelligence claims, I think 
with reason, that for every IRA operation that was pulled off, 
four were deflected through intelligence. The British did 
successfully infiltrate the IRA. Now, it took them years to get 
to that point. It took them 25 years, in a much more 
geographically constrained area, so in many ways an easier 
position than the one we are facing.
    But, ultimately, it was, by virtue of the intelligence that 
they understood the factions within the IRA. They were able to 
play off those factions against one another. They were able to 
make concessions to strengthen the more moderate factions and 
ultimately bring about the situation we are in today, which is, 
again, another sanguine example, in my view.
    Chairman Shelby. Dr. Richardson, your writings and your 
testimony draw conclusions that, ``The most effective 
counterterrorist strategy will be directed to the source of 
terrorism.'' Explain what you mean. And how do you see your 
explanation as affecting law enforcement and national security 
implications?
    Ms. Richardson. Again, unfortunately, I do not have a 
simple answer, but what I am driving at here is the fact, as I 
mentioned earlier, that these movements' greatest strength is 
the fact that they have an ideology that a great many people in 
the region, if we are just talking about the radical Islamic 
groups now, find appealing. So, again, I would reiterate the 
point that if you have a complicit society, as there are in 
many parts of this region, you do not need money. People will 
provide safe houses, people will provide day jobs. They will 
not have to be paid for it because they ultimately believe in 
the cause.
    In a great many cases, they will not believe in the means 
that are being used to pursue the cause, but they will believe 
in the ultimate cause, and, therefore, they will be complicit 
and will not turn in the perpetrators of the violence.
    We have to be out there in the field combating the 
arguments that are being made. If I had any say in the matter, 
we would have our own al-Jazeera. We would be on the airwaves 
in the region making our case in a subtle, sustained, and 
sophisticated way----
    Chairman Shelby. But it is being made against us, 
basically.
    Ms. Richardson. Absolutely. We are losing this battle, at 
the moment. But I think terrorism ultimately is a game of 
psychological warfare. We are infinitely stronger physically 
than these people ever will be, so we have to, I believe, 
demonstrate that we can fight it and win it on those 
psychological terms.
    Chairman Shelby. Mr. Levitt, do you have any comments?
    Mr. Levitt. The idea of having our own al-Jazeera is very 
important. We are about to. Radio Sawa is about to go to 
television. It remains to be seen how sophisticated it will be. 
I know some of the people involved there, and they are 
extremely impressive.
    But I do think that there are fewer disagreements on this 
panel than it may appear because there are two types of 
counter-
terrorism. Both are critical and they both need to be done 
simultaneously: Tactical and strategic efforts. We have someone 
pointing a gun at our head right now. We need to be figuring 
out why that gun is pointed at us, why others are supporting 
it, what we can do to stop it. But we are fools if at the same 
time we do not try and get that gun pointed down.
    So we need to stop the flow of funds. We need to eliminate 
terrorist training camps, which continue to operate in Iran, 
Syria, and Lebanon. There are so many tactical things that have 
to be done, and at the same time we are just as foolish if we 
are so blinded by our need to deal with this immediate issue 
that we continue to push off and push off these strategic 
issues that Dr. Richardson has been pointing out that are no 
less important.
    Chairman Shelby. It is not going to be easy, is it?
    Mr. Levitt. No, sir.
    Chairman Shelby. I appreciate all of you and your patience 
but, more than that, your contribution.
    The hearing is adjourned.
    [Whereupon, at 12:30 p.m., the hearing was adjourned.]
    [Prepared statements and additional material supplied for 
the record follow:]
               PREPARED STATEMENT OF SENATOR WAYNE ALLARD
     I want to thank Chairman Shelby for holding this hearing to review 
various aspects of terror financing and the methods and instruments our 
enemies use in order to finance their operatives around the world, and 
in our country. This important area of jurisdiction for the Banking 
Committee is rather obscure, yet has become of the utmost importance in 
recent years with the increased occurrence of terrorist attacks and the 
awareness of terrorist cells operating in our own communities. This 
Committee has a unique opportunity and important responsibility to 
further probe into this issue and shed light on the way terrorist 
organizations operate.
    In all reality, terrorist organizations will continue to exist and 
plan their attacks whether or not they are easily or well financed. 
When dealing with terrorist organizations, we are dealing with groups 
motivated more by ideological, rather than political principles. 
Therefore, our enemies will continue to devise their plan regardless of 
their ability to easily access money. On September 11, we witnessed 
their willingness to execute their plan at our expense by using our own 
resources against us. Because terrorists may strike with even the 
slightest resources available to them, this makes it all the more 
important that we not just prune their financing agents for good 
appearance, but rather pull the entire operatives out by the roots.
    I would like to thank Mr. Clarke, Dr. Richardson, Mr. Levitt, and 
Mr. Brisard for agreeing to come and share their expertise on terrorist 
financing and look forward to hearing your opinions and strategies on 
how we should progress with this critical issue.
                               ----------
                PREPARED STATEMENT OF RICHARD A. CLARKE
Former National Counterterrorism Coordinator, National Security Council
                            October 22, 2003
    Mr. Chairman, It is an honor to be asked to appear here today to 
offer some thoughts about the continuing problem of terrorist 
financing. Before I begin, I want to recall that you, Mr. Chairman, 
were a leader in the Congress in counterterrorism long before September 
11 and I had the privilege of working with you on the threat from Al 
Qaeda when you chaired the Senate Intelligence Committee. Those of us 
who knew of your work then are greatly encouraged to have you leading 
the Senate's examination of terrorist financing.
    Mr. Chairman, I am a private citizen and what I say here today are 
my personal views. They do not draw on access to current intelligence 
information, but do benefit from reviewing media reports, court 
documents, and discussions with those in Government and in the banking 
and finance sector.
    Despite the fact that CIA used to tell us that terrorist groups 
like Al Qaeda do not need much money, we know now they do. Money is the 
mother's milk of terrorism. There are five specific points on which I 
would like to focus.
    First, Al Qaeda is an on-going significant threat despite early 
reports of its demise. The chief of Britain's MI5 recently warned the 
threat posed by Al Qaeda to security may remain for many years. 
Director-General Eliza Manningham-Buller said there was no prospect of 
a significant reduction in the threat from Islamist terrorism over the 
next 5 years. Ms. Manningham-Buller said she feared the danger would 
not diminish within 5 years and then it will remain for a 
``considerable number of years thereafter.'' She admitted that it was a 
``bleak assessment'' and that she was ``personally concerned.'' Ms 
Manningham-Buller described Al Qaeda as ``sophisticated and 
particularly resilient'' and its members were able to blend into 
society by living normal, routine lives until called upon for specific 
tasks.
    Second, what we know as Al Qaeda is a small part of the overall 
challenge we face from radical terrorist groups which associate 
themselves with Islam. Autonomous cells, regional affiliate groups, 
radical Palestinian organizations, and groups sponsored by Iran's 
Revolutionary Guards are engaged in mutual support arrangements, 
including funding.
    Third, although significant progress has been made in dealing with 
the terrorism financing problem since September 11, there remain 
organizational problems in the United States. Because of the transfers 
of agencies to create the Department of Homeland Security, there have 
been dislocations within the Executive Branch agencies which have the 
skills to address terrorist financing. A MOU developed without the 
participation of the concerned components of the new Department yielded 
the exclusive lead in terrorism financing investigation to the FBI. On 
an issue as important as this, we need a second opinion. We should not 
sideline or subjugate the considerable expertise in financial crimes of 
the U.S. Secret Service and the intelligence and enforcement personnel 
of the former U.S. Customs Service. A report on terrorist financing 
activities by the new Department was due to the White House last month, 
but did not appear.
    The reorganization also eliminated the senior position in the 
Treasury for enforcement, despite the fact that two organizations 
crucial to fighting terrorist financing remain in Treasury: the Office 
of Foreign Assets Control (OFAC) and the Financial Crimes Enforcement 
Network (FinCEN). These two organizations need to be strengthened by 
giving them as a coordinator a new Assistant Secretary for Enforcement. 
They should also be strengthened by the addition of forensic 
accountants and bank examiners.
    Fourth, although the USA PATRIOT Act requires U.S. financial 
institutions and the Federal Government to cooperate among each other 
in exchanging information on possible terrorist financing, there has 
thus far been little information from the Government to the 
institutions and little flow of information among the institutions. 
This Committee may wish to turn its oversight attention to Section 314 
of the USA PATRIOT Act.
    Fifth, while many governments are now better cooperating in the 
search for terrorism financing, we need to sanction those who do not. 
The President should be required annually to report to the Congress in 
a detailed, classified document what each nation is doing in the 
international effort against terrorist financing, including their laws, 
their cooperation, and the degree of vigor with which they are looking 
for terrorist fronts and funds. Nations which are not adequately 
cooperating should be subject to sanctions, such as having all of their 
financial institutions made ineligible for clearing dollar accounts. 
The President should have the ability to defer these sanctions, but 
only by notifying the Congress why he wants them deferred and what he 
proposes to do to get the nation cooperating.
    Mr. Chairman, many governments, including are own, have been 
manipulated by terrorist fronts seeking funds. Dating back to the 
1980's, Islamist terrorist networks have developed a sophisticated and 
diversified financial infrastructure in the United States. In the post-
September 11 environment, it is now widely known that every major 
Islamist terrorist organization, from Hamas to Islamic Jihad to Al 
Qaeda, has leveraged the financial resources and institutions of the 
United States to build their capabilities. We face a highly developed 
enemy in our mission to stop terrorist financing. While the overseas 
operations of Islamist terrorist organizations are generally segregated 
and distinct, the opposite holds in the United States. The issue of 
terrorist financing in the United States is a fundamental example of 
the shared infrastructure levered by Hamas, Islamic Jihad, and Al 
Qaeda, all of which enjoy a significant degree of cooperation and 
coordination within our borders. The common link here is the extremist 
Muslim Brotherhood--all of these organizations are descendants of the 
membership and ideology of the Muslim Brothers.
    With a number of critical Government seizures, indictments, 
deportations, and enforcement actions since September 11, greater light 
has been shed on the means and methods of terrorist financing in the 
homeland. Without question, the law enforcement powers and tools 
created by the USA PATRIOT Act have contributed to the mounting 
successes in the financial war on terrorism. For example, the ability 
to utilize information gathered during intelligence investigations in 
criminal prosecutions has enabled several critical arrests, including 
Sami al Arian (the alleged North American leader of the Palestinian 
Islamic Jihad) and the Portland Seven (who 
allegedly attempted to wage war against American troops in 
Afghanistan). Additionally, under to the USA PATRIOT Act, Rule 41 of 
the Federal Rules of Criminal Procedure now authorizes warrants to be 
issued by a Federal magistrate judge in any district in which 
activities related to terrorism may have occurred, for property outside 
the district. This provision has meaningfully aided several financial 
terrorism investigations, including the ``Safa Group'' located in 
Northern Virginia, suspected of financing Hamas, Islamic Jihad, and Al 
Qaeda.
    However, as Al Qaeda and the like continue to target the United 
States and our allies, we are in no position to rest on our laurels. 
Careful review reveals that continued vigilance and determination is 
required to shutter the money stores of our terrorist enemies. From 
magazines to mosques and charities, the agents of terrorism are well 
rooted in the United States, exploiting the strengths and weaknesses of 
our financial backbone. The network of terrorist leaders and operatives 
in the United States has built a highly diversified arsenal of funding 
sources, including unwitting governments.
    To demonstrate what I mean, Mr. Chairman, allow me to summarize 
some of the recent developments reported in the media and in court 
filings. While I am not in a position to vouch for the veracity of all 
of these reports, I believe the pattern they indicate is extremely 
disturbing and means we must do more. Some specifics:

 From his home and office in Tampa Florida, Sami al-Arian, the 
    indicted North American leader of the Palestinian Islamic Jihad, 
    allegedly coordinated the movement of fund from the Government of 
    Iran to suicide bombers in West Bank and Gaza.
 Abdurahman Alamoudi, allegedly senior figure in the Muslim 
    Brotherhood in the United States and professed supporter of Hamas 
    and Hizbollah, was recently indicted for taking $340,000 from 
    Muammar Qaddafi and the Libyan Government, a designated state 
    sponsor of terrorism. According to Federal prosecutors, Alamoudi's 
    organization American Muslim Foundation funneled money to members 
    of the Portland Seven cell.
 In a recent Federal affidavit, Senior Special Agent David Kane 
    confirmed, ``I know that terrorists who have attacked or tried to 
    attack the United States around the world have been associated with 
    . . . IIRO.'' The U.S. offices of IIRO were raided in 1997 and 
    again in 2002, in connection with Federal fraud and terrorism 
    investigations. IIRO has reportedly received funding from the Saudi 
    Government.
 Human Concern International (HCI) reportedly received at least 
    $250,000 in funding from the Canadian Government. The Pakistan 
    office of HCI was headed by Egyptian Islamic Jihad leader and Al 
    Qaeda founder Ahmed Said Khadr. Khadr has been described by 
    Canadian intelligence services as a close associate of Osama bin 
    Laden and senior Al Qaeda money man.
  Khadr and HCI convinced Canadian Government funding agencies to 
    sponsor ``charitable project'' for ``Afghan refugees'' when in fact 
    the funds were used to provide financial and operational support to 
    Jihad forces. The Pakistani Government also alleged that Khadr 
    siphoned moneys that contributed the 1995 bombing of the Egyptian 
    Embassy in Pakistan.
 The Kuwaiti Government allegedly provides substantial funding 
    to charities controlled by the Kuwait Muslim Brotherhood, such as 
    Lajnat al-Dawa. The U.S. Department of the Treasury and the United 
    Nations Security Council designated Lajnat al-Dawa on January 9, 
    2003 as a supporter of Al Qaeda. Lajnat al-Dawa and its affiliates 
    had offices in the United States in Michigan, Colorado, and 
    Northern Virginia.
 When United States and Bosnia authorities raided the offices 
    of Benevolence International Foundation (BIF) in 2002, a cache of 
    internal Al Qaeda records were reportedly recovered. Among those 
    documents was allegedly the ``Golden Chain,'' a list of bin Laden's 
    top Jihad financiers drafted in 1989. BIF's international 
    headquarters were located in Chicago, Illinois, until its assets 
    were frozen by the Treasury Department and its leader indicted by 
    the Department of Justice.
 While reportedly in charge of finances for the Palestinian 
    Islamic Jihad, Sami al Arian allegedly sent a letter to Ismail 
    Shatti requesting funds for additional suicide bombings targeting 
    Israel. Ismail Shatti is reported to be a leading figure in the 
    Kuwaiti Muslim Brotherhood.
 Yasin al Qadi is allegedly the financier behind several U.S. 
    organizations which have been tied to terrorist support. Qadi has 
    been identified in court papers as the banker behind a convoluted 
    real estate transaction in Illinois where proceeds where siphoned 
    off to Hamas operatives. Qadi has also been reported to be a lead 
    investor in BMI, a New Jersey-based Islamic investment bank 
    catering to ranking members of the Muslim Brotherhood, including 
    Hamas and al Qaeda backers.
  In October 2001, the Treasury Department listed Yasin al Qadi as a 
    designated terrorist for his financial support of al Qaeda. Qadi 
    was the head of Muwafaq, a Saudi ``relief organization'' that 
    reportedly transferred at least $3 million, on behalf of Khalid bin 
    Mahfouz, to Osama bin Laden and assisted al Qaeda fighters in 
    Bosnia.
 Following the events of September 11, 2001, the Treasury 
    Department designated several U.S.-based and international NGO's as 
    supporters of terrorism. Typically, such organizations offered 
    ``relief'' services in conflict areas as cover for providing 
    financial and operational support to terrorist operations. One of 
    these organizations, the Holy Land Foundation for Relief and 
    Development, was reportedly 
    approved to receive supplemental funding by the United States 
    Agency for International Development. Another of these groups, 
    Global Relief Foundation, was 
    reportedly registered with USAID as a private nonprofit 
    organization providing ``relief, education and religious'' services 
    in Kosovo, Chechnya, Afghanistan, and Kashmir.
 Terrorist leaders have also allegedly established private 
    schools in the United States, and used these schools to pay the 
    salaries of their operatives. In Tampa, Florida, Sami al Arian 
    established the Islamic Academy of Florida. The February 2003 
    indictment against al Arian says the school was used as a base of 
    support for the Palestinian Islamic Jihad ``in order to assist its 
    engagement in, and promotion of, violent attacks designed to thwart 
    the Middle East Peace Process.''
  The Islamic Academy of Florida reportedly received at least $350,000 
    from the State of Florida through a program that diverts State 
    money to pay private school tuition.
 Terrorist fronts operating under the false cover of charities 
    and relief organizations have raised millions of dollars from the 
    American public, some of whom perhaps knew the intended purpose of 
    their contributions and some of whom do not. Designated terrorist 
    entities such as Holy Land Foundation, Benevolence International 
    Foundation, and Global Relief Foundation have employed a number of 
    means to solicit tax-deductible donations. Methods of soliciting 
    donations include targeted newsletters, advertisements in Islamic 
    magazines and journals, and fundraising sessions at mosques and 
    conferences. Often, local representatives will organize smaller 
    fundraising dinners or events. Donors are encouraged to seek 
    matching gifts from their employers or associations.

    Terrorist groups use a variety of means to move funds, including 
charities, private companies, offshore accounts, U.S. accounts, real 
estate transactions, blank checks, and bulk cash couriers. Often, a 
combination of these channels are employed to accomplish several goals:

 Obfuscate the sources of funds. By way of example, Saudi 
    citizens who are suspected of supporting terrorism are closely 
    monitored by the Saudi Arabian authorities. As a result, these 
    individuals are prohibited from sending money to terrorists via 
    direct bank transfers from Saudi Arabian accounts. Alternate 
    methods and routes of supplying funds are required. This often 
    involves utilizing overseas entities to support extremist causes. 
    Traveling electronically through the world, these money flows are 
    often very complex and involve significant ``layering.''
  In the United States, this pattern was allegedly practiced by the 
    International Islamic Relief Organization (IIRO). IIRO's Virginia 
    branch would reportedly draw funds on Saudi Arabian accounts. These 
    funds were allegedly channeled through front companies operating as 
    chemical manufacturers, real estate developers, book publishers, 
    and social groups. In the form of investment proceeds, funds would 
    reportedly return to IIRO, which would in turn send money back to 
    Saudi Arabia.
 Hide the ultimate use of the funds. Interviews with senior Al 
    Qaeda operatives have reportedly revealed the methods by which 
    terrorist front organizations conceal the destination of their 
    funds. Monies are transferred from Gulf, United States, or European 
    accounts to bank account in conflict zones, such as Chechnya, 
    Bosnia, Kashmir, or Israel. In most cases, funds are transferred 
    through several accounts in several different countries, making 
    them difficult to trace. Terrorist operatives then withdraw large 
    sums of money in cash and provide phony receipts for medical 
    supplies, food, or disaster relief. The cash and its ultimate use 
    becomes virtually untraceable.
 Move funds into otherwise inaccessible territories. Whether by 
    their host governments or by the Israeli Government, individuals 
    and organizations throughout the Islamic world often are barred 
    from sending money to individuals and organizations in Israel and/
    or the West Bank and Gaza. One way that supporters of terrorism in 
    Israel deliver money to terrorists in Israel and/or the West Bank 
    and Gaza is by first transporting the money to the United States 
    and only later sending it to Israel and/or the West Bank and Gaza 
    from the United States. Accordingly, while terrorist financing 
    money collected in the United States is simply transported abroad, 
    terrorist financing money collected abroad may enter the United 
    States either to enable its later transport to terrorist 
    organizations abroad or simply to fund terrorist activity in the 
    United States.

    On October 9, 2003, Soliman Biheiri was convicted on Federal 
immigration charges in the Eastern District of Virginia. Biheiri is the 
first person convicted in connection with an alleged financial 
terrorism investigation centered on a group of Islamic businesses, 
charities, and missionary groups in Northern Virginia.
    Biheiri was the President and founder of BMI, Inc., an investment 
bank specializing in Islamically permissible investments. In the 1980's 
and 1990's, BMI offered a series of financial services to Muslims in 
America.
    BMI solicited funds for real estate investments and offered leasing 
services for wealthy Muslim business owners. By 1992, BMI boasted over 
$1 million in medical equipment and automobile leases under management, 
and advertised housing developments in Maryland and Indiana with 
projected revenues in excess of $25 million.
    While BMI held itself out publicly as a financial services provider 
for Muslims in the United States, its investor list suggests the 
possibility this facade was just a cover to conceal terrorist support. 
BMI's investor list reads like a who's who of designated terrorists and 
Islamic extremists.

 BMI investors reportedly include designated Hamas leader Musa 
    abu Marzook and designated Al Qaeda financier Yasin al-Qadi.
 BMI allegedly engaged in financial transactions with Bank al-
    Taqwa and it founders Yousef Nada and Ghaleb Himmat. Bank al-Taqwa 
    and its founder Youssef Nada were designated SDGT's pursuant to 
    Executive Order 13224, on November 7, 2001. Al-Taqwa and its 
    members have been described by the Federal Government as the 
    financial advisers to Al Qaeda.
 BMI allegedly received a $500,000 investment from Baraka 
    Group. Baraka Group, headed by Saleh Kamel, is reportedly a founder 
    of a Sudanese Islamic bank which housed several accounts for senior 
    Al Qaeda operatives.
 Biheiri was a personal friend of Youssef Al Qaradawi, 
    allegedly a high-ranking member of the extremist Muslim Brotherhood 
    who has been barred entry into the United States. Qaradawi is 
    reportedly a shareholder of al-Taqwa and a member of its Sharia 
    board.
 Biheiri's computer reportedly contained contact information 
    for Sami al Arian, the indicted North American leader of the 
    Palestinian Islamic Jihad.
 The Kuwait Finance House was allegedly an investor in BMI. The 
    Kuwait Finance House is reported to be the financial arm of the 
    Muslim Brotherhood in 
    Kuwait. Several Al Qaeda operatives have allegedly been associated 
    with the Kuwaiti Muslim Brotherhood, including Khalid Sheikh 
    Mohammed, Suliman abu Ghaith, Wadih el Hage, and Ramsi Yousef.
  On January 9, 2003, the Treasury Department designated the Kuwaiti 
    Lajnat al-Dawa as a terrorist entity. Lajnat al-Dawa reportedly 
    spawned out of and is controlled by the Kuwaiti Muslim Brotherhood.
 Tareq Suwaidan, a leading member of the Kuwaiti Muslim 
    Brotherhood, reportedly engaged in financial transactions with BMI.

    While one might expect BMI to operate out of Qatar, the Cayman 
Islands or Liechtenstein, it was actually based out of Secaucus, New 
Jersey, organized as a New Jersey corporation in March 1986. Although 
BMI ceased operating in October 1999, investigators continue to probe 
its financial dealings.
    Thus, Mr. Chairman, we face an on going problem that is here in the 
United States as well as abroad. It is a problem that we have just 
begun to dent, one which needs continued Congressional oversight and 
pressure. If we are to win the war on terrorism, there are many things 
that we must do. Drying up the money going to terrorists is one of the 
most important parts of winning that war.
                               ----------
                PREPARED STATEMENT OF LOUISE RICHARDSON
         Executive Dean, Radcliffe Institute for Advanced Study
                           Harvard University
                            October 22, 2003
    Good morning Chairman Shelby, Senator Sarbanes, and other 
distinguished Members of the Committee. I am honored to have this 
opportunity to speak to you about my understanding of the nature of 
terrorism and about how lessons can be derived from that understanding 
for the disruption of their operations. As will soon be obvious, I am 
not an expert on terrorist finances, rather I am someone who has 
thought about and taught about terrorist movements for many years.
    The first point to be made in any discussion of terrorism is to be 
clear about what it is we are discussing. The term terrorism is being 
used so loosely that it has come to lose much meaning. The only 
universally accepted attribute of the term is that it is pejorative. I 
would like simply to posit what I take to be the seven crucial 
characteristics of the term ``terrorism.''

1. Political. To constitute terrorism the act must be politically 
    inspired. If it is not, then it is simply criminal activity.
2. Violent. If the act does not involve violence or the threat of 
    violence then it is not terrorism.
3. Communication. The point of terrorism is to communicate a message. 
    It is not violence for the sake of it or even violence in the 
    expectation of defeating the enemy, but rather violence to convey a 
    political message.
4. Symbolic. The act and the victim usually have symbolic significance. 
    The shock value of the act is enhanced by the power of the symbol 
    of the target. The whole point is for the psychological impact to 
    be greater than the actual physical act. Terrorist movements are 
    generally out-manned and out-gunned by their opponents so they 
    employ these tactics to gain more attention than an objective 
    assessment of their capabilities would warrant.
5. Non-state actor. Terrorism as we understand it is conducted by 
    clandestine groups, not states. This is not to argue that states 
    cannot use terrorism as an instrument of their foreign and domestic 
    policy; they can and they do. Nor is it to argue that states cannot 
    take actions which are the moral equivalent of terrorism; they can 
    and they do. It is simply to argue that if we want to have any 
    analytic clarity in understanding the behavior of these groups we 
    must understand them as clandestine sub-state actors rather than as 
    states. Moreover, in our dealing with states we have the whole 
    panoply of international law to assist us in interpreting and 
    responding to their actions.
6. The victim and the audience are not the same. The point of terrorism 
    is to use the victim as a means of altering the behavior of the 
    larger audience, usually a government. Victims are often chosen at 
    random or as representative of a larger group; particular victims 
    are usually interchangeable. The more random the victim, the more 
    widespread the fear, and the more effective the action.
7. Deliberate targeting of noncombatants. This is what sets terrorism 
    apart from other forms of political violence, even the most 
    proximate form, guerrilla warfare. Terrorists have elevated to the 
    level of deliberate strategy, practices which are generally 
    perceived as being the unintended side-effects of warfare, killing 
    noncombatants.

    My argument, then, is that it is the means employed and not the 
ends pursued nor the political context in which they operate that 
determines whether or not a group is a terrorist group.
    The next point to be made about terrorist groups is that there are 
very real 
differences between them and if we want to fashion an effective 
counterterrorism strategy we must understand these differences. I 
believe that terrorist groups can broadly be defined as belonging to 
one of several types. I am defining them here in accordance which what 
I take to be their primary motivation.

1. Ethno-Nationalist movements. These types of movements are among the 
    most powerful, the most popular, and the most persistent of 
    terrorist movements. They occur all over the world in rich and poor 
    states, from Ireland to India. They range in size from a handful of 
    Corsican Nationalists to thousands of armed Tamils. The primary 
    political goal of these types of terrorist movements is to attain a 
    national territory consistent with their concept of their national 
    or ethnic identity.
  These groups are utterly different in motivation, organization, and 
    appeal from the type of terrorism represented by Al Qaeda. That 
    said, these groups often enjoy significant, albeit often passive, 
    popular support. Looking ahead, I see one real cause for concern. 
    Just as the communist ideology on occasion fused with nationalist 
    movements in the course of the cold war, so too nationalist 
    movements, in regions with a significant Islamist presence, are 
    vulnerable to the exploitation of the conflict for the purposes of 
    a broader ideology.
2. Social Revolutionary Movements. These groups reached their heyday in 
    the advanced industrialized countries in the 1970's and 1980's. 
    Their overriding objective was the violent destruction of the 
    existing capitalist political-industrial-
    military complex and its replacement with a better social system 
    based on the emancipation of the proletariat and the introduction 
    of a just and classless society. In adopting this goal, violence 
    was exonerated on the grounds that it was both a necessary 
    component of this destruction as well as a virtuous and wholesome 
    way of achieving it.
  These groups proved most dangerous when they forged alliances with 
    other opponents of the government, as the Italian Red Brigades did 
    in uniting, for a time, the student and worker protest movements.
  The apocalyptic nature of their aspirations is something they share 
    with the contemporary radical Islamic groups which also seek 
    complete destruction of the social and political order they 
    inhabit.
3. Maoist Movements. Maoist movements tend to germinate in rural areas 
    of poor countries as they have done in Peru, Nepal, and the 
    Philippines. The ideology calls for the liberation of the 
    impoverished rural masses through revolutionary violence and then 
    the defeat of the social order in the urban areas before eventual 
    victory in conventional conflict. Maoism provides a template for 
    revolutionary action for any group that purports to base its 
    legitimacy on communion with the masses.
  Maoist groups share with social revolutionary groups and radical 
    Islamic groups a fanatical sectarianism, a millenarian approach, 
    and a belief in the liberating qualities of violence. Like the 
    social revolutionary groups, and unlike the radical Islamic groups, 
    the ideology is entirely secular.
  For those interested in combating Maoist terrorist groups, the 
    trajectory of their violence and the nature of their appeal should 
    come as no surprise since it follows a coherent and elaborated 
    revolutionary technique.
4. Radical Religious Movements. While the mixture of religious and 
    political motives has been a growing trend over the past 30 years, 
    if one takes a longer perspective the story looks quite different. 
    Prior to the French Revolution, religious and political motives 
    were invariably intertwined in terrorist ideology. There have 
    always been two characteristics of religiously motivated terrorist 
    groups. First, they exercise less restraint. If the audience is God 
    there is no need to be constrained by the desire to avoid 
    alienating one's supporters. Second, they have always been more 
    transnational. Religions often transcend political boundaries, so 
    these groups tend to have broader bases of support and broader 
    bases of operation. Consequently, it requires effective 
    collaboration between governments to counter them.
  Religion plays different roles in different terrorist groups. 
    Sometimes it serves purely as a badge of ethnic identity, as in 
    Northern Ireland. Sometimes it is a mask for political motives, as 
    in a number of Palestinian groups. Sometimes it is the defining 
    ideology and guide to action, as in religious sects.
  Three political events were crucial to the radicalization of the 
    Muslim groups we face today. These were the Iranian Revolution, and 
    the subsequent effort of Iran to export its revolution overseas. 
    Then there was the war in Lebanon, and the United States 
    withdrawal. Finally, and perhaps most importantly, the war in 
    Afghanistan, which not only demonstrated that a superpower could be 
    defeated by organized Mujahadeen, but also provided legions of 
    armed and trained Islamic warriors, imbued with their own success, 
    which swelled the ranks of radical movements throughout the Middle 
    East and, as we now know, provided the base for Al Qaeda. These 
    political events, when fused with the philosophical justifications 
    for political violence against both nonbelievers and compromising 
    Muslims (read secular Muslim leaders) derived from particularist 
    interpretations of both Sunni and Shiite texts, have proven to be 
    an explosive mix.

    The four types of terrorist movement differ in significant respects 
from one another. They differ in their primary political motivations 
and how they organize themselves to achieve them. I believe that one 
can sensibly generalize within the different types of movements but 
only in very limited respects across them. I was asked specifically to 
address the issue of alliances or networks among terrorist groups. I 
believe that it should come as no surprise to us to see collaboration 
among different movements which share similar primary motivations. The 
IRA in Northern Ireland and the Basque ETA, for example, are known to 
have close links. It is probably those links that helped to forge 
connections between the IRA and the FARC in Columbia that were recently 
revealed. Similarly the social revolutionary groups had quite extensive 
connections with one another, believing themselves all to be factions 
in the broadly-based communist revolutionary march to overthrow 
capitalism. It would come as no surprise to me to learn of links 
between different Maoist groups either, though perhaps given the nature 
of the terrain in which they operate this might be difficult. The links 
between the radical Islamic groups are the most extensive and well 
known. Al Qaeda had been forged on the basis of the multinational 
mujahadeen who arrived in Afghanistan to fight the Soviets. We, of 
course, know of the merger of several Islamic movements in the famous 
and rather grandly called ``World Islamic Front'' in 1998 calling on 
Muslim groups all over the world to unite. The organization self 
consciously tries to serve both as a base for other groups as well as 
operating on its own.
    It would, however, come as a surprise to me to learn of significant 
alliances across these types of organizations. When cross-type 
alliances have occurred, they have been exclusively between social 
revolutionary and nationalist movements. Islamic organizations could 
not countenance the social views of social revolutionary or nationalist 
groups. Members of nationalist groups see themselves as utterly 
different from what they would consider as being the depraved Islamic 
groups. Nationalist groups have not taken the opportunities available 
to them to kill large numbers of people, preferring, in the words of 
Brian Jenkins, ``lots of people watching, not lots of people dead.'' 
They perceive themselves as traditional freedom fighters and hence 
occupying a different moral universe than the architects of September 
11.
    Latin American groups have had a tradition of collaborating among 
themselves. They see themselves as fighting for similar causes against 
similar enemies. The Monteneros, for example, shared the $60 million in 
ransom they got for the kidnapping of the Born brothers in 1974 with 
other Latin American insurgency groups. In the early 1990's, the 
discovery of a terrorist treasure trove under a car repair shop in 
Managua demonstrated that the tradition of collaboration continues.
    In trying to anticipate alliances among terrorist groups I would 
suggest, therefore, that a knowledge of the ideology of the group would 
help anticipate the nature of the alliances they are likely to make.
    While the differences in primary political motivation undermine the 
degree to which one can generalize across types of groups, many groups 
with very different ideologies do share secondary motivations. These 
are the more immediate or secondary motives shared across types of 
groups: By far the most common motive of the terrorist is revenge and 
the second most common is publicity. They also seek funding. In these 
organizational ways one finds terrorist groups operating much like 
other, more conventional, organizations concerned for their own 
survival.
    In none of these cases do the membership seek personal enrichment. 
For this reason the tools we have developed for anticipating and 
countering criminal elements are of limited utility against them. The 
members believe in their cause and they are often willing to sacrifice 
everything they have in order to further that cause.
    It is important to bear in mind, for example, that the reason 10 
IRA prisoners starved themselves to death in Northern Ireland in 1981 
was not to free Ireland from British oppression, but rather to secure 
political prisoner status for themselves and their comrades. Their 
sense of themselves as different and indeed morally superior to 
ordinary criminals was such that they were willing to starve themselves 
to make the point.
State Sponsorship
    Just as it is important to draw distinctions between different 
types of terrorist groups, I believe that it is also important to draw 
distinctions between different types of relationship between terrorist 
groups and their state sponsors. These relationships range from 
relationships in which the state exercises considerable control over 
the movements it sponsors to relationships in which the state and the 
movement it supports simply share an enemy. The relationship between Al 
Qaeda and the Taliban, when the terrorists appeared to be sponsoring 
the state as much as the other way round, represents one extreme. Other 
relationships vary along a spectrum of state control. Occasionally, 
terrorists are simply the covert arm of the state, as in the murder of 
dissidents overseas or intelligence operatives carrying out actions at 
the behest of the state. While called terrorism, these cases, such as 
the bombing of Pan Am 103 over Lockerbie, actually represent the covert 
actions of a state. In a very few cases the state closely directs the 
terrorist movement (as in the relationship between Syria and the PLFP-
GC) but a far more common relationship is one in which the state 
supports the action of the terrorist group with financial and 
logistical support, training facilities, and safe havens, but the state 
does not actually direct the action of the terrorist movement. Iranian 
support of Hamas and Hizballah would fit this category. At the other 
end of the spectrum is a case like the Libyan support of the IRA in the 
late 1980's. In this instance Libya and the IRA simply shared an enemy, 
Britain. Libyan support was simply a means of punishing Britain for its 
participation in the bombing of Tripoli in 1986.
    In every case, the terrorist movement is rendered more effective 
and more lethal by the support provided by the sponsoring state, but in 
every instance the state is capitalizing on a pre-existing movement 
rather than creating one. The terrorist movements do not rely on the 
state for their survival. Rather, state sponsorship is one of several 
means of generating financial support for the movement. Other forms of 
support include raising money from the Diaspora as Islamic and 
nationalist groups the world over have done successfully. Another 
popular fundraising mechanism is the operation of a legitimate front 
business to generate money for the cause. The Tamil Tigers in Sri Lanka 
have perfected this technique. In other cases, terrorists raise money 
through extortion from the members of the society they claim to 
represent, as Maoist groups often do. In still other cases, they raise 
funds through criminal activity. Bank robberies and kidnapping were 
traditional favorites; today credit card fraud and in some cases drug 
dealing, have become popular. Raising money through criminal activity, 
however, is a high risk strategy for terrorist groups, exposing the 
membership to corruption and to capture, fudging the distinction they 
seek to draw between themselves and criminals, and undermining the 
basis of their popular support.
    The crucial point to bear in mind about terrorism, of course, is 
that it is cheap. This is part of its appeal. The attack on September 
11 is probably the most expensive terrorist operation in history and it 
is estimated to have cost half a million dollars. It takes a great deal 
less to buy some fertilizer, rent a truck, and use them to bring down a 
building. If a group has a generous sponsor, as Hamas does in Iran, 
they can afford to run charities and thereby secure popular support. 
Such a group can also afford to support the families of imprisoned or 
killed members. But it is not necessary at all to have this level of 
support in order to conduct terrorist operations. Terrorism is above 
all a tactic and its appeal as a tactic is precisely that one can get 
so much bang for one's buck. It is cheap and easy and lends itself to 
dramatic impact.
    Sophisticated weaponry such as WMD is of course expensive. Aum 
Shinrikyo demonstrated this fact. I believe we have all learned from 
this experience and it is hard for me to imagine a situation anywhere 
in the world today in which a clandestine group could develop 
facilities of such sophistication, and recruits of such a technical 
caliber, without the state noticing. Another way for terrorists to 
secure these weapons is to be handed them by a state sponsor. My own 
view is that this fear is overblown. The act of ceding to a terrorist 
group one did not completely control weapons of mass destruction would 
be an act of such folly as to be incomprehensible. A state willing to 
risk annihilation might use the weapons itself but there are good 
reasons why none has done so. The reasons why they would not cede the 
means to a third party are even stronger.
    My own prediction, therefore, is that we will see far more Bali 
type attacks than we will see September 11 type attacks. I worry 
sometimes that our concern to prevent the less likely and more 
expensive type of actions may deflect our attention from the need to 
prevent the more likely, less expensive, and more conventional attack.
    I believe that the first priority in undermining terrorist 
organizations is to understand how they see themselves, not how we see 
them. To achieve this we must be inside their cells, and the societies 
that produce them. We must read all their communications and their 
propaganda in an effort to anticipate their actions but also to 
understand their appeal
    I think we can learn from the terrorists as they have learned from 
us. We can learn to have patience and to wait for results. The 
brilliance of the September 11 attack was its use of our own strength 
against us. They turned our civilian airlines into weapons against us. 
I think we must do the same. We must understand their ideology and 
their tactics and use them against them. Terrorist organizations 
operate under conditions of considerable uncertainty and are constantly 
fearful of both external attack and internal betrayal. We should 
exploit this by keeping them under constant pressure and exploiting 
their fissiparous tendencies. Their need to raise funds through 
criminal activity increases their exposure and gives us another avenue 
to pursue them.
    If we undermine their support of charities this won't prevent 
terrorism per se. Many donors to the charities genuinely want to 
support the poor and many of these charities do a great deal of good 
for the beneficiaries. However, over the longer-term, these charities 
serve to win and to sustain support for those providing the charity. I 
think, for example, that the support for Hamas has to be seen in this 
light. I believe that we should ensure that it is our friends who are 
meeting the social needs of the potential recruits of the terrorists. 
This is a long-term strategy but terrorism as a tactic has been around 
a very long time and it is likely to remain. What is new is the 
existence of organizations willing to kill as many civilians as they 
can, and the increasing availability of the technical means to do so. 
Strangling their financial assets will make it increasingly difficult 
for terrorists to function, but it will not eliminate terrorism.
                               ----------
               PREPARED STATEMENT OF JEAN-CHARLES BRISARD
                   CEO, JCB Consulting International
                            October 22, 2003
    Chairman Shelby, Senator Sarbanes, and distinguished Members of 
this Committee, thank you for inviting me to testify today about the 
global war on terrorism financing.
    I started investigating terrorism financing networks in 1997 for 
the French Government, since then, I have provided expertise to various 
governments and to the United Nations. Since June 2002, I have been 
leading an international investigation for the September 11 Families 
United to Bankrupt Terrorism in the course of an action brought by 
5,600 family members before the U.S. District Court of Washington, DC, 
against several entities, banks, companies, charities, and individuals 
that provided financial or logistical support to the Al Qaeda network.
    In that respect, our investigation is today active in various 
regions of the world and has been able to recover a considerable amount 
of information on Al Qaeda support networks through procedures of 
judicial or political cooperation established with more than 30 
countries.
    To date, our effort is probably a unique example of non-state 
cooperation and investigation on terrorism.
    This process, through cooperation and interviews with hundreds of 
law enforcement officials, provides us with an independent, although 
global, perspective on assessing intergovernmental efforts on terrorism 
financing.
    Above all, the current process has been able to uncover major 
documents and items related to the funding of the Al Qaeda 
organization, and I would like to share some of our findings with you 
today. These findings help understand both the global context of 
terrorism funding and the ways and means used by Al Qaeda on a regular 
basis to raise and move funds for operational purposes.
    Since September 11, 2001, the world, and especially the United 
States, is facing the most innovative form of terrorism. Al Qaeda is 
not only a militant-based or a combatant organization, it is also a 
financial network combining the most modern tools of finance with the 
oldest transactional instruments.
    For 30 years, Western countries mostly dealt with simple terrorist 
organizations, mainly disorganized local entities in Europe, Middle-
East, and Asia, or state-sponsored entities such as Hezbollah.
    Al Qaeda has reshuffled our knowledge and assessment of terrorist 
organizations by creating a complex confederation of militant bases and 
aggregating financial support networks.
    To support its criminal objectives, this organization has been able 
to build a complex and intricate web of political, religious, business, 
and financial instruments or supports.
Al Qaeda Financials
    U.S. Treasury Department General Counsel David Aufhauser recently 
estimated that Al Qaeda had an annual budget of upwards of $35 million 
before September 11. This figure, he believes, is today between $5 
million to $10 million.
    This statement is important, as it is the first public estimate 
made available by a U.S. official.
    In December 2002, in my report to the UN Security Council, I valued 
Al Qaeda annual income at $50 million and global assets within a 10-
year period between $300 million and $500 million. The UN Al Qaeda 
Monitoring Group had previously estimated Al Qaeda annual income at $16 
million in August 2002. An intelligence report also indicated in 2002 
that Saudi Arabia alone was accounting for $1 million to $2 million a 
month through mosques and other fundraising methods.
    These figures are a clear indication of a massive financial support 
to Al Qaeda prior to September 11 derived from other means that the 
commonly referred credit card frauds, tax frauds, or other ``petty'' 
money laundering crimes.
    Until now, intelligence and law enforcement agencies have based 
their assumption on the fact that simple criminal devices do not need a 
lot of money. This trend has proven to be correct when dealing with 
simply structured organizations of the Palestinian type in the 1970's 
and Algerian type in the 1980's.
    The idea also proved correct regarding Al Qaeda at the operational 
level, where local and national cells, mostly dormant cells, happened 
to live in modest conditions.
    But to apply that idea to the entire Al Qaeda network is not only 
irrelevant but also simply turns to an end the war against terrorism 
financing.
    Al Qaeda clearly distinguishes in its training manual and in other 
documents, its organizational funds and its ``operational funds.'' The 
operational funds have two main objectives, the first is to invest in 
projects that offer financial return to entertain local cells, and the 
second is to carry out terrorist operations.
    Apart from the operational level, one must not confuse the 
requirements of Al Qaeda in terms of daily logistics and the super-
structure level, which is the real innovation introduced by Osama bin 
Laden. The first purpose of money for Al Qaeda at this level is to 
entertain the broad network of organizations, to fund them to stabilize 
and leverage their support and to develop their reach. Over the years, 
Al Qaeda financially supported several entities, from Libya to the 
Philippines, from Indonesia to Somalia. Figures here range in millions 
of dollars.
    The second purpose of money at the super-structure level has been 
to pay for protection and asylum. Since 1991, Al Qaeda and Osama bin 
Laden had to resettle in various countries after the opposition 
movement was banned from Saudi Arabia. It was the case in Sudan and 
later in Afghanistan.
    According to various intelligence estimates, less than 10 percent 
of the annual 
income of the organization went to operational planning and execution, 
while 90 percent was used for the network infrastructure, mainly 
facilities, organization, communication, and protection.
    This money primarily originates from wealthy donors in the Middle-
East. In the course of our investigation for the September 11 families, 
and as part of a judicial cooperation process with the state of Bosnia-
Herzegovina, we uncovered major evidence proving this factor.
    The Golden Chain list of wealthy Saudi sponsors is an internal Al 
Qaeda document seized by the Bosnian police during searches in the 
offices of Benevolence International Foundation in Sarajevo in March 
2002. Our team was granted access to this document, among others, 
following an order of the Supreme Court of Bosnia-Herzegovina ordering 
the U.S. Government to release this material.
    The Golden Chain lists the top 20 Saudi financial sponsors of Al 
Qaeda. It includes 6 bankers and 12 businessmen, among which there are 
2 former ministers.
    According to our estimates, their cumulative corporate net worth 
totals more than $85 billion dollars, or 42 percent of the Saudi annual 
GNP and equivalent to the annual GNP of Venezuela.
    They include former leading Saudi banker Khalid Bin Mahfouz, 
businessman Saleh Abdullah Kamel, the bin Laden family, and several 
bankers representing the three largest Saudi banks (National Commercial 
Bank, Riyadh Bank, and Al Rajhi Bank).
    Most of them are or were involved, apart from their legitimate 
businesses, in charity organizations as founders or board members.
Fundraising Methods
    At the very beginning of Al Qaeda financing is an institutional 
confusion between religion and finance that plays both as a common and 
traditional religious justification and still poses real and unanswered 
questions regarding the use or abuse of legitimate money by such 
organizations.
    The fundamental question refers to the way eminent religious tools 
created to cope with poverty and charity among Muslims were diverted 
and abused to serve terror aims around the world. The related issue is 
how to manage and control religious tools and principles, and forbid 
any abuse, while for instance several prominent scholars interpret the 
rule of God as permitting such abuses.
    The main financial vehicle to fund Islam was set up under the 
Islamic rule of Zakat, a legal almsgiving required as one of the five 
pillars of Islam on current assets and other items of income. Zakat has 
been described as the ``cornerstone of the financial structure in an 
Islamic State.''
    According to the Koran, Zakat is a way of purification. Possessions 
are purified by setting aside a proportion for those in need, and, like 
the pruning of plants, this cutting back balances and encourages new 
growth. This principle is an obligation for every Muslim.
    According to the Koran, only the poor and needy deserve Zakat.
    Basically, Zakat takes three forms, depending on its recipients, 
Feesabeelillah (in the way of Allah), Lil-Fuqara (for the poor), and 
Lil-Masakeen (for the needy).
    Only the first form of Zakat has raised questions and various 
interpretations among Muslim scholars, mostly those influenced by 
Wahabbism doctrine of Islam.
    Feesabeelillah is used to describe money spent in fighting for the 
cause of Allah (Jihad).
    Jihad refers to striving for excellence on one of several levels. 
The first involves individual efforts, spiritual and intellectual, to 
become a better Muslim. The second addresses efforts to improve 
society. The third and last level, or ``holy war,'' involves self-
defense or fighting against oppression.
    The personal jihad states that the most excellent jihad is that of 
the soul. This jihad, called the Jihadun-Nafs, is the intimate struggle 
to purify the soul of satanic influence--both subtle and overt. It is 
the struggle to cleanse one's spirit of sin. This is the most important 
level of jihad.
    The verbal jihad is based of Prophet words that, ``The most 
excellent jihad is the speaking of truth in the face of a tyrant.'' He 
encouraged raising one's voice in the name of Allah on behalf of 
justice.
    Finally, physical jihad is combat waged in defense of Muslims 
against oppression and transgression by the enemies of Allah, Islam, 
and Muslims. We are commanded by Allah to lead peaceful lives and not 
transgress against anyone, but also to defend ourselves against 
oppression by ``fighting against those who fight against us.'' This 
``jihad with the hand'' is the aspect of jihad that has been so 
profoundly misunderstood in today's world.
    According to Al Azhar's Islamic Research Academy, the concept of 
jihad refers to the ``defense of the nation against occupation and the 
plunder of its resources.'' But it does not cover the killing of 
innocent people, the elderly, women, and children, which is forbidden 
by Islam. The teachings of Islam also forbid the destruction of 
buildings and establishments not connected with a specific battle. The 
statement drew a distinction between violence perpetrated by oppressors 
who have no respect for what is sacred and violence as a legitimate 
defense launched by the weak to win their rights.
    There is a clear distinction between the Koran's concept of a 
defensive jihad and the usurped form of offensive jihad developed by 
several scholars, including Omar Abu Omar (aka Abu Kutada), Al Qaeda 
principal in the United Kingdom, who influenced a trend to support 
those ``fighting in the Cause of Allah'' (the Mujahideen), thus 
justifying Zakat for un-legitimate violence against peaceful nations.
    In January 2002, for example a conference of Islam's Ulema 
religious scholars in Beirut, Lebanon, clearly stated in its final 
statement that :

        ``Hezbollah in Lebanon, Hamas, Islamic Jihad and all resistance 
        forces vividly express the will of the nation. They constitute 
        the first line in the defense of peoples and states and their 
        rights, causes, and sanctities. Through their jihad and 
        mujahidin, they represent the honor, pride, and dignity of 
        Muslims everywhere and reflect the human ambitions of all 
        oppressed peoples in the world. If the masters and protectors 
        of the Zionist entity in the U.S. Administration are targeting 
        the resistance because it poses a real threat to this entity, 
        we view this resistance as the noblest and most sacred 
        phenomenon in our contemporary history.''

    Over time, this legal religious duty has been usurped and abused by 
terrorists and their supports.
    The Al Qaeda network extensively utilized the weakness of legal 
rules to rely on funds diverted from the Zakat and other direct 
donations through Islamic banks and since 1998, Osama bin Laden made 
regular calls for Muslims to donate through the Zakat system to his 
organization.
    In December 1998, during an interview with ABC News, Osama bin 
Laden stated that:

        ``Muslims and Muslim merchants, in particular, should give 
        their Zakat and their money in support of this state [Taliban 
        regime] which is reminiscent of the state of Medina (Al-
        Munawwarah), where the followers of Islam embraced the Prophet 
        of God.''

    Osama bin Laden addressed the same issue in a seized video tape 
filmed during a wedding party in January 2001:

        ``Deserve credit those traders and businessmen who give Zakat 
        so that they can help arm that ill-equipped Lashkar.''

    In September 2001, in an interview with Pakistani newspaper Ummat, 
he declared that:

        ``Al Qaeda was set up to wage a jihad against infidelity, 
        particularly to counter the onslaught of the infidel countries 
        against the Islamic states. Jihad is the sixth undeclared 
        pillar of Islam. [The first five being the basic holy words of 
        Islam (There is no god but God and Muhammad is the messenger of 
        God), prayers, fasting (in Ramadan), pilgrimage to Mecca, and 
        giving alms (zakat).].''

    Other Al Qaeda leaders made similar references, for example Mahfouz 
Walad Al-Walid, aka Abu Hafs, during an interview with al-Jazeera on 
November 30, 2001:

        ``We think that the cause in which there is a possibility for 
        all Muslims to participate in supporting by means of money, 
        men, or any kind of help, is the cause of Afghanistan.''

    The Koran only gives general principles and guidelines regarding 
the collection of Zakat, and most of the tax regulations are recent. 
Zakat is levied pursuant to Royal Decree No. 17-2-28-2077 of 1380 A.H. 
(1960) on Saudi nationals, both corporate (wholly Saudi-owned 
companies) and individuals, and on the Saudi share of profits of 
companies owned jointly with foreigners. Citizens and companies of the 
Gulf Cooperation Countries (GCC) who are resident in Saudi Arabia and 
do business in Saudi Arabia are treated as Saudis.
    Zakat is calculated on capital and earnings from and on all 
proceeds, profits, and gains from business, industry, or personal work, 
and on property or monetary acquisitions of whatever type or 
description. These include commercial and financial transactions and 
dividends, livestock, and crops.
    Based on recent figures, Zakat funds are estimated annually around 
$10 billion in Saudi Arabia alone.
    Monitoring of charitable donations through Zakat happened to be 
baseless, while most of Gulf countries lack effective legal systems 
that impose strict rules of transparency, accounting, and auditing 
requirements, thus turning a legal religious duty into an illegal 
money-laundering instrument.
    The Zakat funds are controlled by the Department of Zakat and 
Income taxes (Directorate General of Zakat & Income Tax (DZIT) of the 
Saudi Ministry of Finance and National Economy. Authority of the 
Department is based on the Royal Decree No. 3321, dated 21/01/1370HD 
and the Ministerial Resolution No. 393, dated 06/08/1370H, which 
include instructions for organizing, auditing, and collecting ``Zakat'' 
from all Saudis obligated to pay it.
    The Department duties include examining, assessing, and taking 
necessary action to ensure payment of Zakat.
    Zakat payment is individual or may be organized at each business 
level by a special committee that determines the recipients and 
channels donations to these entities.
    John B. Taylor, Under Secretary of Treasury for International 
affairs, stated in April 2002, that to prevent terrorists from 
``abusing'' these institutions was a main goal in the war against 
terrorism financing.
    The Saudi Kingdom in its report to the Security Council pursuant to 
paragraph 6 of SC resolution 1373 (2001) concerning counterterrorism, 
stated that, ``It is a basic principle of the Islamic Shariah that 
whatever leads to the forbidden is itself forbidden.'' That principle 
will remain baseless as far as there is no legal instrument to enforce 
it.
    Moreover, legal measures taken by the Kingdom, especially the 1976 
Fundraising for Charitable Purposes Regulation, did not prevent misuse 
of Zakat funds, as acknowledged by the Governor of the Saudi Arabian 
Monetary Agency who recognized that ``some of them take their dollars 
and they transfer them to accounts in Europe and use it for God knows 
what.''
    In 1999, the Kingdom approved amendments to existing money 
laundering laws intended to bring them into compliance with 
international regulations, but these amendments have not been 
implemented.
    In November 2002, Prince Salman bin Abdul Aziz said the country was 
not responsible if ``some change the work of charity into work of 
evil.'' He stated that he had personally taken part in the activities 
of those organizations, ``and I know the assistance goes to doing good. 
But if there are those who change some work of charity into evil 
activities, then it is not the Kingdom's responsibility, nor it people, 
which helps its Arab and Muslim brothers around the world.'' The 
Prince, King Fahd's brother, added that if beneficiaries had used 
assistance ``for evil acts, that is not our responsibility at all.''
    Also in November 2002, Adel Al Jubeir, spokesman for the Saudi 
Kingdom acknowledged that situation by saying that, ``People have now 
taken advantage of our charity, of our generosity, of our naivety, if 
you want to call it that, of our innocence,'' and calling for a global 
audit of every charity in the Kingdom.
    He also acknowledged the lack of real financial control. ``A number 
of our charities, especially those operating outside Saudi Arabia did 
not have sufficient financial control mechanisms to ensure that the 
funds that were raised and that were spent actually went to where they 
were supposed to go'' citing ``a massive fraud in the name of 
religion.''
    The Kingdom of Saudi Arabia repeatedly tried to establish legal 
rules to govern Zakat and charities donations.
    In 1994, the Saudi Kingdom issued a royal decree banning the 
collection of money in the Kingdom for charitable causes without 
official permission. King Fahd set up a Supreme Council of Islamic 
Affairs (al-Majlis al-A'la lil-Shu'un al-Islamiyya), headed by his 
brother Prince Sultan to centralize, supervise, and review aid requests 
from Islamic groups. This council was established to control the 
charity financing and look into ways of distributing donations to 
eligible Muslim groups.
    Coordination efforts have also been carried out by the Kingdom to 
deal with specific goals and several bodies were created over time to 
centralize donations for specific countries and regions.
    Efforts to coordinate the recipients of money have been largely 
undermined by the composition and management of these bodies. For 
example, the Saudi Joint Relief Committee for Kosovo and Chechnya 
(SJRC) included the International Islamic Relief Organization (IIRO), 
the Saudi Red Crescent Society, the Muslim World League, the World 
Assembly of Muslim Youth (WAMY), Al-Haramain Islamic Foundation, 
Islamic Endowments, and Makka Establishment, some of which have already 
been designated as terrorist supports.
    Between 1998 and 2000, more than $74 million was diverted to local 
bureaus of the SJRC that happened to be controlled by or to harbor 
terrorists, while the Committee was supposed to be supervised by the 
Minister of Interior, Prince Naif bin Abdul Aziz.
    In June 1998, the CIA and Albanian authorities raided several 
houses and offices of members of an associate of the SJRC in Tirana. In 
July 1998, its Director Muhamed Hasan Mahmud, an Egyptian national, was 
arrested on charges of making false documents and arms possession. He 
was connected to a 1992 terrorist attack against the Egyptian 
Parliament. Several of its members and directors were later arrested in 
connection with the U.S. Embassy bombing in Kenya and Tanzania of 
August 1998.
    Similarly, the United Nations Mission in Kosovo (UNMIK) raided a 
house rented by the SJRC in Pristina in April 2000, stating the 
organization was acting as a cover for several Osama bin Laden 
operatives, including SJRC former directors Adel Muhammad Sadi Bin 
Kazem and Wael Hamza Julaidan (Secretary General of the Rabita Trust in 
Pakistan and co-founder of Al Qaeda), designated as terrorist by the 
United States Government in 2002.
    Furthermore, in documents obtained from the Financial Police of the 
Federation of Bosnia-Herzegovina Ministry of Finance, offices of the 
Saudi High Commission in Bosnia-Herzegovina, the coordinating body for 
charities in the country, clearly appear to be a front for radical and 
terrorism-related activities, noting that documentation was found in 
2001 ``for which it can be claimed with certainty that it does not 
belong in the scope of work of a humanitarian organization (various 
photographs of the World Trade Center, sketches of military bases, 
certain photographs of military ships, civil airplanes, certain 
specially protected facilities, and other).''
    Through these various unsuccessful attempts to regulate or control 
the recipients of Zakat or donations, one must question the real 
ability and willingness of the Kingdom to exercise any control over the 
use of religious money in and outside the country.
    The result of that weak policy toward donations made for so-called 
charitable purposes and the unwillingness of the Saudi Government to 
consider its responsibility in that regard is a major setback in the 
war against terrorism financing.
    Saudi Arabia has repeatedly claimed to have taken steps to counter 
terrorism financing since September 11, 2001, as if the Kingdom 
discovered at that date that several of its prominent citizens were 
funding a terrorist organization. The Saudi cooperation in the war 
against terrorism financing is largely insufficient, if not 
inconsistent.
    We do not believe in the ``innocence'' of the Kingdom in that 
respect. Saudi Arabia has been mostly negligent, and to some extent, 
irresponsible in letting suspected organizations receive funds and 
continue their operations while being fully aware of their links to 
terrorists.
    For example, according to documents seized by the Israeli 
authorities in the Palestinian territories, the Saudi Arabian Committee 
for Support of the Intifada al Quds was fully informed by the 
Palestinian officials that it was sending funds to Hamas, a terrorist 
organization.
    In a letter written in 2000 to the Chairman of the Saudi committee, 
a representative of Palestine stated that, ``The Saudi committee 
responsible for transferring the contributions to beneficiaries is 
sending large sums to radical committees and associations including the 
Islamic Association which belongs to Hamas, the Al-Atzlach Association 
[most likely the Al-Salah Association, a known agency of the Hamas in 
Gaza], and brothers belonging to the Jihad in all areas,'' adding that, 
``This has a bad effect on the domestic situation and also strengthens 
these brothers and thus has a bad impact on everybody.''
    Similar warnings were raised in Bosnia in 2000 by a Bosnian 
association called ``Mothers of Srebrenica and Podrinje.'' In a letter 
to Prince Salman, it was clearly claimed that the High Committee for 
Bosnia-Herzegovina did not meet its goal in terms of financial help, 
namely accusing the director of the Sarajevo office of diverting $100 
million collected after Srebrenica's fall in July 1995, for Srebrenica 
inhabitants.
Financial Conduits
    Saudi Arabia is present at every stage of Al Qaeda financing, but 
primarily as the major source of funding. This is an indication that 
Osama bin Laden has been able to leverage his family position in the 
Kingdom to gain access to major sources of funding. It is also a sign 
that Saudi Arabia is offering several essential conducts for Al Qaeda 
funding.
    Over the years, Al Qaeda used various conduits for moving money to 
its operational cells, mainly well established channels.
    In that regard, international investigations have uncovered only a 
few, if none usage of offshore facilities in Al Qaeda financial 
instruments.
    With the exception of a few banking institutions based and operated 
from offshore centers such as the Bahamas and Switzerland, namely al 
Taqwa Bank and Dar Al Maal Al Islami (DMI) no such examples can be 
found around the world.
    The nature of the Al Qaeda network is that it uses business covers 
to finance its operations. One of the main characteristics of this 
network has been its ability to operate behind a traditional economic 
and financial network.
    Furthermore, financial investigations determined that terrorists 
did not need offshore centers simply because they had the ability and 
the tools to deviate money from their recipient in order to finance 
their operations in their own countries.
    In that respect, the Zakat religious tax system imposed on each 
transaction to 
finance charitable Muslim needs, raises in its practical consequences, 
the same nature of questions as does any offshore business by allowing 
to deviate under no control large sums of money to suspicious entities.
    Zakat is the most important source of financial support for the Al 
Qaeda network, essentially because it is the most common and 
unregulated way to raise donations in Saudi Arabia. Until recently, it 
was also the most undocumented means to funnel money to these networks.
    In several cases, money originating from Islamic banks and 
charities in the Gulf was laundered through Western and specifically 
United States, correspondents, whether banks or charities, before 
reaching their recipients.
    In that respect, most of the financial revenue of Al Qaeda is 
raised through legal means.
    The same applies to the Hawala alternative remittance system, at 
least before September 11.
    This informal system to transfer money has been regarded as a 
primary tool for moving money and has been subsequently targeted by 
counterterrorism financial institutions. However, the system, mostly in 
use in Pakistan, India, the Gulf countries, and Southern Asia, is 
essentially an ``end user'' tool for terrorists on the ground, in 
remote areas, used to transfer money for operational purposes. It has 
never been a primary tool or instrument for moving money, although this 
instrument is believed to have regained importance after September 11, 
with an extensive use in, for example, tribal areas of Pakistan and 
Afghanistan.
    Its importance in ``end-user dealings'' could be reduced by 
facilitating cheap, fast remittances across international boundaries, 
and by doing away with dual and parallel exchange markets, which are 
always an incentive to keep transactions underground.
    Another post-September 11 trend has been the extensive use of 
couriers to funnel money.
    Al Qaeda's main financial transactions are essentially organized 
through three principal channels: the Islamic Banking system, business 
transactions, and charities.
The Islamic Banking System
    Beginning in the late 1970's, Saudi Arabia and other Gulf countries 
created a banking system aimed at promoting and propagation (Dawa) of 
Islam around the world.
    In 1974, the OIC summit in Lahore voted to create the 
intergovernmental Islamic Development Bank (IDB). Based in Jeddah, it 
became the cornerstone of a new banking system inspired by religious 
principles. In 1975, the Dubai Islamic Bank--the first modern, 
nongovernmental Islamic bank--was opened. In 1979, Pakistan became the 
first country to embark on full Islamization of its banking sector.
    The creation of the Bank of Credit and Commerce International 
(BCCI) in 1972, and its downfall in 1991, temporarily slowed the trend 
of Islamic banking. The bank's main fraud scheme was to allocate large 
loans without real guarantees, in return for investments in the bank's 
capital, a practice known as ``loan back.'' This way, the main loan 
beneficiaries were the shareholders themselves.
    Saudi Islamic support was channeled through a complex banking 
system that had at its center two entities created in the early 1980's: 
Dar-Al-Maal Al Islami (DMI), founded in 1981 and chaired by Mohammed 
Al-Faisal, and Dallah-Al-Baraka, founded in 1982.
    Endowed with enormous funding ($1 billion in the case of DMI), 
these institutions were rooted in both the Saudi Kingdom's desire to 
spread its financial preeminence in the Arab world, and in its support 
for the radical Islamic cause. Add to that the desire, already 
perceptible during the inception of the BCCI, to create an 
international financial network capable of sustaining the economic 
vitality of the Arab countries in the eyes of large Western banks.
    DMI, or ``The House of Islamic Money,'' is located in Switzerland. 
It was created on July 29, 1981. Until October 1983, its president was 
Ibrahim Kamel. He was replaced on October 17, 1983, by Prince Mohammad 
Al Faisal Al Saud,. DMI is one of the central structures in Saudi 
Arabia's financing of international Islam. Its main subsidiaries are 
the Islamic Investment Company of the Gulf, the Faisal Islamic Bank of 
Bahrain, and Faisal Finance. These high-level establishments enjoy 
enormous power in the countries where they are settled, principally in 
the Gulf and Sudan.
    Functioning on an Islamic method, DMI adheres to the Zakat system. 
After the transaction is made, the funds earmarked as Zakat disappear 
and are off the books. Later, under no financial regulation, the money 
may be used to fund radical Islamic groups.
    Islamic banking institutions operate by participating in 
investments, sharing profits on projects, and earning fees for services 
performed.
    One of the duties of Islamic banking institutions is to contribute 
and manage Zakat funds.
    Relying on Islamic banking, Osama bin Laden himself, in partnership 
with several Saudi and Gulf Islamic banks, founded a banking 
institution in Sudan, Al Shamal Islamic Bank, that provided funding for 
terrorist operations, as confessed by several Al Qaeda members in 2001 
during the United States African Embassy Bombing trial.
    Several banks helped transfer funds to Al Qaeda through the Zakat 
system, by direct donations or by knowingly providing means to raise or 
transfer funds to the terrorist organization. Some of them even 
controlled the Zakat funds beneficiaries, including charities that have 
provided financial and logistical support to Al Qaeda.
    Islamic banking facilities, instruments and tools have provided an 
essential support to the Al Qaeda organization and operations.
    The banking system, whether knowingly or not, have acted as an 
instrument of terror, to raise, facilitate, and transfer money to 
terrorist organizations.
    Governed by Islamic Law (Sharia'a) that regulates commerce and 
finance in the Fiqh Al Mua'malat, (transactions amongst people), modern 
Islamic banks are overseen by a Shari'a Supervisory Board of Islamic 
Banks and Institutions (The Shari'a Committee).
    At the state level, the Saudi Arabian Monetary Authority (SAMA), 
established in 1952, is the controlling body for the banking sector. 
For that purpose, it can ask a bank for any information it deems 
necessary and has the power to inspect accounts and records.
    Since September 11, 2001, SAMA has addressed circulars to Saudi 
banks to investigate the extent to which they may have assets belonging 
to the individuals and entities that appear in the lists of those 
suspected of having links to terrorism, and it has asked banks to 
scrutinize accounts and audit all financial operations that affect 
them.
    Furthermore, SAMA instructed commercial banks to establish a Self-
Supervisory Committee to closely monitor and fight terrorism funding 
and to coordinate all efforts to freeze the assets of the identified 
individuals and entities. The Committee is composed of senior officers 
from banks responsible for Risk Control, Audit, Money-Laundering Units, 
Legal and Operations, and operates in the presence of SAMA officials.
    The Saudi Government has also taken steps to combat money 
laundering. This includes the establishment of anti-money laundering 
units, with trained and dedicated specialized staff. These units work 
with SAMA and law enforcement agencies.
    Another institutional initiative is the creation of a specialized 
Financial Intelligence Unit (FIU) in the Security and Drug Control 
Department of the Ministry of Interior. This unit is specially tasked 
with handling money-laundering cases.
    Most of these bureaucratic measures, while creating the impression 
that the Saudi Government is taking appropriate actions to counter 
terrorist funding, have proved ineffective in countering networks that 
can easily evade the controls.
    Indeed, targeting money laundering turned to be ineffective, as the 
practice refers to the cleaning of illegal gains from drug trafficking 
and other criminal activities. In contrast, the funding of terrorism 
involves using legitimate income to finance illegal activity, the 
reverse process.
    Similar doubts can also be raised as to the extent of the SAMA 
willingness to effectively control these institutions, especially when 
illegal practices involve the use of Zakat funds.
    For example, it was only in 1999, after several months of fierce 
international pressure, that SAMA directed an audit on the national 
Commercial Bank (NCB), chaired at the time by Osama bin Laden's 
brother-in-law, and one of his major financial supporters in the 
Kingdom. After the audit revealed several millions of dollars were 
diverted to terrorist organizations, its Chairman was finally replaced, 
but remained until last year, along with his family, a major 
shareholder of the bank with a controlling vote at its board of 
directors.
    Furthermore, documents made available to the September 11 families 
clearly established that the NCB was still facilitating banking 
transactions for terrorists after that date. The same applies to other 
major banks of the Kingdom including Al-Rajhi Bank, Al-Baraka Bank, 
Arab Bank, and the Saudi American Bank, which funneled money to or from 
the Spanish Al Qaeda cell from 1996 until 2001.
    Other banks, including Swiss-based DMI, as recently revealed by the 
investigation of the families have funneled money to organizations 
founded or used by terrorists, such as Al-Haramain Islamic Foundation 
and Maktab ul Khedamat (Bureau of Services).
    The confusion observed at the State level in Saudi Arabia between 
religious aims and financial instruments has created over the years a 
window of opportunities for fundamentalist organizations to consolidate 
and expand their reach.
Penetration of the Business Sector
    Al Qaeda is probably the most successful example of a terrorist 
organization acting under the umbrella of business entities.
    The organization succeeded in building a large array of banking and 
corporate covers for its illegal activities in several countries.
    The ability of the terrorist network to penetrate the business 
sector has been a major factor for moving and receiving money through 
legal instruments.
    Operational cells of Al Qaeda have been able established umbrella 
organizations, registered under local laws. Most of them are involved 
in the construction, the real estate, and public building sectors. In 
addition, many trade companies based in Saudi Arabia provided financial 
support to create and run the local companies.
    The legal statute of the establishment in Saudi Arabia offers soft 
regulations, if any, in terms of accounting rules and legal 
publications.
    Two examples of the abuse of legitimate businesses illustrate the 
ability of the terrorist organization: The first is given by the 
network formed between 1983 and 1996 in Sudan, that crystallized for 
several years the overall spectrum of facilities and tools at bin 
Laden's disposal to carry out its fundamentalist goals, through banks, 
companies, and charities. This network included the protection provided 
by the state itself, a permanent factor in Al Qaeda's history that 
explains its ability to remain an offensive organization.
    When Osama bin Laden relocated to Sudan in 1991, he used its close 
relations with the then controlling power of Islamic leader Hasan al-
Turabi, to set up several business ventures, to the extent of building 
symbiotic relationships with Sudanese leaders of the National Islamic 
Front (NIF).
    In concert with NIF members, Osama bin Laden invested in several 
large companies and banks, and undertook civil infrastructure 
development projects.
    The network of businesses controlled by Osama bin Laden included: 
Al Shamal Islamic Bank, funded and controlled by wealthy Saudi 
businessmen and bankers including Saleh Abdullah Kamel, Mohammed al-
Faisal or Adel Abdul Jalil Batterjee; an import-export firm; several 
agricultural companies and a construction company settled in connection 
with his Saudi family conglomerate to build roads and airport 
facilities in Sudan.
    These businesses enabled Osama bin Laden to offer safe haven and 
employment to Al Qaeda members, to provide bank accounts to several 
operatives, and to finance terrorist operations and facilities, mainly 
training camps and arms buying.
    Most notably, this network was able to carry out legal financial 
transactions with Western banks and financial institutions, with the 
guarantee of his prominent Saudi associates.
    Beginning in 1996, several business associates of Al Qaeda 
developed a money laundering scheme involving Saudi and Spanish 
companies, to finance several Al Qaeda operational cells or supports in 
Europe, Middle-East, and Asia, including preparatory operations for the 
September 11 attacks on the United States.
    Through several front companies described by Spanish judge Baltasar 
Garzon as covers for Al Qaeda operations, Al Qaeda sponsors were able 
to funnel more than $1 million from companies and individuals based in 
Saudi Arabia to Germany and other Al Qaeda European cells between 1995 
and 2001.
    To date, this scheme represents the most direct uncovered link to 
the September 11 attacks, regarding the operation's financing.
    These companies, mainly involved in construction and real estate, 
were convicted in arms trafficking, credit card fraud and false 
documents (Credit card fraud and car smuggling). Along with illegal 
activities, these entities provided financial assistance to Al Qaeda. 
They made false financial statements and laundered more than $2.5 
million in 5 years. That amount has not been recovered yet by the 
investigators.
    Several companies were used as umbrella organizations to facilitate 
Al Qaeda operations in Europe through false contracts signed by a Saudi 
company controlled by Muhammad Galeb Kalaje Zouaydi, European chief 
financier for Al Qaeda, who created several corresponding companies in 
Spain with several Al Qaeda militants.
    To date, the Saudi company, Mushayt for Trading Establishment, is 
still in activity and managed by several members of the Muslim 
Brotherhood.
    The economic network maintained regular incomes for the cells in 
Europe or in the Middle East (Germany, Italy, Yemen, Syria, and Saudi 
Arabia). In addition, these firms employed Ex-Fighters of Islam in 
Chechnya or Bosnia and radical Muslims.
    The network also maintained close relations with Al Qaeda members 
and leaders in Europe, including hijacker Mohammed Atta, Said Bahaji, 
and Ramzi Binalshibh, all related to Osama bin Laden.
    Money was funneled to the Hamburg cell through the Saudi Al Rajhi 
Bank to businessmen Mahmoud Darkazanli and Abdul Fattah Zammar who 
provided the cell of hijackers with financial and logistical support. 
The network of companies also facilitated in 1997 the preliminary 
filming of the World Trade Center that was delivered to an Osama bin 
Laden courier in Europe.
    Ghasoub Al Abrash Ghalyoun (aka Abu Musab), a Spanish cell member 
and business partner of Muhammad Zouaydi traveled to the United States 
in August 1997 to film future targets of Al Qaeda, including the World 
Trade Center.
    In addition, Mushayt for Trading Establishment in Jeddah sheltered 
and supported economically other international Muslim radicals, 
including Nabil Nanakli Kosaibati Nabil, right-hand man of the Al Qaeda 
Spanish cell leader, convicted for terrorist activities in Yemen on 
behalf of Saudi intelligence services.
    As Muhammad Zouaydi and most of the Al Qaeda Spanish members, 
Kosaibati is a Spanish national of Syrian origin. He acknowledged 
during his trial in 1997 that he was recruited and trained to use arms 
and explosives by the Saudi intelligence. During his trial confession 
he said that the Saudi intelligence ``sent him to Yemen in 1996 as an 
active Saudi intelligence agent.''
    He also acknowledged he received $150,000 from the Saudi 
intelligence to kill the Yemeni Foreign Minister. Documents also 
revealed that Kosaibati received $14,000 from Muhammad Zouaydi in 1996 
and 1997 while living in Sanaa, Yemen on a monthly basis at the request 
of a lieutenant of Osama bin Laden.
    Moreover, Muhammad Zouaydi sustained Islamic charities known as Al 
Qaeda logistical bases. For example, he sent $227,000 to Nabil Sayadi 
in Belgium from his company Mushayt for Trading Establishment and 
through the Saudi National Commercial Bank. Nabil Sayadi is leading the 
Fondation Secours Mondial (Global Relief Foundation) in Belgium, 
designated on the UN terror list since October 22, 2002.
    The Spanish network has also been able to entertain business 
relations at the highest level of the Saudi Kingdom.
    In 1999, in his capacity of advisor-minister to King Fahd of Saudi 
Arabia, Abdullah al Turki entered in negotiations to become business 
partner of Muhammad Zouaydi, Al Qaeda financier for Europe, for a 
construction project in Madrid, Spain, worth $ 2.3 million. Both agreed 
to participate as business partners and a contract was written on 
October 1, 1999 by Muhammad Zouaydi acting as representative of the 
Spanish company Proyectos y Promociones ISO, stating that both parties 
will finance 50 percent of the project and split the incomes 70/30 
between Abdullah al Turki and Muhammad Zouaydi. As a guaranty for the 
operation, Muhammad Zouaydi sent a check of $ 1.1 million on September 
15, 1999 with Abdullah al Turki as beneficiary. Several documents 
established that both men had business relations on a regular basis 
until at least year 2000.
    Abdullah al Turki is currently Secretary General of the Muslim 
World League.
    In the Al Qaeda European economic networks, Muhammad Zouaydi (Aka 
Abu Talha) represents an illustration of the legal financial support. 
Indeed, Zouaydi is Syrian born and Spanish national. He's graduated in 
management, and passed years in Saudi Arabia as an accountant for the 
Royal Family. He is also the brother-in-law of Mohamed Baiahah (Aka Abu 
Khaled), known as a personal courier of Osama bin Laden in Europe. 
Finally, he founded a trading company in Saudi Arabia, where he used 
Waqf donations and false contracts to finance the activities of Al 
Qaeda cells in Europe.
    The Spanish scheme illustrates terrorism financing using donations 
through a web of legally established companies transferring money 
through the Islamic Banking System, namely al-Rajhi Bank, National 
Commercial Bank, Faisal Islamic Bank, and Saudi American Bank.
Charities
    Two hundred forty-one Saudi charity organizations are currently 
operating in Saudi Arabia and abroad.
    These organizations receive annually between $3 billion to $4 
billion, of which between 10 percent and 20 percent is sent abroad.
    Resulting from confused usage of religious tools, several charities 
centered their efforts, not only on assisting needy around the world, 
but also in supporting and participating in the political goals of the 
few that viewed Islam as a way to combat Western influence.
    Since September 11, Saudi Arabia has repeatedly stated that 
charities were legitimate organizations.
    Prince Sultan Bin Abdulaziz, Saudi Minister of Defense and an 
important donor to several of these charities, recently stated that 
they were ``legitimate and well-established Muslim charities.''
    Such statements are overturned by an array of facts and evidence 
made available by several countries for the investigation of the 
September 11 families suggesting that most of these so-called charities 
were at best fronts of terrorist organizations, if not terrorism 
backbone, but in any case fictitious charities.
    As far as a charity, whatever its initial purpose and the help it 
is dedicating to the poor and needy, if it engages itself, willingly 
and knowingly, through its management, members or facilities, in 
providing substantial support to terrorism, this organization cannot be 
viewed anymore as legitimate. Otherwise, under which criteria should a 
donor be assured that the money raised by the organization won't 
ultimately benefit a terrorist group?
    Saudi charities are present at every stage of terrorism.
    Saudi charities have provided terrorist organizations with the 
essential ideological substrate. Most of these organizations have been 
founded or inspired by radical religious or political leaders. The 
Muslim World League was created in 1962 by former members of the 
Egyptian Muslim Brotherhood. His current Secretary General, Abdullah al 
Turki, is a former Minister of Religious Affairs of Saudi Arabia who 
was a fellow of Sheikh Abdullah Azzam, Osama bin Laden spiritual mentor 
who founded in the 1980's the Bait ul Ansar (Mujahideen Services 
Bureau) in Peshawar, financed by Osama bin Laden and embryo of the Al 
Qaeda terrorist organization. The International Islamic Relief 
Organization (IIRO) was founded by Osama bin Laden brother-in-law.
    Saudi charities have provided protection and facilities to Al Qaeda 
members. This trend emerged years ago, since the very foundation of the 
Al Qaeda network. In documents seized in Bosnia and Herzegovina in 2002 
during searches of Benevolence International Foundation offices, and 
obtained by the September 11 families, charities appear as part of Al 
Qaeda, fully integrated in its organizational structure to the point of 
creating a symbiotic relationship with it, acting as umbrellas, safe 
houses, and military bases for Al Qaeda operatives.
    The Saudi Red Crescent maintained passports for Al Qaeda operatives 
to avoid searches and is referred to as an ``umbrella'' by Al Qaeda 
operatives.
    An official letter with the heading of the Muslim World League and 
International Islamic Relief Organization suggest using the name of the 
``league'' (the Muslim World League) as, ``an umbrella which you can 
stay under.''
    Saudi charities have provided arms and logistics to the Al Qaeda 
network. A message on the letterhead of the Saudi Red Crescent bureau 
in Peshawar requests that ``weapons'' be inventoried. The letter 
contains a note from Osama bin Laden to its then director stating ``we 
have an extreme need for weapons.''
    In a letter from Benevolence International Foundation directed to 
the World Assembly of Muslim Youth, BIF headquarters organizes the 
collaboration with the Benevolence Islamic Committee along with WAMY to 
provide military logistical support to Mujahideen efforts.
    Saudi charities have provided military bases for Al Qaeda. In an 
other letter seized in Bosnia-Herzegovina, the Muslim World League asks 
for the opening of its bureaus ``for the Pakistanis,'' so the 
``attacks'' will be launched from ``league'' (Muslim World League) 
offices.
    Saudi charities have provided military training for Al Qaeda 
terrorists. From 
several intelligence sources and documents collected around the world, 
the investigation of the September 11 families has been able to 
establish that several Saudi charities have funded at least 10 
terrorist training camps in Afghanistan. The International Islamic 
Relief Organization (IIRO) funded at least 6 training camps referred as 
terrorist training camps by the U.S. Government, including the Darunta 
camp, a facility used for chemical and biological weapons testing.
    Saudi charities have provided an essential financial support to Al 
Qaeda. Since the very beginning of Al Qaeda, Saudi charities have been 
associated with the financial structures and procedures of the 
organization. An internal document obtained by the September 11 
families contains a list of goals for the organization, in which are 
named organizations to be involved in securing money for Al Qaeda, 
including Rabita Trust and Muslim World League.
    Another internal document from BIF, includes a list of orders from 
Osama bin Laden regarding the management of Islamic charities. At point 
10 of this list, he urges the creation of a committee to receive 
donations and maintain an account and the spending for Al Qaeda, 
including: ``the Crescent (Saudi Red Crescent), the Rabita (the Muslim 
World League) and the Relief agency.''
    In a letter signed by Abdullah Azzam, spiritual mentor of Osama bin 
Laden, it is mentioned that ``at the forefront'' of Islamic foundations 
that contributed to the Jihad ``through financial support'' is the 
Saudi Red Crescent.
    Direct funding was revealed, for example, by former Al Qaeda 
representative in Southern Asia Omar al Faruq confessions to the U.S. 
authorities regarding Al Haramain Foundation. Al Faruq stated that ``Al 
Haramain was the funding mechanism of all operations in Indonesia. 
Money was laundered through the foundation by donors from the Middle 
East.'' He also stated that the charity office was working under the 
control of a representative of Osama bin Laden.
    The lack of a transparent financial practice of Saudi charities was 
notably established during controls of humanitarian organizations 
conducted by the Bosnian Government. Documents made available by the 
Bosnian Financial Police show that Al Haramain Islamic Foundation, 
Benevolence International Foundation, Human Appeal International, 
International Islamic Relief Organization Igasa, and the High Saudi 
Committee for Help to BiH, ``mostly had cash without bank accounts and 
proper documentation. A significant amount of money was transferred 
through personal bank accounts of their employees, and there was no 
documentation about the way of spending of that money.''
    Al Haramain Al Masjid Al Aqsa, a sister organization of Al Haramain 
in Bosnia-Herzegovina still active in the country, had transferred 
money to Yassin Al Qadi, designated terrorist by the United States, and 
Wael Julaidan, a Saudi businessman also a designated terrorist, had a 
signature right over the account of the organization.
    It is essentially the lack of internal regulation, along with the 
Kingdom's inability and unwillingness to control the Islamic charities, 
that enabled several of them to harbor, employ, or support 
fundamentalists abroad, using or abusing their statute.
The Saudi Question
    Saudi Arabia has become a major concern in the war against 
terrorism financing, and more generally, in the war against terrorism, 
as far as the Kingdom is still harboring essential and constitutional 
elements of Al Qaeda: the ideological substrate, the human vector, and 
the financial tools.
    In June 2001, the late FBI Chief of Antiterrorism, John O'Neill, 
told me that ``All the answers, all the keys enabling us to dismantle 
bin Laden's network are in Saudi Arabia.'' Today, all of our leads and 
much of the evidence collected by the September 11 families put Saudi 
Arabia on the central axis of terror and shows that this government was 
aware of the situation, was able to change the path of its 
organizations, whether banks, businesses or charities, but voluntarily 
failed to do so. Rather, the Saudi Government repeatedly claimed since 
at least 1993 that the situation was under control while facilitating 
the reach and involvement of the charities and the financial 
institutions of the Kingdom, or inciting its citizens to support the 
terror fronts when the highest ranking members of the royal family are 
pouring tens of millions of dollars each year to Islamic charities 
known for diverting money to Al Qaeda.
    We have been able to establish that Saudi Arabia has been 
repeatedly warned and informed on the extent of the support that the 
Kingdom's charities were providing to extremist or terrorist groups, 
but that it obviously failed to act upon this situation.
    Saudi Arabia has been fully informed and warned by its United 
States and European counterparts since at least 1994 that several major 
charities sponsored by the Kingdom, if not most of its charities, have 
been involved at various degrees, in supporting terrorism.

 In November 1994, French Interior Minister Charles Pasqua 
    visited Saudi Arabia and met with several officials, including the 
    Saudi Minister of Interior Prince Naif, to express his deep concern 
    on the use of charities for other purposes, including funding of 
    terrorist organizations.
 In 1996, a CIA report indicated that one third of the Islamic 
    charities were linked to terrorism.
 In 1997, a joint security committee to share information on 
    terrorism was established with the United States involving the CIA, 
    the FBI, and the NSA.
 In 1999 and 2000, several United States officials traveled to 
    Saudi Arabia to raise the same concern.

    Despite clear warnings, Saudi Arabia's support to charities has 
been continuous and extensive over the time, even after September 11.
    Furthermore, most of the financial infrastructure is still in 
place, from banks to charities, including front companies and wealthy 
donors.
    While officials of the United States Treasury Department claim 
Saudi Arabia is the ``epicenter'' of terrorism financing, the Kingdom 
has only frozen a ridiculous amount of terrorist funds.
    According to the latest figures available, since September 11, 
2001, Saudi Arabia has frozen 41 bank accounts belonging to 7 
individuals for a total of $5,697,400, or 4 percent of the total amount 
of terrorist-related funds frozen around the world.
    The major issue regarding Saudi Arabia concerns its unwillingness 
until a recent period, to face Islamic terrorism as a threat. ``We have 
never worried about the effect of these organizations on our country,'' 
these are the words of Prince Bandar Bin Sultan in September 2001.
    This stand, indeed, had nothing to do with a misconception on the 
part of Saudi Arabia, it was part of a clear, calculated, and 
determined policy, followed day-by-day by the highest level of the 
security apparatus, applied by the business architecture and supported 
by the rulers of the Kingdom.
    The same Saudi official acknowledged that the Kingdom might have 
paid the price of its own protection. This is a major revelation of our 
investigation, substantiated by several testimonies, interviews, and 
documents emanating from Osama bin Laden himself, members of the Saudi 
governmental apparatus or foreign intelligence. It is believed that 
since 1994, Saudi Arabia has funneled money to bin Laden for the 
purpose of his jihad around the world to preserve the political power 
of the Al-Saud family in the Kingdom. Prince Bandar refuses to call it 
``protection money,'' and prefers the notion of, ``paying some people 
to switch from being revolutionaries to be nice citizens,'' which is 
leading to the very same consequence.
    This trend also reverses a major argument of Saudi Arabia when it 
claims to be the first target of Al Qaeda. Although bin Laden 
criticized the Saudi regime in several instances after the first Gulf 
war, the Kingdom never faced Al Qaeda terrorist threat before May 12 of 
this year. Osama bin Laden has targeted western interests in the 
Kingdom while surprisingly avoiding to hurt any symbol of the monarchy. 
On the contrary, Al Qaeda served for years the very religious interests 
of its godfather in disseminating the wahhabi ideology in various 
regions of the world.
    The truth is since the beginning of the war against terrorism 
financing, Saudi Arabia has been misleading the world, and we are still 
awaiting the Saudis to apply for themselves the very strong message of 
their ruler, Crown Prince Abdallah, who, in August 2003 made it clear 
that ``whoever harbors a terrorist is a terrorist like him, whoever 
sympathize with a terrorist is a terrorist like him and those who 
harbor and sympathize with terrorism will receive their just and 
deterrent punishment.'' Saudi Arabia still maintains freely on its soil 
thousands of individuals or 
entities who provide financial support to the bin Laden network, and 
the September 11 families are still waiting for them to be 
investigated, sought, and prosecuted with the same determination as the 
one applied to those who were carrying the guns and bombs they have 
paid for.
    The point has been reached where the only alternative is for the 
Kingdom to show clear evidence of its willingness to terrorize the 
terrorists, in other words, to dismantle the financial backbone of Al 
Qaeda, or to face liability for its negligence in acting against the 
terrorists and their associates. In that regard, the United States 
Government or the U.S. Congress could take appropriate measures to 
prevent unlawful actions from established banks, businesses or 
individuals by considering designating Saudi Arabia as a state sponsor 
of terrorism, if this state refuses to reverse its policy in three 
major areas, which more and more appear as roots of terrorism: 
Wahhabism, with a radical religious doctrine that calls for intolerance 
and violence; charities, with organizations offering full-service to 
terrorist organizations, including recruitment of operatives; and 
finance, with banks, companies, and wealthy businessmen still able to 
fund radical extremists.
The War Against Terrorism Financing
    Until now, the war against terrorism financing has been mainly 
focused on the end-users entities and individuals, primarily to prevent 
further use of money for terrorist planning and operations.
    While this objective is important, and has been successful in many 
areas, I doubt it could stand as a longtime pattern to win the war 
against the Al Qaeda network.
    At the operational level, Al Qaeda and its affiliated organizations 
have been more active since September 11 than in all the history of 
this terrorist group since its creation in 1988, with more than 40 
bombings claimed by this organization or attributed to its network 
causing more than 1,000 deaths. Al Qaeda has been able to consolidate 
and spread its forces through other organizations. On the financial 
area, the efforts have mainly failed to assess and combat the roots of 
Al Qaeda.
    I see several major obstacles:

 A legal obstacle, in the sense that law enforcement agencies 
    are confronted with an array of different criteria and regulations 
    to fight terrorism financing, while state cooperation depends on 
    political will.
 A cultural obstacle. International cooperation is undermined 
    by the ``national approach'' culture of most law enforcement and 
    prosecution bodies around the world. Most of these agencies are 
    focusing their investigations and leads on national-based cells, 
    while avoiding to share information of interest for their 
    counterparts. In the course of our investigation and cooperation 
    process, we experienced various situations where, for example a 
    neighboring country was not aware of the involvement of an Al Qaeda 
    cell on its own territory in Europe. Due to our action, Australia 
    recently took actions against two Islamic leaders affiliated to the 
    Spanish Al Qaeda cell uncovered 1 year and a half ago.
 An enforcement obstacle, as far as each state has its own 
    sanction system, and that no international body is to date vested 
    with a sanction mechanism to enforce decisions. During a recent 
    conference, a director of the Financial Action Task Force on Money 
    Laundering stated seriously that the highest sanction level in the 
    organization was for other members to dismiss the uncooperative 
    member-state.
 Another obstacle I see is based on political and diplomatic 
    reasons to avoid addressing issues such as the sources of the 
    funds, because they might involve state interests.

    The war against those networks will only succeed if there is a 
clear intention from all the partners involved to disrupt the entire 
chain of financing, including above all its sources. We can dismantle 
all the fronts, all the intermediaries and all the channels of 
terrorism funding; it won't be enough to disrupt its financing as far 
as we do not cut the roots of it. Otherwise, they will find other ways 
and means as it is already the case through couriers or alternative 
systems, for the money to reach the terrorists.
    I think time has come to raise these fundamental questions about 
the war against terrorism financing and its finality.
    It is time to go after the shareholders of the Al Qaeda terrorist 
organization. Several examples are demonstrating that this war has been 
selective, if not discriminate in avoiding to address its roots.
    The Muwafaq Ltd. was incorporated in the Isle of Man in 1991. The 
same year, Muwafaq Foundation (also known as Blessed Relief) settled in 
Sudan with Yasin Al-Qadi acting as chairperson. Abdulrahman Bin 
Mahfouz, son of Khalid Bin Mahfouz, became trustee of Muwafaq 
Foundation while serving as member of the board and Vice Chairman of 
the Executive Management Committee of the Saudi National Commercial 
Bank. Abdulrahman Bin Mahfouz later acknowledged in an interview that 
Muwafaq Foundation was the ``brainchild'' of his father, ``who funded 
it with as much as $30 million.'' Yasin Al-Qadi has been designated as 
Specially Designated Global Terrorist by the United States on October 
12, 2001 and a U.S. Treasury Department statement added that ``Muwafaq 
is an Al Qaeda front that receives funding from wealthy Saudi 
businessmen'' (. . .) ``Saudi businessmen have been transferring 
millions of dollars to bin Laden through Blessed Relief.'' Khalid Bin 
Mahfouz acknowledged himself that he was ``the principal donor'' and 
founder of the foundation. Yet, he is still at large.
    Another example is provided by the Al Aqsa Islamic Bank, based in 
Palestine. On December 4, 2001, within the framework of the fight 
against the financial networks of terrorism, the United States 
announced the freezing of assets of several charities in the United 
States and two Palestinian financial companies believed to be support 
structures for the Hamas terrorist movement. One among these, the 
banking institution Al Aqsa Islamic Bank, was described as the 
``financial branch of Hamas'' by the American authorities.
    Yet, the financial sources and shareholders of the bank were not 
designated. The bank was established with $20 million in capital by 
several prominent financial groups or institutions, notably the Jordan 
Islamic Bank and the Saudi Dallah al Baraka Group. The Jordan Islamic 
Bank is the property of the Dallah al Baraka Group, led by Saleh 
Abdallah Kamel, shareholder of the same bank Osama bin Laden funded in 
Sudan via local trustees and companies.
    Jordan Islamic Bank, a Dallah al-Baraka subsidiary, owns 14 percent 
of Al-Aqsa, according to al-Aqsa's acting general manager. In a 
statement, Saleh Abdullah Kamel acknowledged that Dallah al-Baraka owns 
another 12 percent directly.
    Up until now, no financial measure has been taken against the 
assets of this Saudi shareholder, reducing the reach of the war against 
terrorism financing, as far as the financial sources usually use 
complex and multiple channels of investment.
    The war against terrorism financing implies multiple cooperation 
processes, whether public or private, and relies on a strong commitment 
to a same and single objective from multiple partners.
    To achieve this goal and extend the reach of current 
investigations, several measures could be taken at the national and 
international level:

 Implement preventive actions to preserve the financial 
    institutions. The war against terrorism financing has implied 
    increased obligations for banking and financial institutions. Most 
    of these institutions are determined to enforce these regulations. 
    They strongly believe that facilitating terrorism-related 
    transactions would have an impact on their reputation and could 
    cost legal actions and financial risks for their own assets. Their 
    most pressing obligation is to be able to identify and check their 
    transactions. This could only be achieved if governments 
    provide enough information, not only on designated entities, but 
    also on suspected entities. In that regard, measures such as 
    preventive freezing of assets of suspected entities or individuals 
    could provide time to fully investigate and enforce sanction 
    measures, while preserving the banking institutions. Secrecy in 
    this field increases risks and uncertainty.
 Ease designation criteria. International investigations have 
    identified several key institutions or individuals as cornerstones 
    in terrorism financing, while no specific public action has been 
    taken against them. Easing the designation criteria or implementing 
    specific regulations to such cases could help secure future 
    freezing of assets.
 Promote international bodies. Our experience in the field 
    shows that the most 
    important task of the U.S. Government is to promote international 
    cooperation, mutual understanding and common tools to fight this 
    form of transnational terrorism. Most countries in the world are 
    uninformed or not knowledgeable enough to really fight these 
    networks. The implementation of an international information-
    sharing body is a pressing demand of several important partners of 
    the United States in the war against terrorism. The effort carried 
    out for the September 11 families is also, on a day-to-day basis, 
    to share information with states around the world, that turn to us 
    for that purpose. Our independent and legitimate effort provides a 
    basis for cooperation, whether with states or international 
    organizations. I can announce today that as part of that effort, we 
    will implement in the future months a global organization, in 
    coordination with several states and international organizations, 
    for the purpose of information-sharing in a secure basis. We 
    strongly feel such an initiative is an imperative for the war 
    against terrorism, the international security, the prosecution of 
    those who funneled money to terrorists, and finally for the 
    families who have a right to know and understand.

    I will leave my last words to Matthew Sellitto, who lost his son on 
September 11, 2001. He, more than I can, synthesized our common goal 
against terrorism financing: ``I will see my son again some day and I 
truly believe he'll ask, `Dad, when they murdered me, what did you do 
to find out who murdered me?' Well, I can tell him, look him right in 
the eye and say I did everything I can . . . to find out who murdered 
my son, why they murdered my son, who gave them the money to murder my 
son.''
















































                     COUNTERTERROR INITIATIVES AND



                 CONCERNS IN THE TERROR FINANCE PROGRAM

                              ----------                              


                        THURSDAY, APRIL 29, 2004

                                       U.S. Senate,
           Committee on Banking, Housing and Urban Affairs,
                                                    Washington, DC.

    The Committee met at 10:05 a.m., in room SD-538, Dirksen 
Senate Office Building, Senator Richard C. Shelby (Chairman of 
the Committee) presiding.

        OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY

    Chairman Shelby. Good morning. The hearing will come to 
order, and thank you for coming today.
    This is the third in our continuing comprehensive review of 
the Nation's ability to identify and track financial 
transactions and other support which fuel terror organizations 
and their operations. Over the course of this review, the 
Banking Committee has heard from present and former officials 
of the Treasury, the National Security Council, the Department 
of State, and the Federal Bureau of Investigation. We have also 
heard from experts who have studied terror groups and their 
funding. This testimony serves as a foundation for the more 
difficult work ahead. Today's hearing, I believe, will 
exemplify what could be the best of what our Government offers 
the people of this country--the dedication and hard work of 
those charged with the responsibility to identify, track, 
disrupt, and dismantle terrorist organizations that threaten 
our way of life.
    Make no mistake, the men and women represented by their 
leaders, our panelists today, are executing their duties with 
the skill and ingenuity we have come to expect. I am proud of 
the accomplishments of the men and women of the Financial 
Crimes Enforcement Network, FinCEN, the Office of Foreign 
Assets Control, OFAC, and the Internal Revenue Service Criminal 
Investigation Division, IRS-CID, as well as those in the 
Department of the Treasury. These dedicated civil servants 
remain focused on the important and complex task of finding, 
following, and fracturing financial flows of money and support 
that support terror.
    Today's hearing is not about their work. Today's hearing is 
about leadership. It is about harnessing the considerable power 
of these dedicated men and women I have spoken of. It is about 
Treasury's leadership focusing the efforts of these men and 
women so that our citizens can trust that our financial systems 
will not be violated by illicit funds. It is about charting the 
way ahead and organizing the Treasury's vast but not limitless 
resources to win that trust from the American people. The 
choices that Treasury leaders make, guided by a comprehensive 
vision and supporting goals, will make all the difference, I 
believe, in this effort.
    The swift implementation of the USA PATRIOT Act 
demonstrated committed actions fueled by the passions aroused 
when this Nation seeks to protect the very foundation of its 
principles, life, liberty, and the pursuit of happiness.
    In this post-September 11 world, though we might suffer the 
vulnerability of complacency, this Congress and this Committee 
I believe acted swiftly. Aware of shortcomings in the area of 
Treasury's ability to fully use its unique expertise by 
analyzing all relevant information, regardless of its 
classification, we provided Treasury with a new office and 
leader, an Assistant Secretary for Intelligence and Analysis, 
in November 2003.
    That same month Senator Sarbanes and I provided a framework 
for the exercise of leadership in an agreement with Secretary 
Snow, formalized in an exchange of letters. We have with us 
today Deputy Secretary Bodman, at his Treasury post since 2004. 
Today, we want to hear about the future. We want to hear, in 
concrete terms, Mr. Secretary, how you will lead Treasury's 
dedicated human resources, in the difficult task of adapting to 
an ever-changing threat.
    You have been a leader who has led the rise of large 
companies. You studied the rise and fall of many more, big and 
small. I am sure you agree with the wisdom of a past CEO of 
AT&T when he said: ``When the pace of change outside an 
organization becomes greater than the pace of change inside the 
organization, the end is near.''
    Please tell us, if you could, with as much specificity as 
you can, how you will make Treasury's pace of change meet and 
exceed the deadly pace of terror organizations that have 
already demonstrated a resiliency and adaptability that exceeds 
any threat to our national security faced in the past.
    Senator Sarbanes.

             STATEMENT OF SENATOR PAUL S. SARBANES

    Senator Sarbanes. Thank you very much, Mr. Chairman.
    I want to commend you for moving ahead with this series of 
hearings. I strongly share your commitment to monitoring the 
Government's efforts to deal with the financing of terrorism. I 
also want to join you in welcoming the Deputy Secretary, who 
comes before the Committee for the first time.
    This Committee bears a significant oversight responsibility 
for the subject matter of today's hearing. We are responsible 
for both the Bank Secrecy Act and the Nation's economic 
sanctions legislation, as well as for the Nation's financial 
services laws more generally. This Committee reported a money 
laundering and antiterrorist financing bill, which then became 
a large part of Title III of the USA PATRIOT Act, less than a 
month after the September 11 tragedy.
    The threat of terrorism remains very real. If anything, 
they are probably becoming more difficult to intercept. The New 
York Times reported not too long ago that, ``[t]he landscape of 
the terrorist threat has shifted, many intelligence officials 
around the world say, with more than a dozen regional groups, 
showing signs of growing strength and broader ambitions, even 
as the operational power of Al Qaeda appears diminished.''
    This makes the use of financial information potentially 
more difficult to put together, but potentially much more 
valuable if, in fact, we are successful in putting it together. 
Today, we begin the hard work of determining where various 
responsible agencies are in efforts to analyze, share, and use 
relevant information to the greatest effect. It is appropriate 
that we begin with the Department of the Treasury.
    The Treasury Department was designated as a lead agency to 
deal with terrorist financing after September 11. At that time 
the Department of the Treasury possessed more than 30,000 
enforcement personnel which are no longer at the Treasury. Part 
have gone off to the Department of Homeland Security, part to 
the Department of Justice. While Treasury continues to have 
responsibility for the economic sanctions programs and the Bank 
Secrecy Act, many are raising questions about whether it 
possesses, or is seeking, the resources necessary to manage and 
effectively carry out those programs. So we need a realistic 
assessment of Treasury's capabilities, its problems, and its 
future plans in this area.
    Mr. Chairman, as you will recall, during the course of last 
week's hearings on the condition of the banking system, I 
expressed concern that the Nation's bank regulators were not 
giving a sufficient priority to enforcement of the rules 
designed to prevent money laundering and terror financing.
    I am concerned why it has taken so long to expose some of 
the problems which have appeared now in the daily press and we 
are quite concerned about what other money laundering problems 
may be lurking in the system that our regulators have failed to 
detect.
    Coming back to the issue of the importance of Treasury 
meeting its lead responsibilities in this area. My concern is 
that there is a mismatch now with the movement of this 
investigative and enforcement personnel out of Treasury and 
into the other departments, with respect to Treasury's capacity 
to carry out its responsibilities.
    Thank you very much.
    Chairman Shelby. Senator Bennett.

             COMMENTS OF SENATOR ROBERT F. BENNETT

    Senator Bennett. Thank you, Mr. Chairman.
    The war on terror is primarily an intelligence war, and we 
traditionally think of the CIA, NSA, and other intelligence 
agencies as they look for the bad guys, trying to figure out 
where they are hiding and where we can apply military power or 
law enforcement in the form of arrests and so on. But the 
intelligence challenge to follow the money is equally as 
daunting as it is important. So, I commend you for this series 
of hearings on this issue and look forward to what Secretary 
Bodman might be able to tell us with respect to how we are 
doing in disrupting the money flow and what kind of 
intelligence network we have in place that can work on that.
    Thank you very much.
    Chairman Shelby. Senator Dole.

               COMMENTS OF SENATOR ELIZABETH DOLE

    Senator Dole. Mr. Chairman, I thank you for holding this 
hearing today on such a timely subject. I just want to welcome 
all of the witnesses today and thank them for coming. I am sure 
we will benefit from their knowledge.
    Thank you.
    Chairman Shelby. Senator Allard.

                COMMENTS OF SENATOR WAYNE ALLARD

    Senator Allard. Thank you, Mr. Chairman, for holding the 
hearing, and look forward to hearing from the witnesses.
    We have had a couple of hearings already on this. We had 
them last fall. Looking forward to hearing what the comments 
are today, and carefully reviewing how we are doing.
    We had a new Deputy Secretary I think that was created for 
that position, and seeing how things are going with that 
position.
    So, Mr. Chairman, I just look forward to the hearing. Thank 
you for holding it.
    Chairman Shelby. Secretary Bodman, welcome to the 
Committee. Your written testimony, which we have reviewed, will 
be made part of the record in its entirety. You proceed as you 
wish.

                 STATEMENT OF SAMUEL W. BODMAN

       DEPUTY SECRETARY, U.S. DEPARTMENT OF THE TREASURY

    Mr. Bodman. Thank you very much, Chairman Shelby, Senator 
Sarbanes, and distinguished Senators.
    I am very pleased to be here to testify on behalf of 
Treasury, and with particular note as to its role in the 
international war against terrorist financing and financial 
crimes.
    Ever since September 11, 2001, all of us have been made 
acutely aware that dirty money, tainted financial flows, can 
corrupt our financial system, as the Chairman has already 
alluded to. It can also threaten lives and incite economic and 
political instability around the world.
    President Bush has said that we are engaged in a global war 
against terrorism that must be fought simultaneously on a 
number of fronts and with unwavering determination.
    I have been at the Treasury for about 2 months, having 
arrived in mid-February, and it is already in that short period 
of time clear to me that the people of this Department are well 
positioned to continue to make a significant and an important 
contribution to this challenge.
    We have broad authorities. We have expertise in the 
financial area, and as importantly as these things, we have a 
cadre, as the Chairman has already mentioned, of very dedicated 
and diligent individuals, some of whom are here with me and 
will be on the subsequent panel, and I want you to know that I 
am very proud to be here representing them and their people for 
the fine work that they have done. They, along with countless 
others in the U.S. Government, are fighting the financial war 
on terror and are working to protect the integrity of our 
financial system.
    I have submitted written testimony, as has been mentioned, 
and that written testimony focuses much attention on the very 
significant efforts of the Treasury Department and the work 
that these people have done over the last year. As I understand 
it coming here today, however, the Members of this Committee 
are particularly interested in not so much the past but the 
future, and hearing about the establishment of the new Office 
of Terrorism and Financial Intelligence. So, I will focus my 
oral comments on that subject.
    We have a very real and concrete set of successes in 
fighting this war, but as the recent bombings in Madrid and 
Riyadh have demonstrated, our work must continue at full force. 
Our enemies are resourceful, dedicated, and they continually 
adapt to a changing environment. We must do the same. We must 
change even more rapidly, as the Chairman has suggested, and we 
must use every tool at our disposal.
    We also recognize, unfortunately, that we are in this fight 
for the long-term, and so the Department must be organized to 
reflect that reality. This is precisely why the Administration 
has cooperated with Congress to develop a new Treasury 
structure, and for us anyway, a very high-profile office led by 
an Under Secretary, one of only three in the Department. That 
is assuming this gentleman is confirmed by the Senate. He will 
be joined by two Assistant Secretaries. This office will bring 
together Treasury's intelligence, regulatory, law enforcement, 
sanctions, and policy components all in one place.
    I want to note at the outset the important contributions 
made by the Chairman and the Ranking Member of this Committee 
which resulted in an exchange of letters with Secretary Snow 
that was alluded to at the end of last year, and I also want to 
thank Congress for establishing this new Assistant Secretary 
for Intelligence position. As you will hear momentarily, I 
believe this will be a very important part of this program.
    On March 8, 2004, Treasury formally announced the creation 
of the Office of Terrorism and Financial Intelligence, so-
called TFI. On March 10, the President announced that he would 
nominate Stuart Levey, who is currently the Principal Associate 
Deputy Assistant Attorney General, and Stuart has been 
nominated for the Under Secretary, for the leadership position 
of this Department. The President also nominated Juan Zarate, 
currently a Deputy Assistant Secretary at Treasury, for one of 
the two Assistant Secretary positions. Their nominations have 
been transmitted to the Senate.
    I can tell you on a personal level, both Secretary Snow and 
I can express to you the utmost confidence in these 
individuals, in their ability, their dedication, and integrity. 
We believe that they will be the kind of people you will be 
proud to work with.
    We are working diligently to identify the most qualified 
individual to serve as the Assistant Secretary for 
Intelligence. We have not yet found the right person, at least 
in a formal way. We are still conducting interviews at a 
regular level. In the meantime, however, we have appointed a 
very capable Deputy Assistant Secretary in order to get this 
office up and running.
    The creation of TFI will augment Treasury's efforts in 
several ways. First, it will allow us to better develop and 
target our intelligence analysis and financial data to detect 
how terrorists are exploiting the financial system and to 
design methods to stop them. Second, it will allow us to better 
coordinate an aggressive enforcement program, including the use 
of important new tools that the USA PATRIOT Act gave to 
Treasury. Third, it will help strengthen our international 
coalition and intensify outreach to our counterparts in other 
countries. Fourth, it will ensure accountability and help 
achieve results for this essential mission.
    TFI will have two major components. One Assistant Secretary 
will lead the Office of Terrorist Financing. This office will 
build on the functions that have been under way over the past 
year. In essence, this will be policy and outreach apparatus 
for the Treasury Department on the issues of terrorist 
financing, money laundering, financial crime, and sanctions 
issues. This office will help lead and integrate the important 
functions which have been carried out very ably by both OFAC 
and FinCEN. If you will, this will be the operating part of 
this office.
    The office will continue to assist in developing, 
organizing, and implementing U.S. Government strategies to 
combat these issues of concern, both internationally and 
domestically. It will require increased coordination with other 
elements of the U.S. Government including law enforcement and 
regulatory agencies. The office will continue to represent the 
United States at international bodies dedicated to fighting 
terrorist financing and financial crime such as the Financial 
Action Task Force, and will increase our multilateral and 
bilateral efforts in this field. They will this office to 
create global solutions to these evolving international 
problems. In this regard, we will have a more vigorous role in 
the implementation of measures that can affect the behavior of 
rogue actors abroad.
    Domestically, this office will be charged with continuing 
to develop and implement money laundering strategies, as well 
as other policies and programs to fight financial crimes. It 
will continue to develop and help implement policies and 
regulations in support of the Bank Secrecy Act and the USA 
PATRIOT Act. We will further increase our interaction with 
Federal law enforcement and continue to work closely with 
criminal investigators at the IRS, including integration of 
their lead development centers. In doing so we will deal with 
emerging domestic and international financial crimes of 
concern. Finally, this office will serve as a primary outreach 
body to the private sector and other stakeholders to ensure 
that we are maximizing the effectiveness of our efforts.
    A second Assistant Secretary will lead the Office of 
Intelligence and Analysis. In determining the structure of OIA, 
as we are now calling it, we first focused on meeting our 
urgent short-term needs. We have assembled a team of analysts 
to closely monitor and review current intelligence threat 
reporting. These analysts, who are sitting together in secure 
space in the main Treasury building, are ensuring that Treasury 
can track terrorist financial flows or other threats, and then 
see to it that appropriate action is taken to counter those 
threats.
    In the near-term, the Department plans to further develop 
our analytical capability in untapped areas such as strategic 
targeting of terrorist financial networks. We also plan to 
analyze trends and patterns and nontraditional targets such a 
hawalas and couriers. In order to accomplish these goals, we 
plan to hire several new analysts as well as to draw on 
additional resources from OFAC and FinCEN. In addition, 
enhancing our working relationships with other agencies will be 
a key job for the new Assistant Secretary.
    Overall, it is critical that this new office focus on 
filling any gaps in intelligence targets and on adding value 
and expertise, not on duplicating the efforts of other Federal 
agencies. We should continue to, among other things, identify 
and attack the financial infrastructure of terrorist groups. We 
should identify and address vulnerabilities in domestic and 
international financial systems and promote stronger 
partnerships with the private sector and other governments by 
sharing more complete and timely information.
    We are currently confronting the question of staffing and 
funding for TFI. As Secretary Snow wrote in an April 16 letter 
to the Members of Congress, President Bush has proposed 
significant spending increases in this area in his fiscal year 
2005 budget. The Secretary also stated that the Department 
would use currently appropriated fiscal year 2004 resources to 
ensure that TFI has the necessary resources to staff the new 
offices and bolster existing functions.
    Regarding 2004 specifically, we believe that through a 
combination of prudent and targeted use of resources, Treasury 
will spend up to an additional $2 million and bring on board up 
to 15 new personnel during the balance of this current fiscal 
year.
    Looking forward to next year, we have not yet made firm 
decisions about the budget for the new office. We will evaluate 
our needs and we are prepared to make the hard decisions on how 
to allocate our limited resources from other parts of the 
Department as those are required in this very important task.
    Fighting the war on terror is a top priority for this 
President and this Department, and we will spend whatever we 
need to carry out our duties in a responsible manner. 
Throughout this process we will continue to seek the input and 
advice from Congress and from this Committee.
    I thank you, Mr. Chairman, for the opportunity to be here. 
I look forward to your comments and questions. I see this 
hearing as a continuation of an ongoing dialogue with this 
Committee, and I appreciate being here.
    Thank you so very much.
    Chairman Shelby. Thank you, Mr. Secretary.
    Mr. Secretary, as your statement points out, the Department 
of the Treasury has, by virtue of its history and its 
expertise, a central role in investigating terrorist finance 
issues. The establishment of the new positions of Under 
Secretary for Enforcement, Assistant Secretary for Intelligence 
and Analysis, and Assistant Secretary for Terrorist Financing 
and Financial Crimes, will presumably further bolster or cement 
that role.
    However, there is a little confusion regarding the broader 
U.S. Government structure for identifying, tracking, and 
seizing funds destined for terrorist organizations. In May 
2003, about a year ago, the Attorney General of the United 
States and the Secretary of Homeland Security concluded a 
memorandum of understanding that designated the FBI as the 
Nation's lead agency responsible for investigating terrorist 
financing. Obviously, absent from the signature blocks on that 
memorandum is a representative from the Department of the 
Treasury.
    Could you tell the Committee how the Department of Treasury 
views the broader U.S. Government structure for investigating 
terrorist financing, and fully aware of the FBI-led Joint 
Terrorism Task Force, which ostensibly brings together all 
relevant Federal agencies, but I am not confident that a key 
player, the Department you represent, is well integrated into 
that broader structure as it should be, and I am far from 
comfortable with the memorandum of understanding purportedly 
designating a lead agency without the concurrence of your 
agency that above all possesses the skills and the personnel 
that is crucial to our overall effort.
    Could you respond to that observation?
    Mr. Bodman. Yes, sir.
    Chairman Shelby. Where were you all on that memorandum of 
understanding?
    Mr. Bodman. I cannot speak to the memorandum of 
understanding, sir.
    Chairman Shelby. You were not there.
    Mr. Bodman. I was not there, but I can tell you that this 
Department and the people of the Department are quite 
comfortable with their relationship with the FBI.
    Chairman Shelby. There is a difference between being 
comfortable and being at the table, is there not?
    Mr. Bodman. Yes, sir. We are at the table, sir, in the 
following sense. We view the FBI as having the lead in the 
Government, we do not quibble with it, with respect to the 
enforcement of terrorist finance activities. We are comfortable 
with that. We work very closely with them. Particularly, you 
will hear from Ms. Jardini later on in the second panel, that 
the IRS has had for some years a memorandum of understanding of 
working with the FBI. We work with them in a series of task 
forces, terrorist task forces, joint terrorist task forces, one 
in each U.S. Attorney's Office throughout the United States. We 
have also had similar relationships of working with the FBI 
specifically in Saudi Arabia, on working with issues related to 
the Saudis' response to September 11 and to the terrorist 
crimes that are reflected therein.
    This is an example, Mr. Chairman, of the approach that we 
have taken, which is to seek to leverage to put the requisite 
organization in place within Treasury to take advantage of the 
unique skills and knowledge of Treasury in the financial area. 
That is really what this Department is all about, finance and 
financial matters, and to leverage the relationship both within 
the Department, which is within the IRS and Criminal 
Investigation Unit as well as outside, whether it is with the 
intelligence community, with the CIA, with the FBI, and with 
others, we believe we will be successful in the future in 
addressing the very problems you described at the opening of 
this hearing.
    Chairman Shelby. Mr. Secretary, your statement that has 
been made part of the record, indicates, ``Treasury has not 
made any final decisions regarding the staffing of the 
Intelligence Office.'' I have a number of little questions 
here.
    Is the establishment and operational status of the new 
office a high priority at Treasury? Is this statement limited 
to the Office of Intelligence and Analysis only? And if not, 
what are the decisions regarding the other offices? There is no 
request in the fiscal year 2005 budget. Why? Is an initiative 
really an initiative if there is no plan for allocation of 
resources and no request for resources? How can we view this as 
something other than a ruse?
    It is troubling to me because on the Appropriations 
Committee I sit as Chairman of the Appropriations over 
Treasury.
    Mr. Bodman. I am aware of that, sir.
    Chairman Shelby. We have reviewed the 2005 and we see no 
request there.
    Mr. Bodman. First, I appreciate the directness of your 
question, and if I may, will be equally direct in my answer.
    Chairman Shelby. Yes, sir.
    Mr. Bodman. As you are aware, I arrived on the scene in 
February, and on my arrival the Secretary asked me to give 
attention, priority in my attention to two areas. First was the 
setting up and operation of this office, the Office of 
Terrorist Financing. Second is the IRS. And I have, over the 
last 2 months, devoted not all of my time, because I have 
responsibilities for the entire Department and all of the 
bureaus that are attached thereto, which are significant in 
number, but I have given priority time. So it is a matter that 
I consider front and center, and that is why I am the one here 
speaking to you today about this. This is a matter that I pay a 
lot of attention to. I do have some record of accomplishment 
prior to my arrival here, some record at the Commerce 
Department, which I believe is why I was asked to come over to 
the Treasury, which was lacking some leadership.
    Chairman Shelby. But, sir, is this a real priority is my 
real question, and if not, why not?
    Mr. Bodman. Sir, I am telling you that they were the two 
priorities that the Secretary asked me to do the first time I 
met him, and so that is comment one.
    Comment two, it is in my statement that the funding for 
this office has not been determined yet. That is a true 
statement. There are tough decisions to make with respect to 
what we will need to do internally and what budgetary support 
we will need to ask this Committee for, as we are working on 
the 2006 budget, for example, and I would like to have the 
people who are going to be responsible for managing this make 
those decisions, and Mr. Levey, Mr. Zarate, both of whom have 
been nominated, I am hopeful will be here on deck I hope with 
the support of the Members of this Committee to be confirmed 
within the next month. I am hopeful that will be the case, and 
that I will have the advantage of having the operating 
personnel, who are knowledgeable and expert in this field, make 
recommendations as to what they will need.
    I have made, and the Secretary, I must say, was the first 
to make the observation. I looked at it and I agreed with him, 
that the Department and the leadership of the Department is the 
recipient of a flow of information that comes from the 
intelligence community that describes to us various events, 
various things that are occurring in the world. We have 
observed that there was not a link that will develop a 
foolproof certainty that specific issues that flow from that 
information are followed up on, either inside the Department or 
outside the Department. So the first assignment of this 
Intelligence Office is to get on top of that flow of 
information and see to it that any specific issues is followed 
up on because of the urgency that you have already described. 
So we have done that. That is the first step. That it seemed to 
me needed to be done irrespective of other issues.
    The next issue that will be faced by the leadership of this 
organization, and I mean leaderships because there is more than 
one person involved in it, and I will certainly have a voice 
in, is to make judgments as to how do we properly integrate 
this intelligence activity, this new Intelligence Office with 
intelligence activities that are already under way, that are 
already a part of FinCEN, that are a part of OFAC, that are a 
part of the Executive Office of Terrorist Finance. Each of them 
have resources, have people who are very skilled. The idea is 
to find a way to integrate those.
    Chairman Shelby. Can you do that job? You should be able to 
do the job.
    Mr. Bodman. Yes, sir. I believe we can do that job, but 
rather than having the Deputy make the judgment as to how we 
are going to do the job, I want to hold those who will be in 
position so that I can hold them accountable. I would rather 
not create an organization, bring them in, put them in charge 
of it. My experience in these matters in the past is that one 
is better off, especially if I am going to have leadership here 
available in the next month or so. So that has been the 
attitude. That is why some of these judgments have not been 
made.
    Chairman Shelby. Mr. Secretary, I cannot assure you, but I 
can tell you there would be strong support, strong, strong 
support in the Appropriations Committee to fund the activities 
where we are dealing with terrorist financing because this is 
central to this fight.
    Mr. Bodman. Thank you, sir. I appreciate that.
    Chairman Shelby. Is it going to be one of your top 
priorities?
    Mr. Bodman. Yes, sir. I try to just express, sir, that it 
is.
    Chairman Shelby. Senator Sarbanes.
    Senator Sarbanes. Thank you, Mr. Chairman.
    Mr. Secretary, I want to follow along a path the Chairman 
touched on right at the beginning. Last Tuesday, Secretary Snow 
told the Appropriations Subcommittee that Treasury clearly has 
the lead to deal with activities that involve penetrating the 
financial system by terror financing and financial crime. 
However, you have lost tens of thousands of enforcement 
personnel since you were originally designated as the lead 
agency in the fight against terror financing.
    Secretary Ridge's website states that safeguarding the 
integrity of America's financial systems is a key part of 
Homeland Security. The Bureau of Immigration and Customs 
Enforcement, ICE, of the Department of Homeland Security, has 
undertaken an Operation Cornerstone, to prosecute and prevent 
money laundering. The FBI has been given control over 
investigations of terrorist financing in an agreement in which 
Treasury was not even mentioned. The Chairman referred to that. 
The FBI has created a special Terror Financing Operations 
Section, TFOS, which appears largely to duplicate the work of 
Treasury's FinCEN and OFAC offices. The CIA maintains its own 
Counterterrorist Asset Tracking Center.
    I have difficulty in seeing how Treasury is maintaining its 
lead on these issues. Who is the accountable person for efforts 
to use financial information to identify, disrupt the money 
flows of terrorist operations, and seize their funds? Is there 
an accountable person?
    Mr. Bodman. Yes, sir, I am.
    Senator Sarbanes. You are the accountable person.
    Mr. Bodman. Yes, sir.
    Senator Sarbanes. So that if there is another terrorist 
event and we discover there was financial information that 
might have provided clues ahead of time, that is to come on 
your doorstep?
    Mr. Bodman. Yes, sir.
    Senator Sarbanes. But you are not doing the investigating. 
I mean, as I understand it, you are sitting up here, and all 
the people below who would in effect be charged with doing 
these responsibilities are off somewhere else. Is that not 
correct?
    Mr. Bodman. No, that is not correct, sir. If I may try to 
respond?
    Senator Sarbanes. Yes.
    Mr. Bodman. You have identified other organizations, and 
let me just go back to the beginning. I see relatively little 
overlap with anything that is taking place at the Office of 
Homeland Security. I cannot speak to their website. I have not 
looked at that. I will attempt to look at that. I have alluded 
to our views vis-a-vis the FBI. I do not believe there is a 
problem with respect to our relationships with the FBI. I 
believe you will find that they have a high regard for the men 
and women who are undertaking the exact type of work that you 
describe. It has heretofore been undertaken by FinCEN, by OFAC, 
and, in the last year, by the Executive Office of Terrorist 
Financing, FinCEN having a responsibility for basically 
communication, assembling data, both publicly available data, 
as well as information coming from suspicious activity reports 
that are generated under the Bank Secrecy Act and the 
requirements thereof. That source of information is, in my 
view, unparalleled and it is not replicated elsewhere in the 
Government.
    For its part, OFAC has primary responsibility for managing 
the various sanctions programs of this Government. They have a 
significant number of people working on terrorist financing 
activities. I have been there. I have visited with them. I have 
seen the results of their work, and this Committee will hear 
from Mr. Newcomb and his colleagues later on I presume this 
afternoon.
    The Executive Office of Terrorist Finance focuses its 
efforts in relations with our international colleagues. They 
provided leadership for the Financial Action Task Force, which 
has--this is a group of 33 countries--through this task force 
and its staff, the goal of advising and ensuring that 
legislative and regulatory environments of other countries are 
at a level that they can detect and work toward the 
interdiction of financial flows of terrorist networks.
    Senator Sarbanes. Let me draw you back to focusing on the 
structure within our Government. There are those who, in a 
sense, said to our Committee or to some of us, that one of the 
greatest efficiencies in the antiterrorist financing effort is 
a failure to create a single financial information fusion 
center. We know from the September 11 Commission hearings and 
staff statements the need to break down barriers to joint 
analysis and sharing of information by working level experts, 
and between those experts and the policymakers. When I 
enumerated these various operations here, it seems to we are 
running the risk of recreating the stovepiping problem that has 
hampered antiterrorism efforts in the past, and of course the 
fusion center would be an effort to try to overcome that. I am 
interested in your views of such a fusion center for financial 
information.
    Let me just note that last September, Treasury General 
Counsel David Aufhauser told this Committee, ``Shortly after 
the attacks of September 11, the National Security Council 
established a Policy Coordinating Committee on terrorist 
financing, the PCC, to examine what the world of law 
enforcement and intelligence is learning about the sources and 
uses of terrorist financing, and most importantly, to decide 
the best way to go about exploiting the information that we 
know so that we can prevent another calamity.''
    Now, Mr. Aufhauser, then Treasury General Counsel, chaired 
the Policy Coordinating Committee of the National Security 
Council from October 2001 until November 2003. He told this 
Committee that it was an absolute necessity that the Treasury 
Department continue to chair the Policy Coordinating Committee. 
But it is my understanding that Treasury no longer does so, 
which of course again brings me back to this question of how 
are we pulling all of this together, and specifically, why does 
Treasury no longer chair the Policy Coordinating Committee?
    Mr. Bodman. Senator, if I may, you have asked two questions 
related to----
    Senator Sarbanes. Maybe even more, if one really parses 
what I said, yes.
    Mr. Bodman. At least two. I will start with those two, and 
then if I do not cover what you are interested in, sir, I will 
try to respond to you in some other way.
    First, as to the fusion center, that is really what this 
Office of Intelligence and Analysis is all about, is to have a 
centralized place within TFI that will serve as an integrating 
force, as a place wherein financial information can come and 
that can reach out within the intelligence community.
    The Treasury, in the past, I think it is fair to say, has 
not been viewed from the intelligence community as they look at 
the various activities within the Government. Treasury has not 
been looked at as a bastion of great knowledge in financial 
intelligence activity per se. There are isolated components 
where there is excellence that I think are recognized, but that 
is why we are working very hard to identify that the Assistant 
Secretary for Intelligence and Analysis is the kind of person 
that will have standing and that can attract not only people, 
but also knowledge, and be a center that will be something that 
all of us, including this Committee, can be proud of. That is 
what we are trying to create. Stuart Levy has been very active 
in that regard.
    Senator Sarbanes. Does all of the FBI's terror financial 
intelligence come into this office?
    Mr. Bodman. No, sir. What I can tell you, sir, is that we 
believe that we have a unique capability of integrating 
financial information and that we work very closely with the 
FBI. And I do not believe we are replicating anything that the 
FBI is doing. We have very close relationships with them and 
work closely with them.
    Senator Sarbanes. And what about the PCC?
    Mr. Bodman. As to the chairmanship of the PCC, I know and 
respect David Aufhauser. He is a very fine man. I do not agree 
with him with respect to the necessity of Treasury chairing 
that Committee, the PCC on Terrorist Financing is now chaired 
by a deputy in the National Security Council. One of my 
colleagues, Juan Zarate, sits on that Committee, meets with it. 
Juan is the person that oversees both FinCEN and OFAC, as well 
as the Executive Office for Terrorist Financing within 
Treasury, which have been the primary actors in pursuing the 
various specific goals and objectives that I have already 
alluded to.
    So he is involved with that, as well as with the so-called 
CSG, which is a counterterrorism group within the White House 
that is also chaired by the National Security Council, that 
meets by conference call every day and reviews activities from 
all parts of the Government related to terrorist financing, 
terrorism, generally, and with specific focus, on our part, on 
terrorist financing.
    Senator Sarbanes. Would that person not be the accountable 
person? When I asked the question earlier, who is the 
accountable person for efforts to use financial information, 
you said you were.
    Mr. Bodman. Yes, sir.
    Senator Sarbanes. But now I see that there is this National 
Security Council person, who is the Chair of the Policy 
Coordinating Committee on Terrorist Financing, and you have 
also just told us that everything comes in to them. Who is that 
person?
    Mr. Bodman. These are Committees that are chaired by the 
Deputy of the National Security Council that are responsible 
for managing terrorism generally, sir, and so that they deal 
with terrorism, generally. Our Treasury, for its part, focuses 
on and brings to the table, at the Committee meeting, the 
expertise in the financial aspects of terrorism.
    Senator Sarbanes. But I thought the Policy Coordinating 
Committee of the National Security Council was a Policy 
Coordinating Committee on Terrorist Financing not on terrorism, 
generally.
    Mr. Bodman. It is on terrorism, generally, sir. That is my 
understanding.
    Senator Sarbanes. I see I have exceeded my time.
    Thank you, Mr. Chairman.
    Chairman Shelby. Senator Allard.
    Senator Allard. Mr. Chairman, in my line of questioning, I 
would like to get down into the weeds even a little bit 
further. I would like to have a little clearer understanding of 
how these Suspicious Activity Reports are filed. And I wondered 
if you could just explain to me that process.
    Mr. Bodman. The Suspicious Activity Reports are reports 
that are issued subject to regulations that in turn have been 
issued by FinCEN in connection with that act. And each bank is 
required, when they observe transactions that have been 
delineated in the regulation--for example, very large cash 
transactions--that are either deposits or withdrawals that 
could be viewed as suspicious. And they are required to issue a 
Suspicious Activity Report, or SAR, to FinCEN under regulations 
that have been issued by them.
    That information then goes into a central system that 
collects the data, and therefore is available to analysts 
within FinCEN, and then part of FinCEN's job is to assemble 
that information and then to distribute it to appropriate, and 
make sure it is available for, appropriate agencies within the 
Government that have a use for it, whoever that may be. Largely 
law enforcement. So it would really be the FBI and other people 
that would have an interest in that.
    Senator Allard. Do you think that that is an effective 
system that is working for us? Talk a little bit about whether 
you think----
    Mr. Bodman. I cannot tell you that, personally, sir. I have 
talked to the people who are responsible for it. You will hear 
this afternoon from Mr. Fox, who is responsible for FinCEN, and 
he can speak to you about that. We have every reason to believe 
that, where we have a regulated industry, we rely on the 
regulators that are already there and have educated them. In 
this case, if it is a bank, it is the Office of the Comptroller 
of the Currency, if it is a National bank, a Federal bank, a 
Federally chartered bank. And the OCC is charged with the 
responsibility of making certain that there are controls in 
place, operating procedures in place, that will cause the 
reports that are required under law to be made.
    And based on my discussions with both the OCC people and 
the FinCEN people, this seems to be an obligation that they 
take quite seriously. They have trained their personnel, and 
that there are checks that they have put in place to make sure 
that that is ongoing. So, to that extent, I can certify that 
the people responsible for the organizations believe it and 
have implemented programs and policies that will see to it that 
we comply with the law.
    Senator Allard. Here is my concern. There are some unfiled 
suspicious transactions that have been reported and, to me, 
this is very disturbing. Now, how does that happen in a system 
that you just described?
    Mr. Bodman. The ones that you allude to, the ones that are 
in the newspaper, I really cannot comment on because that is 
matter of a continuing investigation that is going on. I can 
tell you that this Department takes very seriously the 
responsibility to see to it that the words that I just used in 
answering your question are true and that we do take it 
seriously.
    Senator Allard. You told me the regulators were doing their 
job.
    Mr. Bodman. And to the extent that they were not, we will 
find out. I will tell you that, sir. I do not have more that I 
can tell you on that until I know more.
    Senator Allard. Does this raise any flags, in your mind? Do 
we need to carefully review the whole system or do you think 
this is just one or two individuals in a particular bank?
    Mr. Bodman. I do not have an answer to that question, sir. 
And until they finish their investigation and do whatever they 
are going to do, I do not want to interfere with that, and I do 
not think it is appropriate----
    Senator Allard. I know you do not want to interfere with 
that particular investigation, and I understand that, but it 
seems to me that if I was in your shoes, I would want to know 
what is happening in the other banks, and if we have similar 
problems in other banks, and have you checked into that?
    Mr. Bodman. I have asked the question, sir.
    Senator Allard. And when do you expect a report back, an 
answer to that question?
    Mr. Bodman. I would gauge within the next couple of weeks 
or a month or so that I would have an answer to that question.
    Senator Allard. I think it would be helpful information for 
this Committee to have that.
    Chairman Shelby. Senator Allard, you are absolutely right.
    Senator Allard. As soon as you get that, I hope you can 
share that with us.
    Chairman Shelby. Share it with the Committee.
    Senator Allard. Share it with the Committee.
    Mr. Bodman. I would be happy to do that.
    Senator Allard. I see my time has expired. Thank you.
    Chairman Shelby. There will be another round. Thank you, 
Senator Allard.
    Mr. Secretary, the Banking Committee is very concerned, as 
you can tell from Senator Allard's questions, also Senator 
Sarbanes' questions leading up to this, the Riggs Bank 
situation. I am concerned that Riggs and other banks 
disregarded their responsibilities under the Bank Secrecy Act.
    I am concerned that Treasury's enforcement offices, as 
Senator Allard alluded to, the Office of the Comptroller of the 
Currency--OCC--and FinCEN were unable, Mr. Secretary, to 
determine that Riggs failed to file numerous Suspicious 
Activity Reports. This, I believe, is evidence of a regulatory 
system that does not function effectively.
    You are also aware that in the broader BSA--Bank Secrecy 
Act--enforcement context, FinCEN is responsible for many other 
financial services, entities, that have no other regulatory 
bodies looking at their operations. It is well-known that 
Western Union--yes, Western Union--was fined a total of $11 
million for its failure to comply with the Bank Secrecy Act 
requirements.
    Troubling is the fact--listen to this--that this failure 
was discovered not by Treasury, but by the New York State 
Attorney General's Office. The Mirage Casino case, in which it, 
too, was found to have seriously neglected its legal 
responsibilities with regard to the Bank Secrecy Act reporting 
requirements is further indication that something is seriously 
wrong.
    In light of the testimony we have previously heard here in 
the Banking Committee concerning the lack of enforcement agents 
at Treasury, how have you addressed--and if you have not, how 
will you address--the ability of these entities to actually 
enforce the Bank Secrecy Act? Because if you do not enforce the 
Bank Secrecy Act, if you do not get in the weeds, as Senator 
Allard mentioned with the suspicious activity, how are you 
going to fight this terrorist financing? How will this new 
office enhance the regulatory enforcement? And is not this 
regulation and enforcement at the heart of your responsibility 
at Treasury--yours, Secretary Snow, and others? Is it not 
central to your job?
    Mr. Bodman. Let me start at the end.
    Chairman Shelby. You are the Treasury.
    Mr. Bodman. Let me start at the end, and the answer is, 
yes. The answer to the last question is, yes. I have, in my 
time here, and Secretary Snow in his time on the job, have 
evaluated, I have been out to FinCEN, I have visited with the 
people there. I have looked at what they are doing, and I have 
been satisfied that the approaches that they are using are 
satisfactory.
    Chairman Shelby. What about the results? Now, the approach 
might be all right, but what about their performance?
    Mr. Bodman. The approach is very good. There are various 
ways to measure their performance, and there are large numbers 
of reports that come in from banks that comply. The question 
has got to be, when we have a failure, what is the cause of 
that failure? And as I have said, I am hopeful of getting an 
answer on two fronts; one, what happened with respect to that 
specific bank----
    Chairman Shelby. Absolutely.
    Mr. Bodman. --which we all deserve an answer on and, 
second, in general, as Senator Allard suggested, does this 
suggest that we have a weakness throughout the system that 
should be addressed? And it seems to me those are fair 
questions to ask.
    Chairman Shelby. Sir, let me ask you this question.
    Mr. Bodman. Yes, sir.
    Chairman Shelby. Was it the regulators, your regulators, 
the examiners, bank examiners, that got into the suspicious 
activity at Riggs and some other banks or was it the FBI that 
got them into it? Do you know the answer to that question?
    Mr. Bodman. Senator Shelby, I really cannot----
    Chairman Shelby. Can you answer that question?
    Mr. Bodman. No, sir, I cannot. I cannot comment on anything 
related to any specific bank while this investigation is going 
on.
    Chairman Shelby. The OCC will comment and tell us things.
    I would like to discuss two recent Treasury Inspector 
General reports. A recent Treasury Inspector General report 
noted that the IRS, Internal Revenue Service-run Detroit 
Computing Center had, and these are their words, ``adequately 
processed BSA, Bank Secrecy, BSA documents filed there.''
    I understand that all BSA, Bank Secrecy Act, documents are 
filed at the IRS Detroit facility and that FinCEN, which is 
under you, has complete access, but no control, over the 
facility. The Secretary has delegated the duties and 
responsibilities of the Bank Secrecy Act to FinCEN, yet FinCEN 
must rely on the IRS for the processing of the forms.
    I am also aware, we have been told here at the Committee, 
that the IRS's control of this facility is historical. In fact, 
in 2004, the IRS budget for the BSA--Bank Secrecy Act--programs 
was about $130 million. This is double FinCEN's entire budget.
    Another IG report has called for considerable improvements 
to be made in the Bank Secrecy Act compliance programs at the 
Internal Revenue Service. This IG report, sir, followed one 3 
years earlier calling for many of the same improvements 3 years 
ago. I have been informed that there have been only two cases 
referred for violation of the Bank Secrecy Act, and those have 
not been deemed worthy of enforcement action.
    If that is true, is it not time for the Department of the 
Treasury to look at BSA compliance as a priority? And, if not, 
why not?
    Mr. Bodman. First of all, I have been, as I mentioned 
earlier, I have been to FinCEN. I have heard their views vis-a-
vis their control over the Detroit operations that assembles 
the data. I have spoken to the IRS people about it--IRS, of 
course, being a part of Treasury as well.
    It is not obvious to me that a highly clerical data entry 
operation is something that necessarily should fall into the 
bailiwick of FinCEN. FinCEN is a highly intellectual resource, 
where we get the very best minds in the areas of systems, in 
the areas of the law relating to international finance in one 
place, and it is a very different kind of activity.
    I have not personally been to Detroit. It strikes me that 
there may well be a need for additional input, additional 
relationship in terms of how that system is carried out of 
having FinCEN personnel there----
    Chairman Shelby. But you do have a deep interest in how it 
is carried out, do you not?
    Mr. Bodman. I certainly do, sir. I had a deep interest 
before I walked in here this morning, and I now have a deeper 
interest.
    [Laughter.]
    So this is a matter, if you will, of management, of making 
certain that this function, this largely ministerial or 
clerical function, is carried out in a fashion that is 
satisfactory to the people who are using the data. That is the 
goal.
    Chairman Shelby. I understand, but it is Treasury. The IRS 
is under Treasury.
    Mr. Bodman. Yes, it is, sir.
    Chairman Shelby. FinCEN is part of Treasury.
    Mr. Bodman. Yes, sir.
    Chairman Shelby. So, I guess it begs the question why it 
has not, and if you have not considered it, you might want to 
consider----
    Mr. Bodman. Consider what, sir?
    Chairman Shelby. This. Why have you not thought about 
giving FinCEN complete control of the Bank Secrecy Act system, 
including the collection of the BSA, the Bank Secrecy data, 
thereby holding it accountable for the entire system, since it 
is all under the house of Treasury----
    Mr. Bodman. Yes, sir.
    Chairman Shelby. Just in different rooms.
    Mr. Bodman. Yes, sir.
    Chairman Shelby. Mr. Secretary, does it make sense to match 
FinCEN's responsibility given it by the Secretary of the 
Treasury with the authority to make it work properly and 
effectively. I mean, we are not talking about different 
agencies. We are talking about agencies within Treasury.
    Mr. Bodman. I understand, sir.
    Chairman Shelby. Or subagencies in Treasury.
    Mr. Bodman. My initial take of this--I have been here 2 
months, Senator----
    Chairman Shelby. I know that, and I am not directing all of 
this on your record at Treasury----
    Mr. Bodman. No, I am happy to have it on my record, but the 
initial goal, I have talked to the FinCEN people. You will hear 
from Mr. Fox this afternoon. I am sure you will ask him the 
same question. The nature of the day-to-day work that goes on 
in Detroit in assembling that information is very different 
than that which goes on at FinCEN. They also have, it is a very 
large data entry activity that happens to be located in 
Detroit. This activity was put there.
    It is not clear to me that we would be wise to separate out 
that activity from everything else going on there, where I have 
a management structure and a group of people who are used to 
doing that. But what is clear to me is that there is, at a 
minimum, a lack of feeling on the part of FinCEN that they have 
adequate input, that they have adequate control in this area 
for which they are ultimately responsible. And either we can 
get that and leave the activity in Detroit----
    Chairman Shelby. But you can change that internally, fast.
    Mr. Bodman. No, sir.
    Chairman Shelby. Why couldn't you? Both are under Treasury.
    Mr. Bodman. But it is an integrated operation. This is just 
part of what takes place in Detroit, and therefore splitting 
out that activity from everything else that goes on in Detroit 
would not be easy. I am not saying it could not be done, but it 
would not be easy, and it would be costly. And I only want to 
do that if we cannot solve the problem by putting, if you will, 
the customer in charge of understanding and dealing with how 
the work is done there. That is my first approach to that. It 
is something that I have started working on, and I will 
continue to work on.
    Chairman Shelby. I hope you will look at it very closely.
    Mr. Bodman. I will, sir.
    Chairman Shelby. We are aware of FinCEN's request to fund a 
new computer analysis tool----
    Mr. Bodman. Yes, sir.
    Chairman Shelby. Which it calls BSA Direct.
    Mr. Bodman. Yes, sir.
    Chairman Shelby. The Bank Secrecy Act Direct. It has been 
described as a mission-essential tool that will allow FinCEN to 
better analyze not only Suspicious Activity Reports, but also 
the relative frequency and quality of information.
    It appears to be a tool designed to alert FinCEN of 
irregularities in filing Suspicious Activity Reports that could 
prevent, hopefully, another Riggs Bank situation or a like 
situation, for example, the Mirage Casino's failure to file 
hundreds of Suspicious Activity Reports, yet this forward-
looking initiative has received, Mr. Secretary, only one-third 
of the necessary funding this year, despite the fact that the 
Treasury has the opportunity to fully fund it using the 
Treasury Forfeiture Fund. The 2005 funds have been earmarked, 
but once again only at a level of one-third of the funding 
necessary.
    Why has this initiative not been rewarded or funded and 
encouraged? Is this a mission that is essential, that we need 
it? And, if so, why would you request it in the 2005 budget? If 
you do, I believe there is an excellent chance you will get 
your money.
    Mr. Bodman. First of all, the request, as you have 
suggested, was funded to the extent I think $6 million were 
requested, and we funded $2 million of it. My understanding is 
that that was satisfactory to the people at FinCEN to get this 
project going, up and going, this fiscal year and that we will 
then be looking at that as we look on a going-forward basis.
    We agree that this is a very important system to be able to 
extract from the information or the data--it is not really 
information--the data that are collected in Detroit and to 
convert that data into information, and that is really what the 
goal is, and we agree that it is important.
    Chairman Shelby. Thank you.
    Senator Sarbanes.
    Senator Sarbanes. Mr. Chairman, The New York Times reported 
at the end of March, ``The Bush Administration has scuttled a 
plan to increase, by 50 percent, the number of criminal 
financial investigators working to disrupt the finances of Al 
Qaeda, HAMAS, and other terrorist organizations to save $12 
million.''
    What about this story? As I understand it, the IRS wanted 
increases of criminal financial investigators looking into 
terrorist financing. Did the Department delete that request or 
did the OMB delete the request? How did this happen? We have 
made this a high priority and yet we find that we are not 
providing the investigators to carry through on that.
    Mr. Bodman. Sir, I believe that article is misleading and 
wrong.
    Senator Sarbanes. Why don't you set the record straight?
    Mr. Bodman. I will do so, sir.
    Senator Sarbanes. Here is your opportunity.
    Mr. Bodman. Thank you, sir. When you have Ms. Jardini here 
this afternoon, you will have an opportunity to talk to her.
    Chairman Shelby. We hope this morning.
    Senator Sarbanes. Yes.
    Mr. Bodman. And so do I, sir.
    [Laughter.]
    Senator Sarbanes. You better watch those commitments, Mr. 
Secretary.
    Mr. Bodman. But you will have the opportunity to ask her 
what I asked her yesterday, and that is has there been any 
request from the Treasury and from those who are responsible 
for terrorist finance interdiction in the Treasury at the IRS 
that has been declined, and the answer was, no. You will find, 
I believe, when you talk with her, as I have done when I talked 
with her and with others in the IRS, that they have responded 
in every case when there has been a request for input and for 
knowledge.
    What they were attempting to do, and clearly when they do 
that, and they have given that a high priority, it is about 3.5 
percent of their workload. So it is not a matter that it is 
detracting in a meaningful way from everything that they do, 
that we have this rather what I consider to be awkward 
relationship of an advisory committee that, under the law, has 
access to certain budgetary information and requests that are 
made.
    And it is true that there was a request made, and when the 
final budgets were determined, the IRS was given what I think 
would be viewed, relative to virtually any other part of the 
civilian Government, of the nonterrorism-type Government, 
enormously favorable treatment, sir. Therefore, this was 
something that they had, that they had identified that they had 
spent the previous year that they were soliciting funds for, 
but it does not suggest that the people responsible for this 
activity, sir, are not making the investigators available to 
pursue these matters.
    Senator Sarbanes. Let me get the facts from you, if I can, 
and then we will put on the interpretation. I know you just 
made a major effort to ``put it in context,'' but was there a 
request or a plan on the part of the IRS to increase 
substantially the number of criminal financial investigators 
working on terrorism financing?
    Mr. Bodman. Senator, I have difficulty in dealing with 
anything that is not included in the President's budget, and 
what gets talked about and proposed I have difficulty in 
responding to.
    I can tell you that there was a request from the IRS 
seeking significant increases in the number of agents. There 
are currently, I think, 2,700, 2,800 agents in the Criminal 
Investigation Unit, and they requested an increase in that. 
They were given an increase in that. The increase next year I 
think, in the 2005 budget I think that has been asked for, is 
something like 400 additional agents on top of the 2,700 that 
were there. So they have been granted that, at least by the 
discussion that went on between them, Treasury and OMB, so that 
that has been granted.
    As to the specifics of how they will use those agents, all 
I can tell you, sir, is that heretofore they have not turned 
down any requests for making these agents available in dealing 
with terrorist financing matters.
    To the best of my knowledge, sir, those are the facts.
    Senator Sarbanes. I still do not have an answer to my 
question. Let me read from this article. ``The Internal Revenue 
Service had asked for 80 more criminal investigators, beginning 
in October, to join the 160 it has already assigned to 
penetrate the shadowy network that terrorist groups use to 
finance spots like the September 11 attacks and the recent 
train bombings in Madrid. The Bush Administration did not 
include them in the President's proposed budget for the 2005 
fiscal year.''
    I take it that is correct factually, is it not?
    Mr. Bodman. No, sir, I do not believe it is correct. The 
IRS asked for a substantial increase in the number of criminal 
investigators that, and they identified areas in which they 
could be utilized. They were granted, in the budgetary 
discussions that went on between the Department and OMB, 400 
new agents and 200 new analysts, 600 people on a total base--
the total number in the CI Unit is something like 4,300 in 
total, of which 2,700 are agents, I believe, are described as 
agents. Therefore, this is a very significant increase. And I 
expect that on an ongoing basis, that to the extent that our 
terrorist-financing colleagues need assistance from the CI 
Unit, they will get it.
    Therefore, it is my view this is a very high priority that 
this President has and that this Administration has and that 
the characterization of that article, in my judgment, sir, is 
wrong.
    Senator Sarbanes. You are just saying that they will get 
help from somewhere else, but you are not denying that their 
request for 80 additional investigators for the purpose of the 
terrorist financing was turned down.
    Mr. Bodman. Senator, I can only repeat what I know to be 
the facts, and I do believe that the implication of that 
article, which implies that this Administration has not been 
supportive of the need to interdict terrorist financing 
activities, is wrong, sir, in my opinion.
    Senator Sarbanes. Well, now, Zarate, the Deputy Assistant 
Treasury Secretary for Terrorist Financing said the following, 
``The IRS certainly had a clear vision of how they wanted to 
allocate the funds, but there is a clear balance that needs to 
happen in the IRS, where they have to balance terrorist 
financing investigations with other responsibilities like drug 
trafficking, and perhaps more important, enforcement of the tax 
laws.'' And he continued, ``The Administration has to keep its 
hands on the pulse of that balance.''
    Mr. Bodman. I cannot speak----
    Senator Sarbanes. Now, I understand that statement. That, 
in effect, says, Well, we turned them down, but we have to 
balance our responsibilities here, and we have other 
responsibilities, and so forth and so on. We have to deal with 
a budget.
    Now, I may disagree with that. I may say, Well, no, no. You 
should have given the terrorism portfolio a greater priority.
    But that statement seems to me to be pretty clear that this 
was turned down, and the justification is that, as he puts it, 
the Administration has the keep its hand on the pulse of that 
balance. Now, I may take the pulse and conclude that there 
should be a different balance, but I understand that argument.
    You are not suggesting there was something different than 
what your Deputy Assistant Treasury Secretary for Terrorist 
Financing was saying, are you?
    Mr. Bodman. Yes, I am, sir.
    Senator Sarbanes. I see.
    Mr. Bodman. I am saying that I think you will find, when 
you talk to Ms. Jardini, that there has not been a request that 
has been made by those responsible for pursuing the terrorists 
through financial means that has been turned down. It 
represents about 3.5 percent of their workload, sir, and it is 
given a very high priority, and they do it when they are asked.
    I have one more question.
    Chairman Shelby. Go ahead, sir.
    Senator Sarbanes. Last September, General Counsel Aufhauser 
told the Committee, ``We do not have auditors to ensure 
compliance with the USA PATRIOT Act. We do not have 
investigators to pursue the priorities of the National Money 
Laundering Strategy.''
    Do you have the auditor investigators now to ensure 
compliance with the USA PATRIOT Act and to pursue the 
priorities of the National Money Laundering Strategy?
    Mr. Bodman. We do not have those individuals that are 
members of the Treasury Department.
    Senator Sarbanes. Is there a plan to rebuild that force 
within the Treasury?
    Mr. Bodman. No, sir, at least not at this point because we 
believe that by reaching out to other agencies within the 
Government, rather than replicating it, and for example 
creating an entire new organization to regulate the banks and 
to be certain that the banks are complying with the Bank 
Secrecy Act, that would be an example. Senator Allard had asked 
that question before.
    You then get to the question do you put in a whole 
regulatory organization, thousands of people, presumably, that 
would be required to do that, or do you try to take advantage 
of people and operations that already exist within the 
Government and to build within that the capability of dealing 
with this problem?
    We have elected to pursue the latter.
    Senator Sarbanes. I guess the question that has been 
raised, and we are obviously not going to answer it here today, 
is whether, given that neither the auditors nor the 
investigators are under your umbrella, whether you should be 
the point person on terrorism finance and whether, when I put 
the question to you right at the beginning, we ought not to be 
exploring finding the accountable person somewhere else, where 
they are more closely related and directly responsible for the 
auditing and the investigating. That is the question.
    Mr. Bodman. I understand.
    Senator Sarbanes. It is all somewhere else, and of course 
others claim this responsibility and everything. It is all 
getting separated again. It is very clear in the September 11 
Commission hearings that you had nowhere where all of this was 
being brought together in one place and no responsible, 
accountable person.
    And of course a lot of the responsibilities have been 
shifted away from Treasury Department in the Department of 
Homeland Security reorganization, and the question then is 
whether the ultimate accountability should shift as well.
    Mr. Bodman. Senator Sarbanes, I can only say again, sir, 
what I said before, and that is I believe that the primary 
responsibility for pursuing financial terrorism or the 
financial support for terrorism throughout the world resides 
within the Treasury because we have unique knowledge in the 
financial area, sir.
    And the question is, it strikes me that, to me, a more fair 
question, if I could say so, sir, is how effective is the 
system working of relying on regulatory--we have regulatory 
capability now because within FinCEN, for example, we issue 
regulations, but how effective is the enforcement aspect of 
relying on the FBI and relying on others that are outside the 
traditional, that are outside Treasury?
    I believe, sir, based on my 2 and a half months of looking 
at this, that there is reason to believe that this is working.
    Senator Allard asked a very legitimate question, well, what 
about these one or two data points that we come up, are they 
reflective of a broader and more general problem? And that is 
something, it seems to me, we need to explore, which I have not 
done yet, and we will endeavor to do that in order to respond 
to you.
    But I do not believe there is any meaningful overlap in the 
financial area between Treasury, notwithstanding what a website 
says, sir, but in terms of what is going on, on the ground, and 
a very strong and capable group of men and women who work in 
FinCEN, who work in OFAC, who work in the executive office of 
the department related to terrorist financing.
    We have 600 people working who are very good, who have had 
a record of significant achievements----
    Senator Sarbanes. I am not casting any aspersions on the 
quality of your people.
    Mr. Chairman, let me just close this out with this 
observation. I am not so worried about the overlap. I am 
worried about the ``underlap.'' And earlier, in response to a 
question, you told me that Treasury did not get all of the 
FBI's terror financial intelligence. I perceive that to be an 
underlap, that the FBI is getting terror financial intelligence 
and all of it is not being passed on to what I am told is the 
accountable person or to the operation under the accountable 
person, and that gives me concern about underlap.
    Mr. Bodman. If I may, sir, I perhaps misunderstood the 
question. I thought you were asking did the FBI intelligence 
activity report to and were they a part of, intended to be part 
of this new intelligence office, and I said, no.
    As to whether there is available the output, the 
intelligence that comes from whatever the work that the FBI 
does, I do not know the answer to that, sir. It well could be--
there is a very good relationship--and it well could be that 
the information flows, and I would be happy to get back to you 
with information on that.
    But when you asked me the question before----
    Senator Sarbanes. You, by your own statement here today, 
are the accountable person.
    Mr. Bodman. Yes, sir.
    Senator Sarbanes. That is what you told me.
    Mr. Bodman. That is right, sir.
    Senator Sarbanes. And then I asked you, I thought, a pretty 
simple question, whether you get all of the FBI's terror 
financial intelligence, and now you are telling me you do not 
know.
    Mr. Bodman. I misunderstood your question, sir.
    Senator Sarbanes. No, no, no. You now put it in terms that 
you do not know whether you get it or not.
    Mr. Bodman. That is, in fact, correct, sir.
    Chairman Shelby. Senator Allard, thanks for your patience. 
I know you want to get back into this.
    Senator Allard. Getting back to where I was pursuing the 
Suspicious Activity Reports, how is that we are sure that the 
banks are following along? What procedures are in place to 
assure that they are following along as it applies to these 
Suspicious Activity Reports?
    Mr. Bodman. I have forgotten the frequency, Senator, but it 
is something like every year or every 15 months, depending on 
the bank. The Office of the Comptroller of the Currency visits 
and does an internal audit of the bank as a part of their 
normal cycle. They have been doing this for some time.
    And what we have done is to work with the OCC to 
incorporate into their audit program an audit of compliance 
with the Bank Secrecy Act. And so that the internal auditors, 
for example, of the bank would double check on that as a part 
of the normal day-to-day activity that goes on inside the bank.
    So that is what I was alluding to before. Rather than 
trying to create a whole other regulatory body that would just 
deal with the Bank Secrecy--with one law--we have attempted to 
use those investigators that are already there or those 
auditors that are already there and at work.
    Senator Allard. I would hope you do that. That makes sense.
    Mr. Bodman. We are trying to, sir.
    Senator Allard. But the question--I want to understand. So 
you have the internal auditors in the bank, and they are 
constantly doing their work at the bank.
    Mr. Bodman. Yes, they are intern--if I could correct, just 
to make sure I am clear--we have auditors that work for the 
Office of the Comptroller of the Currency. They work for the 
Government, and they visit on a periodic basis----
    Senator Allard. A year or----
    Mr. Bodman. A year or 18 months I think depending on the 
size of the bank. Sometimes I think they actually are there and 
officed within the bank, depending on the circumstances. In 
addition to that, I think all large organizations have internal 
audit staffs that between times make sure that various internal 
controls of all sorts are being pursued, and that whatever the 
standards are that the board of directors or others set are 
being adhered to.
    Senator Allard. And so when the OCC auditor shows up in a 
year or 2 months, they are prepared to explain to them that 
they have done the procedures, I mean, if I understand this 
correctly.
    Mr. Bodman. That, in the hopes of now those who run these 
institutions, is how it should work. But clearly it has not 
always worked effectively based on some of the examples that 
have been given.
    Senator Allard. The internal auditors then are employees of 
the banks?
    Mr. Bodman. Yes, sir.
    Senator Allard. And since this is a new program, the 
question I have is: Do you think that perhaps maybe we need to 
have a more frequent review of what is happening as far as this 
particular program that is being put in place? Then once you 
get it established, maybe you will get back to us?
    Mr. Bodman. Yes. Any number of things could be. I think it 
is fair to say we have a weakness, or at least a potential 
weakness in the system that needs to be investigated. And that 
is what I have committed to this Committee to do, and I will 
endeavor to report back to you once I have done that.
    Senator Allard. You do not think the problem is lack of 
enforcement power of the bank regulators, is it?
    Mr. Bodman. No, sir.
    Senator Allard. We do not need more laws to enforce that or 
anything. It is just a matter of just following through.
    Mr. Bodman. For example, on the banks, I mean, I can assure 
you that the bank that you referred to before has had a regular 
visit from its regulatory body. It is not just OCC. It is the 
Office of Thrift Supervision and other regulators that we have 
worked with to train up their professional staffs to be able to 
undertake these audits.
    Senator Allard. I understand your efficiency. The question 
is, you know, terrorists account--there are a lot of things 
that can happen in a year. In a year and a half, a lot of 
things can happen. And considering the priority of that, we 
need to make sure, at least initially, with the times that we 
have just gone through that we do not wait a year or maybe a 
year and a half before that is discovered. I think in many 
cases that has to be picked up much quicker than that, most 
cases that I think of, at least. And I just think that that 
needs a little bit of review, and I hope that you do that.
    My final question is: Suppose we find a Government auditor 
or something who did not do the job. Then what happens to that 
individual, a Government employee, what happens to that 
individual?
    Mr. Bodman. There are procedures for dealing with 
Government employees who fail that I am sure you are probably 
more familiar with than I. They are disciplined as a first 
level, and to the extent that there is then a follow-up as to 
whether or not they have responded to discipline, after which 
they are presumably relieved of their duties.
    Senator Allard. My experience has been that lots of times, 
because they are so protected, when you have somebody that 
doesn't do their job, it is difficult to discipline them and 
dismiss them in some cases. You cannot do it. And, you know, if 
you run into a situation where you are--this is important 
enforcement. It has to be done. We have to make sure people are 
doing it and doing it properly. If you run into this problem, I 
would like to know about that, because, you know, in the past I 
have run across instances where we have Federal employees in 
the civil service system that have not done their jobs, and 
they do not get dismissed from the jobs. In some cases, they 
get a promotion.
    If that is there, I hope that this Committee can learn that 
and respond appropriately if you need some power in that 
regard, too. You know, we are not always talking about 
regulating of the bank. There is also a responsibility on the 
Government employee to make sure they do their job, and I just 
want to make sure we have a proper balance here.
    Mr. Bodman. Thank you, sir. I appreciate knowing that I 
will have that kind of support, and I can assure you I will 
take advantage of it, if the need arises.
    Chairman Shelby. Mr. Secretary, I know you will probably 
see Secretary Snow before we do, and we have him before one of 
our Committees from time to time. But, again, it is troubling 
to some of us up here about that May 2003 Memorandum of 
Understanding between Homeland Security and the FBI. And 
Treasury was not party to that, yet Treasury is the logical 
agency to deal with terrorist financing, because I do not know 
how Homeland Security is going to deal with it without 
Treasury. I do not know how the FBI is going to deal with it 
without Treasury.
    So, I hope that the Secretary would revisit that issue, 
because I do not believe that Homeland Security and the FBI, 
without Treasury playing the central role, can win that war.
    Mr. Bodman. Yes, sir. First of all, you may be sure that 
the Secretary will hear that, among other things that have been 
raised this morning. So you can be certain of that.
    I would observe, as I did before, that at least it is my 
understanding--and I will double-check this--that that 
Memorandum of Understanding focuses on enforcement and not the 
issue of intelligence and of the issuing of regulations.
    Chairman Shelby. I think you need to revisit it in some 
way, but make sure that we understand that you are not left out 
of something that is central to Treasury and central to this 
fight against terrorism.
    Mr. Bodman. You have made that very clear. Thank you.
    Chairman Shelby. Mr. Secretary, we appreciate you coming 
here today. We are going to have a second panel, and as you 
alluded to earlier, we might be here in the afternoon. Thank 
you very much.
    Mr. Bodman. All right. I did not mean to push that on you, 
sir.
    Chairman Shelby. You pushed it. Thank you a lot. We 
appreciate your appearance.
    Chairman Shelby. Our second panel will be Mr. William J. 
Fox, Director, Financial Crimes Enforcement Network, Department 
of the Treasury; Mr. Richard Newcomb, Director, Office of 
Foreign Assets Control, Department of the Treasury; and Ms. 
Nancy Jardini, Chief of Criminal Investigation, Internal 
Revenue Service. These are all very important positions, and we 
appreciate their patience in waiting here all morning to 
testify before the Committee.
    As I said earlier, the written testimony of all three of 
you will be made part of the record in its entirety, and we 
will go from there. I do want to say a few things about the 
panel, if I could.
    Mr. Fox became the fourth Director of FinCEN in December 1, 
2003. Prior to his appointment as FinCEN's Director, Mr. Fox 
served as Treasury's Associate Deputy General Counsel and 
Acting Deputy General Counsel since September 11, 2001. He also 
served as a Principal Assistant and Senior Adviser to 
Treasury's General Counsel on issues relating to terrorist 
financing and financial crimes. You bring a lot of experience 
here. Mr. Fox has served at the Bureau of Alcohol, Tobacco, and 
Firearms, first as an attorney in the ATF's Tobacco and 
Firearms--first as an attorney in the Chicago office, then as a 
Senior Counsel for Alcohol and Tobacco, and finally ATF's 
Deputy Chief Counsel.
    Ms. Nancy Jardini brings a great deal of experience here, 
too. She has been the Chief of Criminal Investigations at the 
Internal Revenue Service since January 9, 2004. Before that, 
she was the Deputy Chief of Criminal Investigations, a lot of 
experience.
    Ms. Jardini, I want to note this: You are the first woman 
to hold both these posts. That is a milestone.
    She came to the IRS from the Criminal Division of the 
Justice Department. She has been a lifelong Federal prosecutor 
and defense attorney.
    Mr. Rick Newcomb is Director of the Office of Foreign 
Assets Control, and we welcome all three of you here today.
    As I said, again, your written testimony will be made part 
of the record. I do want to say just a little more about Mr. 
Newcomb.
    He has held this position since 1989. We are familiar with 
him. As such, he has been at the forefront of the Nation's 
effort in combating financial crime, enforcing sanctions on 
foreign persons, states, and other entities for many years. 
Prior to assuming his current position, he served the 
Department in other capacities, including trade and customs. 
Before joining Treasury, he served as Special Assistant to the 
Administrator of the Law Enforcement Assistance Administration 
in the Department of Justice.
    You all bring distinguished backgrounds to this Committee. 
Thank you a lot for your jobs.
    Mr. Fox, you may proceed as you wish. As I said, your 
statements will be made part of the Banking Committee hearing 
record.

                  STATEMENT OF WILLIAM J. FOX

         DIRECTOR, FINANCIAL CRIMES ENFORCEMENT NETWORK

                U.S. DEPARTMENT OF THE TREASURY

    Mr. Fox. Thank you very much, Mr. Chairman.
    Chairman Shelby, Senator Sarbanes, and distinguished 
Members of this Committee, I would like to thank you for the 
opportunity to appear before you to discuss our vision for the 
Financial Crimes Enforcement Network. This is my first 
opportunity to testify before the Congress, and I consider it a 
great honor to be here, sir.
    I have an extended statement which we submitted for the 
record, and thank you. I will keep these remarks very brief.
    I wish to thank the Committee for the leadership that it 
has provided to the country on issues related to terrorist 
financing and financial crime throughout the past years. I 
would particularly like to acknowledge the work of your staff, 
which has really been outstanding for us, and we appreciate it 
very much. It is a terrific staff to deal with.
    I also wish to acknowledge you colleagues on this panel. I 
am honored to appear with Rick and Nancy. I have worked very, 
very closely with Rick particularly over the last 3 years on 
issues related to terrorist financing, and I applaud the 
substantial contribution that OFAC has made on these issues 
under his leadership.
    I do not know Nancy as well as I know Rick, but I am keenly 
aware of the good work of her agents. In an earlier part of my 
career, when I was working very closely with U.S. Attorney's 
Offices around the country, there was always one uniform rule 
from district to district--no matter which agency brought the 
case--if it was financial and its complex, you called IRS-CID. 
Based on what I know of Nancy, I am absolutely certain that 
will continue.
    As you mentioned, Mr. Chairman, I was appointed to be 
FinCEN's fourth Director in December 2003. Before coming to 
FinCEN, I was a principal assistant to David Aufhauser at 
Treasury while he led the Treasury Department and, frankly, the 
Government on issues relating to the financing of terror. 
Working with David, I quickly gained a very keen appreciation 
for the importance of what has been referred to as the 
financial front of the war against terrorism. I think that 
importance can be stated quite simply: Money does not lie.
    A good part of the time, financial intelligence ``is'' 
actionable intelligence. It can be extremely useful for 
identifying, locating, and capturing terrorists and defining 
their networks. And perhaps just as important, financial 
intelligence can lead to effective, strategic action that stops 
or disrupts the flow of money to terrorists and their networks, 
which in turn serves to halt or impede terrorist operations.
    Let me submit to you, Mr. Chairman, that the Financial 
Crimes Enforcement Network is right in the middle of these two 
aspects of exploiting financial information. We have been 
learning about, understanding, and exploiting financial 
information for 14 years. My job is clear: To lead FinCEN in a 
direction that ensures that we are the gold standard when it 
comes to understanding, analyzing, and employing financial 
information to combat terrorism and financial crime.
    Let me tell you what I have found in my first 150 days on 
the job. I have found an agency populated with highly motivated 
employees with diverse, and in many ways, specialized talents 
and skills who are very dedicated to FinCEN and its mission. I 
have found an agency that is a responsive service provider to 
law enforcement, an agency that is doing a great deal of very 
good work, work that makes a difference in financial 
investigations around the country. This is all very good news. 
But I have also found an agency that is facing many significant 
challenges. Whether FinCEN can rise to meet these challenges 
will determine whether it can be the gold standard that it 
needs to be. To meet these challenges, we are going to need the 
help of the Treasury Department, the Administration, and the 
Congress.
    Let me highlight a few specifics. The most important and 
fundamental challenge facing FinCEN, in my view, relates to the 
security and dissemination of the data that we have been 
charged to safeguard, the data collected under the Bank Secrecy 
Act. If FinCEN does nothing else, it must ensure that this data 
is properly collected, is kept secure, and is appropriately, 
efficiently, and securely disseminated. This is FinCEN's core 
responsibility. We believe our BSA Direct project, which you 
have alluded to earlier and which is discussed at length in my 
statement, will help address these issues.
    Nearly as important is that FinCEN must enhance its 
analytic capabilities. What we have found is that the analytic 
work at FinCEN has been focused a little too much on data 
retrieval and reporting at the expense of sophisticated 
analysis that, in my view, should be done given the unique 
window FinCEN has on information flowing through its 
regulatory, law enforcement, intelligence, and international 
platforms. I hold myself accountable for reengineering FinCEN's 
analytic talent to ensure that its analytic products are, in 
fact, at a level of sophistication that contributes better to 
the broader goals of the Government in combating terrorist 
financing and money laundering.
    We must also ensure a more effective administration of the 
regulatory regime promulgated under the Bank Secrecy Act, which 
is critical to safeguarding our financial system from abuse 
from terrorists and criminals. We need to work more closely 
with the financial institutions that we regulate. We need to 
work closer and better with our partners, the bank regulators 
and the IRS, to design efficient and effective programs that 
will ensure compliance, programs that are focused on bad actors 
and not programs that demand compliance for compliance's sake.
    Our goals in this arena are simple: To collect more 
relevant and useful data and to enhance the anti-money 
laundering programs established by the regulated community.
    Last, but not least, FinCEN needs to take greater advantage 
of the international network that it helped create nearly 10 
years ago. We must move toward a more robust relationship with 
the members of the Egmont Group to collaborate together to 
proactively contribute in more creative ways to the 
international conversation on the financing of terrorist and 
money laundering.
    These, Mr. Chairman, are some of the more important 
challenges facing FinCEN today. I think you should hold me 
accountable for meeting these challenges and for making FinCEN 
the gold standard for financial intelligence. I am very excited 
about the new leadership at the Treasury Department. Already 
Deputy Secretary Bodman has engaged in these issues in a real 
way and is dedicated to helping us meet these challenges. With 
the help of the Treasury and the Congress, I am confident that 
we can meet the challenges and truly make FinCEN what it should 
be.
    Mr. Chairman, I appreciate the opportunity you have given 
me to discuss these issues with you here today, and I look 
forward to working closely with you and your staff as we rise 
to meet these challenges.
    I will be happy to answer any questions that you may have.
    Chairman Shelby. Mr. Newcomb.

                STATEMENT OF R. RICHARD NEWCOMB

           DIRECTOR, OFFICE OF FOREIGN ASSETS CONTROL

                U.S. DEPARTMENT OF THE TREASURY

    Mr. Newcomb. Thank you, Mr. Chairman. I deeply appreciate 
the opportunity to testify. The work of the Office of Foreign 
Assets Control and our efforts to combat terrorist support 
networks form an important part of the Treasury and our 
Government's national security mission. It is indeed a pleasure 
to be here with you today and with my distinguished colleagues 
on the panel, with whom we have worked very closely on a day-
to-day basis, and to discuss the new office and the role in 
these areas.
    I also want to take a moment to compliment your staff and 
the good working relationship that we have developed in this 
hearing and other long-term endeavors that we have had ongoing. 
I want to discuss briefly our core mission and then talk 
specifically about terrorist financing.
    At OFAC, we administer and enforce economic sanctions and 
embargo programs against targeted foreign governments, groups, 
and individuals, including terrorists and terrorist 
organizations and narcotics traffickers, which pose a threat to 
the national security, foreign policy, and economy of the 
United States. We act under the general Presidential wartime 
and national emergency powers, as well as specific legislation, 
to prohibit, that is, block or freeze transactions and freeze 
assets subject to U.S. jurisdiction. Economic sanctions are 
intended to deprive the target of the use of its assets and 
deny the target access to the U.S. financial system and the 
benefits of trade, transactions, and services involving U.S. 
markets. These same authorities have been used also to protect 
assets within U.S. jurisdiction of countries subject to foreign 
occupation and to further important U.S. nonproliferation 
goals.
    We currently administer and enforce some 27 economic 
sanctions programs pursuant to these Presidential and 
Congressional mandates. They are a crucial element in 
preserving and advancing the foreign policy and national 
security objectives of the United States and are usually taken 
in conjunction with diplomatic, law enforcement, and 
occasionally military action.
    Our historical mission has been the administration of 
sanctions against target governments that engage in policies 
inimical to U.S. foreign policy and national security 
interests, including regional destabilization, severe human 
rights abuses, and repression of democracy. For example, recent 
programs in the Western Balkans, Zimbabwe, Sudan, and other 
regions reflect that focus. But since 1995, the executive 
branch has increasingly used its statutory blocking powers to 
target international terrorist groups and narcotics 
traffickers.
    Many country-based sanctions programs are part of the U.S. 
Government's response to the threat posed by international 
terrorism. The Secretary of State has designated 7 countries--
Iran, Iraq, Libya, Cuba, North Korea, Syria, and Sudan--as 
supporting international terrorism. Three of these countries 
are subject to comprehensive economic sanctions--Cuba, Iran, 
and Sudan. they have been imposed against Libya, Iraq, and 
North Korea as well. They are in current stages of being 
lifted. Syria is not currently subject to comprehensive 
sanctions; however, certain financial transactions are 
regulated.
    We administer also a growing number of list-based programs, 
targeting members of government regimes and other individuals 
and groups whose activities are inimical to national security.
    We have grown over the last 18 years since I have been 
Director, beginning actually in 1987, from an office of a 
handful of employees to now an operation of some 144 
individuals administering the 27 programs I have mentioned. A 
large percentage of our staff have had prior professional 
experience in various areas of the law, financing, banking, law 
enforcement, and intelligence. To accomplish our mission, we 
rely on good, cooperative working relationships with other 
Treasury components, Federal agencies, particularly State and 
Commerce, law enforcement agencies, the intelligence community, 
domestic and international financial institutions, the business 
community, foreign governments, and especially our colleagues 
here.
    We are an organization that blends regulatory, national 
security, law enforcement, and intelligence into a single 
entity with many mandates but a single focus: Effectively 
implementing economic sanctions programs against foreign 
adversaries when imposed by the President or the Congress. In 
order to carry out our mission, we have 10 divisions. They are 
divided into primarily devoted to narcotics and terrorism 
programs, while others are licensing, compliance, and civil 
penalties division that are geared toward interaction with the 
public. In these latter divisions, where primarily we serve as 
liaison with the public, we are seeking to promote greater 
transparency. I have a very high OFAC priority at this time 
outlined in my prepared statement.
    Finally, we have a Law Enforcement Division that cooperates 
with the law enforcement community so that we enhance our law 
enforcement mission.
    We rely heavily on designation programs, authorities 
derived from the Executive Orders we operate under to develop 
specially designated terrorists, specially designated narcotics 
traffickers, specially designated Nationals, and SDGT's, which 
was formulated out of Executive Order 13224, ordered by the 
President following the attacks of September 11 on September 
23. This is an extraordinarily important element of the war on 
terrorism.
    Under this program, OFAC acting under this authority has 
designated 361 individuals as the so-called SDGT's pursuant to 
this Executive Order. More than 260 of these entities are 
associated with either Al Qaeda or the Taliban, which provides 
the basis for notifying then the United Nations, who would then 
act on Executive Order--under UN Security Council resolutions 
to take similar coordinated action. This similar coordinate 
action is a key component of our antiterrorism efforts 
worldwide.
    One other important point I wish to make is that the U.S. 
Government took a very important additional significant step in 
November 2001 when the Secretary of State, in consultation with 
the Secretary of the Treasury, designated some 22 foreign 
terrorist organizations as specially designated global 
terrorists. This action expanded the war on terrorism beyond al 
Qaeda and the Taliban to other worldwide actors, such as Hamas, 
Hizbollah, the FARC, the Real IRA, and others, and this did 
truly create this global war on terrorism and terrorist 
financing and demonstrated the U.S. Government's commitment to 
continue and expand the efforts against all terrorist groups 
posing a threat to the United States. Currently, there are some 
37 terrorist organizations that are under this Executive Order.
    I will conclude my oral remarks at this point. I just want 
to make two or three key points.
    It is critical in our efforts going forward that we 
continue to have the ability to focus on the key nodes of the 
terrorist support structure. These key notes are the target 
sets that by focusing on worldwide, working with the 
interagency community, we are able to 
understand what truly makes them function and develop a 
strategy where working with our other counterparts in the 
United States and the UN we can bring down an entire network. 
We have had great success working with our interagency 
partners. I am particularly pleased about the steps we have 
made with the U.S. military in staffing the six Combatant 
Commands with OFAC individuals so that we are able to work with 
them to share information and share tools that might not 
otherwise be available to all of us in this war.
    Thank you, Mr. Chairman. Again, it is my pleasure to be 
here.
    Chairman Shelby. Thank you.
    Ms. Jardini.

                   STATEMENT OF NANCY JARDINI

                 CHIEF, CRIMINAL INVESTIGATION

                    INTERNAL REVENUE SERVICE

    Ms. Jardini. Good morning, Mr. Chairman. I had hoped that 
in 3 more minutes and I can say ``good afternoon,'' Mr. 
Chairman.
    Chairman Shelby. You take your time.
    Ms. Jardini. Thank you very much for the opportunity to be 
here today to highlight how the unique and specialized skills 
of the Internal Revenue Service Criminal Investigation Division 
are deployed to track terror financing. I am honored to be here 
today on this panel with my partners from Treasury law 
enforcement, with whom I work very closely. I would also like 
to thank you for the fine work of your staffs that have been 
very helpful in preparation for this hearing and have been very 
cooperative with us in our efforts to develop appropriate 
information.
    The fundamental mission of CID, the Criminal Investigation 
Division, is to serve the American public by detecting and 
investigating criminal violations of the Internal Revenue Code 
and 
related financial crimes. To that end, we recruit only 
individuals who have an educational background in accounting 
and business and, through rigorous training, shape them into 
law enforcement professionals who are experts in forensic 
accounting, financial investigations, and computer forensics. 
These highly skilled special agents are devoted to following 
the money in tax and related investigations that involve 
sophisticated schemes and complex transactions that span the 
globe.
    The unique sophistication of our 2,750 criminal 
investigators are in demand throughout law enforcement because 
we add value to any financial investigation. These are 
precisely the same skills that make such a valuable 
contribution to unraveling global terrorist financing networks.
    In addition to bringing significant technical expertise to 
these investigations, there is often a nexus between tax and 
terror. For example, one significant investigation of an 
international charitable foundation revealed ties to 
international terrorist organizations. In that case, the crimes 
that formed the basis for the search warrant related to the 
filing of the foundation's tax return as well as Bank Secrecy 
Act data. In another investigation, the Executive Director of 
the Benevolence International Foundation, a purported 
charitable organization, was sentenced to over 11 years in 
Federal prison for fraudulently obtaining charitable donations 
that were ultimately used to support violent activities 
overseas.
    Just as terrorists employ various methods to move money, we 
are using various means to detect it. One of those is to 
exploit the Bank Secrecy Act data. CID leads 41 suspicious 
activity report review teams nationwide. These teams are 
comprised of Federal, State, and local law enforcement 
officials who evaluate over 12,000 SAR's each month.
    An example of the usefulness of the SAR review teams is 
illustrated in a case involving a fast-food employee who was 
convicted for operating an unlicensed money services business. 
This case was initiated after a SAR review team evaluated 
numerous SAR's filed by several banks alleging the subject was 
making cash deposits inconsistent with his occupation. It was 
ultimately proven that the subject made numerous cash and check 
deposits to several accounts and wired over $3 million out of 
the country to locations in Asia, Europe, South America, and 
the Middle East.
    Another unique contribution of CID is the counterterrorism 
project we are piloting in Garden City, New York, which, when 
fully operational, will use advanced analytical technology and 
data modeling of tax and other information to support ongoing 
joint investigations and proactively identify potential 
patterns. The center analyzes information not available to and 
not captured by any other law enforcement organization. So far, 
the Lead Development Center has helped identify individuals, 
entities, and relationships amongst them previously unknown to 
law enforcement.
    As an example, the Lead Development Center began compiling 
and analyzing financial data that culminated in the linking of 
several individuals and businesses, some of whom are under 
criminal investigation and one with ties to Al Qaeda. With no 
identifiers other than listed names, the center established 
significant connections to individuals and businesses 
potentially involved in illegal activities, including heroin 
smuggling and Iraqi artifact smuggling. The scope of this 
criminal enterprise was previously unknown.
    In conclusion, the men and women of IRS-CID are some of the 
most skilled financial investigators in all of law enforcement, 
and they are proud of the role they play in achieving these 
successes. For all of us, it is one of the great rewards of 
public service.
    I thank you for this opportunity to appear before you 
today, and I welcome your questions.
    Chairman Shelby. Thank you.
    I will start with Mr. Fox. First of all, I want to say 
again we appreciate the jobs that all of you are doing and the 
people that you work with. All of you alluded to the fact that 
our staff here on the Banking Committee has worked hand in 
glove with you on a lot of things, because I think our goal is 
similar.
    Mr. Fox, some of us are concerned that you do not have 
adequate resources to accomplish the many and important 
missions you have. I am aware that it is difficult to develop 
analysts; it is tough and it takes time. But the question is: 
Do we have that time in our fight against terrorists?
    What initiatives are ongoing at FinCEN to bolster your 
analytic capability? You alluded to this earlier, because it 
doesn't matter what the data is if you do not analyze it 
properly and disseminate it, in other words, act upon it. It is 
useless, in a sense.
    Are your analysts--well, go ahead and answer that. What 
initiatives are going on to bolster your analytical capability? 
You know, our other intelligence agencies are challenged, too, 
but they always have been.
    Mr. Fox. Thank you, Mr. Chairman. This is a very good 
question. The good news is, I think, that what I have found, is 
that FinCEN has some very good financial analytic talent. In 
fact, it is some of the best I have seen, and I have had the 
opportunity to view quite a bit of it because of my past life, 
particularly on the financial end.
    Chairman Shelby. Sure.
    Mr. Fox. In my view, sir, the analytic talent at FinCEN, 
however, has not been focused, I guess, on the right work. I 
think we need to refocus those efforts to really get those 
analysts back into sophisticated, strategic, or tactical 
analytic work, if you will. They need to be working from all 
sources of information, not just the BSA. BSA is incredibly 
important and a wonderful source of information in this world, 
but there are other sources of information that are just as 
relevant.
    Chairman Shelby. And there is a lot of synergy dealing with 
the IRS on this. You know, you are all part of Treasury.
    Mr. Fox. Absolutely, sir. That is precisely correct.
    I think we are changing that at FinCEN. In fact, we are 
going to change it at FinCEN. If we don't, you can call me and 
tell me I should go somewhere else because I think it is that 
important.
    Chairman Shelby. We do not want you to go anywhere else. We 
want to help you----
    Mr. Fox. I know, sir, and I appreciate that.
    I have to tell you one thing before I get into exactly what 
we are doing. The very heartening thing for me is that this 
change is very welcome at FinCEN. I have line analysts coming 
up to me in the hallways saying, ``We thank you, we are really 
anxious to do this work.'' So you have a lot of people there 
that are really ready to break loose.
    I think one thing we need to do is to reorganize ourselves 
a little bit, sir. We have a reorganization plan that we 
briefed your staffs on, and we also are working with the 
Treasury Department to implement it right now. What we are 
going to do is to really focus our analytic talent on analysis. 
In other words, take responsibilities that do not relate to 
analysis away from them and move them into another line of 
responsibilities. Those responsibilities are very important, 
but they are really not analytic work.
    I believe that we have to meld our intelligence analysts, 
if you will, if you want to use that term--the people who are 
exploiting national security information--into our greater 
analytic pool, take down the walls that exists currently at 
FinCEN between those two.
    And then, finally, sir, I think we need training, and I 
think we need to really leverage the training that is available 
out there. There is a plethora of it in Federal analytic 
agencies, and we are going to take advantage of it. When it 
comes to recruiting, sir, we are going to try to recruit the 
absolute very best.
    Chairman Shelby. When you analyze information, do you 
ensure that is correct? Or you do the analysis first, and then 
is it all in the same category?
    Mr. Fox. Well, what is happening----
    Chairman Shelby. You have to analyze some information, and 
then you have got to make sure it is correct, to the best of 
your----
    Mr. Fox. What is happening at FinCEN--not completely, but 
by and large, in my view, is that FinCEN is focused on data 
retrieval. We get a lot of requests from law enforcement and 
other parties for information that relates from the Bank 
Secrecy Act. We go and we search that data pool, data set, and 
then spit that back out. And, sir, I actually do not think that 
is real analysis. We are employing a lot of our analytic talent 
toward that end.
    Chairman Shelby. You have to analyze this information to 
make sure it is correct.
    Mr. Fox. Yes, sir, absolutely, and so it is a cart before 
the horse, if you will. So we are going to refocus our efforts 
to do that, sir, and try to create those products that really 
are useful to our customers and to the Government.
    Chairman Shelby. How does the Bank Secrecy Act, or the BSA 
Direct, we might say, how would that improve your analytical 
products? Give your more information?
    Mr. Fox. Sure. We think that the tools that will be 
available, many of which we have available to us at FinCEN 
right now, will be very helpful. But, sir, where BSA Direct 
will really help is to free up our analysts and give our 
customers the capability to search or mine the BSA data so that 
we do not have to do it for them. We can then focus our 
expertise and our resources on creating products that are 
better and more valuable and add better to the conversation.
    Chairman Shelby. Mr. Newcomb, OFAC and the military, we are 
intrigued by your agency's interaction with the combatant and 
regional commands. The Pacific and European Commands, as well 
as others, are conversant with what you are doing and what you 
can provide in the effort of defeating terrorists in foreign 
countries, and I think that is a welcome development, and I 
encourage you here. I believe this is an example of innovative 
thinking and maximizing your limited resources. I think this is 
on the right track, and I want to commend you here.
    Could you expand on the nature of the relationship for us 
here? Is this a two-way flow of information which is 
intelligence? Or is it primarily one-way? And are there any 
legal, bureaucratic, or cultural impediments that you have 
discovered to sharing information with the CINC's that we could 
help you with?
    Mr. Newcomb. Thank you, Mr. Chairman. I am delighted you 
asked me that question this morning. I am particularly excited 
about this relationship because before September 11 we did not 
have it, and now we do. And it was mutually seeking each other. 
We needed to find new tools and force multipliers and ways we 
could work together and utilize our existing resources to 
complement one another.
    I believe as one individual, the commander of the Office of 
Naval Intelligence, once said, we have things we can do. There 
are kinetic solutions. We can watch a target, a ship, we can 
sink a ship or we can board a ship. Or we can put that shipping 
company out of business and deploy that activity worldwide so 
the entire UN takes steps under the UN Security Council 
resolutions.
    We have followed this strategy working with the Combatant 
Commands through their Joint Interagency Counterterrorism 
Groups. We currently have people assigned now to UCOM. I have 
someone soon to be deployed to SOCOM as well as the four other 
Combatant Commands. And as I said, I am particularly excited 
about it.
    I went to a conference in 2002 at PAYCOM and sat down for 
an afternoon and really learned a great deal about what was 
known on the ground by special ops officers in the various 
countries we were working on, brought that back and was able to 
use that as a key component of----
    Chairman Shelby. That is a heck of a resource, is it not?
    Mr. Newcomb. It is a tremendous resource, and I am just 
delighted that JCS has offered to fund six positions so that we 
can get individuals deployed to these areas. And we soon will 
be doing that as soon as I can get them properly trained.
    Finally, let me say it is truly win-win, and I hear things 
back consistently. Just yesterday, people from PAYCOM came to 
see us about a conference that they were having a regional 
maritime security conference. It is where all groups working 
together in that 
region at the local level, working with people with hands-on 
experience can develop areas where we can work jointly together 
and then bring it back to Washington and integrate this into 
the PCC process in our Key Nodes Effects-Based Targeting 
Initiative.
    So, I am delighted to be a part of it, and I look forward 
to working with the JCS and the Combatant Commands to pursue 
this program.
    Chairman Shelby. Have you some indications that regional 
governments, such as Indonesia, Malaysia, and perhaps others, 
could be more cooperative?
    Mr. Newcomb. I think the issue of cooperation is something 
we face worldwide, and through our Office of Technical 
Assistance, direct technical assistance and working through the 
diplomatic community, this is always--wherever we are talking 
about is a process----
    Chairman Shelby. Could you help a lot of places and 
different regions better police their banks, financial 
institutions, and other organizations that are laundering 
money?
    Mr. Newcomb. Well, we do not do the money laundering area. 
I would need to defer to my colleagues here at the table. But 
what we do is work as far as enhancing credibility and 
capability and the joint designation process. And we have had 
great success worldwide. I have personally led delegations to a 
dozen of 14 countries, and as we continue, this will be all 
part of how we proceed.
    Chairman Shelby. Thank you.
    Ms. Jardini, I am hoping you can address some of the 
concerns expressed in the recent article by Senator Sarbanes I 
have read regarding the gap between the Criminal Investigation 
Division's manpower levels and its workload, especially as the 
issue of terrorist financing grows in importance--and I believe 
it will--to national security.
    Ms. Jardini. Thank you, Mr. Chairman. That is an extremely 
important point. The Criminal Investigation Division's current 
manpower level is the lowest level in over 12 years. Manpower, 
special agent resources, is amongst the most critical aspects 
of our progress going forward, continuing to deploy the expert 
financial investigative work that we do.
    That said, the President's 2005 budget as written allows 
for the single largest expansion year in special agent hiring 
in Criminal Investigation ever. If passed as written, Criminal 
Investigation will acquire over 400 new special agents and 
almost 200 
analysts to assist those special agents and also to deploy 
special skills in the analytical areas that are so critical for 
supporting our criminal investigation mission.
    So we look forward to 2005. It will go a long way if we get 
those resources to bringing on the full strength that we will 
use to deploy our mission effectively.
    Chairman Shelby. That is the only way you are going to win 
the terrorist financing war, is it not? You are going to have 
to have the resources.
    Ms. Jardini. We are going to have to have the resources to 
win the war; that is for sure.
    Chairman Shelby. We have a vote on the floor. You have been 
very patient all day. We just kept you a few minutes into the 
p.m., but we appreciate your work. We will continue to work 
with you, and we will have you back up here.
    [Whereupon, at 12:15 p.m., the hearing was adjourned.]
    [Prepared statements, response to written questions, and 
additional material supplied for the record follow:]
               PREPARED STATEMENT OF SENATOR WAYNE ALLARD
    I would like to thank Chairman Shelby for holding this oversight 
hearing to hear about the Department of the Treasury's progress on 
their recent reorganization to counter the financing of terrorism. This 
Committee held two hearings last fall which provided us with an 
understanding of the difficulties that exist in tracing the origin and 
use of terrorist funds. Last November, Congress approved the position 
of Assistant Secretary for Intelligence and Analysis in the Department 
of the Treasury, to allow access to, and analysis of, financial 
information that is in the possession of the Government. I am hopeful 
today's discussion will provide a positive update for the Committee on 
steps that have been taken to implement this new office.
    The Bank Secrecy Act and terror financing are important areas of 
jurisdiction for the Banking Committee. The creation of the Department 
of Homeland Security has greatly shifted the responsibilities of 
departments and agencies, and it is vital that Congress maintain strict 
oversight to ensure that the responsibilities--both old and new--of our 
counterterrorism agencies, are being fulfilled.
    I would like to thank our witnesses for coming to testify and look 
forward to hearing what your office is doing to integrate and implement 
counterterrorism systems.
                               ----------
                 PREPARED STATEMENT OF SAMUEL W. BODMAN
           Deputy Secretary, U.S. Department of the Treasury
                             April 29, 2004
Introduction
    Chairman Shelby, Ranking Member Sarbanes, and Members of the 
Committee, thank you for inviting me to testify today about the 
Treasury Department's central role in the international war against 
terrorist financing and financial crime. I welcome this opportunity to 
discuss this subject with you, and to outline our vision for moving 
forward in this vitally important fight.
    Though I have only been at the Treasury Department for a short 
period, it is clear to me that this Department is well placed to shape 
policy and practice in areas of financial and economic interest that 
affect our national security. Through its broad authorities and 
expertise, the Treasury Department is charged with preserving the 
integrity of the financial system and does so every day by charting our 
counterterrorist financing campaign; setting and implementing anti-
money laundering and counterterrorist financing polices, regulations, 
and standards at home and abroad; gathering and sharing financial 
information with law enforcement and foreign counterparts regarding 
financial crime; implementing our Nation's economic sanctions; and 
enforcing relevant regulations and laws related to these missions. Of 
course, this is done in close coordination with our partners at the 
Departments of Justice, State, Homeland Security, and all other 
relevant Federal departments and agencies.
    Immediately after September 11, the President directed the Treasury 
Department to guide the Federal Government's efforts in the global war 
against the financing of terrorism. Since that time, we have continued 
to devote our resources and extensive expertise to ensure that 
financial intermediaries and facilitators who infuse terrorist 
organizations with money, material, and support are held accountable 
along with those who perpetrate terrorist acts. The war on terrorist 
financing is a vital responsibility of the Department. Terrorists--like 
any other organized criminals--rely on financial networks to fund and 
support their activities. Disrupting and dismantling those networks can 
make it more difficult for terrorists to carry out their deadly 
activities. Our success, therefore, can save the lives of Americans and 
of our friends and allies.
    We know the U.S. Government has had an effect on the ability of Al 
Qaeda and other terrorists to raise and move money around the world. 
The designations and other actions we have taken have made it riskier 
and costlier for them to try to use the formal financial system--which 
previously provided an open gateway for their funds to be sent 
instantly around the world. Our domestic and international efforts have 
tightened the net in the international financial system--through 
greater oversight, transparency, diligence, and capacity. Because of 
these efforts, terrorists have had to change the way they do business 
and are relying more on home-grown methods of raising money and slower 
methods of moving money. These are signals of our success.
    As the recent bombings in Madrid and Riyadh demonstrate, however, 
we still have much work to do. Commitment to defeat terrorism is not 
enough. We must ensure that our commitment to disrupt and dismantle 
terrorist financing networks is matched by tangible results. I believe 
that we have achieved important and considerable results, but that we 
can and must do more, building not only upon our successes against 
terrorist financing, but also upon our experience and expertise in 
combating financial crime generally.
    What is clear is that the rest of world has now begun to view the 
world as Treasury and others in the U.S. Government have always seen 
it. Dirty money and tainted financial flows not only corrupt the 
financial system but also threaten the lives of innocents and the 
economic and political stability of the world. Whether it is financing 
raised and moved to fuel terrorism or financial networks created to 
facilitate the proliferation of weapons of mass destruction, the global 
mission is clear: To disrupt and deter criminal activity that threatens 
our national security. In this endeavor, we must leverage all of our 
power to dismantle the financial infrastructure of such networks and of 
rogue regimes. This is now the axiom of the international community, 
and it is so because the U.S. Government has helped reshape the way the 
international community thinks about these issues.
    In my testimony today, I will first explain how Treasury has helped 
to lead our Nation's efforts in the campaign against terrorist 
financing and financial crime more generally. I will then describe how 
we have marshaled our resources over the past year to achieve 
significant and meaningful results against terrorist financing and 
other criminal networks. I will conclude by laying out some of our new 
initiatives, the most important of which is the establishment of the 
Office of Terrorism and Financial Intelligence.
    During the past year, our people have worked extremely hard and 
achieved many significant results. At the same time, we all recognize 
that our enemies are sophisticated and determined, and so we must 
continue to adapt and revitalize ourselves so that we can continue to 
achieve results. This new office--which will bring together under one 
roof: Intelligence, regulatory, law enforcement, sanctions, and policy 
offices--will build upon our achievements over the past year, and allow 
Treasury to be more effective in the war on terrorist financing and in 
preserving the international financial system.
Treasury's Role in Combating Financial Crime
    The Treasury Department has traditionally had the responsibility of 
safeguarding the integrity of the United States and international 
financial systems from all threats. This has resulted in the Treasury 
Department's developing expertise in the wide range of disciplines 
necessary to meet that responsibility. Today, Treasury has expertise in 
disciplines that stretch across the entire counterterrorist financing 
spectrum. These include:

 application and implementation of sanctions and administrative 
    powers;
 direct law enforcement action and law enforcement support,
 international initiatives;
 private sector outreach and engagement; and
 financial regulation and supervision.

    As reflected in Congress' decision 5 years ago to charge Treasury 
with the leading role in the development of the National Money 
Laundering Strategy, Treasury's wide range of authorities, skills, and 
relationships makes it well-positioned to 
devise, coordinate, and help to implement Government-wide strategies to 
target, attack, and dismantle the financial networks that support 
terrorism and other criminal activity. We take a targeted as well as a 
systemic approach to these complex issues, using all possible 
regulatory, economic, diplomatic, and strategic tools and policies to 
ensure our systems are not abused by money launderers, terrorists, and 
other criminals.
    In an effort to consolidate these tools and policies against all 
elements of financial crime, one year ago the Secretary of the Treasury 
established the Executive Office for Terrorist Financing and Financial 
Crime (Executive Office). This Office is responsible for developing 
policies relating to the Department's anti-money laundering, terrorist 
financing and financial crimes mission. It also oversees the offices 
and Bureaus responsible for implementing and administering these 
policies, for example, the Office of Foreign Assets Control (OFAC), the 
Financial Crimes Enforcement Network (FinCEN), and the Treasury 
Executive Office for Asset Forfeiture (TEOAF). It also works closely 
with the Internal Revenue Service's Criminal Investigation Division 
(IRS-CI) which possesses unparalleled financial investigation 
experience.
    Treasury's authorities and expertise relating to combating 
financial crimes may also be leveraged to accomplish financial missions 
of critical importance to our national security interests. This is 
perhaps best seen in the hunt for Iraqi assets. I would like to briefly 
explain our efforts in the campaign to identify and repatriate Iraqi 
assets as one example of how Treasury has leveraged its resources and 
coordinated those of the interagency community to advance a mission 
critical to our national security interests.
    On March 20, 2003, President Bush directed the Treasury Department 
to a worldwide hunt for Saddam Hussein's assets and directed Treasury's 
newly-formed Executive Office to lead the U.S. Government's efforts to 
find, freeze, and repatriate Iraq's money for use in the reconstruction 
of Iraq. Consequently, the Treasury Department established and chairs 
the Iraqi Assets Working Group (IAWG), comprised of all the relevant 
elements of this U.S. Government effort, including the National 
Security Council, the Departments of State, Justice, Homeland Security, 
Defense, and the law enforcement and intelligence communities. In this 
context, the Treasury Department has coordinated the intelligence and 
law enforcement efforts of this hunt--relying on IRS-CI investigators 
and OFAC and intelligence analysts to unearth Saddam's hidden accounts 
and front companies around the world--and our diplomatic actions--
leveraging the contacts and influence of the State Department and the 
Treasury abroad to gain international cooperation.
    Since Secretary Snow's announcement of the campaign to identify, 
freeze, and repatriate stolen Iraqi assets on March 20 of last year, 
the Treasury, working closely with other parts of the U.S. Government, 
has achieved important results in returning assets to the Iraqi people 
and in uncovering the schemes and networks used by the regime to steal 
from Iraq:

 Almost $2 billion of Iraqi assets has been newly identified 
    and frozen outside the United States and Iraq.
 More than three-quarters of a billion dollars have been 
    transferred by foreign sources to the Development Fund for Iraq 
    (DFI). In total, the United States, foreign countries, and the Bank 
    for International Settlements have transferred back to Iraq over 
    $2.6 billion in frozen Iraqi funds.
 Approximately $1.3 billion in cash and valuables has been 
    recovered in Iraq.
 We continue to identify key individuals and entities whose 
    assets should be frozen. In the past few weeks, the Department of 
    the Treasury has undertaken the following important actions: (i) 
    designated 16 immediate family members of senior officials of the 
    former Iraqi regime pursuant to Executive Order 13315; (ii) listed 
    191 Iraqi parastatal (quasi-governmental) entities; (iii) 
    designated five front companies of the former Iraqi regime and four 
    associated individuals; (iv) redesignated three other front 
    companies and one individual previously designated by the Treasury 
    Department; and (v) through the U.S. Mission to the UN, submitted 
    the names of all of these entities and individuals to the United 
    Nations, requesting that they be listed by the UN 1518 Committee 
    under UNSCR 1483.
 In Iraq, our financial investigators from IRS-CID have 
    conducted over 80 interviews of key individuals who have 
    information relating to Iraqi assets, ranging from the top 
    ministers of the State Oil Marketing Organization (SOMO), to the 
    laborers who buried Saddam's U.S. currency. These investigators are 
    finding and interrogating key financial facilitators like 
    accountants and bankers, who have knowledge about the movement of 
    Iraqi assets. Under IRS-CI questioning, these witnesses have 
    identified assets that can be recovered for the DFI, and which we 
    are aggressively pursuing.
 While searching for Iraqi assets abroad, IRS-CI agents 
    determined that the former Iraqi Ambassador to Russia had stolen $4 
    million in Iraqi assets that had been entrusted to him. As a 
    result, that amount has been frozen in Russia, and we are working 
    to have it repatriated.
 Working closely with the governments of Liechtenstein, 
    Switzerland, and Jordan, we are attempting to recover one of 
    Saddam's Falcon 50 corporate jets and to uncover a financial 
    network that had been used by the Iraqis to move money and people 
    in the heart of Europe.
 The financial investigation teams have also uncovered 
    important leads for other IRS-CI financial investigators to follow 
    up on in jurisdictions outside of Iraq. We have identified bank 
    accounts and other assets held in over 20 countries, including 
    Switzerland, France, Germany, Liechtenstein, Russia, Spain, Egypt, 
    Thailand, Indonesia, Lebanon, Belarus, Iran, South Korea, Malaysia, 
    Japan, Morocco, Saudi Arabia, UAE, British Virgin Islands, Jordan, 
    Syria, and Yemen.
 As a result of interagency cooperation and investigative and 
    other efforts in Baghdad and at headquarters, the Departments of 
    Treasury and State have provided identifying information on over 
    570 identified Iraqi bank accounts to 41 countries for review and 
    follow-up. Those accounts were identified as belonging to the 
    Central Bank of Iraq, Rafidain Bank, and Rasheed Bank.

    The identification and recovery of stolen Iraqi assets is just one 
area in which we have helped to drive key efforts and initiatives. 
This--and other Treasury initiatives--demonstrate our ability to help 
to coordinate government efforts and achieve positive results.
    I would like to review briefly some of our successes under the U.S. 
Government's strategy for combating financial crime.
Treasury's Recent Accomplishments in Combating Financial Crime
Background and Strategy
    Treasury's success in combating terrorist financing and financial 
crime reflects a strategic approach of developing and implementing 
policies that utilize our administrative powers, law enforcement 
resources, international relationships, engagement with the private 
sector and regulatory authorities to attack financial crime on a 
targeted and systemic basis. We have focused our efforts on identifying 
and interdicting key financial networks that support terrorist and 
other criminal activity, and on protecting financial systems from 
terrorist and criminal infiltration. Our systemic efforts are improving 
the transparency and accountability of financial systems around the 
world, making it easier to identify, disrupt, and dismantle those 
terrorists and criminal networks that continue to abuse such systems. 
As we succeed in these goals, we have expanded our efforts to address 
alternative and informal financial systems that are vulnerable to 
terrorist and criminal abuse, including charities, alternative 
remittance systems, and cash couriers.
    Targeting money flows is among the best means of tracking, 
exposing, and capturing terrorists and their facilitators, narco-
trafficking cartels and their supporting infrastructure, organized 
crime networks, and deposed kleptocratic regimes and their ill-gotten 
assets worldwide. Money flows leave a signature, an audit trail, and 
provide a road map of terrorist and other criminal activity. Financial 
investigations lead upstream to those who are generating the underlying 
financial crimes, as well as downstream to provide a roadmap to those 
financial professionals who facilitate the terrorist or criminal 
activity itself. As we and our international partners work together to 
follow and stop terrorist or illicit funds, we strengthen the integrity 
of our financial systems and erode the infrastructure that supports 
terrorists and other criminals.
Economic Sanctions and Administrative Powers
    Treasury wields a broad range of powerful economic sanctions and 
administrative powers to attack various forms of financial crime. We 
have continued to use these authorities in the campaign against 
terrorist financing, drug trafficking, money laundering, and other 
criminal financial activity.
    In combating terrorist financing, our primary, and most public, 
tool is the ability to designate terrorists and those who support 
terrorists, and to implement orders that freeze the assets of 
terrorists through Executive Order 13224. These designation actions not 
only prevent terrorist activity by freezing terrorist-related assets 
and bankrupting terrorist operations, but they also:

 identify existing terrorist activity through financial trails 
    evident in the accounts and transactions of designated parties;
 shut down sources of and pipelines for terrorist financing;
 force terrorists to expend resources developing alternative 
    and higher risk means of raising and moving money;
 alienate terrorist supporters from the global economy by 
    shutting them off from the U.S. financial system and prohibiting 
    any U.S. person from engaging in any future financial or other 
    related services with such designated parties; and
 deter those who might otherwise be inclined to support, 
    financially or otherwise, terrorist activities or organizations.

    Through our designation actions, we have made it more difficult for 
terrorist groups, like Al Qaeda, to raise and move money around the 
world. Under EO 13224, we have designated a total of 361 individuals 
and entities, as well as frozen or seized approximately $200 million of 
terrorist-related funds worldwide. Designations under EO 13224 in the 
past year include the following:

 Ten Al Qaeda loyalists related to the Armed Islamic Group 
    (GIA) on March 18;
 Shaykh Abd Al-Zindani (Al Qaeda-related) on February 24, 2004;
 Four branches of the Al Haramain Islamic Foundation (Al Qaeda-
    related) on January 22, 2004;
 Abu Ghaith (Al Qaeda-related) on January 16, 2004;
 Dawood Ibrahim (Al Qaeda-related) on October 17, 2003;
 Al Akhtar Trust International (Al Qaeda-related) on October 
    14, 2003;
 Abu Musa'ab Al-Zarqawi (Al Qaeda-related) on September 24, 
    2003;
 Yassin Sywal, Mukhlis Yunos, Imam Samudra, Huda bin Abdul Haq, 
    Parlindungan Siregar, Julkipli Salamuddin, Aris Munandar, Fathur 
    Rohman A1-Ghozi, Agus Dwikarna, and Abdul Hakim Murad (members of 
    Jemaah Islamiyah) on September 5, 2003;
 Sheik Ahmed Yassin (Gaza), Imad Khalil Al-Alami (Syria), Usama 
    Hamdan (Lebanon), Khalid Mishaal (Syria), Musa Abu Marzouk (Syna), 
    and Abdel Aziz Rantisi (Gaza) (Hamas political leaders) on August 
    22, 2003;
 Comite de Bienfaisance et de Secours aux Palestiniens 
    (France), Association de Secours Palestinien (Switzerland), 
    Interpal (UK), Palestinian Association in Austria, and the Sanibil 
    Association for Relief and Development (Lebanon) (all Hamas-related 
    charities) on August 22, 2003;
 The National Council of Resistance of Iran (including its U.S. 
    representative office and all other offices worldwide) and the 
    People's Mujahedin Organization of Iran (including its U.S. press 
    office and all other offices worldwide) on August 15, 2003;
 Shamil Basayev (Al Qaeda-related) on August 8, 2003; and
 The Al-Aqsa International Foundation (Hamas-related) on May 
    29, 2003.

    Together with the State and Justice Departments and other agencies, 
we are using our diplomatic resources and regional and multilateral 
engagements to ensure international cooperation, collaboration and 
capability in designating these and other terrorist-related parties 
through the United Nations and around the world.
    In combating drug trafficking, Treasury continues to apply its 
authorities under the Foreign Narcotics Kingpin Designation Act to 
administer and enforce the provisions of law relating to the 
identification and sanctioning of major foreign narcotics traffickers. 
The Kingpin Act, enacted in December 1999, operates on a global scale 
and authorizes the President to deny significant foreign narcotics 
traffickers, and their related businesses and operatives, access to the 
U.S. financial system and all trade and transactions involving U.S. 
companies and individuals. During 2003, the President named seven new 
kingpins, including two U.S.-designated foreign terrorist 
organizations--Revolutionary Armed Forces of Colombia and United Self-
Defense Forces of Columbia--and a Burmese narco-trafficking ethnic 
guerilla army, bringing the total number designated to 38.
    Since the inception of the Kingpin Act and after multiagency 
consultations, Treasury has named 14 foreign businesses and 37 foreign 
individuals in Mexico, Colombia, and the Caribbean as derivative (Tier 
II) designations. These derivative 
designations are flexible, and permit Treasury to attack the financial 
infrastructure of these kingpins as their infrastructure changes. A 
total of 104 organizations, individuals, and businesses in 12 countries 
are now designated under the Kingpin Act. On February 19, 2004, 
Treasury designated 40 key individuals and companies associated with 
the Colombian narco-terrorist organizations, the FARC and the AUC. 
These two organizations were previously named by the President on May 
29, 2003 as drug kingpins. We are currently working with the 
interagency community to develop a list of new designations to be 
issued by the President later this spring.
    Another weapon that our Government uses aggressively against narco-
traffickers and money launderers is that of seizure and confiscation. 
In fiscal year 2003, Treasury's Executive Office for Asset Forfeiture 
(TEOAF) received over $234 million in annual forfeiture revenue from 
the combined efforts of the former Bureau of Alcohol, Tobacco, and 
Firearms, the U.S. Secret Service (USSS), the Internal Revenue Service 
(IRS), and the former U.S. Customs Service (USCS). This represents a 
significant increase over fiscal year 2002, in which TEOAF received 
over $152 million of forfeiture revenue. Such an increase is 
particularly impressive when considering the transition undertaken by 
three of these law enforcement bureaus in the Government reorganization 
last year.
    In combating money laundering and financial crime generally, 
Treasury continues to direct its resources and coordinate efforts to 
administer and enforce the Bank 
Secrecy Act. Working through FinCEN, IRS, the Office of the Comptroller 
of the Currency, the Office of Thrift Supervision and other outside 
agencies, Treasury administers and enforces BSA provisions relating to 
monetary transaction and transportation reporting and recordkeeping 
requirements, suspicious activity, anti-money laundering programs and 
other obligations as set forth in the Act.
    In addition, Treasury, after appropriate interagency consultations, 
has applied its new authority under Section 311 of the USA PATRIOT Act 
(Patriot Act) to designate jurisdictions and institutions of primary 
money laundering concern. Most 
recently, we designated the jurisdiction of Burma, consistent with the 
Financial Action Task Force's (FATF) demand for countries to impose 
additional counter-measures against that country. At the same time, 
Treasury designated the Myanmar Mayflower Bank and Asia Wealth Bank, 
two Burmese banks that are linked to the United Wa State Army, a 
notorious drug trafficking organization in Southeast Asia. It is 
important to note that this is Treasury's first application of Section 
311 against financial institutions. We are focused on identifying 
additional foreign banks that either facilitate money laundering or are 
otherwise involved in financial crime as potential Section 311 targets.
    These accomplishments and responsibilities are just a few examples 
that demonstrate the wide range of economic sanctions and 
administrative powers that the Treasury continually applies and 
implements in our ongoing mission to combat financial crime.
Law Enforcement
    In addition to these economic sanction and other administrative 
authorities, Treasury combats various forms of financial crime through 
the direct law enforcement actions of IRS-CI and the law enforcement 
support provided by FinCEN and Treasury's regulatory authorities.
    Whether working with DEA on the money laundering component of 
significant drug investigations, the FBI on terrorist financing cases, 
or investigating offshore tax shelters and other tax-related matters, 
IRS-CI brings an unparalleled financial investigative expertise to the 
table. The financial forensic expertise of our IRS criminal 
investigators around the country and the world is critical in the U.S. 
law enforcement community's attack on sources and schemes of terrorist 
financing.
    A good example of our direct law enforcement action through IRS-CI 
is evident in our efforts to attack terrorist financing emanating from 
abroad. Since September 2003, IRS-CI agents have been actively 
participating in a joint United States/Saudi counterterrorism task 
force located in Riyadh. The Task Force both provides and 
receives investigative lead information on various terrorist financing 
matters. Additionally, the investigators seek assistance from Saudi 
counterparts in following terrorist financing, and using that 
information to identify and attack terrorist cells and operations. 
Information received by U.S. agents is passed through FBI's Terrorist 
Financing Operations Section in Washington to the interagency JTTF's 
nationwide. As a part of this initiative and under the auspices of the 
State Department chaired Terrorist Financing Working Group, IRS-CI 
participated in two, week-long classes of financial investigation 
training to Saudi Arabian criminal investigators. The courses delivered 
by IRS-CI included the following specialized topics: Charitable 
entities, money laundering, net worth method of proof, expenditures 
method, documenting financial crimes, and computer sources of financial 
information. A third class will be presented this spring.
    We complement such direct law enforcement action with law 
enforcement support. Through FinCEN, Treasury serves as a repository 
and analytical hub for Bank Secrecy Act information, which aids 
investigators across the interagency community in finding financial 
links to criminal enterprises and terrorist networks. Since February 
2003. we have also used Section 314(a) of the Patriot Act to enable law 
enforcement, through FinCEN ``Blastfaxes'' to more than 31,800 
financial institutions as of April 27, 2004, to locate quickly the 
accounts and transactions of those suspected of money laundering or the 
financing of terrorism. Since Section 314(a)'s creation, the system has 
been used to send the names of 1,712 persons suspected of terrorism 
financing or money laundering to financial institutions, and has 
resulted in 12,280 matches that were passed on to law enforcement. We 
understand the sensitivity of the use of this system, and will continue 
to ensure through vigorous review that this system is used only in 
cases where terrorist financing is suspected, or in the most egregious 
money laundering cases.
    As a result of these efforts, FinCEN has made 342 proactive case 
referrals to law enforcement potentially involving terrorism based upon 
analysis of information in the Bank Secrecy Act database. The Terror 
Hotline established by FinCEN has resulted in 853 tips passed on to law 
enforcement since September 11. FinCEN is also implementing an 
Electronic Reports program that will further enhance law enforcement's 
ability to utilize this information. Additionally, with the expansion 
of the Suspicious Activity Report (SAR) regime, as of April 28, 2004, 
financial institutions Nationwide have filed 4,294 SAR's reporting 
possible terrorist financing directly to FinCEN, including 1,866 SAR's 
in which terrorist financing represented a primary suspicion. This has 
further enhanced our efforts to identify and vigorously investigate 
terrorist financing webs and dismantle them.
International Initiatives
    The success of our efforts to combat financial crime and 
particularly terrorist financing, depends in large part on the support 
of our allies and the international community. Treasury--working 
through the Executive Office for Terrorist Financing and Financial 
Crime and the Office of International Affairs--has worked with other 
elements of the U.S. Government to engage the international community 
to develop and strengthen counterterrorist financing initiatives and 
regimes, and enhance the transparency and accountability of global 
financial systems generally. Internationally, we have received support 
from over 200 countries and jurisdictions, including blocking orders to 
freeze assets from 170 countries and jurisdictions, and other direct 
actions around the globe to deal with the common scourge of terrorism. 
We are working constantly with other governments on a bilateral, 
regional, and multilateral basis to focus their attention on this issue 
and deal with identified risks.
    We have developed and implemented a multipronged strategy to 
globalize the campaign against terrorist financing and strengthen our 
efforts to combat financial crime, using all of our authorities, 
expertise, resources, and relationships with various international 
bodies and other governments. Our strategy includes: (i) improving 
global capabilities to identify and freeze terrorist-related assets; 
(ii) establishing or improving international standards to address 
identified vulnerabilities; (iii) ensuring global compliance with these 
standards; (iv) addressing financing mechanisms of particular concern, 
and (v) facilitating the sharing of information to defeat these 
threats.
Improving Global Asset-Freezing Regimes
    A focal point of our international efforts to combat financial 
crime over the past year has been to improve the effectiveness of 
global asset-freezing regimes in the campaign against terrorist 
financing. After many months of negotiation and discussion at the FATF, 
we successfully developed interpretive guidance to clarify and specify 
international obligations and best practices in identifying and 
freezing terrorist-related assets. In October 2003, the FATF issued an 
Interpretive Note and Best Practices Paper to FATF Special 
Recommendation III, describing these obligations and standards. This 
accomplishment will provide a basis for countries to develop or reform 
their existing asset-freezing regimes to improve their effectiveness. 
We are currently using these obligations and standards to encourage 
necessary 
reforms to asset-freezing regimes in countries around the world, 
including our European allies. Pursuant to these efforts, the European 
Union is now considering adjustments to the EU Clearinghouse process 
used to identify and freeze terrorist-related assets across the EU. We 
are working with the Europeans, both bilaterally and collectively, to 
assist in this process.
    In addition to these international public sector efforts, we are 
working with leading global financial institutions to develop a 
technical assistance initiative within the private sector to enhance 
capabilities in identifying and freezing terrorist-related assets. This 
initiative seeks to leverage existing banking expertise through bank-
to-bank training, awareness and outreach.
Setting International Standards
    Internationally, we have worked not only through the United Nations 
on blocking efforts, but also through multilateral organizations and on 
a bilateral basis to promote international standards and protocols for 
combating terrorist financing and financial crime generally. Such 
standards and protocols are essential to developing the financial 
transparency and accountability required to identify and attack 
elements of financial crime, including terrorist financing networks.
    We have primarily focused our efforts to establish international 
standards against terrorist financing and financial crime through the 
FATF. The FATF is the premier international body in the international 
effort against money laundering and terrorist financing. Created by the 
G-7 in 1989, the FATF has since grown to 33 members, along with 
numerous observers, including the United Nations, IMF, and World Bank. 
The FATF's primary mission is to articulate international standards in 
the areas of money laundering and terrorist financing, and to work 
toward worldwide implementation. Treasury's Executive Office for 
Terrorist Financing and Financial Crime heads the U.S. delegation to 
the FATF and co-chairs the FATF's Working Group on Terrorist Financing.
    We have worked with our counterparts in the FATF to revise the 40 
Recommendations, thereby enhancing international standards of 
transparency and accountability required to effectively combat money 
laundering and other financial crimes. In June 2003, the FATF issued 
the revised 40 Recommendations by adding shell banks, politically 
exposed persons, correspondent banking, bearer shares, the regulation 
of trusts, the regulation of trust and company service providers, and 
the regulation of lawyers and accountants. These newly revised 
Recommendations were endorsed by the G-7 Finance Ministers in a public 
statement issued the same day the revised Recommendations were adopted 
by FATF.
    We have also capitalized on the FATF's expertise on money 
laundering to specifically attack terrorist financing, largely through 
the Eight Special Recommendations on Terrorist Financing developed and 
adopted by the FATF in October 2001. As co-chair to the FATF's Working 
Group on Terrorist Financing, the Treasury has worked closely with FATF 
members to issue interpretive guidance on the Eight Special 
Recommendations, particularly with respect to: Freezing terrorist-
related assets; regulating and monitoring alternative remittance 
systems such as hawala; ensuring accurate and meaningful originator 
information on cross-border wire transfers, and protecting nonprofit 
organizations from terrorist abuse. We are currently directing the 
FATF's Working Group on Terrorist Financing to further attack the 
problem of terrorist financing through charities and cash couriers.
    Through our efforts in the FATF, many countries have taken 
important steps to improve their legal regimes and strengthen the 
oversight of their financial sectors, acknowledging the need for strong 
anti-money laundering requirements to fight terrorist financing. 
Countries like Egypt, Guatemala, Indonesia, Israel, Lebanon, and the 
Philippines have taken important strides to develop and implement 
effective and comprehensive anti-money laundering regimes, 
strengthening their institutions and their enforcement of anti-money 
laundering and counter-terrorist financing laws and regulations. 
Treasury has played an important role in the development of anti-money 
laundering and counterterrorist financing regimes in each of these 
countries.
    Moreover, we have engaged the IMF and World Bank to gain their 
recognition of the FATF 40 + 8 Recommendations as one of the 12 Key 
International Standards and Codes. In March of this year, owing largely 
to the leadership of the G-7, the IMF/World Bank made their AML /CFT 
assessment program permanent and comprehensive, thereby ensuring that 
all countries throughout the world are assessed against FATF standards. 
Additionally, Treasury, along with the State and Justice Departments, 
has furthered our efforts to globalize the FATF standards through our 
work with various FATF-style regional bodies (FSRB's). We are currently 
engaged in the development of two new FSRB's to cover the regions of 
the Middle East/North Africa and Central Asia.
Promoting Worldwide Implementation of International Standards
    Establishing international standards is only the first step toward 
identifying and destroying terrorist and criminal networks and denying 
these groups access to the international financial system. If these 
standards are not implemented worldwide, terrorists and other criminals 
will enter the international financial system at the point of least 
resistance, and preventive national efforts will be rendered 
considerably less effective.
    The United States is working together with the international 
community to ensure global compliance with improved international 
standards through a three-prong approach that includes: (i) objectively 
assessing all countries against the international standards; (ii) 
providing capacity-building assistance for key countries in need, and 
(iii) isolating and punishing those countries and institutions that 
facilitate terrorist financing.
    Our Federal Government has identified 24 countries as priorities 
for receiving counterterrorist financing technical assistance and 
training, and Treasury is a key supporter of the State Department-led 
efforts of the interagency community to work bilaterally to deliver 
such assistance to these priority countries.
    Together with other Federal Government agencies and departments, we 
are also working with our allies in the G-8 Counter-Terrorism Action 
Group (CTAG) the IMF, World Bank, and the FATF to coordinate bilateral 
and international technical assistance efforts to additional priority 
countries in the campaign against terrorist financing. As part of these 
coordinated international efforts, the FATF Working Group on Terrorist 
Financing has completed terrorist financing technical needs assessment 
reports in several priority countries. These reports will be used by 
the CTAG to match appropriate donor states with identified needs in 
each of these priority countries.
    Moreover, we will continue to utilize domestic tools--including 
those made available through the USA PATRIOT Act--to focus on 
jurisdictions that are not taking adequate steps to address terrorist 
financing, money laundering, and other financial crimes concerns. As 
discussed above, Treasury is has used Section 311 of the USA PATRIOT 
Act to address primary money laundering concerns on a jurisdictional 
and institutional basis. Working in cooperation with the law 
enforcement and intelligence communities, we have designated three 
foreign jurisdictions and two financial institutions under Section 311. 
In addition to the Burmese designations 
described above, Treasury has also designated the jurisdictions of 
Ukraine and Nauru under Section 311. Ukraine responded to this 
designation almost immediately by enacting significant anti-money 
laundering legislation. This quick response demonstrates the power of 
Section 311 in promoting positive reform and 
addressing vulnerabilities in the international financial system. 
Moreover, even the possibility of a Section 311 designation can result 
in other nations making important changes to their legal and regulatory 
regimes that enhance the global anti-money laundering and antiterrorist 
financing infrastructure. We will continue to seek out appropriate 
opportunities to utilize these new powers to protect the U.S. financial 
system.
Addressing Financing Mechanisms of Particular Concern
    In addition to developing and implementing broad initiatives and 
systemic reforms to increase the transparency and accountability of 
international financial 
systems, we have targeted specific financing mechanisms that are 
particularly vulnerable or attractive to terrorist financiers. These 
mechanisms include the abusive use of charities and NGO's, hawala, and 
other alternative remittance or value transfer systems, wire transfers, 
and cash couriers, as well as trade-based money laundering and cyber-
terrorist financing.
    Our strategy for attacking terrorist financing and financial crime 
perpetrated through these mechanisms is consistent with our global 
strategy for combating financial crime in the formal international 
financial system: We will continue working domestically and with the 
international community to develop the transparency and accountability 
required to identify, disrupt, and destroy terrorist financing and 
other criminal networks embedded in these sectors. We will also 
continue allocating resources to focus on high-risk elements of these 
sectors and concentrate our efforts on high-value targets.
    To effectively counter the threat of terrorist financing through 
charities, we have engaged countries through the FATF to examine and 
analyze existing oversight mechanisms and vulnerabilities in their 
domestic charitable sectors. These efforts capitalize on the FATF's 
expertise in promoting transparency and accountability in formal 
financial sectors, as well as the experience gained in developing 
international best practices to protect charities from terrorist abuse 
in accordance with the FATF's Special Recommendation VIII.
    We have also engaged the international community bilaterally and 
multilaterally to combat the threat of terrorist financing and 
financial crime through alternative remittance systems, such as hawala. 
Over the past 2 years, we have achieved significant progress on this 
issue, as reflected in the Abu Dhabi Declaration made at the conclusion 
of the first International Conference on Hawala in May 2002, and the 
adoption of interpretive guidance to FATF Special Recommendation VI in 
February and June 2003. Earlier this month, Treasury led a delegation 
to the United Arab Emirates to continue advancing these issues in the 
second International Conference on Hawala.
    We are also working with the international community to attack the 
illicit use of cash couriers by money launderers and terrorist 
financing networks. Treasury leads the United States delegation to the 
Asia-Pacific Group and is working through that regional body to examine 
various information sharing, criminalization, and reporting mechanisms 
to identify and interdict the illicit use of cash couriers.
Facilitating International Information Sharing
    Information sharing is critical to fighting terrorism and financial 
crime. Domestically, we have taken advantage of important information-
sharing provisions of the USA PATRIOT Act to assimilate information 
from the financial, intelligence, and law enforcement communities in 
identifying and attacking terrorist financing networks. To improve the 
global flow of financial information related to terrorist financing, we 
have also worked to establish and expand formal and informal, 
international information-sharing channels, both bilaterally and 
multilaterally. Through FinCEN, the U.S. Financial Intelligence Unit 
(FIU), we have persuaded the Egmont Group, which represents 84 FIU's 
from various countries around the world, to leverage its information 
collection, analysis, and sharing capabilities to support the global 
war on terrorism. These ongoing efforts have greatly improved our 
ability to identify and unravel terrorist financing networks by 
tracking and tracing terrorist money trails through multiple 
jurisdictions.
    Our efforts to combat terrorist financing and financial crime also 
depend upon promoting a greater understanding of the financial threats 
we face. To facilitate such an understanding internationally, we have 
worked bilaterally, regionally, and globally with other governments and 
international bodies to develop and share case studies and typologies 
of financial crime, including terrorist financing.
Private Sector Outreach
    The private sector serves as the front-line in the campaign against 
terrorist financing, money laundering, and other financial crime. To 
date, cooperation with the private sector, including banks and trade 
associations, has been essential to increasing our vigilance against 
the abuse of our financial system by terrorists and criminal groups. 
With the expansion of our anti-money laundering provisions to new 
segments of the financial community pursuant to the USA PATRIOT Act, we 
will 
continue and expand such cooperation by working with our domestic 
financial community, including banks, credit card issuers and 
redeemers, and Internet service providers,\1\ as well as the charitable 
sector, to enhance their abilities to detect and report possible 
terrorist financing and money laundering activities.
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    \1\ The list also includes insurance companies, security and 
brokerage dealers, money order and traveler's check issuers and 
redeemers, check cashers, wire remitters, currency exchangers, and a 
myriad of other non-bank financial institutions.
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    Our ongoing outreach initiatives with the private sector promote a 
greater understanding of terrorist financing, money laundering and 
other criminal financial activity and assist us in designing effective 
regulations and practices to defeat these threats. We will continue to 
improve the effectiveness of our partnership with the private sector 
by: (1) increasing the amount of information the U.S. Government 
provides with respect to its ongoing efforts; (2) providing feedback on 
the usefulness of the private sector's efforts; (3) educating the 
private sector to recognize terrorist financing-related typologies and 
``red flags;'' (4) reinvigorating the law enforcement-industry 
partnership to develop ``best practices'' for corporations to follow to 
avoid trade-based money-laundering transactions, and (5) enhancing 
ongoing due diligence efforts, while balancing the demands on 
institutions.
    These goals will enhance the ability of both the public and private 
sectors to insulate the financial system and charitable sector from 
abuse, while ensuring the free flow of capital and commerce and the 
continued practice of charitable giving. We will advance these goals 
through existing mechanisms, such as the Bank Secrecy Act Advisory 
Group (BSAAG), and publications, such as the SAR Activity Review issued 
by FinCEN. In addition, Treasury officials are constantly engaged with 
the private financial sector on money laundering and terrorist 
financing issues through various conferences and meetings with trade 
associations and industry professionals, both domestically and 
internationally. We will continue to take advantage of these 
opportunities whenever and wherever possible to advance our partnership 
with the private sector in combating financial crime.
    Treasury is also engaged in sustained outreach with the charitable 
sector. In November 2002, the Treasury Department issued Anti-Terrorist 
Financing Guidelines: Voluntary Best Practices for U.S.-Based Charities 
to enhance donor awareness of the kinds of practices that charities may 
adopt to reduce the risk of terrorist financing. Since then, Treasury 
officials have participated in several conferences within the 
charitable sector to explain these Guidelines and new developments in 
the campaign against terrorist financing. Earlier this week, the 
Treasury Department hosted an outreach event with representatives from 
approximately 30 charitable organizations to further explain and 
discuss the Guidelines and developments related to terrorist abuse of 
the charitable sector. We anticipate conducting similar outreach 
meetings with the charitable sector to continue advancing our 
collective interests in facilitating charitable giving by protecting 
charitable funds from terrorist abuse.
Regulation and Supervision
    We have taken many steps to investigate and regulate sectors that 
offer opportunities for terrorists and other criminals to raise and 
move funds. Through outreach efforts such as those described above, we 
have built relationships with the private sector to enlist their 
support in broadening and deepening the regulatory structure and 
reporting requirements in the domestic financial system. We are 
creating a level-playing field and attacked money laundering and 
terrorist financing through non-banking financial systems under the USA 
PATRIOT Act, subjecting new sectors of the economy (the securities and 
futures industries) to anti-money laundering controls like 
recordkeeping and reporting requirements previously imposed primarily 
on banks.
    In addition to the successful implementation and applications of 
Sections 314(a) and 311 as discussed above, a recent example of our 
implementation of the USA 
PATRIOT Act is Section 326. This provision mandates basic, uniform 
customer identification and verification procedures for individuals and 
businesses that open accounts with banks (including thrifts and credit 
unions), securities brokers, mutual funds, and future commission 
merchants.
The Future of Treasury's Efforts in the Battle Against Terrorist
Financing and Financial Crimes
    The efforts and accomplishments of the past year have shown two 
things. First, the Treasury Department plays and must continue to play 
a critical role in driving national policies related to terrorist 
financing, money laundering, financial crimes, and economic sanctions. 
The is well placed--given its authorities, expertise, and contacts--to 
deal with issues that cut across several disciplines and require 
concerted attention to identify and interdict tainted financial flows. 
Second, these 
efforts have to be improved, amplified, and supported because of their 
growing importance at home and abroad.
    We have had real success in fighting this war, but as the recent 
bombings in 
Madrid and Riyadh demonstrate, there is no end to our work. Our enemies 
are numerous, resourceful, and dedicated, and they continually adapt to 
the changing environment. We must do the same. We can and must do 
more--using every tool that we have. We must also recognize that--
unfortunately--we are in this fight for the long-term--and so the 
Department needs to be organized to reflect that reality.
    This is precisely why the Administration has collaborated with 
Congress and this Committee to develop a new Treasury structure--a high 
profile office led by an Under Secretary--one of only three in the 
Department--and two Assistant Secretaries. It is an office that will 
bring together Treasury's intelligence, regulatory, law enforcement, 
sanctions, and policy components.
    I want to specifically note the very important contributions made 
by the Chairman and the Ranking Member of this Committee, which 
resulted in an exchange of letters with Secretary Snow at the end of 
last year. I also want to thank Congress for establishing the new 
Assistant Secretary for Intelligence position. Since that time, the 
Administration has worked very hard to implement the concepts described 
in those letters.
    On March 8, 2004, Treasury formally announced the creation of this 
office, entitled the Office of Terrorism and Financial Intelligence 
(TFI) in the Department of the Treasury. On March 10, the President 
announced that he would nominate Stuart Levey, currently the Principal 
Associate Deputy Assistant Attorney General, for the Under Secretary 
position, and Juan Zarate, currently the Deputy Assistant 
Secretary in charge of terrorist financing at Treasury, for one of the 
two Assistant Secretary positions. Both of those nominations have since 
been transmitted to the Senate. We are working diligently to identify 
the most qualified individual to serve as the Assistant Secretary for 
Intelligence. In the meantime, we have appointed a very capable Deputy 
Assistant Secretary to get this office up and running.
    The creation of TFI will redouble Treasury's efforts in at least 
four specific ways. First, it will allow us to better develop and 
target our intelligence analysis and financial data to detect how 
terrorists are exploiting the financial system and to design methods to 
stop them. TFI will be responsible for producing tailored products to 
support the Treasury Department's contributions to the war against 
terrorist financing. Second, it will allow us to better coordinate an 
aggressive enforcement program, including the use of important new 
tools that the USA PATRIOT Act gave to Treasury. Third, it will help us 
continue to develop the strong international coalition to combat 
terrorist financing. A unified structure will promote a robust 
international engagement and allow us to intensify outreach to our 
counterparts in other countries. Fourth, it will ensure accountability 
and help achieve results for this essential mission.
    TFI will have two major components. An Assistant Secretary will 
lead the Office of Terrorist Financing. The Office of Terrorist 
Financing will build on the functions that have been underway at 
Treasury over the past year. In essence, this will be the policy and 
outreach apparatus for the Treasury Department on the issues of 
terrorist financing, money laundering, financial crime, and sanctions 
issues. The office will help to lead and integrate the important 
functions of OFAC and FinCEN.
    This office will continue to assist in developing, organizing, and 
implementing U.S. Government strategies to combat these issues of 
concern, both internationally and domestically. This will mean 
increased coordination with other elements of the U.S. Government, 
including law enforcement and regulatory agencies. This office will 
continue to represent the United States at international bodies 
dedicated to fighting terrorist financing and financial crime such as 
the Financial Action Task Force and will increase our multilateral and 
bilateral efforts in this field. We will use this office to create 
global solutions to these evolving international problems. In this 
regard, we will also have a more vigorous role in the implementation of 
measures that can affect the behavior of rogue actors abroad.
    Domestically, this office will be charged with continuing to 
develop and implement the money laundering strategies as well as other 
policies and programs to fight financial crimes. It will continue to 
develop and help implement our policies and regulations in support of 
the Bank Secrecy Act and the USA PATRIOT Act. We will further increase 
our interaction with Federal law enforcement and continue to work 
closely with the Criminal Investigators at the IRS--including 
integration of their Lead Development Centers, such as the one in 
Garden City, New York--to deal with emerging domestic and international 
financial crimes of concern. Finally, this office will serve as a 
primary outreach body--to the private sector and other stakeholders--to 
ensure that we are maximizing the effectiveness of our efforts.
    A second Assistant Secretary will lead the Office of Intelligence 
and Analysis. In determining the structure of OIA, we have first 
focused on meeting our urgent short-term needs. We have assembled a 
team of analysts to closely monitor and review current intelligence 
threat reporting. These analysts, who are sitting together in secure 
space in the Main Treasury building, are ensuring that Treasury can 
track, analyze any financial angles, and then take any appropriate 
action to counter these threats. Treasury will make sure to coordinate 
with all relevant agencies, including the Terrorist Threat Integration 
Center (TTIC).
    In the near-term, the Department plans to further develop our 
analytical capability in untapped areas, such as strategic targeting of 
terrorist financial networks and their key nodes. We also plan to 
analyze trends and patterns and nontraditional targets such as hawalas 
and couriers. In order to accomplish these goals, we plan to hire 
several new analysts as well as to draw on additional resources from 
OFAC and FinCEN. The precise number of analysts has yet to be 
determined--as we are still ensuring that we have the proper leadership 
in place and that we do not disrupt our important ongoing efforts. 
Certain specifics, such as the physical location of the analysts, will 
be determined by a number of factors, including expertise, skills mix, 
and lessons learned as we go.
    This Assistant Secretary will focus on enhancing the Department's 
relations with the intelligence community--making sure that we are not 
duplicating the efforts of other agencies, but instead, are filling any 
gaps in intelligence targets. Ultimately, we envision that all of 
Treasury's intelligence analysis will be coordinated through the Office 
of Intelligence and Analysis. This will include intelligence support 
for Treasury's senior leadership on the full range of political and 
economic issues
    We are currently confronting the question of staffing and funding 
for TFI. As Secretary Snow wrote in an April 16 letter to Members of 
Congress, President Bush has proposed significant spending increases in 
his fiscal year 2005 Budget to continue the fight against terror 
financing and financial crimes. The Secretary also stated that the 
Department would use currently appropriated fiscal year 2004 resources 
to ensure that TFI has the necessary resources to staff the new 
offices, as well as to bolster capabilities of existing functions.
    I am able to provide some more detail today about those issues. We 
believe that through a combination of prudent and targeted use of 
resources, Treasury will be able to spend up to an additional $2 
million on staffing and other start-up needs of TFI during the rest of 
the current fiscal year. We anticipate that we will be able to bring on 
board up to 15 new personnel during the remainder of the fiscal year.
    Looking forward to the next fiscal year, we have not made firm 
decisions about how much money we will devote to the new office. We 
will evaluate our needs, and we are prepared to make the hard decisions 
about how to allocate our limited resources. Fighting the war on terror 
is a priority of the President and of this Department--and we will 
spend whatever we need to carry out our duties in a responsible manner. 
Of course, we will work with the Congress in making those decisions.
    As can be seen from the description above, TFI will enhance the 
Treasury Department's ability to meet our mission and to work 
cooperatively with our partners in the law enforcement and intelligence 
communities. We are confident TFI will compliment and not duplicate the 
important work being done by the Department of Justice and Department 
of Homeland Security, and by the various intelligence agencies, and 
will be fully integrated into already established task forces and 
processes.
    President Bush and this entire Administration are firmly committed 
to waging a relentless war on terrorists and those who offer them 
support. Our fight is guided by 5 goals.

 To leverage all of the Government's assets to identify and 
    attack the financial infrastructure of terrorist groups;
 To focus Treasury's powers on identifying and addressing 
    vulnerabilities in domestic and international financial systems, 
    including informal financial systems;
 To direct our Government's efforts on financial missions of 
    critical importance to our national security interests, such as 
    proliferation finance and identifying and recovering stolen Iraqi 
    assets;
 To promote a stronger partnership with the private financial 
    sector by sharing more complete and timely information;
 To improve domestic and international coordination and 
    collaboration by combating financial crime by increasing the 
    frequency and value of financial information shared across our 
    Government and with other governments.

    These goals are critical to protecting and promoting our national 
security interests. The new office of TFI will improve our ability to 
advance these goals by further consolidating Treasury's unique assets 
in the campaign against financial crime, and integrating and 
coordinating these assets with those of the interagency community.
    I look forward to continuing to work with the Congress and this 
Committee in the creation of TFI and in advancing our mission in the 
war on terrorism and financial crime.
                               ----------
                  PREPARED STATEMENT OF WILLIAM J. FOX
             Director, Financial Crimes Enforcement Network
                    U.S. Department of the Treasury
                             April 29, 2004
     Chairman Shelby, Senator Sarbanes, and Members of the Committee, 
thank you for this opportunity to appear before you today to discuss 
the mission of the Financial Crimes Enforcement Network (FinCEN) and 
the important role it plays in the U.S. Government's efforts to 
understand, detect, and prevent terrorist financing. This Committee's 
leadership on issues relating to terrorist financing and money 
laundering has been essential. The guidance and support you have 
provided to FinCEN through the years have been invaluable, and we hope 
we can continue to draw upon them at this critical juncture in the 
development of improved coordination within our Government of anti-
money laundering and counterterrorism efforts.
    I became FinCEN's fourth director on December 1, 2003. Before I 
came to FinCEN, I was working as the Principal Assistant to the General 
Counsel of the Treasury Department on issues relating to terrorist 
financing, which were issues that occupied a great deal of my time. 
Coming from the Department, I understood, to a large extent, the nature 
of FinCEN's responsibilities and what it was doing to carry out the 
obligations imposed by these responsibilities. In these 5 months, I 
have done a great deal of listening and learning from inside and 
outside of FinCEN. I have met extensively with the law enforcement and 
intelligence communities that we serve and the financial industry that 
we help regulate. I have met with and listened to the staffs of 
interested committees in the Congress--including this Committee. I have 
met with some of my counterparts in foreign governments and 
communicated with many more; and, of course, I have had a continuous 
dialogue and received tremendous support from those at Treasury--
including Secretary Snow, Deputy Secretary Bodman, and Deputy Assistant 
Secretary Zarate.
    Let me tell you some of what I have found. I have found an 
organization populated with employees with diverse and highly 
specialized talents, who are extremely dedicated to the Agency and its 
mission. I have found an agency that is a good steward of the human and 
capital resources that have been provided by the Congress. However, I 
have also found an agency facing many important challenges--challenges 
relating to the effective and efficient management of the extremely 
sensitive data collected under the Bank Secrecy Act; challenges 
relating to its analytic staff and the analytic product they produce; 
challenges relating to the administration of its regulatory programs 
under the Bank Secrecy Act; challenges relating to refocusing its 
important partnerships with financial intelligence units around the 
world--the Egmont Group; and, challenges relating to the Agency's 
present organizational structure. Since each of these challenges 
relates to the specific topic of this hearing today, I will address 
each of them in this statement.
    FinCEN's mission is to help safeguard the financial system of the 
United States from being abused by criminals and terrorists. FinCEN 
works to accomplish its mission through: (1) administration of the Bank 
Secrecy Act--a regulatory regime that provides for the reporting of 
highly sensitive financial data that are critical to investigations of 
financial crime; (2) dissemination of the data reported under the Bank 
Secrecy Act to law enforcement and, under appropriate circumstances, 
the intelligence community; (3) analysis of information related to 
illicit finance--both strategic and tactical analysis; and, (4) the 
education and outreach provided to law 
enforcement and the financial industry on issues relating to illicit 
finance. FinCEN has many attributes that are key to understanding the 
Agency and how it works to achieve its mission:

 FinCEN is a regulatory agency. FinCEN has an obligation to 
    administer the Bank Secrecy Act, the principal regulatory statute 
    aimed at addressing the problems of money laundering and other 
    forms of illicit finance, including terrorist financing. It is 
    responsible for shaping and implementing this regulatory regime 
    and, in concert with the functional bank regulators and the 
    Internal Revenue Service, for ensuring compliance with that regime. 
    The Agency is also charged with protecting the integrity and 
    confidentiality of the information collected under the Bank Secrecy 
    Act.
 FinCEN is a financial intelligence agency. While not a member 
    of the intelligence community, FinCEN, with the help of the 
    Internal Revenue Service, collects, houses, analyzes, and 
    disseminates financial information critical to investigations of 
    illicit finance.
 FinCEN is a law enforcement support agency. While FinCEN has 
    no criminal investigative or arrest authority, much of our effort 
    supports the investigation and successful prosecution of financial 
    crime.
 FinCEN is a network. We are not directed to support one agency 
    or a select group of agencies. We make our information, products 
    and services available to all agencies that have a role in 
    investigating illicit finance. In fact, we network these agencies. 
    Our technology tells us when different agencies are searching the 
    same data and we put those agencies together--avoiding 
    investigative overlap and permitting the agencies to leverage 
    resources and information.

    FinCEN fits perfectly in the Department of the Treasury; possibly 
even more so after the Homeland Security reorganization rather than 
before that reorganization. The creation of the Office of Terrorism and 
Financial Intelligence within Treasury only enhances that fit. FinCEN 
will be able to help ``operationalize'' Treasury's policy priorities on 
these important issues and our operational analytic work will 
complement the analysis that will eventually be done in the newly 
created Office of 
Financial Intelligence. I believe this coordinated effort will lead to 
a greater emphasis and understanding of money laundering, terrorist 
financing, and other forms of illicit finance not only at Treasury, but 
also within the United States, and that will make us all safer. FinCEN 
will also benefit from the Department-wide, policy-coordinating role 
this office will provide.
FinCEN's Counterterrorism Strategy
    The single, most important operational priority for FinCEN is 
counterterrorism support to law enforcement and the intelligence 
community. To emphasize the importance of this work we have improved 
and are now implementing a comprehensive counterterrorism strategy that 
draws from our analytic support to law enforcement, our regulatory 
tools and expertise, and our international networking capabilities. We 
believe the implementation of this strategy will strengthen our focus 
and ensure that FinCEN is more active and aggressive rather than 
reactive on issues relating to terrorism. The strategy has five basic 
components.
Analysis of Terrorist Financing Suspicious Activity Reports
    FinCEN analyzes suspicious activity reports for both tactical and 
strategic value. At the tactical level, we are implementing a program 
in which every report that indicates a connection to terrorism is 
immediately reviewed and validated and then analyzed with other 
available information. This information will be packaged and referred 
to the Terrorist Threat Integration Center (TTIC), and to the JTTF's, 
FBI-TFOS, and other relevant law enforcement. Moreover, this 
information will be stored in a manner that facilitates its access and 
availability for analysis. Just last week, this process resulted in 
important information being passed along to an appropriate law 
enforcement agency. On April 21, 2004, a bank in North Carolina 
contacted FinCEN's Financial Institutions Hotline regarding the 
suspicious financial activity of one of its customers. This person who 
had been a customer of the bank opened an account in 1999, and 
maintained an average balance of $1,200 to $1,500 until April 14, 2004, 
when he deposited a total of $84,000 in less than a week. Through 
analysis of all available information, we learned that this person was 
a foreign national wanted by U.S. law enforcement authorities as a 
``deportable felon.'' This matter was turned around in approximately a 
day.
    At the strategic level, we are also devoting analysts to study Bank 
Secrecy Act data and all other available information to gain an 
increased understanding of methodologies, typologies, geographic 
patterns of activity and systemic vulner-
abilities relating to terrorist financing. These analysts will focus on 
regional and systemic ``hot spots'' for terrorist financing, studying 
and analyzing all sources of information. Such focus, which produced 
the study mandated by the Congress on Informal Value Transfer Systems, 
can significantly add to the knowledge base of law enforcement. For 
example, we have begun a process to comprehensively study illicit trade 
in diamonds and other precious stones and metals and the links to 
terrorist finance. Although this initiative is currently underway, in 
order to fully implement it, we will need to upgrade analysts' security 
clearances and obtain equipment appropriate for the handling of 
national security information.
USA PATRIOT Act Sections 311 and 314 Implementation
    Some of the new tools afforded us through the USA PATRIOT Act are 
proving to be invaluable in the war against terrorist financing, 
particularly Section 314 of the Act. FinCEN also has initiated a 
program to provide the analytic, regulatory, and legal resources needed 
to support effective implementation of Section 311 by the Treasury 
Department. While this program captures targets involved in money 
laundering and other illicit finance, I have directed my staff to give 
priority to the proactive targeting of those financial institutions and 
jurisdictions that are involved, wittingly or unwittingly, in the 
financing of terror. This prophylactic measure goes to the very heart 
of FinCEN's mission--to safeguard the financial system of the United 
States from money launderers and the financiers of terror.
    Building on a successful pilot program that we began with the 
Bureau of Immigration and Customs on a Section 314(a) money-laundering 
request, FinCEN is now dedicating several analysts to apply this 
program to all Section 314(a) terrorism requests. Specifically, the 
analysts will run all Section 314(a) terrorism-related requests against 
Bank Secrecy Act data concurrent with these requests being sent to 
financial institutions. Based on this initial data review, the law 
enforcement requester will then be able to request a more in-depth 
analysis if desired.
International Cooperation and Information Sharing
    FinCEN will increase the exchange of terrorist financing 
investigative and analytical information with other foreign financial 
intelligence units around the world. We are implementing a program 
where FinCEN will automatically request information from relevant 
financial-intelligence-unit counterparts as part of any terrorism 
related analysis project. As part of this program, we are also 
upgrading our response to incoming requests for information from 
financial intelligence units by providing appropriate information and 
analysis from all sources of information.
Terrorism Regulatory Outreach
    We will continue our work in improving our ability to provide 
information to the regulated community to better identify potential 
terrorist financing activity. One area of particular focus will be 
money services businesses. Money services businesses continue to 
require more attention and resources, and FinCEN will undertake an 
initiative to educate segments of the industry most vulnerable to 
terrorist abuse. These segments include small businesses that typically 
offer money remittance services, check cashing, money orders, stored 
value products, and other informal value transfer systems. As we 
learned from the attacks of September 11, funds used to finance 
terrorist operations can be and have been moved in small amounts using, 
for example, wire transfer, traveler's check, and automated teller 
machine services. I have directed FinCEN's Office of Regulatory 
Programs and Office of Strategic Analysis to enhance our outreach 
program that will include training on how terrorists have used and 
continue to use money services businesses; the reason for and 
importance of the registration requirement for money services 
businesses; and the importance of complying with reporting requirements 
of the Bank Secrecy Act, especially suspicious activity reporting. We 
are planning to streamline suspicious activity reporting for small 
money services businesses with a simplified form.
Analytic Skill Development
    I have directed that FinCEN make training of personnel the highest 
human resource management priority. The top priority of this new 
program will be analytic skill development relating to terrorist 
financing. We plan to begin by seeking reciprocal opportunities for 
terrorist finance analytic skill development within law 
enforcement, the Egmont Group, the intelligence community, and the 
financial industry. This initiative is intended to build a foundation 
for continuous improvement of our analytic assets through cross 
training and diversification; production of joint terrorist financing 
threat assessments and other reports; understanding of intelligence 
processes; the international context of terrorist financing; and the 
financial industry perspective. In addition, we will need to support 
training focused on financial forensics, language skills, and 
geographically targeted studies that focus on culture, infrastructure, 
and other unique aspects of a particular region.
    I believe the full implementation of this strategy will materially 
assist the Department of the Treasury and the United States in 
addressing the financing of terror. Approaching this problem in a 
systemic way with dedicated resources is, in our view, the best way to 
make this strategy a success.
FinCEN's Near-Term Challenges
    As I mentioned before, FinCEN is facing a number of significant 
challenges. Because each of these challenges affects FinCEN's 
effectiveness in contributing to the important issues addressed at this 
hearing today, I would like to raise these challenges with the 
Committee.
Security and Dissemination of Bank Secrecy Act Information
    As the administrator of the Bank Secrecy Act, there is no duty I 
view as critical as the effective collection, management, and 
dissemination of the highly sensitive and confidential information 
collected under that Act. If FinCEN does nothing else, it must ensure 
that data are properly collected, are secure and are appropriately and 
efficiently disseminated. This is FinCEN's core responsibility.
    Regarding security of information, recent press reports have 
reported the unauthorized disclosure of suspicious activity reports. 
Such disclosures simply cannot be tolerated, as they undermine the 
entire reporting program. Those who report this information will become 
increasingly reticent to file what amounts to a confidential tip to law 
enforcement if they believe their report will end up on the front page 
of The Washington Post or The Wall Street Journal. The release of this 
information by those to whom it was entrusted threatens everything that 
we all have worked so hard to build. I know I do not have to convince 
this Committee of the importance of this reporting system. It has 
yielded, and will continue to yield, information that is critical to 
the investigation of money laundering and illicit finance. I also wish 
to assure this Committee and the American people that FinCEN is acutely 
aware of the privacy interests implicated in this reporting and the 
need to guard against inappropriate disclosure of such information. 
Unauthorized disclosure of information will be immediately referred to 
law enforcement for investigation and dealt with as severely as the law 
permits. Our international partners who inappropriately disclose 
information we have entrusted to them will jeopardize our agreements to 
share information with them.
    However, this issue goes deeper than unauthorized disclosures. In 
my view, FinCEN must change the way it houses and provides access to 
information collected under the Bank Secrecy Act. Currently, our data 
are accessed by most of our customers through an outmoded data 
retrieval system. This system does not have the robust data mining 
capabilities or analytical tools we employ at FinCEN. This has led many 
of our customers to ask for wholesale copies of the data, or direct 
access to the data in a way that will not permit us to perform our 
responsibilities relating to the administration and management of the 
data. Accordingly, we must create a system that provides robust data 
mining and analytical tools to our customers in law enforcement and 
that preserves our ability to: (1) effectively administer and 
secure the information; (2) network those persons who are querying the 
data to prevent overlapping investigations and encourage efficient use 
of law enforcement resources; and, (3) develop and provide adequate 
feedback to the financial industries we regulate, which will ensure 
better reporting. That system is called ``BSA Direct.''
    When fully implemented, BSA Direct will make available robust, 
state of the art, data mining capabilities and other analytic tools 
directly to law enforcement. We plan to provide all access to these 
data through BSA Direct, working with our law enforcement customers to 
ensure their systems extract the maximum value from the Bank Secrecy 
Act reporting. We will be exploring ways to enable these agencies to 
integrate the Bank Secrecy Act reporting with their other systems while 
maintaining, and even improving our ability to audit and network the 
use of the data and obtain feedback concerning their value. This system 
will provide us the capability to discharge our responsibilities 
relating to the administration of these sensitive data: Security and 
access control, networking, and feedback. This system will also 
significantly enhance our coordination and information sharing 
abilities, as well as our ability to safeguard the privacy of the 
information. We have already started work on this system. Based on 
preliminary studies, we estimate that this system will cost 
approximately $6 million to build. We are in the process of developing 
BSA Direct with resources in the fiscal year 2005 request and the 
forfeiture fund.
Enhancing FinCEN's Analytical Capabilities
    Another challenge FinCEN is facing relates to its analytic 
capabilities. In my view, FinCEN must move away from its current 
emphasis on data checks and data retrieval, and move its analytic 
resources toward more robust and sophisticated analysis. FinCEN had 
moved to data checks and data retrieval in response to criticisms about 
turn around on often simple requests for information. Now, as our 
systems improve, our customers will be able to retrieve data 
themselves, which will give FinCEN more time and resources for 
analysis.
    I believe that FinCEN can and must provide value through the 
application of our focused financial analytic expertise to mining 
information and providing link analyses that follow the money of 
criminals and terrorists, or identify systemic or geographic weaknesses 
to uncover its source or the existence of terrorist networks. For 
example, in addition to providing geographic threat analysis for law 
enforcement, FinCEN has been studying systemic trends in money 
laundering and terrorist financing. We were instrumental in bringing 
the Black Market Peso Exchange system to the forefront of policy 
decisions, and we are focusing on other trends and patterns that we now 
see emerging in the global market. I recently made a trip to Dubai to 
participate in the growing dialogue on the potential use of diamonds 
and other commodities for illicit purposes, including money laundering 
and terrorist financing. This is part of our focus on and study of what 
may be another iteration of money laundering and terrorist financing--
commodity-based systems.
    In my view, while FinCEN still has some of the best financial 
analytic talent in the U.S. Government, the challenges we face will 
require us to further develop that talent to enable the full 
exploitation and integration of all categories of financial 
information--well beyond Bank Secrecy Act information. I have directed 
FinCEN's managers to concentrate on training, as well as the hiring of 
new, diverse financial analytic expertise.
Enhancing FinCEN's Technology
    As I have mentioned, information sharing is critical to our 
collective efforts to detect and thwart criminal activity and that is 
why I believe enhancing our technological capabilities is extremely 
important. Section 314(a) of the USA PATRIOT Act allows law enforcement 
to query U.S. financial institutions about suspects, businesses, and 
accounts in money laundering and counterterrorism investigations. 
FinCEN facilitates this interaction between the financial industry and 
law enforcement by electronically sending law enforcement requests to 
various banks who in turn check their records and relay the information 
back to FinCEN to then provide to the requestor. This saves law 
enforcement time and resources. We are currently enhancing the Section 
314(a) electronic capabilities to allow for the originating request to 
be made to FinCEN via a secure website. This system is an example of 
how critical technology is to our law enforcement counterparts.
    We must continue to work to enhance the development of the USA 
PATRIOT Act Communications System, a system that permits the electronic 
filing of reports required under the Bank Secrecy Act. This system was 
developed and brought online under a very tight legislative deadline. 
FinCEN received the E-Gov award for its work on this system. Filing 
these forms online is not only more efficient, but it also will help 
eliminate some of the data errors and omissions.
    As of April 19, 2004, 1.2 million Bank Secrecy Act forms had been 
electronically filed through this system. We now support nearly 1,100 
users, which include 15 of the top 25 filers of Bank Secrecy Act 
information. These top 25 filers accounted for approximately 50 percent 
of all Bank Secrecy Act forms filed in fiscal year 2003. While this is 
all good news, the bad news is that the current number of forms filed 
electronically remains quite small on a percentage basis. The 1.2 
million forms filed represents only approximately 5 percent of the 
universe of all Bank Secrecy Act reports filed. I have directed our USA 
PATRIOT Act Communications System team to reach out to the financial 
industry and determine what needs to be done to convince them to file 
electronically. As we learn about what is holding institutions back 
from filing, I have directed our team to work closely with system 
developers to build the system stability and tools necessary to improve 
the overall percentage of filing.
    FinCEN presently lacks the capacity to detect Bank Secrecy Act form 
filing anomalies on a proactive, micro level. BSA Direct, which will 
integrate Bank Secrecy Act data (including currency transactions 
reports, currency transaction reports by casinos, and currency 
transaction reports by casinos--Nevada) into a modern data warehouse 
environment, will include tools to flag Bank Secrecy Act form filing 
anomalies for action by FinCEN and/or referral to appropriate 
authorities. In the meantime, FinCEN is developing a request to the 
Detroit Computing Center to provide periodic exception reports on 
financial institutions whose Bank Secrecy Act form filing-volume varies 
beyond prescribed parameters during prescribed time frames. While we 
will not be able to conduct the sophisticated monitoring that will be 
available with BSA Direct, this interim step should produce an alert in 
the event of a catastrophic failure to file forms, as was experienced 
in the Mirage case in which the Mirage Casino in Las Vegas failed to 
file over 14,000 currency transaction reports in an 18-month period.
Enhancing FinCEN's Regulatory Programs
    The administration of the regulatory regime under the Bank Secrecy 
Act is a core responsibility for FinCEN. Given the nature of our 
regulatory regime--a risk-based regime--our partnership with the 
diverse businesses in the financial services industry is the key to our 
success. I must tell you that it is my perspective that the financial 
industry is generally a model of good corporate citizenship on these 
issues. The industry's diligence and commitment to the recordkeeping 
and reporting requirements of the Bank Secrecy Act is by and large 
outstanding. The industry's cooperation with FinCEN in implementing 
many of the provisions of the USA PATRIOT Act has strengthened the 
foundation of our efforts to safeguard the financial system from 
criminal abuse and terrorist financing. I have met with many of our 
industry partners in the last several months, both old and new, and I 
have been struck with how concerned they are that the information they 
provide is helpful and that it is being reviewed and used. In turn, 
FinCEN is committed to enhancing the guidance they need as they strive 
to meet the requirements and objectives of new regulations.
    The challenge before FinCEN on this issue is simple: We must ensure 
the remaining regulatory packages required by the USA PATRIOT Act are 
completed and implemented. Moreover, as we work with our regulatory 
partners to implement this regulatory regime, we must provide constant 
feedback and guidance. We have asked the industry to create anti-money 
laundering programs that are risk-based--custom tailored to each 
institution based upon the business in which that institution engages 
and the customers that institution has. We must find ways to help the 
industry define that risk. Development of secure web-based systems that 
will foster the communication discussed above is a step in the right 
direction. But we must continue to find new and better ways to reach 
out to the industry. They understand the threat money laundering and 
illicit finance poses to our financial system and they are willing to 
help.
    Perhaps the most significant challenge lies in ensuring that 
financial institutions are appropriately examined for compliance. As 
you know, we have issued and will continue to issue anti-money 
laundering program regulations that will bring new categories of 
businesses under this form of Bank Secrecy Act regulation for the first 
time. This reflects the judgment of this Committee embodied in the USA 
PATRIOT Act, as well as ours, that to effectively guard against money 
laundering and the financing of terrorism, we must ensure that 
industries with potential vulnerabilities are taking reasonable steps 
to protect themselves.
    But the expansion of the anti-money laundering regime comes with 
the additional responsibility and challenges of examining thousands of 
businesses for compliance. We have relied on the Internal Revenue 
Service to examine those non-bank institutions. The addition of the 
insurance industry and dealers in precious stones, metals, and jewels, 
two categories of financial institutions for which we will shortly 
issue final anti-money laundering program regulations, will themselves 
stretch the resources of agencies responsible for examination. We must 
find ways to ensure that these regulatory programs are implemented in a 
fair and consistent manner that is focused on achieving the goals of 
the Bank Secrecy Act. Although difficult, this is an issue that must be 
resolved.
Enhancing FinCEN's International Programs
    FinCEN's international initiatives and programs are driven by a 
stark reality: Finance knows no borders. Next year will mark the tenth 
anniversary of the founding of the Egmont Group. The Egmont Group is an 
international collection of ``financial intelligence units''--entities, 
which, like FinCEN, are charged with the collection and analysis of 
financial information to help prevent money laundering and other 
illicit finance. The Egmont Group has achieved remarkable growth since 
its inception in 1995. Membership has risen from 6 charter members to 
84.
    The Egmont Group serves as an international network, fostering 
improved communication and interaction among financial intelligence 
units (FIU's) in such areas as information sharing and training 
coordination. The goal of the Group is to provide a forum for FIU's 
around the world to improve support to their respective 
governments in the fight against financial crimes. This support 
includes expanding and systematizing the exchange of financial 
intelligence information, improving expertise and capabilities of 
personnel employed by such organizations, and fostering better, more 
secure communication among FIU's through application of technology.
    Egmont's secure web system permits members of the group to 
communicate with one another via secure e-mail, posting and assessing 
information regarding trends, analytical tools, and technological 
developments. FinCEN, on behalf of the Egmont Group, maintains the 
Egmont Secure Web. Currently, 76 of the 84 members (90 percent) are 
connected to the secure website. I am very pleased to announce that 
FinCEN will launch a new and more efficient secure website for Egmont 
in June. We expect this new site will generate more robust usage, which 
will enhance international cooperation between members.
    FinCEN has played a significant role in the growth and health of 
the Egmont Group and it maintains bilateral information sharing 
agreements with financial intelligence units around the world. However, 
in my view, this program has not received the priority it should have 
in recent times. Merely because of the simple statement I made 
earlier--that finance knows no borders--we must step up our 
international engagement with our counterparts around the world. Our 
plan is to do three principal things:

 Lead the Egmont Group to begin focusing on actual member 
    collaboration. Egmont members should be collaborating in a more 
    systemic way together to address issues relating to terrorist 
    financing, money laundering, and other illicit finance at both a 
    tactical and strategic level.
 Enhance the FinCEN analytical product we provide to our global 
    counterparts when asked for information. Today, we are principally 
    providing the results of a data check. We think we owe our 
    colleagues more. As noted before, we will also be making more 
    requests for information and analysis from our partners--
    particularly when the issue involves terrorist financing or money 
    laundering.
 Foster exchanges of personnel with financial intelligence 
    units around the world. We have already begun discussions with 
    certain counterparts about such an exchange and we are hopeful we 
    can begin this program soon. The benefits of this type of exchange 
    are obvious. It is the best way we can learn together how to 
    address a truly global problem.

    FinCEN will also enhance its support for Treasury policy officials' 
work in the Financial Action Task Force (FATF) and FATF regional 
bodies. We will continue our work with the State Department in the 
drafting and editing of the ``International Narcotics Control Strategy 
Report.'' Finally, we will continue our important efforts on financial 
intelligence unit outreach and training. Presently, we are working with 
the United Arab Emirates on a South Asia FIU Conference for 
Afghanistan, Bangladesh, India, Maldives, Pakistan, and Sri Lanka.
    Additionally, FinCEN has given its support and participation to the 
``3 + 1'' Working Group on terrorist financing in the tri-border area. 
The issues of information sharing and the bolstering of FIU's in the 
participating states of Argentina, Brazil, and Paraguay are critical 
issues for the U.S. delegation to the ``3 + 1'' Working Group led by 
the Department of State's Office of Counterterrorism.
FinCEN's Organizational Structure
    We presently are working closely with Treasury on our efforts to 
more effectively marshal our resources at FinCEN. I have proposed a 
realignment of FinCEN that reflects my priorities to enhance FinCEN's 
analytical component and improve its focus and services devoted to 
outreach, education, and technology to both its clients and the 
community related under the Bank Secrecy Act. We have briefed your 
staff on our proposals and received valuable feedback, which we have 
incorporated.
    Essentially, we are proposing to pull out the nonanalytical 
functions presently entangled in FinCEN's analytical units so that 
those managers and analysts can focus exclusively on analysis. We are 
proposing to combine all client services and systems under a single 
manager in order to ensure that our technology is coordinated and 
better focused on serving its users. Similarly, I want FinCEN's 
organizational structure to highlight the importance of education and 
training of our law enforcement clients and the regulated community. 
Only by working closely and cooperatively with these groups can FinCEN 
truly understand what services it must provide and what requirements it 
must meet to assist in the detection, prevention, and dismantling of 
terrorist financing.
Conclusion
    Mr. Chairman, we look to this Committee for your continued support 
as we endeavor to enhance our contributions to the war on financial 
crime and terrorist financing. This concludes my remarks and I will be 
happy to answer your questions.
                               ----------
                PREPARED STATEMENT OF R. RICHARD NEWCOMB
               Director, Office of Foreign Assets Control
                    U.S. Department of the Treasury
                             April 29, 2004
Introduction
    Mr. Chairman, Members of the Committee, thank you for the 
opportunity to testify on the Office of Foreign Assets Control's 
efforts to combat terrorist support networks forms an important part of 
the Treasury Department and our Government's national security mission. 
It is a pleasure to be here, as we discuss Treasury's new office and 
its role in these areas. Please allow me to begin with an overview of 
our overall mission and conclude with our strategies for addressing the 
threat of international terrorism.
OFAC'S Core Mission
    The primary mission of the Office of Foreign Assets Control (OFAC) 
of the U.S. Department of the Treasury is to administer and enforce 
economic sanctions against targeted foreign countries, and groups and 
individuals, including terrorists and terrorist organizations and 
narcotic traffickers, which pose a threat to the national security, 
foreign policy, or economy of the United States. OFAC acts under 
general Presidential wartime and national emergency powers, as well as 
specific legislation, to prohibit transactions and freeze (or 
``block'') assets subject to U.S. jurisdiction. Economic sanctions are 
intended to deprive the target of the use of its assets and deny the 
target access to the U.S. financial system and the benefits of trade, 
transactions, and services involving U.S. markets. These same 
authorities have also been used to protect assets within U.S. 
jurisdiction of countries subject to foreign occupation and to further 
important U.S. nonproliferation goals.
    OFAC currently administers and enforces 27 economic sanctions 
programs pursuant to Presidential and Congressional mandates. These 
programs are a crucial element in preserving and advancing the foreign 
policy and national security objectives of the Untied States, and are 
usually taken in conjunction with diplomatic, law enforcement, and 
occasionally military action.
    OFAC's historical mission has been the administration of sanctions 
against target governments that engage in policies inimical to U.S. 
foreign policy and security interests, including regional 
destabilization, severe human rights abuses, and repression of 
democracy. Recent programs in the Western Balkans, Zimbabwe, Sudan, and 
other regions reflect that focus. Since 1995, the Executive Branch has 
increasingly used its statutory blocking powers to target international 
terrorist groups and narcotics traffickers.
    Many ``country-based'' sanctions programs are part of the U.S. 
Government's response to the threat posed by international terrorism. 
The Secretary of State has designated seven countries--Cuba, North 
Korea, Iran, Libya, Iraq, Sudan, and Syria--as supporting international 
terrorism. Three of these countries are subject to comprehensive 
economic sanctions: Cuba, Iran, and Sudan (1997). Comprehensive 
sanctions have been imposed in the past against Libya, Iraq, and North 
Korea. Syria is not currently subject to comprehensive sanctions; 
however, certain financial transactions involving Syria are regulated.
    OFAC also administers a growing number of ``list-based'' programs, 
targeting members of government regimes and other individuals and 
groups whose activities are inimical to U.S. national security and 
foreign policy interests. In addition to OFAC's terrorism and narcotics 
trafficking programs, these include sanctions against persons 
destabilizing the Western Balkans and against the regimes in Burma and 
Zimbabwe. OFAC also administers programs pertaining to 
nonproliferation, including the protection of assets relating to the 
disposition of Russian uranium, and to trade in rough diamonds.
Administration and Transparency
Organization
    OFAC has grown over the past 18 years from an office with 10 
employees administering a handful of programs to a major operation of 
144 employees administering 27 programs. A large percentage of OFAC's 
professional staff have had prior professional experience in various 
areas of the law, finance, banking, law enforcement, and intelligence. 
To accomplish its objectives, OFAC relies on good cooperative working 
relationships with other Treasury components, Federal agencies, 
particularly State and Commerce, law enforcement agencies, the 
intelligence community, domestic and international financial 
institutions, the business community, and foreign governments.
    OFAC is an organization which blends regulatory, national security, 
law enforcement, and intelligence into a single entity with many 
mandates but a single focus: Effectively implementing economic 
sanctions programs against foreign adversaries when imposed by the 
President or the Congress. In order to carry out OFAC's mission, the 
organization is divided into 10 divisions, with offices in Miami, 
Mexico City, and Bogata. OFAC's operations are also supported by 
attorneys in the Office of Chief Counsel (Foreign Assets Control). Two 
divisions are primarily devoted to the narcotics and terrorism 
programs, while others, primarily the Licensing, Compliance and Civil 
Penalties Divisions, are geared toward interaction with the public. It 
is these latter divisions that primarily serve as OFAC's liaison with 
the public and figure prominently in promoting the transparency of 
OFAC's operations. Finally, OFAC's Enforcement Division provides 
crucial liaison with the law enforcement community.
Licensing Division
    OFAC's licensing authority serves to ``fine tune'' or carve out 
exceptions to the broad prohibitions imposed under sanctions programs, 
ensuring those transactions consistent with U.S. policy are permitted, 
either by general or specific license. For example, working closely 
with the Department of State, the Licensing Division played a critical 
role in issuing specific licenses to facilitate humanitarian relief 
activity by U.S. nongovernmental organizations in the wake of the Bam 
earthquake in Iran. The primary focus of OFAC Licensing involves the 
country-based programs, primarily Cuba and Iran. Major areas of 
activity include issuing advisory opinions interpreting the 
regulations; processing license applications for exports of 
agricultural products, medicine, and medical devices to Iran and Sudan 
pursuant to the Trade Sanctions Reform and Export Enhancement Act of 
2000; license applications pertaining to travel and activities 
involving Cuba; applications to unblock funds transfers blocked by U.S. 
financial institutions; and the preparation of numerous legal notices 
continuing statutory authority for OFAC's programs and semiannual 
reports to the Congress on their administration. Licensing activity 
involving the list-based programs centers primarily on the 
authorization of payment for legal services provided to blocked 
persons. OFAC's Miami Office, which coordinates Cuba travel licensing, 
compliance, and enforcement matters, also reports primarily to the 
Licensing Division.
    The Licensing Division reviews, analyzes, and responds to over 
25,000 requests per year for specific licenses covering a broad range 
of trade, financial, and travel-related transactions, including those 
related to the exportation and importation of goods and services and 
the provision of humanitarian and banking and financial services. It 
also provides written and oral guidance to the public and private 
sectors on the application of OFAC's regulatory programs to specific 
facts and circumstances. Redacted versions of interpretive rulings 
prepared by the Licensing 
Division are published on OFAC's website. During fiscal year 2003, the 
Licensing Division made substantial progress in reducing the overall 
response time to incoming correspondence, primarily through a net 
increase of staff of 11 FTE's and 
conversion to an Oracle database and the use of that database for 
effective case management. The Licensing Division is also currently 
implementing a new integrated voice response system to more efficiently 
handle the large volume of calls it receives from the public.
Compliance Division
    OFAC Compliance adds a unique dimension to the war against 
terrorists and against other sanctions targets. Working with the 
regulatory community and with industry groups, it expeditiously 
publicizes OFAC's activities to assure that assets are blocked and the 
ability to carry out transactions through U.S. parties is terminated. 
OFAC's Compliance provides a valuable service through its toll-free 
telephone ``hotline'' giving real-time guidance on in-process 
transactions. As a result of its efforts, every major bank, broker-
dealer, and many industry professionals use software to scan and 
interdict transactions involving sanctions targets. OFAC's hotline 
averages 1,000 calls per week with at least $1 million and sometimes as 
much as $35 million interdicted items each week. Just last Wednesday, 
for example, OFAC worked with a U.S. bank to block a wire transfer for 
close to $100,000 originating from a suspect and destined to an 
organization associated with a Specially Designated Global Terrorist.
    OFAC uses multiple formats and multiple platforms to get 
information out on its targets and its programs--including on our 
website which now has over 1,000 documents, over a million hits per 
month, and over 15,000 email subscribers--so that banks, broker-
dealers, and others can stop transactions in mid-stream. OFAC's 
Compliance also runs more than 100 training sessions per year around 
the country and follows up with cases based on regulatory audits and 
blocked and rejected items which have resulted in 4,250 administrative 
subpoenas, 3,500 warning letters, and hundreds and hundreds of 
referrals for Enforcement or Civil Penalties action over the past 5 
years. Its positioning within the Treasury Department provides OFAC's 
Compliance with an invaluable capability to dialogue with and oversee 
industry groups as diverse as banking and securities, exporters and 
importers, travel service providers, insurers, and even credit bureaus 
and retailers.
Civil Penalties Division
    OFAC's Civil Penalties Division acts as the civil enforcement arm 
of OFAC by imposing civil penalties for violations of OFAC programs. 
Penalties range from $11,000 to $1.075 million. Since 1993, the 
Division has collected nearly $30 million in civil penalties for 
sanctions violations and has processed more than 8,000 matters.
    The Division reviews evidence and determines the appropriate final 
OFAC penalty action--either a settlement, a penalty imposition, or the 
decision not to impose a penalty. It also grants requests for an agency 
hearing before an administrative law judge (ALJ) in case under the 
Trading With the Enemy Act (TWEA). Three ALJ's have contracted with 
OFAC to hear such cases. In addition to ALJ hearings and the 
administrative civil penalty process, OFAC's Civil Penalties Division 
resolves civil enforcement cases in conjunction with criminal 
prosecutions by the Justice Department. OFAC also enters into global 
settlements of violations in forfeiture actions brought by the U.S. 
Customs and Border Protection (CBP) and works closely with CBP's Office 
of Regulations and Rulings and the Fines, Penalties, and Forfeitures 
Offices nationwide.
    The Civil Penalties Division publishes information on completed 
settlements and penalty impositions on OFAC's Penalties Disclosure 
Website. Providing additional transparency, as recommended by the 
Judicial Review Commission, OFAC has published in the Federal Register 
its Enforcement Guidelines with Penalty Mitigation Guidelines.
Enforcement Division
    OFAC/Enforcement concentrates on providing advice and assistance 
concerning criminal and investigates civil violations of OFAC's 
regulations and statutes.

 Criminal Investigations. OFAC Enforcement officers provide 
    expert advice and assistance to Assistant United States Attorneys 
    and criminal investigators from the FBI, Bureau of Immigration and 
    Customs Enforcement (ICE) and the Department of Commerce's Office 
    of Export Enforcement (OEE) in the investigation of suspected 
    criminal violations of OFAC programs. The FBI has primary 
    investigative authority for terrorism cases, while ICE conducts 
    most investigations dealing with trade-related transactions. OFAC's 
    long-standing and close relationship with ICE has continued after 
    its transfer to the Department of Homeland Security (DHS). This 
    relationship works very well. ICE has field offices Nationwide, 
    covering all ports of entry, and agents assigned as attaches for 
    overseas investigative coverage. ICE agents, along with inspectors 
    from the Bureau of Customs and Border Protection (CBP) at DHS, have 
    seizure authority at U.S. ports and they are the front-line of 
    OFAC's efforts to interdict unlicensed goods being exported to, or 
    imported from, OFAC sanctions countries or persons. Since 1995, 
    there have been approximately 68 cases that resulted in criminal 
    enforcement action for TWEA and the International Emergency 
    Economic Powers Act (IEEPA) violations.
 Civil Investigations. The Enforcement Division conducts civil 
    investigations as a result of voluntary disclosures, informant 
    information, internal research by OFAC staff, and referrals from 
    ICE and other agencies. The Division currently has over 2600 civil 
    cases opened. These cases range from complex export, re-export and 
    other trade transactions, to violations of OFAC Cuba travel 
    restrictions. Most such cases result in an internal referral to the 
    Civil Penalties Division for the possible imposition of civil 
    penalties.
 Domestic Blocking Actions. OFAC officers serve blocking 
    notices and work to ensure the blocking of assets of entities in 
    the United States that are designated under the Foreign Terrorist, 
    Narcotics and country programs. These actions are accomplished with 
    assistance of special agents from the FBI and ICE as needed.
 Law Enforcement Outreach Training. OFAC provides sanctions 
    enforcement training to ICE agents and CBP inspectors on a monthly 
    basis through in-service training courses at the Federal Law 
    Enforcement Training Center and at field offices and ports 
    Nationwide. We have also provided training presentations to agents 
    and analysts at FBI Headquarters and the FBI Academy at Quantico, 
    VA.
Transparency and Outreach
    In January 2001, the Judicial Review Commission on Foreign Asset 
Control submitted its final report to Congress, making several 
recommendations with respect to OFAC. While some were specific to the 
Foreign Narcotics Kingpin Designation Act and OFAC's designation 
authority generally, others pertained to the ``transparency'' of OFAC's 
operations and decisionmaking standards in order to facilitate greater 
understanding of, and compliance with, the sanctions laws [OFAC] 
administers.'' In response to the Commission's report, OFAC and the 
three divisions described above have taken several measures to enhance 
the transparency of OFAC's operations. Central to this initiative is 
the use of OFAC's website, administered by the Compliance Division, 
which currently contains more than 1,000 documents, including 96 
program brochures, guidelines, and general licenses, 12 industry 
brochures, and over 200 legal documents. Website usage statistics 
indicate in excess of 1.3 million hits on per month. OFAC also 
publishes reports, speeches, and Congressional testimony on its 
website. Included among the reports are quarterly reports to the 
Congress on the administration of the licensing regime pertaining to 
the exportation of agricultural products, medicine, and medical devices 
to Iran, Sudan, and, until recently, Libya. OFAC's Terrorist Assets 
Reports for 2001 through 2003 are also available.
    Interpretive rulings in redacted format prepared by the Licensing 
Division are published on the website, extending the benefit of what 
had previously been private guidance. OFAC has also published 95 
questions of general applicability frequently asked by the public about 
OFAC and its programs.
    Publication of various OFAC guidelines is also an important 
component of the transparency initiative. Along with the Enforcement 
Guidelines, OFAC has issued comprehensive application guidelines 
pertaining to the authorization of travel transactions involving Cuba. 
These guidelines were instrumental in reducing a backlog of license 
applications in this category from over 400 cases to fewer than 100, 
with a current average processing time per application of fewer than 9 
days. OFAC also issues a circular setting forth the regulatory program 
governing travel, carrier, and funds forwarding services provided in 
the context of the Cuba embargo.
    Responding to one of the Judicial Review Commission's 
recommendations, OFAC, wherever possible, has issued its regulations in 
the Federal Register as interim final rules allowing for public 
comments.
    Finally, there are listings on the website for more than 100 
sanctions workshops in the near future. These workshops provide a 
significant outreach to the financial and other communities OFAC 
regulates, further promoting transparency of agency operations.
OFAC'S Designation Programs
    Designations constitute the identification of foreign adversaries 
and the networks of companies, other entities, and individuals that are 
associated with them; as a result of a person's designation pursuant to 
an Executive orders (EO) or statute, U.S. persons are prohibited from 
conducting transactions, providing services, and having other dealings 
with them. Generically, those who are placed on OFAC's public list are 
referred to as ``Specially Designated Nationals'' or ``SDN's.'' 
Typically, SDN's are the instrumentalities and representatives that 
help sustain a sanctioned foreign government or adversary and commonly 
include the financial and commercial enterprises, front companies, 
leaders, agents, and middlemen of the sanctions target. In the 
terrorism programs, they are known as SDGT's, SDT's, and FTO's; in the 
narcotics programs they are SDNT's for the Colombian cartels and Tier I 
and Tier II SDNTK's under the Kingpin Act. In the country programs, 
they are SDN's.
    OFAC's International Programs Division and Foreign Terrorist 
Programs Division are the offices which research and identify and these 
targets for designation.
Legal Authorities
International Emergency Economic Powers Act
    In January 1995, the President first used his IEEPA to deal 
explicitly with the threat to U.S. foreign policy and national security 
posed by terrorism, declaring a national emergency with respect to 
terrorists who threaten to disrupt the Middle East Peace Process. This 
action, implemented through Executive Order 12947, expanded the use of 
economic sanctions as a tool of U.S. foreign policy to target groups 
and individuals, as well as foreign governments. During the late 
1990's, IEEPA authorities were used to issue additional Executive 
orders imposing sanctions on Al Qaeda and Osama bin Laden and entities 
or individuals that are owned or controlled by, act for or on behalf 
of, or that provide material or financial support to Al Qaeda or Osama 
bin Laden.
    Following this model, in October 1995, the President announced the 
concept of using EO 12947 as a model for targeting significant foreign 
narcotics traffickers centered in Colombia, for example, the Colombian 
drug trafficking cartels. That IEEPA program, implemented in EO 12978 
with the identification by the President of four Cali Cartel drug 
kingpins, has expanded into a key tool in the fight against the 
Colombian cartels. As of today, 14 Colombian drug kingpins, 381 
entities, and 561 other individuals associated with the Cali, North 
Valle, and North Coast drug cartels have been designated as Specially 
Designated Narcotics Traffickers (SDNT's) under EO 12978.
Authorities in Response to September 11
    The President harnessed the IEEPA powers and authorities in 
response to the terrorist attacks of September 11. On September 23, 
2001, President Bush issued Executive Order 13224, ``Blocking Property 
and Prohibiting Transactions with Persons Who Commit, Threaten to 
Commit, or Support Terrorism'' declaring that the grave acts of 
terrorism and the threats of terrorism committed by foreign terrorists 
posed an unusual and extraordinary threat to the national security, 
foreign policy, and economy of the United States. EO 13224, as amended, 
authorizes the Secretaries of the Treasury and State, in consultation 
with the Department of Justice and the Department of Homeland Security, 
to implement the President's authority to systemically and 
strategically combating terrorists, terrorist organizations, and 
terrorist support networks.
    This order prohibits U.S. persons from transacting or dealing with 
individuals and entities owned or controlled by, acting for or on 
behalf of, assisting or supporting, or otherwise associated with, 
persons listed in the Executive order. Those designated and listed 
under the Executive order are known as ``Specially Designated Global 
Terrorists'' (SDGT's). Violations of the EO with respect to SDGT's are 
subject to civil penalties; and if the violation is willful, persons 
may be criminally charged. The Executive order also blocks ``all 
property and interests in property of [designated persons] that are in 
the United States or that hereafter come within the United States, or 
that hereafter come within the possession or control of United States 
persons[.]''
    To date, the United States has designated 361 individuals and 
entities as SDGT's pursuant to EO 13224. More than 260 of these 
entities are associated with either Al Qaeda or the Taliban which 
provides the basis to notify these names to the UN for listing pursuant 
to United Nations Security Resolutions (UNSCR's) 1267, 1373, and 1526. 
The United States has worked diligently with the UN Security Council to 
adopt international resolutions reflecting the goals of our domestic 
Executive orders and providing the mechanisms for UN member states to 
freeze terrorist-related assets.
Rolling FTO's into SDGT's Makes War on Terrorist Infrastructure Global
    On November 2, 2001, the United States took an additional 
significant step when the Secretary of State, in consultation with the 
Secretary of the Treasury and the Attorney General, utilized the new 
authorities in EO 13224 to designate 22 Foreign Terrorist Organizations 
(FTO's) as Specially Designated Global Terrorists (SDGT's). This action 
expanded the War on Terrorism beyond Al Qaeda and the Taliban and 
associated individuals and entities to include Hamas, Hizballah, the 
FARC, the Real IRA, and others. This action created a truly global war 
on terrorism and terrorist financing and demonstrated the USG's 
commitment to continue and expand our efforts against all terrorist 
groups posing a threat to the United States, its citizens, its 
interests, and its allies. Currently, there are 37 FTO's which are also 
designated as SDGT's.
Foreign Narcotics Kingpin Designation Act
    Building on the successes of the Colombian narcotics traffickers 
program, in December 1999, Congress enacted the Foreign Narcotics 
Kingpin Designation Act (Kingpin Act), originally introduced by Senator 
Coverdell and Senator Feinstein and modeled on IEEPA and OFAC's 
Columbia SDNT program. It provides a statutory framework for the 
imposition of sanctions against foreign drug kingpins and their 
organizations on a worldwide scale. Like its terrorism and narcotics 
Executive order-based predecessors, the Kingpin Act is directed against 
individuals or entities and their support infrastructure, not against 
the countries in which they are imbedded. Since the first list of 
kingpins was issued, 38 foreign drug kingpins (these are in addition to 
the 14 Colombian drug kingpins designated under EO 12978), 14 
derivative companies, and 52 derivative individuals have been 
designated.
Antiterrorism and Effective Death Penalty Act
    In 1996, the Congress passed the Antiterrorism and Effective Death 
Penalty Act (AEDPA). AEDPA makes it a criminal offense to: (1) engage 
in a financial transaction with the government of a country designated 
as supporting international 
terrorism; or (2) provide material support or resources to a designated 
Foreign Terrorist Organization (FTO).
    Thirty-seven FTO's are currently subject to OFAC-administered 
sanctions. These FTO's have been designated by the Secretary of State 
in consultation with the Secretary of the Treasury and the Attorney 
General. Under the AEDPA and OFAC's implementing regulations, U.S. 
financial institutions must maintain control over all funds in which an 
FTO has an interest and report the existence of such funds to OFAC. 
OFAC works with State and Justice on FTO designations, and with the 
financial community, the FBI, State, and other Federal agencies in 
implementing the prohibitions of the AEDPA.
Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001
    The Uniting and Strengthening America by Providing Appropriate 
Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA 
PATRIOT Act), passed in October 2001, amends IEEPA to provide critical 
means and authority to OFAC to counter terrorist financing. The Act has 
enhanced OFAC's ability to implement sanctions and to coordinate with 
other agencies by clarifying OFAC's authorities to block assets of 
suspect entities prior to a formal designation in ``aid of an 
investigation.'' This critical authority helps prevent the flight of 
assets and prevents the target from engaging in potential damaging 
behavior or transactions. In addition, the USA PATRIOT Act explicitly 
authorizes submission of classified information to a court, in camera 
and ex parte, upon a legal challenge to a designation. This new USA 
PATRIOT Act authority has greatly enhanced our ability to make and 
defend designations by making it absolutely clear that OFAC may use 
classified information in making designations without turning the 
material over to an entity or individual that challenges its 
designation.
OFAC'S Counter Narcotics Program
OFAC's Mission Against Foreign Drug Cartels
    One of the primary missions of OFAC/IPD officers is to investigate, 
through both ``all-source'' research and extensive field work with U.S. 
law enforcement agents and Assistant U.S. Attorneys, and compile the 
administrative record that serves as the OFAC case to designate 
significant foreign narcotics traffickers and their networks of front 
companies and individuals pursuant to the Specially Designated 
Narcotics Traffickers (SDNT) program pursuant to EO 12978 and the 
Foreign Narcotics Kingpin Designation Act (Kingpin Act).
Interagency Coordination
    In its capacity to administer and enforce economic sanctions 
against foreign narcotics traffickers, both traditional drug cartel and 
narco-terrorist targets, OFAC's International Programs Division (OFAC/
IPD) works extensively with other U.S. agencies in the law enforcement 
and intelligence communities, as well as the President's Office of 
National Drug Control Policy. OFAC/IPD officers regularly are requested 
to train DEA's financial investigators on OFAC's authorities to 
designate and block foreign drug cartel's financial networks under EO 
12978 and the Kingpin Act. In addition, OFAC/IPD officers have also 
provided presentations for various ICE, FBI, U.S. Attorney's offices, 
the Department of Justice, and the Department of Defense on OFAC 
narcotics and other sanctions programs and how they can work jointly 
with a U.S. criminal investigation. OFAC continues to expand its 
relationships with U.S. law enforcement, including ICE, DEA, FBI, IRS 
Criminal Investigation, U.S. Attorney's Offices, and with other 
agencies including the Department of State, Department of Defense, and 
Central Intelligence Agency. While some formal interagency coordination 
is established by Executive order or legislation (the Kingpin Act), in 
the day-to-day execution of these programs, interagency cooperation is 
the result of experienced OFAC/IPD officers working closely with other 
U.S. criminal investigators. These working relationships have led to 
several successful sanctions designation actions over the past few 
years.
    OFAC's Enforcement Division and its International Programs Division 
have distinct but complimentary relationships with the Federal law 
enforcement community. OFAC/IPD is focused on investigations and on 
research leading to designations, whether worked independently or 
jointly with Federal law enforcement agencies and task forces, U.S. 
Attorneys offices, or other U.S. Government agencies. In the programs 
that OFAC enforces against foreign narcotics trafficking cartels and 
drug kingpins, OFAC/IPD has been working with the Department of Justice 
and DEA since 1995, with a significant contingent of OFAC/IPD personnel 
cleared to work at DEA headquarters. Over the years those working 
relationships have substantially broadened, bringing OFAC to the point 
where OFAC/IPD officers, both in the field and at headquarters, 
including OFAC's Attache Offices in Bogota and Mexico City, regularly 
work with OCDETF task forces, multiple U.S. Attorneys' offices, DEA, 
ICE, IRS-CI, and the FBI, on cases and broader operations of mutual 
interest. This integrated operating method not only provides OFAC/IPD 
with better background information and evidence for its targets, but 
also makes OFAC's expertise in the business and financial structuring 
by the cartels available as a resource to law enforcement and 
intelligence agencies. This appropriate close working relationship with 
law enforcement provides a successful conduit for the sharing of 
information between law enforcement agencies and OFAC/IPD.
    Since September 11, 2001, OFAC has played an integral role in the 
terrorism-related investigations being conducted throughout the law 
enforcement community. To coordinate efforts and actions, OFAC has 
detailed a full-time liaison to the FBI's Terrorist Financing 
Operations Section (TFOS) and a weekly liaison to the Terrorist 
Screening Center (TSC) and participates on their interagency 
enforcement teams. Information obtained through close interagency 
coordination has been crucial in ``making the case'' to designate 
particular targets domestically and internationally. Information 
developed by OFAC has also proven useful for investigations being 
conducted by TFOS, TSC, and other U.S. law enforcement agencies.
The Kingpin Act
    Pursuant to Section 804(a) of the Kingpin Act, the Secretaries of 
Treasury, State, and Defense, the Attorney General, and the Director of 
Central Intelligence must consult and provide the appropriate and 
necessary information to enable the President to submit a report to 
Congress no later than June 1 each year designating 
additional Kingpin Tier I targets. OFAC/IPD is responsible for 
coordinating the interagency process for the Kingpin Act.
    On May 29, 2003, President Bush announced the names of 7 foreign 
persons that he determined were significant foreign narcotics 
traffickers, or kingpins, under the Kingpin Act. These new drug 
kingpins included 4 individuals involved in the Mexican and Brazilian 
drug cartels and 3 foreign groups--a Colombian narco-terrorist 
guerrilla army (the Revolutionary Armed Forces of Colombia or FARC), a 
Colombian narco-terrorist paramilitary force (the United Self-Defense 
Forces or AUC), and a Burmese drug trafficking ethnic guerrilla army 
(United Wa State Army or UWSA). These were the first designations of 
narco-terrorist groups under the Kingpin Act. The FARC and the AUC had 
previously been named as Foreign Terrorist Organizations by the State 
Department and designated as Specially Designated Global Terrorists by 
OFAC pursuant to EO 13224.
    A total of 38 Tier-I Kingpins designations have been made since 
June 2000. Currently, development of the evidentiary basis for new 
Kingpin Tier I targets for Presidential designation by June 1, 2004 is 
underway. The previous designations of 38 drug kingpins remain; the 
President does not have to redesignate them.
    OFAC prepares and designates ``Tier II'' narco-terrorist leaders 
under the Kingpin Act. On February 19, 2004, OFAC/IPD took action 
against leaders and key figures of two narco-terrorist organizations in 
Colombia, the FARC, and the AUC. Nineteen leaders of the FARC and 
eighteen key figures of the AUC plus three AUC front companies were 
added to OFAC's list of ``Tier II'' individuals and entities designated 
under the Kingpin Act. These Kingpin Tier II designations reinforce the 
reality that the FARC and the AUC are not simply terrorist/guerrilla 
organizations fighting to achieve political agendas within Colombia. 
They are part and parcel of the narcotics production and export threat 
to the United States, as well as Europe and other countries of Latin 
America.
Specially Designated Narcotics Traffickers
    Since the inception of the Colombia program in 1995 under Executive 
Order 12978, OFAC/IPD officers have identified 956 businesses and 
individuals as Specially Designated Narcotics Traffickers (SDNT's) 
consisting of fourteen leaders of Colombia's Cali, North Valle, and 
North Coast drug cartels.

 North Valle Cartel links to the AUC. In October 2002, OFAC 
    coordinated the designation of a Colombian cartel kingpin with the 
    FBI. A joint investigation by OFAC/IPD and the FBI Miami field 
    office led to the SDNT action against Colombia's North Valle cartel 
    leader, Diego Leon Montoya Sanchez and a network of front companies 
    and individuals in Colombia in conjunction with an FBI criminal 
    asset forfeiture action in South Florida. Diego Leon Montoya 
    Sanchez is closely associated with the AUC, a Colombian narco-
    terrorist organization.
 Continued Actions against the Cali Cartel. Since 2002, OFAC/
    IPD has worked jointly with the U.S. Attorney's Office for Middle 
    District of Florida and Operation PANAMA EXPRESS, a multiagency 
    drug task force based out of Tampa, Florida. A 2-year investigation 
    by OFAC/IPD officers in conjunction with the PANAMA EXPRESS task 
    force led to the March 2003 SDNT action against two new Cali Cartel 
    leaders, Joaquin Mario Valencia Trujillo and Guillermo Valencia 
    Trujillo, and their financial network of 56 front companies and 
    individuals. Joaquin Mario Valencia Trujillo is indicted in the 
    Middle District of Florida and was recently extradited to the 
    United States from Colombia.
    In 2003, OFAC/IPD investigations have focused on Cali cartel 
    leaders, Miguel and Gilberto Rodriguez Orejuela. In February 2003, 
    OFAC/IPD designated 137 companies and individuals comprising a 
    complex financial network in Colombia and Spain controlled by 
    Miguel and Gilberto Rodriguez Orejuela. This action exposed and 
    isolated a parallel network of Cali cartel front companies 
    established to evade OFAC sanctions. In March 2003, OFAC/IPD 
    officers targeted a Colombian money exchange business and a 
    prominent Colombian stock brokerage firm which facilitated the Cali 
    cartel network's financial transactions. In October 2003, OFAC/IPD 
    designated 134 new front companies and individuals including a 
    network of pharmaceutical companies extending from Colombia to 
    Costa Rica, Ecuador, Panama, Peru, and Venezuela with ties to 
    financial companies in the Bahamas, the British Virgin Islands, and 
    Spain. These SDNT actions were the result of a 3-year investigation 
    by OFAC/IPD officers and the OFAC Attache--Bogota.

    These actions under the SDNT and Kingpin Act programs reflect the 
increasing cooperation, coordination, and integration among the U.S. 
counter-narcotics agencies in the battle against international 
narcotics trafficking and narco-terrorism. On March 3, 2004, the U.S. 
Attorney for the Southern District of New York issued a joint statement 
with the DEA New York field office and the OFAC Director announcing the 
indictment of two of Colombia's most important drug kingpins, Gilberto 
Rodriguez Orejuela and Miguel Angel Rodriguez Orejuela, leaders of the 
notorious Cali Cartel, under Operation DYNASTY, a joint investigation 
involving the U.S. Attorney's Office for the Southern District of New 
York, DEA, OFAC, and Colombian authorities. Both Cali cartel leaders 
were designated under EO 12978 as Colombian cartel leaders in October 
1995. The indictment charges the Rodriguez Orejuela brothers with money 
laundering conspiracy based largely upon the predicate offense of 
violating the IEEPA as a result of the drug kingpins' efforts to defeat 
OFAC's designations of many of their companies as SDNT's.
OFAC's Counterterrorism Program
Foundations of Terrorist Financing and Support
    The threat of terrorist support networks and financing is real, and 
it has been OFAC's mission to help identify and disrupt those networks. 
Though the vast majority of the world's Muslims are peaceful, a 
committed, vocal, and well-organized minority is competing to mobilize 
a new generation in the tools and trade of Jihad.
    There is much we know about how such radical Islamic terrorist 
networks were established and still thrive. OFAC's research has 
disclosed the overall framework of the support structures that underpin 
the most prominent Islamic extremist movements throughout the world. 
``Deep pocket'' donors in the Middle East provide money either to 
terrorist groups directly, or indirectly through trusted intermediaries 
and nongovernmental organizations (NGO's), including charities. These 
NGO's can, in turn, use the money to provide funding and logistical 
services directly to terrorist groups, including transportation, cover 
employment, and travel documentation. They also provide support 
indirectly by using the funds for public works projects--wells, social 
centers, and clinics--to reach disaffected populations susceptible to 
radicalizing influences. These projects also often include religious 
schools, which serve as fertile recruiting grounds for new members of 
terrorist groups.
    The terrorist networks are well-entrenched and self-sustaining, 
though vulnerable to United States, allied, and international efforts. 
Looking forward, please allow me to explain how we have arrived at this 
view and present the strategy, being implemented in coordination with 
other components of the Treasury Department and other Federal agencies 
including the Departments of Defense, State, Justice, Homeland 
Security, the FBI, IRS Criminal Investigation, the intelligence 
community, and other agencies, to choke off the key nodes in the 
transnational terrorist support infrastructure.
Research and Evidentiary Preparation
    The primary mission of officers within OFAC's Foreign Terrorist 
Programs Division is to compile the administrative record or 
``evidentiary'' material that serves as the factual basis underlying a 
decision by OFAC to designate a specific person pursuant to EO 13224 or 
other counterterrorism sanctions authorities and to block its assets. 
OFAC officers conduct ``all-source'' research that exploits a variety 
of classified and unclassified information sources in order to 
determine how the activities or relationships of a specific target meet 
the criteria of the EO. As the implementing and administrating agency 
for EO 13224 and other related programs, OFAC coordinates and works 
with other U.S. agencies to identify, investigate and develop potential 
targets for designation or other appropriate U.S. Government actions. 
Officers use their considerable expertise to evaluate available 
information in the critical process of constructing a legally 
sufficient evidentiary record.
    More broadly, OFAC officers compile research on multiple targets to 
build a comprehensive schematic of the structure of particular 
terrorist network. They then employ a ``key nodes'' methodology to 
identify these high value targets within them that serve critical 
functions. OFAC believes that by eliminating these key nodes or high 
value targets the network would be disabled because without them the 
network would not receive sustaining services such as recruitment; 
training; logistical, material, financial, or technological support; 
and leadership. OFAC selects specific targets to recommend for 
designation based on the potential to cripple or otherwise dramatically 
impair the operations of the overall network by economically isolating 
these nodes. Economic sanctions are most effective against key nodes 
such as donors; financiers (fundraisers, financial institutions, and 
other commercial enterprises); leaders; charities; and facilitators 
such as logisticians. OFAC already has targeted key nodes in terrorist 
networks in several areas of the world including groups in Southeast 
Asia and various parts of Africa. OFAC is currently engaged in new 
research on groups in the Middle East, including Iraq, and the 
Caucasus.
    A completed OFAC evidentiary record on a particular target is 
submitted first for legal review, then to the Executive Office of 
Terrorist Finance and Financial Crimes, where OFAC officers work with 
that office to prepare the package for the Policy Coordinating 
Committee (PCC). The PCC determines whether the U.S. Government should 
designate a particular entity or should pursue alternative legal or 
diplomatic strategies in order to achieve U.S. interests. As part of 
the PCC process, OFAC's designation proposal will usually be vetted by 
the consultative parties specified by the EO.
    In addition to the evidentiary package, OFAC and other Treasury 
officers work with the interagency community to draft an unclassified 
Statement of the Case (SOC) which serves as the factual basis for the 
public announcement of a designation. The State Department uses it to 
preconsult with countries which are directly impacted by a proposed 
U.S. action. Upon a U.S. Government determination to designate, the SOC 
is used to notify host countries and the UN of an impending U.S. 
action. The UN is notified only if the designation is related to Al 
Qaeda or the Taliban.
UN and Bilaterally Proposed Designations
    Whenever an individual or entity is proposed by another country 
through the UN or is proposed to the U.S. Government bilaterally, OFAC 
is responsible for preparing the administrative record. In order to 
designate a target proposed to the UN by a Member State or by another 
government bilaterally to the U.S. Government, OFAC must develop an 
administrative record that satisfies the U.S. domestic laws described 
above. Quite often, due to a difference in legal authorities and the 
type of or lack of information provided by a designating country, this 
process may require several discussions with the initiating party and 
often requires further coordination with the UN and other countries in 
order to obtain sufficient information to meet domestic legal criteria.
Other Counterterrorism Activities
    OFAC's role in the counterterrorism arena is not limited to 
preparing designations, although this often serves as a key component 
of its other activities. The transnational nature of terrorism support 
networks requires engagement with allies and routine information 
sharing. OFAC's direct engagement with allies on terrorism support 
infrastructure began with officials from Saudi Arabia, Kuwait, and the 
UAE in June 1999. Information and understandings developed from this 
and other OFAC trips to the region significantly contributed to 
formulating some of the strategies employed today.
    Direct Treasury and OFAC engagement with foreign allies' 
counterparts provides an opportunity for OFAC to gather information, 
apply pressure, request support, or offer assistance. In some cases, 
Treasury may seek joint action with an ally in an effort to disrupt or 
dismantle an organization. In other instances, OFAC may use the threat 
of designation to gain cooperation, forcing key nodes of financial 
support to choose between public exposure of their support for 
terrorist activity or their good reputation.
    Of course, OFAC also collaborates extensively with other elements 
within the Treasury Department. In particular, I want to mention our 
excellent relationship with IRS Criminal Investigation. This 
relationship has been especially important and productive in carrying 
out the Treasury Department's authority under Executive Order 13315, 
which blocks the assets of Saddam Hussein and other senior 
officials of the former Iraqi regime. For many months now, OFAC has 
been coordinating almost daily with Washington-based IRS-CI agents to 
guide the efforts of IRS-CI agents on the ground in Iraq to identify 
the ill-gotten assets of Saddam and his cronies. OFAC's partnership 
with IRS-CI on this issue has developed important investigational leads 
that would have been impossible if our organizations had not been so 
closely synchronized.
Significant OFAC Designations Pursuant to EO 13224
    The result of OFAC's research and coordination efforts over the 
past 3 years has been several significant designations of charities, 
terrorist financiers, and financial support networks.
    OFAC Actions against Terrorist-Supporting Charities:

 Holy Land Foundation (HLF). OFAC/IPD worked closely with the 
    FBI prior to September 11 to designate this charity located in 
    Richardson, Texas. HLF was a financial supporter of HAMAS, a 
    terrorist group originally designated in January 1995 pursuant to 
    Executive Order 12947. The FBI Dallas field office specifically 
    sought OFAC's involvement in its investigation and an OFAC/IPD 
    officer became part of the North Dallas Terrorism Task Force. As a 
    result of this close coordination, on December 4, 2001, OFAC 
    designated the Holy Land Foundation pursuant to EO 13224 and EO 
    12947. This designation was upheld in U.S. Federal district court, 
    affirmed on appeal, and on March 1, 2004, the Supreme Court denied 
    HLF's petition for certiorari in HLF's challenge to its 
    designation. As a result of the OFAC designation, IRS suspended the 
    tax-exempt status of HLF.
 Benevolence International Foundation (BIF) & Global Relief 
    Foundation (GRF) Blocking in Aid of Investigation. On December 14, 
    2001, the Treasury blocked pending investigation (BPI) the property 
    of both BIF and GRF, two Islamic charities in Chicago, Illinois and 
    the first such action under EO 13224. After the December 2001 BPI 
    action, OFAC/IPD continued to work with other components of the 
    Treasury and the FBI, SFOR in the Balkans, the Department of 
    Justice, and the intelligence community to obtain additional 
    information which led to the designation of GRF on October 17, 2002 
    and BIF on November 18, 2002 pursuant to EO 13224. On February 25, 
    2003 the civil lawsuit filed by BIF against the United States was 
    voluntarily dismissed with prejudice and without costs. On November 
    12, 2003, the Supreme Court denied certiorari in GRF's appeal of 
    the denial of its motion for preliminary injunction. As a result of 
    the OFAC designation, IRS suspended the tax-exempt status of both 
    BIF and GRF.
 Al Haramain Foundation. Treasury has worked closely with other 
    U.S. Government agencies and Government of Saudi Arabia in order to 
    coordinate the bilateral designation of six branches of this 
    prominent Saudi charitable organization. The Bosnian and Somali 
    branches were designated on March 11, 2002, while the Pakistani, 
    Indonesian, Kenyan, and Tanzanian branches were designated on 
    January 22, 2004.

    OFAC Actions against Terrorist Financial Networks:

 Al-Barakaat network. OFAC/IPD identified the Al-Barakaat 
    network as a major financial network providing material, financial, 
    and logistical support to Osama Bin Laden, Al Qaeda, and other 
    terrorist groups. On November 7, 2001, the President announced the 
    designation of the Al-Barakaat network pursuant to EO 13224. As a 
    result of that action, Barakaat's cashflow was severely disrupted 
    and the Emiratis closed down Barakaat's offices in their territory, 
    froze its accounts, and placed several individuals under an 
    informal house arrest.
 Nada-Nasreddin/al Taqwa network. OFAC/IPD coordinated with 
    U.S. law enforcement and intelligence community, and worked closely 
    with its foreign partners in the Caribbean and Europe to target Al 
    Qaeda supporters, Yousef Nada and Ahmed Idris Nasreddin. OFAC 
    designated them and related companies in November 2001 and August 
    2002 pursuant to EO 13224, significantly disrupting another 
    network.
 Wa'el Hamza Julaidan. OFAC identified Julaidan as a senior 
    figure in the Saudi charitable community, who provided financial 
    and other support, to several terrorist groups affiliated with Al 
    Qaeda operating primarily in the Balkans. OFAC worked with other 
    U.S. Government agencies and the Government of Saudi Arabia to 
    coordinate a bilateral designation of Julaidan on September 6, 
    2002.
OFAC's Key Node Strategy
    Over the past year and a half, OFAC has should take a more 
systematic approach to evaluating the activities of major terrorist 
organizations in various regions. This approach has focused on 
identifying ``key nodes'' discussed above, which when targeted and 
economically isolated can cripple a terrorist network's ability to 
function.
    To implement this approach, OFAC staff has established 
collaborative relationships with several Department of Defense agencies 
and combatant commands in order to gain wider access to information 
critical to developing evidentiary records in support of designations. 
Working with DoD Commands and other DoD agencies provides OFAC and its 
DoD partners a force multiplier that brings together a variety of 
counterterrorism tools and resources. This will be an important model 
of interagency coordination as well as strategic vision for the 
Treasury Department as a whole, as we move toward greater integration 
and amplification of our intelligence and analysis functions in the 
Office of Intelligence and Analysis.

 Jemmah Islamiyah (JI)/Southeast Asia. In October 2002, OFAC 
    began a joint project with the U.S. Pacific Command (USPACOM) and 
    other DoD elements that identified terrorist support networks in 
    Southeast Asia and selected key nodes, or priority targets, in 
    these networks. The project's geographic scope included Indonesia, 
    the Philippines, Malaysia, and Singapore, and eight terrorist or 
    Islamic extremist groups. The project focused special attention on 
    the Al Qaeda-affiliated JI, the Abu Sayyaf Group (ASG), and the 
    Moro Islamic Liberation Front (MILF), because of their relative 
    importance in the region and threat to U.S. interests. The project 
    identified the key leaders, fundraisers, businessmen, recruiters, 
    companies, charities, mosques, and schools that were part of the JI 
    support network. OFAC has sought to expand on this model through 
    collaboration with other DoD agencies including the combatant 
    commands. These efforts have included:

 The Horn of Africa. OFAC analysts have worked with DoD 
    agencies, including analysts from the Office of Naval Intelligence 
    (ONI), to fully identify the terrorism support infrastructure in 
    the Horn of Africa. In this region, shipping and related drug 
    smuggling activities appear to be strengthening the terrorism 
    infrastructure. We were able to, in coordination with our 
    interagency partners; identify some of the key leaders, charities, 
    and businesses that appear to be critical to the overall 
    functioning of the network. In January 2003, we took joint action 
    with the Government of Saudi Arabia against two of these key 
    targets--the Kenya and Tanzania offices of the Saudi-based Al-
    Haramain Islamic Foundation.
 North Africa. In August 2003, I visited the U.S. European 
    Command headquarters (USEUCOM) and met with the Chief of Staff, to 
    begin a joint project including USEUCOM, OFAC Officers, and other 
    DoD elements to identify terrorist support networks in the North 
    Africa region and key nodes within this network. The geographic 
    scope of this project includes Morocco, Algeria, Tunisia, Libya, 
    Mauritania, and Mali, and nine terrorist or Islamic extremist 
    groups and their support networks. At the inception of this 
    project, the Director of USEUCOM's Intelligence Directorate 
    indicated that this region posed the most serious threat in 
    USEUCOM's area of responsibility and asked OFAC to devote available 
    resources to the project. The recent Madrid bombings and the 
    suspicion that North African terrorists may have been involved 
    illustrates the reality of the threat these groups pose not only to 
    the stability of the region but also the interests of the United 
    States and our allies.
 Caucasus. In January 2004, the USEUCOM Chief of Staff visited 
    OFAC and was briefed on an OFAC initiative to identify terrorist 
    groups and their support networks in another region of USEUCOM's 
    area of responsibility. The Chief of Staff invited an OFAC analyst 
    to USEUCOM's Joint Analysis Center in Molesworth, England, to work 
    with a regional analyst there to further develop information on 
    terrorist activity in the region. The outcome of the week-long 
    visit was that it confirmed our preliminary analytical conclusions 
    of terrorist activity and support. We are now in discussion with a 
    DoD element, USEUCOM, and an U.S. Government agency to pursue a 
    collaborative effort to refine our understanding and determine if 
    the initiative justifies the commitment of limited resources for 
    the ultimate exercise of OFAC sanctions or other appropriate U.S. 
    Government authorities against priority targets we may identify.
 Additional Initiatives. In March of this year, OFAC was 
    invited to brief the Headquarters North American Aerospace Defense 
    Command (NORAD) and U.S. North Command (USNORTHCOM) Interagency 
    Coordination Group (JIACG) on the subject of OFAC authorities under 
    Executive Order 13224 and OFAC efforts against terrorism. In 
    addition, the U.S. Southern Command (USSOUTHCOM) has also contacted 
    my office and expressed an interest in an OFAC analyst detailed to 
    the USSOUTHCOM JIACG. OFAC continues to explore collaborative 
    opportunities with both of these commands.

    These efforts have been so successful that, in December 2003, the 
Office of the Secretary of Defense requested the detail of six OFAC 
employees to the headquarters of six DoD combatant commands. As a 
result, we hope to detail OFAC analysts with the U.S. Central Command 
(USCENTCOM) and U.S. Special Operations Command (SOCOM) in the near 
future.
OFAC Attache Offices and Foreign Counterparts
    OFAC's ability to successfully pursue counternarcotics and 
counterterrorism missions has been greatly enhanced by assigning OFAC 
officers to attache and liaison positions abroad with several U.S. 
embassies and military commands.
 OFAC Bogota office coordinates OFAC sanctions programs in 
    Colombia and conducts research on Colombian drug cartels and narco-
    terrorists. The OFAC Attache and Assistant Attache in Bogota serve 
    as the liaison with U.S. Embassy elements and Colombian Government 
    agencies and have established solid relationships with the 
    Colombian banking and private sectors. OFAC/IPD officers travel 
    regularly to Colombia and have extensive knowledge of Colombian 
    drug cartel finances.
 OFAC Mexico City office coordinates OFAC sanctions programs in 
    Mexico. The OFAC Attache in Mexico serves as the liaison with U.S. 
    Embassy elements and Mexican Government agencies.

    In addition, OFAC's Attaches have established good working 
relationships with foreign counterparts in Colombia and Mexico which 
has supported U.S. interests in choking off drug cartel and narco-
terrorist finances through both joint investigations and actions. For 
example, Colombian companies designated by OFAC/IPD to the SDNT list 
are many times the targets of subsequent Colombian criminal asset 
forfeiture investigations.

 OFAC's Liaison Officer at the U.S. European Command (USEUCOM) 
    serves as OFAC's representative to the USEUCOM Joint Interagency 
    Coordination Group, as well as to targeting groups established by 
    USEUCOM. The liaison also coordinates joint projects underway 
    between USEUCOM and OFAC elements and travels regionally to provide 
    support to other OFAC programs, particularly the effort to block 
    the assets of Persons Indicted for War Crimes in the former 
    Yugoslavia.
 OFAC's Manama office is nearing completion of its physical 
    construction and is slated to have an attache assigned to it this 
    summer. The attache Bahrain will be responsible for establishing 
    relations with local government bodies engaged in counterterrorism 
    efforts and of investigating a variety of terrorist support issues 
    throughout the Arabian Gulf.
OFAC'S Vision for the Future
    In order to meet the increasing demands placed on OFAC as it 
fulfills its multiple missions against governmental and organizational 
targets, particularly its recent critical role in countering 
international terrorism and narcotics trafficking, OFAC is addressing 
specific challenges facing its component divisions described above.
Compliance Division
 OFAC Compliance is in the process of building new customer 
    interaction capabilities, with a state of the art automated 
    telephone system, enhanced hotline capabilities, and improved web 
    forms to allow the public to transmit detailed live transaction 
    data for our real time analysis and response. We expect that the 
    new automated reporting systems we are developing will allow 
    financial institutions and others to provide OFAC more quickly with 
    comprehensive information on interdicted transactions.
 Compliance is building a new Specially Designated Nationals 
    database that will allow enterprise-wide access to declassified 
    target information and permit analysts to directly link from a name 
    on the SDN list to the underlying declassified evidentiary material 
    for easy access.
 Compliance intends, in the near future, to make a new DataMart 
    feature available on the OFAC website that will allow users of 
    OFAC's Specially Designated Nationals list to more easily ``shop'' 
    for information that is tailored to their specific compliance 
    needs.
Licensing Division
 OFAC's Licensing Division plans to further increase the 
    efficiency with which license applications and requests for 
    interpretive rulings are processed, with a goal of no longer than a 
    two-week turnaround for submissions which do not require review and 
    clearance outside the Division.
 Licensing intends to develop enhanced capabilities for 
    scanning and e-mail connectivity to facilitate review and clearance 
    of licensing submissions requiring interagency consultation, with 
    the ultimate goal of developing a web-based system with interagency 
    access to avoid the need to transmit material altogether.
 The Division also plans to develop and publish on OFAC's 
    website ``treatises'' on the various categories of commercial and 
    financial transactions subject to OFAC's jurisdiction. These 
    treatises will discuss OFAC's licensing practices with regard to 
    the application of OFAC's regulations to those transactions. 
    Redacted versions of the Division's interpretive rulings will be 
    appended to the relevant treatise, providing comprehensive guidance 
    and promoting consistency and transparency with respect to subjects 
    ranging from trade issues and financial instruments and services to 
    ownership and control and acquisition and divestiture.
 Licensing will continue supporting OFAC's regulatory 
    implementation function by participating in the preparation of 
    draft regulations and promoting their timely clearance and 
    publication.
Enforcement Division
 Enforcement will build on and improve upon OFAC's existing 
    relationships with Federal law enforcement agencies, principally 
    the FBI, ICE, Customs and Border Protection, Commerce Office of 
    Export Enforcement, and Offices of the United States Attorney, to 
    enhance the criminal enforcement of OFAC sanctions programs.
International Programs (Counternarcotics) Division
 OFAC's continuing counternarcotics designation program 
    objectives are to identify, expose, isolate, and incapacitate the 
    business and financial infrastructures and penetrations into the 
    legitimate economy of foreign narcotics kingpins and drug cartels, 
    as well as their agents and functionaries. OFAC will continue to 
    develop its working relationships with Federal law enforcement 
    agencies, U.S. Attorneys' offices, intelligence community elements, 
    military commands, and select foreign enforcement and 
    counternarcotics units on a global basis.
 OFAC will continue to develop operational relationships in the 
    field and at headquarters with Federal law enforcement agencies, 
    U.S. Attorneys' offices, Intelligence Community elements, and 
    military commands. This includes more 
    personnel to work with OCDETF's and other operational task forces 
    and more training of the other government components in OFAC 
    narcotics designation programs.
 OFAC also plans to increase its participation in narcotics 
    fusion and targeting centers and related interagency programs.
Foreign Terrorism Division
 OFAC plans to continue to expand its efforts to impede the 
    activities of terrorist organizations utilizing the key nodes 
    methodology. This will be done in concert with the new Office of 
    Intelligence Analysis (OIA), as the Treasury Department works to 
    integrate its analytical work product with all components of 
    Treasury and the intelligence community. The new OIA will work with 
    OFAC to develop analysis about the structure of terrorist groups 
    and their support networks and identify and isolate key nodes 
    within them that serve critical functions, building upon the work 
    with the military commands. This work product will be used to help 
    OFAC's mission of administering the terrorist sanctions program.
 OFAC will seek to detail OFAC officers to six DoD combatant 
    commands for periods of 2 years to exploit the unique DoD resources 
    and abilities to identify terrorists, terrorist groups, and their 
    support networks, including DoD analytic 
    resources, data collection, and most importantly local knowledge.
IT Challenges
    Improving OFAC's Information Technology capabilities remains one of 
the greatest challenges to enhancing OFAC's ability to pursue its 
mission. OFAC could 
enhance current analytical capabilities by utilizing more advanced and 
available information technologies and advance communications 
capabilities. Communication and cooperation with participating unified 
military combatant commanders and civil agencies; has shown great 
promise in sharing information resources to identify terrorist targets, 
nonstate enemy that functions within worldwide terrorist networks, 
demands closer coordination by U.S. Government agencies and military in 
the diplomatic, economic, intelligence, and law enforcement domains. To 
enhance its capabilities, OFAC is pursuing the following communication 
systems and technologies that would enable the coordination and 
integration that is critical for agencies, military forces, and 
coalition nations to effectively fight in this new war:

 Database Application. OFAC could improve its ability to share 
    and store information with the development of an internal database 
    application. This application would reside on the ``classified'' 
    networks and allow OFAC analysts to store and analyze information. 
    This information could be shared, as appropriate, through 
    classified communication networks and provide participating 
    partners (Intelligence Community, Military Commands, and Law 
    Enforcement Agencies) with substantive targeting information.
 Enhanced Electronic Communication. This includes the 
    establishment of a multimedia infrastructure using the Defense 
    Messaging System cable communications servers, web servers, secure 
    e-mail, and data servers using Public Key Infrastructure (PKI) and 
    FORTEZZA national security information assurance for both the Joint 
    Worldwide Intelligence Communication System (JWICS) and the Secret 
    IP Router Network (SIPRNET) enclaves. Establishing connectivity to 
    the DoD interoperability of secure voice and data during periods of 
    heightened protection requiring rapid analytical reporting between 
    military and civil agencies.
 Establishment of a robust e-mail system and database 
    infrastructure for the exchange of Sensitive But Unclassified (SBU) 
    information with the United States and international partner law 
    enforcement community. This infrastructure would take advantage of 
    emerging technologies with respect to repudiation with digital 
    signature, authentication, and PKI information assurance 
    protections. The access of law enforcement databases (NLETS, TECS, 
    etc) for the cross-analytical work required between intelligence 
    and law enforcement sensitive data. This enhanced communications 
    will allow OFAC to exploit ``open to government'' information 
    sources.
 Developing Secure Video Teleconferencing (SVTC) capabilities 
    on both the JWICS for intelligence and SIPRNET for sanitized 
    information of a law enforcement nature. Completion of construction 
    on OFAC's Secure Video Teleconferencing facility will allow 
    officers in Washington to communicate and work more effectively on 
    joint projects involving civil agencies and U.S. military and 
    coalition forces. Ensuring the collaborative strategic planning of 
    a host of entities in the conduct of counterterrorism and 
    counternarcotic missions.
 Better Communication Utilizing SIPRNET and ADNET Enclaves. 
    Both the International Programs Division (counternarcotics) and the 
    Foreign Terrorist Programs Division (counterterrorism) will seek to 
    improve their electronic communication with the law enforcement 
    community by utilizing systems as SIPRNET and the Anti Drug Network 
    (ADNET).
Increased OFAC Cooperation with Foreign Counterparts
 OFAC's trips to target areas and its discussions with its 
    counterparts in other countries have afforded OFAC the opportunity 
    to work with these partners and provide guidance on the sanction 
    strategies it currently employs. In all these, and future efforts, 
    Treasury will take advantage of OFAC contacts and work abroad to 
    increase cooperative efforts and expand Treasury's its interaction 
    with other Government counterparts in order to deal with common 
    threats against the United States and our allies.

    Mr. Chairman, I would like to thank you and the Committee for the 
opportunity to speak on these issues. This concludes my remarks today. 
I will be happy to answer your questions.
                               ----------
                  PREPARED STATEMENT OF NANCY JARDINI
        Chief, Criminal Investigation, Internal Revenue Service
                             April 29, 2004
    Good Morning, Mr. Chairman and distinguished Members of the 
Committee. I appreciate the opportunity to be here today to discuss the 
Internal Revenue Service Criminal Investigation Division's (CI) 
capabilities to combat money laundering and terrorist financing, a 
grave threat to the Nation at home and abroad.
CI Mission
    CI is the IRS law enforcement component charged with enforcing the 
criminal provisions of the Internal Revenue Code and related financial 
crimes. When the Criminal Investigation Division was formed in 1919, 
IRS Special Agents were only responsible for investigating criminal 
violations of the Internal Revenue Code. Over the years, our financial 
investigative expertise has been recognized and increasingly sought by 
prosecutors and other investigative agencies and, as a result, our 
investigative jurisdiction has expanded to include money laundering and 
Bank Secrecy Act criminal violations.
    In 2000, IRS modernized its entire organizational structure, 
including CI. A number of important changes significantly improved our 
ability to carry out our mission effectively. For example, CI became a 
line organization, reporting directly to the Chief of CI in Washington. 
Previously, CI field offices reported to civil IRS managers. This 
restructuring enabled us to more effectively manage the workload 
balance in each of our 35 offices. Also, IRS Chief Counsel, Criminal 
Tax, became more involved in our casework at the onset rather than at 
the end of an investigation. This has helped reduce elapsed time on 
investigations and has supported our continually high prosecution 
acceptance rate at the Department of Justice. However, the most 
important change was a reshifting of our focus back to tax 
administration work. Over the years, as Judge Williams Webster said in 
his review of CI, ``CI had a mission drift, working on narcotics and 
money laundering investigations that were not focused on tax 
administration.'' Judge Webster further said, ``Over the last 20 years, 
Congress and the Department of Treasury have expanded CI's jurisdiction 
to cover offenses not only under the Internal Revenue Code but also 
under the money laundering and currency reporting statutes. The 
apparent rationale for this expansion essentially has been that 
effective investigation of these crimes requires the sophisticated 
financial expertise that CI agents uniquely possess.''
    As a result of the IRS modernization effort and Judge Webster's 
report, CI began the process of moving its focus back to tax. Since 
2000, CI's tax investigations have increased by 37 percent and 
narcotics work is now focused only on the most critical counter drug 
cases, amounting to about 15 percent of all investigations. CI is 
reimbursed for its narcotics work by the Department of Justice.
    Today, we continue to fine-tune our reorganization and our focus on 
tax administration. The financial investigative skills used by our 
special agents to investigate complex, convoluted tax schemes are the 
same skills we use to assist our partners in Federal law enforcement in 
the fight against terrorism.
Investigative Jurisdiction
    In addition to our primary jurisdiction, which is set forth in 
Title 26 of the United States Code (Internal Revenue Code), CI also has 
investigative jurisdiction involving other financial-related statutes. 
Beginning in 1970, Congress enacted a number of laws that led to 
greater participation by CI in the financial investigative environment. 
The Currency and Foreign Transactions Reporting Act of 1970 (Bank 
Secrecy Act); The Comprehensive Crime Control Act of 1984; The Anti-
Drug Abuse Acts of 1986 and 1988; Crime Control Act of 1990; The 
Annunzio-Wylie Anti-Money Laundering Act of 1992; The Money Laundering 
Suppression Act of 1994; The Antiter-
rorism and Effective Death Penalty Act of 1996; The Health Insurance 
Portability and Accountability Act of 1996; and the USA PATRIOT Act of 
2001 all developed and refined the existing anti-money laundering and 
antiterrorism laws under Titles 31 and 18 of the United States Code.
    This expanded jurisdiction, in money laundering and Bank Secrecy 
Act (BSA) violations, has permitted CI to effectively and efficiently 
follow the money. For more than 85 years, CI has solved complex tax and 
other financial crimes from Al Capone to John Gotti, Heidi Fleiss to 
Leona Helmsley, from corporate fraudsters to fraud promoters. CI 
Special Agents have developed, through specialized training and 
investigative experience, the keen ability to identify, trace, and 
document sophisticated and complex illicit transactions.
    The IRS Special Agent's combination of accounting and law 
enforcement skills are essential to investigating sophisticated tax, 
money laundering, and financial crimes. By collecting and analyzing 
financial records and tracing offshore transactions designed to hide 
assets, we document the source and ownership of funds whether they are 
controlled by a tax evader, a drug kingpin, corrupt corporate 
executive, or a terrorist. This rigorous investigative process provides 
the experience that makes the IRS Special Agent unique and a formidable 
opponent to the financial criminal.
    Our special agents are uniquely trained and skilled, possessing 
particularly strong accounting, financial and computer skills. CI is 
the only Federal law enforcement agency that has a minimum accounting 
and business educational requirement for all prospective special 
agents. Once hired, they endure a rigorous 26-week training course that 
includes general criminal investigation techniques, as well as 
intensive training in forensic accounting and financial investigations. 
At the Federal Law Enforcement Training Center (FLETC), CI agents 
routinely benefit from specialized antiterrorist financing training 
designed ad provided by the Department of Justice's Counterterrorism 
Section prosecutors. Their unique training and skills enable CI agents 
to analyze complex, often unusual, financial transactions, and easily 
equip them to investigate terrorism-financing involving:

 The leadership and members of extremist groups who have 
    committed tax, money laundering, or currency violations;
 Persons engaged in fundraising activities to support 
    terrorism, especially if tax exempt organizations are being 
    utilized; and
 Terrorism investigations involving complex, extensive, or 
    convoluted financial transactions.
Intersection of CI Mission with War on Terrorism
    Prior to the terrorist events of September 11, 2001, CI's role in 
counterterrorism primarily involved the investigation of domestic 
terrorists. Many domestic extremist groups have espoused antigovernment 
and anti-taxation philosophies. Criminal Investigation is often 
involved in investigations of individuals affiliated with these groups 
because of their violations of Federal tax, money laundering, and 
currency statutes.
    The 1983 shoot-out between U.S. Marshals and Gordon Kahl, a 
fugitive wanted on tax charges and a member of the Posse Commitatus 
(Power of the Country), resulted in the death of two U.S. Marshals. The 
Marshals were attempting to serve Kahl with warrants for violating the 
terms of his probation from a 1977 conviction for failing to file 
income tax returns. In the 1990's IRS offices were the targets of 61 
bomb threats and three actual bombings. During the Oklahoma City 
Bombing investigation, our agents were assigned to develop leads to 
identify those responsible. Our agents obtained receipts documenting 
the purchase of the fertilizer and dynamite used to manufacture the 
bomb and the truck rental receipt. Using this evidence our agents were 
able to construct a time line of the conspirators' whereabouts. Gordon 
Kahl, Timothy McVeigh, the Montana Freeman, members of the anti-tax 
movement, and other such groups derive their core beliefs from an anti-
tax, antigovernment movement and CI has been actively involved in the 
investigation of these persons and organizations for many years.
    Prior to September 11, CI participated on a selected basis in the 
Federal Bureau of Investigation's (FBI) Joint Terrorism Task Forces 
(JTTF's) in accordance with the Attorney General's 5-year 
Counterterrorism and Technology Crime plan. However, the events of 
September 11 significantly increased CI's counterterrorism commitment. 
Financial investigations are a critical part of the total war on 
terrorism and CI's expertise continues to be in high demand.
    It is important to emphasize the nexus between our core mission and 
terrorist financing. After September 11, CI developed plans to use the 
unique information collected by the IRS to include BSA data to develop 
and support terrorist financing investigations. In addition, we 
instructed our field offices to work directly with the Joint Terrorism 
Task Forces, the Department of Justice's Anti-Terrorism Task Forces, 
and the FBI's Strategic Information Operations Center in response to 
the Government's efforts to mobilize the resources of Federal law 
enforcement agencies to combat terrorism. Statistics show that the work 
we perform within our counterterrorism program is often related to our 
tax administration mission. Of our current 150 active terrorism 
investigations, 56 percent involve income tax violations, and over 18 
percent involve purported charitable and tax-exempt organizations.
What CI is Doing in Counterterrorism Today
    The disruption of terrorist financing mechanisms is critically 
important. The detailed financial investigations aimed at terrorist 
funding are capable of identifying the flow of money and the entities 
and individuals who conspire to harm the United States. The link 
between where the money comes from, who gets it, when it is 
received, and where it is stored or deposited, are vital pieces of 
information. By focusing on financial details, terrorism cells can be 
identified and neutralized. To effectively conduct terrorism 
investigations, strong cooperative relationships must exist between the 
Federal law enforcement agencies to leverage the skills and 
contributions of each.
    The Department of the Treasury is aware of the need to ensure 
appropriate 
coordination among its regulatory and enforcement components to ensure 
the most effective anti-money laundering and antiterrorist financing 
infrastructure possible. Included in these overarching responsibilities 
is the need to ensure effective BSA compliance and enforcement.
    Responsibility for ensuring compliance with the BSA of all non-
banking and financial institutions not otherwise subject to examination 
by another Federal functional regulator (for example, Money Service 
Businesses (MSB's), casinos, and credit unions) was delegated to the 
IRS by the Department of Treasury in December 1992. Under the 
delegation, IRS is responsible for three elements of compliance--the 
identification of MSB's, educational outreach to all three types of 
organizations, and the examination of these entities suspected of 
noncompliance. The IRS performs these compliance functions along with 
its criminal enforcement role.
    The processing and warehousing of all BSA documents into the 
Currency Banking and Retrieval System (CBRS), including FBAR's,\1\ 
CTR's,\2\ 8300's,\3\ and SAR's,\4\ are also the responsibility of the 
IRS. All documents entered into the CBRS (approximately 14 million 
annually) are made available to other law enforcement and regulatory 
agencies in addition to IRS. However, the IRS is the largest user of 
the CBRS. The total projected IRS costs for BSA for fiscal year 2004 is 
$132 million for both compliance and enforcement.
---------------------------------------------------------------------------
    \1\ Foreign Bank & Financial Account Report (FBAR).
    \2\ Currency Transaction Report--(CTR) FinCEN Form 104 and FinCEN 
Form 103 (filed by casinos).
    \3\ Report of Cash Payments Over $10,000 Received in a Trade or 
Business (IRS and FinCEN form 8300).
    \4\ Suspicious Transaction Reports--filed by financial institutions 
when there is suspicious activity, as determined by the financial 
institution.
---------------------------------------------------------------------------
    Each of the IRS-CI's 35 field offices has a functioning Suspicious 
Activity Report Review Team (SAR-RT) that works jointly with Federal/
State law enforcement representatives. Nationwide approximately 300-345 
employees are assigned, either full or part-time, to the SAR-RT's. 
These duties include proactive evaluation and analysis of the SAR's for 
case development and field office support. Each month, the field office 
SAR-RT's throughout the country review approximately 12,000-15,000 
SAR's.
    CI has fully utilized the tools now available under Title III of 
the USA PATRIOT Act. For example, Section 314(a) of the USA PATRIOT Act 
authorizes Federal law enforcement agencies to utilize the existing 
communication resources of FinCEN to establish a link between their 
respective agencies and over 26,000 financial institutions for the 
purpose of sharing information concerning accounts and transactions 
that may involve terrorist activity or money laundering. During the 
time period from April 2003 through March 2004, CI submitted 15 
requests pertaining to 63 individuals and 17 businesses. One thousand 
eighty-two financial institutions had positive responses, resulting in 
the identification of 635 positive account matches.
    Section 319(a) of the USA PATRIOT Act provides that when a criminal 
deposits funds in a foreign bank account and that bank maintains a 
correspondent account in the United States, the Government may seize 
and forfeit the same amount of money in the correspondent account. 
Utilizing Section 319(a), CI has participated in two investigations 
that together resulted in the seizure of approximately $3.5 million in 
funds from accounts held at correspondent banks in the United States.
Sharing our Knowledge with Others
    In addition to our financial investigative work, CI is also working 
with many foreign governments to train their investigators in the area 
of money laundering, financial investigative techniques, and terrorist 
financing. We are an active member of the Department of State led 
Terrorist Finance Working Group and we work in conjunction with the 
Department of State and other governmental and law enforcement agencies 
to provide a broad array of financial investigative training to foreign 
governments related to money laundering and financial crimes. In 
addition, CI also provides training jointly with the Department of 
Justice.
    Some specific current training conducted jointly with the 
Department of State and other law enforcement agencies such as Alcohol, 
Tobacco, and Firearms (ATF), FBI, Drug Enforcement Agency (DEA), and 
Immigration and Customs Enforcement (ICE) includes:

 Financial Investigative Techniques course at the International 
    Law Enforcement Academies in Bangkok, Budapest, and Gaborone;
 Joint Terrorism Finance Training conducted by FBI and CI in 
    the United Arab Emirates, Pakistan, Malaysia, Colombia, Turkey, 
    Qatar, Jordan, and Indonesia; and
 Department of State, International Narcotic and Law 
    Enforcement Affairs training is scheduled to be conducted in Egypt, 
    Paraguay, and Brazil later this year.

    Internally, CI has delivered international, antiterrorism finance 
training to our Special Agents who are assigned to the Joint Terrorism 
Task Forces around the country. The goal of this training is to bring 
the agents assigned to the task forces together to learn, discuss, and 
share experiences.
    We are working in partnership with Treasury's Executive Office for 
Terrorist Financing and Financial Crimes, the Office of Foreign Assets 
Control (OFAC), and the Financial Crimes Enforcement Network (FinCEN) 
to leverage all of the tools and skills of the Department of Treasury 
most effectively.
    CI's long-standing relationship with FinCEN continues to be a 
source of referrals that have resulted in significant financial 
investigations. During the fiscal year, CI's Garden City 
Counterterrorism Lead Development Center has received 101 potential 
terrorism investigative leads from FinCEN. Both CI and the SB/SE have 
permanent staff assigned at FinCEN to facilitate a continual flow of 
information.
    Our work with OFAC has increased dramatically since the Department 
of the Treasury's ``trace and chase'' activities began with the search 
for Iraqi assets. We are working closely with the Department of the 
Treasury and OFAC in their efforts to recover Iraqi assets so that they 
can be used for the reconstruction of Iraq. CI is also working with the 
Terrorist Financing Working Group comprised of numerous intelligence, 
law enforcement, and regulatory agencies to review the proposed anti-
money laundering and antiterrorist financing laws being drafted for 
Iraq.
    Some other CI efforts and partnerships focused on the investigation 
of terrorism financing include:

 Treasury Working Group on Terrorist Financing and Charities--
    Both CI and IRS Civil Division Tax Exempt/Government Entities.
 SAR Review Teams--designed to analyze and evaluate all 
    suspicious activity reports filed through CBRS.
 Interpol--The CI Liaison to the U.S. National Central Bureau 
    of INTERPOL assists CI field offices and other Federal, State, and 
    local law enforcement officers in obtaining leads, information, and 
    evidence from foreign countries.
 Defense Intelligence Agency Center (DIAC) (known as the Fusion 
    Center).
 High Intensity Drug Trafficking Area (HIDTA).
 Anti-Terrorism Advisory Council established by the Attorney 
    General.
 Joint Terrorism Task Forces (JTTF)--On a national level CI is 
    embedded with FBI on both the JTTF's and Attorney General's Anti-
    Terrorism Advisory Council, concentrating on the financial 
    infrastructure and fundraising activities of domestic and 
    international terrorist groups.
 The High Intensity Money Laundering and Related Financial 
    Crime Area (HIFCA) Task Forces. HIFCA's analyze Bank Secrecy Act 
    and other financial data and analyze potential criminal activity, 
    including terrorist financing. Twenty-six percent of our 150 open 
    terrorism-financing investigations are the result of, or involve, 
    Bank Secrecy Act data.
 Representation in FBI's Terrorist Financing Operations Section 
    (TFOS).

    In addition to our participation on these groups, we also make a 
unique contribution to counterterrorism efforts through the use of our 
computer investigative expertise. IRS has a unique software tool used 
by international, domestic, Federal, State, and local intelligence 
agencies. This software tool has the capability of analyzing multi-
terabytes of data in multiple languages, including Farsi. We have used 
this tool successfully in numerous investigations--from computers 
seized in abusive tax schemes to those found in caves in Afghanistan.
Investigative Statistics
    Since October 1, 2000, IRS CI has conducted 372 terrorism 
investigations in partnership with other law enforcement agencies. Over 
100 investigations have resulted in indictments. Of the 270 open 
investigations, 120 have already been referred to the Department of 
Justice for prosecution. Of the remaining 150 terrorism investigations 
currently being worked by IRS CI Special Agents:

 56 percent involve tax violations;
 97 percent involve participation with other agencies;
 26 percent either were results of, or involve, Bank Secrecy 
    Act data; and
 18 percent involve purported charitable or religious 
    organizations.
What We are Doing Within IRS
    Experience gained during the last 2 years has identified areas 
where CI can have a greater impact addressing terrorism related 
financial issues without duplicating the efforts of other law 
enforcement agencies. CI is piloting a counterterrorism project in 
Garden City, New York, which, when fully operational, will use advanced 
analytical technology and leverage valuable income tax data to support 
ongoing investigations and proactively identify potential patterns and 
perpetrators.
    The Garden City LDC was established in July 2000 to assist field 
offices in ongoing income tax and money laundering investigations. Due 
to the unique application of the skills and technology deployed to 
develop investigations at Garden City, it has been converted to focus 
exclusively on counterterrorism issues. When fully implemented, CI's 
efforts at the Counterterrorism LDC will be dedicated to providing 
nationwide research and project support to CI and JTTF terrorist 
financing investigations. Relying on modern technology, the Center is 
staffed by CI Special Agents and Investigative Analysts, in conjunction 
with experts from the IRS' Tax Exempt/Government Entities (TE/GE) 
Operating Division. Together these professionals research leads and 
field office inquiries. Using data from tax-exempt organizations and 
other tax-related information that is protected by strict disclosure 
laws, the Center analyzes information not available to, or captured by, 
any other law enforcement agency. Thus, a complete analysis of all 
financial data is performed by the Center and disseminated for further 
investigation.
    This initiative supports the continuation of CI's response to 
domestic and international terrorism, and ensures efficient and 
effective use of resources through advanced analytical technology by 
subject matter experts. Analytical queries and proactive data modeling 
assist in identifying previously unknown individuals who help fund 
terrorist organizations and activities, with particular focus on the 
use of purported charitable organizations, hawalas, wire remitters, and 
other terrorist funding mechanisms. Pending before Congress is 
legislation that would extend the manner by which confidential tax 
return information can be disclosed in terrorism-related matters. 
Changes to the Federal tax disclosure laws dealing with terrorism 
issues were made in the ``Victims of Terrorism Act of 2001.'' Those 
changes, however, expired on December 31, 2003.
    Following are examples of two terrorist investigations in which CI 
was involved:

    A Federal search warrant was executed FBI, DHS/ICE, and IRS-CI on 
February 18, 2004, against the property purchased on behalf of an 
Islamic Foundation in Oregon. The warrants were executed pursuant to a 
criminal investigation into possible violations of the Internal Revenue 
Code, the Money Laundering Control Act, and the Bank Security Act. The 
U.S. Treasury and the Kingdom of Saudi Arabia had jointly designated 
the Bosnian and Somalia Branches of this organization as supporters of 
terrorism. An associate established a tax-exempt charitable 
organization in the United States, and knowingly filed a materially 
false information tax return in violation of Internal Revenue Code 
Section 7206.

    Benevolence Director Sentenced After Pleading Guilty To 
Racketeering Conspiracy. On August 18, 2003, in Chicago, IL, Enaam M. 
Arnaout, the Executive Director of Benevolence International 
Foundation, Inc. (BIF), a purported charitable organization based in 
south suburban Chicago, was sentenced to 136 months in prison after 
pleading guilty in February 2003 to racketeering conspiracy, admitting 
that he fraudulently obtained charitable donations in order to provide 
financial assistance to persons engaged in violent activities overseas. 
Arnaout was also ordered to pay restitution in the amount of $315,000 
to the Office of the United Nation High Commissioner for Refugees. 
Arnaout admitted that, for approximately a decade, the BIF was 
defrauding donors by leading them to believe that all donations were 
strictly being used for peaceful, humanitarian purposes while a 
material amount of the funds were diverted to fighters overseas. 
Arnaout specifically admitted providing items to fighters in Chechnya 
and Bosnia.
International Arena
    Aside from CI's association with domestic task forces, CI also 
participates in the international arena. Through efforts developed by 
the Department of the Treasury, CI participates in the newly created 
Joint Terrorist Financing Task Force in Riyadh, Saudi Arabia along with 
local Saudi investigators. Through this task force, agents from FBI and 
Criminal Investigation have gained unprecedented access to Saudi 
accounts, witnesses, and other information. The Task Force agents both 
provide and receive investigative lead information on various 
terrorist-financing matters. Investigations involving the use of tax-
exempt organizations to finance terrorist activities are a high 
investigative priority for Criminal Investigation. This initiative 
supports the continuation of CI's ability to identify and investigate 
those who use U.S. organizations and financial institutions to fund 
terrorist activities.
    CI has seven law enforcement attaches assigned to American 
Embassies or U.S. Consulates in Mexico City, Bogota, London, Frankfurt, 
Bridgetown, Ottawa, and Hong Kong. Their primary mission is to 
coordinate and support all field office requests for international 
assistance.
    CI is a permanent member of the U.S. Delegation to the Financial 
Action Task Force (FATF) and its Caribbean equivalent (CFATF). CI is 
involved in the drafting of the recently revised 40 recommendations 
that set the standards for best practices to be adopted by countries to 
combat money laundering.
    CI has participated in the assessments of numerous Middle Eastern, 
South American, and European countries anti-money laundering laws, 
policies, and procedures. As a result, during fiscal year 2004, CI will 
participate in follow up antiterrorism and anti-money laundering 
training with the FBI in countries such as Saudi Arabia, Thailand, 
Egypt, Pakistan, United Arab Emirates, Oman, Qatar, Bahrain, and 
others. Our liaison to the U.S. National Central Bureau of INTERPOL has 
provided urgently needed identifying information to the OFAC in 
terrorist-related actions.
    Among the myriad of tax evasion schemes facing law enforcement 
today, those perpetrated through offshore transactions are some of the 
most successful and difficult to detect and prosecute. The IRS has 
investigated numerous schemes where individuals and businesses have 
committed tax evasion involving both domestic and foreign source 
income. Investigation has revealed that purported charitable 
international organizations that support terrorism sometimes avail 
themselves of these arrangements and hide their transactions through 
similar sophisticated offshore arrangements.
Conclusion
    Today we carry on our 85-year tradition of solving financial crimes 
in concert with our other partners in the Department of the Treasury 
and the rest of law enforcement, and we do that by following the money.
    CI's achievements are the result of a collective effort and are a 
tribute to what can be achieved when Government works together. I am 
proud of the role that the Internal Revenue Service and CI, in 
particular, have played in achieving those successes. It is one of the 
great rewards of public service.
    Mr. Chairman, I thank you for this opportunity to appear before 
this distinguished Committee and I will be happy to answer any 
questions you and the other Committee Members may have.


                      THE SEPTEMBER 11 COMMISSION



                      AND EFFORTS TO IDENTIFY AND



                       COMBAT TERRORIST FINANCING

                              ----------                              


                     WEDNESDAY, SEPTEMBER 29, 2004

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.

    The Committee met at 10:06 a.m., in room SD-538, Dirksen 
Senate Office Building, Senator Richard C. Shelby (Chairman of 
the Committee) presiding.

        OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY

    Chairman Shelby. The hearing will come to order.
    Yesterday, the Committee looked at the role money service 
businesses and casinos play in the effort to combat money 
laundering and abuse of financial institutions by criminals and 
terrorist organizations. Today, we will focus specifically on 
the analysis and findings of two reports--the final report of 
the National Commission on Terrorist Attacks Upon the United 
States, or as it is also known, the September 11 Commission, 
and the Council on Foreign Relations' Update on the Global 
Campaign Against Terrorist Financing. While the September 11 
Commission's report itself offers little by way of findings and 
recommendations specific to terrorist financing, the history of 
events leading up to the terrorist attacks of September 11, 
2001, the report is replete with vital information on the 
methods the hijackers and their logistical supporters used to 
finance the operation. Of considerable value, though, is the 
separate monograph on terrorist financing produced by the 
Commission and released last month.
    The monograph on terrorist financing constitutes an 
indictment of a Government dangerously ill-prepared for the 
tragedies that befell this country on that terrible day a 
little more than 3 years ago. That remedial measures and 
substantive fixes, for example, the FBI's establishment of its 
Terrorism Finance Operation Section and the Treasury 
Department's new emphasis on terrorist financing have since 
been implemented, does not detract from the importance of the 
lessons drawn from the fine work done by the 
September 11 Commission.
    The Council on Foreign Relations' Update on the Global 
Campaign Against Terrorism Financing provides useful insights 
into the status of this country's efforts to forge a more 
effective multinational effort against terrorist organizations 
and their financial supporters. Following the devastating 
terrorist attacks in Riyadh in May and November 2003, the 
Government of Saudi Arabia finally got serious about adopting 
new policies and statutes with respect to official and 
unofficial charitable activities and other means of providing 
support to terrorist organizations. These policies and laws are 
highly commendable. As the Council's report indicates, however, 
the record on implementation remains questionable.
    The Council's report provides equally useful analysis of 
the status of efforts by various multinational organizations to 
build a consensus with regard to measures to prevent money 
laundering and terrorist financing. The Financial Action Task 
Force and the IMF and World Bank systems for assessing 
countries on their performance in passing and implementing laws 
and regulations to combat money laundering remains, the Council 
points out, an important tool in waging a battle against 
terrorist financing.
    Taken together, these two efforts offer valuable insight 
into the state of play on an essential component of the war on 
terrorism. We are pleased to have here this morning to discuss 
their report Lee Hamilton, Vice Chairman of the September 11 
Commission and my former colleague, and others, in U.S. House 
of Representatives, and our former colleague, Senator Slade 
Gorton. Gentlemen, welcome. We look forward to your testimony.
    On the second panel, we will hear from Mallory Factor and 
Lee Wolosky, a Vice Chair and Project Director, respectively, 
of the Council on Foreign Relations' report. Mr. Factor is 
currently President of Mallory Factor, Incorporated, an 
independent merchant bank and financial relations consultancy. 
Mr. Wolosky, in addition to practicing corporate and 
international law with the firm of Boies, Schiller, and 
Flexner, is an Adjunct Professor of International Affairs at 
Columbia University and an Adjunct Fellow at the Center for 
Strategic and International Studies.
    Finally, our third panel is comprised of Stuart Levey, 
Under Secretary for Enforcement and Director of the Office of 
Terrorism and Financial Intelligence at the Department of the 
Treasury; Michael Garcia, Assistant Secretary for Immigration 
and Customs Enforcement, Department of Homeland Security; and 
John E. Lewis, Deputy Assistant Director, Counterterrorism 
Division, Federal Bureau of Investigation.
    This is a lot of testimony for one hearing, but I am 
confident it will prove beneficial to the Committee and to the 
public. And I want to thank all of our witnesses for being here 
today and for their forbearance as we proceed through the 
panels.
    Senator Reed.

                 COMMENTS OF SENATOR JACK REED

    Senator Reed. Mr. Chairman, I simply want to commend Lee 
Hamilton, Slade Gorton, and their colleagues for their 
extraordinary contribution to our country in the Commission's 
deliberations, and I look forward to your testimony. I thank 
you very much, gentlemen.
    Chairman Shelby. Senator Enzi.

              STATEMENT OF SENATOR MICHAEL B. ENZI

    Senator Enzi. Thank you, Mr. Chairman. I appreciate your 
holding this latest in an ongoing series of hearings on money 
laundering and terrorist financing. Today, we are privileged to 
hear from Lee Hamilton, the Vice Chairman, and Senator Slade 
Gorton, a Commissioner on the September 11 Commission. The 
Commission's recently released report gave us great insight 
into how the terrorist events of September 11 were carried out 
and, more importantly, for this Committee how the activities 
were financed. I have been recommending to people all over 
Wyoming that they get a copy of that and read it. It is the 
best Government report that I have ever seen. It reads more 
like a novel, but most importantly it takes us back in time to 
September 10, 2001 and puts us in the frame of mind that we 
were there at that time and brings us forward so that we can 
understand the changes that have occurred since that time. The 
Commission and staff should be commended for preparing the 
lengthy and detailed report in such a relatively short time 
frame.
    In addition, I would also like to recognize Mallory Factor, 
the Vice Chair, and Lee Wolosky, the Co-Director, on their 
efforts as part of the Council on Foreign Relations. Mallory is 
an outstanding resource for information on anything on the 
international banking community and provides a lot of 
information that gives us insights into things that can be done 
and, more importantly, things that should be done. The findings 
in the Council's second report appears to complement the 
findings of the September 11 Commission. One recommendation 
that clearly stands out in both reports is the need for greater 
international cooperation and engagement. Immediately following 
the September 11 attacks, I had the privilege of working with 
Sir Jeremy Greenstock, the British Ambassador to the United 
Nations. Ambassador Greenstock was instrumental in the 
establishment and leadership of the United Nations Security 
Council Counterterrorism Committee or CTC.
    Under his effective leadership, the CTC was able to gather 
reports from over 170 individual nations. The reports were just 
the first step in demonstrating the potential benefits the 
international cooperation could obtain in his grouping of 
countries so that peer pressure could be exacted against each 
other, for each other, for the cooperation on sharing 
information I think provides a great model. It is clear, 
though, that there is a lot more work to be done.
    While the Department of the Treasury has worked with 
various international groups, including the Financial Action 
Task Force, the United States' attention on bringing the 
international partners to the table is critical in order to 
stop terrorist financing at its source. Recently, the new head 
of the Financial Action Task Force indicated that one of his 
primary goals was to bring China and India into the group 
before the end of next year. As these countries are fast 
becoming major financial centers, we too must engage them in 
our shared goal of ending terrorism financing.
    The international standards developed by the Department of 
the Treasury, the CTC, and the Financial Action Task Force are 
essential to focus everyone's attention on the formal and 
informal channels of money laundering and terrorist financing.
    For us, the USA PATRIOT Act helped to provide our financial 
regulators with the tools they needed to assist our financial 
institutions from knowingly or inadvertently promoting illegal 
financial activities.
    At our hearing today, I anticipate that the witnesses will 
be able to provide us clear guidance on how the United States 
should work to coordinate and engage the international 
community on these very important issues.
    Thank you.
    Chairman Shelby. Senator Stabenow.

              COMMENTS OF SENATOR DEBBIE STABENOW

    Senator Stabenow. Good morning, and thank you, Mr. 
Chairman. I think this hearing is very timely, given the 
intelligence reform bill that is on the floor of the Senate 
right now, and I want to welcome both of our colleagues and 
guests, Lee Hamilton and Slade Gorton. Lee, it was a pleasure 
to have served with you in the House, and I know that you and 
your colleagues have lived up to every one of our expectations 
in terms of your thoughtfulness and bipartisan way that you 
have conducted a very thorough investigation report. And so 
thank you to both of you and to all of your colleagues on the 
Commission.
    We know that we need to act thoughtfully, but quickly, and 
in a bipartisan manner on the recommendations of the 
Commission, and I am certainly anxious to do that.
    Mr. Chairman, one of the things that I think often gets 
overlooked as we discuss flaws in the USA PATRIOT Act is that 
this Committee's work on money laundering and tracking 
terrorist financing I think was one of the important and 
powerful parts of that Act. And I was pleased to sponsor some 
of the successful amendments on money laundering. My colleagues 
worked in a bipartisan way on this, but it is clear that 
tracking and being able to disrupt the movement of money to 
finance terrorist acts is an important part of the whole 
picture.
    And so I am pleased to be a part of a Committee that I 
think did excellent work at the time, and I appreciate the 
opportunity to hear from you this morning.
    Chairman Shelby. Thank you, Debbie.
    Senator Crapo.

                 COMMENTS OF SENATOR MIKE CRAPO

    Senator Crapo. Thank you, Mr. Chairman. I have no opening 
statement. I look forward to the interesting testimony we 
expect to receive today.
    Chairman Shelby. Senator Bunning.

                STATEMENT OF SENATOR JIM BUNNING

    Senator Bunning. Thank you, Mr. Chairman. I would like to 
welcome all of our witnesses here today. I would especially 
like to thank the two September 11 Commissioners who are former 
colleagues of mine for all their hard work and service to our 
Nation.
    I applaud Chairman Shelby for holding these two very, very 
important hearings on terrorist financing and the money 
laundering problems. Obviously, these are very important issues 
in fighting the war on terror, and I think yesterday's hearing 
was a very good lead-in for today.
    The Commission has done us a great service, both their 
recommendations and their tracing of the monies used to pull 
off the September 11 attacks. I think they cleared up a lot of 
the misconceptions, particularly for me, how relatively little 
money was used to pull off the attacks. For as long as the 
terrorists lived here, how many there were, living expenses, 
flight training, and travel, the fact that the operation only 
cost between $400,000 and $500,000 is very surprising. The fact 
that the U.S. Embassy bombings in Africa cost about $10,000 is 
also very disconcerting. It shows how daunting the problem that 
our money laundering and terrorist financing people have before 
them.
    Mr. Chairman, I have a long statement, so I would ask that 
the rest of it be entered into the record.
    Chairman Shelby. It will be included as part of the record 
in its entirety without objection.
    Senator Bunning. And I really welcome Mallory Factor, also 
here, who is an old friend of mine and all of the good work 
that he has done. I thank you for being here, and I intend to 
be here for the second panel.
    Chairman Shelby. Thank you. Your written statements will be 
made part of the record in their entirety.
    We will start with you Chairman Hamilton.

                  STATEMENT OF LEE H. HAMILTON

             VICE CHAIR, THE NATIONAL COMMISSION ON

            TERRORIST ATTACKS UPON THE UNITED STATES

            A FORMER U.S. REPRESENTATIVE IN CONGRESS

                   FROM THE STATE OF INDIANA

    Representative Hamilton. Thank you very much, Chairman 
Shelby, and the other distinguished Senators who are Members of 
the Committee on Banking, Housing, and Urban Affairs.
    Chairman Kean would liked to have been with us this 
morning. I think you all know he is President of Drew 
University. He has commitments there and was unable to be here.
    I am very, very pleased to be joined by Senator Gorton, who 
was one of our most distinguished Commissioners, contributed 
time and time again to the successful work of the Commission, 
and I am pleased to be with Slade this morning before you. He 
and I will share the presentation of the opening statement. I 
will just say it is an honor to appear here. I know that this 
Committee has been deeply involved in financial aspects of the 
country's war on terrorism. I know you have a lot of real 
expertise, and we are grateful to you for the prompt 
consideration of our recommendations.
    After September 11 attacks, the highest-level U.S. 
Government officials publicly declared that the fight against 
Al Qaeda financing was as critical as the fight against Al 
Qaeda itself. It was presented as one of the keys to success in 
the fight against terrorism. If we choke off the terrorists' 
money, if we drain the swamp as it were, we limit their ability 
to conduct mass casualty attacks.
    In reality, stopping the flow of funds to Al Qaeda and 
affiliated terrorist groups has proved to be essentially 
impossible. Meanwhile, tracking Al Qaeda financing is an 
effective way to locate terrorist operatives and supporters and 
to disrupt terrorist plots.
    Our Government strategy on terrorist financing has changed 
significantly from the early post-September 11 days. Choking 
off the money, of course, remains the most visible aspect of 
our approach--it is still very important--but it is not our 
only, probably not our most important goal. Making it harder 
for terrorists to get money is a necessary, but it is not a 
sufficient component of our overall strategy. Following the 
money to identify terrorist operatives and sympathizers 
provides a very powerful tool in the fight against terrorist 
groups. Use of that tool almost always remains invisible to the 
general public, but it is a critical part of the overall 
campaign against Al Qaeda.
    Today, the U.S. Government recognizes, quite appropriately 
in our view, that terrorist financing measures are simply one 
of many tools in the fight against Al Qaeda.
    Senator Gorton.

                   STATEMENT OF SLADE GORTON

            COMMISSIONER, THE NATIONAL COMMISSION ON

            TERRORIST ATTACKS UPON THE UNITED STATES

                   A FORMER U.S SENATOR FROM

                    THE STATE OF WASHINGTON

    Senator Gorton. The September 11 hijackers used United 
States and foreign financial institutions to hold, move, and 
retrieve their money. The hijackers deposited money into U.S. 
accounts primarily by wire transfers and deposits of cash or 
travelers checks brought from overseas. Additionally, several 
of them kept funds in foreign accounts, which they accessed in 
the United States through ATM and credit card transactions.
    The hijackers received funds from facilitators in Germany 
and the United Arab Emirates or directly from Khalid Sheikh 
Mohammed as they transited Pakistan before coming to the United 
States. The plot cost Al Qaeda somewhere in the range of 
$400,000 to $500,000, of which approximately $300,000 passed 
through the hijackers' bank accounts in the United States.
    While in the United States, the hijackers spent money 
primarily for flight training, travel, and living expenses such 
as housing, food, cars, and auto insurance. Extensive 
investigation has revealed no substantial source of domestic 
financial support. Neither the hijackers nor their financial 
facilitators were experts in the use of the international 
financial system. They created a paper trail linking them to 
each other and to their facilitators. Still, they were adept 
enough to blend into the vast financial international financial 
system easily without doing anything to reveal themselves as 
criminals, let alone terrorists bent on mass murder.
    The money laundering controls in place at the time were 
largely focused on drug trafficking and large-scale financial 
fraud. They could not have detected the hijackers' 
transactions. The controls were never intended to, and could 
not, detect or disrupt the routine transactions in which the 
hijackers engaged.
    There is no evidence that any person with advance knowledge 
of the impending terrorist attacks used that information to 
profit by trading securities. Although there has been 
consistent speculation that massive Al Qaeda-related insider 
trading preceded the attacks, exhaustive investigation by 
Federal law enforcement and the securities industry has 
determined that unusual spikes in the trading of certain 
securities were based on factors unrelated to terrorism.
    Al Qaeda and Osama bin Laden obtained money from a variety 
of sources. Contrary to common belief, bin Laden did not have 
access to any significant amounts of personal wealth, 
particularly after his move from Sudan to Afghanistan. He did 
not personally fund Al Qaeda either through an inheritance or 
businesses he was said to have owned in Sudan. Al Qaeda's 
funds, approximately $30 million a year, came from the 
diversion of money from Islamic charities. Al Qaeda relied on 
well-placed financial facilitators who gathered money from both 
witting and unwitting donors primarily in the Gulf Region.
    No persuasive evidence exists that Al Qaeda relied on the 
drug trade as an important source of revenue, had any 
substantial involvement with conflict diamonds or was 
financially sponsored by any Federal Government. The United 
States is not and has not been a substantial source of Al Qaeda 
funding, although some funds raised in the United States may 
have made their way to Al Qaeda and its affiliated groups.
    Since September 11, terrorist financing was not a priority 
for 
either domestic or foreign intelligence collection. 
Intelligence reporting on this issue was episodic, 
insufficient, and often inaccurate. Although the National 
Security Council considered terrorist financing important in 
its campaign to disrupt Al Qaeda, other agencies failed to 
participate to the NSC's satisfaction. There was little 
interagency strategic planning or coordination. Without an 
effective interagency mechanism, responsibility for the problem 
was dispersed among a myriad of agencies working independently.
    The FBI gathered intelligence on a significant number of 
organizations in the United States suspected of raising funds 
for Al Qaeda or other terrorist groups. The FBI, however, did 
not develop an end game for its work. Agents continued to 
gather intelligence with little hope that they would be able to 
make a criminal case or otherwise disrupt the operations of 
these organizations.
    The FBI could not turn these investigations into criminal 
cases because of, one, insufficient international cooperation; 
two, a perceived inability to mingle criminal intelligence 
investigations due to the wall between intelligence and law 
enforcement matters; three, sensitivities to overt 
investigations of Islamic charities and organizations; and, 
four, the sheer difficulty of prosecuting most terrorist 
financing cases.
    Nonetheless, FBI street agents had gathered significant 
intelligence on specific groups. On a national level, the FBI 
did not 
systematically gather and analyze the information its agents 
developed. It lacked a headquarters unit focusing on terrorist 
financing. Its overworked counterterrorism personnel lacked 
time and resources to focus specifically on financing.
    The FBI, as an organization, therefore, failed to 
understand the nature and extent of the Jihadist fundraising 
problem within the United States or to develop a coherent 
strategy for confronting the problem. The FBI did not, and 
could not, fulfill its role to provide intelligence on domestic 
terrorist financing to Government policymakers. The FBI did not 
contribute to national policy coordination.
    The Department of Justice could not develop an effective 
program for prosecuting terrorist-financed cases. Its 
prosecutors had no systematic way to learn what evidence of 
prosecutable crimes could be found in the FBI's intelligence 
files to which it did not have access. The U.S. intelligence 
community largely failed to comprehend Al Qaeda's methods of 
raising, moving, and storing money. It devoted relatively few 
resources to collecting the financial intelligence that 
policymakers were requesting or that would have informed the 
larger counterterrorism strategy.
    The CIA took far too long to grasp basic financial 
information that was readily available, such as the knowledge 
that Al Qaeda relied on fundraising, not bin Laden's personal 
fortune. The CIA's inability to grasp the true source of bin 
Laden's funds frustrated policymakers.
    The U.S. Government was unable to integrate potential 
covert action or overt economic disruption into the 
counterterrorism effort. The lack of specific intelligence 
about Al Qaeda financing and intelligence deficiencies 
persisted through September 11. The Office of Foreign Assets 
Control, the Treasury organization charged by law with 
searching out, designating, and freezing bin Laden assets, did 
not have access to much actionable intelligence.
    Before September 11, a number of significant legislative 
and regulatory initiatives designed to close vulnerabilities in 
the U.S. 
financial system failed to gain traction. They did not gain the 
attention of policymakers. Some of these, such as a move to 
control foreign banks with accounts in the United States, died 
as a result of banking industry pressure. Others, such as a 
move to regulate money remitters, were mired in bureaucratic 
inertia and a general anti-regulatory environment.
    Since September 11, 2001, it is common to say that the 
world has changed. This conclusion is particularly apt in 
describing U.S. counterterrorist efforts regarding financing. 
The U.S. Government has focused, for the first time, on 
terrorist financing and devoted considerable energy and 
resources to the problem. As a result, we now have a far better 
understanding of the methods by which terrorists raise, move, 
and use money. We have employed this knowledge to our 
advantage.
    With a new sense of urgency post-September 11, the 
intelligence community, including the FBI, created new entities 
to focus on and bring experts to the question of terrorist 
fundraising and the clandestine movement of money. The 
intelligence community uses money flows to identify and locate 
otherwise unknown associates of known terrorists and has 
integrated terrorist-financing issues into the larger 
counterterrorism effort.
    Equally important, many of the obstacles hampering 
investigations have been stripped away. The current 
intelligence community approach appropriately focuses on using 
financial transactions in close coordination with other types 
of intelligence to identify and track terrorist groups rather 
than to starve them of funding.
    Still, understanding Al Qaeda's money flows and providing 
actionable intelligence to policymakers present ongoing 
challenges because of, first, the speed, diversity, and 
complexity of the means and methods for raising and moving 
money; second, the commingling of terrorist money with 
legitimate funds; third, the many layers and transfers between 
donors and the ultimate recipients of the money; fourth, the 
existence of unwitting participants, including donors who give 
to generalized Jihadist struggles rather than specifically to 
Al Qaeda; and, fifth, the U.S. Government's reliance on foreign 
government reporting for intelligence.
    Bringing Jihadist fundraising prosecutions remains 
difficult in many cases. The inability to get records from 
other countries, the complexity of directly linking cashflows 
to terrorist operations and to groups, and the difficulty of 
showing what domestic persons knew about illicit foreign acts 
or actors all combine to thwart investigations and 
prosecutions.
    Domestic financial communities and some international 
financial institutions have generally provided law enforcement 
and intelligence agencies with extraordinary cooperation. This 
cooperation includes providing information to support quickly 
developing investigations such as the search for terrorist 
suspects at times of emergency. Much of this cooperation is 
voluntary and based on personal relationships.
    It remains to be seen whether such cooperation will 
continue as the memory of September 11 fades. Efforts to create 
financial profiles of terrorist cells and terrorist fundraisers 
have proved unsuccessful, and the ability of financial 
institutions to detect terrorist financing remains limited.
    Since the September 11 attacks and the defeat of the 
Taliban, Al Qaeda's budget has decreased significantly. 
Although the trend line is clear, the U.S. Government still has 
not determined, with any precision, how much Al Qaeda raises, 
from whom, or how it spends its money. It appears that the Al 
Qaeda attacks within Saudi Arabia in May and November of last 
year have reduced, some say drastically, Al Qaeda's ability to 
raise funds from Saudi sources.
    There has been both an increase in Saudi enforcement and a 
more negative perception of Al Qaeda by potential donors in the 
Gulf. However, as Al Qaeda's cashflow has decreased, so too 
have its expenses, generally, owing to the defeat of the 
Taliban and the dispersal of Al Qaeda. Despite our efforts, it 
appears that Al Qaeda can still find money to fund terrorist 
operations. Al Qaeda now relies to an even greater degree on 
the physical movement of money and other informal methods of 
value transfer which can pose significant challenges for those 
attempting to detect and disrupt money flows.
    Representative Hamilton. Technical recommendations are 
beyond the scope of our remarks today, but let me stress four 
themes in relationship to the work of this Committee.
    One, continued enforcement of the Bank Secrecy Act rules 
for financial institutions, especially in the area of 
Suspicious Activity Reporting, is very necessary. The 
Suspicious Activity Reporting provisions currently in place 
provide our first defense in deterring and investigating the 
financing of terrorist entities and operations. Financial 
institutions are in the best position to understand and 
identify problematic transactions or accounts.
    Although the transactions of the September 11 hijackers 
were small and innocuous and could probably not be detected 
even today, vigilance in this area is important. It forces 
terrorists and their sympathizers to raise and move money 
clandestinely, thereby raising the costs and the risks 
involved. The deterrent value in such activity is significant, 
and while it cannot be measured in any meaningful way, it ought 
not to be discounted.
    The USA PATRIOT Act expanded the list of financial 
institutions subject to the Bank Secrecy Act regulation. We 
believe that this was a necessary step to ensure that other 
forms of moving and storing money, particularly less-regulated 
areas such as wire remitters, are not abused by terrorist 
financiers and money launderers.
    Second, investigators need the right tools to identify 
customers and trace financial transactions in fast-moving 
investigations. The USA PATRIOT Act gave investigators a number 
of significant tools to assist in fast-moving terrorism 
investigations. Section 314(a) allows investigators to find 
accounts or transactions across the country. It has proved 
successful in tracking financial transactions and could prove 
invaluable in tracking down the financial component of 
terrorist cells.
    Section 326 requires specific customer identification 
requirements for those opening accounts at financial 
institutions. We believe both of these provisions are extremely 
useful and properly balance customer privacy and the 
administrative burden, on the one hand, against investigative 
utility on the other.
    Third, continuous examination of the financial system for 
vulnerabilities is necessary. We spent significant resources in 
examining the ways Al Qaeda raised and moved money. We are 
under no illusions that the next attack will use similar 
methods. As the Government has moved to close financial 
vulnerabilities and loopholes, Al Qaeda adapts. We must 
continually examine our system for loopholes that Al Qaeda can 
exploit and close them as they are uncovered. This will require 
constant efforts on the part of this Committee working with the 
financial industry, their regulators and the law enforcement 
and intelligence communities.
    Finally, we need to be mindful of civil liberties in our 
efforts to shut down terrorist networks. In light of the 
difficulties in prosecuting some terrorist fundraising cases, 
the Government has used administrative blocking and freezing 
orders under the International Emergency Economic Powers Act, 
or IEEPA, against U.S. persons, individuals, or entities 
suspected of supporting foreign terrorist organizations. It may 
well be effective and perhaps necessary to disrupt fundraising 
operations through an administrative blocking order when no 
other good options exist.
    The use of IEEPA authorities against domestic organizations 
run by United States citizens, however, raises significant 
civil liberty concerns. IEEPA authorities allow the Government 
to shut down an organization on the basis of classified 
evidence, subject only to a deferential, after-the-fact 
judicial review.
    The provision of the IEEPA that allows the blocking of 
assets during the pendency of an investigation also raises 
particular concern in that it can shut down a U.S. entity 
indefinitely without the more fully developed administrative 
record necessary for a permanent designation.
    Vigorous efforts to track terrorist financing must remain 
front and center in the U.S. counterterrorism efforts. The 
Government has recognized that information about terrorist 
money helps us to understand their networks, search them out, 
and disrupt their operations. These intelligence and law 
enforcement efforts have worked. The death or capture of 
several important facilitators has decreased the amount of 
money available to Al Qaeda, increased its costs and 
difficulties in moving money. Captures have produced a windfall 
of intelligence.
    Raising the costs and risks of gathering and moving money 
are necessary to limit Al Qaeda's ability to plan and mount 
significant mass casualty attacks. We should understand that 
success in these efforts will not, of itself, immunize us from 
future attacks.
    Thank you very much. We are pleased to respond to any 
questions you may have.
    Chairman Shelby. Thank you, both.
    The Commission seems to think that the reason the bits of 
information that might have come together to foretell September 
11 never came together is that no one person was in charge, but 
is that really the reason or is it more accurate to think of 
the reasons as being, the volume of information, especially 
with regard to counterterrorism financing efforts, is so 
voluminous that even with continued rapid advances in data 
processing, it simply cannot be collected, stored, retrieved, 
and analyzed either in a single database or in sufficient time 
to make a difference or, legitimate security concerns limit the 
degree to which confidential information can safely be shared 
either among Government entities or with the financial 
industry?
    Mr. Gorton.
    Senator Gorton. We listed 10 or a dozen missed 
opportunities pre-September 11. I do not believe--I can be 
corrected by my staff--that any of them were financial in 
nature. They were intelligence mishaps. We have said in our 
opening statement here that the transactions in which these 
terrorists engaged were routine transactions that we probably 
would not even be able to trace today.
    Chairman Shelby. Under the screen.
    Senator Gorton. Yes. But the missed opportunities were due, 
at least in part, to the absence of a central point that could 
collect all intelligence information on a particular subject. 
The FBI, of course, did not even talk to itself between law 
enforcement and intelligence much less to the CIA and to other 
agencies. The head of the FBI never met with the President. We 
had a frustratingly broken system, but the head that we are 
talking about in this National Intelligence Directorate was 
aimed more at that missed opportunity than it was at financial 
transactions.
    Chairman Shelby. Do you agree with that?
    Representative Hamilton. Mr. Chairman, you identify of 
course what we--I guess our principal finding in many ways was 
that there was not sufficient sharing of information----
    Chairman Shelby. That is right.
    Representative Hamilton. --as you indicate in your question 
and the fact that you highlight the voluminous data that the 
U.S. Government deals with. We produce billions of bytes of 
data every day, billions of bytes, and getting it collected and 
analyzed is a horrendous task.
    We had these two hijackers, Mindhar and Alhazmi, in San 
Diego. They used the banking system, and if we had just been 
able to pick up that information better and if we had had 
someone in charge, that is the key here, and that is what we 
found really lacking in our intelligence. You collect 
information over here, you collect it over here. You have human 
intelligence. You have signals intelligence. You have 
intercepts. It comes in horrendous volumes, all of these people 
doing very good work. They are highly capable.
    They are patriotic people, but not only was there 
insufficient sharing, but there was also an insufficient 
management. No one really stepped forward and said, ``Okay, I 
have my eye on these two guys out here in San Diego. They are 
suspicious characters. We have bits and pieces of information 
about them,'' but nobody really managed the case. So you have 
to have somebody managing all that data.
    Chairman Shelby. No one in charge.
    Representative Hamilton. Nobody in charge. Nobody really 
trying to put it all together.
    Chairman Shelby. Thank you.
    The Commission's report also suggests that currently 
available enforcement powers are not being used to their 
fullest extent to shut down suspected terrorist financing 
networks and have failed to create an efficient bureaucratic 
structure to combat the problem. Could you expand on the weak 
use of enforcement powers and what you think needs to be done 
to improve efficiency in this area of financial networks.
    Representative Hamilton. Well, I think our general 
impression, Mr. Chairman, may be counter to that. We think we 
have come a long way since September 11 in improving our 
enforcement powers. You can always get better, of course, in 
anything that you do, but there is not any doubt that the law 
enforcement agencies, the FBI and others, are much, much better 
prepared today than they were prior to September 11 to apply 
these enforcement powers.
    In your area of financial transactions, it always seems to 
me that the important thing is to try to get information 
quickly that really comes in through the banking system and to 
get that information as quickly as possible, to identify it, of 
course, and to get it to the investigator as quickly as 
possible. That is really the key so that they can enforce. I 
think there has been improvement there, and the powers given in 
the USA PATRIOT Act here that I identified in my statement are 
helpful, but that is the best way I believe to improve the 
quality of enforcement.
    Senator Gorton. Mr. Chairman, I think that sometimes our 
expectations are awfully high. Last night, I got back to the 
hotel in time to watch one of my favorite one-hour television 
shows, NCIS. And the subject was a kidnapping and an attempt to 
transfer $2 million. And, of course, just in time for 9 o'clock 
to come around, the $2 million seemed to have been transferred 
to about eight different places all the way around the world, 
and the heroes were there to catch the villain, you know, just 
as the money came back to the United States.
    Chairman Shelby. It has improved a lot, has it not, on TV.
    Senator Gorton. Yes, a very impressive television program, 
but I am thinking that is really not quite the way it is in the 
real world. These transactions are very, very difficult to 
trace. And as we point out, and in a sense this is 
counterintuitive, our people, our law enforcement agencies now, 
are using these transactions more to catch the terrorists than 
they are to intercept the money. It is a very important part of 
it because you are looking for the individual, and we are doing 
a better job in that connection.
    Chairman Shelby. But you want to do both, do you not--
intercept the money and catch the terrorists?
    Senator Gorton. Of course, we want to do both, but even 
these law enforcement agencies have to set priorities.
    Representative Hamilton. We do think the FBI needs to 
improve the gathering and the analyzing of the information that 
is developed because what you said in your opening question, 
there is such a voluminous amount of data, and they have to 
create an analytical career track to enhance their analytical 
capabilities.
    Chairman Shelby. That is tough to do, is it not?
    Representative Hamilton. Very, very tough to do. I think 
the problems have been identified. We have commended Director 
Mueller for trying to improve this greatly. It is a huge task, 
so we cannot expect miracles, even in a matter of a couple of 
years, but we think they are moving in the right direction.
    Chairman Shelby. Thank you.
    Senator Stabenow.
    Senator Stabenow. Thank you, Mr. Chairman.
    Just to follow up on the Chairman's questions, we know that 

terrorist financing alone, in terms of the oversight, is in 
many different departments. You have discussed all of the 
different departments and agencies within departments where 
just this one piece is tracked and enforced and so on.
    We know there is a recommendation for a National 
Intelligence Director to oversee everything, but do we need to 
more specifically be looking at a more centralized way just for 
terrorist financing? Is it enough to have someone bringing 
together all of the pieces from financing to other kinds of 
intelligence or did you find in your efforts that we should 
more specifically bring together those agencies specifically 
around terrorist financing?
    Representative Hamilton. Go ahead, Slade.
    Senator Gorton. Some people have suggested something of a 
financing czar. We have not made that recommendation, Senator, 
because we do not think that there is a distinction between 
financing and other aspects of terrorism. One of the two 
elements that are central to your considerations right now on 
the bill on the floor is a National Counterterrorism Center, 
and we think that this financing information and the people 
working in that should be integrated into that rather than 
dealt with separately.
    Representative Hamilton. It is a very good question.
    You have a lot of agencies involved. You have Treasury, you 
have the Justice Department, you have the FBI, Homeland 
Security, you have the National Security Council, and so you do 
have to be alert to the questions you are raising about turf 
consciousness and lack of coordination and all of the rest of 
it, and we looked at that.
    But we think that the way it is coordinated today, which is 
in the National Security Council and under their Policy 
Coordinating Committee, it works reasonably well. And one of 
the fundamental views we had is that counterterrorism, in order 
to have an effective counterterrorism policy, you really have 
to emphasize integration. And by integration I mean 
counterterrorism policy that has military aspects, covert 
action aspects, diplomacy aspects, financing aspects, public 
diplomacy, law enforcement, all in all, and the key to good 
counterterrorism policy is integration, and that means 
cooperation, and it has to be institutionalized.
    In the area of financing, it is important that we 
recognize, as Slade has said, that that is only a part of your 
counterterrorism effort. And you do not want somebody up here, 
a czar of financing, who is not integrated into the entire 
structure, and so we rejected it and thought that to have a 
stand-alone czar on terrorist financing would not be a good way 
to do it.
    Senator Stabenow. Thank you, Mr. Chairman.
    Chairman Shelby. Senator Enzi.
    Senator Enzi. Thank you, Mr. Chairman.
    I think we have gone around the edge of this a little bit, 
but the Department of the Treasury, in an effort to focus on 
terrorism financing, established the Office of Terrorism and 
Financial Intelligence. What are your thoughts on how this 
office is operating and are there any special areas of focus 
that that office should be targeting? And how do you see 
Treasury and FinCEN's role under a new intelligence structure? 
Should it be expanded or limited?
    Representative Hamilton. One of the things that impressed 
me, you raised it in your opening statement, Senator, and this 
is a matter of international cooperation in dealing with 
terrorist financing, you cannot cut off terrorist financing 
without international cooperation. It just cannot be done. And 
you are not here talking about 50 countries. You are talking 
really about a handful of countries that we need to develop 
much better cooperation and get their cooperation. And some of 
these countries, Pakistan, for example, have what I am sure you 
gentlemen would call very, very limited financial regulation, 
very limited financial institutions. So this is a tough problem 
in getting the cooperation of these countries that have a 
rudimentary financial structure.
    But I do think that it is an enormously important effort to 
try to get international cooperation. And you see the 
difference between the Saudis before the attacks in Saudi 
Arabia. One was at 2003, I think, and the attacks afterwards, 
when we began to get the cooperation. Chairman Shelby mentioned 
that in his opening statement. And once you begin to get that 
cooperation, things really begin to improve in terms of tracing 
terrorist financing, and I think that is a very important 
matter.
    Slade, did you want to add to that?
    Senator Gorton. No.
    Senator Enzi. I appreciate your comments, too, on the 
difference between freezing assets and following the assets. In 
hearings before this Committee shortly after the September 11 
attacks, we found that U.S.-based Islamic charities contributed 
to the funding of Al Qaeda and other terror organizations. In 
your report, you concluded that U.S. sensitivities to open 
investigations of these charities have prevented our law 
enforcement agencies from effectively preventing such practices 
and that something needs to be done.
    Have you seen increased cooperation by these groups since 
September 11, and what is your opinion of the strengthened hand 
of law enforcement officials in investigating those types of 
organizations under the USA PATRIOT Act?
    Senator Gorton. Well, all attitudes have changed since 
then. And the overwhelming sensitivity that, for all practical 
purposes barred that kind of work pre-September 11, does not 
exist now. The sensitivities, however, are still there, and you 
know perfectly well every time one of these freeze orders hits 
the news, there is almost always a denial on the part of those 
whose assets were frozen that, in fact, they were engaged in 
any such activities.
    And I think we are properly sensitive to an interference 
with any type of freedom of religion, but we also have to be 
extremely conscious of the fact that this is one of the ways in 
which terrorism is financed, and we can go beyond Al Qaeda in 
this case, to a Hamas, a Hezbollah, and a number of those other 
areas.
    So, I guess, our summary is we are doing a better job now. 
We are getting some cooperation from some of these other 
organizations. We still have very real sympathies, and this is 
very likely a weak point in our armor.
    Representative Hamilton. Senator, may I say the question of 
freezing is one we did address, and I think all of us can 
appreciate it is a very powerful weapon in the arsenal against 
terrorism. You can also overuse it. I think that a tendency 
usually would be to say, let us go in there and freeze those 
assets and cut this off during this swamp right away, and that 
is obviously a temptation.
    What we concluded was that you really have to look at this 
on a case-by-case basis. Sometimes it is better not to freeze 
the assets and then to try to follow the money trail. It will 
lead you to something bigger, to something more important. So, 
I do not think you want a general rule here and say, okay, let 
us always freeze the assets. I think you have to leave 
discretion to the enforcement people on that question, and they 
have to decide, on a case-by-case basis, whether to freeze or 
not to freeze, and sometimes not to freeze may be the better 
tool for you.
    Senator Enzi. Banker cooperation probably----
    Representative Hamilton. Yes, indeed.
    Senator Enzi. --is more likely to happen if they are not 
the one blamed for stopping the asset, but providing the 
information.
    Representative Hamilton. Absolutely.
    Senator Enzi. I see my time has expired. Thank you, Mr. 
Chairman.
    Chairman Shelby. Senator Sarbanes.

             STATEMENT OF SENATOR PAUL S. SARBANES

    Senator Sarbanes. Thank you very much, Mr. Chairman.
    First of all, I want to, Mr. Chairman, again thank you for 
holding this hearing and others. This Committee, as you know, 
has been pursuing a very active oversight agenda on the issue 
of the financing of terrorism and its various aspects. We have 
been pushing the regulators very hard to take seriously and 
implement fully the Bank Secrecy Act. And we have also been 
looking at whether the Government is properly organized to 
analyze and use the information in order to identify terrorist 
funding or laundered money.
    In fact, we had a hearing yesterday addressing the question 
of money services businesses and casinos, and we are waiting 
for a reply, but I think it is probably going to come back and 
tell us that the Secretary of the Treasury and the Commissioner 
of Internal Revenue and the Treasury is delegated to the 
Internal Revenue its authorities with respect to the money 
service businesses and the casinos have probably not met at 
that high level in order to focus their attention on this 
problem and to coordinate their efforts.
    So, I think the point that is being made about coordination 
is extremely important and hopefully these oversight hearings 
will help to induce a certain amount of that. We have had some 
success in that the Treasury Secretary has now met and 
apparently it is now scheduled to be done on a periodic basis 
with the bank regulators with respect to the Bank Secrecy Act. 
That had not been taking place before in an effort to 
coordinate and focus the attention.
    Mr. Chairman, before I ask any questions, I do want to take 
a moment to thank Congressman Hamilton and Senator Gorton for 
their service on the September 11 Commission. I think the 
Commission has rendered a great service to the Nation. I am 
impressed by the depth and breadth of their efforts, their 
analysis, and by the report they have issued. Obviously, we are 
hopeful that we will be able to implement changes paralleling 
many of their findings. I think, in the Senate, we actually are 
moving to implement a very substantial number of your 
recommendations in order to bring about needed change in this 
area.
    I served with both of these gentlemen, and I want to thank 
them for that contribution. I know it took a great deal of 
effort, focus, and concentration. We hope we can achieve the 
legislative changes or at least most of them, which you have 
deemed necessary.
    Let me pursue this point that Senator Enzi was pursuing. I 
take it, from your report, that you feel that on occasions our 
officials have been too quick to freeze the assets rather than 
to continue a tracking process in order to discern and develop 
the network through which the funds are moving; is that 
correct?
    Representative Hamilton. I do not think we made that 
judgment, Senator Sarbanes. The judgment we made is not to have 
a general rule and take each case by itself. We did not try to 
examine 10 or 15 cases where assets were frozen or not frozen, 
but we just saw the importance of using it for intelligence.
    Senator Gorton. I think my own reflection on that is this 
Committee stands in an almost unique position with its ability 
to do just that. You have spoken of the Chairman's large number 
of hearings on this subject. This was one aspect, an important, 
but just one aspect, of the work that you have had us do. It is 
something on which you concentrate. And to make judgments of 
that nature is a very important part of oversight because, 
clearly, there are times when freezing assets is going to 
disrupt an operation or disrupt a whole training system, and 
there are other times when a judgment not to do so, as Lee 
Hamilton has said, may lead us to something bigger, and there 
is no way in the world to have a general rule in advance. You 
are going to have to have people of excellent judgment and real 
experience.
    Senator Sarbanes. Which I can see it is a very tough call 
because if you do not freeze the assets and then the assets are 
used, then you are subject to very intense criticism for not 
having moved against the assets. On the other hand, if it is 
not necessary to do so, and you do, you may lose very important 
intelligence which serve a much broader purpose. I mean, I 
think it is a very tough call. I recognize that.
    Mr. Chairman, I was in and out, and I may have missed this, 
but I wanted to ask our two former colleagues did you address 
what the relationship should be between the Counterterrorism 
Center and the components of the Department of the Treasury 
that administer the Bank Secrecy Act? Did the Commission look 
into that at all?
    Representative Hamilton. We think that Treasury has to be a 
part of the Counterterrorism Center, and they have to have a 
seat at the table, so to speak, because it is an important part 
of counterterrorism. So we did address it.
    Senator Gorton. Judgments as to where intelligence went 
pre-September 11, and even, to a certain extent today, were 
largely the judgments of the unit or the agency that developed 
the intelligence in the first place. They could share or not 
share. And as you know, there is often a tendency not to share, 
to hold information close. And NCTC, as a part of our 
recommendations, will have the ability to demand the kind of 
sharing that is necessary. That is something that is not there 
in the law today, and Treasury, as well as many other agencies, 
have to be a part of that system.
    Senator Sarbanes. The information the Treasury is turning 
up would, amongst other things, be rooted into the National 
Counterterrorism Center; is that correct?
    Senator Gorton. Precisely, yes.
    Representative Hamilton. Let me pick up on your comments 
about oversight for a moment. It is interesting, if you look at 
the Commission report, that we do not make any legislative 
recommendations with regard to terrorist financing. We point 
out some of the things you all have already commented on, but 
we do not think the problem here really is new legislation, we 
think the problem is oversight, and your Committee, as you said 
correctly, has been aggressive, robust oversight.
    I just think that is terribly important to emphasize here 
because one of the things we found out about the Al Qaeda 
operatives is they are pretty doggone sophisticated, and they 
are very entrepreneurial, and they know how to work between the 
cracks of the system. They knew that they could get on that 
airplane with a 4-inch blade, but not an 8-inch blade knife, 
and they know how to exploit the gaps and the loopholes.
    And so, in many ways, this is an activity that is not 
subject to legislation. You just have to keep your eye on the 
loopholes in the system, and we will move to close those 
loopholes. You have to identify them. You have the expertise on 
this Committee, and you have to call it to the attention of the 
Executive Branch people and then they have to move to close the 
loopholes. As soon as you close that loophole, you can bet your 
life that they will be looking for another opportunity. And so 
it is an ongoing process and oversight is just critical.
    Senator Sarbanes. Mr. Chairman, I see my time is up, but 
let me say I actually take Congressman Hamilton's comments in a 
way to be a compliment to this Committee because, first, we are 
pursuing an active oversight agenda and, second, the title in 
the USA PATRIOT Act dealing with terrorist financing and money 
laundering came from this Committee not from the other 
Committees and was folded into the Act. You have made 
reference, when you have discussed where do we need to go to 
existing provisions of that title, which in effect address 
problems that you saw.
    And now you are telling us you think the legislative agenda 
at the moment, at least, has been accomplished. Actually, we 
brought that title out of this Committee with unanimous 
support.
    Chairman Shelby. Absolutely.
    Senator Sarbanes. Thank you very much.
    Chairman Shelby. Senator Crapo.
    Senator Crapo. Thank you very much, Mr. Chairman.
    Senator Sarbanes just went directly into the issue that I 
wanted to raise, and so this will be a little bit repetitive. 
But as I read the September 11 Commission report--and by the 
way I want to commend you on an outstanding report. I have 
encouraged everybody on my staff to read it, and frankly I 
think everybody in America should read the report so that they 
can better understand what happened and what the issues that we 
need to face in the future are. So, again, thank you for an 
outstanding job.
    As I read it, in the context of the issue we have before 
the Committee today, in fact, as you have said, Congressman 
Hamilton, the Commission did not make any substantive 
recommendations in terms of legislative action that was needed 
with regard to terrorism financing. As Senator Sarbanes has 
indicated, we put a lot of work into developing the financing 
section of the USA PATRIOT Act. So, I just want to ask again 
very specifically is it your testimony that, at this point in 
time, you do not believe there is any need to revisit the 
legislative side of the issue with regard to the authorities 
that we must put in place for our Government to be able to 
effectively combat terrorism in this arena?
    Senator Gorton. In this financial arena.
    Senator Crapo. Financial arena.
    Senator Gorton. Our answer to that question would be, yes.
    Representative Hamilton. Yes, that is correct.
    Chairman Shelby. In that context, let me just go a little 
bit further. One area where I think that we may need to look 
and where we may need to achieve some further legislative 
authorities is in the international context of the way in which 
the United States deals with other nations on financial issues.
    Now, this may end up being in trade negotiations or in some 
other context, but it does seem to me that although we 
currently seem to have the authorities, at a domestic level, in 
place for us to do the necessary tracking and make the 
determination as to whether we engage in seizing assets or in 
tracking assets, that one of the biggest problems we face is 
the fact that so much of the financing occurs, at least in 
significant part, outside the borders of our Nation.
    Congressman Hamilton, you indicated that there is a small 
number of nations we need to deal with, but it seems to me 
that, as we deal with that small number of nations, others will 
simply become players if we do not have a significant system of 
identifying and encouraging or developing banking relations and 
financial transaction systems that, as a global community, we 
adopt. I think that is a major undertaking, but I think it is 
one that we cannot avoid, and I just would appreciate your 
comments on that.
    Representative Hamilton. I think you are right on the mark. 
I really do. I think that we have to make terrorist financing 
an important part of American diplomacy, and that means in all 
kinds of fora. It means bilateral relations particularly with 
some of these countries that we know are high on the list, but 
as you point out, it could be another country the next year. 
What that means is you have got to work with the Group of 8, 
you have to work with the Financial Action Task Force, you have 
to work with the IMF, you have to work with the World Bank.
    Now, a lot of work has been done here, and they have set up 
a number of--there is a strong international consensus, I 
believe. They have set up a number of standards to deal with a 
lot of these financial transactions.
    That is a first step. What really now needs to be done is 
the implementation of those standards, and that is a long-term 
project.
    But I do not think you are going to succeed in terrorist 
financing efforts unless you engage the international community 
in a very major way. I think it is an important point that you 
make.
    Senator Gorton. A lot of it still subjective, what happens 
in a particular country. You know, cooperation from Saudi 
Arabia increased far more dramatically after terrorism stopped 
being an export only, you know, when terrorist attacks began in 
Saudi Arabia, and they did after September 11. Cooperation with 
Pakistan, which certainly improved dramatically after September 
11, increased even more when the terrorists started going after 
the president there. But many of the countries that we are 
dealing with have still, at least by our standards, relatively 
primitive financial institutions and controls themselves, even 
when they would like to be cooperative, and that just adds 
another layer to the challenge.
    Representative Hamilton. We were talking about freezing 
assets a moment ago. This also has a very large international 
component. When you move in and start freezing assets, you can 
create some big-time foreign policy problems along the way. So 
you have to look at the question of freezing assets in a lot of 
different contexts.
    Mr. Chairman, I want to pick up on a point. I do not think 
I answered Senator Sarbanes very well. I notice he has left the 
room, but I want to make clear that the Treasury Department 
has, we think, an enormously important role to play in 
counterterrorism policy, and particularly on financing. And we 
think it should have a seat--and this responds, I think, to his 
question, it should have a seat in the National 
Counterterrorism Center. But we do not change in any way the 
current Treasury Department intelligence. That is maintained, 
and it is maintained in part to keep maximum competitive 
analysis and intelligence. And so we would not change that at 
all today.
    Chairman Shelby. Senator Carper.

             STATEMENT OF SENATOR THOMAS R. CARPER

    Senator Carper. Thanks, Mr. Chairman.
    To my old--I started to say ``old colleague Lee Hamilton.'' 
To my esteemed colleague, former colleague Lee Hamilton, to 
Senator Gorton, welcome to both of you.
    Congressman Hamilton was good, along with Governor Kean, to 
testify before our Governmental Affairs Committee, Senator 
Gorton, actually almost 2 months ago now, right after the 
September 11 Commission Report was released. I asked a question 
of them, and I want to ask it today. It is not directly germane 
to the issue before us, the financing of terrorism, but I want 
to get your thoughts on this as well.
    We are debating, as you know, the September 11 Commission 
legislation on the floor today, which I think follows fairly 
faithfully your recommendations as a Commission. One of the 
questions I asked of Congressman Hamilton and Governor Kean was 
how could this Commission, five Democrats, five Republicans, 
take up an issue as difficult, contentious, and complex as you 
did to work through a political year with elections bearing 
down upon us, and to come up with a set of recommendations that 
all of you could agree upon? And we are faced here at the end 
of the legislative session trying to agree, and we have agreed 
pretty much in Committee, the Senate Governmental Affairs 
Committee, on what the policy should be. We are now going to 
have some real tough debates and votes on the floor. But how 
did you reach that consensus, and as one who served here, what 
advice would you have for us as we try to find consensus in the 
Senate this week and next?
    Senator Gorton. Well, I am going to answer that question 
because Lee Hamilton bore such a great responsibility for the 
fact that we did come out that way. He and Tom Kean, as the 
leaders of the Commission, decided very early on that they were 
going to do their best to be unified themselves. They wanted no 
votes in the Commission that ever split on party lines. They 
were not only successful in that, but they were also successful 
in keeping us from voting more than three or four times on any 
subject.
    And so from the very beginning, the attitude of the 
leadership of the Commission was that we should do our very 
best to do an objective job. And, of course, we had two jobs. 
We are concentrating here today on the recommendations that are 
before Congress, but we had to write a history that in a sense 
was for the ages, that will be the basis of our history, the 
way people look at this for a long, long time to come. And we 
did that through a magnificent staff, some of whom are still 
with us here today, and by stating facts and not opinions, by 
trying to write as objectively as we could a history of what 
happened and allowing you and you and everyone in America to 
make up their minds, if they wanted to cast blame one way or 
another or hold opinions one way or another.
    I think the work in doing that just folded over into the 
recommendations. We got to know one another well. We got to 
respect one another well. There were no slackers among the 10 
members. They worked very, very hard on it. As I said, we had 
an absolutely magnificent staff, but I can tell you that 2 
weeks before we finished, I was almost certain that while I was 
going to sign the report, I would have some additional views, 
and I suspect, I think that was probably true with six or seven 
of us at that time. And just simply the personal dynamics, the 
give and take caused one after another of us to say, no, the 
most important thing to do is to be unified on a task that is 
so important for the United States.
    Now, Lee and I were together yesterday at a news conference 
with Senators Collins and Lieberman, and I think the Senate has 
followed our example. I think the bipartisan nature of what 
went on in hearings during August with the two of them and many 
other committees, the way that bill came out of Governmental 
Affairs unanimously and the way you are dealing with it on the 
floor, are a real tribute to all of you. And now I think the 
House is following your example. I am optimistic that by the 
end of next week we are going to have something on the 
President's desk that a majority of both parties in both Houses 
will have supported.
    Senator Carper. Well, that may be the triumph of man's hope 
over experience. Or that might be just a good prediction. I 
sure hope it is.
    Representative Hamilton. I thank Slade for his compliments, 
but the Chairman deserves most of the credit, and, of course, 
all of the Commissioners cooperated.
    Two points, Senator Carper, in response. One is we had 
something you do not have, and that is the luxury of time. We 
could sit down and talk about this at some length, and I know 
your schedules and I know how many issues press upon you. And 
it is very, very difficult to reach consensus when you do not 
have a lot of time, and we did have time to talk things out. We 
were able to deliberate.
    And the other thing I would just like to mention--and this 
does apply to you, it applies to all of us, and that is--I 
think all the Commissioners were very impressed with the 
gravity of the task that we had. And I think we were impressed 
with the fact that the American people were going to depend on 
us. And we felt you were going to depend on us. And we took 
that responsibility seriously, and we tried our very best to 
come up with recommendations which would have broad support. 
But we all recognized that September 11 was one of the most 
traumatic events in the history of the country, and public 
officials and Commissioners have a very, very special 
responsibility in dealing with it.
    Senator Carper. Our thanks to both of you.
    Mr. Chairman, I think my time has expired. Is there going 
to be a second round or is this the only----
    Chairman Shelby. There will be if you want one.
    Senator Carper. Thank you.
    Chairman Shelby. Senator Bunning.
    Senator Bunning. Thank you, Mr. Chairman.
    Lee, you brought up the fact--or maybe it was Slade, I 
cannot remember--about the Saudis and their alertness after the 
attacks in 2003. My question is: Has the cooperation between 
the Saudis and the intelligence-gathering information here in 
the United States gotten even better, or has it fallen off from 
those attacks?
    Representative Hamilton. My impression, Senator Bunning, is 
that it is much better after the attacks in Saudi Arabia.
    Senator Bunning. Continuing?
    Representative Hamilton. And that it continues. That is my 
impression. Now, I do not pretend to be the expert on this, and 
maybe Slade wants to comment on it. That is my impression.
    Senator Gorton. I would have the same answer, but I have to 
caution you that under our charge, we had total and complete 
access to everything that took place up until about September 
21, 2001. We did not have full authority after that and have 
had none after our July 22 report. Nonetheless, our general 
impression that it has continued at a relatively even keel 
since those incidents of last year that threatened the Saudi 
regime itself. And I think we can be pretty confident as long 
as they feel threatened and feel that we can help them, that 
cooperation will continue.
    Senator Bunning. Okay. Both, either/or, do you believe 
there is enough communication between our terrorist finance 
regulators and the institutions that they are now regulating?
    Representative Hamilton. I think we ran into this several 
times, and I think it is much improved. I think the 
communication is quite good, but it is not institutionalized, I 
think, at this point. And so it needs more work, I guess is the 
way I would put it.
    Senator Bunning. In other words, it is not what you would 
like it to be, but it has made some progress?
    Representative Hamilton. I think that is correct. We got 
complaints--it is the feedback problem. And we got some 
complaints about insufficient feedback, I guess from the 
Government back to the private financial community. And there 
has been a good bit of effort and a lot of people who have 
spent a lot of time working on that. But I do not think it is 
where we want it to be even yet, and my general impression is 
it is not very well institutionalized.
    Senator Gorton. In our written statement, we caution 
against a relaxation of these standards as more and more time 
elapses after September 11 itself. And I think one can 
generalize beyond financial institutions in that connection. It 
is a paradox, at least to me, that the more successful we are, 
the longer we are successful in preventing a terrorist attack 
in the United States, the greater the problem of complacency is 
going to become, and the more people will relax and the more at 
least voluntary efforts will receive a lower priority. So 
success itself will cause a price to be paid.
    Representative Hamilton. I just want to emphasize the 
importance of this because I think we said in our statement the 
first line of defense here with regard to terrorism financing 
is in the local banking institution. And it is a heavy 
responsibility on the banking institutions to know their 
customers. And if they have any suspicions, then they have to 
be able to convey that very quickly.
    So, I guess we would like to see a higher priority on the 
Government side in terms of improving this system of 
information flow between the private sector and the Government 
regulator. I think it is much improved. I am still a little 
uncomfortable with the complaints we had in this area.
    Senator Bunning. We had testimony yesterday here in this 
Committee from other than banks, and we had testimony from non-
bank banks, and we had testimony from private enterprise people 
that were able to transfer money, you know, like Western Union 
and like other people, like a problem at casinos where there is 
a great deal of money transferred every day or every moment in 
the casino. And the fact is they both--both entities--said it 
is darn near impossible to track the monies that are less than 
those that must be reported. In other words, if it is not 
$10,000 or more, they have difficulty tracing.
    Do you have any suggestions we have missed that might help 
us?
    Senator Gorton. Well, if you couple that with, as you 
pointed out in your statement, as we did, too, the relatively 
low investment not only in the September 11 attacks but also in 
a number of other terrorist operations, with the conclusion 
that we have right here in our written testimony, that the kind 
of transactions in which these terrorists engaged in the United 
States pre-September 11 still would probably not be traceable.
    Senator Bunning. It would be under the radar.
    Senator Gorton. Yes, they were just ordinary credit card 
and bank transactions that take place by the tens of millions 
every day. So the point is that what you are looking at, what 
you oversee here in this Committee, is very important. But it 
is only one element in the struggle to prevent terrorism in the 
United States, and the human intelligence--you know, we 
emphasize very strongly in our report that international 
terrorists are most vulnerable when they travel. Getting across 
international borders, travel documentation, the documentation 
of who you are is overwhelmingly important because it is when 
they are the most vulnerable and most likely to be caught. So 
you always have to keep that in mind. This is important, but it 
is one element in a pattern that we have got to integrate 
together.
    Senator Bunning. I want to thank you both for your work on 
the Commission and for what a good report you have put out. And 
I want you to know that I think this Banking Committee here is 
going to be ever alert to the things that are going on.
    Thank you.
    Chairman Shelby. Thank you, Senator Bunning.
    I have one last question. I know we have a couple more 
panels, and you gentlemen have been very patient. When reading 
the monograph on terrorist financing, one of the findings that 
most interested me pertained to Osama bin Laden's financial 
situation and the degree to which Al Qaeda operations were 
funded completely through fundraising activities and not 
personal wealth, which the report notes was essentially 
nonexistent after 1994. Why was it only with the release of the 
Commission's report that the public and its elected 
Representatives in Congress were given a clear picture or a 
clearer picture of Al Qaeda's funding situation? The 
Commission's sources we know were quite recent. If its findings 
are accurate--and I believe that they are--what does that tell 
us about the challenge confronting us if a terrorist 
organization with global reach is overwhelmingly funded through 
individual donations? What does this tell us about our ability 
to impede the flow of funding not just to Al Qaeda, but to 
Hamas, Hezbollah, and other terrorist organizations? I see a 
great challenge there.
    Senator Gorton. Well, you have answered your own question, 
Mr. Chairman.
    Chairman Shelby. I would rather you answer it.
    Senator Gorton. The more decentralized funding is in this 
fashion from a myriad of different charitable organizations, 
the more difficult it is to follow and to control. These were 
not government actions. They were private actions. Some of them 
were unconscious. Some people almost certainly made good-faith 
contributions to what they considered to be a charity, which 
turned out not to be the case. Heck, we have that here. What 
was yesterday's story in the paper about allegations here that 
someone has been collecting money and spending 1 percent of it 
on its stated goals?
    It does mean that this financing problem, to the extent it 
is voluntary, is very deep, very serious, and very difficult to 
deal with.
    Chairman Shelby. It is also central to the whole fight 
against terrorism, is it not?
    Senator Gorton. Sure. They have to have at least some 
resources in order to engage in their activities.
    Representative Hamilton. You have to get your facts 
straight, Mr. Chairman. I mean, there was a myth around this 
town. The myth was that Osama bin Laden was financing all this 
because he was a very wealthy guy.
    Chairman Shelby. That is what I alluded to.
    Representative Hamilton. I believed it, all of us believed 
for a long time. One of the things we said to our staff over 
and over again is: What are the facts? What are the facts? We 
must have asked that question 20 times every session, and it 
helped to try to build a consensus, as Slade mentioned a moment 
ago.
    But there are a lot of myths that get embedded in this 
town, and that was a big one, and we just found it was wrong.
    Chairman Shelby. You did great.
    Representative Hamilton. And so you have to keep digging 
for the facts.
    Chairman Shelby. Thank you.
    Senator Carper, I believe you said you had another 
question.
    Senator Carper. Mr. Chairman, you pretty much got to the 
question I was going to ask. Can I just ask maybe a variation 
of it?
    Chairman Shelby. Absolutely.
    Senator Carper. The amount of money that is involved in 
terrorist activities--I do not know that anyone has tried to 
quantify what it cost to finance the attacks on September 11. I 
think that has been quantified. The amount of money that was 
needed to stage the earlier attack on one of the World Trade 
Center buildings, the amount of funds that are necessary to 
bomb our embassies, I believe, in Africa, the cost of attacking 
the U.S.S. Cole. What does it cost to actually blow up trains 
just outside of Madrid? Car bombings, kidnappings, 
assassinations, how expensive is it to run those operations? 
And my guess is compared to the cost of maintaining our 
presence in Iraq, the cost of all of those other activities is 
very small by comparison. And the question that I was going to 
ask is actually quite similar to what the Chairman just asked.
    First of all, is my characterization of the relative cost 
of those activities as being modest, is that a correct 
characterization?
    Senator Gorton. Certainly.
    Senator Carper. Is that what you found during the course of 
your investigations?
    Senator Gorton. Yes.
    Senator Carper. If the funds, the modest funds that are 
needed for these purposes are being raised, as the Chairman 
suggests, in fundraising operations outside of this country, 
and we are unable to impede the flow of those funds because of 
the nature of that fundraising, where should we focus our time 
and attention if the effort is to disrupt the financial flow 
and the dollars, the few dollars that are needed?
    Senator Gorton. I guess we would have to go back to the 
nature of our recommendations overall and our definition of the 
nature of the enemy. But remember, we put this struggle or our 
defenses against this struggle on three levels. First 
essentially was preemption. A second level was trying to dry up 
support in these Islamic societies themselves by presenting our 
American ideas and ideals far more effectively than we have in 
the past. Lee was central in that effort. And then third were 
the defenses here in the United States itself, the things we 
have to go through when we get on an airplane, and our 
intelligence in trying to determine who the people are, which 
is separate from determining where their money comes from, and 
to stop them before they can engage in these activities. No one 
level of response has any promise of overall success. They all 
must be integrated together.
    Senator Carper. Congressman Hamilton.
    Representative Hamilton. I hope we do not leave the 
impression that choking off money is not a good thing to do. It 
is a very good thing to do. It is just very, very hard to do 
it. And we ought not to have exaggerated expectations about 
draining the swamp and about being able to cut it off.
    We do not want to suggest that we should relax our efforts 
to try to do it. We certainly have to do that. And we did 
emphasize in the statement, and have repeatedly, that it is not 
just a question of choking them off money; it is also a 
question of developing intelligence, which becomes highly 
important. But both aspects of terrorist financing are very 
critical.
    Senator Carper. Again, our thanks to each of you for your 
stewardship and service and for your presence today. Thank you.
    Chairman Shelby. Senator Enzi, do you or Senator Bunning 
have any other comments?
    Senator Enzi. I am anxious to get on to the next panel. I 
do have some that I will submit to this panel.
    Chairman Shelby. Thank you.
    Gentlemen, we thank you both. Thank you for your work.
    Representative Hamilton. Thank you very much.
    Senator Gorton. Thank you.
    Chairman Shelby. Our second panel will be Mr. Mallory 
Factor. As I have said before, he is Vice Chair, Council on 
Foreign Relations. Mr. Lee Wolosky, also on the Council on 
Foreign Relations.
    Let's have order in the room.
    Audience Member. You know they have lied.
    Chairman Shelby. We will have order in the room.
    Audience Member. You know they have lied. Their book is 
covered in child pornography and dirt from the hot network and 
AT&T and you all know it. It is disgusting.
    Chairman Shelby. If the second panel will come up----
    Audience Member. You are being used, and this President 
sends children to war for a game. Absolutely disgusting.
    You want the technology? Go to Bill Gates. You want the 
answers? Go to Donald Trump. You want the frequent flyer? See 
Leo Mullin. You know exactly what I am talking about. Go to 
American Express.
    Chairman Shelby. Sorry about the disruption. Things like 
that happen.
    Mr. Factor, we welcome both of you to the Committee. Your 
written testimony will be made part of the record. It is 
already 11:30. If you would sum up briefly your testimony, we 
appreciate your input into this and what you have to say. You 
may proceed as you wish, Mr. Factor.

                  STATEMENT OF MALLORY FACTOR

                 CHAIRMAN, MALLORY FACTOR, INC.

    Mr. Factor. Thank you. Chairman Shelby, Senator Sarbanes, 
and distinguished Members of this Committee, thank you for 
inviting me to testify today about my views on the critical 
issue of curbing terror financing.
    Chairman Shelby, I would like to commend you in particular 
for your unwavering commitment to addressing the financing of 
terror. The work that this Committee is undertaking is 
extremely important to the United States and the entire world. 
Thank you for your leadership.
    I start with the premise, as I am sure that Members of this 
Committee do, that no cause, however legitimate, justifies the 
use of terror. All jurisdictions must explicitly reject the 
notion that acts of terror may be legitimized by charitable 
activities or political motivations of the perpetrator.
    My recommendations are contained in a report of the 
Independent Task Force on Terrorist Financing, sponsored by the 
Council on Foreign Relations, on which I served as Vice Chair. 
The task force addressed financing emanating from within the 
Kingdom of Saudi Arabia because of the enormous resources that 
flow to terrorist groups from within that state. Clearly, 
numerous other states allow terror financing to continue and 
that should be examined also.
    Saudi Arabia has enacted new anti-money laundering laws 
designed to impede the flow from Saudi Arabia to terrorist 
groups. However, significant enforcement by Saudi Arabia of 
several of these new laws appears to be lacking.
    Furthermore, even if these laws were fully implemented, 
they contain a number of exceptions and flaws which weaken 
their effectiveness in curbing terror financing. Quite simply, 
Saudi Arabia continues to allow many key financiers of global 
terror to operate, remain free, and go unpunished within Saudi 
borders.
    The Bush Administration has made significant progress in 
its approach to terror financing since September 11. The 
Administration's efforts, combined with those of its 
international partners, have significantly diminished Al 
Qaeda's current and prospective ability to raise and move 
funds. There is still much work to be done. My written 
testimony explains each of the task force's nine 
recommendations for improving U.S. efforts against terrorist 
financing. In the interest of brevity, I will discuss only 
three but welcome your questions on any of these 
recommendations.
    First, Congress should enact a Treasury-led certification 
regime specifically on terrorist financing. Many governments 
are working on shutting down terror financing from within their 
borders, but many are not. Congress should adopt a 
certification regime under which the Treasury Department 
provides a written certification on an annual basis, classified 
if necessary, of the efforts of foreign nations to combat 
terror financing. Jurisdictions that do not receive 
certification would be subject to sanctions provided by Section 
311 of the USA PATRIOT Act.
    These sanctions include special measures such as denial of 
foreign assistance money and limitation on access to the U.S. 
financial system. Presidential national security waivers can be 
used to exempt a particular jurisdiction from sanctions.
    The Administration has used these powers granted it by 
Section 311 of the USA PATRIOT Act in the terror financing 
context, but only once. A certification regime for terror 
financing would ensure that Treasury officials evaluate on a 
scheduled basis whether rogue jurisdictions exist which require 
sanctioning. A similar sanction imposed in the money laundering 
context resulted in the targeted jurisdiction promulgating 
desired legislative and regulatory changes.
    I commend Congresswoman Sue Kelly and others who have 
introduced legislation in the House as H.R. 5124 that would 
require a terror financing, Treasury-led certification regime.
    Second, the U.S. Government should increase sharing of 
information with the financial services sector as permitted by 
Section 314(a) of the USA PATRIOT Act so that this sector can 
cooperate more effectively with the U.S. Government in 
identifying financiers of terror. Helping private sector 
financial institutions become effective partners in identifying 
the financiers of terror should be a top priority. The 
procedures set forth in Section 314(a) of the USA PATRIOT Act, 
which promote information sharing between the U.S. Government 
and financial institutions to increase detection of terror 
financing, are not working as well as they should.
    The U.S. Government is still not providing adequate 
information to enable institutions to detect terror financing 
and identify unknown perpetrators. The U.S. Government is still 
using financial institutions primarily to assist in 
investigating known or suspected terror financiers, not in 
identifying unknown ones. I recognize that the information that 
would enable financial institutions to become effective 
partners with the U.S. Government in identifying terror 
financing may be highly protected intelligence information. In 
other industries such as defense and transportation, however, 
persons can be designated by the U.S. Government to receive 
access to certain high value information as necessary. A 
similar approach could be used to facilitate information 
sharing and cooperation between U.S. Government and private 
financial institutions.
    Third, the National Security Council, NSC, and the White 
House Office of Management and Budget, OMB, should conduct a 
cross-cutting analysis of the budgets of all U.S. Government 
agencies as they relate to terrorist financing. The NSC and OMB 
cross-cut would allow policymakers to gain clarity about who is 
doing what, how well and with what resources. With this 
information in hand, the Administration and Congress can assess 
the efficiency of existing efforts and the adequacy of 
appropriations relative to this great threat.
    I welcome your questions. Thank you.
    Chairman Shelby. Mr. Wolosky.

                  STATEMENT OF LEE S. WOLOSKY

           OF COUNSEL, BOIES, SCHILLER & FLEXNER, LLP

    Mr. Wolosky. Thank you very much, Mr. Chairman, Senator 
Sarbanes and distinguished Members of the Committee. Thank you 
for affording me the opportunity to testify before you today on 
an issue of fundamental importance to the Nation, terrorist 
financing, and thank you for your continued dedication and work 
on this issue.
    I am testifying today in my personal capacity, although I 
note that my testimony is heavily informed by the work of the 
Independent Task Force on Terrorist Financing sponsored by the 
Council on Foreign Relations, of which I have served as Co-
Director for the past several years.
    I note at the outset that the issue of terrorist financing 
is foremost a foreign policy issue because as was discussed on 
the first panel this morning, most of the money funding Al 
Qaeda and other Islamist groups originates and is disbursed 
overseas. As described in the final report of the September 11 
Commission, funds associated with the maintenance of cells and 
other operational activities pass through the United States, 
but these amounts are relatively small, making them difficult 
for regulators and compliance officers to identify and to 
distinguish.
    As both the Council on Foreign Relations report and the 
September 11 Commission concluded, individuals and 
organizations based in the Gulf region have historically been 
the single most important source of funds for Al Qaeda, as well 
as for other terrorist organizations such as Hamas. Has the 
Saudi Government itself funded terrorism? The September 11 
concluded that there was no evidence of this, but it went on to 
note, ``This conclusion does not exclude the likelihood that 
charities with significant Saudi Government sponsorship 
diverted funds to Al Qaeda.''
    Widespread interest in searching for evidence of official 
Saudi complicity in funding Al Qaeda tends to obscure glaring 
sins of omission. Global Saudi-based charities controlling and 
disbursing billions of dollars are a good example. For years, 
there has been 
little or nothing done to reign them in even though they have 
benefited in some cases from the sponsorship or governance 
participation of the Saudi Government or its officials.
    The September 11 Commission Staff Monograph generally 
concluded that, ``A lack of awareness of the problem and a 
failure to conduct oversight over institutions created an 
environment in which such activity has flourished.'' These 
institutions have in some instances propagated Islamic 
extremism, posing a grave strategic threat to the national 
security of the United States. As the September 11 Commission 
report noted, ``Saudi Arabia has been a problematic ally in 
combating Islamic extremism.'' Although much has been done, 
particularly since the bombings in Saudi Arabia in May 2003, 
much more remains unfinished or even unstarted.
    Before the September 11 attacks, even up through the May 
2003 attacks in Riyadh, Saudi Arabia resisted any real 
cooperation with the United States on terrorist financing. In 
response to the May 2003 terrorist attacks, Saudi Arabia has 
taken important actions to disable Al Qaeda cells and has 
increased its tactical law enforcement intelligence cooperation 
with the United States. Saudi Arabia has also largely improved 
its legal and regulatory regime, announcing the enactment or 
promulgation of a plethora of new laws and regulations and the 
creation of new institutional arrangements to combat money 
laundering, regulate charities, and control terrorist 
financing.
    As both the Council on Foreign Relations sponsored task 
force and the September 11 Commission Staff Monograph 
concluded, however, Saudi Arabia has not yet fully implemented 
its new laws, regulations, or institutional mechanisms. These 
actions must be taken on an urgent basis and require the 
sustained vigilance of the Congress. Additionally, Saudi 
enforcement actions directed against Al Qaeda have largely 
avoided prominent financiers. There is no evidence, for 
example, that since September 11, 2001, Saudi Arabia has taken 
public punitive actions against any individual for financing 
terror.
    By largely remaining silent on these subjects, in my view, 
the Bush Administration has resisted a core recommendation of 
the September 11 Commission, which mirrored a core conclusion 
of the 2002 task force report of the Council on Foreign 
Relations Task Force. ``The problems in the United States-Saudi 
relationship must be confronted openly.''
    In the interest of time I will defer my comments on the 
domestic regulatory structure--which Mallory largely addressed 
in his remarks--to the question and answer period, and would be 
happy to entertain your questions.
    Chairman Shelby. Thank you very much. Banks that are 
seeking to attract business from both the legal and illegal 
alien communities have done so through the provision of 
services historically left to companies in the wire transfer 
and other non-bank money service businesses. With more and more 
banks seeking to enter the realm of financial services that 
extend beyond traditional banking activities, I think it would 
be instructive to hear from the witnesses their views on 
whether this trend has any implications, good or bad, on the 
Government's ability to regulate the financial transactions 
that are at issue in today's hearing.
    For example, what are the implications of increased global 
use of ATM's for money laundering and for the movement of 
terrorist funds? Have you all got into that? Mallory?
    Mr. Factor. Well, we did not look into it, the task force 
did not address that. But we did look at things like CTR's and 
SAR's, Currency Transaction Reports and Suspicious Activity 
Reports. Something very interesting came to mind when we looked 
at these. There was 12 million plus in 2003--Currency 
Transaction Reports, well over 12 million. It has been 
estimated it takes about a half an hour for each one to be 
filled out. It took 6 million man hours to build the largest 
floating vessel in the world, the Queen Mary II. After asking 
Treasury on a couple of occasions could they show us how a CTR 
led to any specific arrest and conviction, they could not. Not 
that there has not been, but they could not tell us. That is 
like taking 6 million man hours and sinking a Queen Mary II 
each year.
    I am concerned that the amount of information we are asking 
for cannot be properly utilized, and we would be better off 
honing the information that we ask for. It is a long way around 
your question to say that I am not sure we have the ability to 
control that unless we narrow what we are asking for.
    Chairman Shelby. Let me ask you about certification. You 
have touched on that, certification and sanctions. Would this 
cooperation be institutionalized? In other words, would FinCEN, 
in its role as the primary enforcer of the BSA be the one who 
issues the certification?
    Mr. Factor. I think it could be, but I think it should be 
Treasury led, and I think who specific at Treasury--I am not 
sure at this point, but it should be Treasury led. It could be 
through FinCEN.
    What I do think is important is that we bring into the open 
these people, these criminal and rogue states that are not 
helping us with stopping the mother's milk of terrorism, 
terrorist financing.
    Chairman Shelby. Under a certification regime that you 
might envision, would a citizen of a sanctioned country be 
permitted to open a bank account in a U.S. financial 
institution?
    Mr. Factor. We did not deal with that specifically, but the 
answer would be yes, from my personal point of view.
    Chairman Shelby. Would certification be renewed or be 
subject to renewal each year?
    Mr. Factor. Absolutely.
    Chairman Shelby. Who would do the investigation to 
determine whether a country merits certification under your 
thoughts of----
    Mr. Factor. It would be through Treasury, it would be led 
by Treasury, and Treasury has the resources, we believe, to 
handle that. It would be some additional. I will tell you that 
since--if I may, sir----
    Chairman Shelby. Go ahead.
    Mr. Factor. It is very interesting. I read in U.S. News & 
World Report. It is just two or three sentences. When Sue 
Kelly, Congresswoman Kelly introduced her bill, they put on it 
USNews.com: Washington is big on pointing the finger. Their 
official black list for countries that support terrorism, 
violate human rights and fail to crack down on narcotics. This 
week Republicans Sue Kelly and Ed Royce are introducing 
legislation to blacklist countries that failed to crack down on 
terrorist financing. The State Department appears unenthused 
because it could end up citing allies.
    I think that is a reason that we want to do it.
    Chairman Shelby. Sure. Mr. Factor, another recommendation 
of the task force update is that the NSC and the White House 
OMB should do a cross-cut analysis of the budgets of U.S. 
Government agencies as they relate to terrorist financing to 
determine whether resource allocation is optimal or functions 
are duplicative. Where did the task force find, if you did, 
that in the U.S. fight against terrorist financing that 
agencies' resources are or may be duplicative?
    Mr. Factor. We found a number of agencies that were 
involved in the area of looking at terrorist financing, and 
without having classified information, it is my belief there 
are many duplicative efforts, and that a cross-cut would point 
those out very strongly.
    Chairman Shelby. I will ask a question of you. In the 
months leading up to September 2001, Al Qaeda operated like a 
multinational corporation by centrally funding specific 
activities. They moved money through charities and other 
networks and were able to exploit the western banking system by 
using wires, credit and debit cards, and use of ATM's, as we 
all know. As the organization has evolved into a more diffuse, 
decentralized entity after September 11, 2001, with a more 
overt means of raising funds under more scrutiny than ever 
before, have we reached the point where terrorist financing is 
becoming more difficult to track?
    Mr. Wolosky. I think that that is probably true, Senator. 
With the disbursal and decentralization and the reduction of a 
command and control mechanism within Al Qaeda, I think we have 
seen a corresponding set of circumstances existing with respect 
to the financial structure of the organization, so that, for 
instance, there is evidence in respect to the Madrid bombings, 
that that cell that perpetrated those bombings relied primarily 
on criminal activity and other activity which was specific to 
the cell and not external.
    Chairman Shelby. But on our best days we are still deeply 
challenged by problems with monitoring the Islamic charities as 
a possible vehicle, or probable vehicle of terrorist financing, 
are we not?
    Mr. Wolosky. Yes, sir. The findings of our task force, 
along with the findings of the September 11 Commission really 
related--in this respect I would point you to the mechanisms 
that are or are not being put in place to try to tighten the 
control of regulatory oversight of those charities. We have 
concluded, and I personally believe, that this is a fundamental 
issue for the national security of our Nation, the regulatory 
steps that are being taken or avoided in Saudi Arabia, how 
closely and how tightly those charities and those measures are 
in fact being implemented.
    Mr. Factor. If I may add on to that?
    Chairman Shelby. Sure.
    Mr. Factor. In April 2003, the Saudi Government adopted 
rules governing opening of bank accounts in Saudi Arabia and 
general operational guidelines. The interesting part was--first 
of all, I am not sure about the implementation. We could not 
find very good implementation. Even if there was full 
implementation, within their own rules in a little paragraph, 
buried deep in at 
300-1-6-5 they exempt the Muslim World League, the 
International Islamic Relief Organization, IIRO, and the World 
Assembly of Muslim Youth as multilateral organizations. They 
exempt them, three of the largest charities.
    Chairman Shelby. Thank you.
    Senator Sarbanes.
    Senator Sarbanes. Thank you very much, Mr. Chairman.
    What lessons do you draw with respect to your discussion of 
the certification regime from the experiences with the drug 
certification regime?
    Mr. Factor. I believe that is has been helpful, but I want 
to emphasize that the drug and terror financing issues are 
different and the political will is much more behind the war on 
terror financing and I believe as long as the President has the 
power to waive the sanctions----
    Senator Sarbanes. Well, now, let me ask you that question. 
We had the drug certification regime. Country after country, 
the sanctions would be waived by the President. The message 
that seemed to be drawn from that was really the drug issue was 
not that important because it clearly was outweighed by other 
considerations, and demonstrated by the invocation of the 
waiver by the Executive Branch of the Government. So instead of 
sending a message that we were really tough on the drug issue, 
we were sending a message that we were not so tough on the drug 
issue. So, I raise this issue here in the context of you making 
this recommendation. I mean what do we do if you have a 
certification regime and the President starts giving these 
waivers to country after country? If we had such a regime, 
should Saudi Arabia not be certified in your view?
    Mr. Factor. In my personal view I am not sure that Saudi 
Arabia could be certified.
    Senator Sarbanes. You do not think it----
    Mr. Factor. I do not believe Saudi Arabia could be 
certified as cooperating with us on fighting terror financing.
    Senator Sarbanes. As cooperating?
    Mr. Factor. Correct. We are agreeing.
    Senator Sarbanes. How does that square with everything else 
you say here in your statement about Saudi Arabia and the role 
they are playing?
    Mr. Factor. I think it is consistent, sir. What we are 
saying is that they have not been implementing to the extent--
we could not find evidence of implementation.
    Senator Sarbanes. Oh, I see. I am missing----
    Mr. Factor. We are agreeing. I am saying they could not be 
certified as----
    Senator Sarbanes. Do you think the President would give 
them a waiver?
    Mr. Factor. I would never guess what the President would 
do.
    Senator Sarbanes. They just agreed the other day to jump 
their oil production. With oil at $50 a barrel, they came in 
and agreed the other day they were going to take it up. I 
forget the figure. It was a large percentage of their current 
production.
    Mr. Factor. You raise a good----
    Senator Sarbanes. All right.
    Mr. Factor. If I may address that, you made a very 
important point. Historically, we have had a relationship with 
Saudi Arabia, and it is not this Administration, it goes back 
many Administrations, where we provide for security, they 
provide help with oil, and we do not get involved with their 
domestic issues. I think the relationship with Saudi Arabia has 
to change. It has to be similar to the relationship we had with 
the U.S.S.R., that we have now with Russia and that we have 
with China, where nothing is off the table any longer, and that 
all issues, even domestic issues, are now on the table and all 
have to see the light of day.
    I believe a certification regime would help us move in that 
direction with Saudi Arabia and other countries as well. I 
believe it would be very important in moving in that direction.
    Senator Sarbanes. I am anxious to come down hard on this, 
but I think we have to think it through very carefully because 
in the drug certification area, it has not worked very well.
    Let me ask you, what about emphasizing the role of the 
Financial Action Task Force? They, of course, had a non-
cooperative countries project. It was a prominent feature of 
their policy in the 1990's, and that seemed to have some 
salutary impact in that countries made changes in order to get 
off the non-cooperative list, and that is of course an 
international thing. What is your view of that?
    Mr. Factor. I happen to have with me a copy of Financial 
Action Task Force, called FATF commonly, their review of the 
Kingdom of Saudi Arabia. And it is very consistent with what we 
have said. We have said that Saudi Arabia has promulgated 
rules, regulations, and laws. What we have also said is we 
could not find implementation of them. FATF does not check 
thoroughly for implementation. Also, FATF does not look at the 
individual countries and their specific needs in terms of their 
antiterrorism actions, financing terrorism. As an example, 
charitable institutions were not looked at as heavily as they 
should have been, in my opinion with regard to Saudi Arabia. 
The bottom line is they did not look at implementation. They 
did look at rules and regulations.
    Senator Sarbanes. So is your view that we should consider 
them irrelevant or that there is a role to play if they can be 
appropriately activated?
    Mr. Factor. There is a role to play. Absolutely, there is a 
role to play if appropriately activated.
    I am sorry, please.
    Mr. Wolosky. If I may chime in on the non-cooperative 
jurisdiction process, the NCCT process of the FATF. This was an 
effective naming and shaming mechanism by which the United 
States strongly urged, and the international community more 
broadly strongly urged, under threat of sanction, countries 
that did not comply with international best practices regarding 
money laundering, to take effective action to do so promptly.
    Senator Sarbanes. That judgment was not just a U.S. 
judgment. It was an international judgment, correct?
    Mr. Wolosky. Absolutely, and that made it even stronger. 
Remarkably in my view the Bush Administration, after September 
11, or even prior to September 11, but certainly continuing in 
the post-September 11 period just dropped this entirely, 
dropped support for the FATF name and shame process. It is 
inexplicable. The first year that we did this in the Clinton 
Administration, the FATF process designated 15 countries. The 
next year, 8 of them stepped up and had in place adequate anti-
money laundering regimes to get off the list. It was a very 
effective mechanism, and it has been dropped without comment or 
explanation by the current 
Administration.
    Senator Sarbanes. Mr. Chairman, my time is up. Thank you.
    Chairman Shelby. Senator Enzi.
    Senator Enzi. Thank you, Mr. Chairman. I want to thank this 
panel for presenting us with a lot of useful information in a 
very useful form. I want to particularly thank Mr. Factor for 
the conciseness of his 9 recommendations and the explanation 
that goes with them.
    The second report on terrorism financing should be a very 
useful document for us. In that report there is a lot discussed 
about international cooperation, and while we have achieved 
quite a bit in that area, there is still a long way to go. And 
international cooperation and engagement, can it be done with a 
carrot or does it just have to be done with a stick? Are there 
any carrot alternatives or persuasive alternatives that the 
Council considered that did not make it into the report?
    Mr. Wolosky. Well, the carrot, in my view--and I do not 
think the report addresses this explicitly--is technical 
assistance. Technical assistance to enable states that do not 
have the ability on their own to put in step measures to 
implement, for instance, UN sanctions, to do so. That is the 
carrot.
    The stick is the threat of being named and shamed, so the 
process should be, in my personal judgment, put in place the 
laws and regulations that are necessary and implement them 
appropriately. We will give you the help if you cannot do it 
yourself. And if you do not comply, you are going to be on the 
blacklist. But that mechanism, as I spoke to a moment ago, 
through the FATF, has been removed. That last punitive 
component to it has been removed.
    Senator Enzi. Thank you. In a recent news article, the 
Financial Action Task Force stressed the importance of getting 
India and China to become members of the International 
Antiterror Finance Group. How important is it for us to get 
these economies involved in the fight to stop terrorism 
financing activities? Should the primary focus of our attention 
be on countries with large financial centers, or should we 
equally engage the countries with smaller economies who have 
informal capital markets?
    Mr. Factor. I think they are both vital. I think when you 
are talking about terrorist financing--and again I mentioned 
this--it is really the mother's milk of terrorism, and it is 
vital that we get the growing economies as part of the 
cooperative effort, but it is also very, very vital that we 
name and shame those people that do not cooperate.
    The best example that I find is in the money laundering 
area, when we actually used Section 311 of the USA PATRIOT Act 
against the Ukraine, they immediately worked to comply. We have 
just not used those mechanisms enough, and I am not sure why, 
but we just have not done it, and I think it is vital that this 
Committee, in its oversight, look at that.
    Senator Enzi. Thank you. The Council recommended that the 
National Security Council and the White House Office of 
Management and Budget conduct a cross-cutting analysis of all 
the various U.S. Government agencies' terrorism financing 
budgets. What aspect of the various budgets should we be 
looking at to increase or decrease? Should future budgets be 
focused more on intelligence gathering or on enforcement of 
money laundering laws?
    Mr. Wolosky. I believe Mallory spoke to this issue broadly, 
but generally in my view, no one has done it to date, so we do 
not know what is being spent. We have a very poor sense of 
overall U.S. Government commitment to the issue on a cross-cut 
basis. So the point of doing the cross-cut, in my own view, is 
not to go into it with any assumptions, Senator, but to take 
the first look ever of what is being done on an agency by 
agency basis, so that we can make judgments as to what is being 
overfunded, what is being underfunded, what is duplicative, 
what is not being done at all, and to proceed from that basis.
    Mr. Factor. I would agree. I think there is a number of 
areas that you have to look at as part of this cross-cut: 
Intelligence collection analysis and operation, law enforcement 
operations, regulatory activities including policy development, 
enforcement, international standard setting and implementation, 
analysis of sanctions, who has been using diplomatic activity 
of which there are many, and contributions made by the Defense 
Department. I think you will find numerous pockets engaged in 
this, and I think that with this cross-cut it will give us a 
better idea of how to begin to assess the efficiency of our 
existing efforts and the adequacy of the appropriations 
relative to this very, very grave threat.
    Senator Enzi. Thank you. My time has expired, but I do want 
to particularly thank both of you for again the conciseness, 
and comprehensiveness of your answers. We usually do not get it 
quite that concise, and normally cannot even do that many 
questions. So thank you very much.
    Chairman Shelby. Senator Bunning.
    Senator Bunning. Thank you, Mr. Chairman.
    Mr. Factor, what more can the U.S. Government do 
internationally under the USA PATRIOT Act to combat terrorist 
financing?
    Mr. Factor. I believe that Section 314(a), which is the 
information sharing is not being utilized, to say the least, to 
its fullest. You cannot just have the information flowing in 
one direction. The information has to flow in both directions. 
We have to learn the lesson from the transportation industry, 
from the defense industry, where we have to share sometimes 
high-value information with a person or multiple people within 
a major organization. We are not being able to find terrorist 
activity in the financial area as well as we could. What we are 
doing is we are only able to utilize the information that we 
know already, and I think sharing some of this high-value 
information would let us, as Section 314(a) of the Act tells us 
to do, would allow us to find many, many more people that are 
financing terror.
    Senator Bunning. Are you suggesting that the information 
flow is United States to or from the other side to the United 
States?
    Mr. Factor. From the other side to the United States 
without----
    Senator Bunning. That is where we are lacking?
    Mr. Factor. We are lacking in not bringing it back down.
    Senator Bunning. That is correct, okay. I just wanted to 
get a handle on it.
    Mr. Factor. I am sorry. I should have been clearer.
    Senator Bunning. That is okay. What can the Government do 
to improve cooperation between law enforcement and financial 
institutions? Do you believe also that the testimony we had 
yesterday, that casinos have any cooperation at all with what 
we are trying to accomplish here?
    Mr. Factor. I did not see the----
    Senator Bunning. Well, we were there. If you have any 
information, we would like to pull it out of you.
    Mr. Factor. Again, I think that casinos, for all intents 
and purposes, they are financial institutions, and I think we 
should possibly look at them as we look at some of the other 
non-bank banks, and use the power set forth in the USA PATRIOT 
Act, particularly the information sharing which we are grossly 
underutilizing. I think we need the mechanisms in place to do 
it.
    Senator Bunning. Mr. Wolosky, in your testimony you talked 
about an Al Qaeda cell in Spain being self-sufficient, and 
using--you did not say this, but I have information that they 
used drug trafficking money to help fund their attack there. Is 
this a pattern that you might think that is being repeated 
around the world by other cells?
    Mr. Wolosky. The staff of the September 11 Commission, I 
believe, came to a conclusion that in their judgment that that 
probably was not the case, in other words, that there was not 
substantial evidence of drug trafficking activity being used to 
fund Al Qaeda on a systematic basis. I think the broader point 
that I would highlight is that in many respects we do not know 
how local sales are being financed, certainly in the context in 
which Al Qaeda is increasingly disbursed, and lacks a coherent, 
I believe, command and control mechanism. In many respects 
cells that are part of Al Qaeda, that are part of affiliated 
groups are out freelancing, essentially, financing themselves 
and in many cases planning their own attack. And in that 
context it makes the job of tracking terrorist financing all 
the more difficult because we are forced to look at a variety 
of different methods including common criminal activity as a 
means by which operational activities in cells might be 
maintained and financed.
    Senator Bunning. I asked this question earlier of 
Congressman Hamilton and Senator Gordon, and I am going to ask 
both of you to comment. After the spring of the 2003 attacks by 
Al Qaeda in Saudi Arabia, and I asked if they thought the 
cooperation was either greater or less than, immediately after 
the attacks? Does your report, or do you have any personal 
knowledge that Saudi Arabia is cooperating better or not as 
good as they did immediately after the attacks?
    Mr. Factor. I believe the Saudi Arabian Government is 
cooperating better, and I see some evidence of that, but I also 
see some of the same problems going on. As you know, as I am 
sure you know, that they have blamed many of the attacks on the 
Zionists and said they are 95 percent sure that it was Zionists 
that did it. This is the Saudi Government speaking. The Saudi's 
are having a civil war there between fundamentalist extremists 
and the Government, and the Saudi Government believes that if 
they can stop the war on their own--this is my belief--that if 
they can stop it within their own country, that everything will 
be fine. But the fight has to go beyond their country. It has 
to include the wahabism that the Saudi's are exporting. It has 
to go to the charities that they are funding, that also can 
fund terrorists. I think that the Saudi Government is looking 
at it more within their country.
    Senator Bunning. Internally only.
    Mr. Factor. But they are cooperating more globally with us.
    Senator Bunning. Mr. Wolosky.
    Mr. Wolosky. I would agree with that. By all accounts there 
is much improved and substantial cooperation on law enforcement 
intelligence to counterterrorism issues. I do think though that 
on the financing I would point you toward two problems in my 
estimation. First is the failure, as I indicated in my prepared 
remarks, to provide a public punitive penalty or sanction for 
those who have supported Al Qaeda, even if it is in the past. 
In my judgment those people need to be punished. They should go 
to jail. They should have whatever public punitive action is 
necessary in order to create a broad deterrent effect, so as to 
deter the type of conduct that has historically funded Al Qaeda 
and other extremist organizations and activities.
    The second thing I would point you to is looking at the 
technical minutiae of the laws and regulations in the 
institutions and how they are or are not being implemented. 
Mallory correctly pointed out a problem in a bank law, which on 
its face exempts three of the major global charities from its 
purview with respect to disbursements of receipts. This is 
truly a case of the exception eating up the rule.
    The other problem is in respective institutions, that the 
Saudi Government has said will be created to address the 
charities problem. There is an institution that was announced 
in February 2004 called the Saudi National Entity for 
Charitable Work Abroad. It was re-announced in Washington in 
June 2004. The intention, so far as we could tell from the 
public statements was to fold all external to Saudi Arabia 
charitable activities into this entity. But as of this date, I 
am aware of the fact that several of the charities that Mallory 
indicated are still operational. Since that day to the present 
day they continue to maintain websites and disburse many 
millions of dollars overseas. So it is a question of when and 
how these steps are actually going to be implemented beyond 
announcements that new institutional mechanisms are going to be 
created to address them.
    Senator Bunning. Thank you very much.
    Chairman Shelby. Gentlemen, thank you both. We appreciate 
your input here today and your patience.
    Mr. Wolosky. Thank you.
    Mr. Factor. Thank you for the great work you are doing for 
our country.
    Chairman Shelby. Thank you.
    On our third panel will be Stuart Levey, Under Secretary of 
the Office of Terrorism and Financial Intelligence and Under 
Secretary of the Enforcement, U.S. Department of the Treasury; 
Michael Garcia, Assistant Secretary, U.S. Immigration and 
Customs Enforcement, U.S. Department of Homeland Security; John 
E. Lewis, Deputy Assistant Director, Counterterrorism Division, 
the FBI.
    Gentlemen, we welcome all three of you for our third panel 
today. Your statements will be made part of the record in its 
entirety, and we will start with Mr. Levey.
    Welcome back to the Committee, Mr. Levey.

                  STATEMENT OF STUART A. LEVEY

                 UNDER SECRETARY, TERRORISM AND

                     FINANCIAL INTELLIGENCE

                UNDER SECRETARY FOR ENFORCEMENT

                U.S. DEPARTMENT OF THE TREASURY

    Mr. Levey. Thank you, Mr. Chairman. It is good to be back 
in a slightly different role than last time, more pleasant.
    Mr. Chairman, Members of the Committee, thank you for 
inviting me to testify before you today about our efforts to 
combat terrorist financing and the September 11 Commission's 
report.
    There is little need to underscore the importance of our 
campaign against terrorist financing before this audience. As 
Senator Sarbanes and others discussed this morning, both in the 
USA PATRIOT Act and in many other ways, this Committee has 
already demonstrated its commitment to fighting the financial 
war against terror, and I think this Committee would agree, as 
I do, with the September 11 Commission's central recommendation 
that vigorous efforts to track terrorist financing must remain 
front and center in the U.S. counterterrorism effort.
    Those of us who work on this issue are indebted to the 
Commission and to the excellent staff for the work that they 
have done. It is also an honor for me to testify alongside 
Assistant Secretary Garcia and Deputy Assistant Director Lewis 
today. As you know, I just left the Justice Department a few 
weeks ago, where I had the privilege of working directly with 
Mr. Lewis and his team at the FBI. They are very dedicated 
public servants. I am also a long-time admirer of Michael 
Garcia, whom I first met when the Attorney General asked him to 
take over at the helm of the Immigration and Naturalization 
Service. In addition to the excellent financial investigative 
work done by his current organization, ICE, he also has the 
daunting responsibility of enforcing our Nation's immigration 
laws and had made fantastic strides in attempting to restore 
the rule of law to our immigration system.
    I have submitted a written statement. I would just like to 
highlight a couple of issues for you. First, I think it is 
important to underscore one point that the Commission made, 
which is that the terrorism financing campaign is one part of 
an overall mission to combat terrorism. Put another way, the 
goal is not so much to stop the money as it is to stop the 
terrorists who use the money to murder innocents.
    That seems obvious when you say it, but it has real 
implications for the tactics we choose in a particular 
situation. As people have alluded to today, in some cases the 
best strategy for the overall counterterrorism mission may be 
just to observe the financier covertly to identify the next 
link in the chain, rather than to freeze the money or cut it 
off.
    Our goal must always be to choose the action as a 
government that will do the most to cripple a terrorist 
organization, and in pursuing that goal we need to draw on the 
full range of weapons in our arsenal without concern for turf 
or reputation of a particular agency.
    As the Commission recognized, the teamwork among the 
interagency group that focuses on terrorist financing is 
excellent, and I believe that all involved are committed to the 
same guiding principle. But to act in accordance with that 
principle requires an active understanding of each of the tools 
at our disposal.
    I would like to highlight just briefly the value of public 
designations which are sometimes misunderstood. Designating and 
freezing of assets are a powerful tool. We must use them 
judiciously, but when fully implemented, a designation 
excommunicates the supporter of terrorism from the formal 
financial system, either incapacitating them or driving them to 
more expensive, riskier, or more cumbersome channels.
    The benefits of designations cannot be measured simply by 
totaling the amount of frozen assets. Terrorist related 
accounts are not pools of water awaiting our discovery, as much 
as they are rivers with funds constantly flowing in and out. By 
freezing accounts we dam that river, not only capturing 
whatever monies happen to be present at that moment, but also 
more importantly, ensuring that the individual organization can 
never in the future act as a conduit of funds to terrorists. In 
addition, designations deter others who might otherwise be 
willing to fund terrorist activity.
    In short, the flexibility of designations makes them a very 
useful tool in our efforts to combat terrorist financing. We 
should also remember that designations are not used, or need 
not be used to the exclusion of other tools. Indeed they work 
best when they are used in conjunction with other tools such as 
law enforcement action, as evidenced by our joint actions both 
in the Holy Land Foundation case and in the Al Haramain 
Foundation case.
    It is also important to distinguish between terrorist 
financing and money laundering. While they are related, they 
are not exactly the same, and what works for money laundering 
may not work for terrorist financing. I think we have had some 
discussion of that already today. In the money laundering arena 
investigators are trying to detect the movement of large 
amounts of cash through our financial system. Compliance 
officers and financial institutions are often well positioned 
to detect such activity. Terrorist financing transactions, by 
contrast, may bear no inherently suspicious trademarks since 
such transactions often involve the clandestine movement of 
relatively small amounts of ostensibly clean money that is 
intended for an evil purpose.
    This difference has important policy implications. At 
Treasury we have begun to study where we can devise tools or 
systems aimed more particularly at terrorist financing. We need 
to work closely with the private sector on this task.
    As the Commission pointed out, the financial industry is 
eager to cooperate, but we need to help them help us by 
building on the information sharing relationships that FinCEN 
has developed under Section 314 of the USA PATRIOT Act. In that 
sense I find myself intrigued and in agreement with the gist of 
the comments made by the gentlemen from the Council on Foreign 
Relations, both in their report and today, and I noticed their 
comment in the report that we need to explore ways to share 
classified information with the private sector in this context.
    This is precisely the issue that we intend to take up in 
the Bank Secrecy Act Advisory Group, chaired by Bill Fox, the 
Director of FinCEN. Director Fox has made information sharing a 
top priority, and I am confident that our coordination with the 
private sector will broaden and deepen under his expert 
command.
    I look forward to working with the Committee on this 
important issue and to answering any questions that you may 
have.
    Chairman Shelby. Thank you.
    Mr. Garcia.

                 STATEMENT OF MICHAEL J. GARCIA

             ASSISTANT SECRETARY, U.S. IMMIGRATION

                    AND CUSTOMS ENFORCEMENT

              U.S. DEPARTMENT OF HOMELAND SECURITY

    Mr. Garcia. Thank you, Mr. Chairman, Senator. It is a 
privilege to appear before you today with Under Secretary 
Levey, with Mr. Lewis, to discuss terrorist financing issues 
arising out of the September 11 Commission report, and to 
specifically address how U.S. Immigration and Customs 
Enforcement, or ICE, is using its border and interior 
enforcement authorities in the war on terror.
    ICE is a new agency. It is the largest investigative agency 
in the Department of Homeland Security, and it is comprised of 
some of our Nation's oldest and most recognizable law 
enforcement agencies. ICE is responsible for enforcing customs 
and immigration laws among other authorities, and is charged 
with using these authorities in new ways to protect the 
homeland.
    With respect to money laundering, the U.S. Customs special 
agents who conducted financial investigations under the 
Department of the Treasury are now within ICE. I am pleased to 
join my colleagues from the Department of the Treasury and the 
FBI to talk about how our agencies work closely together and 
routinely exchange information in the course of our 
investigations. ICE and the FBI have established a joint 
vetting unit staffed by senior personnel from each agency to 
identify financial investigations that may have a nexus to 
terrorism. As a result, the agencies here today have worked 
together cooperatively on a number of cases that we believe 
have stemmed the flow of funds into the hands of terrorists.
    Case examples include a JTTF case against AZZAM.com, and 
affiliated websites that promoted Jihad against the United 
States, provided instructions on evading U.S. currency 
reporting requirements and instructions for sending funds to 
Jihadists in Chechnya and Afghanistan through Pakistan. This 
case was developed from leads from the ICE Cyber Crime Center.
    Another example is the arrest of Abdurahman Alamoudi, who 
in July of this year pleaded guilty to conducting prohibited 
financial transactions with Libya, making false statements in 
his application for U.S. citizenship, and violating U.S. tax 
laws. The case was the result of a long-term investigation by 
the FBI, ICE, and the IRS. ICE, the FBI, and Treasury also 
worked together to indict the Holy Land Foundation for Relief 
and Development, or HLF, a foundation that was, as charged in 
the indictment, providing financial and material support to the 
Hamas group.
    These cases are examples of how the U.S. Government has 
pursued terrorist financing in the immediate aftermath of 
September 11, but as the September 11 Commission report and 
other studies have found, we must continually adapt our 
countermeasures and use our enforcement tools and authorities 
to full effect. For ICE that means addressing vulnerabilities 
that could be exploited by terrorists to raise money.
    As an Assistant United States Attorney, I prosecuted the 
case against the terrorists who bombed the World Trade Center 
in 1993. From that experience and from my experience at DHS, I 
can tell you two thing that I have learned about terrorist 
financing. The first is that terrorism comes relatively cheap. 
The September 11 Commission report estimates that the hijackers 
spent approximately $400,000 to $500,000 over 2 years preparing 
for the attacks. I roughly estimate the cost of the 1993 World 
Trade Center bombing at about $50,000. These are relatively 
small amounts of money compared to the high cost to the United 
States in terms not only of loss of loved ones and damage to 
property, but also the psychological damage inflicted on our 
Nation.
    The second lesson is that terrorist funds are hard to 
trace, particularly when we are trying retroactively to piece 
together where the money was raised or how it was moved around 
the world. No one has been able to successfully explain exactly 
where the money came from in either the 1993 World Trade Center 
bombing or the September 11 attacks. Moreover, past practice is 
not always indicative of future operations. What methods are 
terrorists using today, what methods will they use in the 
future to earn or move money? We have ideas and we can make 
assumptions based on past practices, but above all we must 
assume that terrorists are creative and adaptable, as they have 
already shown themselves to be. That is why our enforcement 
approach must employ the same flexibility.
    Several of the September 11 Commission's recommendations 
suggest steps that are already being taken by ICE to enhance 
the 
Nation's counterterrorism initiatives, restore integrity to the 
U.S. Immigration system, enforce laws that protect U.S. 
financial systems from exploitation, and strengthen the 
Nation's border in the effort to prevent future terrorist 
attacks. These recommendations track with the findings of a 
recent Government Accountability Office Investigation, which 
found that, ``Terrorists earn assets through illicit trade in 
myriad commodities, such as drugs, weapons, cigarettes, and 
systems such as charities, owing to their profitability. Like 
other criminals, terrorists can trade any commodity in an 
illegal fashion, as evidenced by their reported involvement in 
trading a variety of counterfeit goods.'' Many of the examples 
cited in the GAO report fall within the traditional law 
enforcement jurisdiction of ICE.
    ICE is targeting each of these areas of vulnerability as 
part of Cornerstone, an initiative that targets the alternative 
financing mechanisms that terrorist and other criminal 
organizations could use to earn, move, and store funds. Let me 
give you some examples of how we are doing this.
    First, we target methods that terrorist and other criminal 
organizations could use to earn funds through investigations of 
intellectual property rights violations, counterfeit 
pharmaceuticals, human smuggling, commercial fraud, export 
violations, and cyber crime. A recent ICE IPR investigation 
identified a large scale smuggling network of counterfeit 
trademark merchandise from China that was brokered through a 
middle man in Lebanon. ICE agents arrested 14 subjects, seized 
containers valued at approximately $24 million, and seized 
nearly $100,000.
    ICE targets the movement of funds derived from criminal 
activity into and out of the United States by identifying 
financial and trade systems that are vulnerable to exploitation 
by criminal organizations. That could include bulk currency 
smuggling, trade-based money laundering, courier hubs, and 
money service businesses.
    We are aggressively targeting bulk cash smuggling by using 
provisions of the USA PATRIOT Act. Since July 2003, ICE and our 
sister agency, Customs and Border Protection, have collectively 
seized $40.5 million before it could be illegally exported.
    Finally, we target commodities that are imported and 
exported from the United States that can be used to store the 
proceeds of illegal activity. In one operation called Meltdown, 
ICE and the IRS uncovered a scheme in which the proceeds of 
drug sales were converted into the equivalent value of gold.
    These Cornerstone cases and our work in the JTTF's with our 
partners, illustrate the approach that ICE is taking to 
homeland security and specifically to terrorist financing.
    I would like to thank you, Mr. Chairman, and the other 
distinguished Members of this Committee for the opportunity to 
testify before you today, and I will of course be happy to 
answer any questions you might have.
    Chairman Shelby. Thank you.
    Mr. Lewis.

                   STATEMENT OF JOHN E. LEWIS

                   DEPUTY ASSISTANT DIRECTOR

                   COUNTERTERRORISM DIVISION

                FEDERAL BUREAU OF INVESTIGATION

    Mr. Lewis. Good afternoon, Chairman Shelby. Thank you for 
inviting me the to speak today regarding the September 11 
Commission's recommendations regarding terrorist financing. As 
you know, the FBI has worked closely with the Commission and 
its staff, and we commend it for the extraordinary effort.
    Among the successes achieved thus far in the war on 
terrorism, the FBI has made significant progress against both 
the operational and support arms of terror networks. With 
respect to the support arms, an essential component of the 
global strategy against terrorism has been to counter the 
manner in which terror networks recruit, train, plan, and 
effect operations, each of which requires a measure of 
financial support. Inherent requisites of this financial 
support are the raising, movement, and expenditure of 
resources. Those requisites leave traceable and identifiable 
trails through our global financial systems. The FBI follows 
those trails backward to identify and dismantle existing 
funding sources and facilitators.
    The FBI is also endeavoring to extrapolate and project 
those trails forward in extensive proactive efforts to prevent 
future terrorist attacks by identifying perpetrators, 
facilitators, and systemic vulnerabilities in the financial 
system at large.
    The September 11 hijackers used both domestic and foreign 
financial institutions to maintain, transfer, and retrieve 
money. Al Qaeda funded the hijackers in the United States by 
primarily three unremarkable means: Wire transfers from 
overseas to here, physical transport of cash or traveler's 
checks into the United States, and the accessing of funds held 
in foreign financial institutions by debit or credit cards. 
Neither the hijackers nor the facilitators overseas were 
experts in the use of the international financial system or 
sophisticated money laundering techniques.
    They caused a paper trail to be created which linked them 
to each other and to their facilitators. Still, they were able 
to avoid the scrutiny of law enforcement, government 
regulators, private sector compliance authorities by conducting 
transactions in a fairly routine manner that failed to raise 
any flags in the international financial system. The hijackers 
and their facilitators used the anonymity provided by the vast 
international and domestic financial system to both move and 
store their money.
    Before September 11, Al Qaeda moved money through both 
formal and informal banking systems. In those instances where 
the banking system was not dependable or where the transactions 
were susceptible to scrutiny from international law 
enforcement, money was moved through the informal or hawala 
system. Al Qaeda also used couriers to move money because they 
provided a more secure way to move the funds.
    Prior to the events of September 11, the FBI had no 
mechanism to provide a comprehensive centralized or proactive 
approach to terrorism finance matters. While the FBI routinely 
examined financial records at the time of the previous attacks, 
the events of September 11 identified a critical need for us 
and that was a need for a more comprehensive approach to 
financial matters.
    The Terrorist Financing Operations Section or what we call 
TFOS, which resides in our Counterterrorism Division was formed 
in response to that need. The mission of TFOS has evolved into 
a broad strategy, to identify, investigate, disrupt, and 
dismantle all terrorist related financing and fund raising 
activities. The TFOS mission specifically includes: Conducting 
full financial analysis of terrorist suspects and their 
financial support structures in the United States as well as 
abroad; coordinating joint participation liaison and outreach 
efforts to exploit financial resources of private, government, 
as well as foreign entities; utilizing the FBI and our Legal 
Attache expertise around the world in relationship to fully 
development financial information from foreign law enforcement 
and private agencies; working jointly with our colleagues in 
the intelligence community to fully exploit intelligence 
information to further our investigations; working jointly with 
prosecutors and law enforcement as well as regulatory 
communities; developing predictive models and conducting data 
analysis to facilitate the identification of previously unknown 
or what have been referred to as sleeper cells; and finally, 
providing the financial component to classified 
counterterrorism investigations in support of our counter-
terrorism responsibilities.
    Intelligence gathering and information sharing is critical 
to these efforts. The intelligence community, including the 
Bureau, produces and obtains tremendous amounts of classified 
intelligence information. While much of this information can be 
of significant value in terrorism financing investigations, the 
value will not be realized or maximized absent the ability to 
filter this information, analyze it, and then disseminate in an 
appropriate manner to those who can make the best use of that 
information.
    Toward this end, TFOS participates in joint endeavors with 
Treasury, DOJ, Department of State, NSA, DHS, and others, 
involving potential terrorist-related financial transactions, 
and we have personnel detailed to the CIA's Counterterrorism 
Center who work directly with our TFOS on financial 
intelligence matters. Each JTTF throughout the United States 
also has a designated Terrorism Financing Coordinator to 
facilitate the financial component of investigations being 
conducted there.
    Currently the FBI possesses a greater understanding of 
terrorism finance methods than we did prior to September 11. 
More sophisticated and effective processes and mechanisms to 
address and target terrorist financing have been developed and 
continue to evolve. Proactive approaches are increasingly 
utilized. Global awareness on the part of law enforcement, 
Government agencies, regulators, policymakers, and the private 
sector of terrorism finance methods, suspicious financial 
activity and vulnerabilities has greatly increased since 
September 11.
    International cooperation has reached unparalleled levels. 
Outreach with, and cooperation from, the private sector has 
been outstanding and it continues to strengthen, particularly 
in the form of bilateral interaction between law enforcement 
and our financial 
institutions. The ability to access and obtain this financial 
information quickly has significantly enhanced our ability to 
identify, investigate, and resolve immediate threat situations.
    Success in the war on terrorism cannot be measured merely 
in the form of assets seized or funds blocked, but in the 
ability of law enforcement to prevent future acts of terrorism, 
whether through prosecution, disruption, the blocking or 
freezing of funds, or allowing a funding mechanism to actually 
remain in place in order to further an investigation, 
prevention remains the prevailing focus.
    Since different circumstances demand different approaches, 
the best strategy in any given circumstances can only be 
determined from an overall assessment of the situation at hand 
in conjunction with careful coordination, with the cooperation 
of all law enforcement and intelligence agencies.
    I wish to thank you for the opportunity to be here today to 
testify and to highlight our efforts and the role of the FBI in 
combating terrorism finance, and look forward to any questions 
that you might have, sir.
    Chairman Shelby. Thank you, Mr. Lewis.
    Secretary Levey, if the report of the September 11 
Commission has, among other things, one overarching theme, it 
revolves around the state of the Nation's intelligence 
structure and the absolute need for fundamental reform even 
before the report's completion almost a year earlier. In fact, 
legislation was signed into law creating within the Department 
of the Treasury, an Office of Intelligence and Analysis to be 
led by a new Assistant Secretary. Here we are more than 9 
months later, and that position is still vacant. In fact, there 
has not even been a nomination announced for the position, and 
we realize in the closing days of this Congress there is 
probably not going to be one.
    A vital position in the effort to combat terrorist 
financing is inexplicably vacant. You are over there now in a 
new job, and I think you are well qualified for the position. I 
appreciate that the intelligence community has its plate full 
these days, but this situation existed long before the current 
drive to restructure the intelligence community.
    When can the Banking Committee anticipate a nomination for 
the position of Assistant Secretary for Intelligence and 
Analysis?
    Mr. Levey. Mr. Chairman, I think you know that that 
decision is one that is well above my pay grade as a----
    Chairman Shelby. I understand you do not make the 
nomination, but you, in your position, will have some influence 
in that regard, and should have.
    Mr. Levey. Thank you for saying that, sir. What we are 
doing, of course, is standing up the office to the best of our 
ability. We have a highly qualified Deputy Assistant Secretary, 
who is helping us to put the foundations in place for that 
office pending a nomination. Of course, we are anxious to have 
a nominee and to have the vacancy filled. All I can say is that 
that will occur in due course, and we are encouraging that.
    Chairman Shelby. Is that an important position?
    Mr. Levey. It is a vital position.
    Chairman Shelby. Is that a position that would help you 
immensely?
    Mr. Levey. It absolutely would. What needs to be done, and 
which we are trying to start to do is to pull together--as we 
have heard today, there is an enormous volume of information 
coming into the Treasury Department. It is all of the 
classified information from the intelligence community. It is 
all of this information that Mr. Factor was describing that is 
filed by the financial institutions in the United States. We 
need to pull it together. We need to integrate it to make sure 
that we are not--to make sure that we are using appropriately, 
and provide the feedback that I think we owe the private sector 
with respect to that information.
    I think it is a critical position and look forward to 
having----
    Chairman Shelby. I know you and I know you are professional 
and I am glad you are where you are. I have said this before.
    Mr. Secretary, The Wall Street Journal this morning--and I 
am sure you saw it--finally provided some details on the ABN 
AMRO case that heretofore had not been made available. I would 
like to take a moment to address this.
    This case involves one of the world's largest banks, and 
also involves foreign financial institutions previously 
associated with the Bank of New York, the target of a major 
money laundering investigation during the 1990's. Apparently, 
once having been compelled to shift their activities away from 
the Bank of New York, Russian and East European banks with 
questionable records simply relocated their illicit activities 
to another bank's New York branch.
    The issue of money laundering through correspondent 
accounts has been a concern of this Committee for many years, 
and I am sure a concern for Treasury. Given the apparent trend 
that has emerged involving the First Bank of New York, and now 
ABN AMRO, what is the Treasury Department, particularly in 
coordination with the Federal Reserve Bank, doing to ensure 
that a potentially systemic problem like this is under control?
    Also, are the Baltics replacing Switzerland as the go-to 
destination for organizations and tax evaders seeking to 
conduct financial transactions without adequate oversight or 
lax oversight? Do you want to address that?
    Mr. Levey. Sure, Mr. Chairman.
    Chairman Shelby. That is an arm full.
    Mr. Levey. I will give it a shot.
    Chairman Shelby. I am sure you will do it.
    Mr. Levey. Let me know if I do not satisfy you.
    As I said when I was up here last time as a nominee, when 
we had the Riggs case recently come to light, what we need to 
know is whether we have a few isolated bad actors out there or 
whether we have a systemic problem, as the Chairman words it.
    In order for us to make that determination, we need to get 
the information from the banking regulators. What are they 
finding when they go out and do bank examinations? We are 
working very diligently with the banking regulators to put that 
formalized relationship in place, and I believe we are on the 
verge of doing that.
    That is really the first step because without that 
information, we do not know whether we are overacting to 
something that might be isolated or----
    Chairman Shelby. Are you going to get that information?
    Mr. Levey. Pardon me?
    Chairman Shelby. Are you going to get that information?
    Mr. Levey. We will.
    Chairman Shelby. I believe that.
    Mr. Levey. We will.
    Chairman Shelby. What is the second problem there, if you 
get the information?
    Mr. Levey. I am sorry, sir?
    Chairman Shelby. If you get the information, the second 
thing is what do you do with it, right?
    Mr. Levey. Well, in part, that goes back to our prior 
discussion about having the right structure in place in the 
Treasury Department. But we are committed to working very 
diligently to enforce the Bank Secrecy Act. I do not think that 
we can concentrate on terrorist financing without having the 
structure in place, the anti-money laundering system in place.
    You cannot really fight terrorist financing unless you have 
in place a viable, rigorous anti-money laundering enforcement 
mechanism, which the Bank Secrecy Act, and as this Committee 
added to it in the USA PATRIOT Act, gives us. We need to 
enforce it.
    Chairman Shelby. Mr. Lewis, the Commission states that the 
Saudis still need considerable technical assistance and that 
they must be more vigilant in taking the initiative, without 
United States prompting, in combating terrorist financing.
    What is the state of the joint United States-Saudi Task 
Force? Are there impediments to the provision of technical 
assistance that can be addressed or need to be addressed? We 
know that after May 2003, and we had testimony here earlier 
today from the Commission members, that the Saudis have taken 
major steps in the right direction since becoming the target of 
Al Qaeda-directed or inspired attacks, especially with regard 
to regulating charities. What is the status of their actually 
implementing these steps, if you can talk about it in this 
setting?
    Mr. Lewis. As you know, we do have a task force over there, 
made up of a couple of ours and a couple of different agencies 
there that contribute manpower to this. That, in and of itself, 
is a large step forward, at least in my judgment, for that part 
of the world. Enabling two different cultures, two different 
types of investigative entities to actually get to know one 
another, share the same space and work cases--that is 
inevitably going to lead to better things as we go forward 
everyday.
    Chairman Shelby. Is it evolving in the right direction?
    Mr. Lewis. I think it is. As I sit here listening and 
thinking about this question, I am aware of absolutely nothing 
in the last 4 or 5 months that has come across my desk that 
suggests our terrorism finance representatives over there have 
any problems.
    Chairman Shelby. Was May 2003 a wake-up call for the 
Saudis?
    Mr. Lewis. There is no doubt about it, no doubt about it. I 
still think there is a lot of room for their cooperation to 
grow. There is a whole set of different issues over there, as 
you are well aware, than we have here.
    Chairman Shelby. Thank you.
    Secretary Garcia, the Commission's report determined that 
since September 11, Al Qaeda relies to an even greater extent 
than before on the physical movement of money and other 
informal methods of value transfer, which falls right into your 
area.
    As the head of the agency directly responsible for guarding 
the Nation's ports of entry, can you tell the Committee the 
challenge this pattern poses for ICE? Can you accomplish your 
mission with the manpower and resources currently available to 
your agency? Is ICE so intent on spending resources on 
activities like Operation Cornerstone, when we have the 
Treasury Department and the FBI to investigate, regulate, 
inform, and advise financial institutions on money laundering 
and terror finance issues? Do you want to just comment on that?
    Mr. Garcia. Yes, thank you, Mr. Chairman. Again, a lot in 
that question and I will try to hit all the points.
    We do have jurisdiction of the USA PATRIOT Act and other 
statutes on unlicensed money service businesses. We have a very 
robust financial crimes program. Cornerstone, as I tried to 
describe in my opening remarks, is really an umbrella program 
that looks to bring those traditional customs authorities 
together in an approach to terrorist financing that tracks the 
recommendation made by the GAO in their November 2003 report on 
terrorist financing; that is, we have to look at ways that 
these terrorist organizations could earn, move, and store 
funding.
    If you look at the types of criminal activity the GAO 
discusses, most of those line up with traditional customs 
authorities. So if you look at some of our unlicensed money 
broker cases--and there is one I like to use as an example, a 
case up in Newark where $100 million was going through 
unlicensed money brokers into Pakistan. Where it went in 
Pakistan----
    Chairman Shelby. One hundred million dollars?
    Mr. Garcia. One hundred million dollars. Where it went in 
Pakistan is very difficult to say. As you know, Mr. Chairman, 
and the FBI is well aware that the most difficult part of those 
terrorist financing cases is tracking that money overseas. But 
in an area where Al Qaeda has been active, it causes us great 
concern.
    What we were able to do after vetting that case with the 
Bureau was take down the money brokers under this new authority 
in the USA PATRIOT Act, seize money in that case, bring felony 
charges, and disrupt a potential source for funding. That, I 
think, in a nutshell, is the approach of Cornerstone, using 
traditional authorities where it lines up with FBI cases or 
there is a possible terrorism nexus, coordinating that through 
our joint vetting unit and our JTTF participation.
    But where it doesn't, where there is no established nexus, 
certainly very aggressively looking to shut down those 
mechanisms, as you point out, that could be used to get money 
overseas.
    Chairman Shelby. How well are you working with Treasury and 
the FBI in regard to this over in Immigration? That is so 
important to work together.
    Mr. Garcia. Absolutely, Mr. Chairman, and I will give a few 
examples. I gave some case examples which I think are the 
ultimate test, but we have an MOA with the FBI that was signed 
in 2003. And quoting from a more recent GAO report describing 
that MOA, it says ``It represents a partnering commitment by 
two of the Nation's premier law enforcement agencies, the FBI 
and ICE.''
    I think that is exactly right. It is a partnering 
commitment by our agencies. We have established a joint vetting 
unit which vets all leads in these cases. We have exchanged 
high-level managers in TFOS and in our financial program. In 
fact, I think the deputy of the FBI's TFOS group is an ICE 
manager right now, and they have a very high-level person in 
our financial crime shop with full access across both ways into 
all systems. Again, the recent GAO report looking at how that 
implementation was going gave it very high marks, and I fully 
agree with that assessment.
    Treasury, obviously a newer entity stood up under----
    Chairman Shelby. Do you happen to have a Memorandum of 
Understanding with Treasury?
    Mr. Garcia. No, we do not.
    Chairman Shelby. Are you working on one?
    Mr. Garcia. We are working very closely with Treasury and 
with my colleague, Under Secretary Levey.
    Chairman Shelby. Do you need a Memorandum of Understanding, 
or do you just have a good relationship?
    Mr. Garcia. I think a Memorandum of Understanding can be 
very helpful, as it is in the case of the Bureau. I do not 
think it should be looked at as the silver bullet for all 
issues. I think you look at what are the factors, how are we 
working together, is there a need. And we will continuously do 
that.
    I have tremendous respect for Under Secretary Levey. I have 
dealt with him, and he had a great hand in some of those 
measures that restored integrity to the immigration enforcement 
system when he was at the Department of Justice. So, I look 
forward to working with him in this new role.
    Everybody agrees on what the end game is here in getting at 
terrorist financing. As Under Secretary Levey defines his shop 
and moves forward, we will be working together on a number of 
issues. I know there is a meeting scheduled in the near future 
on some of those that Mr. Levey has called and I look forward 
to participating in that.
    I think, obviously, with the FBI, there is a longstanding 
MOA now in relative terms, going back to 2003. And with 
Treasury, it is a very positive relationship that is 
developing.
    Chairman Shelby. Good.
    Mr. Lewis, let's discuss the FBI's analytical ability, if I 
can get into that. How long will it be before TFOS and the 
Bureau as a whole will improve their ability to systematically 
gather and analyze the information developed in their 
investigations and create high-quality analytic products and 
finished intelligence?
    For example, the September 11 Commission found, among other 
things, that as late as the spring of 2004, a few months ago, 
the Bureau still had generated very little quality, finished 
intelligence with respect to Al Qaeda financing; that TFOS must 
establish its own formal system for tracking and evaluating the 
extent of terrorist fundraising by various groups in the United 
States.
    Can you comment on that?
    Mr. Lewis. Sure. Let me throw out a couple of things. The 
absence of reporting on Al Qaeda, in particular, I do not think 
has direct correlation to how far along we might be with 
respect to what our analysts do today. I will tell you, having 
been around this effort now for 27 years, there has been a 
remarkable change in the last couple of years particularly on 
the analytical front.
    Chairman Shelby. You had to make a change, hadn't you?
    Mr. Lewis. Absolutely, there is no question about it, and I 
see this everyday. The amount of information that is being 
generated in the division and pushed out not only to other 
divisions and the field, but also beyond that into law 
enforcement here in the country and beyond is just an 
incredible shift over the last few years.
    Now, with respect to TFOS, in particular, please bear in 
mind that this is a component of overall investigation. I would 
rather see the need for intelligence products that deal with 
just more than a financial aspect of a case than not. The vast 
majority of intelligence products that move out of the Bureau 
deal on that level; with a larger case, who the individuals are 
and multiple facets about what this investigation is. Does that 
answer your question, sir?
    Chairman Shelby. Yes, sir.
    Secretary Levey, I asked this question earlier of the other 
panel. With more and more banks seeking to enter the realm of 
financial services that extend beyond what we know as 
traditional banking activities, we would like to hear your 
views on whether or not this trend has any implications on the 
Government's ability, your ability, to regulate the financial 
transactions that are at issue in today's hearing. For example, 
what are the implications of increased global use of ATM's for 
money laundering and for the movement of terrorist funds?
    Mr. Levey. Mr. Chairman, I think the issues like the one 
you raised are huge challenges for us. There is no question 
about it. In fact, I think of the USA PATRIOT Act, in general, 
as being very forward-looking in terms of recognizing that 
there are an enormous number of ways that people can move 
money, and calling upon us to bring them into our regulatory 
umbrella. That is a long-term challenge that we have before us.
    Chairman Shelby. Moving it from somebody's pocket just 
going through immigration is a major problem, isn't it?
    Mr. Levey. Absolutely, and law enforcement agencies, and 
particularly the great work ICE does, is critical in creating 
the deterrent here in the United States. In terms of the global 
use of these types of mechanisms, we have to continue to think 
ahead and realize that as we continue to improve our systems of 
enforcement here that terrorists and other criminals will 
continue to adapt. It is a never-ending measure/countermeasure 
battle that we are in and we are going to have to brace 
ourselves for the long-term.
    Chairman Shelby. Mr. Levey, should wire transfer companies, 
casinos, banks, securities dealers, and other financial 
institutions have access to terrorist watchlists? If they did, 
would it help them? What would be some of the problems with 
doing that?
    Mr. Levey. I think that there is probably good potential 
there for better information-sharing on our side. There are 
issues that that presents in terms of privacy, and so forth, 
and the types of false positives that I think we have all heard 
about in the news. I think the issue you raise, though, is one 
that we do need to grapple with and determine if there is 
something more we can do. I do not have a pat yes or no answer 
to that. I am sorry.
    Chairman Shelby. Secretary Levey, high policymakers express 
frustration at not being able to get, on a consistent basis, 
solid information to block assets. The CIA contends it has 
excellent terrorist financing information, and in the CIA's 
view it is Treasury that is unhappy because the CIA's 
information is extremely sensitive so it cannot be released to 
support public designation.
    Is current USA PATRIOT Act legislation sufficient to 
overcome this problem now? Is this a problem?
    Mr. Levey. I think that in some ways the situation that you 
allude to is somewhat more of a problem that occurred prior to 
the USA PATRIOT Act. But now that we can use classified 
information, we do not have the same problem. There is still 
the need to make some information public when we make a 
designation and do an asset-blocking and that sometimes does 
present issues. It is a Government-wide problem that we have to 
grapple with: What can we make public in a particular 
situation.
    Chairman Shelby. Do you need any other legislation in this 
area or can you just work with what you have?
    Mr. Levey. I do not believe that there is a legislative fix 
that would be helpful.
    Chairman Shelby. Secretary Levey--and I am not picking on 
you. You have been here a lot.
    Mr. Levey. That is why I am here.
    Chairman Shelby. I know that.
    With respect to OFAC evidence, what is needed by way of 
evidence to convince the courts, here and abroad, that 
individuals or entities are tied to terrorist activity? I know 
it is a burden of proof. Proof problems often arise when 
policymakers base decisions to freeze or block funds on limited 
evidence based on intelligence information only, for example, 
when evidence is simply ``linking the funds to terrorist 
organizations.''
    In other words, are intelligence agents being forced more 
into a law enforcement role in supporting their assessments 
now, or are policymakers holding off prosecuting a matter until 
more reliable information is unearthed? Is it a wise thing to 
thrust the intelligence collector into a role of law 
enforcement? All of it is based on information and you have got 
to use the information to take a big step forward, do you not, 
in this regard?
    Mr. Levey. Absolutely, Mr. Chairman. I recognize those 
concerns as echoing some of the sentiments expressed in the 
Monograph.
    Chairman Shelby. These are big challenges for you, aren't 
they?
    Mr. Levey. These are challenges. I think that one thing I 
would like to point out is that while there have been some 
suggestions that we are designating on too thin of evidence, 
there have been challenges in the courts and we have won in 
every single case. All these arguments have been raised saying 
that it violates due process to do it the way we have been 
doing it; that we should not be able to use classified 
evidence, and so forth.
    All those challenges have been aired in the courts. We have 
won every single case. They have been affirmed by the courts of 
appeals. There hasn't been a single dissent. And if there is 
one area where I would say I would disagree with some of the 
concerns of the monograph written by the staff of the September 
11 Commission, which is otherwise an excellent piece of work, I 
would say this is an area where I do find myself in 
disagreement with some of their concerns. They did not give, in 
my view, enough credit to the fact that the courts have sided 
with us in every single case.
    Chairman Shelby. So we need to give you the tools first, 
and then you do the job and you will get the credit. I think 
so.
    Mr. Levey. We have the tools, and now we have defended the 
tools and the courts have upheld our use of the tools.
    Chairman Shelby. I know you are challenged, but all of you 
are doing a good job. We appreciate your patience today. It is 
one o'clock. These hearings are important, as is our oversight 
and we will continue to work with all of you. Thank you very 
much.
    The hearing is adjourned.
    [Whereupon, at 12:56 p.m., the hearing was adjourned.]
    [Prepared statements and response to a written question 
supplied for the record follow:]
               PREPARED STATEMENT OF SENATOR JIM BUNNING
    I would like to welcome all of our witnesses here today. I would 
especially like to thank the two September 11 Commissioners, who are 
both former. Colleagues, for all of their hard work and service to our 
nation. I applaud chairman Shelby for holding these very important 
hearings on terrorist financing and money laundering. Obviously, these 
are very important issues in fighting the war on terror.
    And I think yesterday's hearing was a good lead in for today.
    The Commission has done us a great service, both their 
recommendations and their tracing of the monies used to pull off the 
September 11 attacks. I think they cleared up a lot of misconceptions. 
Particularly for me, how relatively little money was used to pull off 
the attacks.
    For as long as the terrorists lived here, how many there were, 
living expenses, flight training and travel, the fact that the 
operation only cost between $400,000 to $500,000 is very surprising. 
The fact the us embassy bombings in Africa cost around $10,000 is also 
very disconcerting. It shows how daunting the problem that our money 
laundering and terrorist finance people have before them is.
    I think our law enforcement officials are coming together. I think 
cooperation and coordination has improved. International cooperation 
has improved, obviously it can get better. Since the spring of 2003, 
when they were attacked internally by Al Qaeda, cooperation with the 
Government of Saudi Arabia has improved. But we still have problems. 
The Commission has listed a number of their recommendations that we 
will obviously take a very close look at. Though things have improved, 
we can do better.
    And we need to do better. There have been problems. The financial 
institutions need to do a better job in complying with the regulations. 
But the regulatory bodies also have to do a better job. We must 
implement the rules governing financial institutions.
    We also must aid the financial institutions, especially those who 
have never been subjected to this type, of regulation before in 
implementing the new rules.
    I also think it's very important for the regulators to work with 
the institutions they are regulating. I think most of the financial 
institutions want to be a partner. I would guess that most want to do 
their part in combating terrorism.
    I think this is especially true of the smaller institutions. Many 
of the money service businesses or MSB's know their customers well. And 
they have a tradition of working with local law enforcement.
    For me, one of the most sobering conclusions in the terror 
financing portion of the Commission Report is that Al Qaeda knew our 
system and didn't do anything to raise red flags as they were funding 
their attacks.
    It is also very worrisome that some of these cells have now become 
self-sufficient.
    We face a daunting task in combating terrorism. We need to make 
sure we do this right. I think these hearing will go a long way in 
determining the correct way to go.
    This Committee has a great tradition of bipartisanship, especially 
on these types of matters; I know we will all work together to find the 
best solution for the problems facing us in terror financing.
    Once again, thank you Mr. Chairman and I welcome all of our 
witnesses today.
                               ----------
                      JOINT PREPARED STATEMENT OF:
                 LEE H. HAMILTON, VICE CHAIRMAN \1\ AND
                     SLADE GORTON, COMMISSIONER \2\
    National Commission on Terrorist Attacks Upon the United States
                           September 29, 2004
    Chairman Shelby, Ranking Member Sarbanes, and distinguished Members 
of the Committee on Banking, Housing, and Urban Affairs, it is an honor 
to appear before you this morning. This Committee has been deeply 
involved in the financial aspect of our country's war on terror, and we 
are grateful to you for the prompt consideration of our 
recommendations.
---------------------------------------------------------------------------
    \1\ A former Representative in Congress from the State of Indiana.
    \2\ A former U.S. Senator from the State of Washington.
---------------------------------------------------------------------------
    After the September 11 attacks, the highest-level U.S. Government 
officials publicly declared that the fight against Al Qaeda financing 
was as critical as the fight against Al Qaeda itself. It was presented 
as one of the keys to success in the fight against terrorism: If we 
choke off the terrorists' money, we limit their ability to conduct mass 
casualty attacks.
    In reality, stopping the flow of funds to Al Qaeda and affiliated 
terrorist groups has proved to be essentially impossible. At the same 
time, tracking Al Qaeda financing is an effective way to locate 
terrorist operatives and supporters and to disrupt terrorist plots.
    Our Government's strategy on terrorist financing has changed 
significantly from the early post-September 11 days. Choking off the 
money remains the most visible aspect of our approach, but it is not 
our only, or even most important, goal. Making it harder for terrorists 
to get money is a necessary, but not sufficient, component of our 
overall strategy.
    Following the money to identify terrorist operatives and 
sympathizers provides a particularly powerful tool in the fight against 
terrorist groups. Use of this tool almost always remains invisible to 
the general public, but it is a critical part of the overall campaign 
against Al Qaeda. Today, the U.S. Government recognizes--appropriately, 
in our view--that terrorist-financing measures are simply one of many 
tools in the fight against Al Qaeda.
Financing of the September 11 Attack
    The September 11 hijackers used U.S. and foreign financial 
institutions to hold, move, and retrieve their money. The hijackers 
deposited money into U.S. accounts, primarily by wire transfers and 
deposits of cash or travelers checks brought from overseas. 
Additionally, several of them kept funds in foreign accounts, which 
they accessed in the United States through ATM and credit card 
transactions.
    The hijackers received funds from facilitators in Germany and the 
United Arab Emirates or directly from Khalid Sheikh Mohamed (KSM) as 
they transited Pakistan before coming to the United States. The plot 
cost Al Qaeda somewhere in the range of $400,000-500,000, of which 
approximately $300,000 passed through the hijackers' bank accounts in 
the United States.
    While in the United States, the hijackers spent money primarily for 
flight training, travel, and living expenses (such as housing, food, 
cars, and auto insurance). Extensive investigation has revealed no 
substantial source of domestic financial support.
    Neither the hijackers nor their financial facilitators were experts 
in the use of the international financial system. They created a paper 
trail linking them to each other and their facilitators. Still, they 
were adept enough to blend into the vast international financial system 
easily without doing anything to reveal themselves as criminals, let 
alone terrorists bent on mass murder.
    The money-laundering controls in place at the time were largely 
focused on drug trafficking and large-scale financial fraud. They could 
not have detected the hijackers' transactions. The controls were never 
intended to, and could not, detect or disrupt the routine transactions 
in which the hijackers engaged.
    There is no evidence that any person with advance knowledge of the 
impending terrorist attacks used that information to profit by trading 
securities. Although there has been consistent speculation that massive 
Al Qaeda-related ``insider trading'' preceded the attacks, exhaustive 
investigation by Federal law enforcement and the securities industry 
has determined that unusual spikes in the trading of certain securities 
were based on factors unrelated to terrorism.
Al Qaeda Fund-Raising
    Al Qaeda and Osama Bin Laden obtained money from a variety of 
sources. Contrary to common belief, Bin Laden did not have access to 
any significant amounts of personal wealth, particularly after his move 
from Sudan to Afghanistan. He did not personally fund Al Qaeda, either 
through an inheritance or businesses he was said to have owned in 
Sudan.
    Al Qaeda's funds, approximately $30 million per year, came from the 
diversion of money from Islamic charities. Al Qaeda relied on well-
placed financial facilitators who gathered money from both witting and 
unwitting donors, primarily in the Gulf region.
    No persuasive evidence exists that Al Qaeda relied on the drug 
trade as an important source of revenue, had any substantial 
involvement with conflict diamonds, or was financially sponsored by any 
foreign government. The United States is not, and has not been, a 
substantial source of Al Qaeda funding, although some funds raised in 
the United States may have made their way to Al Qaeda and its 
affiliated groups.
U.S. Government Efforts Before the September 11 Attacks
    Before September 11, terrorist financing was not a priority for 
either domestic or foreign intelligence collection. Intelligence 
reporting on this issue was episodic, insufficient, and often 
inaccurate.
    Although the National Security Council considered terrorist 
financing important in its campaign to disrupt Al Qaeda, other agencies 
failed to participate to the NSC's satisfaction. There was little 
interagency strategic planning or coordination. Without an effective 
interagency mechanism, responsibility for the problem was dispersed 
among a myriad of agencies, each working independently.
    The FBI gathered intelligence on a significant number of 
organizations in the United States suspected of raising funds for Al 
Qaeda or other terrorist groups. The FBI, however, did not develop an 
endgame for its work. Agents continued to gather intelligence, with 
little hope that they would be able to make a criminal case or 
otherwise disrupt the operations of these organizations. The FBI could 
not turn these investigations into criminal cases because of:

 insufficient international cooperation;
 a perceived inability to mingle criminal and intelligence 
    investigations due to the ``wall'' between intelligence and law 
    enforcement matters;
 sensitivities to overt investigations of Islamic charities and 
    organizations; and
 the sheer difficulty of prosecuting most terrorist-financing 
    cases.

    Nonetheless, FBI street agents had gathered significant 
intelligence on specific groups.
    On a national level, the FBI did not systematically gather and 
analyze the information its agents developed. It lacked a headquarters 
unit focusing on terrorist financing. Its overworked counterterrorism 
personnel lacked time and resources to focus specifically on financing.
    The FBI as an organization therefore failed to understand the 
nature and extent of the Jihadist fund-raising problem within the 
United States or to develop a coherent strategy for confronting the 
problem. The FBI did not, and could not, fulfill its role to provide 
intelligence on domestic terrorist financing to government 
policymakers. The FBI did not contribute to national policy 
coordination.
    The Department of Justice could not develop an effective program 
for prosecuting terrorist finance cases. Its prosecutors had no 
systematic way to learn what evidence of prosecutable crimes could be 
found in the FBI's intelligence files, to which it did not have access.
    The U.S. intelligence community largely failed to comprehend Al 
Qaeda's methods of raising, moving, and storing money. It devoted 
relatively few resources to collecting the financial intelligence that 
policymakers were requesting, or that would have informed the larger 
counterterrorism strategy.
    The CIA took far too long to grasp basic financial information that 
was readily available--such as the knowledge that Al Qaeda relied on 
fund-raising, not Bin Laden's personal fortune.
    The CIA's inability to grasp the true source of Bin Laden's funds 
frustrated policymakers. The U.S. Government was unable to integrate 
potential covert action or overt economic disruption into the 
counterterrorism effort. The lack of specific intelligence about Al 
Qaeda financing, and intelligence deficiencies, persisted through 
September 11. The Office of Foreign Assets Control (OFAC), the Treasury 
organization charged by law with searching out, designating, and 
freezing Bin Laden assets, did not have access to much actionable 
intelligence.
    Before September 11, a number of significant legislative and 
regulatory initiatives designed to close vulnerabilities in the U.S. 
financial system failed to gain traction. They did not gain the 
attention of policymakers. Some of these, such as a move to control 
foreign banks with accounts in the United States, died as a result of 
banking industry pressure. Others, such as a move to regulate money 
remitters, were mired in bureaucratic inertia and a general anti-
regulatory environment.
Where Are We Now?
    It is common to say the world has changed since September 11, 2001. 
This conclusion is particularly apt in describing U.S. counterterrorist 
efforts regarding financing. The U.S. Government focused, for the first 
time, on terrorist financing and 
devoted considerable energy and resources to the problem. As a result, 
we now have a far better understanding of the methods by which 
terrorists raise, move, and use money. We have employed this knowledge 
to our advantage.
    With a new sense of urgency post September 11, the intelligence 
community 
(including the FBI) created new entities to focus on, and bring 
expertise to, the question of terrorist fund-raising and the 
clandestine movement of money. The intelligence community uses money 
flows to identify and locate otherwise unknown associates of known 
terrorists, and has integrated terrorist-financing issues into the 
larger counterterrorism effort.
    Equally important, many of the obstacles hampering investigations 
have been stripped away. The current intelligence community approach 
appropriately focuses on using financial transactions, in close 
coordination with other types of intelligence, to identify and track 
terrorist groups rather than to starve them of funding.
    Still, understanding Al Qaeda's money flows and providing 
actionable intelligence to policymakers present ongoing challenges 
because of:

 the speed, diversity, and complexity of the means and methods 
    for raising and moving money;
 the commingling of terrorist money with legitimate funds;
 the many layers and transfers between donors and the ultimate 
    recipients of the money;
 the existence of unwitting participants (including donors who 
    give to generalized Jihadist struggles rather than specifically to 
    Al Qaeda); and
 the U.S. Government's reliance on foreign government reporting 
    for intelligence.

    Bringing Jihadist fund-raising prosecutions remains difficult in 
many cases. The inability to get records from other countries, the 
complexity of directly linking cashflows to terrorist operations or 
groups, and the difficulty of showing what domestic persons knew about 
illicit foreign acts or actors all combine to thwart investigations and 
prosecutions.
    The domestic financial community and some international financial 
institutions have generally provided law enforcement and intelligence 
agencies with extraordinary cooperation. This cooperation includes 
providing information to support quickly developing investigations, 
such as the search for terrorist suspects at times of emergency. Much 
of this cooperation is voluntary and based on personal relationships.
    It remains to be seen whether such cooperation will continue as the 
memory of September 11 fades. Efforts to create financial profiles of 
terrorist cells and terrorist fund-raisers have proved unsuccessful, 
and the ability of financial institutions to detect terrorist financing 
remains limited.
    Since the September 11 attacks and the defeat of the Taliban, Al 
Qaeda's budget has decreased significantly. Although the trend line is 
clear, the U.S Government still has not determined with any precision 
how much Al Qaeda raises or from whom, or how it spends its money. It 
appears that the Al Qaeda attacks within Saudi Arabia in May and 
November 2003 have reduced--some say drastically--Al Qaeda's ability to 
raise funds from Saudi sources. There has been both an increase in 
Saudi enforcement and a more negative perception of Al Qaeda by 
potential donors in the Gulf.
    However, as Al Qaeda's cashflow has decreased, so too have its 
expenses, generally owing to the defeat of the Taliban and the 
dispersal of Al Qaeda. Despite our efforts, it appears that Al Qaeda 
can still find money to fund terrorist operations. Al Qaeda now relies 
to an even greater extent on the physical movement of money and other 
informal methods of value transfer, which can pose significant 
challenges for those attempting to detect and disrupt money flows.
Where Do We Need To Go?
    While specific, technical recommendations are beyond the scope of 
my remarks today, I would like to stress four themes in relation to 
this Committee's work:

    First, continued enforcement of the Bank Secrecy Act rules for 
financial institutions, particularly in the area of Suspicious Activity 
Reporting, is necessary.
    The Suspicious Activity Reporting provisions currently in place 
provide our first defense in deterring and investigating the financing 
of terrorist entities and operations. Financial institutions are in the 
best position to understand and identify problematic transactions or 
accounts.
    Although the transactions of the September 11 hijackers were small 
and innocuous, and could probably not be detected today, vigilance in 
this area is important. Vigilance assists in preventing open and 
notorious fundraising. It forces terrorists and their sympathizers to 
raise and move money clandestinely, thereby raising the costs and risks 
involved. The deterrent value in such activity is significant and, 
while it cannot be measured in any meaningful way, ought not to be 
discounted.
    The USA PATRIOT Act expanded the list of financial institutions 
subject to Bank Secrecy Act regulation. We believe that this was a 
necessary step to ensure that other forms of moving and storing money, 
particularly less regulated areas such as wire remitters, are not 
abused by terrorist financiers and money launderers.
    Second, investigators need the right tools to identify customers 
and trace financial transactions in fast-moving investigations.
    The USA PATRIOT Act gave investigators a number of significant 
tools to assist in fast-moving terrorism investigations. Section 314(a) 
allows investigators to find accounts or transactions across the 
country. It has proved successful in tracking 
financial transactions and could prove invaluable in tracking down the 
financial component of terrorist cells. Section 326 requires specific 
customer identification requirements for those opening accounts at 
financial institutions. We believe both of these provisions are 
extremely useful and properly balance customer privacy and the 
administrative burden, on the one hand, against investigative utility 
on the other.
    Third, continuous examination of the financial system for 
vulnerabilities is necessary.
    While we have spent significant resources examining the ways Al 
Qaeda raised and moved money, we are under no illusions that the next 
attack will use similar methods. As the Government has moved to close 
financial vulnerabilities and loopholes, Al Qaeda adapts. We must 
continually examine our system for loopholes that Al Qaeda can exploit, 
and close them as they are uncovered. This will require constant 
efforts on the part of this Committee, working with the financial 
industry, their regulators, and the law enforcement and intelligence 
community.
    Finally, we need to be mindful of civil liberties in our efforts to 
shut down terrorist networks.
    In light of the difficulties in prosecuting some terrorist fund-
raising cases, the Government has used administrative blocking and 
freezing orders under the International Emergency Economic Powers Act 
(IEEPA) against U.S. persons (individuals or entities) suspected of 
supporting foreign terrorist organizations. It may well be effective, 
and perhaps necessary, to disrupt fund-raising operations through an 
administrative blocking order when no other good options exist.
    The use of IEEPA authorities against domestic organizations run by 
U.S. citizens, however, raises significant civil liberty concerns. 
IEEPA authorities allow the Government to shut down an organization on 
the basis of classified evidence, subject only to a deferential after-
the-fact judicial review. The provision of the IEEPA that allows the 
blocking of assets ``during the pendency of an investigation'' also 
raises particular concern in that it can shut down a U.S. entity 
indefinitely without the more fully developed administrative record 
necessary for a permanent IEEPA designation.
Conclusions
    Vigorous efforts to track terrorist financing must remain front and 
center in U.S. counterterrorism efforts. The Government has recognized 
that information about terrorist money helps us to understand their 
networks, search them out, and disrupt their operations.
    These intelligence and law enforcement efforts have worked. The 
death or capture of several important facilitators has decreased the 
amount of money available to Al Qaeda, and increased its costs and 
difficulties in moving money. Captures have produced a windfall of 
intelligence.
    Raising the costs and risks of gathering and moving money are 
necessary to limit Al Qaeda's ability to plan and mount significant 
mass casualty attacks. We should understand, however, that success in 
these efforts will not of itself immunize us from future terrorist 
attacks.
    We would be pleased to respond to your questions.
                               ----------
                  PREPARED STATEMENT OF MALLORY FACTOR
               Vice Chair, Council on Foreign Relations'
   Second Report of the Independent Task Force on Terrorist Financing
                     Chairman, Mallory Factor, Inc.
                           September 29, 2004
    Chairman Shelby, Senator Sarbanes, and distinguished Members of 
this Committee, thank you for inviting me to testify today about my 
views on the critical issue of curbing terror financing.
    Chairman Shelby, I would like to commend you in particular for your 
unwavering commitment to addressing the financing of terror. The work 
that this Committee is undertaking is extremely important to the United 
States and the world. Thank you for your leadership.
    My testimony will focus on terror financing emanating from within 
the Kingdom of Saudi Arabia. Clearly, there are numerous other states 
that allow terror financing to continue and that should be examined 
also. I have chosen to focus on Saudi Arabia because of the enormous 
resources that are funneled from within Saudi Arabia to terrorist 
groups around the world.
    My recommendations are contained in a report of an Independent Task 
Force on Terrorist Financing, sponsored by the Council on Foreign 
Relations, on which I served as Vice-Chair. Since the report, along 
with its various appendices, is almost 300 pages in length, I will only 
be able to highlight core points and ask that the full report and its 
appendices be placed into the record.
    I would like to thank the Task Force Chairman, Maurice R. 
Greenberg, who has been a leader in bringing this issue to the Nation's 
attention. I would also like to thank Council President Richard Haass 
for his commitment to this topic and to the Task Force's mission. I am 
testifying in my personal capacity, as is customary, and not on behalf 
of the Task Force or the Council on Foreign Relations.
    Among the core findings of the first Terrorist Financing Task Force 
report, released in October 2002, was that, ``For years, individuals 
and charities based in Saudi Arabia have been the most important source 
of funds for Al Qaeda; and for years, Saudi officials have turned a 
blind eye to this problem.''
    It should be noted that the Task Force found no evidence that the 
Saudi Government--as an institution--participated in the financing of 
terror directly. However, the Saudi Government has clearly allowed 
individual and institutional financiers of terror to operate and 
prosper within Saudi borders.
    The Bush Administration has accomplished a great deal since 
September 11. Some of the Administration's achievements in this area 
have been integrating terrorist financing into the U.S. Government's 
overall counterterrorism effort, securing unprecedented international 
support for UN sanctions against Al Qaeda, strengthening international 
standards for financial supervision through the Financial Action Task 
Force (FATF), issuing significant and meaningful regulations under the 
USA PATRIOT Act and implementing a wide-ranging strategy to engage 
Saudi Arabia on the subject of financial and ideological support of 
extremists. Still, there is much work to be done.
    I would like to set forth the following framework of constructive, 
forward looking recommendations for improving U.S. efforts against 
terrorism financing.
    First, U.S. policymakers must build a new framework for United 
States-Saudi relations. The terror financing issue is situated in the 
complex and important bilateral relationship between the United States 
and Saudi Arabia. For 
decades, United States-Saudi Arabia relations have been built upon a 
consistent framework understood by both sides: Saudi Arabia would be a 
constructive actor with regard to the world's oil markets and regional 
security issues, and the United States would help provide for the 
defense of Saudi Arabia, work to address the Israeli-Palestinian 
conflict, and not raise any significant questions about Saudi Arabian 
domestic issues, either publicly or privately.
    More recently however, this framework has come under strain because 
Al Qaeda, a terrorist organization rooted in issues central to Saudi 
Arabian domestic affairs, has murdered thousands of Americans. Al Qaeda 
and similar organizations continue to conspire to kill even more 
Americans and to threaten our way of life.
    Changed circumstances require a new policy framework for United 
States-Saudi relations. When domestic Saudi issues threaten Americans 
at home and abroad, the United States must pay attention to those Saudi 
``domestic'' issues that impact United States security such as 
terrorist financing and the global export of Islamic extremism. These 
issues can no longer be ``off the table;'' they must be front and 
center in our bilateral relationship.
    This transition is already well underway, as evidenced by 
turbulence in the bilateral relationship since September 11. Some Bush 
Administration officials have privately characterized the current state 
of affairs in Saudi Arabia as a ``civil war'' and suggested that the 
appropriate objective for United States policy in this context is to 
help the current regime prevail. I agree, but believe the domestic 
Saudi problem will not be solved by dispersing Al Qaeda cells and 
members in Saudi Arabia alone. Rather, the ``civil war'' will be won 
only when the regime confronts directly and unequivocally addresses the 
ideological, religious, social, and cultural realities that fuel Al 
Qaeda, its imitators, and its financiers all over the world.
    Second, Saudi Arabia must fully implement its new laws and 
regulations and take additional steps to further improve its efforts to 
combat terrorist financing. In addition to implementing its recently 
enacted laws and regulations in this area, Saudi Arabia should also 
deter the financing of terrorism by publicly punishing those Saudi 
individuals and organizations that have funded terrorist organizations. 
Although a recent report by FATF noted several prosecutions in Saudi 
Arabia under the terror financing laws, arrests and punitive steps 
against financiers of terror have only taken place in the ``shadows.'' 
I am not aware of any publicly announced arrests, trials, or 
incarcerations in Saudi Arabia relating to the financing of terrorism. 
Saudi Arabia must also increase the financial transparency and 
programmatic verification of its global charities and publicly release 
audit reports of those charities. Saudi Arabia should ratify and 
implement treaties that create binding international legal obligations 
relating to combating money laundering and terrorist financing.
    Third, multilateral initiatives need to be better coordinated, 
appropriately funded, and invested with clear punitive authorities. The 
need for a new international organization specializing in terrorist 
financing issues, as recommended by the Task Force's initial report, 
has diminished as a result of significant efforts being undertaken by a 
variety of international actors. The need for proper coordination and 
clearer mandates has increased for the same reason. It is now time to 
minimize duplicative efforts and reallocate resources to the most 
effective and appropriate lead organization.
    Fourth, the executive branch should formalize its efforts to 
centralize the coordination of U.S. measures to combat terrorist 
financing. My understanding is that, in practice, responsibilities for 
the coordination of terrorist financing issues have shifted from the 
Treasury Department to the White House. I 
commend the Bush Administration for this action. However, setting up a 
formal allocation of responsibilities is crucial to maintain continuity 
and focus as the specific individuals involved in these efforts turn 
over. Therefore, allocation of responsibility to the White House needs 
to be formalized through a National Security Presidential Directive 
(NSPD) or otherwise.
    Fifth, Congress should enact a Treasury-led certification regime 
specifically on terrorist financing. Many governments are working on 
shutting down terror financing from within their borders, but many are 
not. Congress should adopt a certification regime under which the 
Treasury Department provides a written certification on an annual basis 
(classified if necessary) detailing the steps that foreign nations have 
taken to cooperate in U.S. and international efforts to combat terror 
financing. In the absence of a Presidential national security waiver, 
jurisdictions that do not receive this certification would be subject 
to sanctions provided by Section 311 of the USA PATRIOT Act--including 
denial of U.S. foreign assistance monies and limitations on access to 
the U.S. financial system.
    The Administration has used the powers granted to it by Section 311 
of the USA PATRIOT Act--but only once in the terror financing context. 
Section 311 allows Treasury to require domestic financial institutions 
and agencies to take ``special measures'' against certain parties, 
including both institutions and jurisdictions, believed by the Treasury 
to be engaged in money laundering/terror financing. These special 
measures can include placing prohibitions or conditions on 
``correspondent'' or ``payable through'' accounts involving the parties 
engaged in the money laundering/terror financing.
    Of course, foreign financial institutions and jurisdictions that do 
not have significant financial relations with the United States would 
not be meaningfully impacted by Section 311 sanctions imposed by the 
United States. However, a similar sanction imposed in the money 
laundering context resulted in the targeted jurisdiction promulgating 
desired legislative and regulatory changes.
    A certification regime for terror financing would ensure these 
special measures are used appropriately and thoughtfully against 
``rogue'' jurisdictions. A separate certification regime for terror 
financing--distinct from any other reporting requirements on the 
promulgation of terror itself or money laundering--ensures that 
stringent requirements are maintained specifically with respect to each 
jurisdiction's practices on terror financing without consideration of 
other issues.
    I commend Congresswoman Sue Kelly and others who have introduced 
legislation in the House, as H.R. 5124, that would require a terror 
financing certification regime.
    Sixth, the UN Security Council should broaden the scope of the UN's 
Al Qaeda and Taliban Sanctions Committee. The UN Security Council 
should specifically impose international sanctions on other groups and 
individuals that have been designated as terrorists, as Hamas has been 
by the United States and E.U. I understand that these UN committees 
continue to discuss various actions but have not taken any affirmative 
action as yet. Furthermore, the UN should require, as a matter of 
international law, that member states take enforcement action against 
groups, persons, and entities designated by the Sanctions Committee. 
The enabling resolution for these expanded authorities should 
explicitly reject the notion that acts of terror may be legitimized by 
the charitable activities or political motivations of the perpetrator. 
The UN should make it clear that no cause, however legitimate, 
justifies the use of terror.
    Seventh, the U.S. Government should increase sharing of information 
with the financial services sector as permitted by Section 314(a) of 
the USA PATRIOT ACT so that this sector can cooperate more effectively 
with the U.S. Government in identifying financiers of terror. Helping 
private sector financial institutions become effective partners in 
identifying financiers of terror should be a top priority. The 
procedures set forth in Section 314(a) of the USA PATRIOT Act, which 
promote information sharing between the U.S. Government and financial 
institutions to increase detection of terror financing, are not working 
as well as they should. The U.S. Government is still not providing 
financial institutions with adequate information to enable the 
institutions to detect terror financing and identify unknown 
perpetrators. The Government is still using financial institutions 
primarily to assist in investigating known or suspected terror 
financiers, not in identifying unknown ones. In addition, our 
Government does not currently have the appropriate resources to process 
and make full use of information that is flowing to it from financial 
institutions.
    I recognize that the information that would enable financial 
institutions to become effective partners with the U.S. Government in 
identifying terror financing may be highly protected intelligence 
information. In other industries such as defense and transportation, 
however, persons can be designated by the U.S. Government to receive 
access to certain high value information as necessary. A similar 
approach could be used to facilitate information sharing and 
cooperation between the U.S. Government and private financial 
institutions.
    Eighth, the National Security Council (NSC) and the White House 
Office of Management and Budget (OMB) should conduct a cross-cutting 
analysis of the budgets of all U.S. Government agencies as they relate 
to terrorist financing. Monitoring the financial and human resources 
that are actually devoted to the various tasks involved in combating 
terrorist financing will facilitate fully informed, strategic decisions 
about whether resource allocations are optimal or functions are 
duplicative. For this reason, the NSC and OMB should conduct a cross-
cutting analysis of all agencies' budgets in this area, to gain clarity 
about who is doing what, how well, and with what resources. With such a 
cross-cut in hand, the Administration and Congress can begin to assess 
the efficiency of existing efforts and the adequacy of appropriations 
relative to the threat.
    Ninth, the U.S. Government and private foundations, universities, 
and think tanks should increase efforts to understand the strategic 
threat posed to the United States by radical Islamic militancy, 
including specifically the methods and modalities of its financing and 
global propagation. At the dawn of the cold war, the U.S. Government 
and U.S. nongovernmental organizations committed substantial public and 
philanthropic resources to endow Soviet studies programs across the 
United States. The purpose of these efforts was to increase the level 
of understanding in this country of the profound strategic threat posed 
to the United States by Soviet Communism. A similar undertaking is now 
needed to understand adequately the threat posed to the United States 
by radical Islamic militancy, along with its causes, which we believe 
constitutes the greatest strategic threat to the United States at the 
dawn of this new century. To be commensurate with the threat, much more 
will need to be done by private U.S. foundations, universities, and 
think tanks in a sustained, deliberate, and well-financed manner.
    I look forward to your questions.
                               ----------
                  PREPARED STATEMENT OF LEE S. WOLOSKY
               Of Counsel, Boies, Schiller & Flexner LLP
                           September 29, 2004
    Mr. Chairman, Senator Sarbanes, and distinguished Members of the 
Committee, thank you for affording me the opportunity to testify before 
you today on an issue of paramount importance to our Nation--curtailing 
the flow of funds to terrorist organizations--and for your continued 
dedication and leadership on this matter. The Committee's continued 
efforts are necessary to ensure the safety of our Nation.
    I am testifying before you today in my personal capacity, although 
I note that my testimony is heavily informed by the work of the 
Independent Task Force on Terrorist Financing sponsored by the Council 
on Foreign Relations, which I have 
directed along with William F. Wechsler. That task force has published 
two reports--the first in October 2002 and the second in June 2004. 
Today, however, I would note that I am not testifying on behalf of the 
Council on Foreign Relations, the Task Force, its Chairman, or any of 
its members.
    I note at the outset that the issue of terrorist financing is, 
foremost, a foreign policy issue and not a domestic regulatory issue. 
That is because most of the money funding Al Qaeda and other Islamist 
groups originates and is disbursed outside the United States. Funds 
associated with the maintenance of cells and other operational 
activities pass through the United States, but these amounts are 
relatively small, making them very difficult to identify and 
distinguish. That said, I will offer at the conclusion of my remarks 
brief views regarding certain regulatory matters.
Theory of the Case
    Especially in the post-September 11 environment, the financial 
network that supports Al Qaeda is multifaceted and ever-changing, 
taking advantage of diverse opportunities to raise, hold, and move 
funds. Yet there exists a central ``theory of the case'' that 
characterizes the U.S. understanding of the Al Qaeda financial network 
and that guides U.S. actions to disrupt it and track it back to 
specific terrorist cells and leaders.
    The September 11 Commission concluded that before the 2001 attacks, 
Al Qaeda received about $30 million per year. Contrary to once-popular 
myths, this sizable fund was not simply the wallet of just one man, 
Osama Bin Laden. If that were the case, it would be a much easier 
problem to address.
    Instead, Al Qaeda obtained money, continuously, from a variety of 
sources. Money was--and is--raised through Islamic charities and 
notable financial facilitators and also through legitimate businesses 
and criminal enterprises. Money is moved through formal banking 
channels, less formal alternative remittance systems, such as the 
centuries-old hawala network, and the very oldest method, bulk cash 
couriers and other smugglers. And more recently, Al Qaeda and its 
affiliates appear to be relying more on other methods to support their 
operations. Funding for the cell responsible for the Madrid bombings 
earlier this year, for example, appears to have depended on common 
criminal activity and drug trafficking.
    The best publicly available descriptions of the Al Qaeda financial 
network can be found in two publications of the September 11 
Commission: its Report and its subsequent ``Monograph on Terrorist 
Financing.'' The 2002 and 2004 reports of the Council on Foreign 
Relations Independent Task Force on Terrorist Financing contain similar 
analyses.
    For years, U.S. policymakers were poorly served by weaknesses in 
our intelligence on Al Qaeda's finances. As the September 11 
Commission's Monograph accurately described, ``even after the September 
11 attacks, the intelligence community could not estimate the total 
income or the relative importance of any source of Bin Laden's revenue 
stream.'' Even to this day ``the U.S. Government still has not 
determined with any precision how much Al Qaeda raises or from whom, or 
how it spends its money.''
    Prior to September 11, the intelligence community had an 
``incomplete understanding of Al Qaeda's methods to raise, move, and 
store money,'' which ``hampered the effectiveness of the overall 
counterterrorism strategy.'' Moreover, ``the CIA also arrived belatedly 
at an understanding of some basic operational facts that were readily 
available--such as the knowledge that Al Qaeda relied on fund raising, 
not Bin Laden's personal fortune.''
    For its part, the FBI ``did not systematically gather and analyze 
the information its agents developed'' and ``as an organization failed 
to understand the nature and extent of the problem [and] to develop a 
coherent strategy for confronting it.''
    As a result, according to recently declassified intelligence 
reporting, Bin Laden's finances on the eve of the September 11 attacks 
were ``steady and secure.''
The Particular Problem of Saudi Arabia
    Still what we knew then--and know now--about this financial network 
showed that, not withstanding its global reach, individuals and 
organizations based in the Gulf region have historically been the 
single most important source of funds for Al Qaeda, as well as other 
terrorist groups such as Hamas.
    As the September 11 Commission concluded in its final report: ``Al-
Qaeda appears to have relied on a core group of financial facilitators 
who raised money from a variety of donors and other fund-raisers, 
primarily in the Gulf countries and particularly in Saudi Arabia.'' And 
back in 2002 the Council on Foreign Relations-sponsored task force 
concluded that ``for years, individuals and charities based in Saudi 
Arabia have been the most important source of funds for Al Qaeda; and 
for years, Saudi officials have turned a blind eye to this problem.''
    Has the Saudi Arabian Government itself funded terrorism? The 
September 11 Commission concluded: ``Saudi Arabia has long been 
considered the primary source of Al Qaeda funding, but we have found no 
evidence that the Saudi Government as an institution or senior Saudi 
officials individually funded the organization. (This conclusion does 
not exclude the likelihood that charities with significant Saudi 
Government sponsorship diverted funds to Al Qaeda).''
    Widespread interest in searching for evidence of official Saudi 
complicity in funding Al Qaeda tends to obscure the Saudis' glaring 
``sins of omission.'' Saudi-based charities controlling billions of 
dollars are a good example; for many years there has been little or 
nothing done to reign them in even though they have benefited in some 
cases from the sponsorship of the Saudi Government.
    As the September 11 Commission Monograph wrote in 2004, ``the Saudi 
Government turned a blind eye to the financing of Al Qaeda by prominent 
religious and business leaders and organizations, at least before 
September 11.'' The Monograph further concluded that ``a lack of 
awareness of the problem and a failure to conduct oversight over 
institutions created an environment in which such activity has 
flourished.''
    Before the September 11 attacks, Saudi Arabia resisted any real 
cooperation with the United States on terrorist financing. And even 
later, as the September 11 Commission Monograph aptly described, ``from 
the September 11 attacks through spring 2003, most U.S. officials 
viewed Saudi cooperation on terrorist financing as ambivalent and 
selective.'' Only after Al Qaeda bombed targets within the Kingdom in 
May and November 2003 did the Saudis finally focus on the problem and 
improve their cooperation with the United States, an evolution that is 
described both in the Second Report of the Council on Foreign 
Relations-sponsored Task Force and in the Monograph. As the Monograph 
stated, however, ``We cannot underplay . . . the reluctance of the 
Saudi Government to make the necessary changes between September 11 and 
late spring 2003.''
    At its core, successful efforts to combat terrorist fundraising 
also require fighting a ``war of ideas'' to denounce and discredit--and 
financially diminish--the ideology that attracts foot soldiers, 
supporters, and potential donors to extremism. Here too Saudi Arabia is 
a central front, as the government and Saudi-based organizations spend 
huge amounts of money around the world spreading an intolerant and 
anti-Western version of Islam.
    The bottom line, as the September 11 Commission Report noted, is 
that ``Saudi Arabia has been a problematic ally in combating Islamic 
extremism.'' And although much has been done--particularly since May 
2003--much more remains unfinished or even unstarted.
What Has Been Done
    Immediately after September 11, the United States took a number of 
actions to combat terrorist financing, including a prominent series of 
``blocking actions'' against suspected terrorist assets. These tend to 
capture a small amount of actual funds, but are very useful in 
``encouraging'' other countries to take their own actions against 
suspected terrorist financing elements. The issue became much more 
prominent in U.S. diplomacy, international law enforcement, and 
intelligence activities. The United States also worked through 
multilateral organizations like the Financial Action Task Force to 
build a global consensus on the oversight of charities, among other 
issues. And at home, despite unsuccessful prior attempts, the Congress 
finally added vastly expanded anti-money laundering provisions to the 
USA PATRIOT Act.
    Momentum slowed notably only months later, however, as the Bush 
Administration appeared to put this issue on the proverbial ``back 
burner.'' The Treasury Department coordinated day-to-day interagency 
efforts, and a ``second phase'' in the 
effort was announced that would be characterized by fewer public 
designations of terrorist financiers. As preparations for the war on 
Iraq took center stage in the Administration, the heat was turned down 
on Saudi Arabia. The United States continued to impose ``blocking 
actions'' against Saudi persons and institutions, but only in the 
context of ``joint'' designations with Saudi Arabia.
    As the September 11 Commission Monograph put it, during this period 
the interagency process was ``often driven by force of personality 
rather than by any structural mechanism.'' The Policy Coordination 
Committee (PCC) on Terrorist Financing, although an improvement from 
what came before it, ``often was not fully integrated into the United 
States' broader counterterrorism policy and Saudi relations.'' The 
Monograph concluded: ``U.S. efforts to overcome Saudi recalcitrance 
suffered from our failure to develop a strategy to counter Saudi 
terrorist financing, present our requests through a single high-level 
interlocutor, and obtain and release to the Saudis actionable 
intelligence.''
    However, in response to the May 2003 terrorist attacks, Saudi 
officials started to address the mindset that enables and condones acts 
of terrorism. These measures have included steps toward educational 
reform and limited measures intended to discipline (or ``re-educate'') 
certain extremist Islamic clerics--at least those operating in Saudi 
Arabia. There has been less decisive or verifiable action taken to curb 
the billions of dollars funding extremism abroad.
    Saudi Arabia has taken important actions to disable domestic Al 
Qaeda cells and has increased its tactical law enforcement and 
intelligence cooperation with the United States. Interior Ministry and 
other Saudi law enforcement and intelligence officials are now 
regularly killing Al Qaeda members and sympathizers in violent 
confrontations.
    Saudi Arabia has also largely improved its legal and regulatory 
regime. Since September 11--and particularly since the May 2003 Riyadh 
bombings--Saudi Arabia has announced the enactment or promulgation of a 
plethora of new laws and regulations and the creation of new 
institutional arrangements to combat money laundering and terrorist 
financing.
    As the Council on Foreign Relations-sponsored Task Force and 
September 11 Commission staff concluded, Saudi Arabia has not yet fully 
implemented its new laws, regulations, and institutional mechanisms. 
The first step toward the creation of an effective AML/CTF regime is 
the passage of laws and regulations, and the establishment of new 
institutions--but that is just the first step. Just as important--and 
more important over the longer-term--is effective implementation and 
execution of these laws. Some aspects of such implementation, such as 
comprehensive compliance with recordkeeping provisions, may take time. 
But other aspects of implementation, such as standing up and funding 
new organizations and oversight bodies, can be accomplished more 
readily.
    According to the Monograph, ``Saudi Arabia has worked hard to 
institute an improved legal and regulatory regime. It remains to be 
seen if the new laws and regulations will be fully implemented and 
enforced, and if further necessary legal and regulatory changes will be 
made. The Saudis still have not established the National Commission as 
they promised in February 2004 and have not demonstrated that they are 
willing and able to serve as the conduit for all external Saudi 
donations in lieu of Saudi charities.''
    Additionally, Saudi enforcement actions directed against Al Qaeda 
have largely avoided prominent financiers. There is no evidence that, 
since September 11, Saudi Arabia has taken public punitive actions 
against any individual for financing terror. Saudi Arabia says that it 
has taken nonpublic actions against financiers. But actions taken in 
the shadows may have little consistent or systemic impact on ingrained 
social or cultural practices that directly or indirectly threaten the 
security of the United States.
    And the Bush Administration remains unusually and unconstructively 
reluctant to criticize Saudi Arabia on this subject. President Bush 
even remained silent earlier this year when the Saudi Crown Prince and 
other senior Saudi officials repeatedly suggested that Israel and 
Zionists were behind Al Qaeda and the bombings in their country.
The Way Forward
U.S. Government Organization
    The U.S. Government is still not organized properly to combat 
terrorist financing at home or abroad.
    For several years after September 11, the General Counsel of the 
Treasury Department led the Bush Administration's efforts in this 
regard. In my view, even the most competent Treasury General Counsel--
and the Nation was fortunate to have an extraordinarily competent one 
at the time--is poorly equipped from an institutional standpoint for 
leading such work. This is a job for the White House. As the Monograph 
noted, ``the NSC is better able than any individual agency to integrate 
terrorist financing into counterterrorism through its leadership of the 
Counterterrorism Security Group; the NSC is better able to see how the 
different terrorist-financing tools fit together; the NSC is better 
able to task agencies and force agencies to reallocate resources; NSC 
leadership is more efficient because it has the authority to resolve 
more issues rather than forcing them up to the DC level; the NSC has 
the best access to information, especially regarding covert action; and 
the NSC is not operational and is therefore more neutral.''
    From good organization comes good policy. The President--or the 
next President--should immediately designate a senior National Security 
Council official with the specific mandate to lead U.S. efforts on 
terrorist financing issues. Such an official would direct, coordinate, 
and reaffirm the domestic and international policies of the United 
States on a day-to-day basis, with the personal authority of the 
President of the United States. He or she would report to the President 
through the National Security Advisor.
    In practice, responsibilities for this coordination have recently 
shifted back from the Treasury Department to the White House. However, 
there has been no formal designation of the NSC's lead role. That 
should happen forthwith, so leadership on this important issue becomes 
a matter of institutional permanence rather than a function of 
individual personalities and relationships. Moreover, such a 
designation will go a long way toward putting issues regarding 
terrorist financing front and center in every bilateral diplomatic 
discussion with every ``frontline'' state in the fight against 
terrorism--at every level of the bilateral relationship, including, on 
a consistent basis, the highest. As the Monograph concluded, ``it was 
not until the appointment of a senior White House official that the 
U.S. engagement of the Saudi Government on terrorist financing yielded 
its most concrete results. A PCC participant said the Saudis did not 
take terrorist financing seriously until [Frances] Townsend was 
appointed. She has been able to apply consistent pressure, over a 
period of time, with the full backing of the White House.''
    Earlier this year, Ms. Townsend became the President's Homeland 
Security Advisor. Presumably, the effective role she previously played 
in this regard has shifted to other officials.
United States-Saudi Relations
    U.S. policymakers should seek to build a new framework for United 
States-Saudi relations. The September 11 Commission, mirroring the core 
recommendation of the Council on Foreign Relations-sponsored Task 
Force, concluded: ``The problems in the United States-Saudi 
relationship must be confronted, openly. The United States and Saudi 
Arabia must determine if they can build a relationship that political 
leaders on both sides are prepared to publicly defend--a relationship 
about more than oil . . . It should include a shared interest in 
greater tolerance and cultural respect, translating into a commitment 
to fight the violent extremists who foment hatred.''
    For decades, the United States-Saudi relationship was predicated 
upon a consistent framework understood by both sides: Saudi Arabia 
would be a constructive actor with regard to the world's oil markets 
and regional security issues, and the United States would help provide 
for the defense of Saudi Arabia, work to address the Israeli-
Palestinian conflict, and not raise any significant questions about 
Saudi Arabian domestic issues--publicly or privately. This tacit 
framework, riddled with tensions, held for decades and served both the 
United States and Saudi Governments well.
    However, time has passed and in that time, Al Qaeda, a terrorist 
organization rooted in issues central to Saudi Arabian domestic 
affairs--about which the United States previously remained silent--has 
murdered thousands of Americans and 
aspires to kill more. As a result, the historical framework of United 
States-Saudi relations is obsolete and must change. When domestic Saudi 
problems--such as financial support for terrorism--threaten Americans 
at home and abroad, then focused and unabated U.S. attention on 
domestic Saudi issues that were previously ``off-the-table'' must 
become a governing principle of this bilateral relationship.
    United States-Saudi relations can and should come to resemble more 
closely the U.S. bilateral relations with other large, important 
regional powers where the bilateral agenda is indeed complex, but 
difficult issues are discussed openly and with candor. China and Russia 
have been forced to confront domestic issues they would otherwise have 
chosen to ignore due to pressures derived from open and frank 
discussions in the context of their bilateral relations with the United 
States. Just as the United States has placed demands on these states 
for increased human rights or enhanced political or economic freedom, 
the United States must also place demands on Saudi Arabia regarding 
``domestic'' issues like terrorist financing and the propagation of 
extremism.
Saudi Propagation of Extremism
    The September 11 Commission Report notes that ``Saudi Arabia has 
been a problematic ally in combating Islamic extremism.'' As a core 
tenet of its foreign policy, Saudi Arabia funds the global propagation 
of Wahabism, a brand of Islam that, in some instances, supports 
militancy by encouraging divisiveness and violent acts against Muslims 
and non-Muslims alike. In my view, this massive spending is helping to 
create the next generation of terrorists and therefore constitutes a 
paramount strategic threat to the United States. Through support for 
madrassas, mosques, cultural centers, hospitals, and other 
institutions, and the training and export of radical clerics to 
populate these outposts, Saudi Arabia has spent what could amount to 
hundreds of millions of dollars around the world financing extremism.
    Although the United States is not and should not be at war with any 
religion or any religious sect, in my judgment U.S. policy should 
affirmatively seek to drain the ideological breeding grounds of Islamic 
extremism, financially and otherwise. To do so, we will need more 
demonstrable cooperation from Saudi Arabia, which so far has not been 
sufficiently forthcoming.
    We must continue to demand such cooperation, notwithstanding 
broader imperatives of our counterterrorism cooperation with the 
Saudis. As the Monograph correctly points out: ``the highest levels of 
the U.S. Government must continue to send an unequivocal message to 
Saudi Arabia that the Saudis must do everything within their power to 
substantially eliminate Al Qaeda financing by Saudi sources.'' The 
Monograph also correctly advises that ``the U.S. strategy to combat 
terrorist financing must be to monitor, encourage, and nurture Saudi 
cooperation while simultaneously recognizing that terrorist financing 
is only one of a number of crucial issues that the United States and 
Saudi Governments must address together. Managing this nuanced and 
complicated relationship will play a critical part in determining the 
success of U.S. counterterrorism policy for the foreseeable future.''
Role of Financial Institutions
    International financial institutions subject to U.S. jurisdiction 
are among our best sources of raw financial intelligence--if they know 
what to look for. As the Monograph noted, ``[f]inancial institutions 
have the information and expertise to detect money laundering, but they 
lack the information and expertise to detect terrorist financing.'' 
This is a function, in part, of the fact that the government is not 
telling them where to look.
    Section 314(a) of the USA PATRIOT ACT was intended to address this 
problem. It requires the Treasury Department to encourage further 
cooperation among financial institutions and regulatory authorities and 
to share information about 
suspected terrorists and their financial activities. Though nice in 
theory, these procedures are not working as well as they might and very 
little information flows back from the government to financial 
institutions that spend considerable resources on compliance programs 
they wish to be effective.
    As some have suggested, one way to address this problem might be to 
provide security clearances to a broad spectrum of bank compliance 
personnel. At a minimum, these issues are worthy of the further 
sustained attention of this Committee. I would repeat a suggestion made 
to you at similar hearings last October, that this Committee may 
consider holding an oversight hearing on Section 314 of the USA PATRIOT 
Act.
    Thank you very much for your time and consideration. I would now be 
honored to take any questions that you might have.
                               ----------
                 PREPARED STATEMENT OF STUART A. LEVEY
         Under Secretary, Terrorism and Financial Intelligence
                    Under Secretary for Enforcement
                    U.S. Department of the Treasury
                           September 29, 2004
    Chairman Shelby, Senator Sarbanes, and Members of the Committee, 
thank you for inviting me to testify before you today about the 
September 11 Commission Report and our efforts to identify and combat 
terrorist financing.
    The members of the September 11 Commission and staff deserve our 
gratitude for their thoughtful report as well as for the monograph that 
their staff prepared on terrorism financing. These studies are 
extremely valuable both for the perspective they bring to these issues 
and for the opportunity that they present to reflect on our progress 
and our priorities. In my remarks today, I would like to give a brief 
overview of the Administration's collaborative efforts to combat 
terrorist financing and how they augment and intersect with the broader 
war on terror. I will highlight the role played by the new Office of 
Terrorism and Financial Intelligence at the Treasury Department. 
Finally, I will describe our perspective as we look ahead, detailing 
some of the challenges that lie before us. In the course of my 
testimony, I will address what I believe are the central issues raised 
by the September 11 Commission regarding our efforts to combat 
terrorist financing. Let me say at the outset that I agree with most of 
the Commission's report as it relates to terrorist financing, and I 
again commend the Commission and its staff for a job well done.
Terrorist Financing: A Key Front in a Global War on Terror
    There is little need to underscore the importance of our campaign 
against terrorist financing before this audience. This Committee has 
demonstrated its deep commitment to the financial campaign in the war 
on terror and I think would agree, as I do, with the September 11 
Commission's recommendation that ``vigorous efforts to track terrorist 
financing must remain front and center in U.S. counterterrorism 
efforts.''
    As this statement reflects, the September 11 Commission recognized 
that the U.S. Government's campaign against terrorist financing must be 
viewed as but one of many fronts in the global war on terror, rather 
than an as an end in itself. Our ultimate target is not the money, but 
the terrorists who use it to murder and intimidate. That said, our 
counterterrorism financing efforts are a vital part of the overall war. 
Terrorists require money to train, travel, communicate, indoctrinate, 
procure weapons, carry out attacks, and conceal themselves. Starving 
them of money debilitates every aspect of their operations and, 
ultimately, their ability to survive.
    Some have questioned the effectiveness of attacking terrorist 
financing networks. They note that terrorist attacks themselves cost 
relatively little to carry out and argue that because such sums are 
easily procurable, our efforts to combat terrorists by attacking their 
resources are futile. This is a dangerously flawed argument for two 
main reasons, and it is a view that the September 11 Commission wisely 
rejected. In the first place, the terrorists' budgets are not measured 
by the cost of a primitive destructive act. The real operating costs of 
terrorists inhere in maintaining and perpetuating their networks, and 
these costs are considerable. As we choke off the terrorists' money 
flow, we degrade their capabilities and render them less dangerous. 
Second, tracking the financing of terrorists is quite often the best 
way to identify and actually locate terrorists and their facilitators. 
Every time terrorists raise, move, and store money, they potentially 
expose themselves to surveillance and attack. It is imperative that we 
continue to exploit these vulnerabilities.
The Interagency Character of Our Campaign Against Terrorist Financing
    The U.S. Government campaign against terrorist financing involves a 
broad array of weapons, from intelligence collection and operations to 
diplomatic pressure, from regulatory actions and administrative 
sanctions to criminal investigations and prosecutions. If we are to 
achieve success, we must bring all of these powers to bear in a 
coordinated and target-appropriate manner. If the most effective 
strategy with respect to a known facilitator is to observe him covertly 
so as to trace the money flow upstream to the original donor or 
downstream to the ultimate terrorist end-users, then we must do so. If 
the most effective strategy is instead to designate a facilitator in 
order to freeze terrorist-related assets and shut down a conduit of 
terrorist financing, then we will do so. We have an interagency process 
in place to perform just this type of evaluation, assessing which 
action or set of actions will inflict the maximum damage to a terrorist 
network's capabilities. Our goal is not to boost the number of times 
that we exercise the tools of a particular agency, but to think and act 
as a single government with a shared set of goals.
    The interagency team that has applied itself to this issue since 
September 11 is truly extraordinary. The Department of Justice, my 
former home, and the FBI have done heroic work, transforming themselves 
over the past 3 years to best tackle the terrorist financing problem. 
The FBI's financial investigators, coordinated out of the Terrorism 
Financing Operations Section (TFOS), have shown dedication and 
resourcefulness, marshaling the shared resources of law enforcement 
through Joint Terrorism Task Forces (JTTF's) across the country, 
integrating intelligence through unprecedented cooperation with the 
CIA, and building successful cases that would not have been thought 
viable a mere 4 years ago. Bringing these cases to court are a corps of 
talented Assistant U.S. Attorneys across the country, working under the 
guidance of a group of experienced prosecutors at DOJ's Counter-
Terrorism Section (CTS). Over the past months, the public has received 
dramatic reminders of this group's effectiveness, with the indictments 
of the Holy Land Foundation's leadership echelon and the convictions of 
Abdulrahman Alamoudi and the Elashi brothers. The powerful, public 
effect of successful prosecutions is simply unrivaled.
    Other law enforcement agencies play vital roles in these cases 
alongside the FBI. The premier financial investigators in IRS Criminal 
Investigation (IRS-CI) have demonstrated their ability to unravel 
intricate money laundering and tax evasion schemes that feature in 
terrorist financing investigations, and work closely with the FBI under 
the auspices of JTTF's. U.S. Immigration and Customs Enforcement (ICE) 
at the Department of Homeland Security also participates in JTTF's, and 
plays a crucial role in investigating bulk cash smuggling, unlicensed 
money remitters, and money laundering through insurance and other 
nontraditional financial mechanisms. Also, the Secret Service has done 
a fantastic job investigating counterfeiting as well as high-tech 
cyber-crimes, credit card fraud, and identity theft that can under gird 
a money laundering or terrorist financing ring.
    The Civil Division of the Department of Justice plays a key but 
often unnoticed part in our Government's overall effort. A team of 
skilled legal experts in the Civil Division has successfully defended 
every challenge to the Government's law enforcement and administrative 
authorities in the terrorism financing arena. In light of the September 
11 Commission staff monograph's discussion of potential due process 
concerns in the designation of entities as Specially Designated Global 
Terrorists (SDGT's), it is useful to highlight two of these cases in 
more detail. After September 11, the Treasury Department designated the 
Holy Land Foundation and the Global Relief Foundation--two large U.S.-
based charities--as SDGT's. The charities filed lawsuits against the 
Government, raising a litany of claims, including allegations that the 
Government had deprived them of due process. These cases were heard by 
Federal judges who examined the evidentiary records underlying the 
designations in detail. All of the charities' constitutional claims 
were soundly rejected, and--to the extent that the courts have ruled on 
the challenges to the evidence underlying the designations--those 
challenges have been rejected as well. The charities both appealed, 
with the same result. Notably, every judge to consider the charities' 
claims, including the appellate judges of the District of Columbia and 
the Seventh Circuits, have upheld the legality of Treasury's actions, 
without a single dissent. See Holy Land Foundation for Relief & 
Development v. Ashcroft, 333 F.3d 156 (D.C. Cir. 2003); Global Relief 
Foundation, Inc. v. O'Neill, 315 F.3d 748 (7th Cir. 2002).
    Diplomatic action is another of our primary tools in combating the 
financing of terrorism, and the State Department naturally stands at 
the forefront of these efforts. The money flows we are tracking largely 
emanate from and flow through countries overseas. Since September 11, 
the State Department has built a worldwide coalition against terrorist 
financing--a monumental achievement--and endeavors every day to 
strengthen it. I will discuss their crucial role in one aspect of this 
process in more detail below.
    Of course, none of these actions would be possible without the 
intelligence products that are the starting point and the guideposts 
for everything we do. As the September 11 monograph correctly notes, 
the individuals leading the counterterrorist financing efforts at the 
CIA possess extensive expertise in the clandestine movement of money. 
Since September 11, the CIA and the broader intelligence community have 
reconstituted themselves to address the threat of terrorist financing 
in a collaborative and unified manner, and they currently wield an 
exceptional depth of knowledge and experience.
    I can report that the coordination across the Government in the 
terrorist financing arena is excellent. Our greatest achievements to 
date have been shared, and we are increasingly finding new and better 
ways to combine our resources and authorities to pursue a single 
mission.
The Office of Terrorism and Financial Intelligence--Enhancing
Treasury's Contribution
    The Congress and the President have given the Treasury Department 
the responsibility to safeguard the integrity of the U.S. and 
international financial systems from abuse by terrorists, rogue states, 
money launderers, and criminals. Domestically, Treasury's role as 
guardian of the financial sector is manifest--Treasury regulates, 
oversees, and interacts with the banking and finance sectors on a daily 
basis, and has served in this role for over a century. Internationally, 
as the United States' finance ministry, Treasury has cultivated close 
relationships with finance ministries, central banks, financial 
intelligence units, and international financial institutions, as well 
as with the international private sector.
    To safeguard financial systems both at home and abroad, Treasury 
draws upon a range of capabilities that cut across various categories:

 Sanctions and Administrative Powers: Treasury wields a broad 
    range of powerful economic sanctions and administrative powers to 
    attack various forms of illicit finance, including E.O. 13224 
    issued under the International Emergency Economic Powers Act 
    (IEEPA), which allows for swift action to freeze terrorist assets. 
    Treasury's Office of Foreign Assets Control (OFAC) administers and 
    enforces the 
    various economic sanctions and restrictions imposed under the 
    Secretary's IEEPA authority.
 Financial Regulation and Supervision: Treasury, through its 
    Financial Crimes Enforcement Network (FinCEN), administers the Bank 
    Secrecy Act (BSA) and issues and enforces anti-money laundering/
    counterterrorist financing regulations. Treasury also maintains 
    close contact with the Federal financial regulators to ensure that 
    these regulations are being implemented consistently throughout the 
    financial sectors.
 International Initiatives: Treasury is part of, and has access 
    to, an extensive international network of finance ministries and 
    multilateral bodies such as the Financial Action Task Force (FATF) 
    and various FATF-Style Regional Bodies, the International Monetary 
    Fund (IMF), the World Bank, the G-7, and various regional 
    multilateral development banks. In addition, FinCEN is the 
    facilitator for international relationships among financial 
    intelligence units organized through the Egmont Group.
 Private Sector Outreach: Through the BSA Advisory Group 
    (BSAAG) and other regulatory and educational seminars and programs, 
    Treasury maintains a close relationship with U.S. financial 
    institutions to ensure a smooth exchange of information related to 
    money laundering and terrorist financing. Further, FinCEN 
    administers Section 314 of the USA PATRIOT Act (Patriot Act), which 
    mandates 
    enhanced information sharing among government, law enforcement, and 
    the financial sector.
 Law Enforcement and Law Enforcement Support: Treasury combats 
    various forms of financial crime through the direct law enforcement 
    actions of IRS-CI and the analytical support provided by FinCEN.

    These assets position the Treasury Department as a leader in the 
Government's efforts to combat terrorist financing. And, since the 
September 11 attacks, Treasury has diligently applied these assets as 
part of a comprehensive campaign against terrorist financing.
    At the time that the Commission was preparing its final report, the 
Treasury Department was preparing a new office structure to improve its 
ability to combat terrorist financing. The creation of the Office of 
Terrorism and Financial Intelligence (TFI) at the Treasury Department 
will enable the Department to bring all of its assets to bear more 
effectively than it ever has before and to play the leadership role 
that it should play in combating terrorist financing. This fight will 
be a long and difficult one, and TFI is structured to direct Treasury's 
resources, authorities, and expertise against supporters of terrorism 
in a sustained and coordinated manner.
    One key function of TFI is to assemble and analyze intelligence. 
The war on terror remains a war of information and TFI's Office of 
Intelligence and Analysis (OIA) is helping us meet this challenge. OIA 
will integrate, for the first time, all of the Department's information 
and intelligence streams, including BSA data at FinCEN, OFAC sanctions 
enforcement data, and all of the intelligence flowing into the 
Department from the intelligence community. Frankly, this is an area in 
which significant improvement is needed because, prior to the creation 
of OIA, these data were generally kept in separate ``stovepiped'' 
channels. OIA will ensure that these data streams are reviewed, 
synthesized, and presented to policymakers for appropriate action, and 
that appropriate security and privacy protections are in place to 
safeguard sensitive data.
    TFI also includes the Office of Terrorist Financing and Financial 
Crimes (OTF), which is the policy and enforcement arm for the 
Department on terrorist financing, money laundering, financial crime, 
and sanctions issues. Building on earlier Treasury efforts, OTF 
integrates the important functions of OFAC and FinCEN with other 
components of the Department. OTF represents the United States at 
international bodies dedicated to fighting terrorist financing and 
financial crime, such as the FATF, and will increase our other 
international efforts in this field. Domestically, OTF will continue to 
develop and implement strategies against money laundering and other 
financial crimes. For example, OTF is working closely with FinCEN, 
which has the responsibility to enforce the BSA and related provisions 
of the USA PATRIOT Act, to enhance public-private cooperation against 
money laundering and terrorist financing. OTF is also working with 
Federal law enforcement, including the criminal investigators at IRS-
CI, on emerging trends in domestic and international financial crime, 
through such projects as the Garden City Lead Development project.
    Both the intelligence and operational functions are under my 
direction, and it is my responsibility to ensure that they support and 
inform each other's missions. If I do my job well, TFI will become more 
than the sum of its parts and significantly enhance Treasury's 
contribution to our Government's campaign against terrorist financing.
The Value of Judiciously Applied Designations
    I made clear earlier that those of us engaged in the financial war 
against terrorism should, in every instance, utilize the best-suited 
tool to advance the overall mission to disable terrorist groups. Acting 
in accordance with that principle, however, requires an accurate 
understanding of each of the relevant tools. In that regard, I would 
like to highlight the value of the public actions the Treasury 
Department can take--particularly public designations. The September 11 
Commission states that ``public designation of terrorist financiers and 
organizations is still part of the fight, but it is not the primary 
weapon. Designations are instead a form of diplomacy, as governments 
join together to identify named individuals and groups as terrorists. 
They also prevent open fundraising.'' While I agree with the first 
quoted sentence, I think that the September 11 Commission does not give 
enough credit in this passage to the true power of public designations. 
In addition to being a form of diplomacy and stopping open fundraising, 
designations--if wielded properly--achieve the following ends:

 shutting down the pipeline through which designated parties 
    raise and move money;
 informing third parties, who may be unwittingly financing 
    terrorist activity, of their association with supporters of 
    terrorism;
 deterring non-designated parties, who might otherwise be 
    willing to finance terrorist activity; and
 forcing terrorists to use potentially more costly, less 
    efficient and/or less reliable means of financing.

    The benefits of designation cannot be measured simply by totaling 
an amount of frozen assets. Terrorist-related accounts are not pools of 
water awaiting discovery as much as they are rivers with funds 
constantly flowing in and out. By freezing accounts, we dam that river, 
not only capturing whatever monies happen to be present at that moment 
but also, more importantly, ensuring that this individual or 
organization can never in the future act as a conduit of funds to 
terrorists. If fully implemented, a designation excommunicates 
supporters of terrorism from the formal financial system, 
incapacitating them or driving them to more expensive, more cumbersome, 
and riskier channels.
    I say ``if fully implemented'' because, as the September 11 
Commission recognized, implementation is vital in this context but not 
at all assured. The great majority of terrorist financiers and 
facilitators operate and store their money overseas. For designations 
to have their maximum impact, we must persuade other nations to take 
action alongside us. This is not a simple task. In some cases there is 
a failure of will, and in others there are insufficient means for 
foreign countries to take administrative action. In either case, we 
must continue to persuade, cajole, or provide needed technical 
assistance to make sure that our designations are more than just words 
on paper in the international sphere. Over the past 3 years, the State 
Department has labored tirelessly in this cause, and its persistent 
work has yielded results: Dozens of countries have joined us in 
submitting over 285 Al Qaeda-linked targets for designation at the 
United Nations; 87 countries in every region of the world have either 
adopted new laws and regulations to fight terrorist financing or are in 
the process of doing so; and 20 different U.S. Government offices and 
agencies have provided technical assistance and training to help high-
priority states develop counterterrorist financing and anti-money 
laundering regimes. But, as a UN Monitoring team recently found, there 
is much more to be done, and as the terrorists adapt so must we.
    In assessing the potential value of designations, it is also 
important to recognize that designations are not necessarily applied at 
the expense of other actions. A recent and powerful illustration is the 
integrated U.S. Government approach taken with respect to the U.S. 
branch office of Al Haramain, in Oregon. In February, Federal agents 
executed a search warrant on Al Haramain, pursuant to a joint 
investigation by IRS-CI, the FBI, and DHS/ICE. Immediately thereafter, 
Treasury's OFAC blocked the accounts of the organization pending 
investigation. This locked the organization's assets in place, ensuring 
that no money would flow from this group to illicit purposes during 
Treasury's investigation. Earlier this month, Treasury formally 
designated the U.S. Al Haramain office as a supporter of terrorism, 
adding it to a list of other designated Al Haramain branches around the 
world. In the meantime, the joint law enforcement investigation 
continues. This combination of administrative and law enforcement 
actions provides the U.S. Government with the utmost flexibility to 
address the threat of terrorist financing, using complementary tools in 
such a way as to concentrate their impact.
    Behind all OFAC designations, such as the recent Al Haramain 
designation, are a team of tremendously capable foreign terrorist 
programs officers at OFAC. These individuals search out and synthesize 
wide-ranging streams of intelligence to map out terrorist groups and 
their support networks. They also draft the evidentiary packages that 
provide the legal bases for designations. Their dedication and 
expertise are, by now, widely known to those within the Government who 
work on terrorist financing issues, but these individuals are rarely 
acknowledged in public. They merit special mention alongside those 
others working in the trenches of the terrorist financing campaign, be 
they analysts, agents, prosecutors, or Foreign Service officers.
The Need for International Cooperation and Engagement
    As I mentioned, the capital fueling terrorist activity principally 
emanates from and flows abroad, and our counterterrorist financing 
campaign depends upon the coordinated action of many countries. Over 
the past 3 years, the U.S. Government has successfully moved the 
campaign against terrorist financing to the top of the world's priority 
list.
    Treasury has worked with the State Department and others in the 
interagency community in numerous international fora--including the 
United Nations, G-7, G-8, G-20, the Financial Action Task Force on 
Money Laundering (FATF), and the Egmont Group--to promote balanced 
regulatory regimes that provide for financial transparency. Thanks to 
these efforts, scores of countries are now held to FATF's 
Recommendations, which call upon member jurisdictions to regulate 
informal banking systems like hawalas; include originator information 
on cross-border wire transfers; freeze and seize terrorist-related 
funds; overtly criminalize terrorist financing; and increase vigilance 
over the nonprofit sector. Treasury has also pressed the FATF to 
address the risk of cash couriers, and anticipates the issuance of a 
new Special Recommendation calling upon jurisdictions to implement 
measures to detect and confiscate cash traveling across borders that 
may be related to terrorist financing.
    These principles and practices are being further promulgated by the 
International Monetary Fund and the World Bank, which recently adopted 
the FATF Recommendations as part of their anti-money laundering 
principles used in assessing jurisdictions. In addition, the 
forthcoming creation of FATF-style regional bodies in Central Asia and 
the Middle East/North Africa will hold a range of new countries to the 
standards of the international community. These advances are extremely 
encouraging.
    In addition to the important work being done at the FATF, FinCEN's 
leadership in the Egmont Group has helped spur a rapid expansion of 
financial intelligence units (FIU's) around the world, with 94 such 
FIU's now operating internationally. This network plays a pivotal role 
in international arena, as it supplies a forum for the rapid, global 
exchange of information and training. This network will only grow in 
importance as the FIU's continue to develop projects and conduits to 
detect and prevent terrorist financing and financial crimes.
    Congress gave the Treasury a powerful tool to encourage 
international compliance with anti-money laundering and 
counterterrorist financing standards in Section 311 of the USA PATRIOT 
Act. This provision provides us the authority to prevent jurisdictions 
and foreign financial institutions found to be of ``primary money 
laundering concern'' from doing business with U.S. financial 
institutions, thus protecting our financial systems from entities that 
subvert or ignore international money laundering standards. This past 
May, the Treasury Department designated the Commercial Bank of Syria as 
a ``primary money laundering concern,'' based on a lack of financial 
transparency and other concerns about that institution, including 
terrorist financing. Pursuant to this designation, we have issued a 
proposed rule that, when adopted in final form, will oblige U.S. 
financial institutions to sever all correspondent 
relations with this bank. The Commercial Bank of Syria will either take 
effective steps to address our concerns or we will cut it off from our 
financial system. In late August, we designated two more foreign 
financial institutions: Infobank, of Belarus, which had been used to 
subvert the United Nation's Oil-for-Food program, and First Merchant 
Bank of the ``Turkish Republic of Northern Cyprus,'' which participated 
in fraudulent activity on an international scale. These institutions 
will face the same choice as the Commercial Bank of Syria.
    Actions of this type spur jurisdictions and institutions to 
introduce reforms and create greater financial transparency. They also 
protect the integrity of our financial system. We will continue to 
apply Section 311 aggressively against rogue jurisdictions and 
institutions when we have reason to believe that our financial system 
is being threatened by terrorist financing or other criminal networks.
    These efforts have yielded considerable results, but more can and 
should be done. Treasury will continue to press the international 
community to implement robust counterterrorist financing regulations 
and standards. Treasury will also continue to provide technical 
assistance and training abroad, in conjunction with the State 
Department and our interagency colleagues, to ensure that our partners 
have the requisite capacity to regulate vulnerable industries, enforce 
laws, and share financial information.
Current Challenges
    Congress was forward-looking in enacting the USA PATRIOT Act, 
mandating not just better oversight of regulated sectors but also an 
expansion in regulatory scope, to encompass whole sectors that had not 
previously been subject to Federal anti-money laundering or 
counterterrorist financing regulation. Implementing Congress' vision 
will take sustained effort, to which we are committed. Our challenges 
in this arena fall into two broad categories. First, in crafting new 
regulations, we must ensure that they will provide for transparency, 
accountability, and enhanced flow of information between the private 
sector and the Government. They must also be practicable. This requires 
great care, as the particular sectors covered by the USA PATRIOT Act 
span a wide range--from credit unions to casinos--each with its own 
character, organization, and practices. This challenge becomes more 
acute when regulating businesses, such as pawn shops or jewelers, which 
do not behave like traditional financial institutions.
    Once regulations are in place, we face a second-order challenge: 
Our regulations are only valuable to the extent that we can ensure they 
are being followed. In several compliance areas, we are faced with 
unknowns. How do we assess the extent to which relevant regulations are 
being observed? With limited resources and a vast community of 
regulated entities, how do we most effectively encourage and monitor 
compliance? One area of particular challenge here is money service 
businesses (MSB's). The universe of large, established MSB's, such as 
Western Union or Moneygram, is familiar to us and its vulnerabilities 
are largely known. But informal money or value transfer systems and 
alternative remittance systems, such as hawalas, may consist of a 
single individual with a telephone and a ledger. Over 19,000 MSB's have 
complied with the law requiring them to register with the Treasury 
Department; we know that this is but a small fraction of the total 
number of MSB's in this country. It would be excessively difficult and 
a poor use of resources to locate every one of these unregistered 
MSB's, the overwhelming majority of which are not facilitating any 
illicit ends. At the same time, we cannot allow ourselves to become 
resigned to the risks of this situation. Our best approach is risk-
based, doing smart outreach and targeted enforcement--wielding 
education and deterrence where they will do the most good. This effort 
is informed by FinCEN, which develops targets for examination and 
outreach, and by a strategic partnership between IRS and DHS/ICE. IRS 
civil examiners conduct BSA compliance examinations, cataloging money 
laundering schemes and tracking developing patterns. They also refer 
appropriate cases for criminal investigation. On the criminal side, 
IRS-CI and DHS/ICE bring their respective areas of money laundering 
expertise to the investigation of illegal MSB's, and participate in 42 
multiagency Suspicious Activity Report Review Teams nationwide. Section 
373 of the USA PATRIOT Act, which makes it a crime to operate an 
unlicensed money service business, is a critical tool in this fight. 
All of these efforts hold promise. Still, the number of entities, in 
this and in other regulated industries, is staggering. We hope to work 
with Congress on this difficult and important task.
    Another challenge we face is adapting to a shift in the focus of 
financial regulation. The current financial regulatory regime was 
forged out of nearly 20 years of experience in detecting and preventing 
money laundering. Money laundering and terrorist financing, however, 
differ in significant ways. In the money laundering field, 
investigators look through a telescope trying to detect the movement of 
large amounts of dirty cash. When investigating terrorist financing, 
investigators use a microscope in order to track the movement of 
relatively small amounts of often ``clean'' money, intended to support 
a nefarious purpose. Financial experts in the private sector have 
developed a set of typologies to detect money laundering activity; 
terrorist financing transactions, by contrast, may bear no inherent 
identifying trademarks whatsoever.
    We have commenced a study of whether we can devise tools or systems 
that are tailored to terrorist financing. It is already clear, though, 
that one of the most useful avenues we can pursue will be to expand our 
coordination with the private sector. The financial industry has been 
tremendously helpful in combating terrorist financing and is eager and 
willing to do more. But banks and other financial institutions cannot 
help if they are working blindly. To the extent possible, the 
Government must provide more detailed information to the private sector 
so that financial entities know specifically what and whom to look out 
for. This will not be an easy task. Much of the information in this 
arena is classified. Law enforcement is properly reticent about sharing 
information that could compromise an investigation. And we also need to 
be sensitive to the significant privacy and reputational interests of 
our citizens and ensure that appropriate controls are in place to 
safeguard information.
    Mediating this public/private relationship is the BSA Advisory 
Group, chaired by FinCEN. This group is comprised of high-level 
representatives from financial institutions, Federal law enforcement 
agencies, regulatory authorities, and others from the private and 
public sectors, and acts both as an intermediary and as a think tank 
focused on ways to improve the flow of information to both sectors. 
FinCEN's Director, William Fox, has adopted information sharing as a 
top priority and I am confident that our coordination with the private 
sector will broaden and deepen under his expert command.
    Congress also facilitated aspects of public-private coordination 
through Section 314 of the USA PATRIOT Act. This provision mandates the 
sharing of information with and among the financial sector, both 
vertically (among regulatory agencies, law enforcement, and industry) 
and horizontally (providing a safe harbor that allows industry members 
to share with each other). In implementing this section, Treasury 
created a ``pointer'' system for law enforcement. This system allows 
law enforcement, in appropriate cases, to transmit names of persons of 
interest to the financial sector through FinCEN and determine whether 
those institutions have any relevant transaction or account 
information. The industry reports back only when it has information 
and, if it does, law enforcement may follow up with appropriate 
process. The system has been quite successful to date and law 
enforcement agencies attest to its value. But we will continue to 
explore new ways of increasing information flow to and among the 
private sector, and I look forward to working with this Committee in 
this endeavor.
    One final concern that I would like to draw attention to has been 
the lack of movement against Hamas fundraisers in Europe. So often in 
this field, our challenge is to simply find those who are moving money 
to terrorists. In the case of Hamas, though, many of the culpable 
parties are known. In 2003, the United States identified and designated 
a collection of European NGO's that are demonstrably funding Hamas. 
These include Interpal in the United Kingdom, the Al Aqsa Foundation 
with offices across northern and western Europe, Comite' de 
Bienfaisance et de Secours aux Palestiniens (CBSP) of France, and the 
Palestinian Association (PVOE) of Austria. Despite our designations, 
though, and the hard work of the State Department, these offices 
continue to operate in their home countries. I find this extremely 
troubling and I intend to continue to press this issue in the strongest 
terms with our allies in Europe.
Conclusion
    In preparing for my new position, I have repeatedly confronted 
questions about our effectiveness in the campaign against terrorist 
financing. Put simply, are we making progress? How can we know? How do 
we measure success?
    These are important questions, and difficult ones. Al Qaeda does 
not release financial statements, and we will never know precisely how 
much money is flowing to a terrorist group in a given year or how much 
money intended for terrorists never reached their hands due to our 
efforts. We therefore often find ourselves discussing proxies for these 
ultimate questions: How many donors and facilitators are captured or 
behind bars; how much money has been frozen or seized; how many 
countries are joining us in freezing assets or upgrading their laws to 
make it harder to move money illegally. Each of these benchmarks points 
to only one aspect of the problem, though, and imperfectly at that.
    Far more revealing, to my mind, is intelligence, even if anecdotal, 
about the condition of terrorists' financial networks. The news there 
is encouraging: It has become costlier, riskier, and more difficult for 
Al Qaeda and like-minded terrorist groups to raise and move money 
around the world. Intelligence reports suggest that many terrorist 
financial networks are hurting for cash, as financiers and facilitators 
are killed, caught, or cut off from the financial system, and as the 
conduits of the international financial system become more transparent 
and less hospitable to those who seek to stay hidden. Also playing a 
major role is the deterrent effect of public actions like prosecutions 
and designations, and prospective donors now think twice about 
contributing to disreputable or shady organizations.
    Our successes breed new challenges, though, as the terrorists 
continue to adapt to our efforts and devise new and more sophisticated 
ways to move money. We must not become reliant on familiar methods or 
comfortable ways of thinking. On the whole, I believe we are headed in 
the right direction. I look forward to working with you to enable us to 
become stronger, more perceptive, and more nimble in countering the 
evolving threats to the financial sector and our Nation.

                PREPARED STATEMENT OF MICHAEL J. GARCIA
     Assistant Secretary, U.S. Immigration and Customs Enforcement
                  U.S. Department of Homeland Security
                           September 29, 2004
    Good morning, Chairman Shelby, Senator Sarbanes, and distinguished 
Members of the Committee. It is a privilege to appear before you to 
discuss terrorist financing issues arising out of the September 11 
Commission Report. I am pleased to join my colleagues from the Federal 
Bureau of Investigation (FBI) and the Department of the Treasury to 
discuss the recommendations of the Commission, and specifically, to 
address how U.S. Immigration and Customs Enforcement (ICE) is using its 
border and interior enforcement authorities in the war on terror.
    The September 11 Report details how 19 terrorists exploited a 
number of vulnerabilities in order to bring their plot to fruition: 
Traveling between countries to train and recruit; engaging in document 
fraud to cover their tracks and move freely from place to place; 
earning and transferring money in support of the plot; exploiting the 
U.S. immigration system; and defeating security measures in the 
transportation system.
    The Department of Homeland Security (DHS) was created after the 
attacks of September 11 to address these vulnerabilities. ICE is the 
largest investigative agency of DHS and is comprised of some of our 
Nation's oldest and most recognizable law enforcement agencies. Under 
the Homeland Security Act of 2002, ICE is responsible for enforcing 
customs and immigration laws (among other authorities), and is charged 
with using these authorities in new ways to protect the homeland.
Terrorist Financing: Interagency Cooperation
    I am pleased to join my colleagues at this hearing today to talk 
about how our agencies are working together to ensure that we have the 
needed flexibility and creativity in our enforcement strategy to shut 
down vulnerabilities in our financial systems and disrupt terrorist 
attacks.
    We work closely with and routinely exchange information among the 
Federal agencies that investigate financial crime. Pursuant to a 
Memorandum of Agreement between the Department of Justice and the 
Department of Homeland Security, ICE vets all potential terrorist 
financing leads through the FBI. ICE and the FBI have established a 
Joint Vetted Unit staffed by senior personnel from each agency to 
identify financial investigations that may have a nexus to terrorism. 
ICE also has assigned a senior manager as the Deputy of the FBI 
Terrorist Financing Section (TFOS) to provide better coordination in 
terrorist financing investigations. The Deputy of TFOS has a fully 
integrated role in the evaluation and determination of ICE financial 
leads that are vetted through TFOS.
    As a result, the agencies here today have worked together, 
cooperatively, on a number of cases that we believe have stemmed the 
flow of funds into the hands of terrorists. I would like to briefly 
mention three cases that illustrate the success of our cooperation.
    The first case was developed out of leads from the ICE Cyber Crime 
Center, one of our key investigative tools that look at risks 
associated with the cyber border. Based on the information developed, 
ICE, through the Joint Terrorism Task Force (JTTF), developed a case 
against AZZAM.com and affiliated websites that promoted ``Jihad'' 
against the United States and provided instructions on how to evade 
U.S. currency reporting requirements and deliver funds to ``Jihadists'' 
in Chechnya and Afghanistan through Pakistan. The investigation 
resulted in the recent arrest in the United Kingdom of Babar Ahmad. 
Ahmad's websites provided explicit instructions on how to raise and 
illegally move funds to the Taliban through hawalas and other methods, 
and also instructed individuals on how to obtain visas to travel to 
Afghanistan to fight for the Taliban.
    The second case involved Abdurahman Alamoudi, who in July of this 
year pleaded guilty in the Eastern District of Virginia to conducting 
prohibited financial transactions with Libya, making false statements 
in his application for U.S. citizenship, and violating U.S. tax laws by 
concealing his foreign bank accounts, concealing his transactions with 
Libya, and omitting information from tax returns filed by his 
charities. The arrest and subsequent indictment of Alamoudi were the 
result of a long-term investigation by ICE, the FBI, and the Internal 
Revenue Service (IRS).
    The final example is a case in which ICE, the FBI, and IRS worked 
to indict the Holy Land Foundation for Relief and Development (HLF), of 
Dallas, Texas. This foundation was created to provide financial and 
material support to the Hamas movement. It is estimated that since 
1995, HLF and its members have illegally sent $12.4 million to support 
Hamas.
Lessons of September 11
    These cases are examples of how the U.S. Government has pursued 
terrorist financing in the immediate aftermath of September 11. But as 
the September 11 Commission Report and other studies have found, going 
forward we must continually adapt our countermeasures and use all of 
our enforcement tools and authorities to full effect. For ICE, that 
means addressing vulnerabilities that could be 
exploited by terrorists to raise money.
    As an Assistant United States Attorney, I prosecuted the case 
against the terrorists who bombed the World Trade Center in 1993. From 
that experience and from my experience at DHS, I can tell you two 
things about terrorist financing. The first is that terrorism comes 
relatively cheap. The September 11 Commission Report details the amount 
of money--approximately $400,000 to 500,000--that the hijackers spent 
over the 2 years they were preparing for the attacks. I would estimate 
the cost for the 1993 World Trade Center bombing at only about $50,000. 
These are relatively small amounts of money compared to the high cost 
to the United States in terms of not only the loss of loved ones and 
damage to property, but also the psychological damage inflicted on our 
Nation.
    The second is that terrorist funds are hard to trace, particularly 
when we are trying retroactively to piece together where the money was 
raised or how it was moved around the world. We tried to trace back the 
money in the 1993 World Trade Center bombing, and we were not 
particularly successful in that instance. The September 11 Report 
states that the origin of the funds remains unknown, but the best 
estimate is that prior to September 11 Al Qaeda raised its roughly $30 
million operating budget through donations.\1\
---------------------------------------------------------------------------
    \1\ The September 11 Commission Report, p. 169-170.
---------------------------------------------------------------------------
    Moreover, past practice is not always indicative of future 
operations. What methods are terrorists using today, and what methods 
will they use in the future to earn or move money? We have ideas, and 
we can make assumptions based on these past practices, but above all we 
must assume that terrorists are creative and adaptable, as they have 
already shown themselves to be. That is why our enforcement approach 
must employ the same flexibility.
    Several of the September 11 Commission's recommendations suggest 
steps that are already being taken by ICE to enhance the Nation's 
counterterrorism initiatives, restore integrity to the U.S. immigration 
system, enforce laws that protect U.S. financial systems from 
exploitation, and strengthen the Nation's border security in the effort 
to prevent future terrorist attacks. These recommendations track with 
the findings of a recent Government Accountability Office (GAO) 
investigation which found that: ``Terrorists earn assets through 
illicit trade in myriad commodities, such as drugs, weapons, 
cigarettes, and systems, such as charities, owing to their 
profitability. Like other criminals, terrorists can trade any commodity 
in an illegal fashion, as evidenced by their reported involvement in 
trading a variety of counterfeit goods.'' Many of the examples cited in 
the GAO report fall within the traditional law enforcement jurisdiction 
of ICE.
Cornerstone
    ICE is targeting each of these areas of vulnerability as part of 
Cornerstone, an initiative that targets the alternative financing 
mechanisms that terrorist and other criminal organizations use to earn, 
move, and store funds. Our goal is to disrupt or dismantle these 
alternative funding mechanisms before these organizations can exploit 
them for their own purposes.
    Through Cornerstone, ICE has made tremendous progress in the fight 
against financial crime and money laundering. In just over 1 year, ICE 
has seized nearly $300 million in suspect currency and effected more 
than 1,800 arrests. Let me give you some examples of how we are doing 
this.
    ICE targets the methods through which terrorist and criminal 
organizations earn their illicit funds through investigations of 
intellectual property rights (IPR) violations, counterfeit 
pharmaceuticals, human smuggling and trafficking; narcotics, commercial 
fraud, export violations, and cyber crime. A recent IPR investigation 
conducted by ICE New York, ``Operation Executive,'' identified 
individuals and organizations that were responsible for the large-scale 
smuggling of counterfeit trademark merchandise into the United States 
from the People's Republic of China. The deals were brokered through 
middlemen in Lebanon. This organization is suspected of being 
responsible for the importation of 100 containers of counterfeit goods 
with a retail price of $400 million. ICE agents arrested 14 subjects, 
seized containers valued at approximately $24 million, and seized 
nearly $100,000 in currency.
    Tobacco smuggling also provides a lucrative source of potential 
funding for terrorists. In January of this year, ICE dismantled the 
largest nationwide tobacco smuggling organization to date and arrested 
15 defendants. The 92-count indictment charged the defendants with 
tobacco smuggling and money laundering, among other offenses. The 
organization was responsible for the movement of more than 10,000 cases 
of counterfeit and contraband cigarettes and over 100 cases of liquor 
worth approximately $20 million. As in Operation Executive, no link to 
terrorism was uncovered in this case, but the potential for reaping 
large profits by exploiting an area where there is a perception of lax 
enforcement and weak penalties must be addressed.
    ICE targets the movement of funds derived from criminal activity 
into and out of the United States by identifying financial and trade 
systems that are vulnerable to exploitation by criminal organizations 
and terrorist financiers. These systems include bulk currency 
smuggling, trade-based money laundering, courier hubs, money service 
businesses, alternate remittance systems, and charities. Earlier this 
year in New York, ICE and the IRS investigated an unlicensed money 
remitter and discovered the illegal transfer of $105 million to 
Pakistan, and millions more to Europe and South Asia. While we could 
not prove a direct link to terrorism in this case, we do know that the 
money was going to a region of Pakistan where Al Qaeda and others are 
active and that this is the type of alternative funding mechanism 
terrorist networks have turned to in order to avoid detection by law 
enforcement. Using our unique authorities, including new powers under 
the USA PATRIOT Act related to unlicensed money brokers, ICE shut down 
the brokers, made arrests, and seized money.
    Another USA PATRIOT Act provision, in this instance a provision 
that criminalizes bulk cash smuggling, has given ICE an effective tool 
to combat this vulnerability. Since July 2003, ICE and CBP have 
collectively seized $40.5 million before it could be illegally exported 
and ICE has arrested more than 133 individuals for bulk cash smuggling 
violations as a result of follow-up investigations to these seizures. 
The majority of these cases were narcotics related, but some had 
elements of alien smuggling as well.
    ICE targets commodities that are imported and exported from the 
United States and that can be used to store the proceeds of illegal 
activity. For example, criminal organizations have used commodities 
such as gold and precious metals to disguise their ill-gotten gains. In 
Operation Meltdown, ICE agents worked with the IRS to uncover a scheme 
in which jewelers were converting the proceeds of drug sales into the 
equivalent value in gold. They then melted the gold and fashioned it 
into items such as nuts, bolts and wrenches, and then shipped the items 
to Colombia where it was melted down and converted back to cash. Our 
investigation of this case resulted in 23 arrests.
    Cornerstone and our work in the JTTF's with our partners illustrate 
the approach that ICE is taking to homeland security, and specifically 
to terrorist financing.
Terrorist Travel and the Border
    Finally, let me briefly address an issue raised in the invitation 
letter for this hearing, namely, how prepared the U.S. immigration 
system is to meet the challenges of terrorist travel as well as 
comments on controlling the cross-border movement of people. 
Maintaining the integrity of the border--both in terms of cross-border 
movement of people and goods as well as interior enforcement of 
immigration laws--underpins our homeland security mission. Smuggling is 
a direct threat to our border security. In partnership with U.S. 
Customs and Border Protection (CBP), ICE focuses on the identification, 
disruption, and dismantling of smuggling organizations because 
organizations that exploit our borders to bring in illegal aliens or 
drugs could, for the right amount of money, employ those same routes 
and networks to smuggle terrorists or weapons of mass destruction.
    ICE's combined customs and immigration authorities allow us to 
match the smuggling organizations step-by-step as they move from one 
criminal enterprise to 
another. One example of how we are using our combined border and 
immigration authorities to shut down these smuggling organizations is 
Operation ICE Storm in Phoenix, Arizona. In ICE Storm, we are helping 
to stop the surge in violent crime in Phoenix through the 
identification and dismantling of organizations that are smuggling 
humans, drugs, currency, and weapons; the prosecution of smugglers and 
the seizure of assets. Phoenix police are crediting ICE Storm with a 
dramatic decrease in violent crime as a result of this operation. In 
its first year of operation, ICE has arrested 256 people and seized 
$5.3 million in connection with these smuggling operations--a dollar 
amount that is unprecedented for seizures in cases of alien smuggling.
    ICE's enforcement of immigration laws goes beyond the border and 
investigations of smuggling. As a September 11 Commission Staff 
monograph on terrorist travel notes, at least 3 of the 19 hijackers 
violated the terms of their visa. If these 3 terrorists had somehow 
landed in the custody of U.S. law enforcement before September 11, it 
is likely that the only charges that could have been brought against 
them at the time would have been immigration charges. One of the ways 
that we are addressing this vulnerability is through compliance 
enforcement of the US-VISIT program and the Student and Exchange 
Visitor Information System (SEVIS). Enforcement action against SEVIS 
violators gives us an important law enforcement tool to detect and 
deter those who seek to abuse the system. Such exploitation has led to 
serious harm to our national security in the past: Hani Hanjour, one of 
the September 11 hijackers, as well as the driver of the van who blew 
up the World Trade Center in 1993 both exploited their student visa 
status to remain in the United States.
Conclusion
    The September 11 Commission Report contains a number of 
recommendations aimed at preventing the next terrorist attack that 
focus on shutting down terrorist financing. The Report also notes that 
targeting travel is at least as important as targeting the money. Our 
mandate under the Homeland Security Act of 2002 is to address 
vulnerabilities--vulnerabilities that expose our borders to 
infiltration and our financial systems to exploitation--through strong 
enforcement of customs and immigration laws. Through Cornerstone and 
our other homeland security enforcement programs we are doing just 
that.
    I would like to thank Chairman Shelby and the other distinguished 
Members of this Committee for the opportunity to testify before you 
today. I would be happy to answer any questions you may have at this 
time.
                               ----------
                  PREPARED STATEMENT OF JOHN E. LEWIS
          Deputy Assistant Director, Counterterrorism Division
                    Federal Bureau of Investigation
                           September 29, 2004
    Good afternoon Chairman Shelby, Ranking Member Sarbanes, and 
Members of the Committee. Thank you for inviting me to speak to you 
today regarding the September 11 Commission's Recommendations regarding 
terrorist financing, specifically the FBI's findings concerning 
terrorist financing mechanisms used in the September 11 plot and those 
in use today. As you know, the FBI has worked closely with the 
September 11 Commission and its staff and we commend it for an 
extraordinary effort. Throughout this process, we have approached the 
Commission's inquiry as an opportunity to gain further input from 
outside experts. We took its critiques seriously, adapted our ongoing 
reform efforts, and have already taken substantial steps to address its 
remaining concerns. We are gratified and encouraged that the Commission 
has embraced our vision for change and recognized the progress that the 
men and women of the FBI have made to implement that vision. We agree 
with the Commission that much work remains to be done, and will 
consider its findings and recommendations as we refine our continuing 
transformation efforts.
Introduction
    Among the successes achieved thus far in the war on terrorism, the 
FBI has made significant progress against both the operational and 
support arms of terror networks. With respect to the support arms, an 
essential component of the global strategy against terrorism has been 
to counter the manner in which terror networks 
recruit, train, plan, and effect operations, each of which requires a 
measure of financial support. Inherent requisites to this financial 
support are the raising, movement, and expenditure of resources. Those 
requisites leave trails, albeit complex, but nonetheless traceable and 
identifiable, through the global financial systems. The FBI follows 
those trails backward to identify and dismantle existing funding 
sources and facilitators. The FBI is also endeavoring to extrapolate 
and project those trails forward in extensive proactive efforts to 
prevent future terrorist acts by identifying perpetrators, 
facilitators, and systemic vulnerabilities in the financial system at 
large.
    Discussion of the FBI's proactive efforts in terrorist financing 
investigations would be incomplete without referencing the financing 
mechanisms employed by the September 11 conspirators and 
contextualizing the FBI's subsequent actions.
Financing the September 11 Conspiracy
    The September 11 hijackers used both domestic and foreign financial 
institutions to maintain, transfer, and retrieve money. The hijackers 
deposited money into United States bank accounts, primarily by wire 
transfers and deposits of cash or travelers checks purchased overseas. 
Additionally, several hijackers maintained funds in foreign accounts, 
which they accessed in the United States through ATM and credit card 
transactions. The hijackers received funds from facilitators in Germany 
and the United Arab Emirates or directly from Khalid Sheikh Mohamed 
(KSM) as they transited Pakistan before coming to the United States. 
The plot cost the Al Qaeda network approximately $400,000-$500,000, of 
which approximately $300,000 passed through the hijackers' established 
bank accounts in the United States.
    Al Qaeda funded the hijackers in the United States primarily by 
three unremarkable means: Wire transfers from overseas to the United 
States; the physical transport of cash or traveler's checks into the 
United States; and the accessing of funds held in foreign financial 
institutions by debit or credit cards.
    Once in the United States, all of the hijackers used the formal 
banking system to store funds and facilitate transactions. The 
hijackers spent money primarily for flight training, travel and day-to-
day living expenses, such as food, lodging and transportation. 
Extensive investigation has identified no significant source of 
domestic self-sustenance.
    Neither the hijackers themselves nor the financial facilitators 
overseas were experts in the use of the international financial system 
or sophisticated money laundering techniques. They caused a paper trail 
to be created, which linked them to each other and to their 
facilitators. Still, they were able to avoid the scrutiny of law 
enforcement, government regulators and private sector compliance 
authorities by conducting transactions in a routine manner that failed 
to raise any red flags in the international financial system. The 
hijackers and their financial facilitators used the anonymity provided 
by the vast international and domestic financial system to move and 
store their money. The money-laundering controls in place at the time 
were largely focused on drug trafficking and large-scale financial 
fraud and did not detect the routine transactions in which the 
hijackers engaged.
    Nothing the hijackers did alerted any bank personnel to the 
terrorist plot. Their wire transfers, in amounts from $5,000 to 
$70,000, remained anonymous in the billions of dollars moving through 
the international financial system on a daily basis. Their bank 
transactions, typically large deposits followed by many small ATM or 
credit card withdrawals, appeared routine, especially for purported 
foreign students living in the United States. Not one financial 
institution filed a suspicious activity report (SAR) pursuant to any 
transaction made by or on behalf of the hijackers.
    The focus of the September 11 financial investigation centered upon 
the genesis of the hijackers' funding. Contrary to conventional 
thought, Osama Bin Laden did not access significant amounts of personal 
wealth and did not personally fund the Al Qaeda plot from family 
inheritance. Understanding the full extent of Al Qaeda's resources and 
providing actionable intelligence did, and still does, present 
challenges because of the fast and myriad means and methods for raising 
and moving relatively small amounts of money. Additional concerns to 
the FBI in the investigation and gathering of intelligence are 
instances of commingling of terrorist money with legitimate funds; the 
many layers and transfers between donors and the ultimate recipients of 
the money; the existence of unwitting participants; and the United 
States' Government's reliance on foreign government reporting for 
evidence and intelligence.
    The FBI and other domestic law enforcement and regulatory agencies 
have expended considerable effort on the extent to which charities fund 
terrorist networks. Islamic charitable giving, known as zakat, is one 
of the five pillars of Islamic faith and results in billions of dollars 
raised annually. In some instances, investigation and intelligence 
revealed that Al Qaeda facilitators corrupted specific foreign branch 
offices of large, internationally recognized charities. In many cases, 
lax oversight and the charities' own ineffective financial controls, 
particularly over transactions in remote regions of the world, often 
made it easy for Al Qaeda facilitators to divert money from charitable 
uses.
    Before September 11, Al Qaeda moved money through both formal and 
informal banking systems. In those instances where the banking system 
was not dependable or where the transactions were susceptible to 
scrutiny from international law enforcement, money was moved through 
the informal, or hawala system. Al Qaeda also used couriers to move 
money because they provided a secure way to move funds. The use of 
couriers is advantageous because no outsiders, such as bank officials, 
are aware of transactions.
    The hijackers, using several means, returned the remainder of their 
allowances, approximately $26,000, to the financial support network in 
the UAE in the days just prior to the attack. The hijackers' efforts 
during their final days to consolidate and return funds to Al Qaeda 
demonstrates their understanding of the importance of money, in any 
sum, to the organization and demonstrates the existence of a 
centralized support network that existed at that time.
Terrorist Financing Operations Section
    Prior to the events of September 11, the FBI had no mechanism to 
provide a comprehensive, centralized, and proactive approach to 
terrorist financing matters. While the FBI routinely examined financial 
records at the time of previous terrorist attacks, the events of 
September 11 identified a critical need for a more comprehensive 
approach to financial matters. The Terrorist Financing Operations 
Section (TFOS) of the FBI's Counterterrorism Division was formed in 
response to this critical need. TFOS combines the FBI's traditional 
expertise in conducting complex criminal financial investigations with 
advanced technologies and the critical legislative tools provided 
through the USA PATRIOT Act. TFOS has built upon these 
established mechanisms by developing cooperation and coordination among 
law enforcement, regulatory and intelligence agencies, both domestic 
and foreign, to an internationally effective terrorist financing 
investigative operation.
    The mission of TFOS has evolved into a broad strategy to identify, 
investigate, disrupt, and dismantle all terrorist related financing and 
fund-raising activities. The TFOS mission specifically includes: 
Conducting full financial analysis of terrorist suspects and their 
financial support structures in the United States and abroad; 
coordinating joint participation, liaison and outreach efforts to 
exploit financial resources of private, government and foreign 
entities; utilizing FBI and Legal Attache expertise and relationships 
to fully develop financial information from foreign law enforcement and 
private agencies; working jointly with the intelligence community to 
fully exploit intelligence information to further terrorist 
investigations; working jointly with prosecutors and with the law 
enforcement and regulatory communities; developing predictive models 
and conducting data analysis to facilitate the identification of 
previously unknown or ``sleeper'' terrorist suspects; and providing the 
financial component to classified counterterrorism investigations in 
support of the FBI's counterterrorism responsibilities.
    Intelligence gathering and information sharing is critical to these 
efforts. The intelligence community, including the FBI, produces and 
obtains tremendous amounts of classified intelligence information. 
While much of the information can be of significant value in terrorist 
financing investigations, the value will not be realized or maximized 
absent the ability to filter the information, analyze it, and 
disseminate it in an appropriate manner to those who can make the best 
use of the information. Toward this end, TFOS participates in joint 
endeavors with the Treasury Department, the Department of Justice, The 
Department of State, and the Department of Homeland Security involving 
potential terrorist related financial transactions. TFOS also has 
personnel detailed to the CIA's Counter Terrorist Center, who work 
directly with TFOS on financial intelligence matters. Immigration and 
Customs Enforcement (ICE) executive managers are also assigned directly 
to TFOS to coordinate 
investigations. In addition, each Joint Terrorism Task Force has 
designated a Terrorism Financing Coordinator to facilitate the 
financial component of terrorism investigations.
    TFOS has access to data and information from established contacts 
at a variety of entities including: Banking Institutions, the Credit/
Debit Card Sector, Money Services Businesses, the Securities/Brokerages 
Sector, Insurance Companies, Travel Agencies, Internet Service 
Providers, the Telecommunications Industry, Law Enforcement, State/
Federal Regulatory Agencies, Public and Open Source Data 
Providers, the Intelligence Community and International Law Enforcement 
and Intelligence Contacts. Access to this type of information is 
governed by the Right to Financial Privacy Act, Fair Credit Reporting 
Act, and other applicable statutes.
    TFOS faces unique challenges in achieving the mission of 
identifying terrorist support networks and transactions. The inability 
to obtain records from other countries in a timely manner, the 
complexity of directly linking cashflows to terrorist operations or 
groups, and the difficulty of showing what domestic persons actually 
know about overseas foreign acts or actors all combine to heighten the 
difficulty of conducting investigations and prosecutions.
Post-September 11 Financing Mechanisms
    Currently, the FBI possesses a greater understanding of terrorist 
financing methods than prior to September 11. More sophisticated and 
effective processes and mechanisms to address and target terrorist 
financing have been developed and continue to evolve. Proactive 
approaches are increasingly utilized. The global awareness on the part 
of law enforcement, government agencies, regulators, policymakers, and 
the private sector of terrorist financing methods, suspicious financial 
activity and vulnerabilities has greatly increased since September 11. 
International cooperation has reached unparalleled levels. Outreach 
with and cooperation from the private sector has been outstanding and 
continues to strengthen, particularly in the form of bi-lateral 
interaction between law enforcement and the financial institutions. The 
ability to access and obtain this financial information quickly has 
significantly enhanced the FBI's ability to identify, investigate, and 
resolve immediate threat situations involving potential terrorist 
activity.
    Past terrorist financing methods have included the use of informal 
systems for transferring value in a manner that is difficult to detect 
and trace. The intense international scrutiny on transactions focused 
on suspect accounts has led to the increased use of the informal 
banking system by terror networks. Efforts to counter the use of the 
informal banking system include: increased regulations for 
correspondent bank accounts; requiring securities brokers and dealers 
to file SARS; and requiring money transmitting businesses, which 
include any person who engages as a business in the transmission of 
money, to register with the Financial Crimes Enforcement Network 
(FinCEN).
    As a result of intense domestic and international efforts, the Al 
Qaeda financing network has been disrupted. Some terrorist operations 
may no longer rely on outside sources of money and individual cells may 
now be self-sufficient. Terrorist groups only remotely affiliated with 
Al Qaeda, and dependent on Al Qaeda as a source of inspiration rather 
than operational funding, continue to pose a significant threat. Given 
the relatively small amounts required for the commission of a terrorist 
act, serial transactions still make the formal banking system a viable 
option. TFOS is also committed to proactively identifying potential 
vulnerabilities in the financial infrastructure that terrorist groups 
could exploit.
Strategy--International Cooperation
    The FBI recognizes the value of the experience and knowledge of our 
law enforcement colleagues around the world. Even before the tragic 
events of September 11, the FBI worked closely with our international 
counterparts in law enforcement through our Legal Attaches (LEGAT's) 
and international partners whose liaison offices in the United States. 
The FBI has long understood the need for greater international 
cooperation in the war against terror, and a large part of the mission 
of the FBI has been to establish better relations and closer ties with 
law enforcement agencies in other countries. Only through greater 
international cooperation can the FBI achieve its primary mission of 
preventing terrorism. The U.S. Government recognizes the value of 
enlisting the international community in efforts to stop the flow of 
money to Al Qaeda entities. To this end, TFOS has engaged in extensive 
coordination with authorities of numerous foreign governments in 
terrorist financing investigations.
    Extensive training and support of international investigations by 
TFOS has led to Agent visits/exchanges and training programs involving 
a variety of countries from Europe, Southeast Asia, the Middle East, 
and South America. In support of specific high profile joint terrorist 
financial investigative matters, a number of countries and agencies, 
including the United Kingdom, Switzerland, Canada, and Europol, have 
detailed investigators to TFOS on a temporary basis. TFOS has engaged 
in extensive coordination with authorities of numerous foreign 
governments in terrorist financing matters, leading to joint 
investigative efforts throughout the world. These joint investigations 
have successfully targeted the financing of several overseas Al Qaeda 
cells, including those located in Indonesia, Malaysia, Singapore, 
Spain, and Italy. Furthermore, with the assistance of relationships 
established with the central banks of several strategic countries, 
successful disruptions of Al Qaeda financing have been accomplished in 
countries such as the UAE, Pakistan, Afghanistan, and Indonesia.
    TFOS has developed a specific terrorist financing/money laundering 
crimes 
curriculum for international training which includes topics such as: 
Acquiring and handling evidence in document intensive financial 
investigations; major case management techniques; forensic examination 
tools; and methods of terrorist financing. At the request of the U.S. 
Department of State, TFOS has led an interagency team to provide this 
curriculum to a number of countries identified as needing law 
enforcement training on conducting terrorist financing investigations.
    The FBI, in coordination with the Treasury Department and the 
Department of Homeland Security, pursues an aggressive agenda on the 
international level to promote the enactment, implementation and 
enforcement of comprehensive and global anti-money laundering and asset 
forfeiture laws as well as regulatory measures. The Department of 
Justice is involved, with the Treasury Department and the Department of 
Homeland Security, in the Financial Action Task Force's (FATF) mutual 
evaluation process, which has been adopted by other FATF-like regional 
bodies. This has proven to be effective for motivating nations to 
improve their anti-money laundering laws and enforcement. More than 100 
nations drafted and passed laws addressing terrorist financing and 
money laundering. Moreover, the FBI has assisted in a broad diplomatic 
and educational effort to increase awareness in other countries of some 
of the basic methods of raising and moving money in support of 
terrorist activities.
    Unfortunately, various nations have critical deficiencies in their 
anti-money laundering regimes. They have not enacted laws that prohibit 
money laundering, nor do they aggressively enforce existing anti-money 
laundering legislation. Furthermore they fail to cooperate 
internationally with the investigation and prosecution of money 
launderers and terrorism financing organizations. It cannot be 
overstated that noncompliant countries have the potential to put the 
entire international financial system at risk.
Conclusion
    Success in the war on terrorism cannot be measured merely in the 
form of assets seized or funds blocked, but in the ability to prevent 
future acts of terrorism. Whether through prosecution, disruption, the 
blocking and freezing of funds or allowing a funding mechanism to 
remain in place in order to further an investigation, prevention 
remains the prevailing focus. Since different circumstances demand 
different approaches, the best strategy in any given circumstances can 
only be determined from an overall assessment of the situation at hand, 
in conjunction with careful coordination with and the cooperation of 
all agencies involved.
    The war on terrorism will likely consist of many battles. It will 
not be won overnight nor will it be won without the highest levels of 
cooperation among law enforcement and intelligence agencies around the 
globe. Terrorism knows no borders or boundaries. This threat is not 
limited to any one region of the world. Therefore it is essential for 
all law enforcement and intelligence agencies throughout the world to 
ally their tremendous resources and expertise against the common enemy 
of terrorism.
    Thank you for the opportunity to testify before you today and to 
highlight the FBI's investigative efforts and the role of the FBI in 
combating terrorist financing. It would be my pleasure to answer any 
questions you may have.

        RESPONSE TO A WRITTEN QUESTION OF SENATOR ENZI 
                      FROM STUART A. LEVEY

Q.1. Immediately after September 11, SAR filings related to 
terror financing jumped from around 100-200 every 3 months to 
over 985 in the fourth quarter 2001. Since then, that number 
has shrunk back down to around 100 to 200. This has raised 
questions over the consistency of these fillings and how they 
are treated by financial institutions.
    According to the November 2003 SAR Activity Review, the 
number of suspicious activity reports filed by financial 
institutions jumped considerably after September 11. Since 
then, however, the volume has continued to creep back down 
toward its pre-September 11 numbers. What do you believe is the 
cause of the spike and then retreat of the number of filings? 
In addition, what is being done to make sure these reports are 
accurate, thorough, and taken seriously by our financial 
institutions?

A.1. There are a number of factors that contributed to the 
initial post-September 11 spike and subsequent decrease in the 
number of suspicious activity reports referencing terrorism. In 
the wake of the attack, financial institutions were erring on 
the side of caution in filing such reports. This resulted from 
the well-intentioned thinking that it was better to file a 
suspicious activity report on even marginal activity rather 
than risk not providing the Government with some shred of 
information that might make a difference in a financial 
investigation related to terrorism. A second cause of over-
filing was confusion and initial lack of guidance on how to 
handle the multiple ``watch'' lists of names issued. by various 
governmental entities, some of which contained multiple entries 
on the same individuals, each with different spellings. This 
led many financial institutions to file large numbers of 
unnecessary or duplicative suspicious activity reports.
    While the number of suspicious activity reports has 
declined--particularly in 2002--from the number filed shortly 
after September 11, we believe the decline is the result of 
more and better guidance from the Government on when to file a 
suspicious activity report and increasingly sophisticated 
transaction monitoring methods within financial institutions, 
particularly large banks.
    FinCEN reviews every suspicious activity report filed that 
references terrorist activity. Based on what we know, we 
believe that most financial institutions take seriously their 
responsibilities to identify and report suspicious transactions 
that may be linked to terrorism. Likewise, we believe that the 
reduction in the number of such suspicious activity reports 
filed results from an appropriate increase in the 
sophistication of SAR filers, informed, at least in part by 
improved Government guidance and industry initiatives to 
improve terrorism-related risk assessment and transaction 
monitoring systems by the filers of the largest numbers of 
suspicious activity reports, which in turn leads to 
improvements in separating out reportable suspicious activity.