[House Hearing, 114 Congress] [From the U.S. Government Publishing Office] THE ENEMY IN OUR BACKYARD: EXAMINING TERROR FUNDING STREAMS FROM SOUTH AMERICA ======================================================================= HEARING BEFORE THE TASK FORCE TO INVESTIGATE TERRORISM FINANCING OF THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED FOURTEENTH CONGRESS SECOND SESSION __________ JUNE 8, 2016 __________ Printed for the use of the Committee on Financial Services Serial No. 114-92 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] _________ U.S. GOVERNMENT PUBLISHING OFFICE 25-847 PDF WASHINGTON : 2017 ____________________________________________________________________ For sale by the Superintendent of Documents, U.S. Government Publishing Office, Internet:bookstore.gpo.gov. Phone:toll free (866)512-1800;DC area (202)512-1800 Fax:(202) 512-2104 Mail:Stop IDCC,Washington,DC 20402-001 HOUSE COMMITTEE ON FINANCIAL SERVICES JEB HENSARLING, Texas, Chairman PATRICK T. McHENRY, North Carolina, MAXINE WATERS, California, Ranking Vice Chairman Member PETER T. KING, New York CAROLYN B. MALONEY, New York EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California SCOTT GARRETT, New Jersey GREGORY W. MEEKS, New York RANDY NEUGEBAUER, Texas MICHAEL E. CAPUANO, Massachusetts STEVAN PEARCE, New Mexico RUBEN HINOJOSA, Texas BILL POSEY, Florida WM. LACY CLAY, Missouri MICHAEL G. FITZPATRICK, STEPHEN F. LYNCH, Massachusetts Pennsylvania DAVID SCOTT, Georgia LYNN A. WESTMORELAND, Georgia AL GREEN, Texas BLAINE LUETKEMEYER, Missouri EMANUEL CLEAVER, Missouri BILL HUIZENGA, Michigan GWEN MOORE, Wisconsin SEAN P. DUFFY, Wisconsin KEITH ELLISON, Minnesota ROBERT HURT, Virginia ED PERLMUTTER, Colorado STEVE STIVERS, Ohio JAMES A. HIMES, Connecticut STEPHEN LEE FINCHER, Tennessee JOHN C. CARNEY, Jr., Delaware MARLIN A. STUTZMAN, Indiana TERRI A. SEWELL, Alabama MICK MULVANEY, South Carolina BILL FOSTER, Illinois RANDY HULTGREN, Illinois DANIEL T. KILDEE, Michigan DENNIS A. ROSS, Florida PATRICK MURPHY, Florida ROBERT PITTENGER, North Carolina JOHN K. DELANEY, Maryland ANN WAGNER, Missouri KYRSTEN SINEMA, Arizona ANDY BARR, Kentucky JOYCE BEATTY, Ohio KEITH J. ROTHFUS, Pennsylvania DENNY HECK, Washington LUKE MESSER, Indiana JUAN VARGAS, California DAVID SCHWEIKERT, Arizona FRANK GUINTA, New Hampshire SCOTT TIPTON, Colorado ROGER WILLIAMS, Texas BRUCE POLIQUIN, Maine MIA LOVE, Utah FRENCH HILL, Arkansas TOM EMMER, Minnesota Shannon McGahn, Staff Director James H. Clinger, Chief Counsel Task Force to Investigate Terrorism Financing MICHAEL G. FITZPATRICK, Pennsylvania, Chairman ROBERT PITTENGER, North Carolina, STEPHEN F. LYNCH, Massachusetts, Vice Chairman Ranking Member PETER T. KING, New York BRAD SHERMAN, California STEVE STIVERS, Ohio GREGORY W. MEEKS, New York DENNIS A. ROSS, Florida AL GREEN, Texas ANN WAGNER, Missouri KEITH ELLISON, Minnesota ANDY BARR, Kentucky JAMES A. HIMES, Connecticut KEITH J. ROTHFUS, Pennsylvania BILL FOSTER, Illinois DAVID SCHWEIKERT, Arizona DANIEL T. KILDEE, Michigan ROGER WILLIAMS, Texas KYRSTEN SINEMA, Arizona BRUCE POLIQUIN, Maine FRENCH HILL, Arkansas C O N T E N T S ---------- Page Hearing held on: June 8, 2016................................................. 1 Appendix: June 8, 2016................................................. 29 WITNESSES Wednesday, June 8, 2016 Braun, Michael A., Co-Founder and Managing Partner, SGI Global, LLC............................................................ 7 Federici, Mariano, President, Financial Intelligence Unit of Argentina...................................................... 5 Ottolenghi, Emanuele, Senior Fellow, Center on Sanctions and Illicit Finance, Foundation for Defense of Democracies......... 8 APPENDIX Prepared statements: Braun, Michael A............................................. 30 Federici, Mariano............................................ 40 Ottolenghi, Emanuele......................................... 46 THE ENEMY IN OUR BACKYARD: EXAMINING TERROR FUNDING STREAMS FROM SOUTH AMERICA ---------- Wednesday, June 8, 2016 U.S. House of Representatives, Task Force to Investigate Terrorism Financing, Committee on Financial Services, Washington, D.C. The task force met, pursuant to notice, at 9:03 a.m., in room 2128, Rayburn House Office Building, Hon. Michael Fitzpatrick [chairman of the task force] presiding. Members present: Representatives Fitzpatrick, Pittenger, Ross, Rothfus, Schweikert, Williams, Poliquin; Lynch, Ellison, Himes, Foster, and Sinema. Chairman Fitzpatrick. The Task Force to Investigate Terrorism Financing will come to order. The title of today's task force hearing is, ``The Enemy in Our Backyard: Examining Terror Funding Streams from South America.'' Without objection, the Chair is authorized to declare a recess of the task force at any time. Also, without objection, members of the full Financial Services Committee who are not members of the task force may participate in today's hearing for the purpose of making an opening statement or questioning the witnesses. The Chair now recognizes himself for 2 minutes for an opening statement. First, thank you, everyone, for joining us for the eighth hearing of the House Financial Services Committee's Task Force to Investigate Terrorism Financing. I would like to again thank Chairman Hensarling and Ranking Member Waters, as well as my colleagues here, for their unwavering support as we continue to investigate the threat of terror finance. In previous task force hearings, Latin America, specifically the tri-border region, has repeatedly been cited as an area of concern regarding anti-money laundering and terror finance. As chairman of this task force, we have met with our regional partners, as well as U.S. personnel on the ground in South and Central America who are working to identify and choke off funding to terrorist and organized criminal groups. While in country, including in Argentina and Paraguay, we investigated and engaged the efforts put forth by our allies, the means being employed, the efforts being made by the United States in the region, and whether the United States lawmakers need to provide new tools or engage the Administration to more effectively use the authority and resources that they already have. Today, with this expert panel of witnesses before us, we aim to continue our investigation. This hearing will examine how South American criminal enterprises, including those designated by the State Department as foreign terrorist organizations, fund their operations, including through the illicit uses of the financial system. At this time, I would like to recognize the task force's ranking member, my colleague Mr. Lynch from Massachusetts, for an opening statement. Mr. Lynch. Thank you, Mr. Chairman. I want to thank our witnesses for your willingness to help this task force with its work. I also want to thank Vice Chairman Pittenger, whom I understand was renominated in the Republican primary yesterday. So congratulations on that. I am pleased we are holding today's hearing so we can further examine terrorist financing streams from South America. Today, I would like to put particular focus on the revelations contained in the leaked financial documents known as the Panama Papers. This past April, millions of leaked documents from the Panama-based law firm Mossack Fonseca exposed how some of the world's most powerful people used a web of complex financial transactions, including offshore bank accounts and shell companies, to hide their wealth. According to the International Consortium of Investigative Journalists, ICIJ, more than 214,000 offshore entities appear in the leak connected to people in more than 200 countries and territories, including alleged drug traffickers from South America. In addition, the files include at least 33 people and companies blacklisted by the U.S. Government because of evidence that they have been involved in wrongdoing, such as doing business with Mexican drug lords or terrorist organizations like Hezbollah, and these revelations highlight the need to combat secrecy and corruption in the global financial system. In response, we on this committee have been working, along with some of our colleagues on the larger committee and on this task force, on legislation to combat corruption by foreign governments. Our legislation would authorize the Department of the Treasury to pay rewards that help identify and recover stolen assets linked to foreign government corruption. This is necessary because no existing reward program provides monetary incentives for identifying and recovering stolen assets linked solely to foreign government corruption. Individuals who come forward to expose this type of corruption do so at great risk to themselves and their families, and monetary rewards can provide a necessary incentive to expose corruption and provide financial means to provide for their well-being after the fact. Another common theme throughout this task force that is reinforced through the release of the Panama Papers is the need to collect information on the true ownership of these entities. Earlier this week, The New York Times did a terrific article written by Eric Lipton and Julie Creswell. I want to compliment them. It is a thoroughly researched and well-written article that demonstrates how U.S. citizens used the Mossack Fonseca Law Firm to create shell companies to hide their wealth overseas. According to that article, Mossack Fonseca had at least 2,400 U.S.-based clients over the past decade and set up at least 2,800 companies on their behalf in jurisdictions that specialize in helping clients hide their assets. Shell companies are particularly susceptible to exploitation by terrorists as they are often used to mask the identities of their beneficial owners. It is critical that the United States collect information on beneficial ownership in order to prevent criminals and terrorists from exploiting anonymity to conceal their illicit activity. Now, these constructs are principally used to avoid paying U.S. taxes. However, they also facilitate terrorist financing. I am proud to be an original cosponsor of the bipartisan Incorporation Transparency and Law Enforcement Assistance Act of 2016 sponsored by my colleague, Mrs. Maloney of New York. Anonymous corporations significantly hinder investigations into terrorist financing. By strengthening beneficial ownership disclosure requirements, this legislation will tighten a weak link in our current efforts to follow the money that is funding terrorist organizations around the world. This is an urgent national security issue, and I look forward to working with my colleagues on this task force and the House Financial Services Committee to close this loophole. I am pleased to hear from our witnesses today so we can better understand terrorist funding streams in South America, including the revelations from the release of the Panama Papers. I yield back the balance of my time. Thank you, Mr. Chairman. Chairman Fitzpatrick. Thank you. And I now recognize the vice chairman of the task force, Mr. Pittenger of North Carolina. Mr. Pittenger. Thank you, Chairman Fitzpatrick and Ranking Member Lynch, and the distinguished panel before us today. Mr. Chairman, I am particularly grateful for today's hearing, which will focus on the illicit finance operations in South America. As you know, a delegation from this task force recently visited Colombia, Panama, Paraguay, and Argentina to meet with government officials and view firsthand the problems that they face in South America. When I was in Argentina, I had the pleasure of meeting with one of the distinguished panelists, Mr. Mariano Federici. Mr. Federici is an outstanding public servant, a representative of the Argentinian people. Mr. Federici's role with Argentina's government gives me great hope and certainty of Argentina's serious commitment about combating illicit finance operations. Furthermore, I would like to highlight that Mr. Federici will be participating with us in a parliamentary security conference that I will be hosting in Vienna in 2 weeks where he will be able to share his work before parliamentarians from over 25 countries. Thank you for your continued partnership with us on these issues and your willingness to participate in the forum. Back in October, I cohosted a similar security forum here in Washington with another panelist, Mr. Braun, who also participated. Mr. Braun, it is great to see you back here again in Washington. Thank you for your continued work and dedication to these issues. Mr. Chairman, thank you, and I yield back. Chairman Fitzpatrick. We now welcome our witnesses. Mr. Mariano Federici has been the president of the Financial Intelligence Unit of Argentina since January 2016. In this capacity, Mr. Federici directs the country's anti-money laundering and counterterrorist financing efforts. Previously, Mr. Federici was a country lawyer, regional adviser, and senior counsel to the International Monetary Fund in Latin America. He also worked as an associate for an Argentina law firm, advising financial institutions and companies in a wide spectrum of transactions and matters involving regulatory and statutory interpretation. At the start of his career, Mr. Federici worked as a clerk for the national criminal courts of the City of Buenos Aires. He was born in Buenos Aires, holds a juris doctor from the Catholic University of Argentina, and a master of laws in law and finance from the University of Virginia School of Law. Mr. Michael Braun is a cofounder and one of two managing partners at SGI Global. Mr. Braun has 33 years of extensive experience in Federal, State, and local law enforcement. He spent 24 of these years at the U.S. Drug Enforcement Administration where he developed the DEA's successful counternarcoterrorism programs, including the formative development of the agency's Foreign-Deployed Advisory and Support Teams, the FAST teams, and other programs addressing narcoterrorism. He is also responsible for the agency's extensive expansion in Afghanistan from 2004 to 2008. Mr. Braun retired from the DEA as Assistant Administrator and Chief of Operations in 2008. And when we were down in Central America, we ran into some former colleagues who called Mr. Braun an icon in law enforcement. They talked about how his influence and his leadership and vision continue to define the DEA even a decade after his retirement. So, sir, we thank you for your service. Dr. Emanuele Ottolenghi is a senior fellow at the Center on Sanctions and Illicit Finance at the Foundation For Defense of Democracies (FDD). Dr. Ottolenghi's research focuses primarily on Iran's Islamic Revolutionary Guard Corps, the European Union's Middle East policymaking, transatlantic relations, and the Arab-Israeli conflict, as well as Israel's domestic politics. Prior to joining the FDD, Dr. Ottolenghi headed the Transatlantic Institute in Brussels and taught Israel studies at Saint Anthony's College at Oxford University. He obtained his Ph.D. in political theory at the Hebrew University of Jerusalem and an undergraduate degree in political science at the University of Bologna. The witnesses will now be recognized for 5 minutes to give an oral presentation of their testimony. And without objection, the witnesses' written statements will be made a part of the record. Once the witnesses have finished presenting their testimony, each member of the task force will have 5 minutes within which to ask questions. For the witnesses, on your table there are three lights: green; yellow; and red. Yellow means you have 1 minute remaining. Red means your time is up. With that, Mr. Federici, you are now recognized for 5 minutes. STATEMENT OF MARIANO FEDERICI, PRESIDENT, FINANCIAL INTELLIGENCE UNIT OF ARGENTINA Mr. Federici. Thank you very much, Mr. Chairman, and members of the Task Force to Investigate Terrorism Financing. I would like to start by sharing with you that in September 2001, I was a young lawyer working for Sullivan & Cromwell in New York. I was at the firm's Wall Street office when the attacks took place and saw the collapse of the second tower with my own eyes. I still vividly remember that moment, the frustration and the anger at the terrorists, but also the respect and admiration towards the people of this great Nation and how fast they came together to bring it back on its feet. It is therefore a true and special honor for me to be sitting at this hearing today with Representatives of the people, only a few months away from the 15th anniversary of that tragic day, to discuss how we can suppress terrorism and prevent such attacks from happening again. I would like to talk about what we found in Argentina upon taking office 4 months ago and our vision on how to improve things. We encountered a challenging situation in the area of financial integrity left by the people who preceded us in the Argentine Government. It is clear to us by now that there was a complete lack of political will to fight money laundering and terrorist financing in Argentina during the last 12 years. There was a lack of strategic planning which prevented the government from prioritizing its efforts and making an efficient use of public resources. This in turn led to a serious lack of effectiveness with a related impact on risk levels. Throughout the last 10 years, the threats to financial integrity increased significantly as criminals exploited the advantages of a sophisticated financial system with the vulnerabilities of an uncommitted government. One of the main structural vulnerabilities exploited by criminals in recent years was corruption. Corruption under the previous administration was the rule, not the exception, and corrupt officials were rewarded rather than punished. At our Financial Intelligence Unit in particular, the situation was also critical. The strategy was to have no strategy, which allowed for discretionary use of anti-money laundering and counterterrorist financing tools. We are now working at full speed in repairing the damages. There is a clear and strong political will to fight organized crime and terrorism. Our objective is to protect the financial system and the broader economy from the threats of money laundering and terrorist financing, thereby strengthening financial sector integrity and contributing to safety and security. Our main focus will be placed on effectiveness, as we believe Argentina has the necessary legal and institutional instruments in place to begin producing results. To achieve this, it is important to strengthen the role of operational agencies such as ours, and the government of President Macri has committed to a stronger Financial Intelligence Unit. In particular, we will be very focused on assessing terrorist financing risks, which we believe have been irresponsibly underestimated by the previous administration. Our plan is to begin using our CFT regime to pursue international terrorism cases representing a present threat to our system and to global peace and security. We are also embarking on a wide regulatory reform process that will allow reporting entities to adopt a risk-based approach to AML/CFT compliance. The reform will also contribute to removing existing barriers to financial inclusion and generate incentives to reduce the circulation of cash and the use of informal mechanisms. Over the last 5 years, the FIU issued more than 70 regulations which imposed significant obstacles to operating in the Argentine financial system and economy and contributed little to mitigating the real risks of money laundering and terrorist financing. We are actually of the view that many of these regulations prevented people at the lowest segments of our society from accessing financial markets and expelled others to the informal economy. We are also planning to adopt a risk-based approach to AML/ CFT supervision, and this is something we hope to be able to do with the support of the U.S. Government. This will rationalize the use of our limited resources and allow us to place focus on what is really relevant to protect the integrity of our financial system and broader economy. On the intelligence side, we are working to regain confidence in our domestic and foreign partners. We are updating our MOUs with financial intelligence units of strategic importance to us. We are in the process of updating our MOU with FinCEN following an unauthorized leak of information during the previous administration. We are also strengthening our strategic analysis capabilities. As we move forward in building a stronger AML/CFT framework in Argentina, the support from our international community, and particularly our main partners, such as the United States, becomes critical. I would like to take this opportunity to express my deepest appreciation to FinCEN's leadership for the trust deposited in us at the earliest of stages and the opportunity to work fast towards a reestablishment of our MOU. We embrace this partnership and will live up to our commitments to protect the information and use it only for authorized purposes and to our mutual benefit as nations. Finally, I would like to close by saying that we are not just interested in adhering to international standards. We are interested in becoming leaders in financial integrity matters in our region. This is because we truly believe in the value of financial integrity to the soundness of our financial systems and its significance to economic stability, safety, and security, which are necessary preconditions to economic growth and development. Thank you very much. [The prepared statement of Mr. Federici can be found on page 40 of the appendix.] Chairman Fitzpatrick. Thank you. Mr. Braun, you are now recognized for 5 minutes. STATEMENT OF MICHAEL A. BRAUN, CO-FOUNDER AND MANAGING PARTNER, SGI GLOBAL, LLC Mr. Braun. Thank you. Good morning, Chairman Fitzpatrick, Ranking Member Lynch, Vice Chair Pittenger, and other distinguished members of the committee and the task force. I deeply appreciate the opportunity to appear before you today and to make a few comments and to help you in any way that I can as you move forward. So our success in prosecuting the global war on terror has successfully degraded two very important funding streams to terrorist organizations--those from very powerful private donors, as well as state sponsors. Consequently, terror organizations, many of them, have had to resort to other means, alternate means, to keep their movements alive and keep their operations flowing. And that is what we are really here to talk about today. That is why we are here today. I will use Hezbollah as the best example of what we are up against today and make three important points in that process. First, Hezbollah is not the same organization that they were 15 years ago, just 15 short years ago. In the early 2000s, they began moving small quantities of cocaine from the tri- border area of Latin America into fledgling markets at that time in Europe and the Middle East. Flash forward to 15 years later, they are now moving multitons of cocaine into Europe in an attempt to satisfy the ever-increasing demand for cocaine in Europe, in the Middle East, and other emerging markets. They possess a demonstrated ability to move, again, hundreds of tons of cocaine over that 15-year period and move massive amounts of currency, hundreds of millions, perhaps billions of dollars in currency around the world in the most sophisticated money laundering scheme or schemes that we have ever witnessed. They have metastasized into a hydra with international connections that the likes of ISIL and groups like Al Qaeda could only hope to have. Those connections are with transnational organized crime groups, with terror and insurgent groups throughout the world. We need to build organized crime and investigative judicial capacity to deal with the threats that we are up against. We are here to talk about illicit finance today. We need to develop very close partnerships and even closer partnerships with our partner nations around the world to help them build judicial capacity and organized crime and terror investigative capacity in their countries. But we also need to do some work at home, because I can assure you that the vast majority of Federal agents in our country, I don't care what agency that they work for, are not experts in dealing with or investigating necessarily with what we are up against today. So we talk about illicit finance and the importance of going after the money, following the money, but in our obsession with following the money over the past many years, for some unknown reason, we seem to have missed out on one opportunity after another. We seem to have forgotten about the importance of disrupting the supply chain, about interdicting drugs and other contraband. It is important for this committee and task force to understand--and the American people to understand, quite honestly--that groups like Hezbollah, the FARC, transnational criminal organizations, use drugs and other contraband as an alternative form of currency. It is the oldest form of alternative currency that they utilize and it is very precious to each and every one of them. They trade drugs for vehicles of all sorts, aircraft, boats, limousines. They trade currency for smuggling operations, to pay for smuggling operations for counterfeit documents. The list goes on and on. And if we don't start focusing as much energy at disrupting the supply chain as we do at attacking illicit finance, we will never get to where we need to be. In closing, I am a career law enforcement professional, Mr. Chairman, as you said. I am not here to tell this committee or to proclaim to this committee, or anyone else for that matter, that a judicial approach to attacking terrorism is a panacea. It is certainly not. But I will tell you what it can deliver that no other tool in our counterterrorism toolbox can deliver. When real justice is meted out in a Federal courthouse somewhere in the United States or some other competent jurisdiction around the world, where we have brought a terror leader to justice, that message that we can deliver by identifying that terrorist for who he or she really is: an organized crime thug of international proportions that preys on the very weakest in our global society and someone who is not a freedom fighter, as so many have been indoctrinated or charmed into believing they are. Thank you for allowing me to make my comments, for being here today. I look forward to meeting and working with all of you and your staffs to help in any way I can. [The prepared statement of Mr. Braun can be found on page 30 of the appendix.] Chairman Fitzpatrick. Thank you. Dr. Ottolenghi, you are now recognized for 5 minutes. STATEMENT OF EMANUELE OTTOLENGHI, SENIOR FELLOW, CENTER ON SANCTIONS AND ILLICIT FINANCE, FOUNDATION FOR DEFENSE OF DEMOCRACIES Mr. Ottolenghi. Chairman Fitzpatrick, Vice Chairman Pittenger, Ranking Member Lynch, and members of the task force, on behalf of the Foundation for Defense of Democracies, I thank you for the opportunity to testify. In Latin America, the combination of weak governments, porous borders, widespread corruption in public institutions, and the lack of adequate legislative tools to combat terror finance creates an ideal environment for transnational organized crime. Drug trafficking, trade-based money laundering, and terror financing can no longer be treated as distinct phenomena. Terror organizations help drug traffickers move merchandise to their markets. They then launder revenues through sales of consumer goods, profits that fund terrorist activities. In Latin America, Hezbollah plays a central role in this new landscape thanks to a vast network of support. Hezbollah generates loyalty among local Shia communities by managing their religious and educational structures. It then leverages loyalty to solicit funds and use business connections to its own advantage, including, critically, to facilitate its interactions with organized crime. My written testimony explains how the group's religious, charitable, educational institutions, its clerics, its supporters' licit commercial activities, and its illicit finance network all overlap. The tri-border area of Argentina, Brazil, and Paraguay, or TBA, illustrates this overlap. It also shows how the absence of proper local legislative tools to combat terror finance has limited the impact of U.S. measures to counter it. The Galeria Page in Paraguay's Ciudad Del Este, which Treasury designated in 2006, merely changed its name to Galeria Uniamerica. Its owner, Hamzi Ahmad Barakat, continued his activities until his arrest in Brazil in 2013, not for terror finance, but for fraud. And Mohsen Bilal Wehbe, a Hezbollah cleric that Treasury designated in 2010, continues to operate openly in Brazil. Porous borders compound these problems. Trade-based money laundering in the TBA, a key component of the narcotraffic- terrorism nexus, relies on commercial goods not produced in Paraguay. Imported goods are re-exported through the TBA, a porous border at the southern end of a long, lawless frontier infamous for drugs and weapons trafficking. A recently leaked investigation into tax fraud in Ciudad Del Este, which local authorities have dubbed a mega-evasion due to its size, brings all this together. Local accountants issued false invoices on behalf of 285 companies registered in the TBA for an estimated $270 million in tax evasion. Authorities are focusing on a cluster of companies with alleged links to Hezbollah through two shareholders, Ja'afar Balhas and Walid Amine Sweid. Paraguay's media have documented their close connections to politicians and custom officials, suggesting these links ensure lax custom inspections. Import- export data for their companies show merchandise deliveries from China arrived by air with cargo flights operated by Emirates via Dakar, Senegal, and the Miami-based Centurion Air Cargo. Both airlines fly regularly to Ciudad Del Este. For example, a bill of lading that appears in my written testimony details delivery by air to the TBA business Ponto Com Megastore from Spaltec Electronics in Hong Kong. Sweid owns both companies, as well as Global Logistic Solutions, the Hong Kong-registered shipping company. In short, Sweid controlled every company involved in the transaction. Given the false invoicing, it is highly plausible that this is a trade-based money laundering scheme involving false shipments. This pattern is common to other companies under investigation, some of which use LLCs incorporated in Miami, rather than Hong Kong, as their transit point for merchandise and paperwork. Successive U.S. Administrations have over the years repeatedly designated Hezbollah financiers and financial networks. The TBA and other border areas in Latin America offer a target-rich environment for new designations. Additional measures should be adopted to diminish Hezbollah's ability to exploit structural weaknesses prevalent in the region that have made it possible for it to interact with local criminal syndicates. There should be more stringent controls and better monitoring of merchandise travelling to the TBA. Problematic shipments by air reach the TBA from two points of departure, Miami International Airport and Dubai via Dakar. The United States should institute stricter controls over shipments from Miami and perform more stringent and timely due diligence on companies shipping to the Paraguayan city. The same can be said over cargo arriving to the TBA from Dubai via Dakar. Washington should ask and work with authorities in both countries to exercise greater scrutiny over merchandise and its recipients before planes leave. Stricter controls could reduce illicit shipments and raise the costs for Hezbollah middlemen in the TBA. These are just some of my recommendations. I thank you for the opportunity to testify, and I look forward to your questions. [The prepared statement of Dr. Ottolenghi can be found on page 46 of the appendix.] Chairman Fitzpatrick. We thank the witnesses for their opening statements, and the Chair now recognizes himself for 5 minutes for questions. Mr. Federici, 4 months is a relatively short period of time, but so much has happened, and we want to congratulate you on getting Argentina's FIU back online. I want to thank you for the information sharing which is now occurring between your country, your intelligence unit, and our Department of the Treasury and FinCEN. It is so important to Argentina and to the United States and to the region and the security. We are aware that a number of countries in Latin America don't necessarily perceive the risk of terrorism financing as a relevant risk in the context of their domestic relations. In your opinion, are these perceptions duly justified? What can you tell us about the perceptions of terror finance in the domestic context of individual nations? Mr. Federici. Thank you very much for your question, Mr. Chairman. Indeed, having worked as a regional adviser for Latin America and the Caribbean at the IMF for the past 10 years, I have had the chance to listen to discussions related to perceptions of risk of terrorist financing in the context of the GAFILAT, which is the FATF group for Latin America, and the CFATF, which is the same type of regional body for the Caribbean. And many countries in the region, unfortunately, express publicly their perception that the terrorist financing risk is not a risk pertinent to the region. It is a problem of the United States, it is a problem of Europe, and other parts of the world. I have always emphasized from the IMF, and I am doing it so now with much more strength from my public position in Argentina, that these type of opinions lightly thrown in international bodies like the ones I referred to are, to say the least, irresponsible if they are done without having previously conducted a thorough and professional terrorist financing risk assessment in the jurisdiction. There are very few countries that have completed the conduct of money laundering and terrorist financing risk assessment in their jurisdictions as the FATF Recommendation 1 currently requires. However, many of these countries publicly express the opinion that terrorist financing is not a problem in their country. So I think this is related also with a confusion on what the risk of terrorist financing is. The fact that there may not be terrorist elements operating in the jurisdiction does not mean that you are not exposed to the risk of terrorist financing. The mere fact that you have a financial system interconnected with the rest of the world, with the global financial system, in and of itself exposes you to the risk of terrorist financing and this is a subtleness that many public officials in our region do not yet fully understand. That is why it is very important to continue to raise awareness on the risk of terrorist financing, and that is why it is very important to continue to have the United States support in raising awareness on these risks in the region. Chairman Fitzpatrick. Thank you. Mr. Braun, in your written statement, you mention that Hezbollah is hiding behind criminality in Latin America and other locations. Can you further elaborate or explain what you mean by that? Mr. Braun. Thank you for the question, Mr. Chairman. Listen, here is the way I look at the situation. Organizations like Hezbollah--ISIL is no different, Hamas, you name them--their operatives, especially working in clandestine ways abroad, they don't carry ID cards, they don't wear uniforms, they pound their chest and proclaim to be terrorists for some important reasons. They don't want to draw attention by the United States, and they don't want to draw the attention of many of our partner nations around the world that we work very, very closely with. So they have been dispatched. How do they operate really with impunity at the same time accomplishing so many of Hezbollah's kind of strategic global goals? And I think what it really comes down to in a large way more and more these days is their involvement in the global drug trade. They are involved in criminality, but at the same time they can reconnoiter at will. They can photograph and look at what may be very strategically important targets for some future events. I believe firmly that Hezbollah feels that prolonged asymmetric conflict in the Western Hemisphere and other places in the world, it is going to be playing out some days. So they have all the time in the world to engage in international drug trafficking and at the same time establish the rat lines that they need to establish to support that asymmetric conflict down the road. As I said, they can reconnoiter at will. They can make all of the nefarious contacts that they need to make with other terrorist organizations' insurgent groups, as well as transnational criminal organizations around the world. And in the process, they can generate enormous amounts of contraband revenue that ultimately go back to the cause and help the team. Chairman Fitzpatrick. Thank you. I now recognize the ranking member of the task force, Mr. Lynch, for 5 minutes. Mr. Lynch. Thank you, Mr. Chairman. Mr. Braun, let me stay right on that issue. We had a significant success operating against the Lebanese Canadian Bank. I think they were, at their peak, funding Hezbollah at about $200 million a month through the same procedures: drug trafficking; consumer products. They were selling--they had a used car deal there in Senegal and West Africa. They are now defunct. We were able to take them out through a 311 action as a primary money laundering concern. Are we missing something, though, in terms of that process? It seems as though as we adapt, some of these terrorist groups are readapting and reengineering their organizations to sort of escape our measures of accountability. Are there new and different approaches that we should be taking that address what this new iteration of terrorist financing is undertaking? Mr. Braun. Thank you for that question. Listen, terror organizations like Hezbollah, that is really now a hybrid terror organization, they are one part designated terrorist organization by our country and many other countries around the world, but they are also an enormously powerful transnational organized crime group that is distributing, as I said, hundreds of tons of cocaine and generating hundreds of millions of dollars in contraband revenue behind that effort every single year. It is important to understand, though too--let's go back in time. You can talk about the cartel. You can talk about the Medellin Cartel. You can talk about the Cali Cartel. Look at what has been playing out in Mexico for many, many decades. What most folks in America don't realize is what has been going on in Mexico with respect to drug trafficking has really been playing out for more than 70 years, right? And with every action that we take, I don't care if it is law enforcement or our military or our intelligence services, with every aggressive action that you take against these what have evolved into ultimately into very powerful threats, they are going to evolve, they are going to change their tactics, techniques, and procedures. It is going to take law enforcement a little time to figure out what they are doing before they can hit them again. Mr. Lynch. Let me sharpen my question then. Mr. Braun. Okay. Mr. Lynch. We don't have that much time. Our current protocol is to work through FATF and the FIUs, the financial intelligence units, and that has been somewhat effective in terms of stopping the financing, the wire transfer of resources from one institution to another to fund terrorist financing. That system is fairly effective, I think. The problem now is that they are going off the grid. Mr. Braun. Sure. Mr. Lynch. They are going off the grid. So those measures, that world that we are operating in, is not as effective as it once was because of these new networks that, as I say, are off the grid and are not subject to the formal regulatory process that we are adapting. They are doing consumer products now as separate entities. They are deep into the drug trade. There is a lot of cross-border smuggling of assets and bulk cash transfers across the border. Now maybe speak to the situation at the Mexican border. You talked about Mexico quite a bit. Is the vulnerability at the Mexican border a factor, is it a large factor in our ability to combat some of what is going on in South and Central America and in Mexico? Mr. Braun. It is part of the problem. But we have done, thanks to you and many of your colleagues here in the House, a phenomenal job at shoring up many of the gaps along the southwest border. We have over 20,000 Border Patrol agents now, most of which are down in that area interdicting drugs, interdicting money, et cetera. So we have done a good job there. Where we are really lacking is defense in depth, if you will. The Department of Defense's detection and monitoring assets that they had before 9/11, after 9/11 over 60 percent of those assets went away. They went to other parts of the world, rightfully where they needed to be, but for the most part they have never come back into theater. And every four-star admiral and general who has commanded SOUTHCOM since 9/11 has talked about this very, very troubling situation that they find themselves in where they are tracking load after load after load of suspected cocaine and probably loads of cash and they cannot do anything about it. They literally sit by and watch these targets pass on the screen. The one thing, though, that I believe that this committee can do that I believe very much needs to be done is we really need to tighten the noose on the beneficial ownership issue and lower the curtain once and for all and expose these people for who they are, because that is the linchpin, that is the choke point for all of the money laundering that has been discussed, and probably will continue to be discussed, that Hezbollah is engaged in. And you are right, the LCB was moving over $200 million a month in Hezbollah cocaine money through that institution and many of its affiliated institutions and banks. Mr. Lynch. Thank you. I yield back. Chairman Fitzpatrick. The vice chairman of the task force, Mr. Pittenger, is recognized for 5 minutes. Mr. Pittenger. Thank you, Mr. Chairman. Mr. Federici, our objective is to assist you in any way possible as you emerge as a major regional leader in our efforts to counter illicit finance. What else can be done that you would like to see from the United States specifically related to an OTA presence that would be important? Just kindly give us your insights into what would help you be successful. Mr. Federici. Thank you very much for your question. I think to begin with, I have to express my appreciation for the support that the United States is already providing to our new government in Argentina. The presence of President Obama, I think less than 2 months ago, with the early arrival of President Macri was a very strong political sign of support, and the presence of Jennifer Shasky, FinCEN's former now director in Argentina a couple of days before the arrival of President Obama, was a very strong support to my job. I think that type of international and political support is very important, not only to motivate us to continue to work in the right track, but also to show a sign to the rest of the region and the world that we can work as partners and allies. I also think your support is fundamental in helping us raise awareness, particularly on the importance of addressing terrorist financing risks in our country and in our region. I would like to see the presence of U.S. officials more often coming to Argentina, helping us convey the right message in Buenos Aires, in the tri-border area, and I hope to be able to team up in partnership with our Brazilian and Paraguayan counterparts in those efforts as well. Now, we also need technical assistance, and I think that is where OTA's support, the Department of Treasury's OTA support, can be of great help. We had a first mission to conduct a diagnostic of the situation at the FIU and the broader AML/CFT system, and we are looking forward to receiving their support, particularly to strengthen our AML/CFT supervisory capabilities, because apart from being an intelligence agency, we are also a regulator for the entire financial system, and our main role is to protect financial integrity, and that is where I think OTA can really add value to our work. We also need technology. And, unfortunately, over the past 10 years there has been little investment in technological resources, and this really affects our capacity to conduct sophisticated analysis. And I think that is where the United States can also help us come closer to providers and companies that can offer solutions to our current challenges. Thank you very much. Mr. Pittenger. Thank you. I would like you to weigh in some more on the tri-border area. As we went to the tri-border area, of course it is very open, and we did not see any presence of any law enforcement there, just free flow of individuals and traffic. What do you see, Mr. Braun--and all the panel can weigh in on this, we have about a minute-and-a-half left in my time-- that can be done specifically to address the tri-border area? Mr. Braun. What it really comes down to is, if not ungoverned space, undergoverned space, places like the tri- border area. And it is important to understand, Congressman, that both transnational organized crime as well as terror organizations are attracted to those areas because they can thrive in those areas, they can operate with impunity, because of a lack of law enforcement resources and other security forces and really a lack of any type of meaningful judicial process whatsoever or, the more raw side of power, almost a total lack of any kind of a military or other security presence. So they are attracted to those areas because, again, they can operate with impunity in those areas. What I tried to touch on in my opening remarks is one thing that we can do is we can help our foreign counterparts, I believe, develop their capacity, both criminal investigative, organized--think of it this way, anti-organized crime capacity and judicial capacity to attack these threats. And I believe that things like task forces, international task forces, can be brought to bear in places like the tri-border area to help to, if nothing else, monitor and collect intelligence that is enormously important to efforts outside of that area. Mr. Pittenger. Thank you. My time has expired. Chairman Fitzpatrick. Mr. Ellison of Minnesota is recognized for 5 minutes. Mr. Ellison. Let me thank the chairman and the ranking member and thank our witnesses today. It is great to see you again, Mr. Federici, and thank you for the great work that you do, and all the panelists. But I just want to remark that I thought your comments at our recent trip were particularly illuminating, and I was grateful for you sharing your insights. So thank you. I won't go over what some of my colleagues already asked, but one of the things in front of the world and our hemisphere right now is that two out of three foreign terrorist organizations operating in Latin America, the FARC and the ELN, are now in a process of negotiating peace with the government. I think this is a good thing. But what is your opinion on how we are going to deal with some of these money laundering issues in the aftermath? I think that this is an important question that needs to be asked: Are these organizations going to be demobilized? And their support for terrorism and their role in international money laundering, how is that going to be addressed in the course of this peace? Could you all offer any insights you have? Mr. Braun. Congressman, I would say one thing, front and center, that, listen, I applaud Colombia's efforts to bring the FARC, ELN to the peace table and to bring peace to the country for the first time since the FARC stood up in 1964. They have been around for over 50 years now. But the most important point is, and the Colombian government realizes this, they know it, is if anyone thinks for a moment that these combatants are going to blend back into society, are going to take jobs at the local factory or other places, the vast majority of them simply won't. They have gotten a taste for the excitement. They have gotten a taste for the money, enormous amounts of money, especially the leaderships of those organizations, where ideology went out the window a long time ago after they got a taste for the money, and that is what absolutely motivates them to this day. So personally, I don't see a great deal of change. Mr. Ellison. Any other ideas? Mr. Federici? Mr. Federici. Sorry, Congressman, I would just like to add one point and try to bring the conversation back to a sort of broader level looking at the region, because I think that what is happening in Colombia with the peace process and the challenges that it poses are a reflection of a broader regional problem, namely that all of these illicit activities do occur, to some extent, because of the corruption, complacency, and complicity of sectors of public institutions and politicians in the region. There is a vested interest among these categories of public servants not to prosecute and go after these networks. Now, this is a challenge across the continent, across the region. And one of the things that I think can be done to improve the response of the international community, and particularly of the United States, is that if you cannot persuade the political classes--and the FARC will join the political class of Colombia if the peace process comes to fruition--if you cannot persuade the political classes to abide by the law, international standards, financial integrity, and prosecute criminals, what you need to do is to institute mechanisms of enforcement outside of their jurisdictions. One example that I would make here is when I was recently myself in the tri-border region, 2 months ago, Paraguayan officials showed me data about cash flows out of the country. More than 90 percent of funds that are wired out of Paraguay end up or transit through the United States financial system. So here you have a perfect tool to go after some of these money flows without the need for the cooperation of those who do not wish to help. Mr. Ellison. Thank you. Dr. Federici? Mr. Federici. Yes. I would like to go back to your question because I think it is a very interesting question. As part of the international community as well, we have begun to think about this because Colombia is coming up for an assessment against the international standard pretty soon. It is going to be conducted by the International Monetary Fund. And this question is going to be raised: How is the money that the FARC has been harboring in Colombia and out of Colombia going to be treated? Because there may be differences in treatment on what the Colombians decide to do with that money and what other countries decide to do with that money. And how compliant is an amnesty of the type that Colombia is contemplating with the international standard? I don't have the real, the final answer to the question yet. I think it deserves some thought from the international community as a whole. But I do have my reflection on this topic, which is that the money that has been flowing from the FARC and other terrorist organizations is money that has contaminated the integrity of financial systems outside of Colombia as well. And so I think we have an interest in protecting the integrity of our financial system, and these flows have been a real threat to that objective. I have in my country had to deal with flows related with these organizations, and to the moment our policy has been to treat them as terrorist funds and apply the necessary measures to suppress them. So we need to be very thoughtful of how we are going to treat this after the final amnesty agreements are signed, and it very much will depend on the letter of those agreements on one side and on the consensus that we manage to reach internationally as to how to treat these money flows. I do want to say that, regardless of that, I also share and applaud Colombia's efforts to come to peace within their country. Mr. Ellison. Mr. Chairman, may I just say--I know I am way over time--but I would just like to say I absolutely look at this as a positive thing, the peace effort, but if these terrorist groups turn their attention away from fighting the government and turn it onto just criminal behavior around the world, that is not necessarily a good thing. So I am glad all of you are thinking about it, and I appreciate your comments. Chairman Fitzpatrick. The gentleman from Texas, Mr. Williams, is recognized for 5 minutes. Mr. Williams. Thank you, Chairman Fitzpatrick. And thanks to all the witnesses for being here today, and for your testimony. Mr. Federici, here in the United States much of our immigration debate--and I am particularly sensitive to that issue because I represent Texas--is on border security. We often argue on how much to spend on Border Patrol agents, equipment, new technologies. Yet in your testimony you talk about Argentina's border and how it was completely unprotected. You go on to say that those working at the Financial Intelligence Unit were not qualified and had no understanding of money laundering, terrorist financing risk, and strategy. I think that probably makes some of us in this room, like myself, a little worried, especially since we know that our enemies would exploit our southern border if given the opportunity. One of the major things that these task force hearings have uncovered has been the importance of working with a willing and equal partner when it comes to combating terrorist financing. So, Mr. Federici, I know you talked about some of this in your testimony, but can you expand on what steps Argentina is taking within its borders to fight money laundering and how well they work with the United States to achieve their goals? Mr. Federici. Yes. Thank you very much. This is an excellent question, and, in fact, it is part of the tragic situation that we found the country in after so many years of disinterest for the public thing in Argentina. As I said, I think corruption had a lot to do with this. Corruption affected particularly the law enforcement agencies, including the border protection agencies. Law enforcement agencies were seriously dismantled. When we stepped in, we found them really badly equipped, with very poor salaries, untrained, and even mistreated, and with a very lack of trust in themselves. Of course, this led to very little capacity to conduct the job that the law mandates them to do. With regards to the border in particular, we found that only 17 percent of the borders were controlled by radars and a very limited air defense system. We found that the airplanes that were supposed to protect our borders were not flying, the ships that were supposed to protect our seas and our rivers were not working, and the military forces, the armed forces, were very badly equipped to conduct their preventative job. Steps are being taken. There was an increase in salaries for all the armed forces very recently. I don't have the exact figures because this is an area that is not under my competence, but I can provide you with the figures upon my return to Buenos Aires. This decision was made by the Ministry of Defense and the Ministry of Security last week. So a recognition, first of all, of the importance that our armed forces have and that our border protection forces also have in protecting our national security and protecting our country, and a recognition and a commitment expressed in tangible actions, like an increase in the salary, was the first step to do. Now we need to train them again. We need to equip them with the necessary resources. We need to provide the technology that they need to conduct the job. And we need to do this at the same time while thinking strategically how to use these resources in the most efficient way. I think with regards to border protection in particular, we need to bring to our table our neighboring countries, in particular Bolivia, Paraguay, and Brazil, which is where most of our threats related with drug trafficking and terrorist financing are coming from. We need to sit together and start working as a team again. And I think in particular related with the tri-border area problem and terrorist financing, as I said, that is an opportunity to reengage also with the support of the United States. Mr. Williams. Okay. The State Department released a report last year that found there was a significant amount of money in Argentina which was outside of government supervision, an estimated 25 to 40 percent of an informal economy. Mr. Federici. Right. Mr. Williams. In other words, this money isn't being taxed and Argentina isn't sure where the money is from. So what steps in Argentina are you taking to change or rein this in? Mr. Federici. This is also an excellent question. I think that is correct. Our estimates are even greater than that. We think an amount close to the same amount of our GDP is held outside of Argentina or basically outside of the radar of our tax authorities. And this is related to many reasons. Economic instability, inflation, devaluation, and political and institutional instability have led many Argentines, in many cases Argentines who have legitimately earned their income, to protect their wealth in safer currencies and in safer jurisdictions. The most important measure that we are taking these days to overcome the situation is to launch a voluntary tax compliance program. We have drafted a bill that is currently in the house of representatives in Argentina for discussion to basically create an incentive for Argentines holding assets abroad undeclared to come clean, and we think this will reduce the amount of undeclared cash in the economy and will also reduce the amount of informality. But I would also like to say that part of this problem has been the excess regulatory framework, the excess of regulatory pressure. To give you an example, in the area of AML/CFT, in the last 5 years Argentina issued more than 5 laws, more than 4 decrees, and our FIU issued more than 70 regulations which in a way obstructed the functioning of the financial system and the economy, in many cases prevented financial inclusion, and in some cases even led some people to be expelled from the formal financial system. Mr. Braun. There was a proliferation of informal and underground channels to move that money in and out of Argentina. And while most of these funds were really related with Argentines that have legitimately earned their income and were seeking protection, these are also channels that I have no doubt could have been used, and most likely were used, by criminals and particularly by drug trafficking and terrorist financiers. So I think this is a problem that needs to be addressed. Our voluntarily tax compliance measure will tackle part of this problem, but we also need to have more efficient regulations with a risk-based approach that don't obstruct the functioning of the financial system and the economy and really focus on what is important. Mr. Williams. Thank you for your testimony. I yield back. Chairman Fitzpatrick. The gentleman from Illinois, Mr. Foster, is recognized for 5 minutes. Mr. Foster. Thank you, Mr. Chairman. And thank you to our witnesses for your participation in this important hearing. As you are probably aware, there have from time to time been legislative proposals in Congress to eliminate anonymous shell corporations in the United States. And as I understand it, they have been eliminated in many advanced economies. And so I was wondering if, Mr. Braun, or any of you, could comment on the importance of anonymous shell corporations in the United States, and drug money laundering, terrorist financing, international corruption, and other activities, and what the essential features of some legislative reforms in this area would be to really help us fight these. Mr. Braun. Thank you for the question, Congressman. As I said earlier, the single most important piece of Hezbollah's money laundering operation, or their apparatus, extremely sophisticated, and this holds true, certainly, for most of the transnational drug trafficking organizations that are spanning the globe today as well as many other terrorist organizations, is the importance of shell--the anonymity related to those shell corporations in those accounts. And anything that this committee and task force can do, again, to raise the veil, drop the curtain, whatever, to expose the beneficial owners of those corporations I believe would have a significant impact on the way today's very nefarious, very sophisticated money launderers are doing business. One thing for sure, it would cause them to change their tactics, techniques, and procedures. What law enforcement needs, in our country, I believe, needs to get better at is some real coordination with folks like you, because when those changes take place, those changes result in opportunities for law enforcement to take action, to really knock these folks off their heels. And then the important thing is to be on top of them after that. Mr. Foster. And are there countries that you think really do this right in terms of transparency of ownership? Mr. Ottolenghi. If I may step in, Mr. Congressman. And thank you for your questions. I think there are two things that countries can do better. One is, of course, disclosure, namely, the obligation to make the identity of beneficial owners publicly available. And the second is transparency, to make it easy for those interested in finding out to be able to disclose that information. The problem is that beyond these formal conditions and requirements, you do have to confront very informal, well- established systems of concealing that information. And, again, I go back to the investigation I mentioned that is ongoing in Paraguay of the--the false invoices that are at the center of this investigation involved people who had issued invoices for up to $1 million who were, in one case, a street vendor of ice cream in Ciudad del Este. They were unskilled workers. One of them was actually constrained to his bed for an endless--for months and hadn't been earning--they didn't even know that they themselves were declared as the official owners of the companies that were issuing the invoices. So, here, you had a situation from a formal point of view, you knew who the owners of the businesses were, but you cannot go beyond that formality if there is an informal system of criminal complicity where officials, accountants, attorneys, customs, and law enforcement are allowing this mechanism to go on. So, again, I think that what is important to complement this gap, to fill this gap, is that we have to identify those areas where we can intervene operating in a system that is more structured and more law abiding. Again, these networks rely on the structural weaknesses of these countries and border regions. But they are global networks. In the examples that I brought, you have false invoicing and shipments going from Hong Kong through Miami, Dubai, West Africa, into the border regions and back out into the international financial system. If we cannot improve standards of transparency in those countries, we can at least intervene in those points further away in the supply chain where there is the rule of law, there are governments that are allies and friendly and willing to cooperate in order to mitigate the consequences of the system. Mr. Foster. Now in the example that you just gave, where it went through Miami, would there typically be an anonymous U.S. shell corporation involved in that kind of operation? Mr. Ottolenghi. Thank you for the follow-up question. Actually, that is precisely the point. In the cases that I have seen, actually, you can find out who the officers are in the companies. You can identify enough names. For example, in the case of Miami, there is one individual who is a certified public accountant and who is incorporating companies, all of these companies that are involved somehow in this investigation. And he has been involved in the past at least twice in cases where there were convictions for fraud and terror finance against Hezbollah operatives here in the United States. So clearly, this is an individual to whom Hezbollah operatives go in order to incorporate companies. The information is there. The difficulty is to connect the dots. Mr. Foster. Yes. Thank you. Chairman Fitzpatrick. The gentleman from Maine, Mr. Poliquin, is recognized. Mr. Poliquin. Thank you, Mr. Chairman. I appreciate it very much. And thank you, gentlemen, for being here. Mr. Braun, if I may, Hezbollah is an entrenched international terrorist organization predominantly operating in the Middle East, or at least that's been the understanding of many of us who are wrestling with this whole international security issue. And now we learn from you folks, and others, that their tentacles now are reaching into our hemisphere and operating now in South America and the drug trafficking trade. And I am sure you folks are well aware of the fact that we have a heroin epidemic in this country, and it doesn't spare any location. I represent the great State of Maine, in particular, northern Maine and in other parts of our State, and we have a real problem up there. Now, we learn, Mr. Braun, that about 95 percent of the heroin entering this country enters our southwest border. It goes to our southwestern border. Do you have any evidence that Hezbollah, in their drug trafficking operations in South America, has any kind of impact or influence on the heroin entering this country that is now reaching all the way to northern Maine, is coming through our southwest border? Mr. Braun. Thank you, Congressman. Listen, I have been out of government now for about 7\1/2\ years, so I don't have access to the information like I used to have in my old job. But what I can tell you is this, Hezbollah has become so proficient at not only engineering the wiring diagram, if you will, for what is needed to conduct their very effective money laundering operations, but they are now providing those same services to both Colombian and Mexican drug trafficking cartels. So by doing so, if nothing else, they are certainly facilitating what is sadly happening in Maine and all across our country. And I thank you for bringing that up. Because one thing we have to remember, folks, is we experienced over 47,000 drug-related overdose deaths last year. That is 129 Americans dying every day of the week. And folks aren't talking about drugs these days. They have just absolutely turned their heads. They don't want to hear about it. But if we don't get this problem in check, if we don't get back to what we used to do, we are going to have an even worse situation in the decades ahead. Mr. Poliquin. Thank you, Mr. Braun. Dr. Ottolenghi, we have a terrific neighbor to our north, of course, the Canadians, and they are a major trading partner with our country. We have a 3,000-mile border. In the State of Maine alone the land border with Canada is about 311 miles. You can be in a snowmobile in the middle of the field, Doctor, and step off your machine, and one foot is in Canada and the other foot is in Maine. Do you worry at all, and do we have any evidence whatsoever that as we put more and more pressure on our southwest border that we may be at risk for additional activities that are unlawful and beyond, on our northern border? Mr. Ottolenghi. Thank you for your question. Again, like my colleague on the panel, I do not have access to intelligence and to classified information. I only rely on open sources. So my ability to answer is somewhat constrained and limited by what I know and by what I know I don't know. Having said that, I can tell you that the building blocks of Hezbollah's money laundering terror finance operations in Latin America, so the social infrastructure, the networks of support and their interconnectivity, which enables them to leverage the businesses and the so-called illicit commerce for their nefarious purposes, do exist also across the northern U.S. border with Canada. They do exist in the United States to be fair as well, though perhaps not to the same extent. And so while not being able to conclusively tell you that this is happening, I do see the signs of this language there. The difference is, I think, the strength of the financial system, the transparency of our corporate laws, the fact that you do have the rule of law functioning, that you have strong institutions, which are all elements lacking in the regions of South America where Hezbollah is more successful. Mr. Poliquin. Thank you, Doctor, very much. Mr. Federici, could you shed any light on your experience in your part of the world where there has been pressure put on one border, one international border, and it causes problems on another border? Can you share any light on that to help us in this committee? Mr. Federici. Yes. Thank you very much, Congressman. And absolutely, we are actually experiencing this as we speak today. In recent years, Argentina has become a very important transit country for the export of illegal drugs out from our borders towards--mainly towards Europe and West Africa. And I am talking mostly about cocaine flowing south from Bolivia and also from Peru and leaving our ports towards the ocean. And what we are seeing is that in the last 6 months that the new government has been in office, due to all the pressure that we have been putting in controlling our borders and controlling the drug routes that we have identified, there have already been changes, slight changes for the moment but changes in the routes that drug traffickers take. And we have been receiving signals from our neighboring countries, as well, that some of these changes are starting to affect them, particularly south Brazil and Uruguay are seeing an increase in movements, suspicious and unusual movements, that they haven't seen before due to the pressure that we are placing. This is something that is very subtle for the moment, because we have only been in office for less than 6 months, but that we believe will increase significantly as we continue to put pressure against these organizations. The routes and their flows. Mr. Poliquin. Thank you very much. Thank you, Mr. Chairman. I appreciate it. Chairman Fitzpatrick. The gentleman from Pennsylvania, Mr. Rothfus, is recognized for 5 minutes. Mr. Rothfus. Thank you, Mr. Chairman. Dr. Ottolenghi, there seems to be some dispute about the influence of Iran in South America. Some, including the Obama Administration, claim that Iran's influence in the region is waning; however, there are other news reports that cite military and intelligence officials who directly contradict this narrative and claim that Iran's influence is still present and potentially growing, particularly through both Hezbollah and the so-called cultural centers that are being ruled by the Islamic Revolutionary Guard Corps. Where do you fall on this issue? Mr. Ottolenghi. Thank you very much, sir, for your question. That is a very important point, and I would like to answer by addressing two themes: the first is Iran and its Latin America policy; and the second is the connection between Iran and Hezbollah. Let me turn to Iran first. I think that the assessment or the influence or the emphasis of Iran in Latin America is waning is based on the differences in approach between the previous president of Iran and his enthusiasm for Latin America and the current president who hasn't visited the region yet and no other officials, senior officials, of his government have put the same emphasis. However, the point about Iran's Latin America policies is that this is not a file that is mainly handled by the elected government and its ministries. It is a file that has always been held by the Supreme Leader's office through his own personal representatives to Latin America, Mr. Mohsen Rabbani, infamous for his role in the AMIA bombing in Buenos Aires, in 1994, when 85 people were murdered and many more grievously injured. So that policy continues. It is expanded. It is ongoing. It is well-financed, sustained, and I see no signs that there is any change in approach. It is a policy that has been ongoing for over 30 years that relies on the social network-- Mr. Rothfus. And you are saying that it is expanding? Mr. Ottolenghi. It is expanding, yes, sir. It is expanding because it is making a conscious, sustained, well-funded effort to actually reach out not just through the local Shia communities, which are mainly Syrian and Lebanese, but it is actually reaching out to convert non-Muslims to Shia Islam. Mr. Rothfus. So you have the Supreme Leader surrogates there, on the one hand, and then in tandem with that, you have Hezbollah? Mr. Ottolenghi. Correct. And what I see is that the Hezbollah clerics are mainly focusing on the Shia communities of Arab immigrants of Lebanese and Syrian descent. The Iranians are focusing on the outreach missionary effort, but they are combined. Most of the time they are overlapping in the same mosques, in the same centers. They are interacting. There is a stream of very senior clerics coming from both Iran and Lebanon to visit on a constant basis, and the Hezbollah representatives together with Iranian ones are constantly cooperating on this effort. And this effort, to a large extent, is geared towards building support, galvanizing, so to speak, the troops, indoctrinating and radicalizing and it is also designed as a facade for the financial activities, which are managed in coordination. I just want to give you one example that, to me, is very revealing. We have spoken a lot about the tri-border, but the tri-border is just one reality of many. And just along the Brazilian-Paraguay frontier, which is mostly lawless and severely underguarded and underpatrolled, you have several other cities that have the same characteristics of the tri- border area, mainly cities that are on both sides of the frontier with significant Shia and Lebanese communities involved in trade. One of the cities is called the Punta Corral on the Brazilian border and Pedro Juan Caballero on the Paraguay border. There is a very big Shia community run by-- Mr. Rothfus. What is the population of that community? How many people would you say? Mr. Ottolenghi. The two cities combined have a little over 200,000-- Mr. Rothfus. How many in the Shia community? Mr. Ottolenghi. A few thousand, sir. A few thousand. But in that city, Mohsen Rabbani has a personal representative. Social media information from his own personal Facebook page shows that this individual was about 6, 8 weeks ago in Qom celebrating his marriage with Mohsen Rabbani in person officiating. Now, this is akin to having a very senior member of the clergy of Iran, a personal representative of the Supreme Leader, celebrating the marriage of a Muslim convert to Islam in a very remote region of South America. It tells us how important that connection is, and it shows the link in this religious social infrastructure in a critical point, place that is considered to be one of the highest in crime in Latin America currently, even worse than some of the Colombian cities during the height of the drug crisis, of Pedro Juan, the importance that the city has come to have in the design of Iranian policy and their interaction between Hezbollah and Iran in Latin America. Mr. Rothfus. Thank you. Mr. Chairman, I wish I could take more time. I didn't even get to any of the other issues. The Iranian connection here, though, I would just recommend that we might want to take another look at this and continue to shine that light. This is fascinating testimony that we are hearing today, so thank you. Chairman Fitzpatrick. Yes, agreed. And we may have a second round of questioning if we have time before the Joint Session of Congress. With that, we will recognize the gentleman from Arizona, Mr. Schweikert, for 5 minutes. Mr. Schweikert. Thank you, Mr. Chairman. Mr. Fererici, having been in Argentina just a couple of months ago, I know Members of Congress and I think much of the world is enthusiastic to see a country that could be such a powerful player on the world stage, sort of back as a player on the world stage. And we truly wish you and the new government the very best. We truly want to know how we can share information and actually be a good partner, because I think there is a level of trust of the new administration that has not existed in, what, 17-some years, and that is really important. I have a whole bunch of things here. But first off, do we fixate too much on the tri-border region? Mr. Federici. First of all, thank you very much for your comments and for having visited our country, and we really do need the support of our partners with the United States in particular. I think we share values; we share a common vision of the world, and I think we need to team up together to face the threats that affect us both as nations. So I really do thank you for those words, and we are counting on your support. I have so say that from the perspective of our countries, I think we fixate too little on the tri-border area. And as I said in my testimony, I think we need to quickly and professionally assess the risks to money laundering and terrorist financing coming out of that area and start developing a joint strategy among the countries that are affected by this problem in that part of the world and ideally with the support of those that have information about--better information about what is going on in that part of the world. I think personally that my country has irresponsibly unattended the risks extending out from that area. That is why we need to get back into the game. We need to re-engage our neighbors in that assessment and start developing a joint strategy together. Mr. Schweikert. That is not actually where I wanted to go. But to that point, is your counterpart in Brazil, are they reaching out and also working with you? Mr. Federici. Okay. I don't want to say something inappropriate speaking about another country given that I am a public official-- Mr. Schweikert. You can just say you are working on it. Mr. Federici. But I do want to say that Brazil's role in helping us assess the risks in this part of the world and in developing a strategy is fundamental. This cannot be done without their engagement. That is why we need Brazil at that table, and we need to start working together with them. They are currently attending, I think, priorities that may be somewhat different, but in my view are also related to this problem, because, as we have heard, much of this problem is related with the lack of institutional quality, corruption that has allowed for these threats to grow and to develop in that part of the world. So we need to work together. We are hopeful that with the new focus that Argentina will put into assessing risks in that area and with the support that we may receive from international partners like the United States, we will be able to bring all of our neighbors to the table and start tackling this problem seriously. Mr. Schweikert. Okay. Can I pitch a sort of theory, and I would love your comments from all three of you on this, and that is whether it be from the Shia communities, whether it be from money laundering for drug trades, or human smuggling, or political corruption that there is an almost--a very complex, sort of, semi-formal backbone actually around the world but particularly coming out of Central and South America to move assets, move money around, and today, that network's client could be drug money, tomorrow it could be the cash from weapons sales, tomorrow, the day after, that it could be from something else, and that may be a constant misunderstanding we have as we think of we think of it as terrorism financing or drug money financing, that money laundering network is often the same. Am I being fair? Mr. Braun. I believe you are being fair, and again you are very accurate. As I said earlier, transnational organized crime groups as well as terror and insurgent groups around the world rely on the same shadow facilitators to move their agendas forward. In a private sector that I have been in now for 7\1/2\ years, we call that outsourcing. All right? They use many of the same money laundering organizations; they use many of the same arms traffickers; they rely heavily on many of the same human smuggling groups, those who provide fictitious or counterfeit travel documents that is much needed. They also do things that are very unique like corrupting the private sector, strategically corrupting aspects of the private sector, as the transportation industry, communication industry, and the like. Mr. Schweikert. To that point, and Mr. Chairman, this is something I beg of you, even for your staff, to consider. We, our committee, is structured to look at terrorism financing and money laundering, but as we have heard testimony after testimony over, a year or so you have been doing this, which is incredibly appreciated, if you connect the dots, the very networks that are washing money for terrorism are the very networks that are, for political corruption, are washing and moving money for drug trafficking, who are washing money for human trafficking. How do we bring these different law enforcement mechanisms that our international partners--because my fear is we have too many silos out there. How do you bring them together and combine the intelligence that is there and focus? Because if the backbone that is being used to launder, move money is for lots of pretty evil causes, maybe we can get some focus here. And with that, Mr. Chairman, I will yield back. Chairman Fitzpatrick. The gentleman yields back. The gentleman from Florida, Mr. Ross, is recognized for 5 minutes. Mr. Ross. Thank you, Mr. Chairman. Ever since this committee has continued its investigation in discovery, we have learned about a great deal of tools that have been utilized for intelligence purposes, data sharing, and otherwise identifying money laundering and terrorism finance networks. What has concerned me and continues to concern me has been the lack of enforcement. So what do we do with this information? What have we done with this information? And, Mr. Braun, I am particularly impressed with your comments and your testimony when you state that to successfully disrupt or defeat the threat, the information collected, analyzed, and imported must be actioned. Could you go into a little bit of detail about that? Because I think that is the fulcrum to where we need to go. All for show is great, but if we don't have some element of success in actually preventing what we are setting out to do, then what good is all this intelligence and surveillance that we are doing? Mr. Braun. Thank you, Congressman. I don't want to diminish in any way the important work that-- Mr. Ross. And you won't. And my only concern would be, because I am interpreting that, as to mean there are things we could do better. This task force needs your recommendations as to what we can do to increase enforcement. We have seen an administration that exercises prosecutorial discretion in this country on Federal laws that are being broken and, yet, that are being just turned a blind eye to. And no matter how many laws and even if Brazil does what we want them to do, if there is no enforcement, then what good is it that we do, and how can we--how can we accomplish that enforcement? Mr. Braun. There has to be a greater deal of sharing. Our intel community, and to a lesser degree, our military, now that they have become heavily interested in counter threat finance, are collecting enormous amounts of data. But the problem is that if you are outside of a declared area of war, that is pretty tough to action other than with the use of a judicial model. And that is why I keep going back to, this is the responsibility of Federal law enforcement to action this work, but they-- Mr. Ross. And jurisdiction? Mr. Braun. --flowing. Mr. Ross. Right. But would there not be an opportunity? Because you talk about having financial incentives in providing incentives, or providing assistance, whether it be financial or technical governments. Is there not a way that we can impose incentives to our partners that would require that in order to have this assistance, in order to have this technical or financial support, there has to be enforcement? Because jurisdictionally, there is only so far that the long arm of the United States can go. We have to rely on our partners. And while our partners are, of course, welcome to accept our assistance, if they are not using it for enforcement purposes, then what recourse do we have? Mr. Braun. With our counterparts abroad, one thing that could be done legislatively is if they are not willing to share the information that we are working with them to build capacity to collect-- Mr. Ross. Right. Mr. Braun. --then we turn off the tap. That is what it comes down to. Mr. Ross. I appreciate that. And I think that is what it comes down to. I don't want to see it come down to that, because I think the source could be in their country. And yet, even if they share the intelligence with us to where it gets to our country, we can exercise our enforcement jurisdiction, I would like to see it stopped at the source. Mr. Federici, I am very grateful to you for being here. I am very impressed with what Argentina is doing. How have we been as a partner? Do you see us in an opportunity to provide these incentives? There has to be a good quid pro quo there for nation-building, if you will, to defeat anti--money laundering and antiterrorism financing. Your comments about enforcement? Mr. Federici. I think we are just starting to rebuild our trust, I think, as nations with this new government. Mr. Ross. Yes. Mr. Federici. There's been a paralysis in the relationship over the last few years, and I assume, and I am very sure this is mostly the responsibility of our previous administration that has been unwilling to cooperate. Now, I think we need to start building this new trust fast, because the threats are there. They are-- Mr. Ross. They are growing exponentially, almost. Mr. Fererici. Exactly. What we mostly need at the moment, to be able to operate, and to be able to enforce these actions, is intelligence right now. We need high-quality intelligence on our hands to be able to use the tools that the law grants us to seize the assets of criminals, to interrupt the flows of potential terrorists-- Mr. Ross. You would do that if you had the intelligence? Mr. Federici. I have the absolute determination to do that. You can count on that for sure. We have information that there have been flows of terrorist money coming out from Argentina to the hands of foreign terrorist fighters that have enlisted with ISIL, and we need more of that type of information in order to be able to put our hands on those flows to be able to share it internationally as well and to take the enforcement action that is necessary. Mr. Ross. I am hopeful that if that happens, we will exercise our rules of engagement and stop it. And I see that my time is up, and I will yield back. Thank you, Mr. Chairman. Chairman Fitzpatrick. The gentleman yields back. And we would like to thank our witnesses for their testimony today. We have additional questions, but there is a Joint Session of Congress for which we need to get in our seats. The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous materials to the Chair for inclusion in the record. This hearing is adjourned. [Whereupon, at 10:38 a.m., the hearing was adjourned.] A P P E N D I X June 8, 2016 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]