[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
                  PATRIOT ACT OVERSIGHT: INVESTIGATING
                    PATTERNS OF TERRORIST FINANCING
=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                      OVERSIGHT AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION
                               __________

                           FEBRUARY 12, 2002
                               __________

       Printed for the use of the Committee on Financial Services


                           Serial No. 107-53






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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 JOHN J. LaFALCE, New York
MARGE ROUKEMA, New Jersey, Vice      BARNEY FRANK, Massachusetts
    Chair                            PAUL E. KANJORSKI, Pennsylvania
DOUG BEREUTER, Nebraska              MAXINE WATERS, California
RICHARD H. BAKER, Louisiana          CAROLYN B. MALONEY, New York
SPENCER BACHUS, Alabama              LUIS V. GUTIERREZ, Illinois
MICHAEL N. CASTLE, Delaware          NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York              MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California          GARY L. ACKERMAN, New York
FRANK D. LUCAS, Oklahoma             KEN BENTSEN, Texas
ROBERT W. NEY, Texas                 JAMES H. MALONEY, Connecticut
BOB BARR, Georgia                    DARLENE HOOLEY, Oregon
SUE W. KELLY, New York               JULIA CARSON, Indiana
RON PAUL, Texas                      BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio                MAX SANDLIN, Texas
CHRISTOPHER COX, California          GREGORY W. MEEKS, New York
DAVE WELDON, Florida                 BARBARA LEE, California
JIM RYUN, Kansas                     FRANK MASCARA, Pennsylvania
BOB RILEY, Alabama                   JAY INSLEE, Washington
STEVEN C. LaTOURETTE, Ohio           JANICE D. SCHAKOWSKY, Illinois
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, North Carolina      CHARLES A. GONZALEZ, Texas
DOUG OSE, California                 STEPHANIE TUBBS JONES, Ohio
JUDY BIGGERT, Illinois               MICHAEL E. CAPUANO, Massachusetts
MARK GREEN, Wisconsin                HAROLD E. FORD Jr., Tennessee
PATRICK J. TOOMEY, Pennsylvania      RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut       KEN LUCAS, Kentucky
JOHN B. SHADEGG, Arizona             RONNIE SHOWS, Mississippi
VITO FOSSELLA, New York              JOSEPH CROWLEY, New York
GARY G. MILLER, California           WILLIAM LACY CLAY, Missouri
ERIC CANTOR, Virginia                STEVE ISRAEL, New York
FELIX J. GRUCCI, Jr., New York       MIKE ROSS, Arizona
MELISSA A. HART, Pennsylvania         
SHELLEY MOORE CAPITO, West Virginia  BERNARD SANDERS, Vermont
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
PATRICK J. TIBERI, Ohio

             Terry Haines, Chief Counsel and Staff Director
                                 ------                                

              Subcommittee on Oversight and Investigations

                     SUE W. KELLY, New York, Chair

RON PAUL, Ohio, Vice Chairman        LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York              KEN BENTSEN, Texas
ROBERT W. NEY, Texas                 JAY INSLEE, Washington
CHRISTOPHER COX, California          JANICE D. SCHAKOWSKY, Illinois
DAVE WELDON, Florida                 DENNIS MOORE, Kansas
WALTER B. JONES, North Carolina      MICHAEL CAPUANO, Massachusetts
JOHN B. SHADEGG, Arizona             RONNIE SHOWS, Mississippi
VITO FOSSELLA, New York              JOSEPH CROWLEY, New York
ERIC CANTOR, Virginia                WILLIAM LACY CLAY, Missouri
PATRICK J. TIBERI, Ohio











                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    February 12, 2002............................................     1
Appendix:
    February 12, 2002............................................    39

                               WITNESSES
                       Tuesday, February 12, 2002

Byrne, John J., Senior Counsel and Compliance Manager, American 
  Bankers Association............................................    28
Emerson, Steven, Executive Director, The Investigative Project, 
  Washington, DC.................................................    25
Herrera, John A., Vice President for Latino/Hispanic Affairs, 
  Self-Help Credit Union; Board Chair, The Latino Community 
  Credit Union, on behalf of the Credit Union National 
  Association and World Council of Credit Unions.................    30
Lormel, Dennis M., Chief, Financial Crimes Section, Federal 
  Bureau of Investigation........................................    11
Neubert, Jeffrey P., President and CEO, The New York Clearing 
  House Association, L.L.C.......................................    26
Warren, Mary Lee, Deputy Assistant Attorney General, Criminal 
  Division, U.S. Department of Justice...........................     9
Zarate, Juan C., Deputy Assistant Secretary, Terrorism and 
  Violent Crime, U.S. Department of the Treasury, accompanied by 
  John Varrone, Assistant Commissioner, Office of Investigations, 
  U.S. Customs Service; Richard Newcomb, Director, Office of 
  Foreign Assets Control, U.S. Department of the Treasury; and 
  James F. Sloan, Director, Financial Crimes Enforcement Network. 
  U.S. Department of the Treasury................................     7

                                APPENDIX

Prepared statements:
    Kelly, Hon. Sue W............................................    40
    Oxley, Hon. Michael G........................................    43
    Clay, Hon. William Lacy......................................    44
    Crowley, Hon. Joseph.........................................    45
    Gutierrez, Hon. Luis V.......................................    47
    Byrne, John J................................................   160
    Emerson, Steven (with chart).................................   122
    Herrera, John A..............................................   168
    Lormel, Dennis M.............................................   102
    Neubert, Jeffrey P...........................................   153
    Warren, Mary Lee.............................................    80
    Zarate, Juan C...............................................    51

              Additional Material Submitted for the Record

Kelly, Hon. Sue W.:
    Letter to Secretary of the Treasury Paul H. O'Neill..........    42
Lormel, Dennis M.:
    Written response to questions from Hon. Joseph Crowley.......   119
    Written response to questions from Hon. Luis Gutierrez.......   121
Varrone, John:
    Written response to a question from Hon. Spencer Bachus......    50
              Additional Material Submitted for the Record
                              (Continued)

Warren, Mary Lee:
    Written response to questions from Hon. Joseph Crowley.......    97
    Written response to questions from Hon. Luis Gutierrez.......   100
Zarate, Juan C.:
    Written response to questions from Hon. Joseph Crowley.......    67
    Written response to questions from Hon. Luis Gutierrez.......    77
    Written response to questions from Hon. Sue W. Kelly.........    72








  PATRIOT ACT OVERSIGHT: INVESTIGATING PATTERNS OF TERRORIST FINANCING

                              ----------                              


                       TUESDAY, FEBRUARY 12, 2002

             U.S. House of Representatives,
      Subcommittee on Oversight and Investigations,
                           Committee on Financial Services,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 2:00 p.m. in 
room 2167, Rayburn House Office Building, Hon. Sue W. Kelly, 
[chairwoman of the subcommittee], presiding.
    Present: Chairwoman Kelly; Representatives Tiberi, 
Gutierrez, Crowley, Clay, Bereuter, Grucci, and Bachus.
    Chairwoman Kelly. This hearing of the Subcommittee on 
Oversight and Investigations will come to order. I want to 
thank all Members of Congress who are present today. Without 
objection, all Members present will participate fully in the 
hearing, and all opening statements and questions will be made 
part of the official hearing record.
    On September 11th, the world we live in fundamentally 
changed with the horrendous acts of terrorists. After putting 
aside the initial shock, the Nation quickly responded to 
President Bush's call to join in the fight against the 
evildoers responsible for the attack.
    In the Financial Services Committee, we acted swiftly to 
construct consensus legislation to ensure our law enforcement 
has the best tools possible to identify the patterns of 
financing used by terrorists and hence stop the terrorists 
before any future acts could occur. With this Act, we seek to 
prevent terrorists from using our money system as an unwilling 
accomplice of their evil acts.
    President Bush signed the USA PATRIOT Act into law October 
26th. With his signature, he ended not only the prologue of 
this subcommittee's efforts to combat money laundering 
operations which many benefit many terrorists, but also it's 
the beginning of things that we need to continue to consider.
    This hearing is just part of a long-term agenda that this 
subcommittee has to ensure that we do all in our power to break 
up terrorist cells by making use of our financial system to 
raise every red flag possible. In this effort, the anti-money 
laundering provisions of Title III of the PATRIOT Act are a 
good step in the right direction. However, much more will be 
necessary before we reach our goal of eradicating the threat of 
terrorism. In this effort, we will remain vigilant to balance 
our efforts to ensure that we do not infringe upon the rights 
and liberties of Americans.
    This is, of course, a narrow line to walk. And that's why 
our education as to questions of money laundering and terrorism 
financing must be continuous. I believe we have an excellent 
opportunity here today to further our knowledge of these latest 
developments in the war against terrorism. In the past 5 
months, we have had an unprecedented investigative effort by 
law enforcement to identify, freeze and seize terrorist assets. 
We have never had as many law enforcement officers focused on 
the same goal. And from this, we have learned countless lessons 
about the familiarity of the terrorists with our laws and their 
sophistication in avoiding any suspicion.
    In their effort to blend in, the terrorists responsible for 
the September 11th attack opened bank accounts, used money 
orders, wire transfers and credit cards. We also know that the 
terrorists also relied on fraud and ID theft, and they continue 
to do that today. They obtain drivers licenses, hazardous 
material licenses and open bank accounts. One issue I found 
particularly intriguing is the issue of ``hawalahs.'' This is 
an Arabic word which means ``word of mouth.'' Hawalah is an 
international underground economic system by which financial 
operators in different locations honor each other's financial 
obligations by making payments wherever needed. In essence, 
hawalah continues because people look for ways to avoid taxes 
and tariffs in their efforts to send funds to other countries. 
And we also know that it's a way of moving cash without any 
trace.
    Such activities have no apparent victim other than the 
Government, and it involves people who can be legitimate 
businessmen in every other way. But everyone involved in the 
transaction profits. And such transactions are extremely 
difficult to detect.
    The PATRIOT Act contained a number of provisions that seek 
to combat hawalahs, and I will be most interested in hearing if 
any of the investigative efforts have brought us closer to 
closing down illegal hawalahs. It's my understanding that the 
November 7th action taken against Al Barakaat has provided a 
great deal of information on the modern operation of hawalahs.
    We will also hear from law enforcement and industry on this 
issue and explore potential new patterns that they may have 
identified as terrorist financing schemes. This subcommittee 
thanks you all for your appearance here today. We understand 
the sensitive nature of the information that we're discussing, 
and with that in mind we have hope that we will continue to 
have a dialogue with you to address our concerns that the 
PATRIOT Act is enough to allow you to do the job which Congress 
intended when we enacted the PATRIOT Act.
    I would like to let Members of the subcommittee and their 
staff know that it is my intention to enforce the 5-minute 
rule, and I would appreciate their cooperation in this.
    I also want to say that with this panel, we have a new 
sound system in this room. You have the power over your own 
microphones. You have to turn them on and turn them off. So if 
we can't hear you, it's your responsibility to make sure we 
can.
    Now I will recognize my good friend from Chicago, Luis 
Gutierrez, the distinguished Ranking Member of this 
subcommittee for his opening statement. Mr. Gutierrez.
    [The prepared statement of Hon. Sue W. Kelly can be found 
on page 40 in the appendix.]
    Mr. Gutierrez. Chairwoman Kelly, thank you for holding this 
hearing today. I would like to commend Senator Sarbanes for 
moving this legislation in the Senate and Chairman Oxley and 
Ranking Member LaFalce for their leadership in the House.
    This afternoon, we will hear testimony about the financial 
aspects of the ongoing war on terrorism and about the 
implementation of anti-money laundering provisions incorporated 
in the PATRIOT Act, a bill which I and other Members were proud 
to support. This landmark legislation will give our country the 
necessary tools to fight terrorists by blocking the schemes 
used to finance their horrific crimes.
    Treasury Secretary O'Neill recently said that $104 million 
had been frozen since the September attacks. However, we do not 
know whether this sum represents most or just a small 
percentage of the pool of the potential money that could be 
used to finance terrorist attacks. Although we have made 
progress, we have much work to do.
    To eliminate Al Qaeda, we need the appropriate law 
enforcement tools and personnel to continue the financial 
assault on terrorism made possible by the PATRIOT Act. Our 
fight against terrorism financing is a broad-based effort 
extending beyond the Al Qaeda network. It means nothing to 
build a concerted effort between financial institutions and law 
enforcement agencies at home without instituting similar 
actions abroad. The help of other nations is therefore 
essential.
    We need expeditious compliance with the new laws. Many of 
these regulations are scheduled to be implemented throughout 
this year. But it is imperative that Treasury acts quickly and 
effectively in their search for terrorists and their co-
conspirators.
    Before I conclude, I would like to touch on another related 
issue that is of great concern to me. While I strongly support 
the increased protections against terrorist activity which the 
USA PATRIOT Act created, I would like to urge some caution and 
common sense when it comes to promulgating regulations that 
address some areas. I am particularly concerned with the 
implementation of some of these rules as they pertain to 
verification of identification, which may pose a great risk to 
immigrants trying to enter our banking system. Currently, 
approximately 28 million foreign-born people live in the United 
States, the majority of whom are making enormous contributions 
to America's stability and security, economic and otherwise.
    I hope, and I think we all agree, that law enforcement 
officials will use financial data to focus on those people, 
native or foreign-born, who truly pose a threat to our country, 
rather than those, including immigrants, who are making us 
safer and stronger as a Nation. If banks are required to 
compare clients' names with a list of known terrorists, how 
will accuracy be guaranteed? There are many common names on the 
list, and the possibility exists for incorrect matches. How 
will banks respond if a customer's name matches the list? How 
will they go about verifying the customer's identity? I am very 
concerned that the answers to these questions could have a 
detrimental effect on immigrants and could pose an additional 
burden on immigrants' ability to receive and/or interest in 
receiving and seeking valid banking services.
    One's inability to enter the banking system results in a 
higher cost of borrowing, a lack of access to home mortgages 
and other basic services, and a range of other problems. 
Without access to banking services, the unbanked are forced to 
turn to payday lenders and check-cashing vendors, who in most 
cases charge outrageous fees for services. In the last 5 years, 
check-cashing outlets have doubled, and their revenues exceeded 
$2 billion in the year 2000. It often means vulnerability to 
crime, robberies and other abuses to which many immigrants are 
subjected mainly because they are unable to enter the financial 
services sector due to their immigration status. Worse yet, 
these victims may never report these incidents for fear of 
deportation. They come here seeking a better life through their 
hard work, and I must note, their taxes. These people are 
making better lives for all of us in America. And at the same 
time, they are also working to make life better for the people 
in their home countries; for relatives who use that money for 
basic necessities such as food and shelter.
    During the past 20 years, remittances to Latin America, for 
example, have increased not only in volume, but as a share of 
the national income and total imports. This year, approximately 
$9 billion will be sent to Mexico via remittances, representing 
Mexico's third largest form of foreign income. However, such 
transfers are costly due to the large range of fees, many of 
which are hidden. Unfortunately, this group of immigrants 
usually can't use alternatives to remittances offered by banks 
because of prohibitions on individual's ability to open 
accounts without tax identification numbers and/or Social 
Security numbers. Giving immigrants access to banking will not 
make the United States weaker. It will enrich communities here 
and in other countries, creating steady income and jobs for 
people who might otherwise migrate to the U.S. to find work. 
Currently, Wells Fargo, First Bank of the Americas, credit 
unions and other financial institutions offer programs to help 
more immigrants become part of the banking system by accepting 
identification cards issued by the Mexican consulate and 
offering free checking services to those affected by 
regulations.
    I hope that in implementing the PATRIOT Act regulations, 
Treasury takes these concerns into consideration. I know that 
Congress, when drafting this bill, did not intend to further 
alienate a group of people who already are largely separated 
from our banking system. We, as legislators, have no greater 
duty than to protect our country and our people from future 
terrorist acts. To do so, we need speedy, yet careful, 
implementation of the PATRIOT Act. But in achieving that goal, 
we need not forget the needs of those who rightfully seek 
access to the important financial services that most of us take 
for granted.
    Thank you again, Chairwoman Kelly, for holding this 
important hearing, and I appreciate having the opportunity to 
share my views on these important issues of vital importance to 
our Nation.
    [The prepared statement of Hon. Luis Gutierrez can be found 
on page 47 in the appendix.]
    Chairwoman Kelly. Thank you very much, Mr. Gutierrez.
    Mr. Bereuter, have you an opening statement?
    Mr. Bereuter. Madam Chairwoman, yes I do. Thank you very 
much for letting me sit in on the subcommittee since I'm not a 
Member of this subcommittee. I find that the topic of your 
hearing today is very important, and also, has overlapped with 
my service on the House Permanent Select Committee on 
Intelligence. And since I have a committee conflict later and 
may not have a chance to ask this question, I wanted to ask it 
in effect in advance in my opening statement.
    And I would address it particularly to Ms. Warren and Mr. 
Lormel and say that this subcommittee and the Congress had made 
a great effort to increase the efficiency of the country's 
financial intelligent unit, FinCEN. However, I am aware that as 
Treasury and Justice Departments work to meet the reporting 
requirements of Section 906(b) of the USA PATRIOT Act, there 
may be a behind-the-scenes tug of war over the fate of the 
Foreign Terrorist Asset Tracking Center and possibly about 
FinCEN's role as an agency neutral central repository of 
financial information that can be used to investigate both 
terrorist financing and money laundering.
    I am concerned that if parallel financial intelligence 
databases are set up, the U.S. Government will both spend money 
unnecessarily and decrease investigative and enforcement 
effiency. And so I'm hoping that in your testimony you might 
supplement it by assuring if you can that the FBI or the 
Department of Justice are not trying, frankly, to hijack or 
usurp the role of FinCEN.
    And Mr. Lormel, in your testimony, particularly on page 4, 
you devote a great deal of discussion to the activities of the 
Financial Review Group, which you say has developed, quote: ``a 
centralized financial database,'' and developed predictive 
analysis models to deal with terrorist financing. And frankly, 
I thought that was the job of FinCEN. So then can you explain 
how having parallel computer systems, if I read it correctly, 
is not expensive, duplicative and inefficient? These are things 
I hope you might be able to address in your comment, 
particularly those of Mr. Lormel and Ms. Warren.
    Thank you, Madam Chairwoman.
    Chairwoman Kelly. Thank you, Mr. Bereuter.
    Mr. Crowley, welcome. Have you a statement?
    Mr. Crowley. Yes I do, Madam Chairwoman.
    Chairwoman Kelly. Please proceed.
    Mr. Crowley. Thank you, Chairwoman Kelly and Ranking Member 
Gutierrez. This hearing will permit us to have an important 
discussion on a critical element in the war against terrorism. 
The USA PATRIOT Act is a landmark piece of legislation. It 
provides the law enforcement and intelligence communities, as 
well as the financial services industry, with tools required to 
help stop terrorists before they are able to act. No law, 
regulation, or policy that addresses finance has ever had as 
significant an impact on America's security as this legislation 
is likely to have. Aggressive, but intelligent, implementation 
is critical for the legislation to succeed.
    I am concerned that the Administration may not be acting 
quickly enough or allocating sufficient resources to have a 
significant impact on the financing of global terrorism. The 
United States must work with our European allies and other 
partners in the war against terrorism to shut down the 
operations of groups like Al Qaeda and Hamas. We must also 
ensure, however, that they have the information required to act 
swiftly and decisively.
    It was recognized that our European allies may have 
different views on the Israeli-Palestinian peace process, but 
we should not permit them to use divergent political views as 
an excuse to refrain from cracking down on terrorist groups.
    We must crack down on illegal hawalahs which terrorists use 
to move funds around the world without a trace. However, we 
must also recognize the important role that legitimate hawalahs 
play in communities of immigrants, like mine, who lack the 
resources to pay exorbitant transfer fees and whose families 
overseas have no access to formal banking. These legitimate 
institutions must be permitted to continue to operate within 
the bounds of the law.
    I am eager to hear from the Administration's panelists how 
the Administration plans to use the tools given to it by the 
USA PATRIOT Act. I am interested also to learn from the other 
panelists how the financial industry and immigrant communities 
are likely to be affected by this Act.
    And, Madam Chairwoman, I just also want to state that I 
will also in all likelihood be pulled away for a resolution on 
the floor that I am sponsoring. So if you would forgive me when 
that time comes, and will the panelists also as well. Thank you 
very much. I yield back.
    [The prepared statement of Hon. Joseph Crowley can be found 
on page 45 in the appendix.]
    Chairwoman Kelly. Thank you very much, Mr. Crowley.
    At this point, if there are no more opening statements, I 
would like to introduce the witnesses on our first panel. 
Before us we have the Honorable Juan Zarate, the Deputy 
Assistant Secretary for Terrorism and Violent Crimes for the 
Office of Enforcement in the U.S. Department of the Treasury. 
We welcome you, Mr. Zarate. Accompanying Mr. Zarate we have Mr. 
John Varrone, the Assistant Commissioner for the Office of 
Investigations in the U.S. Customs Service, and along with him, 
we have also Mr. R. Richard Newcomb, who is the Director of the 
Office of Foreign Assets Control for the U.S. Department of the 
Treasury; and James F. Sloan, who is the Director of the 
Financial Crimes Enforcement Network in the U.S. Department of 
the Treasury.
    Then we will hear from the Honorable Mary Lee Warren, who 
is Deputy Assistant Attorney General for the Criminal Division 
of the U.S. Department of Justice. Welcome. And finally, we 
have Dennis Lormel, who is the Chief of the Financial Crimes 
Section of the Criminal Investigations Division for the FBI.
    We start now with Mr. Juan Zarate. Thank you very much, Mr. 
Zarate, for joining us. Without objection, all your written 
statements will be made a part of this record. I am going to 
recognize each of you for 5 minutes. Obviously there are 
certain time constraints on Members of the subcommittee. They 
will be moving in and out as floor action dictates. But the 
lights in front of you, if you haven't done this before, 
indicate how much time you have. The green light is that you 
are in the first 4 minutes of your testimony. The yellow light 
means that that's the warning light. You have 1 more minute. 
And when it's red, I would hope that you would then summarize 
anything you have left in the testimony knowing that your 
testimony will be made, the written testimony, all of it will 
be made a part of the record.
    So we will begin now with you, Mr. Zarate.

 STATEMENT OF HON. JUAN C. ZARATE, DEPUTY ASSISTANT SECRETARY, 
  TERRORISM AND VIOLENT CRIME, U.S. DEPARTMENT OF THE TREASURY

    Mr. Zarate. Thank you, Madam Chairwoman, and again I 
apologize for the snafu in terms of getting you the written 
testimony before the hearing.
    Madam Chairwoman and distinguished Members of the 
Subcommittee on Oversight and Investigations, thank you for 
inviting me to testify today about the measures the Treasury 
Department has taken to disrupt terrorist financing, the 
lessons we have learned to date about patterns of terrorist 
fundraising and money movement, and how the provisions of the 
recently enacted and seminal USA PATRIOT Act are helping us in 
our mission.
    With me today, as Madam Chairwoman indicated, are three 
individuals who are assisting the Treasury Department in their 
counterterrorist financing efforts: James Sloan, Director of 
FinCEN; Richard Newcomb, Director of the Office of Foreign 
Assets Control; and John Varrone, Assistant Commissioner, U.S. 
Customs Service. Thank you for having all three of us here to 
address you, all four, that is.
    Before I begin my remarks, I would like to thank this 
subcommittee and Congress in general for your support in our 
efforts to uncover and uproot the sources of terrorist 
financing. The passage of the USA PATRIOT Act has served as an 
important step in allowing us to prosecute this war on 
terrorist financing aggressively and in a unified manner. In 
that respect, I also want to thank, as Deputy Secretary Dam did 
2 weeks ago, our sister agencies and departments, including the 
intelligence community, for their unprecedented levels of 
cooperation in these efforts.
    Madam Chairwoman, before I speak to the issues raised in 
your invitation letter, I would like to read to you a portion 
of the Al Qaeda manual that I think is instructive to our 
discussion today. The manual, as you may know, was discovered 
during the search of an Al Qaeda member's home in England and 
was introduced in evidence during the embassy bombings trial in 
New York. The third lesson in the manual, entitled 
``Counterfeit Currency and Forged Documents'', discusses 
financial security precautions that Al Qaeda members should 
take to secure their operations. It reads as follows:
    1. Dividing operational funds into two parts. One part is 
to be invested in projects that offer financial return, and the 
other is to be saved and not spent except during operations.
    2. Not placing operational funds all in one place.
    3. Not telling the organization members about the location 
of the funds.
    4. Having proper protection while carrying large amounts of 
money.
    5. Leaving the money with non-members and spending it as 
needed.
    Madam Chairwoman, as you can see, this is an enemy that 
understands the need to cover their financial tracks while 
simultaneously fueling funds into new acts of terror. Because 
we are facing an enemy with faceless tentacles planted around 
the world, we must employ all our assets to track and disrupt 
the financing of Al Qaeda and other terrorist groups of global 
reach.
    That is precisely why after September 11th the President 
directed the Treasury Department to lead the Nation's war 
against global terrorist financing. We have followed the 
President's orders and marshalled the Treasury Department's 
unique financial forensic expertise and experience in financial 
and electronic crimes as well as our contacts with the 
financial community both here and abroad and our unique ability 
to take immediate action to freeze terrorist-related assets.
    Treasury, in close partnership with the State Department, 
the Defense Department, the Department of Justice, the Federal 
Bureau of Investigation, the intelligence community, and many 
other parts of the Federal Government, has been dealing with 
the terrorist financing issue on multiple levels. Allow me very 
briefly to highlight the efforts the Treasury Department has 
taken along with these sister agencies to tackle the global 
problem.
    Led in part by the Office of Foreign Assets Control, along 
with the Department of Justice and the Department of State, we 
have identified and designated 168 individuals and entities as 
terrorist-related entities pursuant to the President's 
September 23rd Executive Order. In this process we have 
identified, among other entities, front companies, charities, a 
bank, and a hawalah conglomerate that served as the financial 
support networks for Al Qaeda and other global terrorist 
groups.
    We have shut down the operations of these entities in the 
United States and abroad. And since September 11th, the U.S. 
and other countries have frozen more than $104 million in 
terrorist-related assets. Since the attacks, the U.S. alone has 
blocked over $34 million.
    The process of identifying and investigating targets is 
ongoing, and we are currently investigating other financial 
entities, businesses, groups and persons for listing. We also 
created Operation Green Quest, which is a new multi-agency 
financial enforcement initiative intended to augment existing 
counterterrorist efforts in order to focus on terrorist 
financing. This task force is led by the Customs Service, and 
includes the IRS, Secret Service, the ATF, OFAC, FinCEN, the 
Postal Inspection Service, the FBI, DOJ, the Naval Criminal 
Investigative Service, and we are dealing with other agencies 
as well.
    Green Quest brings together the extensive financial 
expertise of the Treasury Bureaus along with the exceptional 
experience of our partner agencies. Green Quest's work, along 
with the Department of Justice, has led to 11 arrests, 3 
indictments, the seizure of nearly $4 million, and bulk cash 
seizures--cash smuggling--of over $9 million. Green Quest, 
along with the FBI and other agencies, has also traveled abroad 
to follow leads, exploit documents recovered, and to provide 
assistance to foreign governments.
    We have also been committed to the FBI's Financial Review 
Group, which is a seminal part of the focus on terrorist 
financing. Immediately after the attacks, we deployed our 
Treasury assets to the FRG to deal with the September 11th 
attacks and the financing surrounding those attacks.
    I see that my time is rapidly approaching.
    Chairwoman Kelly. Is gone.
    Mr. Zarate. It's gone. Let me just address a couple of 
things, if I can, Madam Chairwoman. To address the questions in 
your letter, in our investigations and in our actions, we've 
identified, as I mentioned, several means and methods that 
terrorists have used to funnel money, one of which is 
charities. On two different occasions we identified and 
designated charities under the President's Executive Order and 
we have found that charities are used both here and abroad as a 
way of siphoning money to terrorist groups.
    Second, Madam Chairwoman, you mentioned the Al Barakaat 
operation. Al Barakaat was a significant blow, we believe, to 
bin Laden's ability to move money internationally. Al Barakaat 
was a money remitting system that operated abroad as a hawalah 
system to move money into Somalia through Dubai. The Al 
Barakaat operation was located in upward of 40 countries. We 
worked closely with our foreign partners in addition to the 
United Arab Emirates to shut down Al Barakaat's operations, and 
we feel that we have done so. And it is a success story, quite 
honestly, with respect to shutting down a means that Al Qaeda 
was using to move funds.
    Very briefly, Madam Chairwoman, as I mentioned, the USA 
PATRIOT Act is an essential tool for us at this point. The 
information-sharing provisions, the provisions that allow us to 
target specific risks in the financial markets with respect to 
abuse of our financial system, as well as coordinating efforts 
with the financial industry, are essential elements to our 
efforts with respect to tracking terrorist financing.
    Madam Chairwoman, I would be more than happy to answer any 
questions, and I thank you for your time and your interest and 
certainly your support in our efforts.
    [The prepared statement of Hon. Juan C. Zarate can be found 
on page 51 in the appendix.]
    Chairwoman Kelly. Thank you very much, Mr. Zarate.
    Next we would like to hear from Mary Lee Warren.

    STATEMENT OF MARY LEE WARREN, DEPUTY ASSISTANT ATTORNEY 
     GENERAL, CRIMINAL DIVISION, U.S. DEPARTMENT OF JUSTICE

    Ms. Warren. Thank you, Madam Chairwoman. And thank you, 
Ranking Member, Mr. Gutierrez, and other Members of the 
subcommittee.
    I am honored to appear before the subcommittee to outline 
Justice's progress on the financial front on the ongoing war on 
terrorism. I appreciate this opportunity and will try and give 
you a brief summary of our efforts, including information 
developed by the Financial Review Group, an interagency task 
force supporting FBI's Counterterrorism Division, as well as 
the Department's actions taken so far under the USA PATRIOT 
Act.
    We are grateful for the USA PATRIOT Act and your quick 
action after the September 11th events. We intend to and 
already are using it vigorously and I believe responsibly.
    In offering a brief summary of the Department's work--of 
course, I am not at liberty to disclose ongoing criminal 
investigations or information that might compromise those 
investigations--but, I can give a brief overview of the areas 
and ways in which we are working.
    Through financial analysis, we continue our work to 
reconstruct the web of planning and finance that supported the 
September 11th terror attacks. At the same time we are trying 
to work to detect other threats to our national security, 
whether by persons affiliated with Al Qaeda or with other 
groups. We have found that in almost all areas of the criminal 
law, following the money is the way to determine what has 
happened. It also provides evidence of the conspiracy itself, 
of its membership, and of its criminal activities, evidence 
that we use in court.
    As you know, the Attorney General has the responsibility 
for investigating all acts of terrorism in the Federal system, 
and looking into terrorism financing is a critical part of our 
larger anti-terrorism strategy to seek out and eliminate those 
terrorist organizations attempting to destroy us.
    Within days of September 11th, the Attorney General, 
exercising this authority, established the Financial Review 
Group within the FBI's Counterterrorism Division. We include, 
as Mr. Zarate said, important help from the Treasury Department 
and all of its components. We also have enormous support from 
the National Drug Intelligence Center. Many sections of the 
Criminal Division of the Department of Justice as well as 
Assistant United States Attorneys also assist in that 
operation.
    And over the past several months, we have been able to 
compile and analyze financial information gathered by Federal 
agents working domestically and internationally as well as 
information from the U.S. Attorneys offices from across the 
country in the course of their ongoing terrorism 
investigations.
    By having this central repository for relevant evidence--
all those bank records, travel records, credit card and retail 
receipts--for in-depth financial and forensic analysis, we have 
been able to integrate and use that information with the other 
terrorism evidence that we collect and being able to cross that 
information has helped to spur the larger investigations along. 
I don't believe it's duplicative of what the Foreign Terrorist 
Asset Tracking Center does or of FinCEN. Indeed, we rely very 
heavily on FinCEN's assistance in our work.
    At the same time that the Attorney General established the 
Financial Review Group, he also established a task force of 
prosecutors to work with the Financial Review Group. 
Prosecutors from Washington as well as from across the country. 
They work in a network with the Financial Review Group in this 
large anti-terrorism strategy. They also work with the FBI's 
Joint Terrorism Task Forces across the country in a coordinated 
effort to collect and analyze and disseminate information.
    We are using computerized ``data mining'' to learn more 
about the information that we already have, to learn about 
terrorist acts in the past and to try and predict those that 
might harm us in the future.
    We have learned ways that the terrorists use fraud in 
credit cards and licenses, as the Chair noted, and we are 
proceeding against them. We have collected an enormous amount 
of material, as reported in the larger statement, and our 
analysis continues. One thing that I would like to mention is 
just in terms of the September 11th investigation, we do have 
some charts that show money that came into the terrorists from 
the United Arab Emirates through wire transfers, passing 
through a New York bank to a Florida bank to the terrorists, in 
this instance, the one who crashed Flight 175 into the South 
Tower of the World Trade Center, Marwan Al-Shehhi, and Mohamed 
Atta, the one who crashed the American Airlines Flight 11 into 
the North Tower of the World Trade Center.
    The next chart shows the movement of the money out. They 
cleared their accounts and transferred the money back to the 
United Arab Emirates just before September 11th--September 8th, 
9th and 10th, clearing those accounts. These charts show only a 
very few of the transactions that we are studying. The work, of 
course, is continuing.
    I look forward to a later time when it may be appropriate 
to provide the subcommittee with additional information from 
these now still ongoing criminal investigations of the 
September 11th events and much more widely.
    In terms of implementation of the USA PATRIOT Act, we have 
already brought charges in the Commonwealth of Massachusetts 
for operating an illegal money transferring business. We have 
seized for forfeiture assets attributed to terrorists. No one 
has come forward to claim that money, not surprisingly. We have 
used the correspondent bank forfeiture provision of the new Act 
and many others. We are working with Treasury in terms of their 
heavy obligations of promulgating regulations in the various 
areas provided by the Act.
    Again, I express our appreciation for the support the 
subcommittee and the committee have demonstrated for the 
Administration's anti-money laundering efforts, and I look 
forward to opportunities to continue to work with the committee 
and its staff as we implement the USA PATRIOT Act. If there are 
any gaps that we find or repairs that need making or any 
uncertainties that emerge, we look forward to identifying those 
with the subcommittee so that we can continue our work. Thank 
you.
    [The prepared statement of Mary Lee Warren can be found on 
page 80 in the appendix.]
    Chairwoman Kelly. Thank you very much, Ms. Warren. We look 
forward to working with you also.
    Next we have finally on this panel, Mr. Dennis Lormel.

STATEMENT OF DENNIS M. LORMEL, CHIEF, FINANCIAL CRIMES SECTION, 
      CRIMINAL INVESTIGATIONS DIVISION, FEDERAL BUREAU OF 
                         INVESTIGATION

    Mr. Lormel. We in the Bureau appreciate the opportunity to 
participate today. I have submitted a written statement, as Mr. 
Bereuter has alluded to, and hopefully, sir, we can address 
your concerns, because I don't think you have it in the right 
context in terms of that whole thing, and hopefully I will have 
time to address that.
    In terms of what we have done to date, we have taken a two-
track approach in our investigation. We have conducted a 
comprehensive financial investigation of the 19 hijackers. We 
have gone beyond the 19 hijackers to the support mechanisms, 
and collateral to that, we have established a template for 
future investigations in terms of developing proactive, 
preventive and predictive terrorist financial investigations.
    To accomplish this, we have to rely on--and it's not just 
an FBI-driven initiative, it's a coalition, as my colleagues at 
the table will attest to and you've heard, we're all partners 
in this endeavor, be it through our Financial Review Group or 
Customs' Green Quest and OFAC, we're all working together. 
Clearly, each of those other agencies and the whole gamut of 
agencies that work financial investigations are part of our 
initiative.
    We are conducting a broad-based and multi-faceted 
investigation. In one area, we are trying to conduct predictive 
and preventive-type analytical investigative means. And in that 
regard, we're conducting data mining projects, which includes 
the SAR database, which obviously is administered by FinCEN, 
and working with FinCEN, we are extracting certain algorithms 
and anomalies and clearly working hand-in-hand with FinCEN. Our 
database, sir, is one that is meant to be a financial terrorist 
database, more encompassing than just focused on the terrorist 
aspects, and certainly meant to work in conjunction and augment 
the other agencies.
    Real quickly, let me hit statistics. Some of the things 
we've gotten. Through our investigation to date, we have 
collected over 321,000 financial documents of over 10,500 
individuals in terms of account information and the like, and 
we've entered over 104,000 of those documents in our database, 
which again, we are using for predictive analytical 
capabilities.
    I would like to add that on a daily basis, we share our 
database downloads with Operation Green Quest, and we are 
working in conjunction with each other in regard to the 
information coming out of that and in terms of future 
investigative leads.
    When you look at the terrorist financing, we've got to look 
at a number of levels here. You've got terrorist organizations. 
There are terrorist organizational fundraising mechanisms, 
which clearly we all have that interest in--terrorist 
organizational funding expended in furtherance of terrorist 
activities, and then terrorist-specific funding.
    What I'd like to concentrate on for you is the terrorist-
specific funding at this point in terms of what we found. We've 
done a pretty comprehensive review of the 19 hijackers. In my 
statement, you will see a pretty good overview of financial 
profiles, of account profiles, transaction profiles and so on. 
And in that regard, the 19 hijackers were mission-specific. So 
they are a mission-specific cell, if you would.
    If you look at the Germans, they're a little different. If 
you look at the Spanish, they operated differently. Looking at 
the Spanish, they incorporated credit card fraud into their 
activity. An interesting note is the 19 hijackers here pretty 
much used true identity, and they pretty much used debit cards 
as opposed to credit cards to facilitate their fraudulent 
activities.
    In terms of the cells in Malaysia and in terms of the cells 
in Singapore, you'll find people that were more of a sleeper 
oriented-type base where they had legitimate jobs and where 
they had legitimate work activities, and any terrorist funding 
would have been funneled in and meshed into the legitimate type 
of funding and earnings.
    I'm coming to the close on my statements, but in response, 
sir, to your immediate concern on the Foreign Terrorist Asset 
Tracking Center, I think part of the concern there, and it's 
not that the Bureau or the Department are attempting to muscle 
in, so to speak, on that, but the issue at hand is in light of 
the PATRIOT Act and the acts after September 11th, if in fact 
the FTAT is better housed at OFAC or handled in a different 
fashion, maybe through CIA. And that is being addressed at the 
deputy director level. And in fact, on Friday, there will be 
meeting among the deputies to discuss this. It's an ongoing 
topic.
    We all clearly agree that there needs to be a collective 
repository, and we need to have our collective capabilities and 
assets aligned with each other to have the best impact and 
certainly the most effective approach to the terrorist problem. 
So clearly, and I hope it's not construed that the Bureau, the 
Department or any of these agencies are trying to work against 
each other. We are actually working very hard together. 
Certainly we have interagency concerns that we work through. So 
I'd hope, Mr. Bereuter, we can have a discussion and dialogue 
to allay any concerns you may have. Ma'am?
    [The prepared statement of Dennis M. Lormel can be found on 
page 102 in the appendix.]
    Chairwoman Kelly. Thank you very much.
    With the unanimous consent of the subcommittee, I am going 
to change the order of the questioning, because a number of the 
Members are on very tight time schedules. They have a deep, 
strong interest in the topic. And with that being said, with 
the unanimous consent of the subcommittee, I'm going to allow 
Mr. Bereuter to go first and give him 2 minutes for 
questioning. Then we will go to Mr. Crowley for 2 minutes for 
questioning so that he can be excused if he needs to go. Both 
of these Members, then, I remind you that you can submit 
written questions to our witnesses following that. We will pick 
up Mr. Tiberi, who is also on a very tight time schedule. Then 
we will go back to regular order.
    So, with that being said, Mr. Bereuter.
    Mr. Bereuter. Madam Chairwoman, Mr. Gutierrez, I very much 
appreciate your special courtesy and other Members as well.
    Mr. Lormel, you have the essence of my question and you 
attempted to address it here, but the concerns are real. And 
I'm not sure I'm taking it out of context. It's something that 
probably we will need to have some further discussion and 
reassurance on. But you did say, if I understood you correctly 
just in your comments, your oral comments here, that the 
database--and I assume you're talking about the Financial 
Review database--will be focused on terrorist financing.
    But that looks like exactly one of the functions that 
FinCEN was supposed to proceed with. And while there may be an 
interagency effort going on to examine where it best ought to 
be located so that we don't have--hopefully, you have the same 
objectives--duplicative database and duplicative functions in 
general, the Congress and this subcommittee in particular has 
tried to cultivate FinCEN before September 11th in effect for 
this particular function. So I'm not sure why there is any 
discussion about an alternative terrorist finance database and 
analytical center. I'll leave it there and see how you'd like 
to respond further if you have any at this point.
    Mr. Lormel. One of the things we're attempting is to serve 
as an operational support mechanism for our terrorism section 
and in furtherance of those terrorist investigations, you know, 
clearly we've collected evidence. We're certainly not 
attempting to duplicate anything FinCEN is doing. And maybe 
I'll ask Jim Sloan for some help. Because I don't see that we 
are duplicating anything that FinCEN was intended to do. And 
clearly, we are sharing information.
    Mr. Bereuter. But aren't you also, if I may interrupt, 
aren't you also attempting to create a database as a part of 
it, wherein FinCEN was supposed to do that for money laundering 
and terrorist purposes and other functions?
    Mr. Lormel. Yes, we have. And clearly, ours is an 
operational, investigative database. I think FinCEN's more I'll 
say regulatory geared, and between the two clearly there will 
be overlap. But I think there's clearly room for both. In an 
automated sense, in terms of what can be shared, I don't see a 
real problem.
    Mr. Bereuter. Madam Chairwoman, I'll just conclude with a 
comment and say that one of the concerns we've had pre- and 
post-September 11th is a different culture, different objective 
in the FBI, and that is, that you are interested, 
understandably, in putting people in prison and protecting 
evidence. But certain information has to be shared rather 
broadly with other domestic as well as intelligence agencies. 
And if, in fact, you establish your own database, we may be 
working to reinforce what has been a problem.
    Mr. Lormel. If I may, ma'am, I'd like to respond to that, 
because on a daily basis, we give a download of our data to 
Customs. And we have FinCEN agents and analysts assigned to our 
task force. So if I've given you the impression that we're 
being parochial, please, that's anything but the truth. As of 
September 11th in this regard, I'm not a terrorist agent. I've 
been a criminal investigator since September 11th. The only 
thing I've worked is financial terrorism. And believe me, 
there's nothing in my being that is not team oriented. And I 
insist that the people that work for me share that model, and 
clearly, we are working in conjunction with.
    Now we can have semantics about should we or shouldn't we 
have a database. The bottom line is, we need to attack 
financial terrorism, and one of the best mechanisms to do it is 
for us to have that capability. If I could, I'll defer to Jim.
    Mr. Bereuter. I'll defer to the Chairwoman. If you want to 
have us continue, that's up to you.
    Chairwoman Kelly. Mr. Sloan, you wanted to say something. 
Please do make it short, because these other Members also need 
the courtesy.
    Mr. Sloan. Yes, ma'am, certainly. Clearly, we would be 
paying very close attention at FinCEN to a parallel database 
being constructed at the FBI. Perhaps it's the way in which the 
words were presented on paper, but in fairness to the Financial 
Review Group, as well as our other clients, Operation Green 
Quest or OFAC's FTAT, the product that FinCEN is delivering to 
them is a finished product of analytical wealth developed from 
our databases.
    And in the case of the FBI, they do combine in their 
database, 6(e) grand jury material, and other material that's 
coming from a lot of different sources that FinCEN certainly 
wouldn't have access to from the financial aspect. Perhaps the 
choice of words is unfortunate, but their database is not 
something that we would be endorsing if we thought it was in 
exact parallel to what we're providing. They are an important 
client, and they do get the product of our database. And we're 
paying close attention to making sure that our resources are 
not competing with one another.
    Chairwoman Kelly. Thank you very much, Mr. Sloan.
    Mr. Crowley.
    Mr. Crowley. Thank you, Madam Chairwoman. I appreciate the 
courtesy you extended. Thank you very much. I have a series of 
questions. I'm only going to ask one and I'll submit the others 
in writing and appreciate again the courtesy extended.
    Al Qaeda is responsible for the deaths of thousands of U.S. 
citizens. In my district, as a result of the September 11th 
attack, at least 105 of my constituents were killed in the 
attack on the World Trade Center. Hamas and Islamic Jihad admit 
to killing dozens and wounding hundreds of innocent civilians, 
including Americans, in Israel and throughout the globe.
    The U.S. Government has prevented the former U.S. hostages 
in Iran, people who dedicated their lives to public service and 
who gave up 444 days of their lives as prisoners of the Iranian 
regime, from claiming damages from the Iranian government's 
frozen assets. Will assets belonging to Al Qaeda, Hamas, 
Islamic Jihad and other terrorist groups that are confiscated 
under the authorities of the USA PATRIOT Act be subject to 
court judgments if the victims or the survivors, including the 
105 constituents and their survivors that I represent, seek 
damages for their pain and suffering? And that would be 
addressed either to Justice or to Treasury.
    Mr. Zarate. I could address that briefly, Congressman. And 
I will pass it off to Rick Newcomb, who administers the 
programs under which assets are frozen by the U.S. Government 
by OFAC. Presently under the President's Executive Order, the 
assets that are frozen are not subject to court orders or are 
not subject to payment to victims or victims' families. That's 
consistent with the way sanctions programs generally have been 
administered by the United States Government.
    Our intent is to freeze the assets. For example, in the 
case of the Afghanistani assets, it is often the case that the 
assets are at some point unfrozen and given back to the 
established regime, in this case, the regime in Afghanistan.
    But I will pass the question off to Rick Newcomb, who can 
answer perhaps in more detail your question.
    Mr. Newcomb. Thank you, Mr. Crowley. We have had such claim 
settlement programs, most recently in legislation entitled Mack 
Laudenberg for claimants against Cuba for the shootdown of 
Brothers to the Rescue and for various claimants that had 
judgments in Federal court against the government of Iran. 
Those are the only two active claim settlement programs that we 
currently administer, and those are almost complete at this 
time, based on claimants having adjudicated judgments. Should 
there be another claim settlement program, we may be called 
upon to implement that, but at this time, we have no such 
program.
    Chairwoman Kelly. Thank you, Mr. Crowley.
    Mr. Tiberi.
    Mr. Tiberi. Thank you, Madam Chairwoman.
    My question is directed at two of you, Ms. Warren and Mr. 
Zarate. And I apologize if you addressed this before I got 
here. I leafed through both your testimonies and didn't see it.
    My question revolves around a provision requiring financial 
institutions to verify the identity of individuals when opening 
up a new account in the PATRIOT Act, and the House added a 
provision, as you may know, that dealt with criminal penalties 
for consumers who falsify information to those financial 
institutions. And my question to both Justice and to Treasury 
is through your rulemaking process, are you pursuing that 
provision?
    Mr. Zarate. Congressman I can address that first. I believe 
you're referring to Section 326 of the PATRIOT Act. If that's 
the provision you're referring to, sir, yes, we are proceeding 
with issuing regulations. For that matter, we're proceeding 
aggressively and on time, for the most part, with issuing 
relevant regulations with respect to all PATRIOT Act 
provisions.
    As Congressman Gutierrez indicated in his opening 
statement, there are certainly considerations that we need to 
take into account and are taking into account with respect to 
privacy interests and sensitivities of that nature. That's 
precisely why we have set forth aggressively with working 
groups, interagency working groups, working with Federal 
regulators, working with the Department of Justice very closely 
to implement regulations on a timely basis.
    Ms. Warren. Maybe if I could just extend that remark a bit. 
As Mr. Zarate said, we at Justice are working closely with them 
on those regulations. But in a more general way, we often use 
that kind of fraud that is found, and if the accounts have been 
opened on counterfeit information, we use that kind of fraud in 
furtherance of our investigations of larger criminal acts.
    Recently the U.S. Attorney's office, working with Federal 
agencies in Utah, looked at fraud in, for instance, Social 
Security numbers, and found that 60 people at the Salt Lake 
City International Airport had used fraudulent documents to get 
jobs at the airport in very significant positions just before 
the Olympics started out there.
    Just 2 or 3 days ago in Miami, a similar effort was 
launched by the Federal agencies and the U.S. Attorney's office 
there when they found that fraud had been used in immigration 
documents for commercial pilots as well as ground access people 
at the Miami International Airport as well as the Broward 
County Airport.
    These are of enormous significance to homeland security, 
these kinds of special areas. And we look at that kind of fraud 
as an adjunct to these larger investigations. With Mr. Zarate, 
we at Justice agree that this has to be handled with the right 
balance so that individuals who ought to have access to 
financial services have that right along with everyone else in 
the United States, whether they are immigrants or natural born. 
So it is a sensitive area, but an important one.
    Chairwoman Kelly. Thank you, Mr. Tiberi.
    Now, I'd like to ask a couple of questions. One, I'd like 
to address to Mary Lee Warren and Mr. Zarate. I'd like to know 
if the current laws that you have to work with now are 
sufficient to ensure that the currency and securities markets 
are able to detect and halt the illegal movement of funds. 
We've talked about the bank accounts. We've talked about 
hawalah. I'd like to know whether or not these current laws 
that we have in the PATRIOT Act are enough for you to address 
the possibility of money transfer with currency and securities 
markets. And I'd like to ask that question specifically of the 
two of you.
    Mr. Zarate. We think at this stage that the PATRIOT Act 
does, to a certain extent, give us appropriate regulatory 
authority to look at those industries that you have mentioned. 
In particular, the securities interest. As you are well aware, 
Madam Chairwoman, the PATRIOT Act provides that securities and 
broker dealers will have to start complying with the suspicious 
activity report requirements under the Bank Secrecy Act 
starting by April 24th, which is when we are scheduled to issue 
the final regulation. That we think will provide a very strong 
measure for tracking money going through those dealers. In 
fact, we think it will form part of the mosaic that is 
currently put together by FinCEN when they look at SARs from 
other industries as well as CTRs and other information that 
they have in the Bank Secrecy Act database.
    Madam Chairwoman, as you know as well, financial 
institutions are defined very broadly in the PATRIOT Act. And 
we're looking at ways of applying the anti-money laundering 
provisions, in particular, Section 356, to certain industries, 
including currency exchange, pawnbrokers, other industries that 
may be of concern to us and could provide a way and a means for 
money launderers, criminals, and terrorist financiers to move 
money.
    So we are certainly cognizant of those vulnerabilities and 
are extremely willing and aggressive to use those provisions to 
look at those industries.
    Chairwoman Kelly. Thank you.
    Ms. Warren.
    Ms. Warren. I agree with Mr. Zarate, and we look forward to 
the implementation dates of the regulations. I think 
thereafter, as we watch the regulations come on line and the 
responses from the industry, we'll know better whether we need 
additional help. But at the moment, it looks like we're really 
well positioned to be able to follow the money through those 
particular services businesses.
    Chairwoman Kelly. Thank you very much. Ms. Warren, I wanted 
to ask you, on page 16 of your statement you mention, and I'm 
quoting: ``The very restrictive 1-year limitation of 18 U.S.C. 
Section 984.'' Does that limitation, that 1-year limitation, 
need to be extended in your opinion? And if so, how long do you 
think would be the ideal?
    Ms. Warren. We have suggested in the past that it be 
extended to at least 2 years. Chasing the money around the 
globe is often difficult, even difficult to find a physical 
location of some banks. With the addition of the PATRIOT Act 
and our ability to proceed against correspondent accounts in 
the United States, we are able to move more swiftly. But the 
sophistication of some money laundering schemes and the rapid 
rate that money moves internationally sometimes take us a much 
longer time to trace than 1 year. And we would be at a severe 
loss not being able to complete our investigation within that 
time and use the advantage of the PATRIOT Act.
    So far, we have been able to use that provision, 319, to 
very good advantage within the 1-year limitation period. Again, 
I think we will need to watch it now that we have the ability 
to proceed against the correspondent account and not have to 
find some Pacific atoll bank and try and find someone to serve 
our process on. Again, as I said in the beginning, this is 
something that we look forward to working with the subcommittee 
on as we discover whether it will work or not under the 
conditions presented.
    Chairwoman Kelly. I'm out of time, so I'm going to call on 
Mr. Gutierrez, but I want to say that we may go into a second 
round, because there are still some very pertinent and 
significant questions that need to be addressed right now.
    Mr. Gutierrez.
    Mr. Gutierrez. Thank you very much.
    Mr. Zarate, in the ABA Resource Guide, it states that 
neither a visa or foreign passport identification system, 
quote: ``should be able to stand on its own as a form of 
identification.'' Would a potential cardholder be required to 
provide a Social Security number or a U.S. Government-issued 
ID, State driver's license to open an account?
    Mr. Zarate. Congressman Gutierrez, we are currently working 
on minimum requirements for account openings. And that's part 
and parcel of our implementation of Section 326 of the PATRIOT 
Act. I tend to agree with the statement in the ABA document in 
the sense that those documents can be and often are 
counterfeited. So we are looking at ways to establish minimum 
requirements for account opening.
    We are subject to the PATRIOT Act provisions, required to 
issue a report on better ways to enable financial institutions 
to monitor and to verify documents used. We haven't come to any 
conclusions yet, but we are working diligently on that report. 
And I certainly understand your concerns, Congressman 
Gutierrez, with respect to the possible hindrance to opening 
accounts to immigrants who have to rely on those types of 
documents. So it's something we're thinking about very 
thoroughly.
    Mr. Gutierrez. So you don't have any idea of what the 
minimum? When will we have the regulations, do you feel? Can 
you give us an estimate, Mr. Zarate?
    Mr. Zarate. To be quite honest, Congressman, I don't have 
the timetable in front of me. But the timetable set forth by 
Congress are quite vigorous, so I assume it's very soon.
    Mr. Gutierrez. Sometimes a little too vigorous. We haven't 
quite got the airports ready for the luggage yet.
    Mr. Zarate. Yes. And we're working as hard as we can to get 
that out, and we certainly will work closely with this 
subcommittee in terms of getting you that information as soon 
as we have it.
    Again, I'd like to stress, this is very much an interagency 
process in terms of how we are dealing with these issues. It's 
also a process by which we are talking directly with different 
industries where we need to find out how best we can regulate 
and how best to come out with regulations that are going to be 
effective and efficient. So that's part of our strategy.
    Mr. Gutierrez. Number one, I want to thank you for your 
work and for coming to testify here today. And I say that to 
all of the panelists here today. And I just want to figure out 
how we--there are a lot of people, obviously, that come in 
harm's way. Another part of our justice system deals with them, 
because of the fact that they have to cash their checks at 
currency exchanges and carry large amounts of cash. I would 
think it would be safer and better for us and for our 
intelligence services to have people at banking institutions 
versus currency exchanges. We know more about the people. We 
have an address on the person. We have more information about 
where they work. And, obviously, we know where they're sending 
money versus Western Union or Moneygram.
    And if we force people by--and I know you have a broad 
definition of ``banking services''--and if we force people to 
stop using traditional banking services, what I have been 
seeing lately, Mr. Zarate and other members, is that, for 
example, the Mexican government. They are issuing a matricula. 
It's a form of identification that they certify using a Mexican 
passport. And maybe we should work with countries such as 
Mexico and other countries to see what kinds of ID. I mean, 
what we're talking about is undocumented workers in the United 
States, to be clear. Those that are documented don't need and 
can obtain other forms of identification.
    And then they come by my office, for example. Because one 
of the interesting things about our Department of Justice and 
our justice system is that they can't get a work permit, but 
we're happy to take--the IRS is happy to give them a tax 
identification number so that we can know what they paid in 
withholding. I mean, it's just a fact. It's one of those--I 
didn't come to criticize, it's just one of those things.
    But since we have that going on and I can get them a tax 
identification number--my wife is a branch manager--and we get 
them tax identification, between that and the matricula, they 
can establish an account. We have an institution saying, yes, 
this is who this is. And we go for purposes of them fulfilling 
their financial responsibilities. So people come by my office 
all the time and I tell them, fill out your income tax because, 
you know, if President Bush and President Fox figure it out and 
we have another program like we had in 1986, the Immigration 
Reform and Control Act, we certainly don't want you to be 
disallowed because you didn't pay income taxes.
    And what we've found is, in a broad definition, people that 
are working, paying taxes and following our laws, we should 
understand that they are not disappearing. So we've got 8 
million people, approximately, in the United States, 12 million 
according to some folks. I think it's probably closer to 8 
million. But we have a lot of people, and we are working, I 
think.
    There's going to be a meeting after the 20th of March 
between President Fox and President Bush. I know they're going 
to engage in that conversation once again on a process of 
legalization. They have different terminologies for it.
    But we are engaged in that process, and I hope you would 
take that into consideration so that we can get hard working 
people the kind of banking services that they need and they can 
send their money, not for terrorist activity, but just back to 
mom and dad and the wife and the kids, and we can help 
stimulate economies abroad. Thank you all for being here this 
afternoon. I really appreciate it. Thank you for your work.
    Chairwoman Kelly. Thank you very much, Mr. Gutierrez.
    We have been joined by Mr. Grucci. Mr. Grucci, have you 
questions at this time?
    Mr. Grucci. No, Madam Chairwoman, not at this time, thank 
you.
    Chairwoman Kelly. Thank you very much. Then I'd like to go 
for a second round to start with Mr. Tiberi.
    Mr. Tiberi. Thank you, Madam Chairwoman.
    I'm going to go back again to Mr. Zarate and Ms. Warren. 
You mention, Ms. Warren, in the context of money laundering. 
And in fact you mentioned out in Utah. Can I get back to the 
point again of individual money launderers who go into a bank 
and use a false ID or false identification of any kind to open 
a bank account? In the PATRIOT Act there was a provision the 
House added that we wanted to see those individuals be 
criminalized for that act. Can you please comment on what 
Justice is doing with respect to the rule on that individual 
who seeks to defraud the bank by using false identification?
    Ms. Warren. I can tell you that we haven't had any 
prosecutions under that yet. We are still collecting 
information and look forward to the Treasury regulations on 
exactly what will be appropriate bank account opening 
identification that will help us learn more about how to 
proceed in that particular area.
    We have a long history of proceeding in terms of fraud for 
credit and have learned a great deal when there have been 
applications for loans at banks where there's fraud involved, 
whether in the identification or in the amount of collateral 
available. I think there's a lot that we can transfer there to 
learn more about how to proceed here.
    Mr. Tiberi. Thank you. Mr. Zarate, in terms of the rule 
with respect to that provision, where are we on that?
    Mr. Zarate. We are proceeding on schedule, sir. Something I 
failed to mention when I answered your question the first time, 
one of the things we're looking at is possible administrative 
sanctions as well under the Bank Secrecy Act. As Ms. Warren has 
indicated, we are looking for the right balance here for the 
financial community. They have to be able to rely on documents 
provided by individuals for account opening and other 
transactions.
    At the same time, we must send a message to those who use 
fraudulent documents and who attempt to defraud the bank in the 
way you described that that's not acceptable. And one of the 
options we are looking at is the administrative sanction 
possibility. But we are also working with Justice to look at 
the potential criminalization.
    Mr. Tiberi. You would agree with the provision that was 
passed, the language that was passed in the PATRIOT Act with 
respect to the criminalization, as you mention, of providing 
the false information?
    Mr. Zarate. Generally, yes. I mean, we are looking at the 
best way of implementing that provision and the timing of it. 
But certainly, yes.
    Mr. Tiberi. You agree with the legislative intent then?
    Mr. Zarate. Certainly.
    Mr. Tiberi. Thank you.
    Chairwoman Kelly. Mr. Gutierrez.
    Mr. Gutierrez. Apparently we did a little better than with 
the screening at the airports, and it's a year enactment. So 
we'll have an opportunity for all of us to talk. I'm not saying 
that lightly. It's just I'm happy we gave ourselves a little 
more time. We were real quick with checking of the bags and we 
haven't quite got the screeners.
    Mr. Zarate. Thank you.
    Mr. Gutierrez. So, I'm sure, given the work that you've 
already done, and I know we're going to receive the 
recommendations by April, and then by the end, so we have some 
time to look at these things. Thanks once again.
    Mr. Zarate. Thank you, Congressman.
    Chairwoman Kelly. Thank you, Mr. Gutierrez.
    I have a couple of questions that I'd like to ask. Section 
373 of the PATRIOT Act was amended to strengthen law 
enforcement's ability to stop illegal money service businesses 
like the unlicensed hawalahs. How significant do you feel that 
change has been? This is a multi-choice question here. I'd like 
to know how significant you feel that change has been. I'd like 
to know if you're actually able to use it as we've done the 
law, and whether or not that amended version in Section 1960 
was the basis for the Al Barakaat arrests in Boston. I believe 
that it was, but I'm not sure. So I'd like to know about that. 
And I will throw that out to the two of you.
    Ms. Warren.
    Ms. Warren. It was the basis for the Section 1960 charges 
in the district of Massachusetts. It's the way we are 
proceeding against the principals of the Boston branch of Al 
Barakaat. So it has a significant effect. We were able to 
combine those charges with all the other efforts against Al 
Barakaat, brought together on a single day to have a real broad 
based impact on an effective hawalah institution. I'm sure 
we'll continue to use that section as we uncover other 
unlicensed money transmitting businesses and as we learn more 
about how they are used for illicit purposes.
    Chairwoman Kelly. Thank you very much.
    Mr. Zarate.
    Mr. Zarate. I agree with Ms. Warren. It was an essential 
part of the Al Barakaat takedown in Boston. And though neither 
Ms. Warren nor I can comment on ongoing investigations, I can 
assure this subcommittee that that provision is proving 
helpful.
    With respect to regulation of MSBs generally, I think that 
this issue addresses Congressman Gutierrez's concerns about the 
marginalization of people to using non-banking institutions. 
One of the beautiful portions of the PATRIOT Act is that it now 
allows us to start regulating and start looking at transactions 
that occur in some of these marginalized institutions, which 
are sometimes mom and pop wire remitting companies.
    To date, we've had, I think, fairly good success in terms 
of getting these companies registered. Mr. Sloan could perhaps 
talk to that more specifically. And we think that this is going 
to provide not only the enforcement element that Ms. Warren has 
talked about, but also an additional tool with respect to 
getting more information. Because they will be subject to the 
Bank Secrecy Act provisions with respect to filing SARs, and 
those regulations are forthcoming.
    Chairwoman Kelly. Mr. Sloan, do you want to address that?
    Mr. Sloan. Madam Chairwoman, as Mr. Zarate indicated, the 
money services businesses rule that took effect on New Year's 
Eve, December 31st, is somewhat of a success story as far as 
the registration of those in the United States that choose to 
register as money services businesses. Clearly, if somebody is 
operating as a hawala and they choose not to register, then it 
becomes an additional tool for law enforcement in that regard.
    But to follow on to Mr. Zarate's comment, the registration 
process is helping us to determine the universe of the so-
called money services businesses in the United States. We began 
this process by utilizing the data that was coming from the 45 
States that actually regulated this industry at the State 
level, and taking that data we were able to determine that 
there were probably around 11,000 principals out there that 
needed to be registered. We essentially contacted every one of 
them and found out that there's probably closer to 9,000 
principals who are money services businesses who are 
legitimate. And as of 2 weeks ago, about 8,700 of them have 
registered with FinCEN and the Government.
    So the registration process is a success story, and the 
reason it's important, with regard to your comment, is that it 
then becomes an even more important tool for law enforcement 
when they, through surveillance or undercover activity or just 
general investigative activity, determine that someone is 
offering themselves as a money remitter in an informal or 
underground way. It's another tool for law enforcement.
    Chairwoman Kelly. Mr. Sloan, speaking of tools, it's come 
to my intention that the Financial Crimes Enforcement Network 
does not make use of the Social Security Administration's death 
master file. Instead, you use a third party source for that 
information.
    Last Friday, I sent a letter to Secretary O'Neill asking 
him to look into this. And I wanted to bring this to your 
attention. With unanimous consent, I'm going to insert a copy 
of this letter in the record. I wanted to bring that to your 
attention. I think that may be a resource for you you may want 
to look at.
    [The information referred to can be found on page 42 in the 
appendix.]
    Mr. Sloan. Madam Chairwoman, the Secretary's office has 
already delivered your letter to me. And just for the record, 
we are examining, and we're working with the Social Security 
Administration Office of Inspector General, who incidentally is 
part of the FinCEN network.
    We are actually developing some state of the art artificial 
intelligence tools, that given the right safeguards, this 
information will be incredibly important to us. You're right. 
We've been using a third party source of information, and the 
timeliness is not what we would hope.
    Chairwoman Kelly. Mr. Grucci.
    Mr. Grucci. Thank you, Madam Chairwoman. Just a couple of 
questions if I could.
    Mr. Zarate, what gaps in regulations or authority to 
regulate exist and what is the Treasury doing to fill them?
    Mr. Zarate. Congressman, as Ms. Warren indicated earlier, I 
think it's too early to tell with respect to potential gaps in 
the regulatory framework and our authority to enforce those 
regulations. Right now, because we are in the middle of 
implementing aggressively the provisions of the PATRIOT Act, 
our concentration and our focus has been on those 
implementation efforts.
    Generally, we think that the broad scope of the PATRIOT 
Act, and as I mentioned earlier, for example, the broad 
definition of what a financial institution is, provides us a 
wonderful tool to think about and potentially regulate 
industries that have not fallen directly under our regulatory 
strictures to date.
    Mr. Grucci. Maybe I should have been a little bit more 
specific. I really meant in the context of credit cards.
    Mr. Zarate. We are looking at that. In particular, the 
sections that are of most use to us with respect to the credit 
card industry, are Sections 252, which provide for or ask for 
an anti-money laundering regime to be established by 
institutions, all financial institutions. This could affect 
credit card companies.
    But as you know, Congressman, credit card transactions and 
credit card use in general is an extremely complex process. You 
have issuers. You have acquirers, you have associations, you 
have the merchants and then you have the actual customer. To 
date, we feel that the provisions of the Bank Secrecy Act allow 
us to at least track some of those transactions that occur, 
because at some point during the transaction, a U.S. financial 
institution is involved, whether it's as the issuer or as the 
actual participant in the transaction.
    That being said, we are looking at ways of regulating the 
credit card industry. And we are fully engaging, again, as I 
said before, in the interagency process to do that.
    Mr. Grucci. Just one more quick question if I may. Could 
you elaborate on what steps the Treasury is taking to address 
the potential abuse of credit cards for terrorist financing and 
money laundering?
    Mr. Zarate. Certainly. Immediately after the September 11th 
attacks, the U.S. Secret Service, which has expertise in credit 
card use and abuse and investigations, was immediately tasked 
by the FBI and by the Treasury Department to look into credit 
card use by the 19 hijackers. That was the first thing that we 
did.
    Second, we have engaged the Secret Service's New York 
Electronic Crimes Task Force, which deals with credit card 
issues and credit card fraud in the investigations by the FBI's 
FRG as well as in Operation Green Quest.
    Finally, we are working to regulate, potentially regulate 
the credit card industry so that we are able, as I said before, 
to create a full mosaic of what transactions we're looking at, 
what suspicious transactions look like, what anomalous 
transactions we can identify. But quite honestly, at this 
stage, it's very hard to tell what further regulations we can 
ask for to make those things happen.
    But we are fully engaged in the issue and certainly 
recognize that credit card use can form a way of not only 
laundering money, but of financing terrorist cells around the 
world.
    Mr. Grucci. Thank you. Thank you, Madam Chairwoman.
    Mr. Lormel. Madam Chairwoman, if I may?
    Chairwoman Kelly. Yes.
    Mr. Lormel. Just as a follow up, from an investigative 
standpoint, we really haven't seen that much, the real 
significant use of credit cards. Initially we thought that the 
19 hijackers had an extensive amount of credit cards and we 
thought they were involved in bust-out schemes. But when we got 
through the name associations, we found that they were heavily 
involved with debit cards as opposed to credit cards, because 
they couldn't get credit cards here in the U.S.
    The only place where we have seen a substantial use of 
credit cards for fraud is with a cell of the terrorists in 
Spain. Certainly we see credit card abuses and fraud, and we've 
had a project ongoing with Secret Service in that regard, but 
we haven't seen a crossover into terrorism.
    Chairwoman Kelly. Thank you very much. Yes, the credit card 
issue is a thorny one, and it's an ongoing one, and we do 
continue to need to address it.
    If there are no more questions, the Chair notes that some 
Members will have additional questions, and there are Members 
who had intended to be here today who for one reason or another 
have not been able to be here. And they may wish to submit 
questions in writing. So without objection, we will hold the 
hearing record open for 30 days for Members to submit written 
questions to the witnesses and to place their responses in the 
record.
    I thank this first panel very much. You have all been very 
indulgent with your time, and we are grateful. You are excused 
with the subcommittee's great appreciation for your time. And 
the second panel, without ado, we hope you will please take 
your seats. Thank you so much.
    Mr. Zarate. Thank you, Madam Chairwoman.
    Chairwoman Kelly. On our second panel we have Mr. Steven 
Emerson, who is the Executive Director of the Investigative 
Project. Next we are going to hear from Mr. Jeffrey Neubert, 
the President and CEO of the New York Clearing House 
Association. Next we are going to hear from Mr. John Byrne, who 
is Senior Counsel and Compliance Manager for the ABA, the 
American Bankers Association. And finally, we will hear from 
Mr. John A. Herrera, the Vice President of Latino-Hispanic 
Affairs for the Self Help Credit Union, who is testifying on 
behalf of the Credit Union National Association and the World 
Council of Credit Unions.
    I want to thank all of you for taking your time today to 
share your thoughts with us on this very interesting topic. And 
without objection, your written statements in full will be made 
a part of the record.
    You will each be recognized for 5 minutes in turn. I want 
to remind you that I will try to enforce the 5-minute rule. And 
we will begin with you, Mr. Emerson.

     STATEMENT OF STEVEN EMERSON, EXECUTIVE DIRECTOR, THE 
                     INVESTIGATIVE PROJECT

    Mr. Emerson. Thank you very much. I would like to ask that 
the chart that was prepared in the testimony on page 3 be also 
introduced into the record which I think provides a very good 
display of the worldwide Al Qaeda network through the use of 
charities, front groups, websites, human rights groups. It's on 
page 3 of the testimony. And I think the degree to which the Al 
Qaeda, as well as other organizational networks connected to 
terrorism, have been able to enrich their coffers as well as 
fund the organizations' movements worldwide based on the 
legitimate institutions goes to the heart of the problem that 
underlay the ability of terrorists to hide under the radar 
screen and to execute their horrific atrocity on 9/11.
    I will say this. I am not a member of the Government. I 
operate as a terrorism investigator and analyst. I operate an 
institution that collects material documents and intelligence 
on radical Middle Eastern and Islamic terrorist organizations 
and their infrastructure. We have obviously been working very 
diligently since 9/11 to find out exactly how these 
organizations have been able to fund terrorist acts. Primarily, 
I think we have come to the conclusion, at least tentatively--
and I will say this. I think Government agents and officials in 
various agencies deserve a great deal of credit for the very 
hard work, the tireless work that they have engaged in since 9/
11 in terms of trying to play catch-up against a terrorist 
entity that is very elusive, very secretive, and often 
disguises their financing in clandestine ways.
    Without going into the macro detail as outlined in the 
testimony, the basic paradigm by which Al Qaeda has been able 
to enrich its coffers as well as fund its activities, not just 
Al Qaeda, but also Hamas, Hizballah, the Islamic Jihad and 
other terrorist groups, have been primarily through five or six 
different conduits over the last 10 years.
    One is the use of charitable organizations, non-profits, 
some of them which are actual tax deductible organizations in 
the United States, which have become conduits for the movement 
of people, the transfer of assets and actual movement of actual 
terrorist institutional apparatuses such as passports and other 
credentials. These charitable conduits have primarily been able 
to operate because of the fact that they are not investigated. 
And I think one of the problems that we need to ensure in the 
future is that the IRS be given more abilities to ensure that 
the declared charitable aim of these organizations is kept true 
to what the statements are made and not used falsely.
    Number two, there are financial institutions, corporate 
front companies similar to companies that have been used by 
organized crime. There is also internet-based funding that has 
solicited tens of thousands dollars that we have tracked for 
Jihad-based organizations over the last 5 years. I believe that 
the ability of terrorist movements, in particular Al Qaeda, but 
also for Hamas, Hizballah and others, to exploit the freedoms 
in the United States, also to evade restrictions because of the 
fact that they are adhering, at least on paper, to the declared 
aim of what papers they have filed on behalf of their financial 
institutions goes to the core of why 9/11 needs to have a much 
greater degree of analytical attention I think focused on the 
future of how terrorists can raise money.
    Clearly, transferring money through bank accounts and 
credit card transactions has been a major vehicle. But I think 
terrorists have been on the winning end in terms of being able 
to advance their agenda by basically exploiting the loopholes 
and the freedoms, the naivete, the generosity of the United 
States, has included which USAID has unwittingly assisted some 
radical Islamic charities by giving them actual financial 
assistance and a platform on the basis of their declarations to 
USAID.
    I see that my time is up, and I ask that the rest of my 
testimony be submitted. Thank you.
    [The prepared statement of Steven Emerson can be found on 
page 122 in the appendix.]
    Chairwoman Kelly. All of the written testimony will be 
submitted in full in the written record. And I appreciate the 
fact that you are sensitive to the time.
    Next we turn to you, Mr. Neubert, and I hope you've had 
more than a turkey sandwich before you arrived here. That was 
an interesting piece of testimony you submitted.

  STATEMENT OF JEFFREY P. NEUBERT, PRESIDENT AND CEO, THE NEW 
            YORK CLEARING HOUSE ASSOCIATION, L.L.C.

    Mr. Neubert. Thank you very much, Madam Chairwoman. And, 
yes, I have. And I thank you and Ranking Member Gutierrez and 
the rest of the Members of the subcommittee. I am Jeff Neubert 
of the New York Clearing House. The Clearing House has been in 
business for nearly 150 years and has been involved in the 
payment system throughout that entire time.
    We operate electronic payment systems that process more 
than eight million transactions per day involving about $1.5 
trillion U.S. dollars. We also clear and settle paper checks 
and operate electronic check payment services. And very 
importantly and germane to today's testimony is the fact that 
the Clearing House has served as a forum for its members to 
discuss common interests and to identify and prevent potential 
problems in the financial sector as well as to deal with 
financial and other crises. And it seems to me and us that 
there's never been a problem more urgent, more global than the 
need to combat international terrorism.
    I want to thank you for the opportunity to tell you today 
about the extraordinary cooperative effort between the 
financial services community, financial regulators and law 
enforcement in response to the attacks of September 11th. There 
have been two principal aspects of this effort. The first was 
to assure the continued operation of the payment services and 
the payment infrastructure and the clearing of settlement 
payments in the immediate aftermath of the attack, and the 
second was to identify and prevent the funding of terrorists, 
including the Intercept Forum, which is a team of 34 public and 
private sector organizations which are working together to find 
ways to identify, reduce and ultimately eliminate the flow of 
funds to and from terrorist organizations.
    On the first aspect, the critical payment systems continued 
to operate in large part due to the public and private sectors 
banding together in the hours and days immediately following 
those attacks. And that teamwork and cooperation continues 
today. Senior officials from both the public and private 
sectors did and are working together to find ways to eliminate 
terrorist access to our financial system. And we are committed 
to do our part. It's part of a broader campaign, and much like 
the military and political effort, the fight on the financial 
front is a long-term commitment and it will take time to fully 
accomplish our mission.
    What emerged in the aftermath of this tragedy is an 
unprecedented, it seems to me, shared purpose. For those of us 
in financial services, our unity of purpose with law 
enforcement and bank regulatory authorities is to prevent 
individuals and organizations from taking advantage of our 
financial system.
    I was particularly touched by this since my offices are 
mere blocks from the Trade Center, and I was in my office both 
during the time of the attack, the implosions, and for 3 days 
thereafter. But there was no time to think about the disaster 
at that time other than to make sure all of my employees were 
safe and sound, which I thank the Lord they were. Rather, I 
turned my attention, as did my team, to making sure the payment 
systems continued to operate. We immediately reached out to the 
Federal Reserve, and with their agreement, we set up a series 
of conference calls which took place beginning at 10:30 the 
morning of the 11th and continued throughout the days and 
evenings of that week to make sure that the fundamental 
infrastructure of the payment systems not only for banks, but 
for the securities industry and other financial industries 
continued to operate. And I'm glad to say that indeed they did.
    Perhaps, because of our traditional role and maybe, because 
of those calls and the relative success we had that first week, 
the Clearing House was called into service again on October 1st 
when I received a call from one of our board members asking if 
we would convene a forum to discuss and determine what 
financial institutions, working with the public sector could do 
to eliminate the flow of funds to terrorists and their 
organizations.
    On October 11th, exactly one month after the attack, we 
convened our first Intercept Forum meeting and we had 100 
percent attendance from 34 public and private sector 
organizations who quickly determined that the mission of our 
group would be to determine ways to identify and intercept the 
flow of funds to and from terrorists and their organizations 
and thereby deter and ultimately eliminate that flow.
    From that mission, we divided into five task groups. Each 
group is co-chaired by a public and private sector executive 
and involves public and private sector professionals working on 
those task groups all with the same mission, to identify and 
interrupt the flow of funds to terrorists.
    I think that this forum is a great example of the public 
and private sectors' ability to come together, to meet and 
discuss and take positions and move forward. And from the very 
first meeting, it was very clear to all who were present that 
we had a common purpose and that teamwork was the fundamental 
mantra of our group.
    I thank you for your time this afternoon for the 
opportunity to enter my testimony with you.
    [The prepared statement of Jeffrey P. Neubert can be found 
on page 153 in the appendix.]
    Chairwoman Kelly. Thank you very much.
    We go now to Mr. Byrne.

   STATEMENT OF JOHN J. BYRNE, SENIOR COUNSEL AND COMPLIANCE 
             MANAGER, AMERICAN BANKERS ASSOCIATION

    Mr. Byrne. Madam Chairwoman, Congressman Gutierrez, I am 
pleased to be here today to present our views on the important 
work of the industry to address the changes in our country's 
money laundering laws since the passage of the USA PATRIOT Act.
    Madam Chairwoman, we pledged in October to support fully 
efforts to find and prosecute the perpetrators of these heinous 
acts and their supporters and work with Congress and this 
subcommittee to enact new tools in the campaign against 
terrorism. We helped fulfill that pledge with our strong 
support of the USA PATRIOT Act, and we continue to work closely 
with the Government to ensure that any new tools created are 
used effectively to achieve our mutual goal. That goal, of 
course, is to prevent our Nation's financial system from being 
used by terrorists.
    In my statement today, I'd like to briefly cover several 
points. First of all, the banking industry strongly supported 
Title III of the USA PATRIOT Act. As we now enter the 
regulatory implementation process, it is more important than 
ever that Congressional intent be followed and that the 
industry continue to work with the appropriate agencies charged 
with the anti-terrorism efforts.
    The ABA has also prepared, and we are releasing today, a 
resource guide for our members addressing the importance of a 
strong and effective account opening procedure. This guide, 
attached to this testimony for your information, is the product 
of extensive work and input from both the private and public 
sectors. As the Treasury Department considers its regulatory 
obligation to draft a regulation dealing with the verification 
of identities at the account opening stage, we believe this 
guide will be of great assistance.
    I would like to also direct your attention to a number of 
the provisions in Title III. A few of these we believe can 
improve the industry's and the Government's ability to address 
terrorist activities. Specifically, Section 314, Cooperative 
Efforts to Deter Money Laundering, requires the Treasury 
Department to issue regulations to, quote: ``encourage further 
cooperation'' among financial institutions, their regulatory 
authorities and law enforcement authorities through the sharing 
of information on terrorist and money laundering activities. 
The ABA has long stressed the need for clarity on what 
information can be shared to protect our institutions from 
being used unwittingly by criminals.
    The Federal agencies have opined on the ability of banks to 
share fraud-related information as long as the fact of a 
Suspicious Activity Report being filed is not disclosed. The 
industry, however, needs additional guidance, we believe this 
regulation has the potential of assisting us in that effort.
    While we await the Treasury's proposal, the industry 
remains hopeful that the rule will actually facilitate 
information and not place unnecessary burdens on the industry. 
For example, the ``notice'' requirement--notice to Treasury 
that financial institutions are sharing information--has the 
potential of discouraging the transfer of information if it 
becomes a major unnecessary reporting requirement. The ABA 
believes that Section 314 should permit the filing of SARs as 
compliant with the notice provisions. While we realize that 
there may be mechanical problems with this approach, we would 
still argue that it should be considered.
    Section 355 of the Act is another important provision. This 
section addresses a long-standing industry concern for 
preventing criminal activity by permitting depository 
institutions to provide information in a written employment 
reference to other institutions concerning the possible 
involvement in potentially unlawful activity by a current or 
former employee. The passage of 355 should greatly enhance the 
industry's ability to protect its institutions and account 
holders. In order to encourage banks to use this new authority, 
we are publishing an article on how to implement this in the 
March-April edition of our Bank Compliance magazine. The 
author, Robert Serino, the former Deputy Chief Counsel of the 
Office of the Comptroller of the Currency, points out that 
Section 355 will protect financial institutions and their 
employees from liability when they take steps to keep dishonest 
individuals out of the financial services industry.
    Finally, Section 326 of the Act requires the Secretary to 
issue regulations to establish minimum procedures for financial 
institutions to use in verifying the identity of a customer 
during the account opening process. The ABA as part of its 
overall effort has been moving to address this issue 
aggressively, even in advance of the regulatory process. In 
fact, ABA began a process to address the account opening issue 
prior to the passage of the Act and obviously before the Notice 
of Proposed Rulemaking.
    We have learned today from our witnesses and in the press 
that the 9/11 terrorists that utilized financial institutions 
did so by opening up checking accounts with minimal 
identification and low dollar amounts. In fact, the 
identification offered were visas and the potential customers 
did not possess Social Security numbers. Section 326, when 
implemented across industry lines, will prevent criminals from 
using any financial enterprises following these rules.
    Madam Chairwoman, I will end here and just say we welcome 
the opportunity to answer any questions you might have and 
appreciate the opportunity to present today before the 
subcommittee.
    [The prepared statement of John J. Byrne can be found on 
page 160 in the appendix.]
    Chairwoman Kelly. Thank you very much. I appreciate your 
keeping that condensed and right on time. Thank you so much.
    Now we go to Mr. Herrera.

    STATEMENT OF JOHN A. HERRERA, VICE PRESIDENT FOR LATINO/
  HISPANIC AFFAIRS, SELF-HELP CREDIT UNION, ON BEHALF OF THE 
 CREDIT UNION NATIONAL ASSOCIATION AND WORLD COUNCIL OF CREDIT 
                             UNIONS

    Mr. Herrera. Buenas tardes, Chairwoman Kelly, Ranking 
Member Gutierrez, and Members of the subcommittee. Thank you 
for the opportunity to provide comments on implementation of 
the USA PATRIOT Act. I am John Herrera, Vice President of Self-
Help Credit Union and founding member and current Board Chair 
of the Latino Community Credit Union with offices in Durham and 
Charlotte, North Carolina. I appear before you today on behalf 
of the Credit Union National Association, and the World Council 
of Credit Unions.
    I would like to commend Congress for the swift passage of 
the PATRIOT Act and assure the subcommittee that credit unions 
are committed to being a part of the effort to ensure that 
terrorists and those seeking to abuse our financial markets 
through money laundering are identified, pursued and punished.
    It is also important to recognize that the United States, 
which is facing its highest level of immigration since the 
Depression era, has a growing population of unbanked 
individuals. There are an estimated 28.4 million foreign-born 
individuals residing in the United States today, comprising 
over 12.4 percent of our work force. Half of these immigrants 
are from Latin America. This recent influx of immigrants has 
been identified by Federal Reserve Board Chairman Alan 
Greenspan as one of the key reasons for the unprecedented 
period of economic growth and low inflation during the 1990s.
    Ninety percent of the Latino Community Credit Union's 4,000 
members are immigrants. Two-thirds of them have never 
previously had a financial account in their lives. Nationwide, 
approximately 60 percent of all Latino immigrants are unbanked, 
compared to 10 percent of the total U.S. population that is 
unbanked.
    Regarding the PATRIOT Act, credit unions went to work with 
the Treasury Department and the National Credit Union 
Administration to support implementing regulations that are 
consistent with Congressional intent. We certainly appreciate 
the importance of meeting our compliance responsibilities, 
particularly after September 11th.
    But one concern relates to Section 326, which requires the 
Treasury Department to study whether foreign nationals must 
obtain an additional identification number, which will function 
similarly to a Social Security number or a tax identification 
number.
    Another concern is with the proposal to establish a 
database to be maintained by the Government to identify foreign 
nationals seeking to open accounts. In addition to raising 
privacy concerns, the security goals of these proposals seem to 
be met by the Office of Foreign Assets Control. Today, credit 
unions and banks generally open non-interest-bearing accounts 
for undocumented members and then assist them in obtaining 
individual tax identification numbers so that they can earn 
interest and pay taxes. In fact, the World Council has even 
published a manual on how to serve undocumented individuals 
which I will offer to place in the record.
    If we had to refuse opening a non-interest-bearing account 
pending the tax ID number, the potential member would revert to 
the world of less secure cash transactions, often becoming 
victims of crime and predatory lenders. Again, I want to work 
with the Treasury and Congress to avoid having a chilling 
effect on the ability of unbanked individuals to use 
traditional financial institutions.
    I would also like to briefly call attention to the issue of 
money transfers, given their importance in immigrant 
communities. The Inter-American Development Bank estimates that 
an additional $3 billion per year could be sent to Latin 
America by immigrants in the United States if the costs of 
transmissions were more reasonable.
    Our efforts to reach low-income and unbanked individuals, 
however, will be significantly enhanced with a policy change. 
We propose that credit unions be permitted to provide check 
cashing and remittance services to non-members, such as those 
within the field of membership. CUNA agrees with the National 
Credit Union Administration, which recently requested such a 
legislative change in the Federal Credit Union Act of Chairman 
Oxley. Such a change would provide an excellent opportunity for 
individuals to access a low-cost, viable alternative to less 
regulated and higher cost financial intermediaries.
    In conclusion, to quote James W. Ziglar, the Immigration 
Commissioner, ``the events of September 11 were caused by evil, 
not by immigration.'' Many credit unions throughout the country 
such as the Latino Community Credit Union are leading the way 
in ensuring that immigrants have access to affordable financial 
services. And, as we seek to protect our homeland, it is 
important to maintain access to our financial services 
industry.
    Thank you for this opportunity to comment, and I would be 
glad to answer any questions from the subcommittee.
    [The prepared statement of John A. Herrera can be found on 
page 168 in the appendix.]
    Chairwoman Kelly. Thank you very much.
    I have a couple of questions for this panel. One that I 
think I'd like to ask you, Mr. Byrne, on page 4 of your 
testimony, you mention--I'm quoting here: ``The Federal 
agencies have opined on the ability of banks to share fraud 
related information as long as the fact of a SAR being filed is 
not disclosed. The industry, however, needs additional 
guidance, and this regulation has the potential of assisting us 
in that effort.'' Is this sufficient with the regulation or do 
you need more?
    Mr. Byrne. We hope that this will be sufficient. The issue, 
very briefly, and it happened obviously prior to 9/11, was 
banks want to share information on check fraud or debit card 
fraud or something like that between institutions. And it was 
always unclear to us that if somebody had filed a Suspicious 
Activity Report, you clearly can't disclose that fact to the 
other institution. But the agencies have said from time to time 
that you could share some of the elements in the SARs. You 
always run the risk that if you tell another bank, here's the 
check fraud, that you may also innocently disclose the fact 
that you did something about it and filed a SAR and that 
potentially there's an issue.
    Section 314, we believe, can be the answer. And certainly 
if it's done carefully and it takes that into consideration, we 
think we may not need any more. We won't know till the proposal 
comes out. We're looking very carefully. We've offered some of 
our suggestions already to the Treasury. But we're looking 
forward to that as something that will help not only the 
institution, but will protect the account holders as well as 
the safety and soundness of the industry.
    Chairwoman Kelly. Thank you very much for that 
clarification. Mr. Emerson, what's your estimate of the total 
amount of funding that organizations in the United States have 
raised for Al Qaeda and for other terrorist groups?
    Mr. Emerson. That's a very difficult question to answer 
precisely because of the nature of the clandestine conduits 
that are used to funnel money. For example, non-profit 
charities may account for tens of millions of dollars over the 
last few years to militant Islamic groups. And the problem is 
that when you look at the accounts of some of these groups, you 
won't find a ledger or a cash transaction for weapons or for 
any type of military component, so that the real burden becomes 
proving that the organization is serving as a conduit in terms 
of its worldwide operations.
    Based on what we have looked at in terms of documents from 
the Government, as well as open source material and other 
documents we've obtained and information, it is certainly 
within the realm of probability that Al Qaeda worldwide, 
because it's hard to compartmentalize the money they raised 
here or brought in, certainly raised worldwide through their 
network of front companies in terms of their use of the 
internet, the use of charitable conduits and false human rights 
groups, probably on the magnitude of $25 to minimally $50 
million every year.
    Again, because of the way the structure is set up, it's 
hard to pinpoint exactly where the money is at any one time. 
They're multinational and global and can shift monies on a 
moment's notice, and it's very hard. It's like squeezing air in 
a balloon in terms of focusing on one, let's say subsidiary of 
a militant Islamic charity. It can transfer its money 
immediately to another chapter overseas and eradicate any trace 
of where the money was.
    Chairwoman Kelly. When they raise this money, are they 
using the U.S. mail? Are they doing it at rallies? Is it coming 
in in cash? Do they use things like people writing checks, 
using credit cards and so on? How are they raising this money?
    Mr. Byrne. Well, in fact, all of the above. And one of the 
problems is also discerning at least when they raise it 
publicly, let's say at a rally or through the internet or 
through the mail, whether in fact the donor is really knowingly 
contributing to a terrorist conduit or whether he's doing it 
naively or she's doing it naively.
    And so you have a situation where they can freely advertise 
raising money for families in Chechnya or families in, quote: 
``Palestine,'' and the donor may not know that it's actually 
going to fuel Hamas or funding the Al Qaeda movement in 
Chechnya. On the other hand, at rallies where you hear ``Death 
to America'' and then they pass the hat around, you can be 
pretty sure that the monies are going to a nefarious purpose.
    So it's very difficult to get a handle on this. The tax 
returns of 990s, which are the annual tax returns, provide some 
indication. But my suspicion is that that represents only a 
fraction of the amount of monies raised in the United States. 
And some of those 990s actually show transfers of money from 
the Middle East into the U.S. where they're parked and 
laundered, and then they are shipped out in the following year.
    Chairwoman Kelly. That takes me to another question with 
regard to the security that banks and other entities are taking 
within all of you in financial situations. I'm wondering 
whether or not you are going back and looking at, as we are in 
the airline industry, are you looking at who is working for 
you? Is it possible for people to put someone in your financial 
institutions, a plant that could disrupt the flow of what 
you're doing or subvert it in another way? Are you going back 
and having a look at who's working for you? What kind of 
implementation have you put, what kind of things have you put 
in place? And Mr. Byrne, I think really I'm going more at you 
than check clearing and so on. But, credit unions also have an 
obligation, I think, to all of us who use them.
    Mr. Byrne. Madam Chairwoman, that's an excellent question. 
And in fact, there is a partial response in the PATRIOT Act. 
Section 355 of the Act deals with the issue that we have been 
grappling with for quite a while, and that is if we dismiss 
somebody for committing a crime or we believe has committed a 
crime, but it's such a low dollar amount that nobody prosecutes 
that individual, they go to an institution down the road, and 
we can't tell that institution why we dismissed the employee. 
Section 355 of the PATRIOT Act, which you obviously passed last 
year gives us some ability to do that, and that obviously will 
deal with some issues.
    We also do fingerprint every new employee. The Clearing 
House is involved in that project as are we. And you run those 
fingerprints by the FBI, and if you get a match of someone 
who's been convicted before, that does help weed out some of 
this. So it does address it to some degree, 355 plus the 
fingerprint program which many of our banks are engaged in.
    Chairwoman Kelly. Do you use biometrics?
    Mr. Byrne. That's a bank-by-bank decision. I think some 
banks are exploring those possibilities, but I couldn't tell 
you that it's an industry practice. Some groups are using it, 
others are still looking at the technology.
    Chairwoman Kelly. Thank you very much.
    Mr. Gutierrez.
    Mr. Gutierrez. Thank you very much.
    Let me ask Mr. Herrera, how can we comply with the US 
PATRIOT Act and the regulations and at the same time serve the 
unbanked, undocumented immigrant community of the United 
States?
    Mr. Herrera. Congressman Gutierrez, that's a really good 
question and I think we want to work together on finding the 
most efficient way to do that. I think we already have at the 
credit union level a lot of policies and security procedures 
that are in place to track suspicious movements. Just to give 
you an example, wire transfers are one of the most popular 
services that we provide in my credit union. Every time we do a 
wire transfer overseas, we match that name against the list of 
OFAC.
    I think it's better to have more information, and we really 
know, credit unions are uniquely positioned in the sense that 
we really know our members. We're more intrinsically linked. 
Our members--I'm sorry. I just lost my train of thought. I 
believe the systems that we have in place are very efficient. 
We really have a very special relationship with our members and 
our board of directors, I mean, we work with volunteer 
communities. We are membership organizations. From the 
personnel to the folks that work in credit unions, we really 
know who our members are. We are limited by fields of 
membership. So we just don't serve everyone. But I think that 
uniquely qualifies us to be more aware of any illegal use by 
potential terrorists.
    Mr. Gutierrez. I think that it's probably going to be 
incumbent upon organizations such as yours to come up with 
those scenarios and structures that is going to allow the 
undocumented immigrant community to continue to send their 
remittances back home. I obviously agree with you.
    But I think you can see by the tenor of the debate here in 
Washington, DC. and the declarations that are made by law 
enforcement officers time and time again, there has been a 
continuing linkage between terrorists and immigrants, almost to 
the point where one has become synonymous with the other. 
That's an unfortunate reality and an untrue reality, but it's 
one that we continue to see more and more today.
    The people that came here to strike against our country on 
September 11th weren't immigrants. They were terrorists. They 
didn't come here to contribute, to work, to sweat, to toil, to 
bring us their creativity and their imagination as other 
immigrant groups that came before them. They came here with one 
sole express purpose: To try to destroy this Nation.
    We know that there are millions of immigrants in this 
country that come here to work and provide vital services. But 
I think that unless we come up with our own series of 
safeguards, the day in which I can give someone as a Member of 
Congress or relate to someone as a Member of Congress and get 
them their tax identification card and/or their consulate 
offices issuing some kind of identification form, those days 
may come to an end, thereby taking an immigrant community that 
wants to continue to--and I don't know that people are going to 
be in the mood to hear and discuss the debate.
    Let's remember that President Fox was here on September 5th 
and 6th. And I remember when the Democratic and the Republican 
party couldn't get closer to him. There was a big debate here 
in Washington, DC. who was the biggest friend of the immigrant 
community, who had done more, who was going to do more. And 
then, 5 days later, it was like we washed our hands like 
Pontius Pilot of the immigrant community and people couldn't 
run away faster from the immigrant community and the policies 
that we were addressing at that point.
    I'm hopeful that we can engage in a serious debate of what 
we do with our immigrant community in a serious light, and not 
one affected adversely by the actions of terrorists on 
September 11th. Because it's pretty unfair, as you and I both 
know. This Government, as a member of it, and this Congress, 
has showed absolutely no will to bring about an effort to 
deport the 8 million people. There is no funding for their 
deportation. There is no political will for their deportation. 
There is no program. And no Member of Congress has ever 
articulated a manner in which to do that.
    So given the absence of will, that means that we are 
acquiescing to their presence here in this country. We all know 
it. Every time we bite into a piece of fruit, everyone knows 
that 60 percent of all of the agriculture industry in this 
country is undocumented workers, but we eat the apple. We chew 
on the grapes. Every time we go into a restaurant there's a 
nice clean plate. ``Oh, it's nice and clean in here and the 
food is delicious.'' We know who's washing those dishes. 
Everybody in this room knows who's washing those dishes.
    And we walk into a beautiful building and it's marvelous, 
so nicely shined, we step on it and we say, ``Oh, let me not 
slip. This is such a wonderful place.'' Or walk into a hotel 
room and say, ``Isn't this a wonderfully cleaned room?'' We 
sleep in the rooms. They even take care of our children and 
raise our most precious asset, our most precious commodity. 
What is it? Our children. Every day I see them, they go ``Toma 
comida. Guidamera.'' Take care of her. Feed her. And then they 
go off to work.
    So we know they're here. Everyone in this room. And I'm 
happy you brought up Mr. Greenspan--and I'll conclude in 15 
seconds. Mr. Greenspan says that one of the reasons of our 
unprecedented economic growth in this Nation during the decade 
of the 1990s was the immigrant community, because they keep 
inflation down. Because they work hard and toil at the jobs 
that most people born in the United States of America, citizens 
of this country, would never consider doing.
    So in the absence of a program to eliminate them, and since 
they're here, I think we should allow them to continue to have 
banking services and not confuse one with the other. And I 
think that's going to be a real challenge for this House and I 
thank you for your work, Mr. Herrera.
    Mr. Herrera. Thank you, Mr. Gutierrez.
    Chairwoman Kelly. Mr. Bachus, welcome. Thank you.
    Mr. Bachus. Mr. Emerson, you're an expert on Osama bin 
Laden and his operations and Al Qaeda and their financial 
network around the world. As you well know, he was based in the 
country of Sudan for the first half of the 1990s, I think he 
left in 1996. And there has been, many believe, I'll just put 
it that way, that since his departure in 1996, the Sudan has 
continued to give financial and logistical and diplomatic 
support to Osama bin Laden and to Al Qaeda. What's your 
assessment? Are you in the camp that agrees with that?
    Mr. Emerson. I definitely believe that the Sudan has 
continued--bin Laden was in the Sudan from 1991 through 1996, 
and he left under, quote: ``government pressure'' at that point 
because of the appropriate pressure, but not enough appropriate 
pressure placed on by the Clinton Administration. And I know 
there have been some reports that he was offered up to the 
United States.
    But frankly, the Sudanese government has continued to 
engage and support international terrorism and involve itself 
in the operations of Al Qaeda, as evidenced most recently in 
terms of testimony in open source material by the trial of the 
embassy bombing defendants from Kenya and Tanzania who describe 
the role of the Sudan in supporting Al Qaeda.
    Now the question could be asked, what has happened since 9/
11? Frankly, any superficial effort to sort of please the 
United States must be contrasted with the continuation of 
support for other terrorist groups such as Hamas or the Islamic 
Jihad, the training camps that are in the Sudan today, and the 
extent to which there has been no accountability for the years 
of support that the Sudan provided to Al Qaeda and to bin Laden 
personally.
    Mr. Bachus. It's interesting what you talk about, after 
September 11th. When our Government was saying that Sudan is a 
member of the alliance and they're cooperating with us. After 
they made some of those statements, I actually read in the Wall 
Street Journal where some of the Sudanese government officials 
said ``We're going through the motions. We're really not 
cooperating.''
    I very much suspect any so-called cooperation we're getting 
with Sudan. Do you think it's real in any way?
    Mr. Emerson. I think that there is, you know, it's an 
illusory type of cooperation. On the one hand, they may trumpet 
a certain amount of public statements or public acts. On the 
other hand, there is no doubt that Al Qaeda terrorists operate 
and have used Sudanese passports and continue to use them. And 
Sudanese financial institutions have been directly involved in 
the support of Al Qaeda. And it was only because the U.S. 
Government froze the assets of some of those groups, 
institutions, that those monies were not available. It was not 
because of the Sudan freezing the assets of those groups after 
9/11.
    Mr. Bachus. You know, there are certain financial 
institutions that have been linked with Osama bin Laden, and 
two of those are in Sudan. That's Taba Investments and Al-
Shamal.
    Mr. Emerson. Al-Shamal Bank. Exactly.
    Mr. Bachus. Al-Shamal Bank. Number one, what role does Taba 
Investments play in the Osama bin Laden financial network? And 
number two, I know Al-Shamal--is that how you pronounce it?
    Mr. Emerson. Yes, sir.
    Mr. Bachus. They wired $250,000 to an Osama bin Laden 
operative in Texas back in what, 1993? And they bought a plane 
for Osama bin Laden. Can you update us on those two financial 
institutions? And also, to your knowledge, does Al-Shamal Bank 
maintain any correspondent accounts, either directly or 
indirectly, with any U.S. financial institution?
    Mr. Emerson. Let me just take the last question. I'm not 
familiar with whether they maintain any corresponding accounts. 
As far as Al-Shamal, as well as Taba Investments, they were 
direct bin Laden financially owned acquisitions. He was the 
largest shareholder.
    Mr. Bachus. Yes, he owned it actually, didn't he?
    Mr. Emerson. Right. Although there were other shareholders, 
he directly controlled both institutions. And they were used to 
basically provide wire transfers and liquidity to the bin Laden 
empire, which consisted of more than--I'm looking here at the 
chart that we assembled--the minimum of a dozen financial 
institutions and another one-and-a-half dozen companies 
worldwide that generated, quote: ``legitimate profit,'' but 
were serving as a vehicle basically for terrorism.
    As far as what the current status is, I will have to get 
back to you about what the exact current status is in the last 
5 months about Shamal and Taba Investments. But I can assure 
you that up until 9/11, they were very active. And again, it 
was only because of the Executive Orders issued by the 
President that their financial operations were interrupted. It 
was not because of any unilateral action by the Sudanese 
government.
    Mr. Bachus. And I'll just close by saying, you know, the 
Sudanese government since 9/11 has actually strafed people in 
the south of the Sudan when they were picking up food drops. 
They continue to say that they're waging Jihad against the 
people of the Christian and other faiths in the south of the 
Sudan.
    Mr. Emerson. The black minority, the Christian black 
minority has been subjected to what human rights organizations 
called genocide. And they've killed tens of thousands. And that 
has continued. That has not stopped at all since 9/11.
    Mr. Bachus. So it's hard for me to believe that we have a 
comfortable alliance with people that are doing what we 
witnessed on September 11. Thank you.
    Chairwoman Kelly. Thank you very much, Mr. Bachus. I don't 
believe there's any more questions from the subcommittee, and 
so the Chair will note that Members may have additional 
questions of this panel as well, which they may wish to submit 
in writing. Without objection, the hearing record is going to 
remain open for 30 days for Members to submit those written 
questions to these witnesses and to place their responses in 
the record.
    This panel is excused, and we are very grateful for your 
testimony on a very interesting topic. Thank you very much. We 
appreciate your time. The hearing is adjourned.
    [Whereupon, at 4:24 p.m., the hearing was adjourned.]
                            A P P E N D I X










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