[House Hearing, 112 Congress]
[From the U.S. Government Printing Office]
TERRORIST FINANCING SINCE 9/11: ASSESSING AN EVOLVING AL-QAEDA AND
STATE SPONSORS OF TERRORISM
=======================================================================
HEARING
before the
SUBCOMMITTEE ON COUNTERTERRORISM
AND INTELLIGENCE
of the
COMMITTEE ON HOMELAND SECURITY
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
MAY 18, 2012
__________
Serial No. 112-93
__________
Printed for the use of the Committee on Homeland Security
[GRAPHIC] [TIFF OMITTED]
Available via the World Wide Web: http://www.gpo.gov/fdsys/
__________
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78-153 WASHINGTON : 2013
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COMMITTEE ON HOMELAND SECURITY
Peter T. King, New York, Chairman
Lamar Smith, Texas Bennie G. Thompson, Mississippi
Daniel E. Lungren, California Loretta Sanchez, California
Mike Rogers, Alabama Sheila Jackson Lee, Texas
Michael T. McCaul, Texas Henry Cuellar, Texas
Gus M. Bilirakis, Florida Yvette D. Clarke, New York
Paul C. Broun, Georgia Laura Richardson, California
Candice S. Miller, Michigan Danny K. Davis, Illinois
Tim Walberg, Michigan Brian Higgins, New York
Chip Cravaack, Minnesota Cedric L. Richmond, Louisiana
Joe Walsh, Illinois Hansen Clarke, Michigan
Patrick Meehan, Pennsylvania William R. Keating, Massachusetts
Ben Quayle, Arizona Kathleen C. Hochul, New York
Scott Rigell, Virginia Janice Hahn, California
Billy Long, Missouri Vacancy
Jeff Duncan, South Carolina
Tom Marino, Pennsylvania
Blake Farenthold, Texas
Robert L. Turner, New York
Michael J. Russell, Staff Director/Chief Counsel
Kerry Ann Watkins, Senior Policy Director
Michael S. Twinchek, Chief Clerk
I. Lanier Avant, Minority Staff Director
------
SUBCOMMITTEE ON COUNTERTERRORISM AND INTELLIGENCE
Patrick Meehan, Pennsylvania, Chairman
Paul C. Broun, Georgia, Vice Chair Brian Higgins, New York
Chip Cravaack, Minnesota Loretta Sanchez, California
Joe Walsh, Illinois Kathleen C. Hochul, New York
Ben Quayle, Arizona Janice Hahn, California
Scott Rigell, Virginia Vacancy
Billy Long, Missouri Bennie G. Thompson, Mississippi
Peter T. King, New York (Ex (Ex Officio)
Officio)
Kevin Gundersen, Staff Director
Zachary Harris, Subcommittee Clerk
Hope Goins, Minority Subcommittee Director
C O N T E N T S
----------
Page
Statements
The Honorable Patrick Meehan, a Representative in Congress From
the State of Pennsylvania, and Chairman, Subcommittee on
Counterterrorism and Intelligence:
Oral Statement................................................. 1
Prepared Statement............................................. 3
The Honorable Brian Higgins, a Representative in Congress From
the State of New York, and Ranking Member, Subcommittee on
Counterterrorism and Intelligence.............................. 4
Witnesses
Mr. Jonathan Schanzer, Vice President of Research, Foundation for
Defense of Democracies:
Oral Statement................................................. 6
Prepared Statement............................................. 8
Mr. John A. Cassara, Private Citizen:
Oral Statement................................................. 9
Prepared Statement............................................. 11
Mr. Dennis M. Lormel, President and CEO, DML Associates, LLC:
Oral Statement................................................. 16
Prepared Statement............................................. 17
Ms. Sue E. Eckert, Senior Fellow, Watson Institute for
International Studies, Brown University:
Oral Statement................................................. 22
Prepared Statement............................................. 23
Appendix
Questions From Chairman Patrick Meehan for Jonathan Schanzer..... 31
Questions From Chairman Patrick Meehan for John A. Cassara....... 35
Questions From Chairman Patrick Meehan for Dennis M. Lormel...... 42
Questions From Chairman Patrick Meehan for Sue E. Eckert......... 50
Questions From Ranking Member Brian Higgins for Sue E. Eckert.... 53
TERRORIST FINANCING SINCE 9/11: ASSESSING AN EVOLVING AL-QAEDA AND
STATE SPONSORS OF TERRORISM
----------
Friday, May 18, 2012
U.S. House of Representatives,
Committee on Homeland Security,
Subcommittee on Counterterrorism and Intelligence,
Washington, DC.
The subcommittee met, pursuant to call, at 11:17 a.m., in
Room 311, Cannon House Office Building, Hon. Patrick Meehan
[Chairman of the subcommittee] presiding.
Present: Representatives Meehan, Long, and Higgins.
Mr. Meehan. The Committee on Homeland Security Subcommittee
on Counterterrorism and Intelligence will come to order.
The subcommittee is meeting today to hear testimony
regarding the evolution of al-Qaeda and state sponsors of
terrorism in regards to terrorism financing since September 11.
I now recognize myself for an opening statement.
I would like to welcome everyone to today's hearing of the
Subcommittee on Counterterrorism and Intelligence examining the
United States Government's approach to combating terrorist
financing more than a decade after the September 11 attacks. I
look forward to hearing from today's expert witnesses--and I
mean expert--on the unique role of terrorist financing and what
it plays in the war on terrorism and on the evolving trends in
this field.
The September 11 hijackers used United States and foreign
financial institutions to hold, move, and retrieve their money.
They deposited money into United States accounts via wire
transfer and deposits of travellers checks and cash that was
brought from overseas. They kept funds in foreign accounts,
which they accessed through ATMs and credit card transactions
here in the homeland. According to the September 11 Commission,
the plot cost al-Qaeda somewhere in the rage of $400,000 to
$500,000, of which approximately $300,000 passed through the
hijacker's bank accounts here in the United States.
After the attacks, the United States publicly declared that
the fight against al-Qaeda financing was as critical as the
fight against al-Qaeda itself. The charge of the United States
intelligence and law enforcement communities was clear: If we
choke off the terrorists' money, we limit their ability to
conduct mass casualty attacks.
Within months of the attacks, the Department of Defense,
the FBI, the CIA, and, perhaps most importantly, the Department
of Treasury launched a swift and unprecedented crackdown on
domestic and international terrorist financing. I am very
pleased, in fact, some of the very people who are responsible
for that are sitting on our expert panel today.
Since then, the Treasury's Office of Terrorism and
Financial Intelligence has played a critical intelligence and
enforcement role against terrorist financing through its dual
aims of safeguarding the United States financial system against
illicit use and combating rogue nation's terrorist
facilitators, money launderers, drug kingpins, and other
National security threats.
The Department of Treasury and the intelligence community's
successes against al-Qaeda financing and fundraising is without
question. In 2005, the 9/11 Commission issued a report card
that evaluated progress the Government had made in implementing
that group's recommendations. It gave the Government an A-. Not
too many A-'s at this day or any day in Government, but it gave
it an A- in combating terrorist financing, the best mark on the
scorecard.
But despite our successes, and this is important, we can't
become complacent. Because al-Qaeda and its affiliates continue
to expand their geographic reach worldwide. State sponsors of
terrorism like Iran and Syria are highly sophisticated, and
they continue to take advantage of the United States and
international financial systems in order to skirt international
sanctions.
The United States military and counterterrorism efforts
have largely decimated core al-Qaeda leadership in Afghanistan
and Pakistan, and the group is under significant financial
strain and is struggling to secure steady financing to plan and
execute attacks against the United States homeland and Western
interests.
The terrorist enemies we now face are more diverse,
diffuse, and decentralized than ever. Al-Qaeda and their
affiliates have concluded that, to bring America down, they
will attack with, ``smaller but more frequent operations,''
what some may refer to as the strategy of a thousand cuts. The
aim is to bleed the enemy, meaning us, to death.
In June 2011, the Obama administration released a National
Strategy for Counterterrorism, where the evolution of terrorist
financing was documented: AQAP receiving charitable donations
in Yemen, FARC, and the Taliban drug trafficking, Hezbollah's
drug and criminal activities, AQAM's link to drug trafficking
an kidnapping, and the role of Boko Haram and al-Shabaab in
kidnapping for ransom and extortion.
Hezbollah facilitators were particularly savvy in skirting
U.S. restrictions on terrorist financing and have been charged
in a number of high-profile criminal schemes. As a former
United States Attorney in Philadelphia, I initiated
investigations into Hezbollah's fund-raising activities that
included attempts to transport stolen laptop computers,
passports, and Sony PlayStation systems. A separate intricate
Hezbollah scheme illustrates the interconnectedness of these
networks where a Lebanese bank laundered money from Colombian
drug cartels and mixed it with proceeds from used car sales
that were bought in the United States and then sold in Africa.
The cash was then moved back into Lebanon and poured into
Hezbollah's coffers. Clearly, these groups are highly
innovative and motivated, and we must be up to the challenge.
Terrorist groups and state sponsors of terrorism turning to
criminal activities to set up additional networks to acquire
logistical support and to raise financial resources is another
evolving trend which could point to future activities of
terrorist financing.
Given this shifting trend and the relatively low amounts of
money required to undertake an attack, the United States
Government may need to recalibrate some of its tactics and
examine how the intelligence and law enforcement communities
and I believe also the financial entities--the private
financial entities will adapt their strategies in order to
address remaining vulnerabilities in combating terrorist
financing.
I thank the witnesses for the time to be with us today, and
I look forward to hearing from this distinguished panel.
[The statement of Mr. Meehan follows:]
Statement of Chairman Patrick Meehan
May 18, 2012
welcome
I'd like to welcome everyone to today's hearing of the Subcommittee
on Counterterrorism and Intelligence examining the U.S. Government's
approach to combating terrorist financing more than a decade after the
9/11 attacks.
I look forward to hearing from today's expert witnesses on the
unique role terrorist financing plays in the war on terrorism and on
the evolving trends in this field.
post-september 11 actions
The September 11 hijackers used U.S. and foreign financial
institutions to hold, move, and retrieve their money. They deposited
money into U.S. accounts via wire transfers and deposits of cash or
travelers checks brought from overseas. They kept funds in foreign
accounts, which they accessed through ATMs and credit card transactions
here in the homeland. According to the 9/11 Commission, the plot cost
al-Qaeda somewhere in the range of $400,000-$500,000, of which
approximately $300,000 passed through the hijackers' bank accounts in
the United States.
After the attacks, the United States publicly declared that the
fight against al-Qaeda financing was as critical as the fight against
al-Qaeda itself. The charge of the U.S. intelligence and law
enforcement communities was clear: If we choke off the terrorists'
money, we limit their ability to conduct mass casualty attacks.
Within months of the attacks, the Department of Defense, the FBI,
the CIA, and perhaps most importantly the Department of the Treasury,
launched a swift and unprecedented crackdown on domestic and
international terrorist financing.
Since then, Treasury's Office of Terrorism and Financial
Intelligence has played a critical intelligence and enforcement role
against terrorist financing through its dual aims of safeguarding the
U.S. financial system against illicit use and combating rogue nations,
terrorist facilitators, money launderers, drug kingpins, and other
National security threats.
today's hearing
The Department of the Treasury and the intelligence community's
successes against al-Qaeda financing and fundraising is without
question. In 2005, the 9/11 Commission issued a ``report card'' that
evaluated progress the Government had made in implementing the group's
recommendations. It gave the Government an ``A-'' in combating
terrorist financing--the best mark on the report card.
Despite our successes, we must not become complacent. Al-Qaeda and
its affiliates continue to expand their geographic reach worldwide.
State sponsors of terrorism like Iran and Syria are highly
sophisticated and continue to take advantage of the U.S. and
international financial systems in order to skirt international
sanctions.
new terrorist tools used in the fight
Since U.S. military and counterterrorism efforts have largely
decimated core al-Qaeda leadership in Afghanistan and Pakistan, the
group is under significant financial strain and is struggling to secure
steady financing to plan and execute attacks against the U.S. homeland
and Western interests.
The terrorist enemies we now face are more diverse, diffuse, and
decentralized than ever. Al-Qaeda and their affiliates have concluded
that to bring America down they will attack us with ``smaller, but more
frequent operations in what some may refer to as the strategy of a
thousand cuts. The aim is to bleed the enemy to death.''
This was the aim with the AQAP cargo bomb plot of October 2010,
where the group boasted that the overhead cost for the attack was only
$4,200 and would provoke the U.S. and Western countries to respond with
``billions of dollars in new security measures.''
In June 2011, the Obama administration released a National Strategy
for Counterterrorism, where the evolution of terrorist financing were
document: AQAP receiving charitable donations in Yemen; FARC and
Taliban drug trafficking, Hezbollah's drug and criminal activities,
AQIM's links to drug trafficking and kidnapping, and the role of Boko
Haram and al-Shabaab in kidnapping for ransom and extortion.
Hezbollah facilitators are particularly savvy in skirting U.S.
restrictions on terrorist financing and have been charged in a number
of high-profile criminal schemes. As a former U.S. Attorney in
Philadelphia, I initiated investigations into Hezbollah's fundraising
activities that included attempts to transport stolen laptop computers,
passports, and Sony PlayStation systems. A separate intricate Hezbollah
scheme illustrates the interconnectedness of these networks, where a
Lebanese bank laundered money from Colombian drug cartels and mixed it
with proceeds from used cars bought in the United States and then sold
in Africa where the cash was moved back to Lebanon and poured into
Hezbollah's coffers. Clearly these groups are highly innovative and
motivated and we must be up to the challenge.
Terrorist groups and state sponsors of terrorism turning to
criminal activities to set up additional networks, to acquire
logistical support, and to raise financial resources is another
evolving trend which could point to the future of terrorist financing.
Given this shifting trend, and the relatively low amounts of money
required to undertake an attack, the U.S. Government may need to
recalibrate some of its tactics and examine how the intelligence and
law enforcement communities will adapt their strategies in order to
address remaining vulnerabilities in combating terror financing.
conclusion
I thank the witnesses for taking the time to be with us today and I
look forward to hearing from this distinguished panel.
Mr. Meehan. The Chairman now recognizes the distinguished
Ranking Member of the Subcommittee on Counterterrorism, the
gentleman from New York, Mr. Higgins, for any statement he may
have.
Mr. Higgins. Thank you, Mr. Chairman.
Just briefly, in reference to your opening statement, we
have learned in prior hearings that Hezbollah, which is a
terrorist organization, a Shia Muslim group committed to
violent jihad, acts as a proxy for Venezuela, for Syria, and
for Iran. They have a presence in the 20-country region of
Latin America. Additionally, they have a presence in 15
American cities, including four major cities in Canada. We have
also been told that we are not to be too concerned about this,
that their activities are limited to fund-raising. Well, I see
the fund-raising activities by a terrorist group as an act of
terrorism, at least, at least in a preliminary way.
So those are some of the concerns that I have. But, in the
interest of time, I will submit my opening statement for the
record, so that we can get to the expert witnesses. Thank you
for being here.
Thank you, Mr. Chairman. I yield back.
Mr. Meehan. Thank you.
Other Members of the committee are reminded that opening
statements may be submitted for the record.
We are pleased to have a distinguished panel of witnesses
before us today, on this important topic.
Dr. Jonathan Schanzer is the vice president of research at
the Foundation for Defense of Democracies. He worked as a
terrorism finance analyst at the United States Department of
Treasury, where he played an integral role in the designation
of numerous terrorist financiers.
Dr. Schanzer has also worked for several other United
States-based think tanks, including the Washington Institute
for Near East Policy and Jewish Policy Center and the Middle
East Forum. He studied Middle East history in four countries
and most recently received his Ph.D. from King's College in
London where he wrote his dissertation on the U.S. Congress and
its efforts to combat terrorism in the 20th Century.
Mr. John Cassara enjoyed a 26-year career in the Federal
Government intelligence and law enforcement community as an
expert in anti-money laundering and terrorist financing. He
worked at the Department of Treasury's Financial Crimes
Enforcement Network, and this was the first institution set up
to take on the issue of terrorist financing, and at the United
States Financial Intelligence Unit. He was detailed to work in
the Office of Terrorism Finance and Financial Intelligence at
the Department of Treasury and the Department of State's Bureau
of International Narcotics and Law Enforcement Affairs and
Anti-Money Laundering Section. That had to be quite a business
card.
During his law enforcement investigative career, Mr.
Cassara conducted a large number of money laundering, fraud,
intellectual property rights, smuggling, and diversion of
weapon and high technology investigations. Just the scope of
that demonstrates the numerous schemes that are possible. These
investigations took place in Africa, the Middle East, and
Europe for a variety of Federal agencies, including directing
the first truly international money laundering task force and
serving as an undercover arms dealer.
Mr. Dennis Lormel is the president and CEO of DML
Associates, a full-service investigative consultancy. Mr.
Lormel retired from the Federal Bureau of Investigation in 2003
after 30 years of Government service and almost 28 as a special
agent in the FBI.
In December, 2000, he was appointed the chief of the FBI's
Financial Crimes Program. Following the terrorist attacks of
September, 2001, Mr. Lormel established and directed the FBI's
Terrorist Financing Initiative, which evolved into the
Terrorist Financing Operations Section within the
Counterterrorism Division. Since leaving law enforcement, he
has provided risk advisory consulting services and has served
as an advisor to the Congressional Anti-Terrorist Financing
Task Force.
The Honorable Sue Eckert is a senior fellow at the Thomas
J. Watson Institute at Brown University, where her research is
concentrated on making United Nations sanctions more effective
through targeting and combating the financing of terrorism.
Prior to joining Brown University, Ms. Eckert was employed
at the Institute of International Economics; and from 1993
until 1997, Ms. Eckert was appointed by President Clinton and
confirmed by the Senate as the assistant secretary of commerce
for export administration. Previously, she served on the
professional staff of the House of Representatives Committee on
Foreign Affairs. In addition, she has worked with business
groups and served on numerous working groups and committees
addressing security and technology issues.
I am very grateful for this panel. You bring in expertise
on an issue which I think is dramatically under-appreciated by
most Americans, and few realize the importance of this as we
conduct investigations and do our best to protect not just this
Nation but Western interests from around the world from
terrorist activity and threats.
A critical element is the ability to understand how they
are funded, how they are supported, how they operate, and we
have seen a remarkably changing capacity for them to do it. You
have been there at the front end of this. We really need your
insights to understand how things have evolved and what we
ought to be looking for to continue to do the best job that we
can to be on top of the ability to control their ability to
carry out acts of terrorism against us.
So, at this point, I appreciate your being here. We are
going to be called again to votes at 11:50, but we want to get
the benefit of your testimony. We are going to do as much as we
can to probe on questions as soon as we complete that. So I ask
you to do your best to focus on the essence of your testimony
and see if we can stay within the 5-minute period.
So the Chairman now recognizes Dr. Schanzer to testify.
STATEMENT OF JONATHAN SCHANZER, VICE PRESIDENT OF RESEARCH,
FOUNDATION FOR DEFENSE OF DEMOCRACIES
Mr. Schanzer. Chairman Meehan, Ranking Member Higgins, and
Members of the subcommittee, on behalf of the Foundation for
Defense of Democracies I thank you for the opportunity to
testify.
I base my testimony today on my experience as an analyst at
the U.S. Treasury's Office of Intelligence and Analysis, where
I worked from 2004 to 2007 and was directly involved in
designating several terrorist financiers.
Mr. Chairman, after the September 11 attacks, the U.S.
Treasury immediately went to work uncovering terrorist funds.
On September 23, President George W. Bush issued an Executive
Order designating terrorist entities that threatened America.
That list quickly grew and became a powerful tool for capturing
terrorist money.
The 9/11 Commission report at least in 2004 gave Treasury
high marks for its efforts, but in denying terrorists the use
of the formal banking sector, we have driven terror financing
underground, and we are now victims of our own success.
Terrorists have adapted in part by hatching cheaper plots. It
cost al-Qaeda of the Arabian Peninsula, AQAP, just $4,200 to
place two bombs on cargo planes in October, 2010. The group
bragged openly of this, underscoring that it is nearly
impossible now to stop such low-cost operations.
Other terrorist groups rely heavily on bulk cash smuggling
to evade detection with couriers delivering suitcases full of
cash to terrorist masterminds. Still others engage in trade-
based money launderings, where they plow illicit cash into
legitimate businesses to further finance terrorist activities.
Broadly speaking, terrorist financiers are increasingly
shifting to criminal activity. Earlier this year, U.S.
authorities indicted a vast Hezbollah network of money
laundering, cocaine deals, and more, exposing 30 U.S.-based car
dealerships that helped the group move cash. Similarly, Senator
Dianne Feinstein recently noted how the Taliban relies heavily
on profits from the heroin trade to finance its operations.
If this trend continues, it is reasonable to assume that
criminal investigations will play an increasingly prominent
role in U.S. efforts to counter terror finance. For its part,
Treasury must continue to issue designations, even if fewer of
them lead to actually capturing cash. The naming and shaming of
terrorist financiers lets them know that they are being
watched, and that helps to stem the flow of cash that can
finance attacks on the homeland or against allies abroad.
Designations can also expose key nodes of terrorist groups.
That has been critical in exposing al-Qaeda's relationship with
Iran. In July 2011, Treasury designated al-Qaeda leader Yasin
al-Suri and five others who moved money and recruits to
Pakistan, the Gulf, and Iraq. Treasury declared that al-Suri's
network operates as part of a ``secret deal'' between al-Qaeda
and the Iranian Government.
In January 2009, Treasury designated four other al-Qaeda
operatives in Iran. All of them, including Osama bin Laden's
son, Sa'ad bin Laden, served on al-Qaeda's executive council.
Of course, none of this comes as a surprise. The 9/11
Commission in 2004 expressed concern over the Iran-al-Qaeda
operational relationship, noting that it requires ``further
investigation by the U.S. Government.'' Treasury is doing just
that, and it shares its findings through the designation
process.
Remarkably, Treasury's robust counterterrorism program is
the only one of its kind in the world. None of America's allies
come close to our investment in human and financial resources
to combat terror finance. This can be blamed on a combination
of tight budgets and a lack of political will.
Though the international Financial Action Task Force, or
FATF, recently beefed up its standard, it is insufficient. FATF
allows members to self or mutually evaluate, operates according
to recommendations, and enables states like Saudi Arabia and
Qatar to give themselves high marks regardless of the
realities. The system is full of holes, and terrorists
predictably gravitate to the areas of weakest authority.
Looking ahead, Treasury's policy shop, the Office of
Terrorism Finance and Financial Crimes, TFFC, needs to prompt
both allies and adversaries to do more to combat terror
finance. But, for the short term, the most glaring challenge is
the threat of a nuclear Iran. On this front, Treasury has had a
real impact. Tehran now faces tougher sanctions than ever
before, and the regime is cash-strapped. Though Teheran
continues to push forward with its nuclear program, the regime
reportedly finds it increasingly difficult to bankroll
terrorist proxies, Hamas, and Hezbollah to the extent that it
had in the past. Admittedly, we may now be past the point where
economics can prevent a nuclear Iran, but Treasury's efforts
have nevertheless been instructive. They demonstrate that, if
properly applied, sanctions can truly diminish a state
sponsor's ability to finance terror.
Mr. Chairman, there are many other challenges on the
terrorism financing front that I did not have time to address
today. If I have missed anything you wish to discuss, I am
happy to answer your questions; and on behalf of the Foundation
for Defensive Democracies, I thank you for inviting me today.
[The statement of Mr. Schanzer follows:]
Prepared Statement of Jonathan Schanzer
May 18, 2012
Chairman Meehan, Ranking Member Higgins, and Members of the
subcommittee, on behalf of the Foundation for Defense of Democracies,
thank you for the opportunity to testify.
I base my testimony today on my experience as an analyst at the
U.S. Treasury Office of Intelligence and Analysis, where I worked from
2004 to 2007, and was directly involved in designating several
terrorist financiers.
Mr. Chairman, after the September 11 attacks, the U.S. Treasury
immediately went to work uncovering terrorist funds. On September 23,
President George W. Bush issued an Executive Order designating
terrorist entities that threatened America.\1\ That list grew quickly
and became a powerful tool for capturing terrorist money.
---------------------------------------------------------------------------
\1\ ``Executive Order on Terrorist Financing,'' September 23, 2001,
http://georgewbush-whitehouse.archives.gov/news/releases/2001/09/print/
20010924-1.html.
---------------------------------------------------------------------------
The 9/11 Commission report, released in 2004, gave Treasury high
marks for its efforts.\2\ But in denying terrorists the use of the
formal banking sector, we have driven terror finance underground, and
we are now victims of our own success.
---------------------------------------------------------------------------
\2\ http://govinfo.library.unt.edu/911/report/index.htm.
---------------------------------------------------------------------------
Terrorists have adapted, in part, by hatching cheaper plots. It
cost al-Qaeda of the Arabian Peninsula just $4,200 to place two bombs
on cargo planes in October 2010. The group bragged openly of this,
underscoring that it is nearly impossible to stop such low-cost
operations.\3\
---------------------------------------------------------------------------
\3\ See the November 2010 issue of AQAP's Inspire magazine: http://
info.publicintelligence.net/InspireNovember2010.pdf.
---------------------------------------------------------------------------
Other terrorist groups rely heavily on bulk cash smuggling to evade
detection, with couriers delivering suitcases full of cash to terrorist
masterminds.\4\ Still others engage in trade-based money laundering,
where they plow illicit cash into legitimate businesses to further
finance terrorist activities.\5\
---------------------------------------------------------------------------
\4\ John Diamond, ``Terror Funding Shifts To Cash,'' USA Today,
June 18, 2006, http://www.usatoday.com/news/washington/2006-06-18-
terror-cash_x.htm.
\5\ Avi Jorisch, Tainted Money: Are We Losing the War on Money
Laundering and Terrorism Financing? (VA: Red Cell Publishing, 2009),
pp. 95-104.
---------------------------------------------------------------------------
Broadly speaking, terrorist financiers are increasingly shifting to
criminal activity. Earlier this year, U.S. authorities indicted a vast
Hezbollah network for money laundering, cocaine deals, and more--
exposing 30 U.S.-based car dealerships that helped the group move
cash.\6\ Similarly, Senator Dianne Feinstein recently noted how the
Taliban relies heavily on profits from the heroin trade to finance its
operations.\7\
---------------------------------------------------------------------------
\6\ United States of America vs. Lebanese Canadian Bank, et al.
http://www.justice.gov/dea/pubs/pressrel/pr121511_filed-complaint.pdf.
\7\ ``GOP lawmaker concerned over strength of Taliban,'' Los
Angeles Times, May 4, 2012. http://latimesblogs.latimes.com/world_now/
2012/05/washington-us-intelligence-afghanistan-taliban-stronger-
president-obama.html.
---------------------------------------------------------------------------
If this trend continues, it's reasonable to assume that criminal
investigations will play an increasingly prominent role in U.S. efforts
to counter terror finance.
For its part, Treasury must continue to issue designations, even if
fewer of them lead to capturing terrorist cash. The naming and shaming
of terrorist financiers lets them know they're being watched. And that
helps us stem the flow of cash that can finance attacks on the homeland
or against allies abroad.
Designations also expose key nodes of terrorist groups. This has
been critical in exposing al-Qaeda's relationship with Iran.
In July 2011, Treasury designated al-Qaeda leader Yasin al-Suri and
five others who moved money and recruits to Pakistan, the Gulf, and
Iraq. Treasury declared that al-Suri's network operates as part of a
``secret deal'' between al-Qaeda and the Iranian government.\8\
---------------------------------------------------------------------------
\8\ ``Treasury Targets Key Al-Qa'ida Funding and Support Network
Using Iran as a Critical Transit Point,'' July 28, 2011, Page Content
http://www.treasury.gov/press-center/press-releases/Pages/tg1261.aspx.
---------------------------------------------------------------------------
In January 2009, Treasury designated four other al-Qaeda operatives
in Iran. All of them, including Osama bin Laden's son, Sa'ad bin Laden,
served on al-Qaeda's executive council.\9\
---------------------------------------------------------------------------
\9\ ``Treasury Targets Al Qaida Operatives in Iran,'' January 16,
2009. http://www.treasury.gov/press-center/press-releases/Pages/
hp1360.aspx.
---------------------------------------------------------------------------
Of course, none of this comes as a surprise. The 9/11 Commission in
2004 expressed concern over the Iran-al-Qaeda operational relationship,
noting that it required ``further investigation by the U.S.
government.'' Treasury is doing just that, and it shares its findings
through the designation process.
Remarkably, Treasury's robust counter-terrorist program is the only
one of its kind in the world. None of America's allies come close to
our investment in human and financial resources to combat terror
finance. This can be blamed on a combination of tight budgets and a
lack of political will.
Though the international Financial Action Task Force (FATF)
recently beefed up its standards,\10\ it is insufficient. FATF allows
member states to self-evaluate, and operates according to
``recommendations,''\11\ enabling states like Saudi Arabia and Qatar to
give themselves high marks, regardless of the realities. The system is
full of holes, and terrorists predictably gravitate to the areas of
weakest authority.
---------------------------------------------------------------------------
\10\ Amit Kumar, ``The Revised FATF Standards: A Shot in the Arm
for Countering the Financing of Terrorism Efforts,'' April 16, 2012,
Center for National Policy, http://cnponline.org/ht/display/
ViewBloggerThread/i/37450/pid/35636.
\11\ See the FATF mandate here: http://www.fatf-gafi.org/media/
fatf/documents/FINAL%20FATF%20MANDATE%202012-2020.pdf.
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Looking ahead, Treasury's policy shop--the Office of Terrorism
Finance and Financial Crimes\12\--needs to prompt both allies and
adversaries to do more to combat terror finance. But for the short
term, the most glaring challenge is the threat of a nuclear Iranian.
---------------------------------------------------------------------------
\12\ See: http://www.treasury.gov/about/organizational-structure/
offices/Pages/Office-of-Terrorist-Financing-and-Financial-Crimes.aspx.
---------------------------------------------------------------------------
On this front, Treasury has had a real impact. Tehran now faces
tougher sanctions than ever before, and the regime is cash-strapped.
Though Tehran continues to push forward with its nuclear program, the
regime reportedly finds it increasingly difficult to bankroll terrorist
proxies Hamas and Hezbollah to the extent it had in the past.
Admittedly, we may now be past the point where economics can
prevent a nuclear Iran. But Treasury's efforts have nevertheless been
instructive. They demonstrate that, if applied properly, sanctions can
truly diminish a state sponsor's ability to finance terror.
Mr. Chairman, there are many other challenges on the terrorism
financing front that I did not have time to address today. If I have
missed anything you wish to discuss, I am happy to answer your
questions.
On behalf of the Foundation for Defense of Democracies, I thank you
again for inviting me here today.
Mr. Meehan. Thank you, Doctor. Very grateful for your
testimony.
The Chairman now recognizes Mr. Cassara to testify.
STATEMENT OF JOHN A. CASSARA, PRIVATE CITIZEN
Mr. Cassara. Chairman Meehan, Ranking Member Higgins, and
Members of the subcommittee. Thank you for the opportunity to
testify today. It is an honor for me to be here. While there
are no simple solutions to all of the challenges identified by
this subcommittee, I believe there are three realistic and
cost-effective steps we should take.
Mr. Chairman, I believe you used the term ``recalibrate
tactics.'' I think that is a very, very good way of putting it.
I have broadly categorized my proposed recalibrations, if you
will, as transparency, technology, and draining the swamp. The
three are intertwined and complementary. I elaborate upon them
in my written statement. Because of time constraints, I will
just briefly summarize them.
Let's begin with transparency. Shortly after the September
11 terrorist attacks, I had a very interesting conversation
with a Pakistani businessman involved in the gray markets and
the underworld of crime. He told me something I will never
forget. He said: Mr. John, don't you understand that criminals
and terrorists are moving money and transferring value right
under your noses? But the West doesn't see it. Your enemies are
laughing at you. His words infuriated me because I knew he was
right. I worked overseas for years with frequent travels to the
Arabian Peninsula, Africa, South Asia. I became intrigued with
the opaque, indigenous, but very effective ways of transferring
money and value so different from our own. For example, the
Pakistani businessman was referring to various forms of what we
would loosely call trade-based money laundering. It involves
the transfer of value via commodities and trade goods.
In addition to simple but effective customs fraud, trade-
based value transfer is often used to provide counter-
valuation, or a way of balancing the books in many global
underground financial systems, including some that are used to
finance terror. Without going into detail, some of these trade-
based value schemes are found in hawala networks, most other
regional forms of alternative remittance systems, the Afghan
transit trade, suspect international Lebanese Hezbollah
networks, trading syndicates, and non-bank lawless regimes in
the Horn of Africa.
Now, in theory, spotting anomalies in trade data and
overlapping these anomalies with financial data transportation
data, travel data, would allow us to kind of peer into these
underground networks by in effect going in through the back
door.
When a buyer and seller are working together, the price of
a good or a service can be whatever they want it to be. There
is no invoice police. Now, this is a very simple example. This
pen, it is a nice pen. Let's say it cost roughly $50. Buyer and
seller, via, say, false invoicing could overvalue this to say
it is worth $100. Simply, similarly, they could undervalue it
to show it is worth say $10, or say even $1. Now, why is this
important? Well, to move money out of a country, participants
import goods at overvalued prices or export goods at
undervalued prices. To move money into a country, the
participants import goods at undervalued prices, or export
goods at overvalued prices. For the most part, all of this
avoids countries' financial transparency reporting
requirements. We are not picking this up. This vulnerability is
what Osama bin Laden himself once himself called cracks in the
Western financial system.
I once had a conversation with an Iranian freight forwarder
in Dubai and I was talking about this type of money laundering,
trade manipulation, over- and under-invoicing. He says to me:
Mr. John, money laundering, but that is what we do. Precisely,
it is the way of life out there. It is the way they do
business.
Now, in order to help combat this type of trade-based money
laundering the Department of Homeland Security's Immigrations
and Customs Enforcement, or ICE, established the world's first
trade transparency unit, or TTU. There are approximately eight
additional TTUs in the Western hemisphere and more planned.
Congress can help promote transparency by ensuring the U.S. TTU
has sufficient resources to systematically examine trade fraud
in the United States for reasons of both National security and
to enhance our revenue. Our TTU should be encouraged to further
expand the TTU network overseas, particularly in areas where
adversaries operate, and we should also promote trade
transparency overseas by building it into the U.S. trade
agenda.
Let me briefly switch now and talk about technology. Over
the last few years, there have been tremendous advances in the
amount of data collected and available for analysis. Just a few
examples include financial, trade, and transport data.
Communications and social networking are growing exponentially.
Industry calls these record sets of information big data.
Concurrently, there have been major advances in data
warehousing, data mining, and advanced analytics. I am not a
technical person; however, I am excited about some of the new
tools and resources that have been recently developed to
exploit big data and help the modern criminal investigator. Yet
those tools are not in our investigators' hands, not at the
Federal, State, or local level. I am convinced the only way we
are going to realistically stay abreast of some of these
challenges we face in financial crimes and terror finance is to
use technology as a force multiplier.
Now, if we are talking about financial data, we have to
talk about Treasury's Financial Crimes Enforcement Network,
FinCEN. FinCEN is mandated to collect, analyze, and disseminate
financial intelligence. FinCEN is the gatekeeper and should be
the U.S. Government's premier financial crimes resource.
However, as I documented in my first book, ``Hide and Seek:
Intelligence, Law Enforcement, and the Stalled War on Terrorist
Finance,'' FinCEN has never lived up to its early promise and
potential. The expertise and managerial will simply do not
exist to fully exploit the data and----
Mr. Meehan. I am going to have to, because we are going to
get called. It is all worth developing in our follow-up
questions. Let me ask if I can: Is there a quick point you want
to make in summary?
Mr. Cassara. No, I refer the committee to my statement, and
my statement elaborates on these points.
[The statement of Mr. Cassara follows:]
Prepared Statement of John A. Cassara
May 18, 2012
Chairman Meehan, Ranking Member Sanchez, and Members of the
Subcommittee on Counterterrorism and Intelligence, thank you for the
opportunity to testify today. It is an honor for me to be here.
In 2005, I retired after a 26-year career as a case officer for the
Central Intelligence Agency and as a special agent for the U.S.
Department of Treasury. I believe I am the only individual to have ever
been both a covert case officer and a Treasury special agent.
Much of my career with Treasury was involved with combating
international money laundering and terror finance. I currently work as
a contractor and consultant for a number of U.S. departments, agencies,
and business enterprises, although the views that I express here are
only my views and not necessarily representative of these
organizations. I have been fortunate to continue my domestic and
international travels primarily providing training and technical
assistance in financial crimes enforcement. I have written three books
on terror finance and numerous articles. I have direct experience with
many of the issues being discussed here today.
A few days after the most successful terrorist attack in U.S.
history, President George W. Bush stated, ``Money is the lifeblood of
terrorist operations. Today we are asking the world to stop payment.''
We are meeting here this morning in part to ask whether that request
has been fulfilled and, if not, what more can and should be done.
The short answer is both ``yes'' and ``no.'' Completely eradicating
terror finance is impossible. There is no magic bullet. Yet after 10
years of concerted effort, it is now harder, costlier, and riskier for
terrorists to raise and transfer funds, both in the United States and
around the world. That's the good news. Unfortunately, there is no
doubt that our financial countermeasures have not been as smart or
efficient as they could be and that we will continue to face new
challenges in the coming years.
The learning curve has been steep. For example, in the years
immediately after September 11, most policymakers within the Treasury
Department were convinced that ``financial intelligence'' or Bank
Secrecy Act (BSA) data was the key to following the terrorist money
trail. They had misplaced faith in the approximately in (2012 numbers)
17 million pieces of financial data that are filed annually with
Treasury, including approximately 1 million Suspicious Activity Reports
(SARs). This is in addition to the countless millions of additional
pieces of financial information filed around the world. This data comes
from a wide variety of sources, including banks, money service
businesses, and individuals.
``Financial intelligence,'' also known as ``BSA data,'' or
``financial transparency reporting requirements'' was initiated during
the early years of the ``War on Drugs'' when enormous amounts of
illicit proceeds from the international narcotics trade regularly
sloshed around Western financial institutions. So it is important to
understand the financial reports were not originally designed to combat
terror finance where small amounts of both illicit and licit monies are
commonly used. It shouldn't really be a surprise that out of the tens
of millions of pieces of financial intelligence filed annually in the
United States and around the world not one piece of financial
intelligence was filed on any of the 19 September 11 hijackers. And
even if there had been, the United States did not have the programs and
management structures in place that would have detected the suspicious
financial activity. I say this with confidence because I worked at
Treasury's Financial Crimes Enforcement Network (FinCEN) at the time. I
demonstrated the failings in my first book, Hide & Seek: Intelligence,
Law Enforcement and the Stalled War on Terror Finance (Potomac Books,
2006). The same dearth of financial intelligence has subsequently held
true for major terrorist attacks from Bali to Baghdad.
Although the last 10 years have demonstrated that financial
intelligence here and abroad is not the panacea for counter-terrorist
finance, much of the financial data does contain excellent information
and some has proved vital in ``connecting the dots.'' The data is
invaluable in money laundering and other investigations. That being
said, it is not being effectively exploited.
Over the past 10 years, our adversaries' operational and financial
tactics have evolved. We are faced with immense challenges. The
situation is made worse by the comparatively small amounts of funding
involved with terror finance. For example, it is estimated that
September 11 cost al-Qaeda approximately $300,000-$500,000. Even this
relatively small amount towers over the recent attempt to hide
explosives in a printer cartridge aboard an air cargo flight to the
United States. Al-Qaeda in the Arabian Peninsula boasted in its on-line
magazine that, ``It is such a good bargain for us to spread fear
amongst the enemy and keep him on his toes in exchange for a few months
work and a few thousand dollars.''
While there are no simple solutions to all of the challenges
identified by this subcommittee, I believe there are some
straightforward and cost-effective steps we should take. I have broadly
categorized them as technology, transparency, and draining the swamp.
The three are intertwined and complimentary.
technology
Over the last few years, there have been tremendous advances in the
amount of data collected and available for analysis. Just a few
examples include financial, trade, transport, and travel data.
Communications and social networking are growing exponentially.
Industry calls these record sets of information, ``big data.'' I will
not discuss the collection of classified data.
Concurrently, there have been major advances in data mining and
advanced analytical capabilities that can help organizations derive the
``intelligence'' from this vast amount of data. Data warehousing and
retrieval are enhanced by cutting-edge technologies that search, mine,
analyze, link, and detect anomalies, suspicious behaviors, and related
or interconnected activities and people. Fraud frameworks can be
deployed to help concerned Government agencies and departments detect
suspicious activity using scoring engines that can both rate, with high
degrees of statistical accuracy, behaviors that warrant further
investigation while generating alerts when something of importance
changes. Predictive analytics use elements involved in a successful
case or investigation and overlays these elements on other data sets to
detect previously unknown behaviors or activities, enhancing and
expanding an investigator's knowledge, efforts, productivities while
more effectively deploying resources. Social network analytics helps
investigators detect and prevent criminal activity by going beyond
individual transactions to analyze all related activities in various
mediums and networks uncovering previously unknown relationships.
Visual analytics is a high-performance, in-memory solution for
exploring massive amounts of data very quickly. It enables users to
spot patterns, identify opportunities for further analysis, and convey
visual results via web reports or the iPad. Moreover, it is now
possible to engineer ``red flag indicators'' in financial reports--both
within the Government and in commercial enterprises that file the
information--that will identify likely suspect methodologies such a
hawala or trade-based money laundering.
Unfortunately, while the Federal Government is beginning to
incorporate these advanced analytical capabilities, it lags far behind
in its deployment of commercially available and viable technologies. As
a subset, the Federal financial investigative resources trail even
further behind. FinCEN is mandated to collect, house, analyze, and
disseminate financial intelligence. FinCEN should be the U.S.
Government's premier financial crimes resource. However, FinCEN has
never lived up to its early promise and potential. One important
problem with FinCEN is that although it has attempted to implement a
number of data mining activities over the years, they have not been
successful. Recently, progress has been made developing and employing
new analytical tools. However, the FinCEN analysts are only able to use
perhaps 10 percent of their new analytical capacity. The expertise and
managerial will simply do not exist to fully exploit many of the tools
now finally at their disposal.
Within the next few years, it is estimated that approximately 500-
700 million additional pieces of financial information in the form of
wire transfer data will be routed annually to FinCEN. If FinCEN is not
able to successfully analyze the current 1 million BSA filings it
receives annually it is highly doubtful that it will succeed with this
new tasking. Yet law enforcement and intelligence professionals should
have access to the data and be able to interpret it. Technology will be
the force multiplier and the only realistic solution to effectively
exploit current and new streams of financial data.
In order to move forward, we must move to get around the FinCEN
impediment. I propose that we ``downstream'' both financial information
and analytics platforms directly to end-users in the law enforcement
community. For example, the financial data and an accompanying user-
friendly analytics platform could be made directly accessible to
various task forces, U.S. attorney offices, regional Suspicious
Activity Report (SAR) review teams, appropriate Federal, State, and
local law enforcement departments and agencies. Since FinCEN is
mandated by the Department of Treasury to administer the Bank Secrecy
Act (BSA) and accompanying data, FinCEN could license and control the
release of the data and the analytics platform.
Moreover, in my discussions with members of the U.S. intelligence
and defense communities, frustration is often expressed that they do
not have direct access to appropriate and targeted financial databases
that intersect with their international areas of responsibility.
Instead of looking for ways to increase the dissemination of necessary
data, legal advisors within Treasury work to impede the release of
information. While I certainly understand and endorse privacy and other
concerns, the technology exists today to engineer safeguards into the
dissemination of the data to prevent abuse. I urge that our colleagues
be given increased access to this vital information in order to help
safeguard our security.
transparency
Shortly after the September 11 terrorist attacks, I had a
conversation with a Pakistani businessman involved with the underworld
of crime. He was involved in the gray markets of South Asia and the
Middle East. He said, ``Mr. John, don't you know that the criminals and
the terrorists are moving money and transferring value right under your
noses? But the West doesn't see it. Your enemies are laughing at you.''
His words infuriated me because I knew he was right. I worked
overseas for years with frequent travels to the Arabian peninsula,
Africa, and South Asia. For the most part, U.S. officials could not
understand or identify the opaque, indigenous, but very effective ways
of transferring money and value so different from our own. For example,
the above Pakistani businessman was referring to various forms of what
we loosely call ``trade-based money laundering.'' It involves the
transfer of ``value'' via commodities and trade goods. In addition to
customs fraud, trade-based value transfer is often used to provide
``counter-valuation'' or a way of balancing the books in many global
underground financial systems--including some that have been used to
finance terror.
In theory, by promoting trade transparency and using technology to
spot anomalies in trade data (and overlapping those flagged anomalies
with financial, travel, transportation, law enforcement, and other
databases) we may be able to use trade as a ``back door'' to enter into
previously hidden underground financial networks.
Trade-based money laundering scams take a wide variety of forms.
For example, it could be simple barter or a commodity-for-commodity
exchange. In certain parts of Afghanistan and Pakistan, for example,
the going rate for a kilo of heroin is a color television set. Drug
warlords exchange one commodity they control (opium) for others that
they desire (luxury and sports utility vehicles). In the United States
and Mexico, weapons go south and drugs come north. However, generally
speaking, money laundering and value transfer through simple invoice
fraud and manipulation are most common. The key element here is the
misrepresentation of the trade good to transfer value between importer
and exporter. The quantity, quality, and description of the trade goods
can be manipulated. The shipment of the actual goods and the
accompanying documentation provide cover for ``payment'' or the
transfer of money. The manipulation occurs either through over- or
under-valuation, depending on the objective to be achieved. To move
money out of a country, participants import goods at overvalued prices
or export goods at undervalued prices. To move money into a country
participants, import goods at undervalued prices or export goods at
overvalued prices. For the most part, all of this avoids countries'
financial intelligence reporting requirements.
Trade-based value transfer is found in every country around the
world. I believe it is the ``new frontier'' in international money
laundering and counter-terrorist finance countermeasures. Without going
into detail, trade-based value transfer is found in hawala networks,
most other regional ``alternative remittance systems,'' the misuse of
the Afghan Transit Trade, Iran/Dubai commercial connections, suspect
international Lebanese/Hezbollah trading syndicates, non-banked lawless
regimes such as Somalia, etc.
I have written extensively about trade-based money laundering. I
invented the concept of trade-transparency units (TTUs), which is now
part of the U.S. Government National Anti-Money Laundering Strategy. I
am delighted that the Department of Homeland Security's Immigration and
Customs Enforcement (ICE) has adopted this concept by establishing the
world's first TTU. There are approximately eight additional TTUs in the
Western Hemisphere and more TTUs are planned.
In addition to being an innovative countermeasure to trade-based
money laundering and value transfer, systematically cracking down on
trade-fraud is a revenue enhancer for participating governments.
Frankly, it is for this reason that many countries outside of the
United States have expressed interest in the concept. In essence, these
governments understand that they are not collecting the appropriate
amount of duties on the goods because the values on the invoices are
mis-stated. Finding new revenue, without actually having to raise tax
rates, is an economic imperative.
TTUs are already proving to be valuable resources for our
government and international partners. For example, in 2008 the United
States and Mexico partnered in the creation of a TTU in Mexico City.
Such efforts should be promoted and expanded. Congress can help by
ensuring that the TTUs have sufficient resources to systematically
examine trade fraud in the United States for reasons of both National
security and to enhance our revenue. We should also promote trade
transparency overseas by building it into the U.S. trade agenda.
drain the swamp
Since the end of the Cold War, there has been a dramatic decline in
the number of countries that support and finance targeted acts of
terrorism in order to achieve their national objectives. Today, Iran is
the major ``state sponsor'' of terrorism. In the early days of al-
Qaeda, the terrorist group received much of its financial resources
from Osama bin Laden's personal family wealth, along with contributions
from wealthy Saudi and other donors. Today, al-Qaeda and other jihadist
groups have been forced to disperse and receive little centralized
direction or funding. This is the good news.
With the decline of the above historical model--that is, groups
with centralized command and control receiving most of their money from
``state sponsors,'' evil regimes, and wealthy donors--terrorists and
their supporters must increasingly rely on self-finance. In many cases,
a symbiosis is developing between organized crime and terrorist
organizations, and this sort of link has been observed around the
world. As I detail in a book I co-authored with former Treasury
official Avi Jorisch, On the Trail of Terror Finance: What Law
Enforcement and Intelligence Officers Need to Know (Red Cell Publishing
2010) we have observed individual terrorists and terrorist groups
involvement with narcotics trafficking, intellectual property rights
violations or trafficking in counterfeit goods, cigarette smuggling,
robberies, credit card scams, fraud, trafficking in stolen cars,
kidnapping for ransom, extortion, and other serious crimes.
Unfortunately, self-finance in this way is much harder to detect,
track, and disrupt.
Given the above, ``draining the swamp'' or cracking down at home
and abroad on local and transnational financial crime might eventually
become one of the most effective strategies to combat terrorism. Even
the U.S. military and international peacekeeping forces operating in
lawless states have come to recognize that their adversaries, many with
terrorist links, increasingly engage in traditional crime to help
finance their activities.
For this strategy to succeed, law enforcement, intelligence, and
military organizations must learn to look beyond the immediate
circumstances of a given local crime. Whether they are confronted with
narcotics trafficking, organized robbery, human trafficking or other
activities, street cops, criminal investigators, and analysts alike
must learn to ask whether these seemingly isolated acts have more
sinister ties. Officials, both in the United States and overseas, must
learn to ``ask the next question'' during the course of routine
investigations: Where is the money going?
Yet most law enforcement officers get caught up in the quick
statistic. That is how they are recognized and rewarded. They are not
interested, often times not allowed, and do not have the networks to
determine if the local crime they uncovered has broader implications.
In my travels around the United States and overseas, I have
observed first-hand how little law enforcement groups actually know
about following the money. It is particularly shocking because outside
of crimes of passion, criminals and criminal organizations engage in
criminal activity because of greed; i.e., money. For example, Karachi,
Pakistan's largest city and economic hub, is heavily infiltrated by
militants and terrorists making money through criminal activities such
as cigarette smuggling, selling counterfeit goods, bank robbery, street
robbery, kidnapping for ransom, and other heinous crimes. Mr.
Sharfuddin Memon, a director of a Karachi citizens' crime watch group,
described the motivations behind this activity: ``The world thinks this
is about religion, but that's a mistake. It's about money and power.
Faith has nothing to do with it.''
I urge Congress to support effective training programs that educate
law enforcement and intelligence officers on the importance of ``asking
the next question'' and following the money trail. I also believe we
should make much more concerted efforts--using various means--to work
with international public media and other communications networks and
brand terrorists for what they are: International thugs. They should
not be allowed to glorify themselves. The last 10 years have
demonstrated that criminals are using jihad as a concept to legitimize
their activities. By using publicity, transparency, and draining the
swamp we will delegitimize them.
As I said at the outset, our enemies are adept at exploiting the
weaknesses in the U.S. financial reporting system. Osama bin Laden once
called these ``cracks in the Western financial system.'' Their
financial behavior has evolved. I also mentioned new financial threats
on the horizon. Some of these include pre-paid gift and stored value
cards; service-based laundering; mobile payments commonly referred to
as ``m-payments'' or the use of cell phones to store, receive, and
transmit money; digital currencies; virtual currencies in the on-line
virtual world, etc. Unfortunately, time does not permit a full review.
However, many of these and other financial threats and countermeasures
that may merit scrutiny by this subcommittee were articulated over 5
years ago in the 2007 National Money Laundering Strategy written by the
Departments of Treasury, Justice, and Homeland Security. The document
was a blueprint for further action in the areas of financial crimes and
threat finance. Unfortunately, in many areas, little or nothing has
been done. I urge the subcommittee to review the document and ask hard
questions about progress to date.
``Without money there is no terrorism.'' While this is a simplistic
formula, our adversaries know that they need money to survive and fund
their operations. They are proving adept and creative at finding new
ways to access this lifeblood. I have profound respect for our
intelligence and enforcement communities. The challenges they face in
following illicit financial trails are immense.
I appreciate the opportunity to appear before you today and I'm
happy to elaborate on my experiences and to answer any questions you
may have.
Mr. Meehan. Anybody who is watching these hearings should
appreciate the tremendous amount of work that went into the
written testimony, which is far more expansive, and I think
lays out for those who are studying this issue.
Mr. Lormel, let me turn to you for 5 minutes before we--and
Ms. Eckert. Thank you.
STATEMENT OF DENNIS M. LORMEL, PRESIDENT AND CEO, DML
ASSOCIATES, LLC
Mr. Lormel. Thank you, sir. I appreciate----
Mr. Meehan. May want to push your button.
Mr. Lormel. Sorry. I appreciate the fact you are having
this hearing and I admire your desire to continue this. It is
very heartening to see that the committee wants to address this
topic. It is very important.
I was in a unique position on 9/11. I was in a position of
leadership in the FBI where I got to follow the money, and I
saw first-hand in the 3 years that I was there how well we used
proactive techniques. One of the things that you are interested
in are investigative techniques and tactics. How we succeed is
being proactive. How we succeed is to look at financial
information and how we can take financial intelligence and use
it from a strategic, tactical, and historic standpoint, and use
that in furtherance of investigative initiatives. We did it
then. The Government is doing it today, and they do it pretty
well, but we can do things better than what we do, and I hope
that the committee can come away with that sense in going back
and looking and assessing the Government on some of these
issues.
In any event, let me start with the Government and the
private sector in terms of perspectives. Perspective is very
important, and the Government and private sector have some good
partnerships, but we can partner better. One of the things we
have to look at is the Bank Secrecy Act and the important of
bank secrecy information and how we can use that in furtherance
of investigative developments and initiatives. Quite frankly,
when you look at the Bank Secrecy Act you are looking at
identifying suspicious activities in terms of who, what, when,
where, how. When it comes to the private sector they are
interested in the how. The Government is interested in the why.
So we have to blend those two and bring them together better
than we do. Terrorists, and you said it in your statement, Mr.
Higgins said it, and I have heard it here with the other
panelists, of how challenged we are in terms of moneys being
used differently and smaller denominations of moneys being
used. So the Government is more challenged in terms of
identifying terrorist financing. That goes to the fact that
again, going back to the financial sector, it is possible to
identify terrorist financing, but it is not probable. The
lesser amounts that are used, the more challenging it gets, and
it plays then to the importance of the partnerships between the
public and private sector, and again, bringing the why and how
together to be able to accomplish these things.
I testified on October 3, 2001, and I was asked
specifically to testify about what the biggest vulnerabilities
in the financial sector were. I said the biggest
vulnerabilities were wire transfers, correspondent banking, and
money services businesses. Today, I kind of look at this a
little differently. I say that the problems we have are
basically two-fold. You have criminal problems, crime problems,
and you have got problems in terms of facilitation tools. The
crime problems are fraud and money laundering, and money
laundering in the greater context of all types of activities
that require money being laundered back through the financial
industry. Then the facilitation tools would be things like wire
transfers, correspondent banking, money service businesses. If
you--I am sorry, not money-service businesses, illegal money
remitters.
The Iranian sanctions, for instance, if you look at wire
transfers, correspondent banking, shell companies, those are
things that they take advantage of. Illegal money remitters, to
me, is the biggest problem we have in the financial sector. The
banks don't recognize who their clients are, customers are that
have illegal money remittance operations. Then electronic
mechanisms. That is the wave of the future. We have tremendous
capabilities. We are getting away from cash. The more we get
away from cash and the more like cash these mechanisms become,
the more vulnerable we are to money laundering. I think if you
look at Africa as a flashpoint, that is a good case in point of
how terrorists are using these mechanisms to be able to launder
money.
I think there are some very good partnerships, again, and
one in particular, is JPMorgan Chase and the Department of
Homeland Security investigations. They have partnered to
strategically collect information and, through targeted
transaction monitoring, have really done a tremendous job in
dealing with human smuggling. We can do the same thing in
terrorist finance, but it takes a more concerted effort. So
those are things that we need to look at.
In my written statement, I put in it some recommendations,
Chairman, about certain things that we need to do.
[The statement of Mr. Lormel follows:]
Prepared Statement of Dennis M. Lormel
May 18, 2012
Good morning Chairman Meehan and distinguished Members of the
committee. Thank you for inviting me to testify at this hearing.
Terrorist financing is a subject that is extremely important to me.
This topic does not receive the attention it deserves. I greatly
appreciate the fact that you are taking the time to delve into this
subject.
There are few events in a lifetime that evoke deep-seated emotion
and vivid recollection. The terrorist attacks against the United States
by al-Qaeda on September 11, 2001 (9/11), are clearly one of those
historic moments that remain frozen in our minds. I poignantly remember
my personal reaction then and how it affects me now. September 11
changed my life, as it did for so many of us. As the agent in charge of
the FBI's Financial Crimes Program at that time, I was in a unique
situation where I was afforded an opportunity to respond in a manner
few other people could. I was in a position to ``follow the money.'' I
witnessed, first-hand, investigative successes which disrupted or
deterred funding intended to support terrorist activities. I am an
ardent believer that terrorist financing is a critical component of the
war against terrorism.
By way of background, immediately after 9/11, I was responsible for
the formation and oversight of the FBI-led, multi-agency, Financial
Review Group, which evolved into a formal Section within the FBI's
Counterterrorism Section, known as the Terrorist Financing Operations
Section (TFOS). Since retiring from the FBI, I have provided consulting
services regarding fraud, money laundering, and terrorist financing.
Many of my clients are in the financial services sector.
My Government investigative and private sector consulting
experience has provided me a rare opportunity to understand two very
distinct perspectives. For over 30 years, I had a law enforcement
perspective. In that capacity, my perspective was Government- and
investigative-driven. For the last 9 years, in my current position as a
consultant, my perspective has shifted to one that is industry- and
compliance-driven. This provides me with a unique understanding of the
responsibilities, sensitivities, challenges, and frustrations
experienced by the Government and financial sectors in dealing with
anti-money laundering (AML) and terrorist financing considerations.
There is a notable difference in perspectives. This is one of the many
challenges we face in dealing with terrorist financing and other
criminal problems.
Identifying suspicious activity in financial institutions,
especially involving terrorist financing, is extremely challenging.
This is where understanding perspective is critically important. When
it comes to identifying and reporting suspicious activity, you must
consider the ``who, what, where, when, why, and how.'' Law enforcement
typically focuses on the ``why'' as the most important element while
financial institutions are most concerned about the ``how.'' This is
one of the areas where collaboration between law enforcement and
financial institutions is not as consistent as it could be. Law
enforcement frequently shares ``war stories'' about investigative
successes with industry. However, they do not often provide specific
information about ``how'' financial institutions were used by the bad
guys. The Internal Revenue Service is one agency that does provide this
type of information to financial institutions at industry training
forums.
In order to succeed, individual terrorists, such as lone wolves,
and terrorist groups must have access to money. They require funding in
order to operate and succeed. Invariably, their funding sources will
flow through financial institutions. To function, terrorists must have
continuous access to money. Regardless of how nominal or extensive, the
funding flow is operationally critical. Terrorists, like criminals,
raise, move, store, and spend money in furtherance of their illicit
activity. This is why Bank Secrecy Act (BSA) reporting requirements are
essential to our National Security. This fact becomes more compelling
in view of the actuality that finance is one of the two most
significant vulnerabilities to terrorist and criminal organizations.
Terrorist financing is not adequately understood and extremely
difficult to identify, especially when funding flows are more nominal.
This is where Government, through the interagency community engaged in
terrorist financing, must interact more efficiently with the financial
services sector to identify terrorist financing. It is possible for
financial institutions to identify terrorist financing, but it is
highly improbable. We must take continual actions that increase the
probability factor, thereby increasing the possibility of identifying
funding flows. The challenge confronting the Government and banking
community is to improve the effectiveness of the process. This is where
the Government needs to be more effective and efficient in the ``how''
of assisting financial institutions in identifying suspicious activity.
Government should develop better feedback mechanisms to financial
institutions about ``how'' terrorists use financial institutions and
provide them with typologies that financial institutions could use for
transactional monitoring.
The interagency community that has jurisdiction and responsibility
for terrorist financing should be commended for their contributions.
Terrorist financing is one area where the Government excelled following
9/11 and where they continue to perform admirably.
Terrorist financing is every bit as challenging today as it was in
the immediate aftermath of 9/11. Law enforcement, regulators, and
intelligence agencies here, in the United States (U.S.), and abroad,
have achieved noteworthy and meaningful accomplishments. New proactive
and progressive methodologies have been developed and implemented in
furtherance of such efforts. When the Government succeeds in
implementing and executing proactive methodologies, the ability of
terrorists to carry out operations is diminished. However, lingering
concerns and the resiliency of terrorists to adapt to change, coupled
with the ease of exploitation of systemic vulnerabilities in the
financial sector, will perpetuate the challenge of addressing the
issues presented by terrorist financing.
Despite the gains we've made, the financial services sector is as
inherently vulnerable today as it was on 9/11. On October 3, 2001, as a
senior executive in the FBI, I testified before the House Financial
Services Committee. One of the issues I addressed was vulnerabilities
or high-risk areas in the financial services sector. I testified that
wire transfers, correspondent banking, fraud, and money services
businesses were the biggest areas of vulnerability to the financial
services industry at that time.
Today, I have refined the vulnerabilities in two categories: Crime
problems and facilitation tools. The most significant crime problems we
currently face in the financial services industry are fraud and money
laundering. Fraud was magnified during the recent financial crisis and
continues to represent a significant threat to our economy. Money
laundering encompasses all other criminal activity where the proceeds
of crime are laundered through financial institutions. The key
facilitation tools used in furtherance of fraud and money laundering
are: Wire transfers, correspondent banking, illegal money remitters,
shell companies, and electronic mechanisms.
Illegal money remitters represent one of the most significant
problems confronting banks. This has been an on-going challenge. Many
banks cannot identify customers who operate illegal money remittance
operations. On the surface, they appear to be a legitimate business.
However, if like the Carnival Ice Cream Shop in Brooklyn, New York,
they actually functioned as illegal money remitters funneling money to
high-risk countries. Consequently, terrorist and criminal groups have
used illegal money remitters in furtherance of their illicit
activities. There are a number of cases we can point to that illustrate
this problem to include the Time Square bombing case.
Sanctions against Iran have caused Iranian entities to regularly
use shell companies to hide beneficial ownership, as well as rely on
correspondent banking and wire transfers to illegally move funds. The
Lloyds Bank ``stripping'' case is a prime example of how correspondent
banking was used by Iran as a facilitation tool. In this matter, Lloyds
stripped SWIFT messaging information to hide Iranian bank
identification in order to avoid U.S. banking monitoring detection. The
Alavi Foundation case was an example of how Iran used shell companies
to hide beneficial ownership in a New York City office building. Both
cases involved the use of wire transfers.
The use of electronic payment mechanisms is an area of growing
concern regarding how terrorists move money due to the anonymity and
instant settlement it affords. Electronic payment mechanisms are
becoming more prolific and vulnerable to misuse by criminals and
terrorists. Africa is a venue of concern for the growing use of
electronic mechanisms.
The Government has made consistent incremental progress in
addressing terrorist financing. Individual agencies and entities
responsible for terrorist financing have matured and evolved. They have
individually and collectively developed investigative methodologies to
effectively deal with the constant and emerging challenges. Although on
an agency-by-agency level, we can point to enhanced capabilities, the
true measure of Government success is the ability of the interagency
community to work as a unified team, and to parlay their collective
investigative capabilities into a joint Government-wide terrorist
financing strategy. In the aftermath of 9/11, I was part of such a
working group that was led by David Aufhauser, then the General Counsel
at the Treasury Department. Mr. Aufhauser was a true leader who
marshaled the interagency collaborative initiative. He was an unsung
hero and visionary. I recommend that the committee periodically assess
the status of the interagency terrorist financing working group to
ensure that it is effectively coordinating the broader interagency
initiatives.
The face of terrorism since 9/11 has been altered significantly.
The last few years have seen tremendous change and instability in the
Middle East. Core al-Qaeda has been decimated and affiliate groups have
evolved into greater threats. Our homeland has experienced a growing
concern involving lone wolf terrorists and other home-grown threats.
These developing factors have modified terrorist financial typologies.
The evolving terrorist landscape has led to less costly terrorist
plots. As noted earlier, the more nominal amounts have been more
challenging to identify. This is due to the fact they are generally
more undetectable. For example, many lone wolf terrorists such as
Farooque Ahmed, who plotted to detonate a bomb on the Washington, DC
metro system, relied on money from their legitimate jobs to pay for
their illicit activity.
The Government must continuously identify and assess emerging
trends and develop case typologies they can share with financial
institutions. In so doing, the financial services sector can implement
transaction monitoring strategies to identify patterns of activity
consistent with the case typologies of criminals and terrorists. The
Government has not done this as consistently as they could have.
In general, law enforcement and the Financial Crimes Enforcement
Network (FinCEN) have done a good job in sharing information with the
financial services sector. However, they have not done as much as they
think they have or they could. I do not make this comment lightly. When
I was in the FBI, I thought I had maximized liaison relationships. It
was not until after my retirement from law enforcement and my
consulting work with the financial services sector that I realized I
could have done more. It was a matter of perspective. If only I knew
then, what I know now, I would have been dangerous. Law enforcement and
FinCEN should do a better job of listening and providing feedback to
financial institutions in the form of ``how'' terrorists and criminal
organizations use the financial system in furtherance of their illicit
activities.
What is important, especially in dealing with more minimal dollar
amounts, is identifying case typologies and using them to develop
targeted transaction monitoring strategies. This leads to the need for
more consistent collaboration between law enforcement and the financial
services sector. The model for this type of public- and private-sector
collaboration was set in recent years by JPMorgan Chase under the
leadership of compliance executive William Langford and senior
investigator Phil DeLuca. Working in conjunction with the ICE
Department of Homeland Security Investigations (HSI), JPMorgan Chase
was able to identify financial patterns for human smugglers and
traffickers. This was because HSI provided specific typologies to
JPMorgan Chase setting forth the ``how.'' This enabled JPMorgan Chase
to identify patterns of transactional activity and develop targeted
transactional monitoring. In so doing, JPMorgan Chase was able to
provide HSI with financial intelligence information which led to
successful criminal investigations. This initiative was greatly
supported by an informal task force involving DHI and the financial
services sector that was led by John Byrne and the Association of Anti
Money Laundering Specialists (ACAMS). Because of the successful impact
of this public-private partnership, ACAMS provided a special award to
JPMorgan Chase and HSI, which was presented at the recent Money
Laundering.com annual anti-money laundering conference. This is a great
example of how law enforcement, in this case HSI, provided the ``how''
to a financial institution, JPMorgan Chase, and how the bank used the
information to identify patterns of illicit activity. I recommend that
the committee look at this collaboration as a model of the type of
cooperative initiative that could be used to fight terrorist financing.
This type of initiative could be effectively used to identify
terrorist financing. There are a number of scenarios that could be
identified and targeted in a similar fashion. An example would be the
case of a lone wolf terrorist who leaves the United States and travels
to Pakistan to attend a terrorist training camp. During the time that
this individual attends the training camp, it is unlikely he or she
would incur any financial activity, virtually falling off the financial
grid. The combination of travel to Pakistan, a high-risk country for
terrorism, and a gap in financial activity, could be identified by
targeted financial monitoring in a financial institution.
One of the perceived impediments to banks in regard to targeted
transactional monitoring is the challenge of satisfying the regulators.
Regulators are not generally forward thinkers. They deal with black-
and-white issues and are more prone to a check-the-box mentality that
tends to stymie progressive and innovative thinking. In fairness to
regulators, their mandate is not to think outside the box but to ensure
that regulatory requirements are met by financial institutions. This is
a daunting task. There is often a perplexing triangle involving
financial institutions, law enforcement, and the regulators. BSA
reporting requirements were established to benefit law enforcement.
Unfortunately, financial institutions are generally more concerned with
placating their regulators than providing the ``why'' to law
enforcement. Financial institutions, law enforcement, and regulators
need to come to a better consensus about the balance of law enforcement
and regulatory considerations. This is an area that this committee or
the House Financial Services Committee should look into.
Certain countries pose a challenge to deal with in terms of their
capacity or political will to establish terrorist financing regimes.
Other countries, most notably Iran, pose a significant threat and are
indifferent to complying with international standards as they flaunt
their nuclear and/or other ambitions. The first step to deal with these
situations is to coordinate a strong interagency response at the
domestic level. This calls for relying on a combination of diplomatic,
regulatory, intelligence, military, and law enforcement responses. By
orchestrating a choreographed response strategy, pressure could be
leveraged against these countries. The second step is to coordinate
international responses and strategies with the Financial Action Task
Force (FATF), the United Nations and other international bodies.
There is a growing and troubling nexus between transnational
criminal organizations, drug cartels, and terrorist organizations. Each
has their own objective and is willing to deal with the others to
further their own interests. The Lebanese Canadian Bank investigation
manifests this emerging problem. It illustrated the alliance between
Hezbollah, a terrorist organization, the Joumaa drug trafficking and
money laundering organization in Lebanon, and the Los Zetas Mexican
drug cartel. This troubling alliance relied on drug trafficking and
trade-based money laundering, among other activities to facilitate the
illicit activities of three dangerous transnational groups. The
interagency community should closely assess the collaborative
operations of these organizations and develop strategies to deal with
other similar associations.
As noted earlier, it is possible to identify terrorist financing
but highly improbable. This is one area where collaboration and
partnership between the public and private sector are essential. In
2009, I wrote an article addressing how to increase the probability
through such collaboration. For the most part, the same points I
articulated then are applicable today. Accordingly, there are six steps
the Government and financial services industry should take to
collectively and unilaterally increase the probability of identifying
terrorist financing. They are:
1. The Government and financial sector must recognize the
importance of terrorist financing-specific training. This is a
dimension that is lacking on both sides, although more on the
part of financial institutions. Without specific training, the
ability to understand and disrupt terrorist financing is more
difficult to achieve.
2. The Government must develop a means to legally provide security
clearances to select personnel in financial institutions in
order to share limited intelligence information that could be
scrubbed against bank monitoring systems to identify account or
transactional information associated with terrorists. The FBI
has been discussing this challenging issue since 9/11, in
concert with select industry compliance leaders and experts.
3. A consistent and comprehensive feedback mechanism from law
enforcement must be developed that demonstrates the importance
of BSA reporting, especially the significance of Suspicious
Activity Reports (SARs). FinCEN's SAR Activity Review is a good
mechanism that provides insightful information. In addition,
specific feedback from law enforcement to financial
institutions concerning the value and benefit of BSA data,
including SAR filings, would have a dramatic impact on the
morale of individuals responsible for SAR reporting.
4. There must be an assessment by the Government of all SARs
related to or identifiable with terrorism cases. Such a review
would identify specific red flags that could be used as a
training mechanism and more importantly, could be factored into
identifying typologies that could be used for the monitoring/
surveillance capabilities of financial institutions. In
addition, a determination could be made as to why the financial
institution filed a SAR. In many instances, the SAR was filed
for violations other than terrorist financing. Understanding
what triggered the SAR filing; in tandem with how the SAR
ultimately was linked to terrorist interests would be
insightful.
5. In addition to assessing SARs, the Government and industry
should collectively identify and assess as many case studies,
of terrorist financing-related investigations, as can be
identified and legally publicly accessed. The case studies
should be compared to determine what types of commonalities and
patterns of activity exist. In addition, common red flags
should be easily discernible. This type of case study
assessment, coupled with the SAR analysis, would provide more
meaningful information to consider in identifying terrorist
financing characteristics, especially in cases involving more
nominal financial flows. This would enable financial
institutions to more effectively use surveillance and monitor
techniques to identify questionable transactional information.
6. A combination of BSA data, particularly SARs, combined with
empirical and anecdotal information would enable the Government
and financial sector to collectively and unilaterally conduct
trend analyses. This would be a significant factor in
identifying emerging trends. On a Government level, this would
contribute to implementing investigative and enforcement
strategies. On the institutional level, this would enable the
financial sector to implement strategies to mitigate risk.
Although the landscape has changed, and methodologies have evolved
since 9/11, terrorist financing remains the same. In essence,
terrorists must have access to funds when they need them in order to
operate. It is incumbent that Government agencies cooperate,
coordinate, and communicate on both an interagency level and with the
private sector in order to deny terrorists from moving and accessing
funds and thereby diminishing their ability to operate.
I would again like to thank the committee for affording me the
opportunity to participate in this forum. I would be happy to answer
any questions or to elaborate on my statement.
Mr. Meehan. Let me say one thing. Unfortunately, there is
just 6 minutes left in the vote that I must go vote on right
now. I am struggling with how best to do this. I think they are
going to give me a minute to sprint, so what I am going to do
is ask Ms. Eckert to do her testimony, and then I am going to
have to reconvene with the rest of the committee.
Let me go to Ms. Eckert's testimony and then I will give
you a closing comment and we will try to work from there, but I
want to make sure you get your opportunity to hit the essence,
Ms. Eckert. So the Chairman now recognizes Ms. Eckert.
STATEMENT OF SUE E. ECKERT, SENIOR FELLOW, WATSON INSTITUTE FOR
INTERNATIONAL STUDIES, BROWN UNIVERSITY
Ms. Eckert. Mr. Chairman, thank you very much for the
opportunity to be here, and I want to commend you and the
committee for focusing on this vitally important issue. I don't
think enough attention has been paid to it. Ten years with
experience in countering the financing of terrorism, I think it
is a very opportune time to focus on it.
I have a number of recommendations. So I am not going to
review what has been done with regard to al-Qaeda. There are
specific initiatives that I am part of that we are looking at,
the effectiveness of sanctions, for example, against Iran and
North Korea, other sponsors of terrorism. My comments in the
testimony and today are primarily focused on al-Qaeda.
I won't focus right now in terms of some of the unintended
consequences of the regime countering financing of terrorism,
but I think it is important to pay attention to some of those
because they have the potential to weaken what is a critically
important initiative both globally and Nationally.
So what I would do is just very briefly offer a couple of
points that I think that we need to take account of as we look
at strengthening the CFT measures.
First is, I think it is important to understand that we
need enhanced information analysis. There is still a great deal
we don't know. New electronic payment methods through cell
phones and stored value cards, digital currencies that some of
my colleagues have been talking about are very important to
focus on. We need to understand differences in terms of not
only the terrorist organizations, but how they move, raise, and
store funds. We need to develop metrics. In the past, the only
metrics that we have had are the number of designations and the
amount frozen. Those are clearly inadequate to--and they can be
misleading. We haven't seen a steady progress with regard to
that, but that doesn't mean that our terrorist financing
initiatives are not working.
Finally, I think one of the--for information, we need to
analyze the information that we have and evaluate it. The
private sector provides ample amount of information, but it
goes into a process, as one of my colleagues has said, and it
is not really utilized and not really analyzed except when it
gets to the law enforcement side.
So I think that there is an awful lot that can be done
within the current system to be able to discern patterns that
could assist financial institutions in identifying terrorist
financing.
The second major area is collaboration and information
sharing with the private sector. The central role in this is
the private sector. Governments don't freeze assets; the
private sectors do. There are a number of ways. We have all
talked about the need for greater collaboration, but I think
that the partnerships so far has been a pretty much one-way
flow of information.
I think there is more that can be done. Security clearances
for certain individuals in financial institutions; the British
have done it to great effect. What we need to do is to
understand that initiatives to enhance information will make
our law enforcement intelligence efforts smarter and more
effective.
Inadequate capacity in other countries. We cannot do this
alone. The United Nations has played a very important role,
Egmont and a number of the FATF have played important roles in
establishing this global regime, but more needs to be done to
provide assistance to other countries to be able to put in
place the necessary legal, administrative, and enforcement
mechanisms to carry out this prohibition in the financing of
terrorism.
Further, I think that it is time, 10 years later, really
for a critical assessment of effectiveness. In this regard
there has been, you know, a lot focused on some of the positive
things, but not necessarily the cost or limitations of the
current approach and whether or not we are focusing on where
the challenges are going and how the terrorists are raising
moneys now. It is still focused primarily on the formal
financial sector, and I think that we really need to take a
good hard look at what we are doing now. As you said, I had to
strike in my testimony the number of times I said recalibrate,
so I am pleased that we are thinking in the same vein.
But in short, there has been an impressive global effort to
regulate transport or movement of funds through formal sector
financial institutions, but al-Qaeda and other groups have
adapted and they continue to have access to funds. In order to
be effective we have to reassess and recalibrate policies and
create a genuine partnership with the private sector.
Thank you, sir.
[The statement of Ms. Eckert follows:]
Prepared Statement of Sue E. Eckert
May 18, 2012
Chairman Meehan, Ranking Member Higgins, and distinguished Members
of the subcommittee, thank you for the opportunity to appear before you
to discuss the critical issue of terrorist financing. As the disrupted
airline bombings plot out of Yemen last week indicates, terrorist
threats to the United States persist notwithstanding the death of Osama
bin Laden and decline of the hierarchical organization of al-Qaeda.
My comments are based on my previous experience as assistant
secretary of commerce responsible for regulating dual-use goods and
technology, as well as more recent academic initiatives to strengthen
the instrument of U.N. sanctions. Currently, my colleague at the
Graduate Institute in Geneva, Thomas Biersteker, and I are leading the
Targeted Sanctions Consortium, an international group of scholars and
practitioners conducting a comprehensive and comparative analysis of
the impacts and effectiveness of U.N. sanctions, including those
targeted on al-Qaeda and affiliated groups, as well as sanctions
against Iran and DPRK. I've also worked with the United Nations
Counterterrorism Implementation Task Force to explore the
identification of indicators that might be useful to financial
institutions in detecting potential terrorism financing activity. In
this regard, I've had the opportunity to interact with the private
sector, National regulators, and international counterterrorism
policymakers involved in the global effort to combat the financing of
al-Qaeda and affiliated groups. The views expressed however, are my
own, and not necessarily endorsed by any entity or colleagues with whom
I am affiliated.
Due to time constraints, this abbreviated statement focuses on
terrorism financing related primarily to al-Qaeda (AQ) and lays out
some considerations for ways forward. I am happy, however, to provide
an expanded statement based upon our book, Countering the Financing of
Terrorism, and more recent initiatives assessing the effectiveness of
U.N. sanctions.
evolving threat and means of financing
Al-Qaeda today is profoundly transformed from the group that
engineered the attacks on 11 September 2001. The once-hierarchical
organization evolved into a confederation of allied entities, and
subsequently into a general jihadi movement, with al-Qaeda core (AQC)
serving more as an inspirational vanguard, a source of legitimization
and justification for acts of global terrorism by affiliates, rather
than as a source of the planning, financing, and execution of terrorist
attacks. Regional affiliates such as AQ in the Arabian Peninsula
(AQAP), AQ in the Islamic Maghreb (AQIM), and al-Shabaab in Somalia,
now outnumber AQC remnants in Pakistan and remain committed to al-Qaeda
ideology. Even with new revelations about bin Laden's final activities
in Abbottabad, the AQ affiliates constitute the more significant
contemporary terrorist threat.
Likewise, the means by which terrorists finance activities have
changed, and today largely consist of criminal means conducted within a
state. Formal sector transactions and even the transnational movement
of funds by AQ have been severely constrained, in part due to the
success to the extensive global efforts to counter the financing of
terrorism (CFT). Formal sector financial institutions generally have
not been used for the transfer of funds across international borders to
AQ since 2003; rather, AQ affiliates have increasingly resorted to the
use of cash couriers and barter trade to move funds. Self-financed
criminal activities such as credit card and check fraud, theft,
extortion, and kidnapping for ransom represent more common methods
utilized by terrorists to finance their activities.\1\ Charitable
donations as a significant means of financing terrorism also appears to
have diminished, as recent evidence concerning the diversion from
Islamic charities is lacking (and most of the legal cases resulting in
successful convictions have been based more on violations of tax and
reporting rules, rather than terrorist financing). While informal value
transfer systems or hawala were used for the transfer of funds prior to
the attacks of 11 September and most recently by the Times Square
bomber, the overwhelming majority of such transfers are legitimate and
advance important social and global developmental functions.
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\1\ Note that this is not the case with the Taliban which has
adapted over time in Afghanistan and Pakistan, in large part due to
territorial control facilitating revenues through taxation of drug
production, transiting goods, diversion of international assistance,
and ransom from kidnappings.
---------------------------------------------------------------------------
Recognition of the changing structure and financing of AQ and
affiliated groups is important, as effective strategies for countering
the financing of terrorism must similarly adapt to the current threat.
With more than a decade of CFT experience, now is an opportune time to
take stock of what has been accomplished in order to recalibrate U.S.
and international efforts to more effectively address the evolving
nature of terrorist financing. I commend the subcommittee for focusing
on this issue, and hope additional review will be undertaken.
In this regard, it is worth remembering that prior to 9/11, there
was little concerted attention focused on terrorist financing, with al-
Qaeda able to raise funds from donors in Gulf States and charitable
organizations and move them through financial institutions. Few
requirements other than those mandated by UNSCR 1267 existed to
restrict financing, with almost no emphasis on implementation (indeed,
country reports prior to 2001 largely consisted of one sentence--``We
have taken all necessary steps to comply with the resolution.'') In the
past decade, there has been a sea-change in the recognition and
implementation by Member States of legal, administrative, and
enforcement measures to combat terrorism financing.
cft developments and challenges
Since 9/11, we've witnessed an impressive global initiative to
disrupt financial support for terrorism. The United States has worked
diligently to launch a worldwide campaign to make it more difficult,
costly, and risky for AQ and affiliated groups to raise and move money
around the world. As a result, new and significant international
institutional frameworks have evolved to address CFT, including crucial
roles by the United Nations Security Council, the Financial Action Task
Force, the World Bank, IMF, Egmont Group, as well as private-sector
initiatives like the Wolfsberg Group. UN Security Council Resolutions
1267, 1373, and 1540 (and successor resolutions) provide the legal
basis and legitimacy for Member States to take necessary steps to put
into place National legal and administrative mechanisms to freeze
terrorist assets. Multilateral CFT efforts have been essential in
stemming terrorist funds.
The global CFT regime utilized preexisting policy instruments but
greatly expanded them. Through designations or listings of individuals,
organizations, and corporate entities and the freezing of their assets,
CFT efforts have primarily focused on preventing the use of formal
sector financial institutions for the trans-border transfer of funds
that could be used to support acts of terrorism. Initiatives to license
informal value transfer systems and register charities have also
resulted.
Notwithstanding the important accomplishments of terrorism
sanctions to date, complications and unintended consequences have
arisen. National and regional courts have faulted the U.N. process of
designating individuals as well as with the adequacy of procedures for
challenging those designations. Perceptions of unfairness in the
application of targeted sanctions and potential violation of due
process have generated concern and public opposition in several
countries, including among legislatures, threatening to undermine the
credibility and effectiveness of U.N.-targeted sanctions. The most
prominent case of Saudi businessman Yassin Abdullah Kadi, is still
under appeal at the European Court of Justice, but if successful could
force the European Union not to implement mandatory Chapter VII
sanctions thereby establishing a dangerous precedent and potentially
undermining U.N. terrorism sanctions. Notwithstanding important
procedural enhancements in recent years, however, legal challenges
persist. This problem cannot be ``solved'' definitively, but rather
must be managed to dissuade national or regional courts from
questioning the underlying security rationale for listings. Continued
review of U.N. designations and innovations in the delisting process
are necessary for the legitimacy of international CFT measures and the
future utility of the instrument of multilateral sanctions.
The freezing of assets or exclusion from the international
financial system are indeed powerful terrorist financing tools, but
such measures can have far-reaching consequences. Fears that there
would be a decline in charitable contributions to Muslim charities have
been realized to an extent, which could have implications for efforts
to address root causes of terrorism. Targeted financial sanctions are
not as targeted as they might initially appear; in the case of al
Barakaat, the collateral damage of freezing the assets of the broad
group of companies led to severe disruption of fund transfers to a
large portion of the Somali population. Concerns for the risks involved
with money service businesses (MSBs) resulted in the shuttering of
Somali MSBs in several states, leaving large diaspora communities
without viable means to transmit money cheaply and efficiently to
relatives since there is no functioning banking system in Somalia.
Moreover, the regulatory burden on financial institutions has
increased considerably. Compliance with enhanced reporting
requirements, new internal procedures to screen customers, and train
staff to block or freeze individual transactions have escalated costs
as responsibility for CFT implementation rests primarily with the
private sector. In addition, banks have terminated relationships with
perceived risky sectors--MSBs, embassy banking, and certain
correspondent banking relationships, resulting in the labeling of some
sectors as ``unbankable.'' The dramatic increase in the volume of
information submitted by financial institutions, including the millions
of SARs filed annually, which remain largely unanalyzed and continues
to be a source of frustration to financial institutions. Processing
information is far more important than simply accumulating it, and it
is important that regulation be prudently designed with this in mind.
Likewise, the success of CFT instruments ultimately depends on
parallel implementation by other countries. Despite progress since
September 11, serious deficiencies of capacity within Member States to
implement CFT measures exist (e.g. to criminalize terrorist financing,
prohibit financial support to terrorists, and freeze the assets of
those who commit or support terrorist acts). Implementation is uneven,
and in some states, capacity is virtually nonexistent. Enhanced
initiatives to assist countries in building the legal and
administrative infrastructure to implement and enforce financial
sanctions are necessary.
Overall, however, CFT efforts have constrained AQ and its
affiliates in their ability to access essential support. As noted by
the 1267 Monitoring Team in a recent report, financial sanctions have
among other things, restricted the ability of those listed to continue
to promote the objectives of AQ and their associates, alerted law
enforcement to the activities of listed parties, and signaled to the
world (and other potential financiers of terrorism) the resolve of the
international community to combat funding of terrorism. While far from
perfect and with much more that can and should be done to strengthen
CFT measures, it is important to keep these accomplishments in mind--
indeed, the glass is more than half full!
considerations for the second decade of cft initiatives
As the United States and the international community move forward
to strengthen CFT policies in the coming years, the following
considerations are useful to keep in mind:
The importance of realistic expectations as to what
financial sanctions can reasonably achieve. Terrorism will
continue, and AQ still exists (with access to funds). This does
not mean that TF initiatives are ineffective, but rather we
must be cognizant of the appropriate role of TF sanctions play
as but one element in a larger CT strategy.
When assessing the impact and effectiveness of CFT measures,
it is essential to appropriately define the purposes. An
innovation of the Targeted Sanctions Consortium's methodology
\2\ includes evaluating effectiveness of sanctions in terms of
multiple and differing purposes of sanctions, to: (1) Coerce or
change targets' behavior; (2) constrain terrorist activities
(or access to essential resources such as funds thereby raising
costs and forcing changes in strategy); and (3) signal/
stigmatize targets violating international norms through
terrorist acts.
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\2\ For more information about the Targeted Sanctions Consortium, a
comprehensive, systematic, and comparative assessment of the impacts
and effectiveness of U.N. targeted sanctions regimes over the past 20
years, see http://graduateinstitute.ch/internationalgovernance/
UN_Targeted_Sanctions.html.
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While progress has been made in CFT, terrorists are
constantly evolving the means by which they raise and use
funds; the international response needs to be dynamic as well.
The basic framework focusing on preventing the use of formal
sector institutions for cross-border transfers of funds remains
largely unchanged. New strategies and tools to address current
financing (e.g. cash couriers, stored-value instruments,
informal value transfer systems (IVTS), kidnapping etc.) are
necessary.
CFT measures are considered among the most ``effective''
sanctions, yet there is public perception that sanctions
generally are not effective. More needs to be done to
demonstrate and make the case regarding the effectiveness of TF
sanctions.
With terrorists' evolution of financing means, it is critical to
continually review and adapt U.S. and international CFT responses.
Military planners are famous for preparing for the last war, and it is
important that those concerned with countering the financing of
terrorism not make such a mistake. Al-Qaeda has changed. The nature of
its fundraising has changed. The ways in which it moves, stores, and
uses funds have changed. It is important that CFT efforts proceed from
this knowledge, rather than squander limited resources.
The following are general areas that could be considered in future
efforts to strengthen CFT measures:
Enhanced information and analysis
The old adage--the more you know, the more you realize how much you
don't know--applies amply to the subject of terrorist financing There
is still a great deal we do not know, for example, regarding the use of
informal value transfer systems, trade diversion, traditional cash
smuggling, and new electronic payment methods through cell phones,
stored value cards, and digital currencies. Notwithstanding greater
understanding regarding AQ's financing of terrorism, and ``despite all
of our sophistication, we have neither starved the beast nor produced
very good intelligence on how exactly these organizations continue to
finance themselves,'' as Lee Hamilton noted. There is a significant
need for the further research and analysis in this area.
Differentiate among groups and means to finance terrorist
operations
It is important that CFT initiatives distinguish between (and
differentiate among) groups committing acts of terrorism. Those acting
on a global scale, like AQ, have different needs and means of financing
themselves, particularly when they are compared to groups acting on a
local or regional scale. Territorial-based groups can extract resources
in ways that approximate the state (i.e. Taliban exacting tariffs or
quasi-taxes from the population). There are fundamental differences in
the goals, scope of operations, and the ultimate objectives of groups
acting globally and groups contained within a defined territorial
space. Extending existing CFT efforts aimed at al-Qaeda to other
circumstances risks diffusing the effort and decreasing effectiveness.
One size does not fit all.
Develop metrics
There are relatively few quantitative indicators and reliable
sources of information to assess CFT initiatives but it would be useful
to try to devise additional metrics of effectiveness. Metrics most
commonly associated with terrorist financing--the total number of
designations and the amount of money frozen--are inadequate and can be
misleading. As difficult as such an endeavor would be, it is important
to attempt to assess the effectiveness of CFT efforts. The consequences
of failing to do so are inappropriate and potentially ineffective
policies to thwart terrorist acts. Policymakers and academics alike
must demand better and more transparent sources of information in order
to more thoroughly understand and assess terrorist financing efforts.
Evaluate and analyze TF information
As noted by others, FinCEN receives nearly a million Suspicious
Activity Reports (SARs) from financial entities annually, of which less
than 1% relate to TF, yet little systematic analysis of the information
results. FinCEN generally passes SARs on to the FBI who integrates the
information into their database in order to identify trends and
suspicious transactions. However, the current system lacks requirements
for the systematic analysis of data to be able to discern patterns that
could assist FIs in screening for terrorist-related transactions.\3\
The same applies to sharing of case information at the international
level through which comprehensive analyses, lessons learned, policy-
useful conclusions and guidance for both Government agencies and the
private sector could possibly emerge. Is it an issue of resources or
lack of priority? What could and should be done to most effectively
mine the information reported by FIs? USG officials have previously
referenced the number of cases in which financial information from SARs
played a role; this information should be updated and made available.
---------------------------------------------------------------------------
\3\ An initiative by a group of researchers to collect and analyze
examples of terrorist financing (TF) through financial institutions in
order to discern indicators of terrorism finance was stymied by the
lack of access to information (sanitized SARs redacted of identifying
info which DoJ was willing to provide).
---------------------------------------------------------------------------
TF prosecutions
Successful prosecution on TF grounds are limited--in many cases of
suspected financing, convictions are easier to obtain on alternative
charges. Should we be concerned with the relatively small number of
successfully prosecuted TF cases? What are the obstacles, and are
legislative changes needed?
Collaboration/information sharing with financial sector
Despite 10 years of espousing the need for closer public-private
partnership to combat TF, the two-way exchange of information remains
limited--in most cases, it's the financial community providing input
with very little feedback. The FBI created a financial sector working
group that meets periodically, but compliance officials still complain
about a lack of information to help detect terrorist transactions.
Analysis of SARs information that aided in law enforcement
investigations could help FIs identify typologies and trends they
should be alert to.
The United Kingdom has instituted a system whereby select
representatives of financial institutions receive security clearances
so sensitive information regarding transactions can be shared. A
similar initiative has been discussed in the United States, but little
progress seems to have been made. Is this a good idea, and if not, why
not? What are other ways in which the USG can collaborate with
financial institutions? Are additional protections (i.e. safe harbor
provisions) needed?
Notwithstanding the absence of reliable terrorism financing
indicators, the information provided by financial institutions remains
critically important to intelligence and law enforcement efforts to
disrupt terrorism. When intelligence on possible terrorist activities
is shared with financial institutions, the information they provide is
often vital and unavailable from other sources. New initiatives to
enhance information sharing between governments and the private sector
should be prioritized.
Address inadequate CTF capacity in other countries
To be effective, CFT measures must be implemented in a comparable
manner by other countries. While the United Nations is an important
source of legitimacy (requiring Member States to criminalize the
financing of terrorism and to freeze the assets of individuals/entities
designated as terrorists) only Member States can put into place the
necessary legal, administrative, and enforcement measures to counter
TF. Even with successes as noted, there remain significant deficiencies
in the capabilities of many Member States to meet their international
CFT obligations (to criminalize terrorist financing, prohibit financial
support to terrorists, and freeze the assets of those who commit or
support terrorist acts). More needs to be done to provide adequate
assistance for MS to put into place the necessary legal,
administrative, and compliance measures, and current initiatives should
be enhanced
Great public awareness and understanding of CTF initiatives
There is a need for broader understanding of the importance and
utility of CFT measures, both designations and terrorist financing
tracking. Most information regarding the reasons for designations and
the effectiveness of the CFT in identifying networks or preventing acts
of terrorism is closely held by Government agencies. While protection
of sources and methods is necessary, excessive classification and lack
of documentation to justify designations undermines public confidence
in, and support for, the CFT regime.
Critical assessment of CFT effectiveness
Ultimately, the effectiveness of National and global efforts to
counter the financing of terrorism depends on the nature of the threat
(the assessment of risk) and the appropriateness of the response to
that threat (i.e. that the benefits of the policy response outweigh the
costs of the measures enacted). When it comes to an assessment of the
benefits of CFT efforts, there is strong evidence that it is more
difficult for AQ and affiliated groups to use the formal financial
sector to support operations today. The capacity of AQ and others to
commit acts of terrorism has been degraded. Yet there is little
systematic assessment of the costs and limitations of the current
approach. ``Staying the course'' of current policy may nor be the most
appropriate action, especially given the changing and adapting nature
of al-Qaeda.
Beyond these general areas, specific consideration should be given
to:
Charities.--Traditionally, al-Qaeda and other groups have utilized
charities, NGOs, and mosques to raise funds through direct
solicitations and diversion of donations intended for humanitarian
purposes. While the risk of abuse of the charitable sector remains
real, a differentiated approach, distinguishing between financing
humanitarian networks affiliated with resistance groups and financing
terrorism, is needed. Blanket condemnation of groups providing social
welfare services alienates Muslim constituencies and prevents aid from
reaching those most in need. Government efforts should focus on
assisting charities to be more transparent; clarifying what constitutes
financing of terrorism and association; designating independent bodies
to regulate and investigate charities; and accrediting charities or
developing indicators of trust/approval so that contributors know the
group can be trusted to deliver support to appropriate projects.
In addition, zakat contributions are central to the practice of
Islam, and a policy that places charitable giving to Islamic
organizations under general suspicion contributes to a perception that
the effort is directed against the entire Muslim community, rather than
a very small segment of that community. Not only is this profoundly
unfair, but it will ultimately undercut the effectiveness of other
counter-terrorism efforts. Special effort must be taken to reaffirm
support for charitable giving through transparent processes.
Informal Transfers.--Regulation of remittance vehicles is
necessary, but should be done in a way that is proportionate to risk
and appropriate to particular socio-economic environments. In countries
where informal systems exist alongside a well-functioning conventional
banking sector, hawala or other informal value transfer systems (IVTS)
should be registered and required to keep adequate records. In states
at risk of institutional collapse or states without functioning banking
systems, requirements beyond registration may not be feasible.
Governments should conduct outreach efforts to consult, engage, and
build consensus among IVTS operators with regard to the most
appropriate measures. Positive incentives should be created for
participants in the sector to implement regulatory frameworks. In this
regard, greater emphasis should be placed on the traceability of
transactions, rather than centralization of data and should be
sufficiently flexible so as not to drive IVTS underground.
Trade Diversion.--International trade is vulnerable to abuse by
terrorists, as well as other criminals, through false invoicing and the
use of commodities to move funds, yet relatively little attention has
been focused on this mechanism. Governments need a more concerted focus
on trade diversion, both through greater understanding of the threat
posed by lack of trade transparency and the techniques used, as well as
specific efforts directed at anticipating, detecting, and thwarting
attempts by terrorist groups or their supporters to take advantage of
this mechanism. Trade transparency units to analyze, share, and track
international trade data to identify anomalies have been formed, albeit
more slowly than hoped. Greater cooperation with the private sector
victimized by diversion schemes should be explored, and enhanced
priority placed on interagency cooperation and prosecution of trade
diversion cases.
Since 9/11, an impressive global effort to regulate the trans-
border movement of funds through formal sector financial institutions
has ensued, but AQ and other groups have adapted and developed
alternative means to raise and move funds to continue their terrorist
activities. In order to be effective, CFT policies continually must be
reassessed and recalibrated. Genuine partnership between the private
sector and Government is critical to effective CFT policies, and new
ways of sharing information and creating incentives for compliance must
be explored.
Thank you for the opportunity to discuss terrorist financing since
9/11--I look forward to questions and being of assistance to the
committee.
Mr. Meehan. Well, thank you each for your testimony. I am
very frustrated that we are competing with what was a very
dynamic schedule over in the House. I am going to at this point
in time recess the committee, and I have to be candid in saying
it is not likely we are going to be able to collect the
membership that I think this issue deserves. I am hoping that
we will recess and look for an opportunity to reconvene at a
point in time that will be convenient for you and us. I am
hoping that you would still be able to participate. The issue
we are discussing is too important to rush through in this
forum, and I think that you have laid the groundwork with your
testimony today that will allow us to have a jumping-off point
in any number of areas.
The service that you each have given to our country at the
critical time as we began this process was vital to the
protection of this Nation, but it is the continuing ability for
us to adapt as our enemy has adapted that is going to allow us
to protect this Nation in the future. Few people are talking
about this. You understand it. We have got to communicate this,
and do it effectively.
So I thank you. We will follow up at a later time, but at
this point in time, without objection, the subcommittee is in
recess subject to the call of the Chair.
The Chair indicates that we will consult with the Minority
in order to provide Members with adequate notice of when we
will convene.* Thank you for your testimony, and I look forward
to following up with you at an another forum in which we can
develop these issues far more broadly. Thank you.
---------------------------------------------------------------------------
* The subcommittee did not schedule a continuation of this hearing.
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[Whereupon, at 11:55 a.m., the subcommittee was adjourned.]
A P P E N D I X
----------
Questions From Chairman Patrick Meehan for Jonathan Schanzer
Question 1a. With our military successes against al-Qaeda core
leadership in Afghanistan and Pakistan, there is a growing trend of al-
Qaeda affiliated groups and adherents filling the void and taking the
lead in launching attacks against the homeland.
Given the relatively low amount of money required to plan and
launch a terrorist attack, how realistic is it to expect U.S. and
international counterterrorism entities to identify funds that might be
used to undertake terrorism-related activity?
Answer. The 9/11 Commission's Executive Summary notes that the
United States must ``expect less from trying to dry up terrorist money
and more from following the money for intelligence, as a tool to hunt
terrorists, understand their networks, and disrupt their
operations.''\1\ I fully agree with this assessment. This does not mean
that we should stop trying to identify funds marked for terrorist
activity. But recent years have seen a decline in the identification or
seizure of such funds.
---------------------------------------------------------------------------
\1\ ``The 9/11 Commission Report--Executive Summary,'' National
Commission on Terrorist Attacks Upon the United States, July 2004,
http://govinfo.library.unt.edu/911/report/911Report_Exec.pdf.
---------------------------------------------------------------------------
Question 1b. What are some of the persistent challenges in
identifying and investigating an activity suspected of financing
terrorism? What are some of the trends in how terrorist groups
acquiring funds to support their objectives?
Answer. My sense is that there is just not enough collection being
done for this purpose. Indeed, there are too many other intelligence
challenges that our Government is working to meet. As always,
allocation of resources requires tough choices. In terms of trends, as
I noted in my prepared testimony, terrorists are increasingly
gravitating to organized crime to support their objectives. This
provides an opportunity for intelligence specialists to work hand-in-
hand with law enforcement.
Question 1c. Is the decision to pursue a terror financing
investigation based on the amount of money suspected of being acquired
for terrorism-related purposes? If so, what is the minimum monetary
amount of terrorism-related funds the U.S. Government assesses as
worthy of investigating?
Answer. I am no longer in a position to answer that. When I served
in Government, the specific amount was not a primary consideration.
Question 1d. Can you describe the decision-making process and
considerations by which the U.S. intelligence and law enforcement
communities decide whether to stop terrorism-financing related activity
and charge a suspect arrest or choose to allow the activity to continue
in hopes of following the trail of funds to a larger network of support
or to entities that may be planning a terrorist attack?
Answer. When I served in Government, the decision to designate was
one undertaken by an inter-agency working group. The different agencies
could, at times, disagree about the need for designation. This could
sometimes slow the process.
Question 2. President Obama recently signed an Executive Order
allowing the Treasury Department to freeze U.S.-based assets of persons
who the White House has identified as a ``threat to the peace,
security, and stability'' of Yemen.
Do you think this is an effective use of the designation authority?
Especially when a group such as Boko Haram--who have killed thousands
of civilians and are in constant contact with AQIM--remain
undesignated?
Answer. AQIM and Boko Haram are important targets. But governing is
about choosing priorities. In this case, I think the Yemeni
designations were the more pressing ones. Juan Zarate, a former Bush
administration counterterrorism adviser, also agrees that these
designations can ``help steer toward political stability in Yemen.''\2\
---------------------------------------------------------------------------
\2\ Arshad Mohammed and Jason Lange, ``U.S. Sends Warning to Saleh
Backers in Yemen,'' Reuters, May 16, 2012, http://www.reuters.com/
article/2012/05/17/us-usa-yemen-assets-idUSBRE84F1GS20120517.
---------------------------------------------------------------------------
Question 3a. In 2011, the U.S. Government revealed the findings of
a multi-year law enforcement operation to dismantle a complex,
transnational network involved in money laundering and drug
trafficking. The case involved Hezbollah, Mexican, and Colombian drug
trafficking organizations, the Taliban, Lebanon, Colombia, Panama,
several countries in West Africa, U.S. car buyers, a U.S. shipping
company, bulk cash couriers, plans for weapons trafficking deals, and
the Beirut-based Lebanese Canadian Bank (LCB).
Does the fact that groups such as Hezbollah and the Islamic
Revolutionary Guard Corps continue to use criminal ventures create
opportunities for U.S. enforcement mechanisms--such as our robust
counternarcotics tools--to roll up these vast networks?
Answer. Yes, the involvement of terrorist groups in criminal
ventures creates exploitable opportunities. David Aufhauser, former
general counsel of the U.S. Department of Treasury, notes that ``both
terrorist financing and traditional financial crimes have one thing in
common--they leave a financial footprint that allows us to trace
financial flows, unravel terrorist financing networks, and uncover
terrorist sleeper cells.''\3\ Our Government has tools at its disposal
to uncover that footprint.
---------------------------------------------------------------------------
\3\ David Aufhauser, ``The Threat of Terrorist Financing,'' United
States Senate Committee on the Judiciary, June 26, 2003, http://
www.au.af.mil/au/awc/awcgate/congress/terrorist_financing.htm.
---------------------------------------------------------------------------
I have also noted that when terrorist groups--particularly
religious ones--enter into the world of organized crime, it creates a
liability from the perspective of public relations. When pious
ideologies are sullied by criminal funds, this is something the U.S.
Government should exploit.
Question 3b. How does counterterrorism fit in this increasingly
interconnected underworld?
Answer. From what we have seen, Middle East terrorist groups
maintain a pious public face in their home territories, but engage with
the underworld in far-off places, such as Latin America or West Africa.
In a few cases, such as that of the Colombian FARC, groups directly
engage with the underworld to their own detriment.
Question 4a. The U.S. Government's on-going investigation of the
Lebanese Canadian Bank is of particular interest from a money
laundering perspective because it highlights the consequences of poor
compliance with anti-money laundering regulations in the formal
financial system.
Given the Lebanese Canadian Bank case, what more can be done to
protect the formal financial system from exploitation by terrorists?
Answer. This case exposed the weakness of the FATF system. The
system simply does not put enough pressure on countries that are less
motivated to fight terrorism. We need to strengthen the international
system. There needs to be tougher penalties for noncompliance.
Question 4b. How can the U.S. Government more effectively mitigate
the threats posed by trade-based money laundering and bulk cash
smuggling and other ways outside the formal financial sector?
Answer. This is also a problem that stems from the weakness of the
FATF system. We need to apply greater pressure on those countries where
trade-based money laundering and bulk cash smuggling is pervasive. The
primary problem is a lack of sustained effort. But, as always, even in
countries where there is a will, there may be a lack of resources.
Question 5. There is an increasing concern in the counterterrorism
and intelligence community that terrorist organizations are
increasingly using criminal activities that are outside of the formal
international financial system to raise funds to carry out attacks and
further their goals.
How important are terrorist funds derived from criminal activities
for the operational sustainability of major terrorist groups compared
to other non-criminal sources of funds, including state sponsors and
private sector donations?
Answer. The problem is pervasive. In 2003, the Orlando Sentinel
reported that according to Gen. James T. Hill, commander of the U.S.
Southern Command, ``Radical Islamic groups in the Middle East are
getting between $300 million and $500 million a year from various
criminal networks in Latin America.''\4\ Moreover, Brazil estimates
that ``more than US$6 billion a year in illegal funds is laundered in
the [tri-border area],'' according to a recent U.S. Government report.
The same report stated that ``Hizballah clearly derives a quite
substantial amount of income from its various illicit activities in the
TBA, in addition to financial support from the government of Iran and
income derived from narcotics trafficking in Lebanon's Al Beqa'a
Valley.''\5\
---------------------------------------------------------------------------
\4\ ``U.S. General: Islamic Rebels Get Cash From Latin America
Gangs,'' Orlando Sentinel, March 10, 2003, http://
articles.orlandosentinel.com/2003-03-10/news/0303100117_1_latin-
america-southern-command-miami.
\5\ ``Terrorist and Organized Crime Groups in the Tri-Border Area
(TBA) of South America,'' Federal Research Division--The Library of
Congress, December 2010, http://www.loc.gov/rr/frd/pdf-files/
TerrOrgCrime_TBA.pdf.
---------------------------------------------------------------------------
Question 6. Foreign Terrorist Organization designation by the
Secretary of State is an important tool our Government uses to deter
donations or contributions to and economic transactions with terrorist
organizations. There are currently 50 groups listed by the State
Department as designated Foreign Terrorist Organizations.
Which FTO-designated groups would you say are the best resourced
and most proficient at evading American and international financial
regulations? Which use the U.S. financial system the most?
Answer. Over time, just about every designated terrorist
organization has learned how to evade U.S. sanctions. They have largely
dropped out of the formal financial sector and severely limited their
exposure to institutions where the United States has jurisdiction. This
is why it has become harder to ``catch'' terrorist money.
Question 7. All of the witnesses mentioned in their prepared
testimony that the Government needs to interact with the financial
sector to identify terrorist financing.
How should the Government develop more effective case typologies
and feedback mechanisms about how terrorists use financial
institutions? Is this mostly an educational issue where we need to
empower financial institutions in order to monitor transactions for
suspicious or anomalous behavior?
Answer. America's financial institutions employ compliance
professionals to ensure that terrorists do not exploit their services.
A robust continuing education program is something that could be
considered.
Question 8a. The Financial Action Task Force on Money Laundering is
comprised of 36 member countries and territories and two international
organizations and was organized to develop and promote policies to
combat money laundering and terrorist financing. The FATF relies on a
combination of annual self-assessments and periodic mutual evaluations
that are completed by a team of FATF experts to provide information and
to assess the compliance of its members to the FATF guidelines.
What are the areas of greatest need for improvement in the FATF
surveillance process?
Answer. Special recommendations, rather than laws, create an
environment where compliance appears less than mandatory. Similarly,
mutual evaluations carry less weight than official oversight. FATF's
multilateral structure makes it easy for countries to do the minimum
required of them. This is a culture that, in my opinion, needs to be
addressed.
Question 8b. How does the United States evaluate the threats to the
global economy arising from money laundering, terrorist financing, and
financing the proliferation of weapons of mass destruction?
Answer. I don't believe I am equipped to answer this question.
Question 8c. How should we be prioritizing these threats and how
effectively has the FATF process been in addressing these threats?
Answer. I don't believe that FATF has been terribly effective in
addressing these threats. These are topics of conversation at FATF, but
not necessarily action items. As for the United States, our Government
continues to assess threats and makes decisions based on priorities. In
all of these areas, our Government has allocated significant resources.
Question 9. KPMG, a private consulting firm, released in October
2011 the findings of an anti-money laundering survey of major
international banks. They found that 80% of respondents reported an
increase in costs associated with anti-money laundering that averaged
around 45% since 2007. The major sources of cost increases identified
by the KMPG survey were: (1) Enhanced transaction monitoring, (2)
increased external reporting requirements to internal regulators and
external law enforcement agencies, and (3) increased anti-bribery and
anti-corruption activities.
In your opinion, are there sufficient resources devoted to
countering the financing of terrorism and money laundering?
Alternatively, are the resource costs associated with implementing such
financial regulations too burdensome on either the private or public
sectors?
Answer. According to a Congressional Research Service report,
``traditional anti-money-laundering tools appear to be of limited use
in disrupting terrorist financing.''\6\ Accordingly, it may not make
much sense to devote more resources to the anti-money-laundering
component of the problem. Critics also question the need for increased
funds going to the Treasury's counterterrorism efforts because less and
less cash has been frozen. But this fails to take into account how
effective Treasury has been in squeezing Iran with sanctions. This
effort, designed to help prevent Iran from attaining a nuclear weapon,
also happens to deprive the regime of the cash that it previously used
to finance terrorism. This has been a net positive. For this reason, I
believe the funding of Treasury's programs should continue.
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\6\ Rensselaer Lee, ``Terrorist Financing: The U.S. and
International Response,'' Congressional Research Service, December 6,
2002, http://www.law.umaryland.edu/marshall/crsreports/crsdocuments/
RL31658_12062002.pdf.
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Question 10. There has been growing concern at DHS, particularly
within ICE, about the widespread use of prepaid and stored value cards
as a way of smuggling illicit funds into the country which could fund
terror activity. Some estimates are that $1 billion annually is moved
into the country this way, with most of those funds nearly impossible
to track.
Would you agree that prepaid and stored value cards are a growing
danger to being able to target terrorist financiers? What steps would
you recommend DHS and the Department of the Treasury take to combat
this emerging trend?
Answer. According to Dennis Lormel, ``There is no empirical
statistical data establishing the nexus between credit card
exploitation and terrorism.'' Based on my experience, I largely agree
with this. When I served at Treasury, I personally saw cases that
proved to be rare exceptions.
Lormel also states that ``The focus for credit card fraud should be
placed on both the source and availability or distribution of funds.''
He notes that ``Al-Qaeda operatives commit credit card information
theft and fraud more on an individual basis than as a group or cell
activity; however, depending on the circumstances, they will commit
fraud as a group or cells.'' In contrast, he says that ``Because
Hezbollah functions like an organized crime family, their criminal
activities, which include credit card information theft and fraud, are
more likely to be group or cell oriented.''\7\ These are trends that
need to be examined moving forward.
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\7\ Dennis Lormel, ``Terrorism and Credit Card Information Theft,''
Shift4 Corporation, September 2007, http://www.shift4.com/pdf/s4-
wp0806_terrorism-and-credit-card-information-theft.pdf.
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Question 11a. On June 29, 2012, the Obama administration imposed
sanctions on a pair of informal money-exchange networks--known as
hawalas--in Afghanistan and Pakistan in what officials described as the
first use of the tactic to attack the financial underpinnings of
Taliban militants who rely on the system to fund their insurgency. The
Treasury Department said that the designations were coordinated with
similar measures adopted by the United Nations as part of a broad
effort to slow the flow of cash used by the Taliban to pay salaries and
purchase weapons for attacks in Afghanistan. The United Nations also
added the names of the same two institutions and their principal
backers to a list of groups officially associated with Taliban
militancy, meaning they will be subject to international sanctions as
well.
Considering how widespread their use is, how difficult is it for
U.S. Government to really get a handle on some of the terror financing
and money laundering activities being conducted under the hawala
system?
Answer. The hawala system is a tough challenge. While tens of
billions of dollars pass through hawaladars each year, a recent GAO
report states that ``officials and researchers we spoke with could not
provide estimates on the extent of terrorist use of informal banking
systems and other alternative financing mechanisms.''\8\
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\8\ ``Terrorist Financing,'' Government Accountability Office,
November 2003, http://www.gao.gov/new.items/d04163.pdf.
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According to the 9/11 Commission's monograph on terror financing,
the hawala system has become less of an issue when tracking the funds
of al-Qaeda. After we began actively tracking terror financiers,
operatives shifted to bulk cash smuggling.\9\
---------------------------------------------------------------------------
\9\ ``Monograph on Terror Financing,'' National Commission on
Terrorist Attacks Upon the United States, Accessed July 23, 2012.
http://www.9-11commission.gov/staff_statements/
911_TerrFin_Monograph.pdf.
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And while hawalas may continue to pose a significant terror finance
threat, according to Robert Looney, ``a crackdown by Arab and South
Asian governments at the behest of Western governments is simply not
feasible. The vast majority of the money is from legal, legitimate
sources, and the hawala organizations are numerous and extremely
powerful.'' He correctly adds that, ``if the desire of the authorities
is to constrain or significantly reduce the importance of hawala
activity, this means reducing the economic incentives to use the Hawala
system. There is probably no better way to accomplish this than to
facilitate cheap, fast remittances across international boundaries, and
to do away with dual and parallel exchange markets, which are always an
incentive to keep transactions underground.''\10\
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\10\ Robert E. Looney, ``Following the Terrorist Informal Money
Trail: The Hawala Financial Mechanism,'' Strategic Insights, Volume 1,
Issue 9 (November 2002), http://www.nps.edu/Academics/centers/ccc/
publications/OnlineJournal/2002/nov02/southAsia.html.
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Question 11b. How could the United States be more effective in
targeting the hawala systems being used by drug traffickers to fuel the
Taliban insurgency in Afghanistan and Pakistan?
Answer. If we have not done so already, the U.S. Government needs
to establish assets within these hawala systems who could help identify
these individuals and entities.
Question 11c. Would closer collaboration with the United Nations
help our Government's ability to identify hawala networks engaged in
illegal behavior?
Answer. While the United Nations can be effective in some specific
instances, I don't have faith that it can have an impact here. The
problem of hawalas is a sensitive one. I believe there is little to no
chance that Member States would risk the political backlash that would
undoubtedly arise from targeting these informal financial networks that
effectively prop up the economies in some of the world's most neglected
places. In short, the United Nations fosters an environment where the
consensus determines policy. This will ensure that the United Nations
remains largely irrelevant in the fight against illicit hawala
transactions, and more broadly, terror finance, for years to come.
Questions From Chairman Patrick Meehan for John A. Cassara
Question 1a. With our military successes against al-Qaeda core
leadership in Afghanistan and Pakistan, there is a growing trend of al-
Qaeda affiliated groups and adherents filling the void and taking the
lead in launching attacks against the homeland.
Given the relatively low amount of money required to plan and
launch a terrorist attack, how realistic is it to expect U.S. and
international counterterrorism entities to identify funds that might be
used to undertake terrorism-related activity?
Answer. Detecting the rather miniscule amount of funds needed to
launch small-scale terrorist attacks is a daunting challenge. For
example, the attempted 2010 cargo plane bombing is estimated to have
cost our adversaries approximately $4,200. In my opinion, intelligence
from human sources, coupled with robust analytics, are probably our
best countermeasures.
Question 1b. What are some of the persistent challenges in
identifying and investigating an activity suspected of financing
terrorism? What are some of the trends in how terrorist groups
acquiring funds to support their objectives?
Answer. In my experience, policy makers' early over-reliance on
``financial intelligence'' to combat terror finance continues to be a
tremendous bureaucratic and operational roadblock. Regulations have
been the priority over field investigations. Another obstacle has been
our intelligence and law enforcement officers' unfamiliarity with
terror finance methodologies. A third impediment has been our over-
reliance on sanctions and designations. A fourth impediment has been
the decimation of Treasury enforcement after the creation of the
Department of Homeland Security. And, a fifth issue has been the
unwillingness to utilize known capabilities to assess the financial
intelligence that both industry and the Government spends tremendous
resources on to produce.
The most troublesome trend because it is so widespread is what I
call ``local crime'' to finance terror. Narcotics trafficking,
intellectual property rights violations, cigarette smuggling, etc. are
just a few examples. Yet this development also holds promise because by
cracking down on local crime--predicate offenses for money laundering--
we might also disrupt terrorist operations. I believe this premise
would hold true for domestic crime and encouraging problematic
countries to be more vigilant investigating predicate offenses.
Question 1c. Is the decision to pursue a terror financing
investigation based on the amount of money suspected of being acquired
for terrorism-related purposes? If so, what is the minimum monetary
amount of terrorism-related funds the U.S. Government assesses as
worthy of investigating?
Answer. I am not currently in a position to answer this question.
However, given evolving abilities to link actors and actions, what
might appear to be small dollar activities can now be traced to larger
networks of actors and activities, as we are seeing in medical fraud
for example. My hope is that FinCEN and other agencies aren't using
dollar values as the litmus test because it simply isn't a good
indicator of harm.
Question 1d. Can you describe the decision-making process and
considerations by which the U.S. intelligence and law enforcement
communities decide whether to stop terrorism-financing related activity
and charge a suspect arrest or choose to allow the activity to continue
in hopes of following the trail of funds to a larger network of support
or to entities that may be planning a terrorist attack?
Answer. I am not currently in a position to answer this question.
Question 2. President Obama recently signed an Executive Order
allowing the Treasury Department to freeze U.S.-based assets of persons
who the White House has identified as a ``threat to the peace,
security, and stability'' of Yemen.
Do you think this is an effective use of the designation authority?
Especially when a group such as Boko Haram--who have killed thousands
of civilians and are in constant contact with AQIM--remain
undesignated?
Answer. I believe sanctions and designations are one tool of many
that should be employed to combat terrorists and those that support
terrorists. However, in my opinion, the United States has relied far
too heavily on sanctions and designations. Sanctions, designations, and
other ``black lists'' are also not uniformly applied. In the years
immediately after 9/11, I participated in a number of interagency
discussions regarding targets of designations. The interagency time and
resources expended on this exercise produced few actual results. The
Government has finite resources and as a result of our fixation on
designations other countermeasures were shortchanged. I concur with an
unnamed retired diplomat who said, ``Sanctions (and designations)
always accomplish their principal objective, which is to make those who
impose them feel good.''
Question 3a. In 2011, the U.S. Government revealed the findings of
a multi-year law enforcement operation to dismantle a complex,
transnational network involved in money laundering and drug
trafficking. The case involved Hezbollah, Mexican and Colombian drug
trafficking organizations, the Taliban, Lebanon, Colombia, Panama,
several countries in West Africa, U.S. car buyers, a U.S. shipping
company, bulk cash couriers, plans for weapons trafficking deals, and
the Beirut-based Lebanese Canadian Bank (LCB).
Does the fact that groups such as Hezbollah and the Islamic
Revolutionary Guard Corps continue to use criminal ventures create
opportunities for U.S. enforcement mechanisms--such as our robust
counternarcotics tools--to roll up these vast networks?
Answer. Yes. See my response to 1b above.
Question 3b. How does counterterrorism fit in this increasingly
interconnected underworld?
Answer. Terrorism is increasingly financed by the underworld of
transnational crime. By lifting the veil of underworld finance and
operations, we can impact terror.
Question 4a. The U.S. Government's on-going investigation of the
Lebanese Canadian Bank is of particular interest from a money
laundering perspective because it highlights the consequences of poor
compliance with anti-money laundering regulations in the formal
financial system.
Given the Lebanese Canadian Bank case, what more can be done to
protect the formal financial system from exploitation by terrorists?
Answer. There are no short-term fixes to protect the formal
financial system from exploitation. Although imperfect, the best
international countermeasure regarding compliance measures in
international banking continues to be recommendations, programs,
policies, and mutual evaluations undertaken by the Financial Action
Task Force (FATF) and FATF-style regional bodies. I have witnessed
first-hand how countries respond to FATF-led international censure by
putting in place world-standard anti-money laundering and counter-
terrorist finance countermeasures.
Question 4b. How can the U.S. Government more effectively mitigate
the threats posed by trade-based money laundering and bulk cash
smuggling and other ways outside the formal financial sector?
Answer. See No. 13 below. Additionally, I have suggested in other
responses, the use of better technological solutions that can help the
Government stay at least current with developing threats, and will help
suggest optimal ways to mitigate, or prevent threats from being
realized.
Question 5. There is an increasing concern in the counterterrorism
and intelligence community that terrorist organizations are
increasingly using criminal activities that are outside of the formal
international financial system to raise funds to carry out attacks and
further their goals.
How important are terrorist funds derived from criminal activities
for the operational sustainability of major terrorist groups compared
to other non-criminal sources of funds, including state sponsors and
private-sector donations?
Answer. With the decline of the state sponsorship of terrorism and
efforts to crack down on private-sector donations, terrorist
organizations and lone-wolf terrorist actors increasingly rely on local
crime to finance their activities. I do not believe it is possible to
quantify the extent of any particular source of terrorist funds.
Question 6. Foreign Terrorist Organization designation by the
Secretary of State is an important tool our Government uses to deter
donations or contributions to and economic transactions with terrorist
organizations. There are currently 50 groups listed by the State
Department as designated Foreign Terrorist Organizations.
Which FTO designated groups would you say are the best resourced
and most proficient at evading American and international financial
regulations? Which use the U.S. financial system the most?
Answer. I am not currently in a position to answer this question.
Question 7. All of the witnesses mentioned in their prepared
testimony that the Government needs to interact with the financial
sector to identify terrorist financing.
How should the Government develop more effective case typologies
and feedback mechanisms about how terrorists use financial
institutions? Is this mostly an educational issue where we need to
empower financial institutions in order to monitor transactions for
suspicious or anomalous behavior?
Answer. I do not believe the burden of spotting potential terror
funding should be put on financial institutions. Rather, banks and
money service businesses should continue to file financial intelligence
and suspicious activity reports with the Department of Treasury. The
spotlight should be on the Financial Crimes Enforcement Network's
(FinCEN's) inability to effectively exploit the approximately 18
million pieces of financial intelligence it receives annually and to
identify suspect or anomalous behavior. FinCEN should also do a better
job of alerting reporting institutions to current money laundering and
terror finance schemes.
Question 8a. The Financial Action Task Force on Money Laundering is
comprised of 36 member countries and territories and two international
organizations and was organized to develop and promote policies to
combat money laundering and terrorist financing. The FATF relies on a
combination of annual self-assessments and periodic mutual evaluations
that are completed by a team of FATF experts to provide information and
to assess the compliance of its members to the FATF guidelines.
What are the areas of greatest need for improvement in the FATF
surveillance process?
Answer. I have spent many years working with the FATF, including
participating in many mutual evaluations. In my opinion, a serious
disconnect between ``process'' and ``results'' has developed. The
bottom-line metric in evaluating countries' anti-money laundering
``regimes'' is the number of successful arrests, prosecutions, and
convictions. With few exceptions, most countries fail in this regard.
Over the last 15 years, the emphasis has been on the process; i.e.
laws, rules, regulations, creation of financial intelligence, creation
of a financial intelligence unit, etc. Yet, the fixation on process or
form rather than substance, combined with lack of expertise,
corruption, and lack of political will all conspire against results. It
may also be that the tools being deployed in the surveillance process
are outdated and unable to provide the most insightful results.
Question 8b. How does the United States evaluate the threats to the
global economy arising from money laundering, terrorist financing, and
financing the proliferation of weapons of mass destruction?
Answer. I am not currently in a position to respond to this
question.
Question 8c. How should we be prioritizing these threats and how
effectively has the FATF process been in addressing these threats?
Answer. I am not currently in a position to respond to this
question.
Question 9. KPMG, a private consulting firm, released in October
2011 the findings of an anti-money laundering survey of major
international banks. They found that 80% of respondents reported an
increase in costs associated with anti-money laundering that averaged
around 45% since 2007. The major sources of cost increases identified
by the KMPG survey were: (1) Enhanced transaction monitoring, (2)
increased external reporting requirements to internal regulators and
external law enforcement agencies, and (3) increased anti-bribery and
anti-corruption activities.
In your opinion, are there sufficient resources devoted to
countering the financing of terrorism and money laundering?
Alternatively, are the resource costs associated with implementing such
financial regulations too burdensome on either the private or public
sectors?
Answer. In my opinion, per my response in 7a above, industry
already bears too much of the regulatory AML/CFT burden. Industry
produces an enormous amount of financial intelligence but there is very
little return on investment. The primary reason is that the information
that they spend so much money to generate is not systematically or
comprehensively (strategically or tactically) exploited by Treasury's
FinCEN. In that regard, I believe that FinCEN has been provided
sufficient financial resources, but would question how they have
utilized those resources. In particular, I don't believe they have made
the best investments to help them effectively understand the financial
intelligence that they already possess, nor to report that information
to other Government or private-sector entities. I also question whether
the Government has made proper investments in terms of recruiting,
retaining, and developing the analytic community, especially with
respect to evolving tools and capabilities.
Question 10. There has been growing concern at DHS, particularly
within ICE, about the widespread use of prepaid and stored value cards
as a way of smuggling illicit funds into the country which could fund
terror activity. Some estimates are that $1 billion annually is moved
into the country this way, with most of those funds nearly impossible
to track.
Would you agree that prepaid and stored value cards are a growing
danger to being able to target terrorist financiers? What steps would
you recommend DHS and the Department of the Treasury take to combat
this emerging trend?
Answer. I agree that prepaid and stored value cards are a growing
danger in targeting terrorist financiers and money launderers both in
the United States and overseas. I suggest Congress and the
administration review the 2007 National Money Laundering Strategy that
discusses prepaid and stored value cards and outlines countermeasures.
Unfortunately, after 5 years little has been done. I urge Congress and
the administration to hold FinCEN and others accountable for the lack
of action.
Question 11a. On June 29, 2012, the Obama administration imposed
sanctions on a pair of informal money-exchange networks--known as
hawalas--in Afghanistan and Pakistan in what officials described as the
first use of the tactic to attack the financial underpinnings of
Taliban militants who rely on the system to fund their insurgency. The
Treasury Department said that the designations were coordinated with
similar measures adopted by the United Nations as part of a broad
effort to slow the flow of cash used by the Taliban to pay salaries and
purchase weapons for attacks in Afghanistan. The United Nations also
added the names of the same two institutions and their principal
backers to a list of groups officially associated with Taliban
militancy, meaning they will be subject to international sanctions as
well.
Considering how widespread their use is, how difficult is it for
U.S. Government to really get a handle on some of the terror financing
and money laundering activities being conducted under the hawala
system?
Answer. The challenges involved in identifying the misuse of hawala
and similar informal underground value transfer operations is
enormous--both in the United States and overseas.
Question 11b. How could the United States be more effective in
targeting the hawala systems being used by drug traffickers to fuel the
Taliban insurgency in Afghanistan and Pakistan?
Answer. This is a complex question that requires a lengthy answer.
To summarize, in the Afghanistan and Pakistan context trade is the
primary vehicle used to provide ``counter-valuation'' between
hawaladars. We need to work with Afghanistan, Pakistan, and countries
in the surrounding region (including Iran) to promote the concept of
``trade-transparency.'' If we present the issue as a revenue enhancer
(combating customs fraud) the governments involved will be receptive.
Trade-transparency should be made part of the regional Afghan Transit
Trade Agreement. By promoting trade-transparency and combating customs
fraud, we will shine the spotlight on underground finance and disrupt
hawala operations. See the following article I wrote for more details:
http://www.johncassara.com/
index.php?option=com_content&view=article&id=24:the-afghan-transit-
trade-how-afpak-drug-lords-and-terrorists-are-moving-money-and-
transferring-value&catid=2:articles&Itemid=8.
Question 11c. Would closer collaboration with the United Nations
help our Government's ability to identify hawala networks engaged in
illegal behavior?
Answer. The short answer is no. In my experience, most countries do
not recognize hawala or other similar types of underground financial
systems or collect data or intelligence on financial networks.
Question 12. Mr. Cassara, in your prepared testimony you talked
about ``draining the swamp,'' or how cracking down at home on local and
transnational financial crime might become one of the most effective
strategies to combat terrorism. You said that law enforcement,
intelligence, and military organizations must learn to look beyond the
immediate circumstances of a given local crime because these isolated
acts could have more sinister ties.
How do you get State and local law enforcement to change this
mentality with regard to fighting crime domestically in teaching them
to ``ask the next question'' during the course of a routine
investigation and question where the money is going?
Answer. At the State and local level the three-step solution is
training, intelligence, and prioritization. Regarding training, I am
familiar with a number of first-rate training initiatives such as the
State and Local Anti-Terrorist Training (SLATT) program run by the
Institute for Intergovernmental Research (IIR) and sponsored by the
Bureau of Justice Assistance (see www.slatt.org). There are other
training initiatives as well. Effective training programs should be
expanded. Specifically, officers and analysts should be trained how to
recognize terror finance indicators. They should be made familiar with
the financial and analytical tools that they have available to them
(sometimes these tools are not available but that is another issue).
From personal experience in working with State and local law
enforcement, I am appalled by the lack of knowledge of financial crimes
and resources that could be made available. Once law enforcement
officers and analysts have a better understanding of terror finance
methodologies, they should use that information to task reporting
sources to develop operational intelligence. They should also make it a
matter of routine not to become fixated on the immediacy of the local
crime they are investigating (narcotics, stolen cars, organized theft
rings, human smuggling, etc) but rather to ``ask the next question,''
i.e., ``What about the money?'' Finally, Federal, State, and local law
enforcement administrations should not become absorbed with the quick
``statistic'' or easy bust. Rather, they should understand that money
laundering and terror finance investigations are a long-term investment
that often times fail. However, they are too important to short change
for more immediate returns. Much of this conundrum is budget-driven.
Scarce funding is provided based on perceived results; i.e. statistics.
Unfortunately, the individuals that look at the statistics cannot
differentiate between a quick case or an impact case because they are
often reported the same way.
Question 13a. Mr. Cassara, you mentioned in your prepared testimony
that by promoting trade transparency and using technology to spot
anomalies or discrepancies in trade data that intelligence or law
enforcement entities may already possess, we may be able to use trade
as a ``back door'' to enter into previously hidden financial networks.
Can you elaborate on this idea and how sharing information with
State and local law enforcement may aid in this process?
Answer. There are a large number of underground financial systems
in the United States; they are also known as ``parallel banking,''
``underground finance,'' ``informal value transfer systems, etc.''
Examples are hawala, the black market peso exchange, and the Chinese
fei-chien systems. While there are a number of ways that underground
financial brokers periodically balance their books, historically and
culturally trade is the preferred method of providing ``counter-
valuation.'' Over- and under-invoicing is the primary vehicle used.
Thus discrepancies or anomalies in trade-data could be indicators of
simple fraud or possibly the back door to underground financial
networks. So if a State or local law enforcement agency identifies a
business that does not make economic or market sense, caters to suspect
groups, or has a side business involved with remitting money or value
overseas, it could be an entry point into previously hidden financial
networks. Given the amount of data that law enforcement has access to,
transparency can be enhanced by the use of technologies that seek out
both anomalies, as well as previously undetected patterns. These
technologies can be used with vast amounts of data that can't possibly
be reviewed in relevant time periods (or at least not reviewed
accurately), nor, given the amount of data, can humans understand
correlations and causative relationships in the data. Technology can,
and can also begin to create statistically significant linkages between
transactions and actors. By using these technologies, which exist now,
we can better prioritize where our law enforcement should be spending
time, we have more meaningful information to share, and ultimately, we
can be much more productive and successful with our limited enforcement
resources.
Question 13b. In some ways isn't this the future of combating
terrorist financing?
Answer. Since Richard Nixon declared ``War on Drugs'' in 1970, our
primary countermeasure in following the dirty money trail has been
tracking financial flows through banks and non-bank financial
institutions. Our primary emphasis has been creating a domestic (Bank
Secrecy Act et al) and then later an international network (FATF
recommendations) of financial transparency reporting requirements.
I believe trade-based money laundering is the ``next frontier'' in
international money laundering and counter-terrorist finance. We should
work to put in place a similar domestic and international network of
trade-transparency. That said, the technologies that are critical to
understanding terrorist financing exist now, so I could say that the
future has arrived.
Question 14a. Mr. Cassara, you mentioned in your prepared testimony
that the Federal Government is lagging in its deployment of advanced
analytical fraud frameworks such as ``predictive,'' ``social network''
and ``visual'' analytics.
In your opinion, is this the result of a lack of manpower or funds
within the Government to deploy these cutting-edge technologies?
Answer. I am not really in a position to comment except to say, in
my experience, there is a critical lack of understanding about what
advanced analytics are and why they are relevant to the Federal
Government.
Question 14b. You rightly raise privacy and civil liberties
concerns in your testimony with regard to exploiting social network
analytics. Can you explain some of the technology that exists to
safeguard the dissemination of personal financial information to
prevent abuse?
Answer. I am not a technologist, but let me suggest a couple of
thoughts. First, many analytics don't actually rely on the movement of
data from databases. Instead, they utilize ``metadata'', which is data
about data. The reason this is important is that it provides an audit
trail as to what data has been used, how it has been used, and who has
had access to it. Warehouses utilizing analytics can be configured to
include access controls--the more sensitive the data, the higher the
clearance needed. Second, in many cases, analytics can be run in a
manner that either the data is anonymized or the source of the data
obscured. In the case of social analytics, the analytics are not
necessarily looking for the identity of the ``speaker,'' but searching
for specific content and sentiment. Visual analytics itself does not
raise privacy concerns because its focus is presenting visual depiction
of information derived from statistical analysis. It thus provides an
easier, less abstract way of understanding data. Finally, predictive
analytics has historically been misunderstood, particularly by the
privacy community. I would submit that with predictive analytics, the
data is allowed to speak for itself; rather than the analyst coming to
the data with preconceived ideas of what is important or causative,
predictive analytics allows the data to ``speak for itself,'' to reveal
previously unknown patterns, or to reveal those factors that are truly
important to an activity. In all of these cases, what is important to
note is that the statistics never label activities as definitively
fraudulent, or definitively linked to terrorist activity. What they do,
however, is provide the analyst or investigator with unbiased
information relating to abnormalities that require more human
investigation.
Question 15. Mr. Cassara, you also mentioned in your prepared
remarks that within the next few years, approximately 500-700 million
additional pieces of financial information in the form of wire transfer
data will be routed annually to FinCEN.
What are the implications for the Treasury Department and the
intelligence community missing out on this crucial financial
intelligence if the Government is not able to employ all available
technologies to exploit it and act upon it in a timely fashion?
Answer. Currently, FinCEN is tasked by the U.S. Government to
receive, analyze, warehouse, and disseminate approximately 18 million
pieces of financial intelligence. Currently FinCEN is not able to
fulfill this mission. The reasons are many and complex, but the primary
explanation is continued failed management. If FinCEN is not able to
successfully complete today's mission involving 18 million pieces of
financial intelligence, we should not expect that they can handle the
increased workload, which is certain to occur. I worked at FinCEN for 6
years. In my first book, ``Hide & Seek: Intelligence, Law Enforcement,
and the Stalled War on Terror Finance,'' I discussed the entrenched
FinCEN culture that remains the catalyst for mission failure. We can no
longer afford business as usual. The implications for the U.S. law
enforcement and intelligence communities are enormous. That is why in
my testimony I advanced the idea of a Financial Intelligence Unit ``in
a box'' or going further downstream with the data and the analytics
directly to the consumer (see No. 16 below).
Question 16. Mr. Cassara, in 2008, you raised concerns that
financial intelligence is not being adequately exploited when
Treasury's Financial Crimes Enforcement Network (FinCEN) analyzes and
shares the hundreds of thousands of Suspicious Activity Reports (SARs)
they come across every year. Last month, FinCEN reported that number of
suspicious activity reports filed by financial institutions had
increased last year by 13.5% to an all-time high.
Can you explain your concerns regarding SARs to the Committee and
elaborate on how you believe FinCEN should be most effectively
exploiting the valuable financial intelligence in those Suspicious
Activity Reports?
Answer. As noted above, SARS are filed at great cost to industry.
Unfortunately, they have not been effectively exploited. The reasons
are many including failed management, until recently a series of failed
data mining/analytical systems, lack of skilled analysts, a revolving
door of departing staff due to poor morale, and FinCEN turning itself
away from its original mission of supporting law enforcement to
emphasizing the regulation of the BSA. Under FinCEN's current
framework, in order to address the above question regarding the lack of
effective exploitation of SARS the other underlying problems will have
to be addressed. However, there is a new idea on the horizon. The
technology now exists to not only disseminate SARs and other financial
intelligence directly to law enforcement users but allow a state-of-
the-art analytics platform to accompany the data. Per law and
regulation, Treasury and FinCEN would still control the financial
intelligence but we could do an ``end run'' around the current
structure of FinCEN that acts as an impediment to effective
exploitation of SARs and other financial intelligence by disseminating
both the data and the analytical tools directly to the end-user. In
effect, we could send a Financial Intelligence Unit (FIU) ``in a box''
to approved users at the Federal, State, and local level.
Question 17. Mr. Cassara, you have written extensively about trade-
based money laundering and invented the concept of trade-transparency
units which is now a part of the U.S. Government's National Anti-Money
Laundering Strategy. In addition, the Department of Homeland Security's
Immigration and Customs Enforcement has adopted this concept by
establishing the world's first TTU.
Can you explain this concept a bit, and how DHS has implemented
their own TTU program through ICE?
Answer. FATF defines trade-based money laundering (TBML) as the
``process of disguising the proceeds of crime and moving value through
the use of trade transactions in an attempt to legitimize their illicit
origins.'' According to the U.S. State Department, this practice has
reached ``staggering'' proportions in recent years. Although the
problem is difficult to quantify precisely, TBML is found globally,
including in the United States. In fact, some experts believe the
majority of U.S. money being laundered abroad is moved out of the
country via undervalued exports. The U.S. Department of Treasury
estimates that the Black Market Peso Exchange, a single TBML
methodology found in the Western hemisphere, launders billions of drug
dollars every year.
Criminal and terrorist groups that abuse trade are assisted by a
number of factors:
The massive amount of global trade that takes place daily.
Financial diversity (i.e. the wide variety of financial
controls found in different countries, the diverse financial
arrangements made between governments, and the innumerable
different types of financial deals found in international
commerce).
The co-mingling of licit and illicit funds and trade items.
The low risk of detection.
Limited Government understanding and resources to detect
suspect trade transactions.
Trade-based money laundering scams take a wide variety of forms.
For example, it could be simple bartering or a commodity-for-commodity
exchange. In certain parts of Afghanistan and Pakistan the going rate
for a kilo of heroin is a color television set. Drug warlords exchange
one commodity they control (opium) for others that they desire (luxury
and sports utility vehicles). However, generally speaking, money
laundering through simple invoice fraud and manipulation is most
common. The key element of this technique is the misrepresentation of
the trade good in order to transfer value between importer and
exporter. The quantity, quality, and description of the trade goods can
be manipulated. The shipment of the actual goods and the accompanying
documentation provide cover for ``payment'' or the transfer of money.
In order to move money out of a country, practitioners import goods
at overvalued prices or export goods at undervalued prices. In order to
move money into a country, practitioners import goods at undervalued
prices or export goods at overvalued prices.
It is important to understand that when a buyer and seller are
working together, the price of the item can be whatever they want it to
be. As long as parties in an international trade transaction do not get
too greedy and cause noticeable trade anomalies, their chances of
detection by bankers, customs services, law enforcement, and other
authorities are miniscule.
Every country in the world has a customs service and keeps track of
what comes in and what goes out. In fact, in many parts of the world
customs duties are the primary source of Government revenue. So
although there are differences in the way governments gather and store
trade data, enough similarities exist to conduct effective analysis and
TBML investigations. Such investigations require three basic elements:
Access to import and export data. Moreover, if the trade
data can be augmented by combining it or overlaying it with
other data such as financial, travel, commercial, law
enforcement, etc. following the suspect activity will be
further enhanced.
The ability to promptly exchange data (adhering to standard
international safeguards and privacy concerns) with other
countries.
Expertise in analyzing and investigating TBML.
Recognizing the growing threat of TBML, in 2004 the Department of
Homeland Security's Immigration and Customs Enforcement (ICE)
established the world's first trade-transparency unit or TTU.
Subsequently, other TTUs have been created in Argentina, Brazil,
Paraguay, Colombia, Panama, Mexico, and other countries. As
demonstrated above, by comparing one country's targeted imports or
exports against the corresponding data of another country, trade
anomalies can be detected that could be indicative of customs fraud,
tax evasion, contraband smuggling, or trade-based money laundering. The
data could even be the back door into underground financial schemes
including those linked to terror finance. I am pleased that DHS is
beginning to look at how to augment this data analysis through the use
of robust technologies that can parse through enormous amounts of data
in very short time increments. Of course, data analysis will only go so
far. Investigations in the field are also needed.
The U.S. law enforcement and intelligence communities agree that
one of the most effective counter-measures against organized crime,
terrorists, systematic corruption, fraud, and many other types of
serious crime is to ``follow the money trail.'' In the years to come, I
am convinced we will increasingly learn to ``follow the value trail.''
Questions From Chairman Patrick Meehan for Dennis M. Lormel
Question 1a. With our military successes against al-Qaeda core
leadership in Afghanistan and Pakistan, there is a growing trend of al-
Qaeda affiliated groups and adherents filling the void and taking the
lead in launching attacks against the homeland.
Given the relatively low amount of money required to plan and
launch a terrorist attack, how realistic is it to expect U.S. and
international counterterrorism entities to identify funds that might be
used to undertake terrorism-related activity?
Answer. Nominal funding requirements to support terrorist activity
can be very challenging for U.S. and international counterterrorism
entities to identify. It is possible to identify such funding but
highly improbable. Counterterrorism entities need to develop and
implement investigative and analytical methodologies to increase the
probability factor. Few, if any, entities existed before 9/11 that were
dedicated to identifying, investigating, and disrupting terrorist
financing. Since then, many entities were established with the mission
to investigate terrorist financing. By using the combination of
financial intelligence, human intelligence, and signal intelligence,
mechanisms have been, and will continue to be, developed to identify
even nominal amounts of money. By analyzing case studies, ranging from
grand to simple, such as the Mumbai bombing and lone wolf schemes like
that of Farooque Ahmed, who planned to detonate a bomb in the
Washington, DC Metro Transit System, counterterrorism entities
responsible for terrorist financing can build typologies and develop
proactive and progressive investigative strategies.
Question 1b. What are some of the persistent challenges in
identifying and investigating an activity suspected of financing
terrorism? What are some of the trends in how terrorist groups
acquiring funds to support their objectives?
Answer. One of the persistent challenges I encountered in the FBI,
and that I would continue to be concerned about today is the timely
collection and assessment of financial intelligence. Did my FBI
Section, the Terrorist Financing Operations Section (TFOS), have
intelligence information that we did not identify that could have led
us to a plot or potential attack? We collected and assimilated a
tremendous amount of intelligence information that we endeavored to
turn into actionable intelligence for field investigators. This is
particularly important in cases where a lone wolf operative did not
have a record, was unknown to intelligence agencies, and used funds
from a legitimate job to finance terrorist plans. Time sensitivity in
these matters was always challenging.
A trend that has continued since 9/11, and has grown significantly
since then, has been the movement to criminal activity as a fund-
raising mechanism for terrorists. In the aftermath of 9/11, the United
States and our international partners made a concerted effort to cut
off the flow of legitimate money from wealthy donors and charities. The
more these efforts succeeded, the more terrorists were driven to
criminal activity. This continues today. It will be interesting to
assess the success of the sanctions against Iran and the revolution in
Syria, two State sponsors of terrorism. This will probably result in
the continued increase in criminal activity.
Question 1c. Is the decision to pursue a terror financing
investigation based on the amount of money suspected of being acquired
for terrorism-related purposes? If so, what is the minimum monetary
amount of terrorism-related funds the U.S. Government assesses as
worthy of investigating?
Answer. Terrorist financing investigations were not predicated on
monetary considerations when I ran TFOS at the FBI. Terrorist financing
investigations are probably still not and should never be predicated on
monetary thresholds. Such investigations should be predicated upon the
relation to terrorism and the potential threat represented. While I was
still at the FBI in 2003, a process was established whereby all
terrorism cases contained a financial investigative component.
Terrorist financing investigations should focus on identifying all
funding streams and disrupting terrorist activities through denying
terrorists money. For terrorists to succeed, they must have a source of
funds and access to their money when they need it. Disrupting the
sources and/or access to money makes it extremely difficult for
terrorists to succeed.
Question 1d. Can you describe the decision-making process and
considerations by which the U.S. intelligence and law enforcement
communities decide whether to stop terrorism-financing related activity
and charge a suspect arrest or choose to allow the activity to continue
in hopes of following the trail of funds to a larger network of support
or to entities that may be planning a terrorist attack?
Answer. Terrorist financing investigations are a component of
counterterrorism. They should be conducted in coordination with the
broader counterterrorism mission and in conjunction with terrorism
investigations. Terrorist financing is one tool in the arsenal.
Terrorist financing investigations should be conducted with other
investigative techniques to include undercover operations, use of
informants, and/or wiretaps and tracking telephone calls and/or emails.
The combination of these investigative techniques can be extremely
productive.
The decision to allow a terrorist financing or broader terrorism
investigation to continue or to take it down is extremely important. It
should be based on whether an attack is imminent or not. If an attack
is imminent, you need to take down the investigation immediately and
prevent the attack. If an attack is not imminent, you allow the
investigation to continue. In so doing, you can develop evidence to
identify additional co-conspirators and funding streams. As an example,
consider the Lebanese Canadian Bank investigation. Although Hezbollah
was involved, and is a violent terrorist organization, there was no
specific threat or imminent danger associated with the investigation.
In that situation, you allow the investigation to play out. In this
case, the investigation was a multi-year investigation. A number of
funding streams and co-conspirators were identified and dismantled.
Take a case such as the Time Square bomber. As a hypothetical, had law
enforcement and intelligence agencies been aware of Faisal Shahzad and
his plan to detonate a bomb in Time Square, they would have allowed the
plot to unfold up to the point of imminent danger. In that case, had
they been aware and determined there was no imminent danger, they
probably would have identified the funding source, through the Hawala
operator. Had there been imminent danger, or if imminent danger could
not be determined, they would have arrested Shahzad and developed
additional information and evidence in the aftermath of the take down.
When I ran TFOS at the FBI, we strove to take terrorist financing
investigations in two directions: Forward to the strike team and
backward to the point of financial origin. I believed there were three
funding tracks, and I wanted investigations to disrupt activities in
all three tracks. First, there was a fundraising track. Large sums of
money, from the hundreds of thousands to millions of dollars, would be
generated through mechanisms to include donations from wealthy donors,
charities, State Sponsors (Iran most notably), criminal activities and
other means. The money flowed into the terrorist organization for
organizational use. Second, funding would be provided in a track from
the organization, through a single facilitator or multiple
facilitators, and to an operation. The funding flow here would be less
than the flow into the organization. It would range from the hundreds
of thousands to a few thousand dollars. Our primary investigative
attention would be focused on the facilitators because that would take
us to both the organization and to the operatives. Third, there was a
track from the operation, through the facilitator(s), to the
operatives. The funding flow here would be in the thousands to the
hundreds of dollars.
In general, when conducting terrorist financing investigations in
the first track, the organizational track, you would be more inclined
to allow the investigation to continue over a longer period of time and
be more deliberate and methodical in your investigative methodology.
When conducting investigations into the second track (operations) and
the third track (operatives) you have to deal with a greater sense of
urgency and constantly assess whether an attack is imminent. Most of
these investigations were shorter term because, at some point, you had
to be concerned about the threat of attack.
Question 2. President Obama recently signed an Executive Order
allowing the Treasury Department to freeze U.S.-based assets of persons
who the White House has identified as a ``threat to the peace,
security, and stability'' of Yemen.
Do you think this is an effective use of the designation authority?
Especially when a group such as Boko Haram--who have killed thousands
of civilians and are in constant contact with AQIM--remain
undesignated?
Answer. If evidence exists to support designations, I am an ardent
supporter for the designation process. Such actions disrupt funding
flows and serve as a deterrent. Boko Haram is a violent and dangerous
group. They have been very active and pose a formidable threat in
Nigeria. With respect to designating other groups, I would not make
designation decisions by comparing one group, such as Boko Haram, to
other groups. A number of factors must be taken in consideration in the
decision process to include the level of overall terrorist threat,
threat to the United States, diplomatic considerations, and the need to
continue the classification and protection of intelligence information.
Question 3a. In 2011, the U.S. Government revealed the findings of
a multi-year law enforcement operation to dismantle a complex,
transnational network involved in money laundering and drug
trafficking. The case involved Hezbollah, Mexican and Colombian drug
trafficking organizations, the Taliban, Lebanon, Colombia, Panama,
several countries in West Africa, U.S. car buyers, a U.S. shipping
company, bulk cash couriers, plans for weapons trafficking deals, and
the Beirut-based Lebanese Canadian Bank (LCB).
Does the fact that groups such as Hezbollah and the Islamic
Revolutionary Guard Corps continue to use criminal ventures create
opportunities for U.S. enforcement mechanisms--such as our robust
counternarcotics tools--to roll up these vast networks?
Answer. All criminal activity undertaken by Hezbollah, the Islamic
Revolutionary Guard Corps and other terrorist organizations leave them
vulnerable to detection by law enforcement and intelligence services.
Law enforcement, particularly the DEA and FBI, deserve considerable
credit for conducting a well-disciplined, focused, and comprehensive
investigation that tied transnational criminal organizations together
with terrorist groups and a number of facilitation tools to include the
Lebanese Canadian Bank. Through comprehensive investigation and
financial tracing, multiple funding streams between Central America,
the United States, Lebanon, West Africa, and Europe were identified and
dismantled. There have been at least four other significant
investigations conducted by the FBI and other agencies that exposed
Hezbollah's involvement in raising large amounts of money through
criminal activities in the United States. The most notable of these
cases was the North Carolina cigarette smuggling case known as
Operation Smokescreen. A Hezbollah cell operated an elaborate scheme to
smuggle cigarettes from North Carolina to Michigan. This cell generated
approximately $25 million in illicit funds.
Question 3b. How does counterterrorism fit in this increasingly
interconnected underworld?
Answer. The nexus between criminal and terrorist organizations has
continued to grow. This trend will persist. As the U.S. Government and
our allies continue to exert pressure and cut off funding streams,
terrorists will further align themselves with criminal organizations
and participate in criminal activity to raise much-needed money.
Terrorists are extremely adaptable and consistently look for new
funding mechanisms. Many terrorist organizations have become engaged in
drug trafficking because drug trafficking is the most profitable
criminal activity. These terrorist groups are evolving into hybrid
criminal and terrorist organizations. As they do, their ideology tends
to give way to greed. Greed is a vulnerability law enforcement can
exploit, unlike ideology. This makes these groups more susceptible to
criminal investigation and prosecution.
Question 4a. The U.S. Government's on-going investigation of the
Lebanese Canadian Bank is of particular interest from a money
laundering perspective because it highlights the consequences of poor
compliance with anti-money laundering regulations in the formal
financial system.
Given the Lebanese Canadian Bank case, what more can be done to
protect the formal financial system from exploitation by terrorists?
Answer. There are some egregious examples of anti-money laundering
(AML) compliance breakdowns that facilitated terrorists being able to
exploit the formal financial system. The biggest failure in the
Lebanese Canadian Bank case was the complicity of the Lebanese Canadian
Bank with transnational organized criminal groups, a Mexican drug
cartel, and Hezbollah. First, there was a total failure by the bank to
have an AML program. This enabled criminal and terrorist elements to
place money in the formal financial system, the first step in the money
laundering process; and then to layer it, which is the second step, by
moving it to other financial institutions and giving it a sense of
legitimacy; and then in integrating the funds, the third step in the
money laundering process, by using the illicit, but seemingly
legitimate funds to purchase goods, in this case used cars from the
United States, and shipping them to Africa for sale as legitimate
transactions.
One way to help strengthen the formal financial system is to make a
comprehensive case study out of the Lebanese Canadian Bank and
specifically show financial institutions how they were exploited in
this case. By developing typologies that could be built into scenarios
that could be incorporated into rules for AML transaction monitoring,
we can improve the system. This case study should also be used as a
wide-ranging training exercise.
The Lebanese Canadian Bank case was exacerbated by the fact that
Lebanon does not recognize Hezbollah as a terrorist organization.
Therefore, banks in Lebanon, and banks in other countries that do not
consider Hezbollah to be a terrorist organization, are inclined to bank
Hezbollah. International consensus on who is a terrorist organization
has been a longstanding problem.
There are other cases that can be cited, such as HSBC. The Senate
Permanent Subcommittee on Investigations conducted a thorough
investigation and issued a formal report on July 17, 2012, in
conjunction with a public hearing involving executives from HSBC. The
hearing and report serve as tools for lessons learned and should
provide a deterrent to other institutions for serious shortcomings in
their AML programs.
It should be pointed out that an overwhelming number of banks
operating in the United States have outstanding AML programs. The AML
compliance professionals in these institutions take a great deal of
pride in their work ethic and dedication to rooting out money
laundering and terrorist financing. I have seen this first-hand, both
as an FBI agent and today as a consultant doing work in the financial
services industry.
Question 4b. How can the U.S. Government more effectively mitigate
the threats posed by trade-based money laundering and bulk cash
smuggling and other ways outside the formal financial sector?
Trade-based money laundering has had a long history as a successful
mechanism for criminals and terrorists. The Lebanese Canadian Bank case
demonstrates how criminals and terrorists collaborated in different
trade-based money laundering schemes to launder illicit funds.
Likewise, bulk cash smuggling has long been, and continues to be, a
significant problem for criminals and terrorists. In 2010 and 2011,
both the Treasury Department and FBI reported that bulk cash smuggling
was a huge terrorist financing concern.
In my view, one of the most significant problems and
vulnerabilities we are confronted with outside the formal banking
system in the United States is unlicensed and unregistered money
remitters. These illegal money remitters provide hawala-like services
and do not comply with Bank Secrecy Act (BSA) reporting requirements.
Many banks are unaware of how many of their clients operate as illegal
money remitters. This is in spite of rigorous due diligence
requirements. I believe that about 80% of money remitters in the United
States are illegal.
To the question of how the U.S. Government can more effectively
mitigate the threats of these informal mechanisms, the answer is two-
fold. First, the Government interagency community should conduct
targeted investigative initiatives addressing these problem areas.
Through interagency cooperation, communication, and coordination, the
Government should identify the highest-priority targets in these areas
and determine which agencies could make the best impact by taking the
lead and develop multi-agency strategies. Second, as a component of
these initiatives, the U.S. Government should bring in the private
sector and subject matter experts who could provide a different
perspective and different sets of information that could develop
valuable financial intelligence. Public-private partnerships like this
are woefully lacking.
Question 5. There is an increasing concern in the counterterrorism
and intelligence community that terrorist organizations are
increasingly using criminal activities that are outside of the formal
international financial system to raise funds to carry out attacks and
further their goals.
How important are terrorist funds derived from criminal activities
for the operational sustainability of major terrorist groups compared
to other non-criminal sources of funds, including state sponsors and
private sector donations?
Answer. Following the terrorist attacks of 9/11, the United States
and our allies made a concerted effort to deter donations to terrorists
from wealthy donors, charities, and other funding sources to include
State Sponsors. This was accomplished in the form of sanctions, OFAC
and State Department designations, and targeted investigations by law
enforcement and intelligence agencies. As a result, numerous funding
sources were shut off and terrorist groups had to develop alternative
funding mechanisms. They gravitated to criminal activity, which has
consistently expanded over the years. Drug trafficking, kidnapping,
extortion, counterfeit goods, and a variety of other crimes have become
a staple for terrorist organizations.
As mentioned earlier, terrorists must have a continuous flow of
funds available that they can immediately access in order to succeed.
As otherwise legitimate sources of funding have diminished, terrorists
have had to increasingly rely on criminal activity as a funding
mechanism.
As more sanctions and pressure are exerted on Iran, it is less
likely they will be able to maintain the level of State Sponsorship
provided to Hezbollah and other terrorist organizations. Likewise, as
Syria faces a regime overthrow, it is unlikely they will be able to
provide funding and support to terrorists. This will result in an even
steadier reliance on criminal activities by terrorist groups.
Question 6. Foreign Terrorist Organization designation by the
Secretary of State is an important tool our Government uses to deter
donations or contributions to and economic transactions with terrorist
organizations. There are currently 50 groups listed by the State
Department as designated Foreign Terrorist Organizations.
Which FTO-designated groups would you say are the best resourced
and most proficient at evading American and international financial
regulations? Which use the U.S. financial system the most?
Answer. When it comes to resources, proficiency and exploitation of
the U.S. financial system, as well as the global financial system,
Hezbollah is in a league by themselves. In my view, Hezbollah is not
only the most proficient terrorist organization; they are the most
competent criminal organization in the world. Their global
infrastructure could serve as a model for organized crime. Hezbollah
has an incredible world-wide infrastructure that enables them to
operate criminal enterprises and function as a serious terrorist
threat. Including the Lebanese Canadian Bank case, there are at least
five significant investigations involving Hezbollah operations that
touch on the United States that demonstrate Hezbollah's criminal
organizational skills. In aggregate, their activities represent
hundreds of millions of dollars in criminal activity having a U.S.
nexus.
In today's environment and especially with the sanctions
confronting them, Iran poses a significant challenge for the formal
financial system. Their ability to hide behind shell companies and
opaque beneficial ownership is a hindrance to meaningful sanctions. In
addition, Iran's ability to use foreign banks as correspondent banks
and to strip SWIFT messaging information from transactional records
enables them to circumvent OFAC screening requirements. This is a huge
problem that surfaced with Lloyds Bank a few years ago and currently
with Standard Charter Bank. This is an issue that must be dealt with
forcefully with offending institutions if we intend to have meaningful
sanctions against Iran.
Question 7. All of the witnesses mentioned in their prepared
testimony that the Government needs to interact with the financial
sector to identify terrorist financing.
How should the Government develop more effective case typologies
and feedback mechanisms about how terrorists use financial
institutions? Is this mostly an educational issue where we need to
empower financial institutions in order to monitor transactions for
suspicious or anomalous behavior?
Answer. In my written testimony for the record, I made six
recommendations about improving the possibility and probability of
identifying terrorist financing. Three of those recommendations address
how the Government should develop more effective case typologies and
feedback mechanisms for terrorist financing cases. They are:
``A consistent and comprehensive feedback mechanism from law
enforcement must be developed that demonstrates the importance of BSA
reporting, especially the significance of Suspicious Activity Reports
(SARs). FinCEN's SAR Activity Review is a good mechanism that provides
insightful information. In addition, specific feedback from law
enforcement to financial institutions concerning the value and benefit
of BSA data, including SAR filings, would have a dramatic impact on the
morale of individuals responsible for SAR reporting.
``There must be an assessment by the Government of all SARs related
to or identifiable with terrorism cases. Such a review would identify
specific red flags that could be used as a training mechanism and more
importantly, could be factored into identifying typologies that could
be used for the monitoring/surveillance capabilities of financial
institutions. In addition, a determination could be made as to why the
financial institution filed a SAR. In many instances, the SAR was filed
for violations other than terrorist financing. Understanding what
triggered the SAR filing; in tandem with how the SAR ultimately was
linked to terrorist interests would be insightful.
``In addition to assessing SARs, the Government and industry should
collectively identify and assess as many case studies, of terrorist
financing-related investigations, as can be identified and legally
publicly accessed. The case studies should be compared to determine
what types of commonalities and patterns of activity exist. In
addition, common red flags should be easily discernible. This type of
case study assessment, coupled with the SAR analysis, would provide
more meaningful information to consider in identifying terrorist
financing characteristics, especially in cases involving more nominal
financial flows. This would enable financial institutions to more
effectively use surveillance and monitor techniques to identify
questionable transactional information.''
Financial institutions are required by the BSA to monitor
transactions for and report suspicious activity. Overall, U.S. banks do
a good job of reporting suspicious activity. This process could be
improved through a meaningful feedback mechanism from the Government
where the Government emphasizes the importance of SAR reporting,
coupled with demonstrating ``how'' terrorists used financial
institutions to move, store, and spend money.
In addition, terrorist financing specific training would be
important. This was another of the six recommendations I spoke about in
my written testimony. Terrorist financing is not well understood. As I
stated in my testimony, ``(w)ithout specific training, the ability to
understand and disrupt terrorist financing is more difficult to
achieve.''
Question 8a. The Financial Action Task Force on Money Laundering is
comprised of 36 member countries and territories and two international
organizations and was organized to develop and promote policies to
combat money laundering and terrorist financing. The FATF relies on a
combination of annual self-assessments and periodic mutual evaluations
that are completed by a team of FATF experts to provide information and
to assess the compliance of its members to the FATF guidelines.
What are the areas of greatest need for improvement in the FATF
surveillance process?
Answer. The FATF mutual evaluation process is one of the most
significant accomplishments of the FATF 40 Recommendations regarding
money laundering and terrorist financing as it provides peer and public
pressure to enact and then operationalize AML laws. There are
approximately 170 jurisdictions who have adopted the FATF 40
Recommendations (FATF plus the FATF style regional bodies).
FATF revised the 40 Recommendations and the methodology for
assessment in February 2012. According to FATF, the FATF Standards have
been revised to strengthen global safeguards and further protect the
integrity of the financial system by providing governments with
stronger tools to take action against financial crime. At the same
time, these new standards will address new priority areas such as
corruption and tax crimes.
Ted Greenberg, a former Department of Justice and World Bank
official, is an expert on FATF. He was involved in writing the 40
Recommendations and has participated in the FATF evaluation process.
According to Mr. Greenberg, the current methodology has proven to be
repetitive in its application, not focused on assessment of
effectiveness, and failed to take account of corruption issues in law.
Mr. Greenberg believes the new process should focus on the main
weaknesses in each jurisdiction, why they are/are not effective and
make recommendations to fix the problem areas. He also believes the new
process must focus more on corruption issues and their impact on AML.
Question 8b. How does the United States evaluate the threats to the
global economy arising from money laundering, terrorist financing, and
financing the proliferation of weapons of mass destruction?
Answer. When I was responsible for TFOS at the FBI, I was the FBI's
representative on the Policy Coordinating Committee (PCC) for Terrorist
Financing. All Government agencies with a nexus to money laundering and
terrorist financing participated in that PCC. As an interagency group,
we evaluated the threats from money laundering and terrorist financing.
We collectively identified and prioritized the most significant
threats. The PCC was then chaired by David Aufhauser. During that time
period (2001-2003), Mr. Aufhauser served as General Counsel at the
Treasury Department. As I mentioned in my written testimony, ``Mr.
Aufhauser was a true leader who marshaled the interagency collaborative
initiative. He was an unsung hero and visionary.'' My understanding is
that this interagency working group is now directed by the National
Security Council. The group is no longer referred to as the PCC for
Terrorist Financing. I am not sure what it is currently identified as.
Question 8c. How should we be prioritizing these threats and how
effectively has the FATF process been in addressing these threats?
Answer. In the United States, the threats should continue to be
evaluated and prioritized by the interagency working group. Stopping
the flow of funds to terrorists should be an extremely high interagency
priority. Overall, the FATF evaluation process has been successful.
When FATF first started there was no peer evaluation process of money
laundering laws. In fact, few countries had AML laws. Since then, the
FATF evaluation process has been widely accepted and followed. FATF has
revised the evaluation process, which should result in an improved
process.
Question 9. KPMG, a private consulting firm, released in October
2011 the findings of an anti-money laundering survey of major
international banks. They found that 80% of respondents reported an
increase in costs associated with anti-money laundering that averaged
around 45% since 2007. The major sources of cost increases identified
by the KMPG survey were: (1) Enhanced transaction monitoring, (2)
increased external reporting requirements to internal regulators and
external law enforcement agencies, and (3) increased anti-bribery and
anti-corruption activities.
In your opinion, are there sufficient resources devoted to
countering the financing of terrorism and money laundering?
Alternatively, are the resource costs associated with implementing such
financial regulations too burdensome on either the private or public
sectors?
Answer. Overall, I do not believe sufficient resources are devoted
to countering the financing of terrorism and money laundering, both in
the private and public sectors. In the private sector, AML compliance
is considered a cost center, as opposed to a revenue center. As such,
AML compliance does not receive the support from business entities
within a financial institution that should be given. The HSBC case
illustrates this shortcoming. This problem was magnified during the
financial crisis when banks were reducing staff. Invariably compliance
staffs were cut before business staffs. The battle cry in AML
compliance was ``do more with less''. The only winner under those
circumstances is the money launderer. In the last few years, as the
economy improved, AML compliance resources have improved. However,
until the business entity (revenue center) versus compliance entity
(cost center) mentality is dealt with, AML compliance will not be
adequately resourced. As far as the Government is concerned, these are
lean budget times. Consequently, staffing is impacted. In general,
Government agencies responsible for investigating money laundering and
terrorist financing do not have the necessary staffing. However, the
Government has consistently done outstanding work in addressing the
money laundering and terrorist financing crime problems.
Question 10. There has been growing concern at DHS, particularly
within ICE, about the widespread use of prepaid and stored value cards
as a way of smuggling illicit funds into the country which could fund
terror activity. Some estimates are that $1 billion annually is moved
into the country this way, with most of those funds nearly impossible
to track.
Would you agree that prepaid and stored value cards are a growing
danger to being able to target terrorist financiers? What steps would
you recommend DHS and the Department of the Treasury take to combat
this emerging trend?
Answer. The use of prepaid cards has exploded and continues to gain
popularity at a rapid pace. There are many legitimate and convenient
uses of prepaid cards. However, prepaid cards have been a source of
vulnerability since they came on the market. Law enforcement has
constantly been concerned about criminals and terrorists using prepaid
cards in furtherance of their illicit activities. The problem is not
just a one-way problem. Prepaid cards coming into the country to
support a potential terrorist attack is a direct threat to National
security and should be considered a significant problem. There is also
a serious outbound problem. One area where this is extremely
problematic is with the Mexican drug cartels. Prepaid cards are being
purchased in the United States for shipment to Mexico with drug
proceeds.
The Treasury Department, through FinCEN, established rules
regarding prepaid cards in September 2011, which went into effect in
March 2012. The rules, while helpful, do not solve the problem. What is
needed is legislation making prepaid cards monetary instruments and
subjecting them to BSA reporting requirements. Most notably, prepaid
cards should be subject to reporting requirements when individuals
travel internationally.
The Treasury and Homeland Security Departments should work with the
interagency community, especially the interagency working group for
money laundering and terrorist financing to develop a Government-wide
investigative strategy to deal with the threat posed by prepaid cards
being exploited by terrorists. Likewise, the interagency community
should reach out to the private sector to form strategic partnerships
to address this crime problem.
Question 11a. On June 29, 2012, the Obama administration imposed
sanctions on a pair of informal money-exchange networks--known as
hawalas--in Afghanistan and Pakistan in what officials described as the
first use of the tactic to attack the financial underpinnings of
Taliban militants who rely on the system to fund their insurgency. The
Treasury Department said that the designations were coordinated with
similar measures adopted by the United Nations as part of a broad
effort to slow the flow of cash used by the Taliban to pay salaries and
purchase weapons for attacks in Afghanistan. The United Nations also
added the names of the same two institutions and their principal
backers to a list of groups officially associated with Taliban
militancy, meaning they will be subject to international sanctions as
well.
Considering how widespread their use is, how difficult is it for
U.S. Government to really get a handle on some of the terror financing
and money laundering activities being conducted under the hawala
system?
Answer. The problem of illegal money remitters operating in the
United States is one of the most significant and challenging facing the
U.S. Government. This is one of the biggest challenges facing the
financial services sector. Financial institutions do not know the
number of their customers who use their businesses to conduct illegal
money remittance operations. This is a form of hawala. The interagency
working group dealing with money laundering and terrorist financing
should conduct a targeted and coordinated investigative initiative on
two levels to identify and dismantle illegal money remittance
operations. On an international level, hawalas linked to terrorism
should be identified and targeted. The Government should employee
techniques to identify wire transfers to and from the United States
involving these hawalas, as well as telephone numbers and emails, among
other communication modes linked to the hawalas. From there,
investigation should focus on the identified illegal money remitters in
the United States. Coordinated take-downs of targeted hawalas in the
United States and abroad should take place. This would involve
coordination with our international partners. On a second level, there
should be an initiative to arrest a large number of illegal money
remitters in the United States for operating illegal (unlicensed and
unregistered) money remittance operations. This would generate
considerable media attention to this problem, be impactful and have a
deterrent effect on these types of businesses.
Question 11b. How could the United States be more effective in
targeting the hawala systems being used by drug traffickers to fuel the
Taliban insurgency in Afghanistan and Pakistan?
Answer. DEA has had the lead in the area of drug trafficking in
Afghanistan. DEA should develop investigative strategies with the
Department of Defense, law enforcement, and intelligence agencies.
Those strategies should be fully coordinated. The collective financial
intelligence from the various agencies should provide actionable
intelligence information to prioritize and target hawala dealers who
support the Taliban. The key is coordination, communication, and
cooperation.
Question 11c. Would closer collaboration with the United Nations
help our Government's ability to identify hawala networks engaged in
illegal behavior?
Answer. On a practical operational level, collaboration with the
United Nations would have little impact on U.S. investigative efforts.
On a policy level, especially in considering regulating hawalas,
collaboration with the United Nations and other international bodies
could be extremely beneficial.
Question 12. Mr. Lormel, in your written testimony you mentioned
the Lloyds Bank ``stripping'' case as a prime example of how
correspondent banking was used by Iran as a facilitation tool.
This was a pretty egregious example of Iran using the formal
banking system to skirt international financial system. Do you think
this was a one-off or an instance of a larger problem, particularly
with regard to SWIFT?
Answer. I believe the problem of ``stripping'' is much larger. It
is not a one-off situation. The Lloyds case was investigated jointly by
the District Attorney of New York (DANY) and the Department of Justice.
At the time the case was brought forward, DANY announced it was
investigating nine other banks for similar ``stripping'' activity. On
August 6, 2012, the New York State Department of Financial Services
announced it was investigating Standard Charter Bank for ``stripping''
information related to Iran.
SWIFT is not the problem. The problem is that certain banks have
chosen to do business with Iran. There is tremendous profit for the
banks in dealing with Iran, especially with the strong U.S. sanctions.
However, Iran needs access to U.S. dollars, therefore the banks who are
dealing with Iran must transact in the United States. They must have a
correspondent banking relationship with a U.S. bank to access U.S.
dollars. In the cases of Lloyds and Standard Charter, the banks knew
that if they provided the proper SWIFT messaging data, the identities
of the Iranian banks they were transacting with would have been
disclosed through their correspondent relationship with a U.S. bank.
They knew full well that if that occurred the U.S. bank would have
declined the transaction. The U.S. bank's OFAC monitoring system would
have identified the sanctioned Iranian bank and returned the
transaction. Therefore, Lloyds and Standard Charter ``stripped'' out
any reference or mention of the Iranian bank in the transaction,
circumventing the OFAC monitoring. This gave the appearance to the U.S.
bank that either Lloyds or Standard Charter were the originating bank
in the transaction.
Question 13a. Mr. Lormel, you suggested that providing security
clearances to select personnel in financial institutions in order to
share limited intelligence information that could be scrubbed against
bank monitoring systems to identify transactional information
associated with terrorists.
How would you envision this to work?
Answer. The Government provides security clearances to individuals
working in the defense contracting industry. This enables defense
contractors and consultants to work on classified projects, which is in
the Government's best interest. The same should be true in the
financial services industry. Financial institutions are a repository
for significant financial intelligence information. If the Government
could share selective classified information with a limited number of
vetted and cleared bank officials that information could be run through
transactional information. Hits in the transactional data, that
otherwise would not have been identified, would be reported back to the
agency providing the information. Legal process would have to be put in
place to ensure any information provided back to the Government did not
violate Bank Secrecy Act privacy provisions.
Question 13b. What would you think of sending members of Treasury's
Office of Financial Intelligence, or of the intelligence community, to
certain high-risk financial institutions, in essence detailing them
there for this purpose? Would this not also help with the challenge of
helping the financial sector to identify activity consistent with
typologies of terrorists?
Answer. The idea of detailing members of the Treasury's Office of
Financial Intelligence or from law enforcement is worth consideration.
It would be important to distinguish law enforcement and the
intelligence community in the sense that the CIA should be precluded
from collecting domestic intelligence, especially involving U.S.
persons. The FBI or other law enforcement agencies dealing with
classified intelligence would be the appropriate Government
representatives. However, before considering sending Government
personnel to select high-risk institutions, a number of impediments
would need to be resolved. The General Counsels from the financial
institution and Government agencies would need to assess the legality
and potential liabilities of such a relationship. Two other
considerations would need to be considered. First, by sending personnel
to select financial institutions would the Government be unwittingly
providing that institution with an unfair competitive advantage?
Second, does the Government have the resources to devote to this type
of initiative?
While I ran TFOS at the FBI, we actually had an operation with a
financial services provider, similar to what was suggested in the above
question. We worked through the impediments and formed a public-private
partnership that achieved extremely productive investigative results.
This was a terrific model of how the financial services sector and law
enforcement could form a strategic partnership in furtherance of
National security. Because of the sensitivity of that initiative, I
cannot comment about it any further.
Questions From Chairman Patrick Meehan for Sue E. Eckert
Question 1a. With our military successes against al-Qaeda core
leadership in Afghanistan and Pakistan, there is a growing trend of al-
Qaeda affiliated groups and adherents filling the void and taking the
lead in launching attacks against the homeland.
Given the relatively low amount of money required to plan and
launch a terrorist attack, how realistic is it to expect U.S. and
international counterterrorism entities to identify funds that might be
used to undertake terrorism-related activity?
Answer. Response was not received at the time of publication.
Question 1b. What are some of the persistent challenges in
identifying and investigating an activity suspected of financing
terrorism? What are some of the trends in how terrorist groups
acquiring funds to support their objectives?
Answer. Response was not received at the time of publication.
Question 1c. Is the decision to pursue a terror financing
investigation based on the amount of money suspected of being acquired
for terrorism-related purposes? If so, what is the minimum monetary
amount of terrorism-related funds the U.S. Government assesses as
worthy of investigating?
Answer. Response was not received at the time of publication.
Question 1d. Can you describe the decision-making process and
considerations by which the U.S. intelligence and law enforcement
communities decide whether to stop terrorism-financing related activity
and charge a suspect arrest or choose to allow the activity to continue
in hopes of following the trail of funds to a larger network of support
or to entities that may be planning a terrorist attack?
Answer. Response was not received at the time of publication.
Question 2. President Obama recently signed an Executive Order
allowing the Treasury Department to freeze U.S.-based assets of persons
who the White House has identified as a ``threat to the peace,
security, and stability'' of Yemen.
Do you think this is an effective use of the designation authority?
Especially when a group such as Boko Haram--who have killed thousands
of civilians and are in constant contact with AQIM--remain
undesignated?
Answer. Response was not received at the time of publication.
Question 3a. In 2011, the U.S. Government revealed the findings of
a multi-year law enforcement operation to dismantle a complex,
transnational network involved in money laundering and drug
trafficking. The case involved Hezbollah, Mexican and Colombian drug
trafficking organizations, the Taliban, Lebanon, Colombia, Panama,
several countries in West Africa, U.S. car buyers, a U.S. shipping
company, bulk cash couriers, plans for weapons trafficking deals, and
the Beirut-based Lebanese Canadian Bank (LCB).
Does the fact that groups such as Hezbollah and the Islamic
Revolutionary Guard Corps continue to use criminal ventures create
opportunities for U.S. enforcement mechanisms--such as our robust
counternarcotics tools--to roll up these vast networks?
Answer. Response was not received at the time of publication.
Question 3b. How does counterterrorism fit in this increasingly
interconnected underworld?
Answer. Response was not received at the time of publication.
Question 4a. The U.S. Government's on-going investigation of the
Lebanese Canadian Bank is of particular interest from a money
laundering perspective because it highlights the consequences of poor
compliance with anti-money laundering regulations in the formal
financial system.
Given the Lebanese Canadian Bank case, what more can be done to
protect the formal financial system from exploitation by terrorists?
Answer. Response was not received at the time of publication.
Question 4b. How can the U.S. Government more effectively mitigate
the threats posed by trade-based money laundering and bulk cash
smuggling and other ways outside the formal financial sector?
Answer. Response was not received at the time of publication.
Question 5. There is an increasing concern in the counterterrorism
and intelligence community that terrorist organizations are
increasingly using criminal activities that are outside of the formal
international financial system to raise funds to carry out attacks and
further their goals.
How important are terrorist funds derived from criminal activities
for the operational sustainability of major terrorist groups compared
to other non-criminal sources of funds, including state sponsors and
private-sector donations?
Answer. Response was not received at the time of publication.
Question 6. Foreign Terrorist Organization designation by the
Secretary of State is an important tool our Government uses to deter
donations or contributions to and economic transactions with terrorist
organizations. There are currently 50 groups listed by the State
Department as designated Foreign Terrorist Organizations.
Which FTO-designated groups would you say are the best resourced
and most proficient at evading American and international financial
regulations? Which use the U.S. financial system the most?
Answer. Response was not received at the time of publication.
Question 7. All of the witnesses mentioned in their prepared
testimony that the Government needs to interact with the financial
sector to identify terrorist financing.
How should the Government develop more effective case typologies
and feedback mechanisms about how terrorists use financial
institutions? Is this mostly an educational issue where we need to
empower financial institutions in order to monitor transactions for
suspicious or anomalous behavior?
Answer. Response was not received at the time of publication.
Question 8a. The Financial Action Task Force on Money Laundering is
comprised of 36 member countries and territories and two international
organizations and was organized to develop and promote policies to
combat money laundering and terrorist financing. The FATF relies on a
combination of annual self-assessments and periodic mutual evaluations
that are completed by a team of FATF experts to provide information and
to assess the compliance of its members to the FATF guidelines.
What are the areas of greatest need for improvement in the FATF
surveillance process?
Answer. Response was not received at the time of publication.
Question 8b. How does the United States evaluate the threats to the
global economy arising from money laundering, terrorist financing, and
financing the proliferation of weapons of mass destruction?
Answer. Response was not received at the time of publication.
Question 8c. How should we be prioritizing these threats and how
effectively has the FATF process been in addressing these threats?
Answer. Response was not received at the time of publication.
Question 9. KPMG, a private consulting firm, released in October
2011 the findings of an anti-money laundering survey of major
international banks. They found that 80% of respondents reported an
increase in costs associated with anti-money laundering that averaged
around 45% since 2007. The major sources of cost increases identified
by the KMPG survey were: (1) Enhanced transaction monitoring, (2)
increased external reporting requirements to internal regulators and
external law enforcement agencies, and (3) increased anti-bribery and
anti-corruption activities.
In your opinion, are there sufficient resources devoted to
countering the financing of terrorism and money laundering?
Alternatively, are the resource costs associated with implementing such
financial regulations too burdensome on either the private or public
sectors?
Answer. Response was not received at the time of publication.
Question 10. There has been growing concern at DHS, particularly
within ICE, about the widespread use of prepaid and stored value cards
as a way of smuggling illicit funds into the country which could fund
terror activity. Some estimates are that $1 billion annually is moved
into the country this way, with most of those funds nearly impossible
to track.
Would you agree that prepaid and stored value cards are a growing
danger to being able to target terrorist financiers? What steps would
you recommend DHS and the Department of the Treasury take to combat
this emerging trend?
Answer. Response was not received at the time of publication.
Question 11a. On June 29, 2012, the Obama administration imposed
sanctions on a pair of informal money-exchange networks--known as
hawalas--in Afghanistan and Pakistan in what officials described as the
first use of the tactic to attack the financial underpinnings of
Taliban militants who rely on the system to fund their insurgency. The
Treasury Department said that the designations were coordinated with
similar measures adopted by the United Nations as part of a broad
effort to slow the flow of cash used by the Taliban to pay salaries and
purchase weapons for attacks in Afghanistan. The United Nations also
added the names of the same two institutions and their principal
backers to a list of groups officially associated with Taliban
militancy, meaning they will be subject to international sanctions as
well.
Considering how widespread their use is, how difficult is it for
U.S. Government to really get a handle on some of the terror financing
and money-laundering activities being conducted under the hawala
system?
Answer. Response was not received at the time of publication.
Question 11b. How could the United States be more effective in
targeting the hawala systems being used by drug traffickers to fuel the
Taliban insurgency in Afghanistan and Pakistan?
Answer. Response was not received at the time of publication.
Question 11c. Would closer collaboration with the United Nations
help our Government's ability to identify hawala networks engaged in
illegal behavior?
Answer. Response was not received at the time of publication.
Questions From Ranking Member Brian Higgins for Sue E. Eckert
Question 1. Ms. Eckert, have Government officials identified any
specific indicators of terrorist financing? What are the triggers that
actually ``tip'' law enforcement into knowing that a specific group is
engaging in illegal financial schemes that are actually funding
terrorism? Would there be an exhaustive list given our diverse threat?
Answer. Response was not received at the time of publication.
Question 2. Ms. Eckert, what metrics are in place to actually
measure the success of the targeted sanctions and statutes put in place
to prevent terrorism funding since 9/11? What do we use to measure? We
cannot count the amount of lives saved, but we can assess dollar
figures and convictions, but these may also be misleading? What do you
suggest?
Answer. Response was not received at the time of publication.
Question 3. Ms. Eckert, earlier this year, the American Bar
Association had a panel discussing the disparate impact of terrorist
finance enforcement on charities and non-profits. Explain how this
enforcement has a disparate impact and what if anything that you know
that the Treasury and Department of Justice are doing to make sure that
their terrorist financing enforcement is fair?
Answer. Response was not received at the time of publication.
Question 4. The threat to the United States has diversified greatly
since 9/11. How have our terrorist financing enforcement mechanisms
adequately kept up with the diverse threat?
Answer. Response was not received at the time of publication.
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