11 June 2002
Tracking Informal Terrorist Financing Next Task of U.S.-led Coalition
(Partners to play leadership roles, Treasury's Dam says) (3450)
The United States and its coalition partners must search out terrorist
finances outside the mainstream financial systems as they enter the
next phase of the fight against terrorist financing, Under Secretary
of Treasury Kenneth Dam says.
Speaking June 8 to the Council on Foreign Relations in New York, he
said that, in response to public designation and blockings of
terrorist assets that characterized the first phase, terrorists
started using informal institutions and opportunities for keeping and
transferring their assets.
In the second phase, Dam said, the focus of counter-terrorist efforts
needs to be on hawala networks, corrupted charitable organizations and
fraudulent traders rather than on banks, and U.S. coalition partners
need to play increasingly prominent roles in this campaign.
Dam emphasized that preserving the benefits of the hawala systems
while preventing their abuse by terrorists, not banning them, is the
right solution. It can be achieved through regulatory measures, he
added.
Hawalas are unofficial, trust-based networks for moving money
inexpensively across national borders. They are popular in developing
countries and among certain ethnic communities in developed countries.
Preventing terrorists from using charities as a cover for supporting
terrorism while ensuring the integrity of charitable mission will be
another challenge, Dam said.
He said countries are pursuing these two goals by freezing the flow of
funds through organizations corrupted by terrorist supporters and
increasing the transparency and oversight of other charities.
Dam said that the coalition is also making some progress in preventing
terrorists from using legitimate trade as a means to funnel their
money.
He said the U.S. administration is working with private sector
partners on developing monitoring systems that would allow legitimate
merchants to identify and report suspicious transactions.
Dam also cited both domestic and international actions aimed at
improving the regulatory environment so that terrorist money will not
find safe haven easily.
But the Treasury official emphasized that blocking the assets of
publicly designated terrorist organizations remains an important
weapon in the fight against terrorism.
The United States knows, he said, that al-Qaida is having financial
difficulties as a result of blocking orders freezing over $115 million
in terrorist assets.
However, not enough progress has been made on other groups and people
who wittingly support terrorism through charities, Dam added.
Following is the text of Dam's remarks as prepared for delivery:
(begin text)
June 8, 2002
THE FINANCIAL FRONT OF THE WAR ON TERRORISM -- THE NEXT PHASE
Kenneth W. Dam
Deputy Secretary of the Treasury
Delivered to the Council on Foreign Relations
New York, New York
The financial front of the war on terrorism has entered a new phase.
This new phase is characterized by increased leadership by our
coalition partners and increased focus on means of financing terrorism
outside the mainstream financial system. At the same time, the United
States must and will remain vigilant in preventing terrorists from
abusing its financial system.
Today, I shall describe how the financial front of the war on
terrorism has evolved toward this new phase.
The first phase of the financial front of the war on terrorism was
dominated by public designations of terrorists and terrorist
supporters and attempts to freeze their accounts. To be sure, this was
-- and remains -- an important aspect of the fight. We must close the
world's financial system to known terrorists and their financiers.
To date, we have had considerable success. Since September 11, we and
our coalition partners have publicly designated 210 terrorists or
terrorist supporters. We have frozen over $115 million around the
world. 166 countries and jurisdictions have blocking orders in force.
We still have work to do on this effort. Not every country has joined
us in blocking every identified terrorist or terrorist supporter.
Also, we have to make sure that countries do more than just add names
to a list. We need to -- and we do -- continually follow up with them
to ensure that their regulators and financial institutions are out
there giving teeth to their blocking orders.
Designations and blockings dominated the early phase of the financial
front of the war on terrorism for several reasons.
First, the United States and many other countries (but by no means
all) could quickly put in place a legal infrastructure to carry out
the designations and blockings. In the United States, all that was
immediately necessary was to promulgate an executive order invoking
the President's authority under the International Emergency Economic
Powers Act to go after not just terrorists but also their financial
supporters, to announce the designations, and to transmit the blocking
orders to U.S. financial institutions.
Second, public designations highlighted the need for countries without
adequate legal infrastructures to enact laws and regulations that
would allow them to close their financial systems to terrorists. When
we started our effort even countries like Canada and Japan did not
have legislation criminalizing terrorist fundraising. Many countries
lacked the legal infrastructure to adopt and implement blocking orders
on terrorist assets. Public designations by the U.S. and our allies
highlighted these deficiencies and prompted countries to address them.
Third, joint designations provided an opportunity to highlight
international cooperation in the financial front of the war. We were
pleased, for example, when the EU [European Union] independently
designated several new terrorists and terrorist organizations at the
end of 2001. (The EU made another such designation on May 2, 2002.) We
were also pleased by the joint designation we made with Saudi Arabia
on March 11 and another joint designation with the G7 on April 19.
These have been no insignificant accomplishments. The public sees the
end product -- joint designations. But what the public doesn't see is
the intense consultations and exchanges going on before and after the
events.
The opportunity to highlight international cooperation is particularly
important because the financial front of the war on terrorism cannot
be won without it. As I have said many times, you can't bomb a foreign
bank account. You need the cooperation of the host government to
investigate and freeze that foreign account. Increasingly, our
strategy to enlist the aid of foreign governments is working.
This brings me to a fourth reason why public designations and
blockings dominated the first phase: other actions take time. It takes
time to persuade other governments to take a leadership role in the
effort. The United States made its first public designation on
September 24, 2001. It took even the EU another three months to take
the lead with its own independent designation. It also takes time for
governments to adopt laws and implement regulations that they need to
curtail terrorist financing. In addition, it takes time to cultivate
new sources of information about terrorist finances that will lead us
to terrorist financiers and, even more valuably, sometimes to
terrorists themselves. So, the "long sales cycle" of these other
actions is another reason why public designations and asset freezings
dominated the first phase of the financial front of the war.
Before describing the next phase of the war, let me be clear. Public
designations remain an important -- an essential -- weapon in the
fight against terrorism. We will continue to make them and we will
continue to scour our financial system for terrorist assets. Likewise,
we will continue to encourage our coalition partners to take the lead
in making their own designations. We will also continue to encourage
our partners to ensure that they follow through on their blocking
orders and give them teeth.
While public designations will remain important, we are entering a new
phase of the war. This new phase will be dominated by greater
leadership by our coalition partners and greater focus on means of
financing terrorism outside of the mainstream financial system. Public
designations and blockings will not dominate this new phase to the
degree that they did the early phase.
There are several reasons why public designations and blockings should
not be expected to dominate the next phase.
First, public designations are, by their very nature, public.
Terrorists learn about them and adapt their behavior accordingly. They
will avoid keeping their money in the United States or other financial
centers with effective rules and regulations to thwart them. They will
use informal methods of moving their money. They may avoid storing
value in currency at all, instead preferring commodities like gold or
diamonds, converting the commodities to cash only as needed. Provided
the United States and the international community remain vigilant in
policing their financial systems, we expect that terrorists
increasingly will avoid keeping their money in large amounts in single
accounts in the mainstream financial system. Over time, therefore, we
anticipate that public designations will not "catch" as much money as
they did initially.
Second, those "long sales cycles" are coming to an end. We are seeing
foreign governments increasingly play leadership roles in taking
action against terrorist financiers.
Foreign governments have acted privately to stop individuals from
donating money to suspect groups.
Foreign governments have arrested terrorist financiers or, as in the
case of Pakistan, cooperated in successful U.S. efforts to capture
them. Foreign governments are taking steps to regulate hawala dealers.
Hawala systems (in some countries called hundi systems) are efficient,
inexpensive, trust-based methods of moving money that do not leave
large paper trails.
Foreign governments are making progress in preventing terrorists from
using hawalas to move money. During a conference on hawalas in the UAE
[United Arab Emirates] on May 15-16, a number of governments agreed to
take steps to regulate and monitor hawalas to ensure that they are not
abused. After the conference, on May 28, the Dubai Gulf News reported
that the UAE will soon require hawalas to be licensed and regulated.
The Times of India also reported that India is taking steps to crack
down on unlicensed money transmitters.
I wish to emphasize one point. We do not think that banning hawalas
altogether is the answer. Hawala dealers provide an important service.
They transfer money at low cost to populations that are not supported
by formal financial services. We are working with our coalition
partners to preserve the benefits of the hawala system while at the
same time preventing their abuse by terrorists.
Along with hawalas, charities will be the subject of increasing focus.
This is an important and sensitive issue. As many of you know, charity
is a central pillar of Islam. Indeed, in many parts of the world
charities provide much of the social infrastructure -- orphanages,
hospitals, and schools. At the same time, there is no denying that
some legitimate charities have been penetrated by terrorists or
terrorist supporters -- possibly by only a few managerial employees --
who misdirect a portion of the charity's funds for terrorist ends.
There are also organizations that are primarily organized and directed
to abuse charitable status for terrorist ends. Some groups threaten
not only their targets, but their donors, extracting "donations" as
"protection" against reprisals. Our challenge is to prevent terrorists
from using charities as a cover for supporting terrorism while
ensuring that charitable giving and charitable works continue.
We are pursing these two goals by freezing the flow of funds through
charities that have been corrupted by terrorist supporters and
increasing the transparency and oversight of charities around the
world. Thus far, a number of charities around the world have been
designated and their assets frozen -- our joint designation with Saudi
Arabia of two regional Al Haramain offices is a good example of what
is beginning to occur. Also, we are asking countries, bilaterally and
through multilateral bodies, to evaluate their regulatory and
enforcement oversight of non-profits. Indeed, the multilateral
Financial Action Task Force or FATF will take up this issue at its
meeting later this month. In addition, we are working to disseminate
international best practices for ensuring the accountability of
charitable organizations. Finally, we are calling upon private
watchdog groups to continue and expand their important work on
ensuring transparency in charitable operations, and to broaden their
focus beyond their historical emphasis on fraud and waste to include
the threat posed by terrorist abuse of charities. We have been
gratified by the positive response that these initiatives have
received from other governments and the charitable community.
We are also beginning to make some progress in preventing terrorists
from using otherwise legitimate trade in goods and services as a means
to funnel money to terrorists. Our Customs Service uses techniques
developed in the drug war to look for movements of goods at abnormal
prices. Customs used this technique to support the designations of
three Yemen-based honey businesses tied to Osama Bin Laden. In
addition to designating businesses linked to terrorism, we also work
to ensure that legitimate merchants are able to identify suspicious
transactions so that they can report the transactions and take steps
to prevent such transactions in the future. We work to educate the
business community, especially those industries that are particularly
vulnerable to this type of trade-based laundering activity, just as we
have done in the drug war through our program to fight the
Colombian-based Black Market Peso Exchange.
Finally, across the world, the international coalition is acting to
improve the regulatory climate more generally. We have taken important
steps in this regard in the United States with the passage in October
2001, of the USA PATRIOT Act. The Act gives us important new tools in
the fight against terrorism. I shall highlight just three.
First, the Act requires U.S. financial institutions to terminate
correspondent accounts maintained for foreign shell banks and to take
reasonable steps to ensure that they do not indirectly provide banking
services to foreign shell banks. Treasury provided interim guidance on
this requirement, suggesting that financial institutions obtain
certification from all foreign banks with correspondent accounts in
the U.S. to the effect that
(1) those foreign banks are not themselves shell banks; and
(2) those foreign banks do not maintain accounts for shell banks.
We worked closely with the private sector to make this interim
guidance as effective as possible, and the final rule, when issued,
will benefit considerably from this input.
Second, the Act required most financial institutions to have an
anti-money laundering program in place by April. Money service
businesses, broker-dealers in securities, and credit card operators
are now all required to have comprehensive anti-money laundering
programs in place. We are now working with the insurance industry,
hedge funds and other financial sectors to develop appropriate rules
for those businesses as well.
Another point worth noting is that the Act allows for in camera
judicial review of any classified information we use to freeze
terrorist assets. This gives us greater ability to freeze terrorist
assets without fear that intelligence sources and methods will become
compromised during judicial review.
I should mention one very important partner in our effort to clean up
the regulatory environment in the United States -- the private sector.
Many of the leaders of financial services companies in New York lost
employees or friends in the September 11 attacks. They understand that
the terrorists targeted the World Trade Center in an effort to strike
at our financial nerve center. The cooperation we have received from
these business leaders and their employees has been invaluable. Among
other things, they have worked with us to maximize the effectiveness
of the new regulations while minimizing their impact on legitimate
transactions.
Another way in which we have acted to improve the regulatory climate
generally is to reach Tax Information Exchange Agreements with several
tax haven jurisdictions: the Bahamas, the British Virgin Islands, the
Cayman Islands, the Netherlands Antilles, and Antigua & Barbuda. We
expect to enter into more of these bilateral agreements in the coming
months. As we make it harder for tax evaders to find safe haven in off
shore financial centers, those centers move toward cleaner, better
regulated systems and improve their regulatory climate generally. The
end result is fewer places where terrorists can hide their money.
Another important effort is the work of the Financial Action Task
Force, which established eight Special Recommendations for terrorist
financing. The FATF action plan requires jurisdictions to engage in a
self-assessment and to take steps to bring their systems up to these
standards. As in the money laundering context, we expect that these
recommendations and the FATF process will prompt countries to make
substantive changes to their laws and regulations or risk being "named
and shamed" as non-cooperative. Other nations have joined us in
raising the regulatory hurdles to terrorist financing. Here is just a
sampling of one day's activity based on a search of foreign media on
June 5, 2002. On June 4, 2002, Belgrade's Politika reported that
Sebia's law on the prevention of money laundering will go in effect on
July 1 and require the reporting of currency transactions over 600,000
dinars to a newly established Federal Commission for the Prevention of
Money Laundering. Bucharest's Rompres reported on June 5, 2002, that
customer identification and suspicious activity reporting requirements
are in force as of June 4, 2002. On June 5, Tokyo's Jiji Press
reported that Japan enacted a law criminalizing terrorist financing.
On June 4, Seoul's Yonhap reported that Korea's Financial Intelligence
Unit joined the 58 member Egmont Group -- an international association
of financial intelligence units dedicated to sharing information about
financial crimes. This is just a sampling. Every day, the
international press contains similar items about the progress other
countries are making in improving the regulatory climate. Just
yesterday, the Washington Post reported that Qatar has just adopted an
anti-money laundering law.
Public designations will, however, remain and important weapon in our
arsenal. For one thing, public designations reinforce our private
diplomatic efforts. Governments who fear the political consequences of
public designation of one of their citizens have a strong incentive to
do something privately about that citizen's behavior. In some cases,
we have seen governments act to stop citizens from supporting groups
associated with terrorism so as to avoid the domestic and
international political consequences that public designation of that
citizen would have. Since our goal is to prevent and disrupt -- not to
build a long public list -- we have not only accepted that result but
have made it clear that our goal is results, not public announcements.
I have reviewed what is, to be sure, a lot of activity. But our
objective is not to generate a lot of activity. Our objective is to
prevent attacks and disrupt terrorist operations.
So how are we doing?
We know that we are having an impact. We have frozen over $115 million
dollars. We know that al-Qaida is having some financial difficulty. We
know that some potential donors to terrorists are reluctant to give
money for fear of the consequences. We see encouraging signs that the
world is erecting regulatory barriers to terrorist financing. Almost
daily, we receive word of a new money laundering law, a new arrest, a
new regulation that will make life more difficult for terrorists and
root them out so that they can be captured or otherwise disrupted.
At the same time, we know that al-Qaida's financial needs are greatly
reduced -- they no longer have to support the Taliban government and
they no longer bear the cost of maintaining training camps. We have
also not made enough progress against people who donate funds to
charities knowing that their donations will be used to support
terrorism. In addition, although we have made some progress on groups
other than al-Qaida, we still have much more work to do against other
terrorist groups of global reach.
In the physical war, the Vice President and others have made clear
that there is nothing that a free and open society like the United
States can do to protect itself 100 percent against future attacks.
The same is true in the financial front of the war. We can never be
100 percent sure that terrorists are not transferring money one way or
another. Doing so would come at too great a cost to the economies of
our interdependent world.
Accordingly, just as in the physical war, we must take the battle to
the terrorists themselves. We cannot limit ourselves to improving the
protections of the U.S. financial system, or even to improving the
protections of the world's mainstream financial systems. While those
are necessary, they are not sufficient. We must also search out
terrorist finances outside of the mainstream financial systems -- in
the hawala networks, in corrupted NGOs [non-governmental
organizations], and in fraudulent trade patterns. And, more than ever,
this effort must be led by our coalition partners.
(end text)
(Distributed by the Office of International Information Programs, U.S.
Department of State. Web site: http://usinfo.state.gov)
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