[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
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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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