[House Hearing, 111 Congress]
[From the U.S. Government Printing Office]
[H.A.S.C. No. 111-20]
TRACKING AND DISRUPTING TERRORIST
FINANCIAL NETWORKS: A POTENTIAL
MODEL FOR INTERAGENCY SUCCESS?
__________
HEARING
BEFORE THE
TERRORISM, UNCONVENTIONAL THREATS AND CAPABILITIES SUBCOMMITTEE
OF THE
COMMITTEE ON ARMED SERVICES
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
MARCH 11, 2009
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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TERRORISM, UNCONVENTIONAL THREATS AND CAPABILITIES SUBCOMMITTEE
ADAM SMITH, Washington, Chairman
MIKE McINTYRE, North Carolina JEFF MILLER, Florida
ROBERT ANDREWS, New Jersey FRANK A. LoBIONDO, New Jersey
JAMES R. LANGEVIN, Rhode Island JOHN KLINE, Minnesota
JIM COOPER, Tennessee BILL SHUSTER, Pennsylvania
JIM MARSHALL, Georgia K. MICHAEL CONAWAY, Texas
BRAD ELLSWORTH, Indiana THOMAS J. ROONEY, Florida
PATRICK J. MURPHY, Pennsylvania MAC THORNBERRY, Texas
BOBBY BRIGHT, Alabama
Bill Natter, Professional Staff Member
Alex Kugajevsky, Professional Staff Member
Andrew Tabler, Staff Assistant
C O N T E N T S
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CHRONOLOGICAL LIST OF HEARINGS
2009
Page
Hearing:
Wednesday, March 11, 2009, Tracking and Disrupting Terrorist
Financial Networks: A Potential Model for Interagency Success?. 1
Appendix:
Wednesday, March 11, 2009........................................ 19
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WEDNESDAY, MARCH 11, 2009
TRACKING AND DISRUPTING TERRORIST FINANCIAL NETWORKS: A POTENTIAL MODEL
FOR INTERAGENCY SUCCESS?
STATEMENTS PRESENTED BY MEMBERS OF CONGRESS
Miller, Hon. Jeff, a Representative from Florida, Ranking Member,
Terrorism, Unconventional Threats and Capabilities Subcommittee 2
Smith, Hon. Adam, a Representative from Washington, Chairman,
Terrorism, Unconventional Threats and Capabilities Subcommittee 1
WITNESSES
Fridovich, Lt. Gen. David P., USA, Commander, Center for Special
Operations, United States Special Operations Command........... 13
Frothingham, Edward, III, Principal Director for Transnational
Threats, Office of the Deputy Assistant Secretary of Defense
for Counternarcotics, Counterproliferation, and Global Threats. 11
Levitt, Dr. Matthew, Director, Stein Program on Counterterrorism
and Intelligence, The Washington Institute for Near East Policy 2
.................................................................
APPENDIX
Prepared Statements:
Fridovich, Lt. Gen. David P.................................. 46
Frothingham, Edward, III..................................... 38
Levitt, Dr. Matthew.......................................... 27
Miller, Hon. Jeff............................................ 24
Smith, Hon. Adam............................................. 23
Documents Submitted for the Record:
[There were no Documents submitted.]
Witness Responses to Questions Asked During the Hearing:
[There were no Questions submitted during the hearing.]
Questions Submitted by Members Post Hearing:
[There were no Questions submitted post hearing.]
TRACKING AND DISRUPTING TERRORIST FINANCIAL NETWORKS: A POTENTIAL MODEL
FOR INTERAGENCY SUCCESS?
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House of Representatives,
Committee on Armed Services,
Terrorism, Unconventional Threats and Capabilities
Subcommittee,
Washington, DC, Wednesday, March 11, 2009.
The subcommittee met, pursuant to call, at 3:45 p.m., in
room 2118, Rayburn House Office Building, Hon. Adam Smith
(chairman of the subcommittee) presiding.
OPENING STATEMENT OF HON. ADAM SMITH, A REPRESENTATIVE FROM
WASHINGTON, CHAIRMAN, TERRORISM, UNCONVENTIONAL THREATS AND
CAPABILITIES SUBCOMMITTEE
Mr. Smith. We will call the committee to order. Apologize
for the late start; we had votes. We have a reasonably
complicated agenda in that we have two panels in here, and then
we are----
Voice. We can't hear you.
Mr. Smith. Okay. I think it would be better off skipping
the microphone and shouting. There is no way to turn the volume
up on these things?
Dr. Levitt will go first, and then we will have another
panel. And then for Members' information, we have a hearing
after this, it will be down in the Sensitive Compartmented
Information Facility (SCIF), for any secret information that we
cannot talk about in public, which will make for some
interesting questioning to make sure we don't step across the
line in this, and we will trust the Members and the witnesses
to understand where that line is. So Dr. Matthew Levitt will be
first.
The purpose of our hearing today is to look at how we can
disrupt terrorist financing. The subcommittee is keenly focused
on counterterrorism, primarily because of our jurisdiction over
the Special Operations Command, which is the lead command in
fighting terrorism. But also we have a number of different
pieces of it, and we want to be as comprehensive as possible in
putting together what the best plan is to combat terrorism. And
certainly disrupting their financing is a key piece of it.
One of the things I am most interested about as we go
through this hearing is the various different agencies and
entities that have a piece of this. This is a significant
problem here. Nobody is directly in charge of it, because there
are so many different pieces. Obviously Treasury, Justice, the
Drug Enforcement Administration (DEA), a lot of different
organizations will have some expertise, some authority and some
resources to bring to bear to this fight, the State Department
as well, and obviously the DOD Special Operations Command
(SOCOM). How do all those entities work together when they are
not accustomed to doing that?
Now, we have had some successes since 9/11, we have
disrupted a lot of the financing, but we have not been as
successful as we could be, at least according to the updated
report from the 9/11 Commission from a couple years ago. So the
purpose of the hearing is to learn more of what we have done
right and what more we need to do particularly to make sure all
the different agencies who have resources that can be brought
to bear to this problem do so in the most cooperative,
effective and efficient manner possible, and how we might go
about making that happen.
With that, I will turn it over to the Ranking Member Mr.
Miller for any opening statement he might have, and to request
that--I have a written opening statement. Without objection, I
would request that that be submitted for the record.
[The prepared statement of Mr. Smith can be found in the
Appendix on page 23.]
STATEMENT OF HON. JEFF MILLER, A REPRESENTATIVE FROM FLORIDA,
RANKING MEMBER, TERRORISM, UNCONVENTIONAL THREATS AND
CAPABILITIES SUBCOMMITTEE
Mr. Miller. Thank you very much.
Mr. Chairman, likewise I have a written statement I would
request be entered into the record. And in view of the fact
that we are starting a little bit late, I will waive any
opening statement, and let us proceed to the witness.
Mr. Smith. Thank you very much, Mr. Miller.
[The prepared statement of Mr. Miller can be found in the
Appendix on page 24.]
Mr. Smith. We will start with Dr. Matthew Levitt, who is
the director of the Stein Program on Counterterrorism and
Intelligence for the Washington Institute for Near East Policy.
As you can imagine, he has a much longer biography than that,
but to respect the time, I will simply turn it over to Dr.
Levitt for his opening statement.
STATEMENT OF DR. MATTHEW LEVITT, DIRECTOR, STEIN PROGRAM ON
COUNTERTERRORISM AND INTELLIGENCE, THE WASHINGTON INSTITUTE FOR
NEAR EAST POLICY
Dr. Levitt. Thank you very much, Chairman Smith, Ranking
Member Miller, committee members. Thank you for the opportunity
to appear before you today to discuss the imperative of
interagency synergy to successfully track and disrupt terrorist
financial networks.
I am honored to testify today along with senior leadership
from the Office of Secretary of Defense and U.S. Special
Operations Command, whose offices play a critical role in
combating the financing of transnational threats.
My comments today are drawn from ``The Money Trail:
Finding, Following, and Freezing Terrorist Finances,'' a
Washington Institute study I recently coauthored with my
colleague Mike Jacobson, who is here today. The full study is
available on the Washington Institute's Web site, and copies
have been made available here. I will offer just a summary of
what I have written in my written testimony and ask that the
full testimony be entered into the record.
U.S. and international efforts to combat terrorist
financing are a little understood, and often unappreciated,
aspect of the global counterterrorism efforts. For example,
while unilateral or U.N. terrorist designations are public
actions, they constitute only one of a broad set of tools
available to governments, international bodies and their
private- and public-sector partners around the world.
Pundits and the press alike show insufficient appreciation
for the extent to which public designations are related to
other equally productive ways of countering terrorist
financing, such as diplomatic engagement, law enforcement and
intelligence collection.
It is not uncommon for a potential designation target to
remain unnamed due to diplomatic or intelligence equities,
policy considerations, or ongoing investigations. Designation
may not be the most appropriate tool for every case of terror
financing. Indeed, overt actions like designations and
prosecutions are not the sum total of international efforts to
combat terror financing, they are only the most visible.
In a nutshell, that explains why an integrated,
coordinated, interagency approach to countering the financing
of transnational threats is so critical. The Treasury
Department, where I served as Deputy Assistant Secretary for
Intelligence and Analysis, brings to the table a powerful set
of tools to protect the U.S. financial system from abuse, deny
illicit actors easy access to the U.S. and international
financial systems, and to follow the money as a means of
identifying terrorist financiers and operators up and down the
financial pipeline. But these are only some of the tools
available in the counter financing of terrorism (CFT) tool kit
and cannot be fully leveraged without the full participation of
interagency partners. A successful strategy to combat the
financing and transnational threats must leverage all elements
of national power, including designations, prosecutions,
intelligence and law enforcement operations, diplomacy,
technical assistance, capacity building, military power and
more.
Terrorist groups need money. Although mounting an
individual terrorist attack is relatively inexpensive, the cost
of maintaining the infrastructure to support terrorist
activities is high. Terrorist networks need cash to train,
equip, pay operatives, secure materials, bribe officials and
promote their cause.
To eliminate or reduce a cell's means of raising and
transferring funds is to significantly degrade that cell's
capabilities. Additionally, by forcing them to abandon formal
financial channels in favor of informal transfer in smaller
denominations, the use of targeted measures has the cumulative
effect of making the funds-transfer process slower, more
cumbersome and less reliable.
As the terrorist threat has evolved, the means by which
terrorist groups raise, store and move funds has changed as
well, often in ways that have hindered government efforts to
combat illicit financial activity. Keeping pace with the
evolutionary nature of the transnational threats we face today
and the means of financing these threats in particular, demands
close interagency cooperation and timely and actionable
intelligence. Consider just a few examples.
Mirroring the broader shift toward the use of technology in
global commerce, shifts have occurred in how funds are actually
transferred using new technology. M-payments, where cell phones
are utilized to transfer money electronically, are growing in
importance. In 2006, a U.S. Government report assessed that
``groups of all stripes will increasingly use the Internet to
obtain logistical and financial support.'' Technology and
globalization have also enabled small groups of alienated
people not only to connect, but to raise resources for attacks
without need for an established terrorist organization.
Terrorist groups are increasingly resorting to acts of
crime to finance their activities. In some cases acts of petty
crime, such as welfare fraud and credit card bust-out schemes,
raise limited amounts of money for small operations. In others,
aspiring terrorists raise significant sums through brazen
crimes. One cell in France netted about a million euro when a
member whose job it was to restock ATMs enacted robberies on
several machines.
According to the DEA, 19 of the 43 designated foreign
terrorist organizations are linked definitively to the global
drug trade, and up to 60 percent of terrorist organizations are
connected in some fashion with the illegal narcotics trade.
According to the Financial Action Task Force, the misuse of the
nonprofit organizations for the financing of terrorism is
coming to be recognized as a crucial weak point in the global
struggle to stop such funding at its source. British officials
concur, by the way, according to a British report, the risk of
exploitation of charities is a significant aspect of the
terrorist finance threat.
Trade-based money laundering is a particularly effective
method of hiding illicit transactions under the cover of
legitimate business. Instead of actually transferring funds,
one simply purchases and transfers commodities such as food or
other goods. Such goods can be sent internationally even to
sanctioned countries under the guise of humanitarian support.
Once they have entered the country, the goods can either be
sold directly for cash or transported to a third country for
sale.
Illicit actors have not only taken advantage of technology
to finance activities, they have also reverted to older, less
sophisticated methods to avoid official banking systems. This
includes the growing use of cash couriers, bulk cash smuggling,
hawala brokers, along with alternative commodities.
Reacting to counterterrorism efforts, terrorists have begun
transferring funds through their members' personal accounts and
those of their families, sometimes directly and sometimes
through charities, in an effort to evade the scrutiny given to
organizational accounts.
It is important to recognize, however, that combating the
financing of transnational threats will not in and of itself
defeat these threats, nor is it intended to do so. But focusing
on the financing of transnational threats has several concrete
benefits. It has a deterrent effect. As difficult as it may be
to deter a suicide bomber, terrorist designations can deter
nondesignated parties who might otherwise be willing to finance
terrorist activity. Major donors inclined to finance extremist
causes who may be heavily involved in business activity
throughout the world may think twice before putting their
personal fortunes and their reputations at risk.
It is a useful tool for preventive intelligence. Unlike
information derived from human spies or satellite intercepts,
which require vetting to determine their authenticity, a
financial transfer is a matter of fact. Raising, storing and
transferring money leaves a financial trail investigators can
follow. Definitively linking people with numbered accounts or
specific money changers is a powerful preemptive tool, often
leading authorities to conduits between terrorist organizations
and individual cells, and it is a very useful disruptive tool.
According to terrorists themselves, while following the
money will not stop all plots, it will likely frustrate some of
these activities. Back in 1995, captured World Trade Center
bomber Ramzi Yousef was flown over the Twin Towers on his way
to a New York jail. When the FBI agent flying with him pointed
out that the towers were at that time still standing, Yousef
replied, ``They wouldn't be if I had enough money and
explosives.''
At a minimum, tracking terrorists' finances will make it
harder for them to travel, procure materials, provide for their
own families and radicalize others. Denying terrorists as well
as insurgents and proliferators easy access to financial tools
forces them to use more costly, less efficient, and often less
reliable means of financing. Keeping them on the defensive and
denying them the luxury of time and space puts them under
stress, deters donors, restricts the flow of funds, and helps
constrict their operating environment.
Mr. Smith. I am sorry, Dr. Levitt. We actually have a
fairly full schedule in terms of having other people testify
and questions and all that. If you could sum up in the next
minute, that would be great.
Dr. Levitt. Sure. There are lots of reasons for the
successes. One of them is interagency cooperation, and one
example of that is the threat finance cells that have been
useful in Iraq and now Afghanistan. The Iraq Threat Finance
Cell (ITFC) in Baghdad is a good example of interagency efforts
that make the success possible and is something that needs to
be continued.
As the Director of National Intelligence highlighted in
testimony before this committee earlier this week, the
international financial crisis is also having far-reaching
consequences for a variety of key U.S. foreign policy and
security concerns. While the financial crisis may dry up some
resources of funds for terrorists, proliferators, and
insurgents, it will also impact governments' ability to finance
efforts to counter illicit finance. It is my sincere hope that
the successful efforts like the Iraq and Afghan Threat Finance
Cells continue to receive the necessary funding to fulfill
their critical missions in those respective theaters.
Thank you.
Mr. Smith. Thank you very much. I appreciate your
testimony.
[The prepared statement of Dr. Levitt can be found in the
Appendix on page 27.]
Mr. Smith. We will now have a few questions. We will now go
through questions; five-minute rule for everybody. I will yield
until the end, so we will start with Mr. Miller.
Mr. Miller. Mr. Chairman, allow me to yield as well.
Mr. Smith. Mr. Marshall.
Mr. Marshall. I am going to yield back to the Chairman so
he can get the ball rolling.
Mr. Smith. Ah, they are never happy about anything.
Normally they are sitting back there going, how come the
Chairman and the Ranking Member are always talking? You try to
be polite, it doesn't work.
I will be happy to ask the first question, therefore. I
guess we talked a little bit about the interagency piece. The
threat financial cell in Iraq and elsewhere in Afghanistan, I
think they are working fairly well in terms of how that was
pulled together. I guess the question is, stepping back to D.C.
and looking at the entire terrorist financing network, because
obviously it is in many, many places other than Iraq and
Afghanistan, who should be taking the lead? How do you see the
interagency piece working? How should they cooperate in a more
comprehensive manner so that we can get--my read is we are
fairly successful in Iraq and Afghanistan. When you get
everybody into one place and you are working together, it is a
very focused necessity being in a combat zone, but the broader
problems can present greater bureaucratic challenge, and I am
wondering what your take is on that.
Dr. Levitt. Thank you, sir.
I think the first thing is there have been bureaucratic
problems in the theater as well, especially when these MTs were
first set up. But, of course, you are right; under pressure you
make it work. I think that has had an impact back in Washington
where the interagencies stepped up and I think became much
better integrated in its efforts to support our fighters in
Iraq and Afghanistan.
Mr. Smith. Can you walk us through the different pieces of
that, who is taking the lead, how is it working, who is playing
what role?
Dr. Levitt. There are a variety of roles, and I think it is
probably better for the people who are actually running it to
answer those questions since I have been out of government now
for two years, and my answers would be two years old anyway.
But to me this is something that has to be better
coordinated. I don't know that necessarily we are going to
improve by giving one department or agency the lead. Perhaps
the most important thing here is that there are lots of tools
and lots of authorities. And like I said in my statement, as a
former Treasury official, designations are a great tool. They
are not always going to be the right authority, the best
authority.
What you need is to get people around the table in a
subcounterterrorism security group, for example, and discuss,
okay, we have a target, great. I don't care if we use my
authority or someone else's authority, what are we going to do,
as long as we do something. And my impression is that has
gotten much better.
There are always going to be turf wars, who has a lead on
this, who has a lead on that. When I was back in government, we
saw people were trying to figure out who took responsibility
for this part of the National Intelligence Program (NIP) or
that part of the NIP. But my impression is that this has gotten
much better in part because it is an area where we have seen
tremendous success. Unfortunately there is not a lot of open-
source examples that we can give to show that success, and so
the declassified examples are what we are left with, and I give
plenty in my written testimony. I think when you go into your
closed session there will be plenty of things to talk about to
highlight the successes that we have had.
Mr. Smith. Thank you very much. I have a little bit of time
left. Does Mr. Marshall wish to have the rest of his time here?
Mr. Marshall. I will take the rest of my time. You caught
me by surprise. We are all interested in having your opinion.
Admittedly, it may be a little stale, but I suspect not,
because you have been writing about this, you study this, and
you talk to people about this. The ways in which we need to
improve, things that the United States internally should do in
order to improve, and then more broadly the free world, all of
our allies, those who are interested in cutting off funding for
these terrorists generally, how do we all improve?
Dr. Levitt. There are lots of ways we can improve. Even
though it is going well, we are never quite there. And in our
study here, there is a whole section on policy recommendations.
Some examples are: better empowering parts of the multilateral
system to be as effective as they could be; the
Counterterrorism Executive Director at the U.N. and 1267
Committee; increasing the power of the nonpolitical monitoring
team at the U.N. to nominate entities and individuals for
addition to the lists and removal from the lists; leveraging
the Financial Action Task Force and even Wolfsberg Group and
others in this effort.
There is a lot that we can do in our bilateral and
multilateral diplomacy to get more countries on board not only
publicly, but, I would argue, even more importantly in terms of
the intelligence angle of this to get them involved as well.
Mr. Marshall. This is partially informational for all of
us, but in addition we are in the process of drafting this
year's authorization bill for armed services. So do you have
suggestions for us concerning things that need to be in our
bill, or things that need to be changed in existing law, within
our jurisdiction?
Dr. Levitt. I would have to get back to you to things
specific to the military because that hasn't been the focus of
our study, although there are a few things in there.
I would say that the military has played an important
component of this, both here in Washington, the Office of the
Secretary of Defense (OSD) and the combatant commands. When I
was at Treasury, we saw firsthand the utility of sending some
of our people Temporary Duty (TDY) to the combatant commands
and taking people from the combatant commands TDY to us to
create that synergy and interagency cooperation, and there was
great success there. I would have to get back to you on
specific recommendation for the military.
Mr. Marshall. We, where drugs are concerned, often seize
assets, and those assets wind up being used in order to fund
police forces around the country. Is there anything similar to
that that goes on with regard to these kinds of inquiries as we
discover entities, individuals, who have been conduits or
actually financing directly? Do we have any seizure process
that we can go through to help us fund continued activities?
Dr. Levitt. Well, there is an interagency process, and I
don't know how that would work in terms of funding the
military's--in terms of the military's cooperation with DEA in
particular. But it is an important point to note that we do see
an increase in terrorist use of crime of all kinds, and in
particular of the drug trade. In part that is because the drug
trade is just so productive an industry. According to the U.N.,
the international drug trade generates $322 billion a year in
revenue, which everything else pales by comparison in the
criminal world. But both in terms of the groups like the
Revolutionary Armed Forces of Colombia (FARC) in Colombia,
Lebanese Hezbollah and others, there is a tremendous amount of
activity involving drugs. And I happen to think that there is
opportunities there, especially if you consider that the
European Union, for example, doesn't consider Hezbollah a
terrorist group. They may not be as eager to work with us on
Hezbollah issues as a terrorist target, but they are very
concerned about the flow of drugs, and working with them on
targets that are related to Hezbollah that are also involved
with drugs is an opportunity.
Mr. Marshall. Thank you.
Mr. Smith. Mr. Kline.
Mr. Kline. Thank you, Mr. Chairman, and I thank the witness
for being here, for testifying, for the policy focus. And for
his recommendation that it might be in our interest to move as
quickly as we can to the classified portion, I will yield back.
Mr. Smith. Thank you. Mr. Murphy.
Mr. Murphy. Thank you, Mr. Chairman. Dr. Levitt, thanks for
your service to our country and the Treasury and your continued
service. We appreciate it.
Your testimony about getting everyone to sit around the
table, obviously there is concern after 9/11 of the failure of
the Intelligence Community to really connect the dots. The
Central Intelligence Agency (CIA) had pieces of information,
the National Security Agency (NSA) had pieces of information,
the FBI did, but they weren't working together to share
information for the big picture.
Is there a concern that the same situation is happening
again in our efforts to combat the terrorist financial
networks? Have analysts across the agencies been able to format
the data in a common manner that allows them to identify
patterns of unusual activity, kind of like allowing them to sit
around table and share within the same systems? If not, is
there a need to potentially create an interagency financial
intelligence unit to manage the data sourcing fusion analysis
and information?
Dr. Levitt. Thank you. When I was Deputy Assistant
Secretary at the Treasury, that was two hats; one was within
the Department, and the second was as Deputy Chief of
Treasury's Office of Intelligence and Analysis that made me
Deputy Chief of one of the 16 U.S. intelligence agencies.
It was my experience then, and, again, this is two years
old already, so I imagine it is even better now, that a
tremendous amount of progress had been made since the failures
of 9/11. In particular I saw it on the terror finance front. I
take great pride in the fact that Treasury Office of
Intelligence and Analysis (OIA) plays a big role in that and
was created by Congress to be the center of excellence on the
analysis of illicit finance and has done a great job. I take
even greater pride in the fact they have successfully become an
integrated part of the Intelligence Community, and that
Treasury's Terrorism and Financial Intelligence (TFI), more
largely has become an integrated part of the interagency policy
entity.
I don't want to go any more detailed than that because I am
not Treasury anymore, and I don't feel comfortable speaking for
them, but I can say this: In other areas that are of critical
importance for us today, for example counterradicalization, one
area of extremely successful interagency cooperation has been
not only large groups, but small groups that get together in a
classified setting and go across the full spectrum of white,
gray, black activity, completely open and completely
classified. I would like to see--and I don't know that it isn't
frankly, I am out--but it would be good if we had that type of
small-group synergy in other critical areas, including terror
finance. That may be happening, you guys can go into that in
the closed session, but that, to me, is critical.
Mr. Murphy. I got that. I guess the focus of my question,
though, is I want to make sure that the CIA isn't basically
generating data which are oranges, and, say, the FBI is getting
information in the form of apples.
Dr. Levitt. No.
Mr. Murphy. So I want to make sure that they are speaking
the same language in the format. Because you were there, say,
two years ago, do you feel that that has been addressed or that
still needs to be addressed?
Dr. Levitt. I do, I do.
Mr. Murphy. Thank you. I yield back to the Chairman.
Mr. Smith. Mr. Conaway.
Mr. Conaway. Thank you, Mr. Chairman. In your testimony you
talk about the reverting back to older technologies or
techniques. Clearly if they are using wires in the normal
banking system, we have got access in certain ways there. But
talk to us a little bit about how well or not well we are doing
in interdicting hawala and other nontraditional ways of moving
money around. Is there a role to play or improvements to be
made in trying to go at those systems, or are they so
inefficient or ineffective that it is really just at the edge?
Dr. Levitt. Whenever we take an action, adversaries will
take action to evade our actions. They will go more
sophisticated and less sophisticated. When we rely on
technology in particular, we have a handicap when our
adversaries go to less sophisticated means of moving money.
That doesn't mean that there is nothing we can do. We can use
traditional human sources; there are regulatory efforts we can
do.
There has been a lot of success in dealing with the hawala
issue in theaters like Iraq, for example, which you can talk
about later. There has been a lot of effort to leverage the
United Nations, for example, to do training for governments
like the emirates on regulation of hawaladars. And so I think
there are a lot of good things happening.
This is an area where we constantly have to assess and
reassess what are our vulnerabilities, and I have argued that
we cannot simply say, well, is there evidence that the
terrorists or adversaries are using this means yet? We have to
see where the vulnerability is and try and close that gap
before they use it. For example, the M-payments on cell phones
are a great example of this at the higher end.
Mr. Conaway. Thank you, Mr. Chairman. I yield back.
Mr. Smith. Thank you. Do any other Members have further
questions? Mr. Murphy.
Mr. Murphy. I just want to follow up on a question that
Representative Conaway kind of alluded to. In your earlier
testimony you said EU doesn't see Hezbollah as a terrorist
group. Obviously that is not helpful with our efforts. But how
about cooperation from Arab and Muslim countries, particularly
Saudi Arabia? I understand we are not in a classified setting,
so could you describe to the extent possible Saudi Arabia's
help? Granted you have been gone for two years from Treasury,
but from your approach now, could you give us a feel for how
cooperative Saudi Arabia has been?
Dr. Levitt. My understanding, and this is really from the
field research that Mike Jacobson and I did for the study,
there have been a lot of improvements throughout the gulf,
including Saudi Arabia, and there is still a lot more that has
to be done. The Saudi Arabian Monetary Agency, SAMA, was
described to us by a variety of officials in the gulf, in the
United States and elsewhere as the best agency of its kind in
the region, which is significant. But there is still a lot of
evidence that abuse of charity and other problems persist.
Some of the rules that the Saudis have passed to deal with
charities apply to some charities and not others, because
apparently, as it was explained to us by a Saudi official, the
Muslim World League and some of the other large entities based
in Saudi Arabia are considered by the Saudi Government to be
multinational organizations and are therefore not subject to
law.
But there has been a lot of improvement, we understand, in
terms of anti-money-laundering efforts not only in Saudi, but
elsewhere in the gulf. And it is important to note that our
concern is not only with the one country, Saudi Arabia, which
constantly is raised, but with others as well, and one country
that we found is in need of a good look right now in this
regard is Kuwait.
Mr. Murphy. Let me focus on the loophole of charities. With
Saudi Arabia specifically, are there any other efforts beside
closing up that loophole with charities in Saudi Arabia that
you could share with us?
Dr. Levitt. That, to me, I think, is the biggest issue
right now. Maybe the other one has been the long-standing and
simmering issue of whether or not there is an oversight
committee for charities. But I don't want to harp on this,
because it is my understanding that there has been a lot of
improvement on intelligence sharing and cooperation. And some
of the things that we can talk about in a negative light in an
open session can't be countered by things that maybe you guys
can discuss later. I think it is in the Saudis' interest, and I
think they understand that, to deal with this problem. They are
maybe not where we want them to be yet, but I think there is a
lot of improvement.
Mr. Murphy. How about as far as with Kuwait, you talk about
a need to focus our efforts on Kuwait. Can you elaborate that a
little bit?
Dr. Levitt. Several people that we interviewed for our
study told us that Kuwait today is like Saudi Arabia pre-2003,
meaning before the bombings, and that is a pretty significant
statement. One diplomat who is in the region explained to us,
you know, be aware of what you wish for. The Kuwaiti Parliament
is perhaps the most robust democratic Parliament in the region,
but it is dominated by people who see things differently than
we do. And there is a counterterror finance piece of
legislation pending that I understand the government is wary of
putting forward to the Parliament for fear that it will not
only be instantly rejected, but used by as a two-by-four with
which to hit the Amiri Diwan over the head.
If you follow the news in Kuwait, there is a lot of
political upheaval there right now. I think there are some
people in Kuwait who are trying to do the right thing. We met
with them in the context of our research. They are frustrated
with some of the problems they have right now, but this is
something that needs a good look.
Mr. Smith. Thank you very much. I think we have two who are
also going to testify here, and then we don't have the SCIF
until 4:30, so we do have a little time here. So I will get
General Fridovich and Mr. Frothingham up to the podium to
testify. And we thank you very much, Dr. Levitt, and the
committee will want to keep in touch with you as we move
forward on this issue. We really appreciate your written
statement. In particular it was very detailed and, I think,
very helpful to us. I appreciate it.
Dr. Levitt. I appreciate the opportunity, thank you.
Mr. Smith. Thank you, gentlemen, for testifying for us
today. We appreciate your help on this issue.
We have General Fridovich, who is the Director of Center
for Special Operations Command--sorry, Center for Special
Operations, United States Special Operations Command; and Mr.
Edward Frothingham, who is the Principal Director--your title
is a mouthful, but I will say it all--Principal Director for
Transnational Threats, Office of the Deputy Assistant Secretary
of Defense for Counternarcotics, Counterproliferation, and
Global Threats.
General Fridovich, would you like to lead off or--it's up
to you guys, really.
Mr. Frothingham. If you will.
Mr. Smith. Mr. Frothingham, you need to just pull it closer
there.
STATEMENT OF EDWARD FROTHINGHAM, III, PRINCIPAL DIRECTOR FOR
TRANSNATIONAL THREATS, OFFICE OF THE DEPUTY ASSISTANT SECRETARY
OF DEFENSE FOR COUNTERNARCOTICS, COUNTERPROLIFERATION, AND
GLOBAL THREATS
Mr. Frothingham. Good afternoon, Chairman Smith, Ranking
Member Miller and members of the committee. On behalf of
General Fridovich and myself, I want to thank you for the
invitation to appear and testify before you. We greatly
appreciate the opportunity to discuss tracking and disrupting
terrorist financial networks as a possible model for
interagency cooperation. We think we have a pretty good story
to tell.
If you will, sir, I would like to offer my written
testimony for the record and then perhaps make a few brief
comments instead.
Mr. Smith. Sure.
Mr. Frothingham. Sir, it has taken an indirect route to get
to where we are today. This process for the Department of
Defense started in 1998 when the Congress passed the Drug King
Pin Designation Act, which set up a scheme of having the
interagency nominate king pins for designation, and the
President then designating them, and then blocking property and
interests in property subject to the jurisdiction in the United
States.
In the time that that law has been in effect, the President
has designated 68 drug king pins and seven organizations. At
the time it was considered to be a very important matter, and
Congress acted appropriately, and we put together an
interagency cooperative process which has served as a base for
other things that we do in that field.
As time goes on, we were attacked by terrorists in 2001,
and the focus naturally turned to terrorism. In the process of
that, it also naturally turned to terrorist financing as one of
the things we needed to focus on. The government put together a
strategy for combating terrorism, and then a subsequent
strategy for dealing with terrorist finance, and also an action
plan for dealing with that.
And subsequently the Department of Defense, working through
this process with the creation of our office, decided that we
needed to add some coherence to the way we were doing threat
finance, terrorist finance, drug finance, proliferation
finance, and try and put it all into one hopper and deal with
it as a policy. So in December of 2008, the Deputy Secretary of
Defense created a policy that called for the Department to work
with U.S. Government departments and agencies with partner
nations to disrupt and degrade adversaries' ability to
negatively affect U.S. interest.
To carry out that direction, the Department focused on
three goals. The first was to validate that counterterrorist
finance or counterthreat finance was a DOD mission; two, to
educate both DOD and interagency on how DOD can support broad
U.S. Government efforts to attack illicit financial systems
that negatively affect U.S. interests; and three, to identify
and propagate new counterthreat finance methodologies for the
interagency.
With regard to the first, I think we have demonstrated to
ourselves and to many others that there is a causal
relationship between attacking or focusing on threat finance
and dealing with terrorist threats and other illicit
activities. With regard to the second goal, we learned that
when military commanders hear the term ``counterthreat
finance,'' many automatically assume a connection with Treasury
and State Department administrative sanctions. While these are
certainly the most public actions taken by the U.S. Government,
they constitute only one broad set of tools. Publicly blocking
bank accounts of individuals and organizations puts a spotlight
on them and increases the risk to any company or government
doing business with them, regardless of whether or not the
assets were actually frozen.
However, financial sanctions also legitimize additional
actions which can include both financial, nonfinancial
measures, and, in some limited cases, kinetic measures taken by
DOD. This is where the financial warfare and military
strategies converge. Most people think of financial warfare as
a substitute for military action, as a nonkinetic way to cure
bad behaviors. The better view is that financial warfare can be
a complement rather than a substitute for kinetic military
operations.
Sometimes the act of designation itself can motivate
financial institutions to conduct a thorough search of accounts
to determine if newly designated individual entities do not or
do have an asset that can be frozen. This may add to our
knowledge of specific accounts and provide insights and
information to which the U.S. Government and its partners would
not otherwise have access.
With regard to our third goal, given all the disparate
elements in the world of unconventional threats, narcotics
networks, transnational criminal organizations, terrorist
groups, et cetera, there should be a greater focus on putting
these pieces together in a more comprehensive picture that
would give the U.S. Government much-needed insights into their
vulnerabilities.
DOD has an opportunity to play a significant role in this
new strategic environment to work closely with other
departments or agencies to collaborate on identifying and, when
appropriate, disrupting illicit networks. In order to be
successful, however, DOD needs to fully embrace the ``whole of
government'' approach. Other departments and agencies possess
expertise and, more importantly, authorities to conduct
counterthreat finance activities. We need to be able to
leverage those authorities. These departments and agencies have
collaborated in the years subsequent to 2001 and have developed
a robust community for collaboration and coordination. DOD
should look for ways to plug into ongoing efforts to accomplish
these goals and help shape the new developing methodologies to
combat these threats.
Thank you for your interest, and, when you deem it
appropriate, I look forward to answering your questions.
Mr. Smith. Thank you.
[The prepared statement of Mr. Frothingham can be found in
the Appendix on page 38.]
Mr. Smith. General Fridovich.
STATEMENT OF LT. GEN. DAVID P. FRIDOVICH, USA, COMMANDER,
CENTER FOR SPECIAL OPERATIONS, UNITED STATES SPECIAL OPERATIONS
COMMAND
General Fridovich. Chairman Smith, Ranking Member Miller
and distinguished members of the House Armed Services
subcommittee, I have got a relatively lengthy document here I
would like to submit for the record, and just highlight just a
few things without using it, if that is all right with the
Chair, so we can get on with what you all would really like to
discuss. It is a very comprehensive piece. They worked hard on
it. I know the guys behind me would love for me to read it to
you all.
Mr. Smith. We have it in our books, and we all promise to
read it.
General Fridovich. What I would like to highlight is
USSOCOM clearly understands what authorities we have to do and
what we are not to do. We lead this effort on behalf of DOD,
and that authority is founded out of a plan called ``7500, The
War on Terror.'' It clearly spells that the Secretary of
Defense has asked SOCOM to synchronize the behavior. We have
got no compelling means and no empowerment to have the
interagency do anything at all with us; however, semiannually,
in April and in October, we hold global synchronization
conferences that bring together communities of interest a lot
like what Dr. Levitt referred to, and these are subject matter
experts; they are invited. If they come, they come.
We have had a very, very good, close relationship with
Treasury, with Justice, DEA. We have partners that work and
live with us all the time down in Tampa, and they reach back
into their organizations here and bring the right people to
really populate these groups. And we get after cross-functional
and now for the first time cross-functional deradicalization,
countering safe havens, countering terror finance, with the
right amount of people with the right brain power coming and
talking directly about problems that they can say, I have got
pieces of that that I can fix, with the notion that at the end
we outbrief to a senior executive committee at the three-,
four-star and director level, and that they hear there is
action and movement in the Concept Plan (CONPLAN) 7500 not just
from DOD, but from the interagency.
It is very compelling that people sign up for things
without ever being asked, just because it is within their
purview, the right thing to do, and we are actually making
headway in this area.
I think the thing that has changed from when the last
testimony was, July 2005, about this and what has grown is that
this group, this community of interest that has been led by
this Lieutenant Colonel Jim Bischoff, this big mass of a man
behind me here, has really taken the leadership for this group,
has brought it around. Very, very personality driven.
Interagencies shouldn't be like that, but we all know it is.
The more you hang around government, the more you understand
that relationships and personalities have a lot to do with how
successful you are. I would give a lot of the great credit to
Colonel Bischoff and Ed Jelks behind me, who has also taken the
counterdrug kind of narcoterrorism and brought those kind of
assets into this and personalities into it as well.
There are actually due-outs from the Department of Defense
perspective as to what we owe DOD, and a lot of that has to do
with being able to leverage technology, and being able to
leverage and keep current tactics, techniques and procedures
before what would be a global network to match a global
network. That is what we are looking at.
So as we expand, we are looking at a model and
institutionalizing a model that I would say is relatively
nascent. We have got people out. We are putting them out in
geographic combatant commands. They are trained. They are
specifically selected. We have great people populating our node
of this down in Tampa. Again, the right people; we are
selecting guys who got a very good law enforcement background,
contracting with them for a while and seeing if it is a good
fit, and looking for a longer-term bridging mechanism by which
we have them in our institution, and then taking them and
making sure we get them out to the field with, again, the right
idea, the right concepts, cross-culture, and being able to go
ahead and start leverage what their geographic combatant
commander wants them to do, country by country, understanding
that it is where we aren't. The global terror finance network,
obviously path of least resistance, if you go after one place,
as we say, it will morph, come up some other place. We have to
have this network that can overmatch globally, and we are
working towards that.
I will stop right there and go ahead and look forward to
your questions, gentlemen.
Mr. Smith. Thank you.
[The prepared statement of General Fridovich can be found
in the Appendix on page 46.]
Mr. Smith. Two broad areas. I will get as much as I can
here. One, I am trying to get a greater grasp on the personnel
brought to bear on this problem. There is the interagency piece
as you understand it, and you also contract out some of the
work that is done. So I guess, take an example, we have got a
cell that we are worried about that we learned about somewhere
in the world. I won't get specific about where. You are
tracking their financing. Who at SOCOM, who at DOD, and then
what agencies do you coordinate with? Who sends up the flag and
says, these are the people who need to get involved in making
this work? And if you could also specifically talk to us about
what contracting is done in that, if there is private
contractors that you bring into the loop on some of this work
as well.
General Fridovich. Do you want to start? Go ahead.
Mr. Frothingham. The way we start setting these things up
is we identify the requirement for a specific node to come
together; for example, Afghanistan. We already deal with the
people in the community, threat finance community, and we get a
consensus from the interagency that this is where we want to
go, and this is what we want to set up.
Mr. Smith. But who starts that conversation? Is that DOD or
someone at Treasury saying, hey, we see this problem here? Is
the Department of Justice--or who starts that conversation you
just described?
Mr. Frothingham. I think we will get into the specific
bodies, interagency threat finance organization, in the
classified section, but suffice it to say it comes from the
interagency that they identified a requirement to go to a new
area and develop another node. And then we come together and
determine how we are going to man that, and then we try and
figure out how we are going to resource that. We can get into
specifics in particular countries, and concrete examples might
help you a little bit more, but it is a community agreement.
Mr. Smith. General Fridovich.
General Fridovich. Thank you.
We have the ability through two different mechanisms down
at USSOCOM. We have got an interagency task force that is
manned and led by a Director, one-star Brigadier General, Air
Force, Bob Holmes, and they have a mission to look at the gaps
and seams of the world, because you all know that every
geographic combatant commander looks up into just about where
his boundary is and then no further, when, in fact, you have to
have a mechanism that looks global.
The unique aspect of USSOCOM is we have global
responsibilities, but no land that we own. We have got no
battle space, yet we are held somehow responsible and
accountable to making sure that things on the gaps and seams--I
think Pakistan and India is a great example, India in United
States Pacific Command (PACOM), Pakistan in United States
Central Command (CENTCOM). And where do things happen? There.
And that is the opportunity that terrorist networks look for,
and it is no different.
We have been given this mission, kind of an implied task,
to looks at the gaps and seams globally. So we do that. So it
starts down from a tactical-operational-strategic perspective
militarily. It starts down at USSOCOM through the interagency
task force, and also in our J-3 Operational Division where this
node, really a terror finance cell, works. And they work
through their partners in Treasury and Justice and the FBI and
DEA sharing information as best they can down there to see
where we might leverage the critical--somebody else's
authorities and opportunity, and then work the intel community
to start feeding that beast on a couple of levels, both down
there tactically and operationally, and then back up to the
National Capital region as well looking for the hybrid.
Mr. Smith. Thank you. I will yield back and go to Mr.
Miller, and with the committee's permission, after Mr. Miller
we will go down to the classified setting. Mr. Miller.
Mr. Miller. Let us go ahead to the classified setting, Mr.
Chairman.
Mr. Smith. We have about two minutes to kill before we run
Abercrombie out of the room.
Mr. Miller. If I could follow up with the Chairman's
comments in regards to contractors and the makeup, if you can.
What is the makeup of the personnel percentagewise, if you
will, of contractor and Reserve personnel and Active Duty? Can
you comment on that in open?
General Fridovich. I am going to defer to somebody who has
a good right answer instead of--there are about 12 people that
we have. It is a very, very good mix of intel. There are
contractors. The contractors we look to get have a law
enforcement--most case law enforcement skill set background so
they will know what they are looking at. And they bring that
culture to the military culture for us, which is very, very
different.
But I will stop right there and ask Colonel Bischoff to
give a better answer.
Mr. Smith. Colonel Bischoff, and identify yourself for the
record.
Colonel Bischoff. I work for the general. I am his Threat
Finance Chief. We do have about 12 folks right now, 10
contractors. One is retired DEA, one is retired CIA. We just
hired a retired FBI agent. So the skill set we are looking for
are the guys who have had a successful career in government,
primarily in law enforcement, because that is where we are
weak, in speaking back and forth and exchanging information
with law enforcement. A spate of them are also career DOD intel
types, but the guys we really look for, because that is our
weak spot, is the former law enforcement.
We have three full-time government employees we were able
to bring on last year, GS-12, 13, 14--I guess those
categorizations have changed to some pay band--and myself. And
then we have had a couple other Reserve majors who have rotated
through from time to time on six-month rotations.
Mr. Smith. Are those multiyear contracts that you enter
into with these retired folks?
Colonel Bischoff. Sir, no.
General Fridovich. No, sir, not for the first year. Again,
this is a nascent program we are looking at one year to see if
it is a good fit for everybody. And then after that we have the
option to go ahead and grow and write the contract multiyear.
But no, sir, not to start with. It didn't seem prudent to us
whether the marriage was going to work.
Mr. Smith. Right. And of course one of the questions that
occurred to me is that we have FBI agents, and we have Justice
Department people, and we are hiring retired ones, sending them
down to SOCOM instead of working with the ones who we have on
the job who presumably know what they are doing. I understand
there is probably a reason for that. I am sorry, Mr. Miller, go
ahead.
Mr. Miller. I couldn't have said it better, Mr. Chairman. I
think I have used my two minutes.
Mr. Smith. We will go downstairs and reconvene in B-337--
sorry, 2337. Go upstairs, my apologies, up to 2337.
[Whereupon at 4:33 p.m., the subcommittee proceeded in
Closed Session.]
=======================================================================
A P P E N D I X
March 11, 2009
=======================================================================
PREPARED STATEMENTS SUBMITTED FOR THE RECORD
March 11, 2009
=======================================================================
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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