[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]





                        COMBATING INTERNATIONAL
                          TERRORIST FINANCING

=======================================================================

                             JOINT HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                       DOMESTIC AND INTERNATIONAL
                 MONETARY POLICY, TRADE AND TECHNOLOGY

                                AND THE

                            SUBCOMMITTEE ON
                      OVERSIGHT AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 30, 2004

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 108-114


                    U.S. GOVERNMENT PRINTING OFFICE
97-451                      WASHINGTON : 2004
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana          PAUL E. KANJORSKI, Pennsylvania
SPENCER BACHUS, Alabama              MAXINE WATERS, California
MICHAEL N. CASTLE, Delaware          CAROLYN B. MALONEY, New York
PETER T. KING, New York              LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             MELVIN L. WATT, North Carolina
ROBERT W. NEY, Ohio                  GARY L. ACKERMAN, New York
SUE W. KELLY, New York, Vice Chair   DARLENE HOOLEY, Oregon
RON PAUL, Texas                      JULIA CARSON, Indiana
PAUL E. GILLMOR, Ohio                BRAD SHERMAN, California
JIM RYUN, Kansas                     GREGORY W. MEEKS, New York
STEVEN C. LaTOURETTE, Ohio           BARBARA LEE, California
DONALD A. MANZULLO, Illinois         JAY INSLEE, Washington
WALTER B. JONES, Jr., North          DENNIS MOORE, Kansas
    Carolina                         MICHAEL E. CAPUANO, Massachusetts
DOUG OSE, California                 HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois               RUBEN HINOJOSA, Texas
MARK GREEN, Wisconsin                KEN LUCAS, Kentucky
PATRICK J. TOOMEY, Pennsylvania      JOSEPH CROWLEY, New York
CHRISTOPHER SHAYS, Connecticut       WM. LACY CLAY, Missouri
JOHN B. SHADEGG, Arizona             STEVE ISRAEL, New York
VITO FOSSELLA, New York              MIKE ROSS, Arkansas
GARY G. MILLER, California           CAROLYN McCARTHY, New York
MELISSA A. HART, Pennsylvania        JOE BACA, California
SHELLEY MOORE CAPITO, West Virginia  JIM MATHESON, Utah
PATRICK J. TIBERI, Ohio              STEPHEN F. LYNCH, Massachusetts
MARK R. KENNEDY, Minnesota           BRAD MILLER, North Carolina
TOM FEENEY, Florida                  RAHM EMANUEL, Illinois
JEB HENSARLING, Texas                DAVID SCOTT, Georgia
SCOTT GARRETT, New Jersey            ARTUR DAVIS, Alabama
TIM MURPHY, Pennsylvania             CHRIS BELL, Texas
GINNY BROWN-WAITE, Florida            
J. GRESHAM BARRETT, South Carolina   BERNARD SANDERS, Vermont
KATHERINE HARRIS, Florida
RICK RENZI, Arizona

                 Robert U. Foster, III, Staff Director
 Subcommittee on Domestic and International Monetary Policy, Trade and 
                               Technology

                   PETER T. KING, New York, Chairman

JUDY BIGGERT, Illinois, Vice         CAROLYN B. MALONEY, New York
    Chairman                         BERNARD SANDERS, Vermont
JAMES A. LEACH, Iowa                 MELVIN L. WATT, North Carolina
MICHAEL N. CASTLE, Delaware          MAXINE WATERS, California
RON PAUL, Texas                      BARBARA LEE, California
DONALD A. MANZULLO, Illinois         PAUL E. KANJORSKI, Pennsylvania
DOUG OSE, California                 BRAD SHERMAN, California
JOHN B. SHADEGG, Arizona             DARLENE HOOLEY, Oregon
MARK R. KENNEDY, Minnesota           LUIS V. GUTIERREZ, Illinois
TOM FEENEY, Florida                  NYDIA M. VELAZQUEZ, New York
JEB HENSARLING, Texas                RAHM EMANUEL, Illinois
TIM MURPHY, Pennsylvania             CHRIS BELL, Texas
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida

              Subcommittee on Oversight and Investigations

                     SUE W. KELLY, New York, Chair

RON PAUL, Texas, Vice Chairman       LUIS V. GUTIERREZ, Illinois
STEVEN C. LaTOURETTE, Ohio           JAY INSLEE, Washington
MARK GREEN, Wisconsin                DENNIS MOORE, Kansas
JOHN B. SHADEGG, Arizona             JOSEPH CROWLEY, New York
VITO FOSSELLA, New York              CAROLYN B. MALONEY, New York
JEB HENSARLING, Texas                JIM MATHESON, Utah
SCOTT GARRETT, New Jersey            STEPHEN F. LYNCH, Massachusetts
TIM MURPHY, Pennsylvania             ARTUR DAVIS, Alabama
GINNY BROWN-WAITE, Florida           CHRIS BELL, Texas
J. GRESHAM BARRETT, South Carolina


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    September 30, 2004...........................................     1
Appendix:
    September 30, 2004...........................................    28

                               WITNESSES
                      Thursday, September 30, 2004

Wayne, Hon. E. Anthony, Assistant Secretary for Economic and 
  Business Affairs, Department of State..........................     6
Zarate, Hon. Juan, Assistant Secretary for Terrorist Financing, 
  Department of Treasury.........................................     4

                                APPENDIX

Prepared statements:
    King, Hon. Peter T...........................................    30
    Biggert, Hon. Judy...........................................    32
    Kelly, Hon. Sue W............................................    35
    Wayne, Hon. E. Anthony.......................................    37
    Zarate, Hon. Juan............................................    51

 
                        COMBATING INTERNATIONAL
                          TERRORIST FINANCING

                              ----------                              


                      Thursday, September 30, 2004

             U.S. House of Representatives,
                       Subcommittee on Domestic and
                  International Monetary Policy and
                      Subcommittee on Oversight and
                                     Investigations
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittees met, pursuant to call, at 10:04 a.m., in 
Room 2128, Rayburn House Office Building, Hon. Peter T. King 
[chairman of the Subcommittee on Domestic and International 
Monetary Policy] presiding.
    Present for the Subcommittee on Domestic and International 
Monetary Policy: Representatives King, Kelly, Biggert, Paul, 
Maloney, Gutierrez and Inslee.
    Present for the Subcommittee on Oversight and 
Investigations: Kelly, Paul, Gutierrez, and Inslee.
    Chairman King. [Presiding.] Good morning. This joint 
hearing of the Subcommittee on Domestic and International 
Monetary Policy, Trade and Technology, and the Subcommittee on 
Oversight will come to order. Without objection, all opening 
statements will be made a part of the record.
    The Subcommittee on Domestic and International Monetary 
Policy and the Subcommittee on Oversight chaired by my 
colleague from New York, Mrs. Kelly, meet jointly today to 
receive testimony from Treasury and State regarding their 
efforts in the global fight against terrorist financing.
    We are fortunate to have the Honorable Juan Zarate, 
Assistant Secretary for Terrorist Financing from Treasury, and 
the Honorable Tony Wayne, with whom I shared a plane ride back 
once from Northern Ireland, very pleasant, Assistant Secretary 
for Economic and Business Affairs at the State Department here 
with us today.
    Mrs. Maloney and I have agreed to have our opening 
statements made part of the record.
    I will ask Mrs. Kelly if she would like to make an opening 
statement.
    Mrs. Kelly. Thank you very much.
    I would like to thank my colleague from New York, Chairman 
King, for co-chairing this important hearing on our 
government's efforts to combat international terrorist 
financing.
    Earlier this summer, the Financial Services Committee held 
a hearing on the findings of the 9/11 Commission report and the 
commission staff's monograph on terrorist financing. After 
reviewing both reports, it is clear that we have made much 
progress in our international efforts to weed out terrorist 
financing money since 9/11 and the passage of the USA PATRIOT 
Act.
    Today, though, the Administration continues to work with 
its foreign counterparts to enhance cross-border information 
sharing arrangements and to promote stronger anti-terrorist 
financing regimes in specific countries. In fact, the 
Administration is currently working within the FATF, the 
Financial Action Task Force. This is an intergovernmental 
agency policy body composed of 33 member countries and 
territories to develop best practice standards for combating 
terrorist finance.
    At the same time, the number of financial intelligence 
units qualifying for membership in the Egmont Group, an 
international forum for coordinating global anti-terrorist 
financing and anti-money-laundering efforts, has grown from 58 
in 2001 to 94 today. Finally, the FATF standards are now a 
permanent part of the financial sector assessment program 
reviews undertaken by the International Monetary Fund.
    While the impact of all of these efforts is currently being 
felt across the world, we must continuously improve our ability 
to work with the international community to weed out terrorist 
financing and shut down new and emerging threats. In order to 
strengthen our government's hand, there are several areas that 
I would like to explore today, including a Treasury-led 
certification program and a secondary ban under the USA PATRIOT 
Act.
    Yesterday, the Financial Services Committee passed 
legislation to implement recommendations of the 9/11 Commission 
report to ensure that we are protecting the American people. 
The legislation is a comprehensive response to the monograph on 
terrorist financing. However, I do believe there are several 
areas that Congress must explore to encourage cooperation from 
foreign governments and financial institutions.
    The creation of a Treasury-led certification program would 
acknowledge the vitally important international aspect of our 
fight against terror finance and ensure that countries are 
cooperating in these efforts. Under such a proposal, the 
Treasury Department would be required to report annually to 
Congress any countries of concern that are not cooperating in 
anti-terrorist financing efforts and impose sanctions that 
would withhold some of their bilateral assistance. As the 9/11 
Commission staff's monograph on terrorist financing suggests, 
terror networks rely on a variety of methods for moving and 
generating financial sustenance, which do not respect national 
borders.
    We have seen that there are countries which do not share 
our determination and our vigilance to crack these funding 
systems, who create sanctuaries for terrorists who route their 
financial lifelines. A certification program would send a clear 
message to the world that would have to be heeded, because if 
you do not cooperate in the war against terror, you would lose 
some of the bilateral assistance that you may receive from the 
United States.
    The other area that I would like to explore today is the 
potential secondary ban under the USA PATRIOT Act. Under 
Section 311 of the PATRIOT Act, the government is authorized to 
impose special measures against countries or financial 
institutions that are found to be of primary money-laundering 
concern. Section 311 provides a useful lever when dealing with 
other nations, but we have found that perhaps there are limits 
to its usefulness that might be removed to great benefit.
    It has become evident that if a banking institution does 
not have a notable correspondent banking relationship with 
American banks, Section 311 may not necessarily create a 
powerful incentive, and the kind that we had hoped to have. As 
such, careful consideration should be given to the concept of a 
secondary boycott under the PATRIOT Act. Under such a proposal, 
countries or financial institutions that continue to knowingly 
deal with entities that we have designated to be of primary 
money-laundering concern would be subject to the same 
sanctions.
    Not only are the entities which are designated to be of 
primary money-laundering concern subject to section 311, but so 
are other entities that would continue to deal with them. In 
other words, it would be a secondary boycott after the primary 
boycott. This change to current law would strengthen and 
lengthen our reach with Section 311, and substantively 
reinforce the motivation which led to our passage and enactment 
of the original provision in 2001.
    The American people expect nothing less than the highest 
level of cooperation from foreign government and financial 
institutions. I look forward to hearing the view of this panel 
on these and other issues today. I thank the witnesses for 
their testimony.
    [The prepared statement of Hon. Sue W. Kelly can be found 
on page 35 in the appendix.]
    Chairman King. The gentleman from Illinois.
    Mr. Gutierrez. Thank you, Chairman King and Chairwoman 
Kelly for calling this hearing to discuss the international 
aspects of the 9/11 legislation we marked up yesterday. I 
believe that the 9/11 legislation we passed out of committee is 
a significant step in our continuing effort to fight terrorist 
financing and money laundering.
    I want to particularly thank Chairwoman Kelly for our 
longstanding partnership on these issues, and in particular for 
her assistance and cosponsorship of a provision that was 
accepted in yesterday's legislation that will strengthen bank 
examinations by providing a 1-year cooling-off period for bank 
examiners before they can work for the bank they supervised.
    I look forward to the testimony of the witnesses here 
today, and yield back the balance of my time.
    Chairman King. The gentlelady from Illinois, the Vice Chair 
of the subcommittee, Mrs. Biggert.
    Mrs. Biggert. Thank you, Mr. Chairman. I would, in the 
interest of time, submit my statement for the record.
    Chairman King. Without objection.
    I am pleased today to welcome our two witnesses. I would 
first ask Assistant Secretary Zarate if he would proceed.
    Without objection, your written statements will be made a 
part of the record, and you will be each recognized for a 5-
minute summary of your testimony. Thank you.

    STATEMENT OF HON. JUAN ZARATE, ASSISTANT SECRETARY FOR 
          TERRORIST FINANCING, DEPARTMENT OF TREASURY

    Mr. Zarate. Thank you, Chairman King, Chairman Kelly. Thank 
you very much, distinguished members of both subcommittees. 
Thank you for inviting me here today to talk about our very 
important efforts, our international efforts to combat 
terrorist financing. I am honored to be testifying alongside 
Assistant Secretary Wayne, who has been and continues to be an 
important partner in our international efforts.
    As we all know quite clearly, the terrorist threat we face 
is not simply an American problem born on September 11. From 
Madrid to Mombassa, Casablanca to Jakarta, and most recently in 
Beslan and Moscow, the horrific inhumanity of terrorism knows 
no bounds of territory, religion or race. The international 
nature of terrorism is acutely apparent when looking at the 
global terrorist financing networks that have been used to 
support al Qaeda and other like-minded terrorist groups.
    Whether it is donors in the Gulf or charities in Europe, 
businesses in East Asia or extortion in South America, 
terrorist groups have used and continue to use the full 
spectrum of methods to raise money. Terrorist supporters and 
facilitators continue to rely on a variety of methods to move 
money, especially now with the use of couriers. As we have done 
collectively since September 11, we must attack the sources of 
funding, follow the financial footprints of terrorist groups 
and build safeguards in the financial sector worldwide to 
prevent, deter, and dismantle the terrorist infrastructure.
    Under the President's leadership, we have forged 
international cooperation to deal comprehensively with the 
issue of terrorist financing in, frankly, an unprecedented 
manner. In our efforts to fight terrorist financing in both the 
short and long term, we have developed international standards 
to combat terrorist financing, enhanced greater global 
capacity, broadened and deepened our own regulatory system, 
built international systems to share information about suspect 
networks. We have frozen and seized terrorist-related assets, 
arrested and isolated key financial intermediaries and donors, 
and generally improved the international safeguards around the 
financial system.
    The designations of terrorist financiers under the 
President's Executive Order have not only resulted in the 
freezing and seizing of over $200 million worldwide, but have 
served as a catalyst internationally to dealing with concrete 
issues of concern like the abuse of charities. Though our work 
on designations, and most recently in using Section 311 to 
label foreign banks as primary money-laundering concerns, 
garners much of the public attention, it is perhaps the quiet, 
long-term structural changes that we have ushered 
internationally that will have the greatest impact in this 
ongoing fight.
    The Treasury, along with the State Department and others, 
has helped promote the implementation and enforcement of 
effective international standards of financial transparency and 
accountability. This is important because we must do everything 
to empower foreign governments and the private sector to 
prevent tainted money from entering the financial system and to 
make it riskier for terrorists to raise and move money.
    This work is perhaps seen most visibly in our leadership in 
the Financial Action Task Force and work with the other 
international bodies like the IMF and World Bank. The FATF, 
which as you know is the international standard-setting body 
for anti-money-laundering and now counterterrorist financing, 
has laid out what is required of countries to deal with the 
changing face of threats to our financial system.
    Thanks to these efforts, countries have begun to regulate 
informal banking systems like hawalas, include originator 
information on cross-border wire transfers, freeze and seize 
terrorist-related funds, overtly criminalize terrorist 
financing, and increase vigilance over the nonprofit sector.
    There are many examples of progress on all of these fronts 
around the world. Countries such as those in the Gulf 
Cooperative Council have taken steps to begin regulation and 
oversight of charities and donations abroad. Islamic states 
have moved forward on regulating and harmonizing accounting and 
oversight principles for Islamic banking. Countries such as the 
United Arab Emirates have begun the process of regulating 
alternative remittance systems.
    These efforts will be expanded this fall with the 
establishment of two new FATF-style regional bodies, one in 
Central Asia and one in the Middle East and North Africa. A 
major achievement this past year, as Chairwoman Kelly 
mentioned, was the finalization of the agreement with the IMF 
and World Bank to make permanent the adoption and use of the 
FATF standards as part of the Financial Sector Assessment 
Program. What this means is that the entire world will now be 
judged against those standards as part of the regular and 
intensive reviews by those institutions.
    As a result of all of these efforts, we have made it 
harder, costlier and riskier for al Qaeda and other like-minded 
terrorist groups to raise and move money around the world. We 
are constricting their financial breathing space and tightening 
the noose around their network every day.
    Our engagement on terrorist financing and money-laundering 
issues worldwide has really and in real terms framed and 
clarified the global mission, and that is to disrupt and deter 
criminal financial activity that threatens our national and 
international security.
    This is now the axiom of the international community and it 
is so because the U.S. government, largely due to Treasury and 
State Department efforts, has helped to shape the way the 
international community thinks about these issues.
    I thank this committee and Congress for your continued 
support on these important issues. I look forward to discussing 
those with you today and working further with you on these 
matters.
    Thank you.
    [The prepared statement of Hon. Juan Zarate can be found on 
page 51 in the appendix.]
    Chairman King. Thank you, Secretary Zarate.
    Assistant Secretary Wayne?

  STATEMENT OF HON. E. ANTHONY WAYNE, ASSISTANT SECRETARY FOR 
       ECONOMIC AND BUSINESS AFFAIRS, DEPARTMENT OF STATE

    Mr. Wayne. Thank you very much, Mr. Chairman and Madam 
Chairman and distinguished members. It is a great pleasure to 
be here with you today, and it is a pleasure to be here with 
Juan Zarate, who has been an essential partner ever since the 
fall of 2001, working our way through and learning how to take 
on and tackle these serious problems of terrorist financing.
    The Department of State, as many others, very much commends 
the recommendations of the 9/11 Commission, as taking forward 
in important ways our discussions of how to tackle terrorist 
financing. We also particularly think that the staff monograph 
on terrorist financing has some very valuable insights that we 
can draw from.
    My written testimony goes through in greater detail what we 
have accomplished since 9/11 and the very complicated work 
agenda ahead of us. I would like to focus a little bit on what 
the Treasury Department and we and others are now facing as we 
look at where we go from here. What are some of the tradeoffs? 
What are some of the challenges that we look at ahead?
    Clearly, the most obvious objective is to cut off the flow 
of funds to terrorists. The 9/11 Commission report pointed out 
we were not talking about large amounts of money here. But 
still, if we can reduce that amount of money and make it harder 
to use, it means it is likely the smaller the scope of 
activities that terrorists can plan, the number of attacks they 
can carry out.
    When we publicly freeze funds, we are also, in naming the 
name of terrorists and their financiers, alerting unwitting 
donors of what they might be contributing to or what they might 
be being solicited about. And, we are dissuading other donors 
who might be tempted to support some of these groups, from 
actually going ahead and doing that, because the think they 
will have the chance of being caught and being named.
    When we designate either nationally or at the U.N. or 
bilaterally with others, we have made it more difficult for 
terrorists to use the financial system. But as we have made it 
more difficult for them to use that banking system, they have 
been shifting to other, less reliable and more cumbersome 
methods, such as cash couriers.
    Now, this means that we need to adapt, too, and we have 
been adapting and shifting our priorities, both nationally and 
internationally, as they start using more cash couriers, as 
they look at these alternative remittance systems known in the 
Middle East as hawalas; as they look to use NGOs and charities 
more effectively. We need to draw on a variety of tools that we 
have available to face these new challenges.
    This includes technical assistance. In the case of cash 
couriers, perhaps now to better train customs officials. It 
means that we need better and different kinds of law 
enforcement cooperation. It means we need strengthened and more 
defined international norms and standards. Now, that is a lot 
of what FATF is dealing with now, as Juan Zarate mentioned. But 
we need to keep working, both to understand the challenge and 
to develop the international consensus on the ways to tackle 
these problems.
    Another important objective, which the 9/11 Commission 
points out, is that if you can follow the money, you can get to 
the terrorists. So we know that this is important to do, and 
you can do it in designating. Sometimes in designating, you are 
alerting financial institutions to actually look for and find 
leads, and they can report that back. But in other cases, we 
are going to decide it is not best to do something publicly, 
because you want to avoid alerting the terrorists that you are 
on their trail.
    It is often not just a simple either-or decision here. You 
are looking at what is the right mix of tools that we want to 
use in this particular case. In addition to designating and 
having law enforcement investigations and actions, and 
collecting more intelligence, we have other things we might 
want to do. We look at this on a case-by-case basis in our 
interagency consultations.
    Sometimes, we might want to send a U.S. government official 
and a delegation to a country to privately address what the 
problems are and what they need to do. Sometimes, we will want 
to give them a targeted assistance program because we may 
discover they do not know how to track the money in their 
banking system. And sometimes, we will look at non-public 
cooperation between intelligence or law enforcement.
    So with this array of tools, we really have a way of going 
after these problems. That array of tools is possible because 
we brought together in our own system, as we have learned over 
the past several years, so many U.S. government agencies that 
have really broken those barriers down that used to exist 
between agencies.
    So when we get together, we do not just have the State 
Department and the Treasury there. We have Justice, Homeland 
Security, Defense, and the law enforcement and intelligence 
agencies really trying to put into practice the same things 
that the 9/11 Commission stressed as very important, breaking 
down those walls and sharing information.
    One of the lessons, a very important lesson that I have 
drawn in my experience in this time is that you really need to 
choreograph all the agencies effectively. As we have worked 
this through and looked at it overall, we have come up with a 
system where the NSC is pulling everybody together and 
choreographing what we are doing in terrorist finance, as they 
have done in other cross-cutting national security issues.
    When we do decide to do something publicly, there is 
another set of issues that come up that we need to weigh. Here, 
the State Department does have some important value-added in 
the process. First, we need to make an effective public case. 
We need to make sure that when we go forward with something, 
other governments are going to say ``yes, we agree with you.'' 
Especially if we go to the U.N., where we have to share this in 
a declassified way with people. It has to be persuasive.
    That often involves very hard tradeoffs, as we are thinking 
about it. As you know, when we are looking at all source 
information about a terrorist or a supporter, it is often 
highly classified. We have to make important tradeoffs because 
there are good reasons that that information is classified. So 
as we are going through the pros and cons and the best way to 
go forward, we try to bring our expertise to bear in the State 
Department as what will persuade other governments.
    We try to use our diplomatic channels to quietly talk with 
other governments and explain to them what is needed, and then 
after we have decided to go forward, to get other governments 
to join us in designating and to support that designation 
process. Now, each case, of course, that we deal with is 
unique. We usually mix several of the different tools together 
as we go forward.
    We will use different channels of communication. Often, the 
State Department and the Treasury Department will send the same 
message via their channels. This is the same with other 
agencies, but we do it in a very well coordinated and precise 
way as we go forward.
    We also try to draw on the expertise of our embassies all 
around the world. We have asked that in every embassy there is 
a Terrorist Finance Coordinating Officer. It is often the 
number two person in the embassy, the Deputy Chief of Mission, 
that can bring together all the different elements of that 
embassy and give us the best understanding of how we can 
influence a government: what is going on politically and 
economically and culturally that we need to know and factor in 
when we are trying to build cooperation on these issues.
    We have found there is no off-the-shelf answer to this. It 
is something that we look at case by case and wrestle through 
intellectually back here, too, but we get that real value-added 
of people who know the country as we are doing this.
    We also from the State Department work very hard to lead 
the effort to mobilize the international cooperation that we 
have, not just bilaterally, but working regionally and 
multilaterally, whether it is at the U.N. or other places. I 
was just over last week, and Juan has been several other 
places, but I was just in Brussels. We put together an 
interagency team from Treasury and with OFAC coming along, with 
the Justice Department, with FBI and with my colleagues from 
the counterterrorism part of the State Department.
    We met with over 100 experts from all over the European 
Union to really talk through the challenges that we face in 
terrorist financing, and they face, too. And then the day 
after, we had a more restricted and more classified discussion 
with the European Union on what we could do to make our 
cooperation better. We came up with some really interesting 
ideas.
    Chairman King. Secretary Wayne, sorry to interrupt. Can you 
sum up?
    Mr. Wayne. I am sorry. I am almost at the end.
    Chairman King. Okay. Thank you.
    Mr. Wayne. Only this much left. I just wanted to say, we 
did this in part because we know they have different legal 
systems than we do. They have different rules and regulations, 
and we need to find those common ways forward that people 
grappling with these issues can do when they agree on the 
common purpose and good will get together to work these things 
out.
    In all of this, in fact as we go forward, as the 9/11 
Commission says, in every area, and that is certainly true in 
terrorist finance, we need strong international cooperation. We 
have to engage with our allies, with our friends, and with 
others, and improve that cooperation. We have been doing a good 
job of it. We have to keep doing it. With your support, we look 
forward to keeping doing that.
    I will just add, that I think that is very important also, 
as you talk to your colleagues in parliaments and other places 
around the world, it can help us immensely for you to pass the 
message, too, about how important it is to get this right.
    Thank you very much.
    [The prepared statement of Hon. E. Anthony Wayne can be 
found on page 37 in the appendix.]
    Chairman King. Thank you both very much for your testimony.
    I would like to follow up on something that Secretary Wayne 
said, but actually address the question to both of you. That is 
on the choreography involved with the Treasury Department, 
State Department, Justice Department, Homeland Security, and 
make the analogy to the intelligence community, where partly as 
a result of the 9/11 Commission, a consensus is developing that 
there should be one type or another of a national intelligence 
director.
    We can debate about the exact terms, but there seems to be 
a consensus that there needs to be greater coordination and 
centralization.
    Do you think the current system that you have, this 
choreography that you have, is efficient to work? Or can you 
consider the appointment of a czar just for the purpose of 
cracking down or coordinating the effort against terrorist 
financing?
    Mr. Wayne. Let me take the first crack at this. We have 
learned and adapted since 9/11 and tried to improve. I think we 
have significantly improved the way we work together with other 
agencies, the way we share information, and the way we talk 
through on a case-by-case basis the range of different options 
that we have available.
    We have come up with a system where the National Security 
Council pulls all the agencies together. The grouping is 
currently chaired by Fran Townsend, who is also the Homeland 
Security Adviser. She also chairs the Counterterrorism Security 
Group, which does the broader counterterrorism work. I know 
Juan participates there. I do not participate in that group. 
Mr. Townsend or her deputy chair our PCC, depending on 
sometimes everybody is not available.
    We really have worked it out so we get together in a small 
group of people with all the right clearances and talk through 
what are the big issues, what are the big targets, what are the 
right ways to go about it. It works. It is working very well.
    Chairman King. Secretary Zarate?
    Mr. Zarate. Chairman, just to add to what Secretary Wayne 
has indicated. I think the NSC is in essence serving in the 
role of the czar, if you will, the coordinator, the master 
coordinator of these efforts.
    Chairman King. In effect, that is Fran Townsend, right?
    Mr. Zarate. That is right. I think that is an important 
development for two reasons. One, the campaign against 
terrorist financing is one part of the larger campaign against 
terrorism. To divide the two in any real or substantive or 
bureaucratic way I think does damage to the notion that 
attacking terrorist financing is part of a strategic approach 
to dealing with the larger issue of terrorism.
    The other potential problem with creating some new figure 
or new bureaucracy to deal with these things is the issue of 
terrorist financing is ultimately a cross-cutting issue from a 
disciplinary standpoint. It is a regulatory issue. It is an 
administrative function issue. It is a law enforcement issue. 
It deals with intelligence. It is a diplomatic issue. So it is 
the full range of national powers and influences and expertise 
that is really implicated in terms of the effort against 
terrorist financing.
    So I think the way it is constructed now, the way it has 
worked has worked well. I think the 9/11 Commission and the 
monograph really signaled that.
    Chairman King. So if I could ask a question which again is 
more of a value judgment on your part, can you describe 
generally and specifically to the extent you can the level of 
intensity of cooperation you are getting from other 
governments? I mean, are they doing this because they have to, 
because they really want to? How serious do they see this issue 
in other governments? Are they just doing it to keep us happy?
    Mr. Wayne. Let me start off again. I know Juan will add on 
this, because we each sort of go to different parts of the 
world at different times, but we do it in a very coordinated 
way so we get to work with the same group of countries.
    In general, the vast, vast majority of governments want to 
cooperate. There are a big chunk of governments that do not 
have the capability to cooperate. We find this particularly in 
developing countries around the world. Also, there is a 
difference between wanting to cooperate and having an effective 
inter-ministerial, or we would call it interagency system that 
works.
    Not surprisingly, in many countries around the world 
ministries do not talk to each other very often about things 
that they consider their prerogative. There is a lot of 
breaking down of barriers that has to go on as it went on in 
the United States. So what we have been doing in our effort 
over the past several years, and it varies from country to 
country, it is hard to really categorize it, it means working 
very hard with each of our partners.
    There are a number of countries where there is no question 
that they are quite like-minded. We together dwell on trying to 
figure out the right way to go about it. That was a reflection 
of what I was doing last week with my colleagues in the 
European Union. We had 100 people, prosecutors, designators, 
policy people, who are really trying in their own capitals to 
grapple with this issue and working on it.
    In other places, we have found people very eager to work 
together. One of the examples, in fact, we shared with the 
Europeans last week was the results of some training we had 
done in Latin America with a country that had not had the 
ability to really track money laundering or terrorist 
financing. We explained how as we trained people up and they 
had then used that to find a terrorist financing network. 
Again, a country with limited capabilities, but with the will 
to take it on, and it had made a big difference.
    Juan?
    Mr. Zarate. Chairman King, just to add briefly to what 
Secretary Wayne indicated. I think generally my impression and 
the impression of Treasury officials who have traveled around 
the world and who meet with their foreign counterparts all the 
time, including this weekend with the IMF and World Bank 
meetings where the Secretary and other Treasury officials will 
be meeting with quite a few finance ministers and central bank 
governors from around the world, there is the political will to 
deal with this issue, largely because in particular from the 
finance ministry perspective, the lack of security and the 
threat of terrorism affects very tangibly economic development 
and the security of the world economy, not to mention the 
physical security and national security of many countries 
around the world.
    So I think that is there, and countries have taken very 
important steps to put legal structures in place, regulatory 
structures in place. The challenge that we face, and Secretary 
Wayne mentioned this in his opening statement, is to get to the 
point where countries are able to enforce their laws 
effectively to the point where they are able to take action 
that we need them to take effectively and efficiently. That, I 
think, is the greatest challenge for us.
    I just returned from Saudi Arabia and the United Arab 
Emirates, where the change in attitude since 9/11 I think has 
been dramatic. The level of activity on the issues related to 
terrorist financing and financial flows is dramatic. The level 
of cooperation has grown immensely over the past three years.
    Chairman King. My friend from Illinois.
    Mr. Gutierrez. Thank you very much, Chairman King.
    Assistant Secretary Juan Zarate and Anthony Wayne, thank 
you for coming this morning. I want to thank you for your 
commitment and your hard work. I can tell every time you come 
to testify that you are very committed to this, your enthusiasm 
for your job. I can tell you are two people that wake up in the 
morning happy to go to work. That is a good thing. I am really 
excited that you are there doing that work.
    Let me ask you just a quick couple of questions. How would 
the certification program affect Treasury's work in convincing 
other countries to adopt anti-money-laundering and anti-
terrorism standards as recommended by the FATF?
    Mr. Zarate. Congressman, it is hard to speculate, but I 
think it could complicate it. That is in part because the 
system we have in place in terms of using the FATF to set the 
standards, using the FATF non-cooperative country and territory 
list process to encourage cooperation with the FATF. And then 
perhaps most importantly now, the work with the IFIs, the IMF 
and the World Bank, to establish the assessment process, to get 
countries into compliance, is incredibly important.
    I think we are at the stage now, and from Treasury's 
perspective, and I know Tony is of the same mind, we want to 
and need to keep a country's feet to the fire on all of this, 
and that is why we spend so much time dealing with our foreign 
counterparts. That being said, there are better ways of doing 
that, and subtle ways of doing that which tend to be much more 
cooperative, and in the end hopefully achieve better results.
    I think we have seen that. We have seen that with countries 
like Russia, for example, in the NCCT process; countries like 
Egypt and Israel. The NCCT process is the process by which 
countries have been designated by the international community, 
by the FATF, for noncompliance with anti-money-laundering 
standards. So the multilateral approach, the cooperative 
approach has largely been effective. I think that is something 
that we need to still utilize.
    Mr. Gutierrez. The World Bank and the IMF annual meetings 
are this week. What action items are on the agenda in this 
particular area?
    Mr. Zarate. One of the things that we mentioned here is the 
growing concern that we have with respect to the use of cash 
couriers. Terrorist financing is always on the agenda at these 
meetings, and through the Secretary, the Deputy Secretary and 
other Treasury officials, I have a number of meetings set up as 
well, deal with very specific issues that we want and need 
countries to address. It is one of the great values of having 
these meetings here in Washington, in that we can meet with the 
180 or so finance ministers and central bank governors from 
around the world to address these issues.
    So it is always front and center. It is front and center 
with the G-7 finance ministers and the G-7 Group has been 
frankly a political driver on this issue, and they will 
continue to look at this issue. In the last meeting, the G-7 
finance ministers called for not just the G-7 countries, but 
the rest of the world to start concentrating on the cash 
courier issue, which frankly has led to some very important 
developments.
    First and foremost is the establishment of international 
standards with respect to how to deal with this issue, which 
had previously never been set. We anticipate that that standard 
will be approved by the FATF in October at the plenary in just 
a couple of weeks. That also sets forth the possibility for 
establishing best practices, red flags, greater communication, 
information sharing.
    So all of those things fall into place once there is a 
political commitment by important countries to set that agenda 
item forth. That is what has happened in the past. We will 
continue to reiterate that issue and others at these meetings.
    Mr. Gutierrez. A quick follow-up question. So as we have 
shut down their financing, their networks and their banks and 
done these things, the cash couriers, have we caught any of 
them? Are we having any success in that particular area?
    Mr. Zarate. Congressman, I can tell you that there has been 
some success. I cannot speak in this forum about particulars, 
but that is certainly the case. That is an issue that we raised 
with our Saudi counterparts, with our Emirate counterparts on 
our recent trip. I know it is something that Tony and others 
have raised with our E.U. counterparts. There is a growing 
concern.
    Congressman, I do not want to overstate it, because it 
certainly is the case that terrorist supporters still use 
traditional means or more formal means of moving money. I think 
we have a tendency to overstate the trend. What I indicated in 
my opening statement is that all means are still being used to 
raise funds, and certainly we see the collection of vehicles to 
move money around the world still being used. But it is 
certainly much harder and much riskier, and I think we are a 
victim of our own success in the sense that terrorists are now 
using couriers instead of banks to move money around the world.
    Mr. Gutierrez. Thank you, Secretary Wayne and Secretary 
Zarate, once again for coming and for the zeal and enthusiasm 
you bring to your work.
    Thank you, Chairman King.
    Chairman King. I thank the gentleman.
    Now, the Chair of the Oversight Subcommittee, Mrs. Kelly.
    Mrs. Kelly. Thank you.
    There was a report in The Wall Street Journal yesterday 
about an agreement that the Federal Reserve struck with the 
ABN-Amro bank stemming from indications that the bank was not 
following our anti-money-laundering laws. It did not ensure 
that the customers were not foreign shell banks and did not 
make the due diligence requirements with regard to some of the 
correspondent accounts.
    According to the article, a money laundering expert who 
reviewed the agreement between the Fed and the ABN-Amro said it 
was clear from the language of the agreement that when it came 
to money laundering, ABN-Amro ``had no program. They had just 
blown off the whole business of serious money laundering 
controls.''
    I understand this is a case primarily involving the Fed, 
but Treasury clearly holds the responsibility for administering 
our anti-money-laundering laws. As you know, some members of 
this committee are concerned that our current anti-money-
laundering system needs to be strengthened.
    So for the benefit of the committee, Mr. Zarate, could you 
please detail Treasury's involvement with this situation and 
tell me when did Treasury become aware of the problem, and 
specifically when did FinCEN become aware of the problem?
    Mr. Zarate. Chairman Kelly, this is a matter currently 
before FinCEN, the Financial Crimes Enforcement Network. It is 
under investigation, so it would be inappropriate for me to 
comment specifically about the case.
    Mrs. Kelly. You could not even tell me when FinCEN found 
out?
    Mr. Zarate. Chairman Kelly, that I can get for you, 
certainly. I do not have that here with me now, but we can 
certainly get back to you with the date that we became aware of 
it. But Chairman Kelly, this points to the larger issue that 
you have been concerned about, that this committee has been 
concerned about, and frankly the Secretary and the Deputy 
Secretary have been concerned about, which is ensuring that our 
regulatory community is looking very diligently and adroitly at 
the issue of anti-money-laundering and anti-terrorist financing 
controls.
    This is particularly important post-PATRIOT Act, where 
there are additional requirements. The regulatory structure has 
been broadened and deepened, not just for the banks, but also 
for non-bank financial institutions. This is incredibly 
important.
    Chairman Kelly, as you know, we are in the process of 
finalizing agreements with the regulatory bodies for the 
banking sector to ensure that FinCEN is getting appropriate 
information with respect to substantial violations related to 
anti-money-laundering controls. I think what we are seeing, 
Chairman Kelly, is a very real commitment on the part of the 
regulators to start looking at these issues carefully. I think 
this is one example of that, and we will continue to work with 
the regulators very closely on this issue.
    Mrs. Kelly. Thank you, but there is a subsequent article in 
today's Wall Street Journal that indicates that the Fed action 
came only after the Justice Department asked the Fed to step 
in. It seems as though the Fed actually noticed problems back 
in 2002, but did not take any substantive action until the 
Justice Department took action. Is that true?
    Mr. Zarate. Chairman Kelly, I would have to go back and 
check to see what the sequence is. Certainly, I cannot speak 
for the Fed, but we are working very closely with the Federal 
Reserve now on this issue. We are working very closely with the 
Justice Department as well, and FinCEN is reviewing the matter 
with alacrity and with utter seriousness.
    Mrs. Kelly. Perhaps you would report back to the committee 
to let us know.
    I would like to ask another question. You will recall this 
year, Mr. Zarate, that earlier the UBS was fined by the Federal 
Reserve and disciplined by the Swiss banking regulators for 
failing to comply with certain contracts that were executed 
between the Swiss bank in its Swiss headquarters and the 
Federal Reserve for the distribution of U.S. bank notes outside 
the United States. That is true, right?
    Mr. Zarate. Correct, Madam Chair.
    Mrs. Kelly. It is still under investigation by this 
committee. At the time the Federal Reserve fine was levied, the 
public notice indicated that the law enforcement investigations 
were under way. It would appear that any such law enforcement 
investigations would need to refer to alleged violations of 
regulations issued by the Treasury Department's OFAC.
    So here is my question. Can you confirm whether or not OFAC 
was investigating UBS for actions associated with its conduct 
of the ECI business for the Federal Reserve?
    Mr. Zarate. Treasury and OFAC, Madam Chair, are working 
with the Department of Justice to investigate this matter. Our 
jurisdiction, as you know, would lie in the activities of U.S. 
persons involved in the violation of OFAC-related regulations. 
So that is a matter that we are looking at, and the Department 
of Justice is looking at as well.
    Mrs. Kelly. Is that still under investigation?
    Mr. Zarate. It is still under investigation, Madam Chair.
    Mrs. Kelly. I wonder if you would be willing to brief our 
committee about that as soon as that investigation is finished 
and you are able to talk about it.
    Mr. Zarate. I would be more than happy to brief, Madam 
Chair, as appropriate.
    Mrs. Kelly. I would like to turn to you, Mr. Wayne, and ask 
you a question. You mentioned that you were, I believe it was 
you, that you went to Saudi Arabia, or was it Mr. Zarate? What 
is the news from Saudi Arabia? Because in January of 2003, the 
United Nations asked that every nation have within 3 months a 
plan that would be in place to combat terrorist financing. To 
this date, there are over 100 nations from the United Nations 
that still have not complied with their own mandate that they 
get this done.
    So I would like to know about Saudi Arabia, because they 
announced with this great fanfare that they were setting this 
office up, but they really have not, at least the last time I 
heard, which was fairly recently. They have not assigned 
anybody to the office. There was nobody on the payroll to 
follow what Saudi Arabia was doing to follow the terrorist 
money. What is the news from Saudi Arabia?
    Mr. Zarate. Madam Chair, with respect to the United Nations 
reports, that is an issue of concern to the State Department 
and to us. I was actually just up in New York meeting with 
Ambassador Munoz from the 1267 Committee to talk in part about 
the need to have greater international compliance and 
reporting.
    The news from Saudi Arabia, Madam Chair, is generally 
positive. I will tell you that with respect to the 
establishment of the financial intelligence unit, they have 
started to move toward establishing that office. I met the 
Deputy Director of the FIU who is being assigned. We were given 
details with respect to how many people would be working in the 
office, from which departments. We met with the Ministry of 
Interior to ensure that the FIU was treated as a serious part 
and a partner of their terrorist financing efforts. So that is 
an important and interesting development.
    With respect to the charities reforms, certainly your 
concern is our concern as well in that the consolidation of the 
charities and the way the charities move money abroad is of 
central concern to us. We have pushed the Saudi government very 
hard and very clearly to establish that committee and that 
board to ensure that Saudi money is going to intended good 
purposes around the world.
    As it now stands, the Saudis have stopped the flow of money 
abroad through official charitable channels, meaning all of the 
committees that they have established for a variety of purposes 
to send money to crisis regions, has stopped. That being said, 
we want to see this Charity Commission stood up. We want to see 
it active.
    We also want the Saudis, and we said quite clearly to them 
again on this trip, see a way of dealing clearly with groups 
like IIRO and WAMY, which are multinational charitable 
organizations that are operating out of Saudi Arabia.
    So that is front and center on our agenda. We will continue 
to raise those issues.
    Mrs. Kelly. Mr. Zarate, I have one more question. When will 
the MOUs between Treasury and the banking regulators be 
finished?
    Mr. Zarate. Madam Chair, I am hoping that those will be 
completed very soon. By ``very soon,'' I will signal by the end 
of the week.
    Mrs. Kelly. Stuart Levey testified that they would be done 
in September. So hopefully they will be done and we will be 
able to be informed by the Treasury that we have those things 
in place. Is that correct?
    Mr. Zarate. Chairman Kelly, we are going to try to stick to 
Under Secretary Levey's commitment and we will certainly let 
you know.
    Mrs. Kelly. Thank you very much.
    Chairman King. The Vice Chair of the subcommittee, the 
gentlelady from Illinois.
    Mrs. Biggert. Thank you, Mr. Chairman, and thank you, Madam 
Chairman, to both of you for holding this hearing.
    My question is for both of you gentlemen. Yesterday, 
Chairman King and I introduced an amendment in committee on the 
9/11 Implementation Act. It was approved. Our amendment was to 
ensure that the Treasury Department's role as the lead federal 
agency in international financial matters is clear, even as the 
State Department is really seeking I think expansion of its 
diplomatic capabilities. The text was to ensure that the 
Secretary of the Treasury is the lead U.S. representative and 
negotiator to international financial institutions and 
multilateral financial policymaking bodies.
    It was our feeling that we must keep our Treasury experts, 
and in collaboration with the State Department experts, on the 
frontlines in our dealings with international financial bodies, 
abroad as well as at home, and that we have consistent 
financial leadership and a consistent financial message.
    Now, having said that, both or your testimonies goes into 
unprecedented cooperation amongst our government agencies. It 
appears very much that the two of you collaborate very much. 
Are we going to have problems? This is out of committee now and 
it will go to the floor. Are we going to have problems in this 
area as far as turf wars or do you envision that this is the 
way that it should be, and that we will keep everybody working 
together, and this will help to improve the collaboration?
    Mr. Zarate. I think the cooperation to date has been very 
good, very strong on these efforts. I think what has proven 
important, and I think Tony would agree with me, is that having 
Treasury channels of communication, finance ministry to finance 
ministry, Treasury to central banks, and Treasury to the 
international financial institutions and various regional 
bodies, is extremely helpful, in part because those ministries 
and those bodies tend to be more technical; tend to be focused 
on the implementation of the important steps that we have been 
talking about. There is a certain degree of credibility that 
exists within that world, within the world of the finance 
ministries, that helps in terms of implementing the standards 
and the efforts that we want to protect the international 
financial system.
    So I would dare say that there has never been a doubt that 
Treasury is important internationally. I think the State 
Department has used us well, and as well we have relied on the 
State Department and the great work that they do around the 
world. I do not expect that to change.
    One word of caution when talking about potential 
codification of coordination. There does come a point when 
coordination does become a buzz word for inaction or 
calcification of bureaucracy. I think we need to be careful not 
to over-establish bodies and interagency bureaucracies to 
coordinate functions, because that ruins in fact part of the 
flexibility that we have had that has been part of our success 
to date.
    Mrs. Biggert. Thank you.
    Mr. Wayne. I would just add that, in fact I think the 
coordination is unprecedented; that it is reflected in a 
broader degree of coordination because the Treasury Department 
is now a full member of the National Security Council. What 
that means is not just on terrorist financing, but when we are 
dealing with any country around the world, whether we are 
dealing with Afghanistan or Iraq or Africa, you have the 
Treasury Department right there with the State Department and 
Defense, and chaired by the National Security Council, bringing 
this all together.
    That has created an atmosphere that has made it much easier 
for us to coordinate on these specific issues. We do not send a 
message out on terrorist financing that is not cleared by the 
Treasury Department. They do not send a message out that we 
have not talked about, to get the message consistent. Because 
otherwise, we are undermining ourselves, if we are sending 
different messages. We recognize that we each have different 
channels that are very important.
    It is clear that the Treasury Department and the Secretary 
of Treasury has the lead with the international financial 
institutions. That works out extremely well.
    Mrs. Biggert. Thank you. I commend you.
    Mr. Zarate, regarding the recent security threats announced 
at the end of July, I note that there were two categories of 
financial institutions that were identified. One was the 
private U.S. firms and the other was the international 
financial institutions. What role did the U.S. Treasury 
Department through the executive directors that sit on the 
boards at the IMF and the World Bank, work with those 
international financial institutions to respond to the security 
alerts?
    Mr. Zarate. We have a very important office within Treasury 
that deals with critical infrastructure protection led by 
Assistant Secretary Wayne Abernathy. Wayne and others in his 
shop deal very closely with the Department of Homeland 
Security, as well as with our EDs to ensure the safety and 
security of the financial institutions, to ensure that all the 
measures are being taken to ensure their physical security, as 
well as the critical infrastructure security of these 
institutions.
    I will say that Wayne and his people within Treasury were 
seminal partners in terms of helping to bridge the divide with 
the financial institutions as the information came out. I will 
say, and I have said this to the private sector, the threat 
warnings to the financial institutions makes very tangible the 
fact that these institutions are literally on the front line in 
the war against terrorism and terrorist financing.
    It is important for us to do our best to inform them and to 
keep them as safe as possible, because they are important parts 
of the economic security of our country and of the world.
    Mrs. Biggert. Thank you.
    I yield back, Madam Chairman.
    Mrs. Kelly. [Presiding.] Thank you very much.
    Mr. Paul?
    Mr. Paul. Thank you, Madam Chairman.
    A while back in our history, we had a lot more respect for 
the Fourth Amendment than we do today. I see that we have had a 
gradual erosion of that principle that our persons, our papers 
and the effects are to be secure. Then there was another blow 
to that principle with legislation following 9/11 out of the 
legitimate fears that this country experienced.
    Yesterday, there was a court ruling dealing with the 
privacy issue. A federal court ruled that wholesale or blanket 
searching of records of customers on the Internet and on 
telephone records violated the Fourth Amendment, although we in 
the Congress said such searches were perfectly all right. So 
there is a contest going on now. Those in the courts who still 
believe a little bit in the Fourth Amendment and those in the 
Congress who seem not to care too much.
    Mr. Wayne, you mentioned, and this is a statement I agree 
with, that if you follow the money, you get to the terrorists. 
That sounds like a pretty good idea. But I have problems with 
following the money of 200 million Americans while the 
terrorists are getting lost in the maze, and this is more or 
less what the 9/11 Commission said. They said that there was 
too much material that was never looked at. Even if the new 
regulations had been in effect, it would not have helped catch 
the al Qaeda, which is the real issue today, how can we prevent 
what happened.
    They said they did not even use the banking system enough 
that they would have been detected. So there is a question 
about the impracticality of following everybody's money and 
then there is also the constitutional question about whether or 
not we should be doing it. You do not write the laws. You are 
trying to enforce them. There is a bit of a discussion going on 
between the courts and the Congress right now.
    But my question is this. Do you think, under today's 
circumstances that you are very much involved in, in trying to 
protect our country, do you think it is necessary for us in the 
Congress to give up a little bit of our freedoms, to sacrifice 
liberty, to be more casual about the privacy issue in order to 
be more secure? Is this a legitimate sacrifice?
    Mr. Zarate. Congressman, I leave that balancing act to 
Congress and to you. Our job, as you indicated, is to implement 
the law and to enforce it to the best of our ability, to 
safeguard the U.S. economy, the American people, and our 
financial system. You have raised a number of issues. I cannot 
speak to the case that you referred to. I am not familiar with 
it and I leave it to the Department of Justice to react to it.
    I would like to mention, though, with respect to the 9/11 
Commission and the monograph, two points. First, I think what 
has changed since 9/11 is a greater awareness in the financial 
community, not just the banking community, but also the non-
bank financial institutions, with respect to potential activity 
related to terrorism. There is greater awareness.
    We have provided more guidance, and frankly we have used 
the powers you provide in section 314(a) to get more specific 
information out to the financial community in real time, which 
has led to very important leads in the money laundering and 
terrorist financing field.
    Mr. Paul. May I ask you a question along those lines? How 
much would you be handicapped if you were always required to 
get the proper search warrant, rather than being able to look 
at the records rather casually? Would that put a big handicap 
into your ability to do the job you are trying to do?
    Mr. Zarate. Congressman, if you are talking about requiring 
a search warrant, for example, before the filing of a 
suspicious activity report or before sending out lead 
information to the private sector via section 314(a), it would 
be a major handicap. And it would affect greatly the work of 
law enforcement, not just in tracking domestically potential 
terrorists and terrorist financiers, but also internationally.
    Part of the challenge, and I think this is one of the 
conclusions from the 9/11 Commission, is that prior to 9/11 we 
were not doing a good job of sharing information, of putting 
the dots together. And I think the more that we restrict our 
ability to share information, the more we are at risk of not 
putting those dots together.
    I would like to just indicate one of the issues raised by 
the 9/11 monograph was an issue with respect to our blocking of 
assets. As Secretary Wayne mentioned, designation of 
individuals and the freezing of assets in a preventive way is 
an incredibly important tool and an important part of what we 
do. In each instance in which that authority has been used and 
challenged in court, the U.S. government and the Treasury 
Department have won in court, at the District Court level and 
as well at the appellate court level.
    So I want to mention that for the record because there is 
often a discussion of civil rights in the context of what we 
do. And I wanted to indicate that the Congress has 
appropriately given us powers that fall within the constructs 
of the Constitution and are exercised, frankly, judiciously 
within the law.
    Mrs. Kelly. Thank you, Mr. Paul.
    Mr. Inslee?
    Mr. Inslee. Thank you very much.
    I wanted to ask you about some information I received, to 
see if it is accurate or not. I was looking at a letter 
contained in a piece called Money Laundering Alert by Samuel 
Bodman. And that revealed that OFAC as of May 2004 had an 
average of 21.43 employees dedicated to enforcing Cuba country 
problems, that is broadly speaking; an average of 16 employees 
to track Iraqi terrorists and locate the missing assets of 
Saddam Hussein; and 16 to monitor al Qaeda.
    Are those numbers accurate, roughly accurate, grossly 
distorted?
    Mr. Zarate. Congressman, there has been a bit of a 
distortion, I think, in the media with respect to the numbers 
and the commitment within OFAC and within Treasury to deal with 
terrorist financing.
    The majority of the assets within OFAC analytically have 
been used to track terrorist financing, not just al Qaeda, but 
other like-minded terrorist groups around the world like Jemaah 
Islamiyah, North African groups, et cetera. So that has been 
part of our effort.
    We have also worked and been an important part, along with 
our State Department colleagues, in finding and repatriating 
Iraqi assets around the world. Ambassador Joe Saloom from 
Tony's office has been an important part of that, and we have 
repatriated over $2.7 billion to the Iraqi people, due in large 
part to the work of folks at OFAC.
    Congressman Inslee, I do want to note, and I think it is a 
bit unfair to OFAC and to the Treasury Department when some of 
these media articles come out. OFAC is the enforcement-sanction 
body of the U.S. government. It enforces 29 different sanctions 
that are important to the U.S. government for a variety of 
purposes. Cuba is one of those, but we also have others, 
Zimbabwe, Syria, others that are of import to us. That is a 
part of our national security. It is part of our mandate and it 
is important for us to do that work as well.
    Mr. Inslee. I appreciate all that work, but the ratio of 
the Americans killed by al Qaeda to the Americans killed by 
Fidel in the last 10 years is 2,900 to 1. The ratio of your 
inspectors chasing Fidel and people going down to Cuba is about 
1.3 to 1. Those ratios to me and my constituents make no sense 
whatsoever, given the emergent nature we are in, where Osama 
bin Laden is on the loose, and you are not chasing him with the 
assets that we are paying you to chase him with.
    You are out there fooling around with what is going on with 
tourists going to Cuba, rather than chasing the guy that killed 
3,000 Americans. I am just telling you from one district of 
this country, and I only have one district I represent, that is 
a gross mis-application of resources.
    Now, it seems to me, I understand you have statutory 
obligations, but it seems to me in the nature of the threat we 
face today, you would have a ratio of about 3,000 to 1 chasing 
down al Qaeda assets, rather than people who want to go play 
ping-pong in Cuba. Now, tell me why my assessment is not 
accurate?
    Mr. Zarate. Chairman, first of all I would hope that----
    Mr. Inslee. I am not the Chairman. I am just a minor member 
of the committee.
    Mr. Zarate. Excuse me, Congressman. With respect to the 
numbers, I would hope that you and others would certainly go 
back to your constituents with the real numbers and the real 
fact that we are devoting not just within OFAC, but within 
FinCEN, within our office, within the State Department and 
other parts of the U.S. government, considerable resources and 
an overabundance of resources to do precisely what you and 
everyone else wants to do.
    Mr. Inslee. Could I stop you just for a second, because I 
want to make sure that I understand your answer. The best 
numbers that I have seen are from this May 4 letter that said 
there are 21.43 employees dedicated to enforcing Cuba sanctions 
and 16 to monitoring al Qaeda. Now, if those numbers are not 
accurate, could you give me the numbers, please? Could you give 
me the number of people chasing Cuban tourists to the number 
chasing Osama bin Laden's money? Could you give me some 
numbers?
    Mr. Zarate. Congressman, I would be very happy to get you 
the exact numbers. Those numbers fluctuate in large part 
because we switch and rotate analysts to deal with emerging 
issues, for example emerging terrorist financing concerns in 
East Asia or North Africa. But we would be very happy to get 
that back to you.
    Congressman, I do want to indicate, though, that with 
respect to the Cuba program, the bulk of those resources are 
used to license individuals who want to go down to travel, to 
do business in Cuba. So a part of the function is not as you 
construe a function of tracking Castro's assets, but in fact 
providing a service to the American people to allow the kind of 
interchange that Congress and the Administration wants and 
needs us to do. So I think that construal is a bit unfair.
    Mr. Inslee. Let me just give you two comments. One, I will 
not be satisfied, and more importantly I do not think my 
constituents will be satisfied, until the ratio of those 
numbers are about nine to one at least, number one. And number 
two, you could help us by removing some of the necessity, by 
removing some of these travel restrictions to Cuba, so instead 
of hiring people in bureaucracies to push paper to go to Cuba, 
we can change our policy and we can direct the national 
resources of this country to protecting people from getting 
killed by al Qaeda.
    I am just telling you that is a much higher priority at 
this moment in our national life. I encourage you to think 
about that issue, and the next time we talk maybe you will have 
a better ratio and I will feel a little more secure.
    Thank you.
    Mrs. Kelly. Thank you, Mr. Inslee.
    Gentlemen, I understand from the reading and the research 
we have done that privacy laws of various countries seem to 
prevent some of them from scanning records to find out whether 
or not shell companies are there and whether or not those 
companies are hiding Saddam's assets. I would like to ask both 
of you what progress we have made in our ability to scan for 
shell companies and to overcome the obstacles and to help other 
countries do this as well.
    You can take it, whichever want to pick that up.
    Mr. Zarate. Chairman Kelly, we have had quite a bit of 
progress on this front. As you are aware, we have designated 
well over 200 Iraqi parastatals, as well as front companies 
that were used by Saddam as part of his economic web around the 
world, in some instances to try to procure weapons systems; in 
some cases to try to move and hide money. So we have had a good 
deal of success.
    One of those companies, Al-Wasel and Babel, we designated 
and it has been shut down, according to the United Arab 
Emirates, part of the reason I wanted to visit to make sure 
that had happened. So that has been important. That has been an 
incredibly helpful step.
    What we are still struggling with, as you have indicated, 
are instances where certain countries have not been as 
cooperative or as forthcoming, and we have tried to deal with 
that on a bilateral basis diplomatically and otherwise to try 
to get access to information and to get action out of these 
countries.
    Mrs. Kelly. Mr. Wayne, do you have anything to add to that?
    Mr. Wayne. Only that this issue and other privacy issues do 
come up as we are working through a number of the terrorist 
financing questions. Of course, it is most easy to make 
progress on this when we can get a consensus galvanized 
unfortunately by something very serious and sad that happened, 
or even the new possibilities in the case of Iraq where we are 
able to have a United Nations consensus that yes, we should be 
tracking down Saddam's assets, which thus allowed committed 
countries around the world to cooperate with us in this effort.
    Similarly, just to take it on the side of al Qaeda, we have 
in the U.N. the 1267 Committee list which commits people to act 
on al Qaeda-related groups or Taliban-related groups. When you 
get into the other terrorist groups, you have to work on a 
bilateral or a regional basis to build consensus, and sometimes 
you run into these privacy issues.
    For example, as we are were talking with the European 
experts last week and others, they were talking of some of this 
tradeoff in their own legal system, not on the shell companies 
so much, but on what is the basis on which you should freeze 
money. Should it be at a standard that we and some other 
countries have of a preventive basis of good reason to believe? 
Or do you need the same level of going to a criminal 
prosecution?
    That is, in part, why we needed to get people in those 
cases together to talk this through, because we are working 
from different standards. That is not precisely on your shell 
company issue, but it is an issue that cuts across some of the 
most difficult issues we face.
    Mrs. Kelly. Obviously, the origin of my question is the 
Oil-for-Food. The GAO report indicated that in May that there 
was some difficulty here with regard to the foreign companies's 
laws. I am hopeful that you are working to try to break that 
apart. We need, if anything, to talk about a serious and sad 
situation. The Oil-for-Food scam is a serious and sad 
situation, especially for those poor people in Iraq. I feel 
very strongly that our government needs to help other countries 
focus on the problems that we have.
    I also wanted to ask you another question, and that is that 
the IMF and the World Bank, we know that they are providing 
technical assistance to member countries to strengthen the 
financial regulatory and supervisory frameworks. I would like 
to know what type of technical assistance is being provided, 
and are you going to provide any follow-up for it?
    Mr. Zarate. Chairman Kelly, the IMF and World Bank 
certainly are a part of that process of providing technical 
assistance, but there are also other bodies providing technical 
assistance largely, frankly, on a bilateral basis and in some 
cases a regional or multilateral basis. For example, the Group 
of 8 countries has a group called the Counterterrorism 
Assessment Group which is charged with doing precisely this, to 
provide technical assistance in the area of terrorist 
financing, as well as other counterterrorism areas.
    Specifically with respect to the IMF and the World Bank, 
those institutions provide technical expertise with respect to 
the types of financial controls that should be in place in the 
banking system, the types of regulations and controls that 
should be in place in non-bank financial institutions, and 
frankly now with the marriage with the FATF standards, how best 
to put into practice the FATF standards that are required of 
all countries around the world.
    So it is putting in place the systems that make sense and 
using the technical expertise that both of those bodies are 
building up.
    Mrs. Kelly. Mr. Zarate, beyond the Group of 8, who else is 
involved in this?
    Mr. Zarate. I will leave part of this to Tony, because 
certainly the United Nations is a part of this. The 1373 
Committee has a part of its mandate to marry both those in need 
of assistance with those countries willing to provide 
assistance. They have been trying their best to do that.
    I will allow Tony to editorialize as to whether or not it 
has been effective. But in any event, there have been multiple 
attempts to do this. The FATF itself has done quite a bit in 
terms of assessments and providing some technical expertise to 
countries around the world.
    Mrs. Kelly. Thank you.
    Mr. Wayne?
    Mr. Wayne. I will just add that within the U.S. government 
we have also made a concerted effort to have a coordinated 
approach to the kind of technical assistance we provide in this 
area. It comes from a wide range of departments, not just the 
State Department and the Treasury Department. We bring about 20 
offices together on a regular basis to coordinate and plan 
where we are providing that technical assistance.
    In addition, as Juan Zarate has said, we coordinate 
bilaterally very closely with the United Kingdom, with France, 
with Australia, with Spain. In the G-8, as he said, we have put 
together now a comparative listing of where we are all giving 
assistance. Just last week at the E.U., they asked to start 
coordinating because they are starting a new program which they 
did not have before to effectively provide technical assistance 
in the area of terrorist financing with us and others.
    We have also worked in APEC and in the OAS to start this, 
but in a number of areas it is a nascent process. Overall, 
there is no question that the need is greater than the current 
provision of technical assistance. Part of that is money and 
part of it is finding the right kind of specialist to go out to 
these places and actually train people.
    So we are working at expanding this circle and getting the 
circle talking and communicating with itself, and within that 
circle, but there is no question that there is more to do.
    Mrs. Kelly. I want to go back to that question. Do you 
intend to stay with this and follow up with regard to making 
sure the IMF and the World Bank are in fact doing it? Forgive 
me for being slightly cynical, but when we have the United 
Nations promulgating rules and regulations for themselves, and 
then nobody living up to what they said; with 100 nations that 
have not even put anything in place; haven't even reported back 
to the United Nations, I am a little cynical about the fact 
that this work is actually going to get done. I think it may 
need a follow-up. Will you do that?
    Mr. Zarate. Chairman Kelly, absolutely. We work very 
closely on a daily basis. There are very skilled folks in the 
office of international affairs and the people in our office 
work very closely with the IMF and the World Bank, and we know 
that the institutions are not only committed to it from a 
political perspective, but have started to build the technical 
expertise to actually do this, which is important. We work 
closely with those experts. We know them personally. We talk to 
them on a daily basis, so that is important.
    I would like to mention, Chairman Kelly, that in terms of 
dealing with other countries, and this goes to your Iraq 
question as well, we follow up very aggressively. The Director 
of my office, Danny Glaser, just came back from Syria and 
Jordan to deal with some very serious concerns we have, in 
particular with the Commercial Bank of Syria which was given 
the section 311 designation. He is the head of our U.S. 
delegation to the FATF and has done a phenomenal job.
    We are also looking at creative ways of enlisting the 
private sector in terms of building capacity. We have something 
called the Buddy Bank Initiative, where we are working on a 
pilot basis to try to enlist the more developed banks to help 
lesser developed countries and banks to build up the capacity 
in their private sector to deal with these issues.
    So we are dealing aggressively with all of these issues. We 
are trying to think creatively, and we are trying to use all of 
the powers and resources at our disposal.
    Mrs. Kelly. Thank you very much.
    Ms. Biggert, did you have another question?
    Mrs. Biggert. Just a very brief question. Can you identify 
the next main areas for attention within the FATF in light of 
the attention that the G-7 is devoting to informal value 
transfer networks? And does this create a tension within G-8's 
other initiative to lower costs and make more accessible 
remittance worldwide?
    Mr. Zarate. That is a very good question. With respect to 
next challenges, I think in part dealing with the courier issue 
is very important. As we have seen, many countries around the 
world have not necessarily thought about this issue, have not 
created systems internally to coordinate their customs service 
with their intelligence services with their banking regulators. 
So that is very important and will be a focus of the FATF in 
October, and will be a focus of the FATF-style regional bodies 
around the world.
    I think the larger issue for all of us, and I think this is 
why the arrangement with the IMF and the World Bank is so 
important, is the implementation and enforcement of all of 
these standards. With respect to alternative remittance systems 
and money remitters, that means bringing to the light of day a 
sector that frankly has been unregulated to date, and making 
sure that there is transparency and accountability, and that we 
do so in a way that balances precisely the concerns that you 
have mentioned, which is not driving these services 
underground, ensuring that they are accessible services to 
populations, especially expatriate populations.
    Frankly the effort to bring those populations into the 
formal financial sector is part and parcel of our efforts to 
deal with the issue of unregulated money flows throughout the 
world. So you have hit on something very important to us. It is 
something we are working on very closely with some regional 
banks, as well as countries around the world. That is certainly 
an important priority for us moving forward.
    Mr. Wayne. If I could just add, Congresswoman, you have hit 
on a very important point here because I think we all remember 
that one of the recommendations of the 9/11 Commission was that 
we need to focus on creating jobs and prosperity and 
possibilities for young people around the world.
    Remittances are a very legitimate source of sending money 
home from workers who are overseas. So you have to make that 
both legitimate and inexpensive for people to do. That is one 
of the challenges. That is why there are several different 
approaches to this going on around the world. The United Arab 
Emirates has taken one approach, which is to have a light kind 
of licensing system for hawaladars in their area, but one that 
brings them into the formal system. In Pakistan, they have 
taken another approach which is basically to make the banks 
cheaper and to have everything go through the banks.
    Part of this is experimenting, and we are watching what 
works best, but they both recognize that it is legitimate to 
send the money back home. In fact, as you correctly pointed out 
in the G-8, they pointed out how important it is to get 
remittances going home to countries and creating jobs and into 
that capital that can be invested and help new businesses back 
home. So we are trying to balance this as we go forward. We are 
trying to keep in mind, as we create the Millennium Challenge 
Account and other development effects, that this work is really 
part of our battle against terrorism; that development is a 
pillar of our national security strategy.
    Mrs. Biggert. Thank you very much.
    I yield back.
    Mrs. Kelly. Thank you.
    Mr. Inslee, do you have another question?
    Mr. Inslee. Thank you very much.
    I wanted to follow up on what we were talking about earlier 
about trying to figure out where this policy originated 
regarding use of resources in Cuba relative to al Qaeda. I just 
tumbled on something kind of interesting. In 2003, this is 
according to a report released to the Senate Committee on 
Finance, that OFAC at a cost of $3 million had an average of 21 
full-time employees working on Cuba sanctions, triple the 
number of employees it had in the program at the beginning of 
2002.
    In the same report, OFAC revealed that it employed no 
Arabic interpreters and that it had only two employees who 
spoke Arabic ``at a level of moderate proficiency.'' This is 
apparently the response in October 2003, President Bush began 
an initiative to further strengthen the enforcement of the Cuba 
travel ban by instructing the Department of Homeland Security 
to ``increase inspections of travelers and shipments to and 
from Cuba.''
    Shortly after that, the DHS issued a press release saying 
that it will ``step up enforcement of travel restrictions to 
Cuba that are already in place, using intelligence and 
investigative resources to identify travelers or businesses 
engaged in activities that circumvent the embargo.''
    From that, it appears to me that the President of the 
United States is the one responsible for making a decision that 
instead of putting additional resources into the hunt for al 
Qaeda and its money, he has taken the resources that could have 
gone there and put it in this effort in Cuba. Is that generally 
an accurate assessment on who is responsible for this 
prioritization?
    Mr. Zarate. Congressman, the President and this 
Administration, and in particular the Secretary, have committed 
to and have been committed to doing everything possible to 
disrupt and dismantle the financial infrastructure of al Qaeda 
and other like-minded terrorist groups. We have done that. I 
think the 9/11 Commission report signals that, and we have done 
a very good job.
    I think focusing on the numbers in the way that you are 
tends to distort the level of commitment that exists within the 
U.S. government to this effort. Again as I mentioned, OFAC is 
just one part, a very important part, but just one part of our 
effort to attack terrorist financing. The analysts do 
phenomenal work, but their work is complementary to the work 
being done by the intelligence services, by law enforcement, by 
our diplomats, by our policymakers, by others at FinCEN.
    So to take that in isolation and to use that as a 
representation of the level of commitment of this 
Administration or of the Secretary of the Treasury to combating 
terrorist financing is both wrong and misleading.
    Mr. Inslee. I appreciate what you had to say, but I do not 
think you answered my question. I wanted to ask who is 
responsible for making this decision. As best as I can tell, it 
is the President of the United States who directed you to 
increase your spending involving Cuba sanctions and Cuba 
tourism policies. Instead of taking the money that went into 
that Cuba effort, and shifting it to the hunt for al Qaeda, the 
President decided to put it into Cuba.
    Now, if it was not the President who decided to do that, 
who did it? Could you give me a name? Who made this decision?
    Mr. Zarate. Congressman, the President established the 
Commission for Assistance to Establish a Free Cuba, which was 
an interagency commission led by the State Department to 
establish policies to promote both in the short term and the 
long term the ability to bring peace and prosperity and freedom 
to the Cuban people. The reality is that we can walk and chew 
gum at the same time.
    As I mentioned, we have 29 sanctions programs that we 
administer. Forty percent of our resources are devoted to 
terrorist financing within OFAC. Again, OFAC just being one 
office within the Treasury Department, within the whole of the 
U.S. government. Thirty-five percent of our OFAC resources are 
devoted to country programs; 20 percent are devoted to our drug 
trafficking program which has been incredibly important and 
effective in dealing with the Cali cartel in Colombia, most 
recently with a very important designation on that.
    Mr. Inslee. Let me ask you, what I assume you are saying is 
that we have maxed out. We have all the resources we could 
possibly use to hunt down al Qaeda. I have a very difficult 
time believing that because between 1994 and 2003, OFAC brought 
4,301 civil penalty enforcement actions regarding Cuba, and 2 
regarding terrorism.
    Now, I guess I should ask you specifically, are you telling 
me that you could not use effectively additional resources to 
try to cut off the funds from going to terrorist activities, 
including al Qaeda? Is that what you are telling me? You could 
not use another person effectively?
    Mr. Zarate. Congressman, I cannot speak to what happened in 
the prior Administration, but what I can tell you is that this 
Administration has made the combating of terrorist financing a 
priority. The Secretary of the Treasury and the Secretary of 
State have made it a priority and we have done everything 
possible.
    We can always use more resources to do everything we are 
doing, whether it is implementing effectively and responsibly 
the Cuba sanction program, the Burmese sanction program, the 
Syrian sanction program, the Zimbabwe sanction program, or the 
drug trafficking program. We do that as efficiently and 
effectively and judiciously as possible.
    Mrs. Kelly. Thank you, Mr. Inslee. I am sorry.
    Mr. Inslee. Thank you, Madam Chair.
    Mrs. Kelly. The Chair notes that some members may have 
additional questions for the panel which they may wish to 
submit in writing. So without objection, the hearing record 
will remain open for 30 days for members to submit written 
questions to these witnesses and to place their responses in 
the record.
    We are very grateful for the testimony that you both 
provided here today. We also hear your concerns and we also 
applaud you for the steps that you have taken to cooperate for 
all of us to experience a world that is becoming more and more 
free from terrorist activities. So we thank you very much.
    With that, this hearing is adjourned.
    [Whereupon, at 11:28 a.m., the subcommittees were 
adjourned.]


                            A P P E N D I X


                           September 30, 2004


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