[Senate Hearing 108-683]
[From the U.S. Government Publishing Office]
S. Hrg. 108-683
AN ASSESSMENT OF CURRENT EFFORTS TO COMBAT TERRORISM FINANCING
=======================================================================
HEARING
before the
COMMITTEE ON
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
JUNE 15, 2004
__________
Printed for the use of the Committee on Governmental Affairs
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COMMITTEE ON GOVERNMENTAL AFFAIRS
SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii
ARLEN SPECTER, Pennsylvania RICHARD J. DURBIN, Illinois
ROBERT F. BENNETT, Utah THOMAS R. CARPER, Delaware
PETER G. FITZGERALD, Illinois MARK DAYTON, Minnesota
JOHN E. SUNUNU, New Hampshire FRANK LAUTENBERG, New Jersey
RICHARD C. SHELBY, Alabama MARK PRYOR, Arkansas
Michael D. Bopp, Staff Director and Chief Counsel
David A. Kass, Chief Investigative Counsel
Edward W. Priestop, Federal Bureau of Investigations Detailee
Joyce A. Rechtschaffen, Minority Staff Director and Counsel
David Barton, Minority Professional Staff Member
Amy B. Newhouse, Chief Clerk
C O N T E N T S
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Opening statements:
Page
Senator Collins.............................................. 1
Senator Lieberman............................................ 3
Senator Coleman.............................................. 5
Senator Lautenberg........................................... 6
Senator Akaka................................................ 7
Senator Levin................................................ 8
Senator Specter.............................................. 27
Senator Pryor................................................ 29
Prepared statement:
Senator Voinovich............................................ 35
WITNESSES
Tuesday, June 15, 2004
Lee S. Wolosky, Co-Director, Independent Task Force on Terrorism
Financing, Counsel, Boies, Schiller and Flexner, LLP........... 11
Mallory Factor, Vice-Chairman, Independent Task Force on
Terrorism Financing, President, Mallory Factor, Inc............ 14
Hon. David D. Aufhauser, Counsel, Williams and Connolly, LLP,
Former General Counsel, U.S. Department of the Treasury........ 16
Alphabetical List of Witnesses
Aufhauser, Hon. David D.:
Testimony.................................................... 16
Prepared Statement........................................... 46
Factor, Mallory:
Testimony.................................................... 14
Prepared Statement........................................... 41
Wolosky, Lee S.:
Testimony.................................................... 11
Prepared Statement........................................... 36
APPENDIX
Questions and responses for the Record from Senator Akaka for:
Mr. Wolosky.................................................. 51
Mr. Factor................................................... 52
Mr. Aufhauser................................................ 53
``An Update on the Global Campaign Against Terrorist Financing,''
Second Report of an Independent Task Force on Terrorist
Financing Sponsored by the Council on Foreign Relations, June
15, 2004....................................................... 54
Letter from Stanton D. Anderson, McDermott Will & Emery, dated
June 30, 2004.................................................. 312
Response letter to Stanton D. Anderson, Esq. from William F.
Wechsler and Lee S. Wolosky, Esq., dated August 3, 2004, with
an attachment.................................................. 315
AN ASSESSMENT OF CURRENT EFFORTS TO COMBAT TERRORISM FINANCING
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TUESDAY, JUNE 15, 2004
U.S. Senate,
Committee on Governmental Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 10:30 a.m., in
room SD-342, Dirksen Senate Office Building, Hon. Susan M.
Collins, Chairman of the Committee, presiding.
Present: Senators Collins, Coleman, Specter, Lieberman,
Levin, Akaka, Lautenberg, and Pryor.
OPENING STATEMENT BY CHAIRMAN COLLINS
Chairman Collins. The committee will come to order.
Good morning. Today the Governmental Affairs Committee will
conduct a review of current efforts underway to combat
terrorism financing.
This is the third hearing the Committee has held during the
past year on this issue of great global importance. The focus
of our hearing today is a new report by the Independent Task
Force on Terrorism Financing sponsored by the Council on
Foreign Relations. The Council's first report, released in
October 2002, begins with these words: ``The fog of war has
long befuddled military and political leaders. Of all the
battle fronts in today's war on terrorism, few are as foggy as
efforts to combat terrorist financing.''
As both of these reports make clear, however, this fog is
no natural phenomenon. It is entirely manmade. Terrorism
thrives in the shadows. It prospers by deceit and deliberate
confusion. It is a perverted world in which murderers are
called freedom fighters and in which building schools and
health clinics can excuse the slaughter of innocents.
The answer is relentless scrutiny and then taking forceful
and effective action.
This new report focuses primarily upon the actions taken by
the Governments of the United States and of the Kingdom of
Saudi Arabia. It provides an insightful analysis of the
progress that has been made and of the challenges that remain.
As the report observes, Saudi Arabia has, on a comparative
basis, taken more legal and regulatory actions to combat
terrorism financing than many other Muslim States. However, the
size, the reach and the wealth of persons and institutions
there with connections to violent terrorist groups put the
kingdom on the front lines of this battle.
There are other engines of terrorism financing, but as
David Aufhauser, one of our distinguished witnesses, testified
just 1 year ago, Saudi Arabia is, in many ways, the epicenter
of terrorism financing. As the Council's first report stated,
individuals and charities based in Saudi Arabia have been the
most important source of funds for al Qaeda.
A phrase that occurs again and again throughout this new
report is political will. In some instances, it is evident and
growing. In others it is still woefully lacking. This mixed
result characterizes Saudi Arabia. The Saudi government
deserves credit for undertaking considerable legislative and
regulatory reforms. Questions remain, however, about whether
these reforms are being consistently, effectively, and
vigorously implemented.
For example, the kingdom recently dissolved the notorious
Al Haramain charity and it has created a new organization to
coordinate and oversee private Saudi charitable giving abroad.
This is a very positive step that should significantly diminish
the ability of al Qaeda and other terrorist groups to raise and
move funds using charities as conduits. There remain, however,
serious questions. Most important, what are the Saudi's doing
to crack down on the International Islamic Relief Organization,
the World Assembly of Muslim Youth, and the Muslim World
League, three of the charities alleged to have the most
troubling terrorism connections.
Terrorists attacking Saudi Arabia from within the country
have been killed and many Saudi law enforcement personnel have
given their lives. Yet this report also notes that since
September 11, 2001 we know of not a single Saudi donor of funds
to terrorist groups who has been publicly punished.
Perhaps most troubling is the continued gap between what
Saudi leaders say to the world and what some of them have to
say to their own people. Following the al Qaeda attacks in
early May, Crown Prince Abdullah said on Saudi TV that
``Zionism is behind the terrorist attacks in the kingdom. . . .
I am 95 percent sure of that.'' That astonishing and
inflammatory remark was reiterated a few days later by the
Saudi Foreign Minister. The Saudi Interior Minister then left
no doubt as to the meaning when he bluntly stated that al Qaeda
is backed by Israel.
This is not just a lack of political will. This is
political blindness. To say that the Kingdom of Saudi Arabia is
a full partner in the war against terrorism while such
inflammatory and anti-Semitic statements are being made would
certainly be vastly premature.
On an encouraging note, the report details significant
progress by the U.S. Government in combating terrorism
financing. A key recommendation of the first task force report
in 2002 was for the Administration to centralize the
coordination of efforts to combat terrorism financing. This has
been accomplished to a significant degree.
The Administration also deserves credit for prompting the
Saudis to begin to undertake serious reforms and to extend
meaningful cooperation to American terrorism investigations.
The progress represented by the enactment of the Saudi legal
reforms, the Saudi actions against al Qaeda cells in the
kingdom, and the creation of the Joint Terrorism Financing Task
Force should not be understated. These are indeed important
achievements.
But the report also finds several troubling shortcomings
and includes a number of thought-provoking recommendations for
change. I am particularly intrigued by the task force's
recommendation for Congress to enact a certification regime
that would require the President to certify whether foreign
nations are fully cooperating with the fight against terrorism
financing. If the President did not make this certification or
issue a waiver in the interest of national security, non-
cooperating nations would face an array of sanctions. This type
of regime has been employed in the war on illegal drugs. The
report suggests that it be in place for the fight against
terrorist funds as well.
We, the Governments of the United States, Saudi Arabia, and
all responsible nations, have made considerable progress in
combating terrorism. But this struggle is not easily won and
money remains the lifeblood of many terrorist operations. We
must not rest until we have done everything in our power to
halt the flow of money that breathes life into these groups. We
must exercise relentless scrutiny and take strong action. And
as this report emphasizes so clearly, we must have the
sustained will necessary to win the war against terrorism.
Senator Lieberman.
OPENING STATEMENT BY SENATOR LIEBERMAN
Senator Lieberman. Thank you very much, Chairman Collins
for convening this hearing, and also, I must say, for that
excellent opening statement.
Our subject for today is about one of the most important
battlefronts in our war against terror and that is the effort
to stop the funding of terrorists. If we can succeed in choking
off the money that sustains terrorist activities we can
literally reduce the death and destruction the terrorists
cause.
The Council on Foreign Relations, in its report today, has
done a real service. The report should help us refocus,
reexamine and redouble our efforts to cut off the flow of money
to international terrorist groups. Of course, that includes
leading us to take again a hard and demanding look at financial
support for terrorism from Saudi Arabian sources.
Immediately after September 11, President Bush signed an
executive order aimed at blocking terrorist funds. In one sense
our overarching question in this hearing and our Committee's
continuing investigations is what progress has been made in
implementing that order.
It is clear that in the first few months following the
President's announcement there was very significant success.
Over $100 million in terrorist money was blocked or frozen
around the world. But, in the 2 years since then only $30
million has been stopped. So that both the United Nations
Monitoring Group on Terrorist Financing and Congress's own
General Accounting Office concluded at the end of 2003 that
American efforts have sadly not stemmed the flow of money to
terror groups.
We will want to ask our witnesses today why this has
happened and what we can do together to make sure that we do
cut off the flow of money. The Council on Foreign Relations
report does suggest the beginning of a series of answers about
where some of the problems may be.
I thought one surprising possible cause that the report
cites is the fact that the Administration has only used new
authorities under the Patriot Act, the much-maligned Patriot
Act, to crack down on the assistance of foreign financial
institutions for terrorism only one time and that was quite
recently against a Syrian bank. I would like to get a little
background about why we think that has happened and whether the
witnesses believe that there are other areas in which we can
use that Patriot Act authority.
Second, the Council report tells us that the coordination
of America's efforts to block terrorist funding has bounced
around a bit among the National Security Council, the Counsel
of the Treasury Department, and the FBI. In fact, there have
been five different people in charge since September 11. And,
that uncertainty and changes in leadership may have undermined
the coordination and the effectiveness of our anti-terror
financing efforts.
Leadership has now shifted, with some clarity it appears to
me, to the National Security Council, although not through any
formal process that would give it continuity and institutional
permanence. I think that is greatly to be desired.
I note for the record the nodding of at least two of the
witnesses to that suggestion.
I do also note that one of our witnesses today, former
Treasury Department General Counsel David Aufhauser, believes
that this leadership role, in fact, should reside at the
Treasury Department. I would be interested in hearing his views
on that matter during his testimony.
But either way, whether at the Treasury Department or at
the NSC, leadership has got to be made certain, and in that
sense, institutionalized. It should no longer be left to ad hoc
and uncertain arrangements.
The Intelligence Committees of Congress reported a while
back in their joint inquiry into September 11 that the tendrils
of Bin Laden's al Qaeda terrorist network extend into as many
as 60 countries. That means our war against this network and
those who finance it must be just as extensive.
The Council reports, hopefully, that 117 nations have
signed now the International Convention to Suppress Terror
Financing, which is up from four at the time of the September
11 attacks. So we have gone from four countries who are
signatories to 117. That is the good news.
The bad news is that most of those countries, the Council
reports, do not have either the actual tracking capabilities or
the resources to track laundered money. I want to hear from the
witnesses about what we can do to make that bad news better.
In working to cut off funding for terrorism, Saudi Arabia,
long a very important and close ally of the United States of
America, becomes a necessary focus of attention. Bin Laden was
a Saudi but more to the point 15 of the 19 September 11
hijackers were Saudis and questions continue to remain about
financial connections between Saudi money and terror funding
within the United States.
Before the May 2003 terrorist bombings in Riyadh many
independent analysts, including the Council on Foreign
Relations, have told us that Saudi officials may have talked
the talk on cooperating with the United States in the blocking
of terrorism financing and investigating and prosecuting of
those who were involved in it. But then, in many cases, did not
walk the walk. In fact, they turned a blind eye to Saudi money
going to organizations directly or indirectly supporting
terrorism.
Again, I stress that is not my conclusion, that is the
conclusion of many independent analysts. Today's CFR report
points encouragingly to positive signs of intelligence sharing
and law enforcement cooperation between the Saudis and the
United States, again particularly since the May 2003 bombings
in Riyadh. It says there is evidence that the actions taken by
the Saudi government since then have actually hindered Bin
Laden's financial operations and forced foreign-based terror
groups to begin to try to raise their funds locally. That
cooperation and progress between the United States and the
Saudis is important and must grow.
In fact a joint U.S.-Saudi task force on these subjects was
established last August to help the Saudis clamp down on
terrorism financing, but the Council report tells us jarringly
that the work of the joint task force has not led yet to one
public arrest or prosecution of anyone in Saudi Arabia for
financing terrorism. And that is hard to understand,
particularly as the Council on Foreign Relations report
indicates that there are two Saudis named Yasin Qadi and Wa'el
Hamza Julaidan, who have been declared financiers of terrorism
by the U.S. Government.
So we have made some progress in tracking and stopping
terrorist financing but we, in Congress, still need to consider
whether our urgent need to starve the terrorists of funding is
being hampered by an uncertain organizational structure, by
turf battles and perhaps by continuing defensiveness about our
special relationship with the Saudi government and the Saudi
ruling family.
In a day and age of terrorism which brings death and
destruction not just to us and others but to Saudis themselves,
we ought to be able best to preserve our relationship with the
Saudis with total honesty and the most aggressive joint efforts
against terrorism.
The CFR report and today's hearing, I hope, will begin to
give us some answers to these questions which have become, in
fact, life and death questions.
Thank you, Chairman Collins.
Chairman Collins. Thank you Senator. Senator Coleman.
OPENING STATEMENT OF SENATOR COLEMAN
Senator Coleman. Thank you, Chairman Collins. And thank you
for your commitment to relentless scrutiny of this issue by
holding a series of hearings on the report by the Council on
Foreign Relations regarding terrorist financing.
Just two observations. One, it is clear that a new
framework for the U.S.-Saudi relationship needs to be put into
play focusing on accountability, accountability for terrorist
financing. We have to see concrete results.
Second, in light of last week where we had a celebration of
the life of Ronald Reagan and his optimism and belief that we
would win the Cold War, and we did, I have the same optimism
that we are going to win this struggle against terrorism, the
same optimism. But it is going to take resolve, it is going to
take commitment. This report and these series of hearings go a
long way to bolstering that optimism and making it a reality.
So again, I look forward to hearing the witnesses'
testimony. Thank you for your leadership.
Chairman Collins. Senator Lautenberg.
OPENING STATEMENT OF SENATOR LAUTENBERG
Senator Lautenberg. Thank you, Madam Chairman, for holding
this important hearing.
President Bush has said it, that money is the lifeblood of
terrorism. And if we want to win the global war on terrorism,
it is critical that we find out who is financing terrorism, how
they are doing it, what we can do to stop it. And I am
disappointed that we do not have any Administration official
available to us today but these are good witnesses, Madam
Chairman, and I am sure we will learn a lot.
Cooperation between Congress and the Administration is
imperative. And we face a daunting challenge when it comes to
attacking the financial infrastructure that makes terrorism
function. That is why I am puzzled that we did not take an
obvious step a few weeks ago when I offered an amendment to the
Department of Defense Authorization Bill to close the loophole
that allows American companies to do business through foreign
subsidiaries with nations that sponsor terrorism.
I salute Chairman Collins for her vote. The amendment was
defeated 49 to 50 and I am grateful that the Chairman was one
of three Republicans to support the amendment. And I hope that
she has the capacity to convince the rest of the caucus of the
amendment's merits because I will keep offering it until the
Senate adopts it.
For the life of me, I do not know how we can condone U.S.
companies doing business with rogue states like Iran. 60
Minutes had a segment just a few months ago detailing an
interest that, for instance, Halliburton had with a sham
foreign subsidiary in the Grand Caymans so that it could sell
oil field equipment to Iran. Nothing more, by the way, than an
address, a drop station. There was nothing else there. But it
enabled Halliburton to do business with Iran and other rogue
states.
I have had members of my staff look into this and sure
enough they found evidence of the business activity that
existed between this subsidiary and a London-based subsidiary
of the National Iranian Oil Company called Kala Limited. The
State Department has verified that Iran supports Hamas and
Hezbollah and Islamic Jihad.
I was in Israel some years ago when a terrorist attack by
Islamic Jihad killed eight people. And I was there just a few
weeks ago when a terrorist killed 10 people in the port city of
Ashtarak. And we cannot forget when Hezbollah attacked the
Marine barracks in Beirut, killing 241 of our soldiers.
Does it make sense for an American company to help Iranians
produce oil more efficiently when they use those extra profits
to finance terrorist groups that have killed Americans? I went
to four viewings and funerals last week in the State of New
Jersey, people who died in the service of their country. And to
think that an American company could be helping to finance
indirectly those terrorist organizations is a national
disgrace. We had a chance to close that loophole and we failed.
I am also concerned, as was suggested by Chairman Collins
and by the Ranking Member, Senator Lieberman, about the
complicity that seems to be in existence in Saudi Arabia and
without criticism coming sufficiently from the Administration.
Saudi Arabia still has not designated groups like Hamas as
terrorist organizations. And as much as 60 percent of Hamas'
annual budget is donated from Saudi sources. And although the
Saudis have passed some anti-money-laundering laws, they do not
seem to be enforcing them.
So I appreciate that we have a delicate relationship with
countries like Saudi Arabia. But if we are going to protect
Americans, which is the primary concern, here and abroad from
the scourge of terrorism, we have got to find out who is
financing it even if we disturb some of our buddies in the
process.
I thank you, Madam Chairman, for holding this hearing.
Chairman Collins. Senator Pryor.
Senator Pryor. I do not have any opening statement. Thank
you.
Chairman Collins. Thank you, Senator. Senator Akaka.
OPENING STATEMENT OF SENATOR AKAKA
Senator Akaka. Thank you very much, Madam Chairman.
I want to commend you for having this hearing and we hope
that it will strengthen our capability to address the threats
and challenges of terrorism financing.
I have a statement that I would like to place in the
record. I just want to thank you again for holding this hearing
and I look forward to hearing our witnesses and working with my
colleagues on this important problem. Thank you.
[The prepared statement of Senator Akaka follows:]
PREPARED OPENING STATEMENT OF SENATOR AKAKA
Madam Chairman, thank you for holding this hearing. I hope it will
help to strengthen our capability to address the threats and challenges
of terrorism financing.
Last July, Mr. Pistole, from the Federal Bureau of Investigation
reminded this Committee that identifying and dismantling the financial
structures of terrorist groups is critical to preventing future
attacks. We must heed Mr. Pistole's words especially as terrorist
attacks continue to rise.
It is disheartening that almost three years after September 11,
terrorist groups, including al Qaeda, continue to maintain
sophisticated financial networks. What is more alarming is that sources
attribute at least 60 percent of Hamas and al Qaeda funds to Saudi-
based entities. Most of these funds are diverted from charities and
businessmen to terrorist groups and are used to execute attacks or to
entice new recruits.
Earlier this month, Saudi Arabia pledged it would dissolve the Al-
Haramain Islamic Foundation, which U.S. officials allege to be al
Qaeda's largest financial supporter, contributing $50 million on an
annual basis. The National Commission for Relief and Charity Work
Abroad will merge the assets of Al-Haramain and other Saudi-based
charities into one account and ensure their legitimate use. But, Saudi
officials have not yet specified whether the Commission will oversee
charities with known terrorist connections.
I am concerned that this may be another promise that the Saudis
cannot fulfill.
Last May, the Saudi government announced it would establish the
High Commission for Charities to address Saudi-based groups financing
terrorism. As of February of this year, no proposed budget or staff
existed for this Commission. Furthermore, no action has been taken
against Al-Haramain's former leader, Al-Aqil, despite Saudi Arabia's
promises to conduct criminal proceedings.
In addition, Saudi officials have not provided sufficient support
to the Saudi Arabian Monetary Agency nor has the Saudi government
created a financial intelligence unit.
Today, many view the U.S. and Saudi Joint Task Force on Terrorism
Financing as a test of Saudi Arabia's responsiveness to terrorism. This
collaboration will be an opportunity to gauge the Saudi's willingness
to block the flow of money from its general and elite populations to
terrorist organizations. I hope this task force will mark the beginning
of progress.
I look forward to hearing from our witnesses and to working with my
colleagues to address this critical issue.
Thank you.
Chairman Collins. Thank you, Senator. Senator Levin.
OPENING STATEMENT OF SENATOR LEVIN
Senator Levin. Madam Chairman, thank you, and thank you for
your continuing leadership in this effort.
Since the September 11 attacks, this Committee has focused
needed attention on the role of Saudi Arabia and the Saudia-
based charitable organizations and terrorist financing. Today's
hearing is the third in a series focusing on this issue over
the past year. And I commend you again, Madam Chairman, for
sustaining this Committee's strong oversight tradition for this
critical issue.
Today's hearing focuses on a report authorized by the
nonpartisan Council on Foreign Relations. It builds on a prior
Council report issued nearly 2 years ago. It offers a number of
important and practical suggestions including revitalizing the
international effort led by the Financial Action Task Force to
convince jurisdictions to strengthen their anti-money
laundering efforts and improving the U.S. Government's sharing
of terrorist financing information with U.S. financial
institutions so that they can do a better job.
I want to focus just for a moment on one of the primary
topics examined in the report and that is the role of Saudi
Arabia. Right now, Saudi Arabia has two primary exports to the
rest of the world: Oil and an extreme form of Islam that
advocates hatred and violence to achieve its ends. Two exports,
both having a huge impact on the world.
The report before us today does not shy away from the
reality of that second export. It describes the ``fundamental
centrality that persons and institutions based in Saudi Arabia
have had in financing militant Islamic groups on a global
basis.''
And then it repeats a statement that was made in its
earlier report which is worth repeating, and that is that ``it
is worth stating clearly and unambiguously what official U.S.
Government spokespersons have not. For years individuals and
charities based in Saudi Arabia have been the most important
source of funds for al-Qaeda; and for years Saudi officials
have turned a blind eye to that problem.''
Madam Chairman, because of the number of witnesses that we
have I would ask that the balance of my statement be placed in
the record at this time.
[The prepared statement of Senator Levin follows:]
PREPARED OPENING STATEMENT OF SENATOR LEVIN
Terrorists need money to carry out acts of terrorism. They need
money for explosives, for communications, for travel, and for all the
other details involved in carrying out plans for mass murder and
mayhem. Global terrorist organizations need global financing. They need
to be able to transfer funds across international lines, move money
quickly, and minimize inquiries into their finances, their activities,
and their supporters.
Since the September 11 attack, stopping terrorist financing has
become a U.S. priority. This Committee has contributed in a significant
way to that priority. First, prior to the attack, the Committee's
Permanent Subcommittee on Investigations conducted a 3-year anti-money
laundering investigation which produced extensive hearings and reports,
documented little known methods for transferring illegal funds into the
United States, and identified ways to strengthen U.S. laws to stop
money laundering and terrorist financing. In early 2001, I introduced a
bipartisan bill, S. 1371, with specific legislative proposals for
strengthening U.S. anti-money laundering laws. The Senate Banking
Committee utilized them in Title III of the USA Patriot Act, which was
enacted into law in October 2001, 6 weeks after the September 11
attack.
Additionally, since the attack, this Committee has focused needed
attention on the role of Saudi Arabia and Saudi-based charitable
organizations in terrorist financing. Today's hearing is the third in a
series focusing on this issue over the past year, and I commend
Chairman Collins for sustaining the Committee's strong oversight of
this critical issue. In the last Committee hearing on this topic, a key
government official stated that ``in many ways, [Saudi Arabia] is the
epicenter'' for financing of al Qaeda and other terrorist movements.
Today's hearing focuses on a report that carries much the same message.
This report is authored by the nonpartisan Council on Foreign
Relations. It builds on a prior Council report issued nearly 2 years
ago, and addresses both the global campaign against terrorist financing
and the additional steps that need to be taken by the United States and
Saudi Arabia to combat terrorist financing. It offers a number of
important and practical suggestions, including revitalizing the
international effort led by the Financial Action Task Force to convince
jurisdictions to strengthen their anti-money laundering efforts and
improving the U.S. Government's sharing of terrorist financing
information with U.S. financial institutions so they can do a better
job.
I want to focus for a moment on one of the primary topics examined
in the report and that is the role of Saudi Arabia. Right now, Saudi
Arabia has two primary exports to the rest of the world: Oil and an
extreme form of Islam that advocates hatred and violence to achieve its
end.
The report before us today does not shy away from this reality. It
describes ``the fundamental centrality persons and institutions based
in Saudi Arabia have had in financing militant Islamist groups on a
global basis.'' It repeats a statement made in its earlier report:
``It is worth stating clearly and unambiguously what official
U.S. Government spokespersons have not: For years, individuals
and charities based in Saudi Arabia have been the most
important source of funds for al-Qaeda; and for years, Saudi
officials have turned a blind eye to this problem.''
The report cites with approval Saudi actions over the past 2 years to
overhaul its anti-money laundering laws, increase its oversight of
Saudi charities, and disrupt al Qaeda cells within the country. But it
also faults Saudi Arabia for failing to prosecute a single individual
involved with terrorist financing and for continuing to export radical
extremism even while curbing it domestically.
For too long, Saudi Arabia has made a Faustian deal with the
extremists who preach hatred and violence to achieve their ends, hoping
that the violence these extremists advocate would not bloody the sands
of Saudi Arabia itself. But recent events indicate that Saudi Arabia is
beginning to reap what it has helped to sow worldwide, and that no one
is safe from those who advocate terrorism to achieve their aims. The
list of tragic events in Saudi Arabia resembles those in other
countries ravaged by terrorism, with repeated bombings, kidnappings,
and senseless death and destruction. On May 12 and November 9 of last
year, for example, al Qaeda operatives bombed housing complexes used by
foreign workers living in Riyadh, leading to the deaths of more than 50
individuals. This year saw an attack on Riyadh's General Security
building followed by two attacks on Saudi oil facilities with the
latter resulting in 22 fatalities. Now rumors allege a plot to kill
Crown Prince Abdullah.
The report before us today advocates building a new framework for
U.S.-Saudi relations that will include a frank acknowledgment of
terrorist financing issues and the need to end Saudi support for
radical extremism that condones violence. The plain fact is that, to
stop terrorism, Saudi Arabia needs to stop financing radical clerics
and madrassas that preach violence and hatred. It needs to publicly
prosecute those who foment and finance terror. Ultimately, the Saudi
government needs to recognize that it is not sufficient to selectively
oppose terrorist groups that pose an immediate threat. The presence of
any terrorist organization, regardless of its immediate focus, is a
threat to all nations. For that reason, Saudi Arabia as well as our
European allies need to cease funding for all terrorist groups,
including Hamas and the charities that support it.
Of course, it is not just Saudi Arabia that needs to do more to
fight terrorist financing. There is plenty that we in the United States
need to do here at home. The report's recommendation that the U.S.
conduct an analysis of Federal agencies to determine ``who is doing
what, how well and with what resources,'' is another way of saying that
our current anti-money laundering and terrorist financing efforts are
scattered, duplicative, and inefficient. There is no one top official
in charge, little coordination, and less accountability.
The unfolding scandal at Riggs National Bank is another measure of
our own weak anti-money laundering enforcement. Bank regulators
recently imposed a $25 million fine on Riggs for its inadequate anti-
money laundering efforts, but at the same time apologized for their own
lax oversight in allowing Riggs to continue its failed policies and
procedures for more than five years. Riggs has managed bank accounts
not just for Saudi officials, but also for more than 100 other
governments around the world. Recently, Riggs announced its intention
to close many Embassy-related accounts due to high money laundering
risks and the bank's inability to monitor them. These Embassies are now
looking to open accounts at other banks. Federal regulators recently
held a meeting with major U.S. banks to explain their expectations for
managing these Embassy accounts. While the regulators insist this
meeting was intended to spread the word about the need for due
diligence, the media reported that others apparently interpreted the
meeting as signaling regulatory support for taking on these accounts.
These mixed signals are a huge mistake. One of the lessons of the
Riggs scandal must be that Embassy bank accounts can no longer operate
with minimal scrutiny. Our banks and bank regulators must establish new
rules and expectations. Embassy officials need to realize they can no
longer engage in substantial cash transactions with no questions asked.
Multiple Embassy accounts can no longer be opened with little or no due
diligence. Suspicious transactions must be explained and justified. It
can't be business as usual. Our security and the world's security
depends upon it.
The 2002 report by the Council on Foreign Relations made a positive
contribution to the fight against terrorist financing by saying a
number of things that needed to be said openly and clearly and by
making reasonable and practical suggestions. This second report has the
potential to do the same. I thank today's witnesses for their service
to our nation in contributing to this report and look forward to
hearing their testimony today.
Chairman Collins. Thank you, Senator Levin.
I am delighted to welcome our witnesses this morning. We
are extremely fortunate to have three such qualified experts to
testify before us.
Lee Wolosky previously worked as the Director of
Transnational Threats at the National Security Council. He is
currently Counsel at the law firm of Boies, Schiller and
Flexner and is an Adjunct Professor of International Affairs at
Columbia University. Mr. Wolosky is also the Co-Director of the
Independent Task Force on Terrorist Financing sponsored by the
Council on Foreign Relations.
Mallory Factor is the President of Mallory Factor Inc., an
independent merchant bank and financial relations firm that he
founded in 1976. Mr. Factor has also worked as a Professor at
the School of Continuing and Professional Studies at New York
University and he serves as Vice-Chairman of the Task Force on
Terrorist Financing.
We are also pleased to have with us for a second time David
Aufhauser, who is now a member of the law firm of Williams and
Connolly. He previously served as General Counsel of the
Treasury Department from March 2001 to November 2003. At the
Treasury Department, in addition to his responsibilities as
General Counsel, Mr. Aufhauser served as the Chairman of the
National Security Council's Policy Coordinating Committee on
Terrorist Financing.
Thank you all for being with us today. We look forward to
hearing your testimony. We will begin with you, Mr. Wolosky.
TESTIMONY OF LEE S. WOLOSKY,\1\ CO-DIRECTOR, INDEPENDENT TASK
FORCE ON TERRORISM FINANCING, COUNSEL, BOIES, SCHILLER AND
FLEXNER, LLP
Mr. Wolosky. Thank you very much. Madam Chairman, Senator
Lieberman and distinguished Members of the Committee, thank you
for your kind words about our report and for your continuing
leadership on terrorist financing issues.
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\1\ The prepared statement of Mr. Wolosky appears in the Appendix
on page 36.
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This Committee's sustained attention to these issues is
critically important to our Nation.
We are honored to report to you today on the Second Report
of the Independent Task Force on Terrorist Financing sponsored
by the Council on Foreign Relations. I have served as co-
director of this bipartisan initiative since its founding in
the Summer of 2002.
Our report is the result of the hard work of a number of
dedicated individuals of both political parties to seek to
further vital national interests. I wish to thank our Chairman,
Maurice Greenberg, for his unwavering support of the task
force. I would also like to thank our Vice-Chairman, Mallory
Factor, and our Co-director and Co-author, William F. Wechsler,
for all they have done to make the task force a success.
Finally, I am also grateful to Council President, Richard
Haas, for his support and assistance to our work and it is an
honor, let me add, to testify beside David Aufhauser, who
served our country with dedication and distinction. Many of the
positive developments in this area since September 11 are the
direct fruits of his vision and leadership.
I will discuss the background of our second report and its
findings. Mallory Factor will then discuss the report's
recommendations.
Since the report, along with its various appendices, is
almost 200 pages in length we will only be able to highlight
core points and findings. We will ask that the full report and
its appendices be entered into the record and we will look
forward to a fuller discussion of various aspects of the report
in response to your questions.\2\
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\2\ The report entitled ``An Update on the Global Campaign Against
Terrorist Financing,'' appears in the Appendix on page 54.
---------------------------------------------------------------------------
In our first report, released in October 2002, we concluded
``It is worth stating clearly and unambiguously what official
U.S. Government spokespersons have not, for years individuals
and organizations based in Saudi Arabia have been the most
important source of funds for al-Qaeda and for years Saudi
officials have turned a blind eye to this problem.''
We recommended the encouragement of the Saudi regime to
strengthen significantly its efforts to combat terrorist
financing. In this regard, we noted a recent historical record
of inattention, denial, and half measures.
We urged the U.S. Government to confront directly the lack
of political will in Saudi Arabia and elsewhere through the
institution of a declaratory policy that would permit or compel
U.S. officials to speak more frankly about the nature of the
problem.
The reaction to the release of the task force's initial
report was reflective of then-prevailing mindsets. The Saudi
Arabian Foreign Minister, for example, told CNN that the report
was ``long on accusation and short on documented proof.''
The U.S. Treasury Department spokesperson called the report
``seriously flawed.''
The status quo changed on May 12, 2003 when al Qaeda bombed
housing compounds in Riyadh used by Americans and other foreign
residents, prompting more comprehensive Saudi action against
terrorism. Public statements and actions by both the United
States and Saudi Arabia since May 2003 have evidenced in many
respects a more urgent approach to terrorist financing.
For example, Saudi Arabia has announced a profusion of new
laws, regulations and institutions regarding money-laundering,
charitable oversight and the supervision of the formal and
informal financial services sector. Critically, for the first
time, the Saudi Arabian government decided to use force to hunt
and kill members of domestic al Qaeda cells, including, in one
case, a financier known by the name of Swift Sword.
Saudi Arabia has markedly improved its tactical law
enforcement and intelligence cooperation with the United
States. The Bush Administration acted quickly to take advantage
of the newfound political will in Saudi Arabia to renew and
reinvigorate U.S. efforts to combat terrorist financing.
The Bush Administration also moved toward a more
declaratory policy. On June 26, 2003, for example, David
Aufhauser testified before the Congress that in many respects
Saudi Arabia was an ``epicenter'' of terrorist financing.
As a result of these and other activities, al Qaeda's
current and prospective ability to raise and move funds with
impunity has been significantly diminished. These efforts have
likely made a real impact on al Qaeda's financial picture, and
it is undoubtedly a weaker organization as a result.
Indeed, in many respects, the views expressed in the task
force's first report are now widely held at home and abroad.
But although much work has been done, much work remains.
Although Saudi Arabia has made significant improvements in
its legal and regulatory regime, it has not fully implemented
its new laws and regulations. Because of that, opportunities
for the witting or unwitting financing of terrorism persist.
Indicia of implementation and enforcement are generally
unavailable. We are concerned that the unavailability of such
indicia may negatively impact the deterrent effect presumably
intended by these measures. As our report was going to press,
for example, we were unable to find evidence to suggest that
the announced High Commission of Oversight of Charities was
fully operational. Moreover, its composition, authority,
mandate and charter remain unclear, as do important metrics of
its likely effectiveness, such as staffing levels, budget, and
the training of its personnel.
The mandate and authority of the High Commission of
Oversights of Charity is also unclear, relative to that of the
Saudi National Entity for Charitable Work Abroad which was
first announced in February of this year and which was the
subject of a press conference in Washington a few days ago.
At least one other key body, Saudi Arabia's Financial
Intelligence Unit, is also not yet fully operational. Reliable,
accessible metrics are lacking with respect to many of the
other newly announced legal, regulatory and institutional
reforms. We find this troubling given the importance of these
issues to the national security of the United States.
Additionally, despite the flurry of laws and regulations,
we believe that there have been no publicly announced arrests,
trials or incarcerations in Saudi Arabia in response to the
financing of terrorism. As a result Saudi Arabia has yet to
demand personal accountability in its efforts to combat
terrorist financing and, more broadly and fundamentally, to
delegitimize these activities.
Against its poor historical enforcement record any Saudi
actions against financiers of terrorism are welcome. But action
taken in the shadows may have little consistent or systemic
impact on ingrained social or cultural practices that directly
or indirectly threaten the security of the United States.
Not only have there been no publicly announced arrests in
Saudi Arabia related to terrorist financing, but key financiers
remain free and go unpunished. In sum, we find it regrettable
and unacceptable that since September 11, 2001 we know of not a
single Saudi donor of funds to terrorist groups who has been
publicly punished.
Finally, as Senator Levin indicated, Saudi Arabia continues
to export radical extremism. As a core tenet of its foreign-
policy, Saudi Arabia funds the global propagation of Wahabism,
a brand of Islam that, in some instances, supports militancy by
encouraging divisiveness and violent acts against Muslims and
non-Muslims alike.
This massive spending is a key part of the terrorist
financing problem. We are concerned that it is helping to
create the next generation of terrorists and therefore
constitutes a paramount strategic threat to the United States.
Saudi Arabia has begun to crack down on domestic extremism,
most dramatically through education reform and the banishment
or reeducation of scores of radical Wahabi clerics. But our
task force found there is little evidence of effective action
to curb the ongoing export of extremism.
We have made a number of findings that I hope we can
discuss. In the interest of time, however, Mallory Factor will
now address the report's recommendations, after which I would
be happy to entertain any questions.
Chairman Collins. Thank you. Mr. Factor.
TESTIMONY OF MALLORY FACTOR,\1\ VICE-CHAIRMAN, INDEPENDENT TASK
FORCE ON TERRORISM FINANCING, PRESIDENT OF MALLORY FACTOR, INC
Mr. Factor. Madam Chairman, Senator Lieberman, and
distinguished Members of the Committee, I am honored to testify
here today on the recommendations of the Independent Task Force
of the Council on Foreign Relations on Terrorist Financing, of
which I serve as Vice-Chair.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Factor appears in the Appendix on
page 41.
---------------------------------------------------------------------------
This subject is of critical importance to the security of
our Nation and the world. Madam Chairman, and Senator
Lieberman, I would like to commend you for your interest in and
leadership on these very important issues and thank you for
inviting us to appear before you today.
I would also like to thank and commend Lee Wolosky for his
tireless work and dedication to this project. Achievements of
our bipartisan task force are a direct result of Lee Wolosky's
dedication to this project and his superior judgment in matters
involving this task force.
The Bush Administration has made significant progress in
its approach to terror financing since September 11. Our
report, which is based on publicly available information as
well as discussions with current and former Administration
officials, finds that the Administration's effort, combined
with those of Saudis and other international partners, has
significantly diminished al Qaeda's current and prospective
ability to raise and move funds.
Our task force makes the point that there is still much
work to be done. It also sets forth a framework of
constructive, forward-looking recommendations for improving
U.S. efforts against terrorism financing.
We note that Saudi Arabia has also made progress since May
2003 by putting in place new anti-money laundering laws
designed to impede the flow of funds from Saudi Arabia to
terrorist groups. These laws have a number of exceptions and
flaws which would weaken their effectiveness in curbing terror
financing if fully implemented.
The real problem is that we could not find evidence of
significant enforcement and implementation by Saudi Arabia of
several of these new laws. Quite simply, many key financiers of
global terror continue to operate, remain free and go
unpunished in Saudi Arabia.
Our task force report generally reaffirms the
recommendations made in the task force's first report and makes
nine new recommendations. Although my written testimony
explains each of these recommendations, I will discuss only
four recommendations now. However, I welcome the opportunity to
discuss any of them in response to your questions.
First, our task force urges U.S. policymakers to build a
new framework for U.S.-Saudi relations. We recognize that
historically the United States has maintained a policy of
noninterference in the domestic affairs of Saudi Arabia.
Recently, however, al Qaeda, a terrorist organization rooted in
Saudi Arabian domestic affairs, has killed and threatened
Americans both at home and abroad. Saudi Arabia is now involved
in a kind of civil war with extremists. This civil war has
global implications.
We propose a new framework for U.S.-Saudi relations which
would recognize certain Saudi domestic issues that impact U.S.
security. These issues, such as terrorist financing and the
global export of Islamic extremism, can no longer be off the
table.
We acknowledge that this transition is already underway but
our recommendation is still out in front of the
Administration's public statements on this issue. We believe
that the U.S. Government must engage the Saudis openly and
unequivocally to confront the ideological, religious and
cultural issues that fuel al Qaeda, its imitators and its
financiers throughout the world.
Second, and this was already brought up by Senator
Lieberman, we believe that the Executive Branch should
formalize its efforts to centralize the coordination of U.S.
measures to combat terrorist financing. We commend the
Executive Branch for centralizing the coordination of terrorist
financing issues in the White House as we recommended in our
original task force report. The sound allocation of
responsibility to the White House needs to be formalized and,
as Senator Lieberman said, institutionalized. And we believe
this should be done through a national security presidential
directive or some measure similar to that.
Third, we recommend that Congress enact a Treasury-led
certification regime specifically on terrorist financing. Many
countries have taken steps to improve their anti-money
laundering and counterterrorist fighting regimes but many have
not. We understand that certification systems should be used
sparingly. They can strain relations with foreign governments
and require expenditures of resources. The fight against
terrorist financing is sufficiently important, however, to
warrant its own certification regime. This will ensure that
stringent requirements are maintained specifically with respect
to foreign nations' policies and practices on terrorist
financing.
Such a certification system would require the Executive
Branch to submit to Congress on an annual basis a written
certification, classified if necessary, detailing the steps
that foreign nations have taken to cooperate in United States
and international efforts to combat terrorist financing. This
would be similar in some ways to the Saudi Arabia
Accountability Act of 2003, S. 1888, sponsored by Senator Arlen
Specter and co-sponsored by Chairman Collins and others. The
Act would provide a good starting point for a terrorist
financing certification regime if it were narrowed to focus
solely on the financing of terrorism and expanded to apply to
other nations.
Sanctions for non-certification could include smart
sanctions such as denial of U.S. foreign assistance and
limitations on access to the U.S. financial system.
Fourth, we recommend that the National Security Council and
the White House Office of Management and Budget conduct a
cross-cutting analysis of the budgets of all U.S. Government
agencies as they relate to terrorist financing. We believe it
is crucial that the U.S. Government keep a central accounting
of all financial and human resources expended by the government
in combating terrorist financing. We understand this cross-
cutting analysis could take a significant amount of work on the
part of NSC and OMB. However, it is crucial for government
leaders to gain clarity about who is doing what, how well they
are doing, and with what resources.
We commend Jody Myers, a former NSC staffer, for suggesting
a similar cross-cutting analysis in his Senate testimony given
last month.
I thank you for your time and I look forward to your
questions.
Chairman Collins. Thank you, Mr. Factor. Mr. Aufhauser.
TESTIMONY OF HON. DAVID D. AUFHAUSER,\1\ COUNSEL, WILLIAMS AND
CONNOLLY, LLP, FORMER GENERAL COUNSEL, U.S. DEPARTMENT OF THE
TREASURY
Mr. Aufhauser. Thank you, Madam Chairman.
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\1\ The prepared statement of Mr. Aufhauser appears in the Appendix
on page 46.
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I just wish I could get back to Maine as often as I have
gotten back to this room since I left the government.
Chairman Collins. We would welcome you back anytime.
Mr. Aufhauser. In early 1996, Osama bin Laden was living in
exile in the Sudan. He was at war with the House of Saud policy
that countenanced the presence of U.S. military troops on Saudi
soil. And he was already plotting mayhem sufficient enough to
warrant the establishment of a special issue station at the CIA
devoted exclusively to divining his ambitions and his designs.
Still, he was largely regarded as the son of a rich man and
principally a financier of terror. In fact, the original name
for the special-purpose unit at the agency was TFL, Terrorist
Financial Links.
It turned out actually that bin Laden was a hapless
businessman. His ventures failed and were not the principal
source of al Qaeda's wealth. Rather, he tapped something far
deeper and more dangerous, hate preached and taught in places
of despair, married to rivers of unaccounted for funds that
flowed across borders in the counterfeit name of charity and
faith. In so doing, bin Laden managed to leverage the tactic of
terror into a malevolent dogma embraced by an army of madmen.
How we got here is instructive to where we ought to go
next.
In 1974, a disgraced president was driven from office for
lies and deceits. In 1977, an international extralegal cartel
literally dimmed the lights of the White House, demonstrating
profound new powers abroad not tied to guns and bullets. And in
1979, the nadir of U.S. influence--the Shah transformed into a
stateless person, hostages held captive for more than a year; a
failed rescue mission and the Soviet invasion of Afghanistan.
Tied to that significantly was the takeover of the Grand
Mosque in Mecca, challenging the sole claim to legitimacy of
the Saudi Royal family as the guardians of the faith. A United
States seen as impotent to protect its allies and citizens
abroad held little promise to the threatened Saudi monarchy.
So it understandably responded with a vengeance of its own,
retaking the mosque and directing an unfathomable wealth of
petro-dollars--by some estimates that I read while I was still
in the Administration north of $75 billion--to demonstrate that
it is the true and rightful champion of Islam. It did so by
underwriting schools, mosques, call centers, and charities
throughout the Islamic diaspora. Wherever there was need they
came as teachers, as providers of social welfare and safety
nets, and as holy men. But what they taught was unforgiving,
intolerant, uncompromising and austere views of a faith that
became kindling for Osama bin Laden's match.
At the same time I want to note that there was a parallel
explosion in the growth of Gulf and Western State-sponsored
NGOs, in Eastern Europe, Africa, the Middle East, and Southeast
Asia. Much like the Saudi model of outreach, these
organizations rushed in to fill a vacuum left by the abdication
of responsibility by sovereign powers to solve issues not
uncommon or unlike what we see going on in the Sudan today.
Again through the delivery of default government civilian
services of the most basic type--schools, welfare, medical
aid--these NGOs, once proud of the principal of neutrality,
have become the principal medium of thought and teaching in
those areas.
And an air and patina of legitimacy attached to these
extralegal, non-sovereign entities and a cover frequently,
unwittingly was established to disguise charitable money
corrupted for terrorist purposes.
All of these extralegal non-sovereign international
entities need more policing, not just of the application of
their proceeds, but what they teach and what they preach and
the consequence of it. And nowhere is that more telling than
when you focus on Saudi Arabia.
It will take a generation, and to be frank a clearheaded
program of public diplomacy that, for example, condemns legal
sophistries that would justify torture, to recapture hearts and
minds poisoned by false teachings of hate. What can be done and
should be done to scale back the violence in the interim is to
deplete the resources made available to kill innocent people.
No tool is more useful in doing so than stopping the funding of
terrorism. The Council on Foreign Relations and this Committee
are to be commended for the profile given to the subject.
As for al Qaeda, the organization is broken, its central
bank severely challenged. Yet today it is more lethal than the
day that it brought down the twin towers in Manhattan. It is
more a movement than an organization today, less predictable
with less explicit design. There are autonomous cells, catering
to acts of near nihilism, increasingly funded through
pedestrian local criminal activity. And they threaten sudden
and senseless death without any purpose. And they do so
everywhere today, in Bali, in Istanbul, the London subway
system, Casablanca, Baghdad, New York, and Washington.
We know we cannot bunker and guard every school,
marketplace, shopping center, airport, train station, or place
of worship. So new elements of national power are required to
prevent more killing and another calamity. None are more
central to the prevention of a calamity than intelligence and
the disruption of the lines of logistical support for terror.
Money informs and defines both. It informs and defines both
with a degree of integrity, reliability, insight, and impact
that is without peer.
Many of you have heard me testify before that most of the
intelligence and information we get in the war on terrorism is
suspect, the product of treachery, deceit, custodial
interrogation, and now we learn the product of torture. But the
money records do not lie. They are diaries. They are
confessions never intended to see the light of day and they
lead to trails of plots not unlike the plot to use ricin in the
London subway system which was stopped because of the
exploitation of the money trail.
By the way, for those of you who do not know ricin, if made
well, is 10 times more lethal than VX gas.
September 11 brought a group of us together in the
Administration to tackle the subject of terrorist financing
with demonstrable successes. Today there is a new vocabulary
about it and it includes new laws, new standards of
professional and fiduciary conduct, extraordinary commitments
of multilateralism at the UN, World Bank, IMF, and within the
G8, 10, and 20, as well as APEC, greater capacity building
abroad which I think was alluded to by Senator Lieberman, more
sophisticated intelligence and a greatly enhanced partnership
with the private sector.
But the effort remains at best a proxy, in my judgment, for
the real thing. Terrorism permits murder to masquerade under
religious sanction altering the whole DNA of war by placing a
premium on the death of women and children. Until it is an act
of shame to provide money for any such purpose the blood will
flow. Accordingly, we must return to first principles: Terror
must be defined, at the UN and elsewhere, in a manner to
condemn money intended to kill civilians for political purpose.
We must also disrupt not only the funding of terror but the
funding of the teaching of hate because it is the crucible for
terror.
And we must address the deficit of hope that haunts much of
the Islamic world with debt reduction and meaningful economic
aid and development assistance, the very reasons I joined the
Treasury Department. Paul O'Neill had a metaphor that I liked,
even as quixotic as it sounded, our ambition was to build a
well in every village.
Of more immediate purpose within the jurisdiction of this
Committee, the assets and cash flow that we seek to freeze and
disrupt are located abroad. International cooperation is
therefore critical and it requires a new mindset in
intelligence that will inform both the nature and the manner of
collection.
Our new secrets must be collected with the intention of
sharing them and strong enough to withstand a measure of
judicial scrutiny abroad. That is a sea change and it is a sea
change required by the developing jurisprudence of terrorism
and its singular and unprecedented focus on prevention rather
than punishment.
In addition, if Madrid has any lessons terrorism funded
through criminal activity--and that was the case in Madrid--
local law enforcement must be integrated more directly with the
national intelligence community to facilitate a two-way
dialogue of increasingly equal value.
Finally, we must vest an agency of the U.S. Government with
the power to direct and execute the campaign against terrorist
financing. The NSC is simply not the appropriate place to
direct a theater of war.
The man who straps a bomb to his chest as he enters a
marketplace is implacable. He is beyond redemption and cannot
be deterred. It would be the height of irony and a promise of
future tragedy if we permit the orthodoxy of how we have
organized ourselves in the past and how we have collected and
acted upon intelligence in the past to deter us from responding
in the future.
Thank you.
Chairman Collins. Thank you for your eloquent statement.
Mr. Wolosky, Mr. Aufhauser mentioned the money trail. The
money trail often leads from prominent Saudi individuals to
Islamic charities to terrorist groups. That is why the Saudi
crackdown and increased regulation of Islamic charities that
have been too often used as a conduit to terrorist groups is so
important.
However, it appears that some of the Saudi regulations
explicitly exempt three of the charities that I mentioned in my
opening statement that are alleged to have strong ties to
terrorist groups, and that is the International Islamic Relief
Organization, the World Assembly of Muslim Youth, and the
Muslim World League.
Is there any reason for those three charities to be treated
differently from some of the others where the Saudis have, in
fact, cracked down? I am thinking, for example, the regulations
generally restrict Saudi charities from sending monies overseas
and yet those three charities are exempt from that regulation.
Is there any reason that they should be treated differently?
Mr. Wolosky. That is a very good question and thank you,
Senator, for it.
There are issues concerning not only the laws and
regulations that have been passed by Saudi Arabia relating to
these issues but also their scope and their implementation. The
issue that you point out, I believe, relates to this body of
law which is the body of law that governs bank accounts that
are opened and operated within Saudi financial institutions.
And specifically, there is a provision of law 300-1-6-5 which
appears on its face to exempt from its purview the three
specific organizations that you have identified, which
collectively account for billions of dollars in international
disbursements, from the body of law of which it is a part and
which restricts or prohibits disbursements by Saudi-based
charitable institutions abroad.
It is an open question and it is one that I would encourage
this Committee to pursue, and certainly our task force will
pursue it. But it certainly appears to be a case where the
exemption might swallow the rule.
In addition, I would like to point out that there are
questions regarding the scope of the purview of the new
institutions that are being created to regulate Saudi
charities. And in that regard, I note that in a press
conference just a few days ago in Washington a new entity was
announced into which all Saudi charities were going to be
dissolved, at least that is what was indicated by the Saudi
spokesperson.
However, when pressed for specific charities he indicated
not only Al Haramain, which was a primary focus of the press
conference, but a bunch of what I would consider relatively
minor organizations, namely the Committee to Support the
Afghans, the Committee to Support the Bosnians, the Committee
for Relief in Kosovo, the Crossover Relief Fund, and the
Committee to Support the Palestinians.
I certainly welcome the inclusion of these organizations
within the new entity that has been established to regulate
charitable giving abroad but really what was not mentioned were
those three multibillion-dollar organizations which are a
significant part, and should be in my judgment, a significant
part of any overall Saudi efforts to regulate charitable giving
abroad.
Chairman Collins. Thank you.
Mr. Aufhauser, the money trail often leads back to very
high-profile wealthy individuals living freely in Saudi Arabia.
In fact, the report notes three prominent men whom the Treasury
Department has listed as specifically designated global
terrorists, and I believe two of the three were added to that
list while you were at the Treasury Department as General
Counsel.
In your judgment, why are not Saudi leaders cracking down
and arresting and making an example of these prominent
individuals who are the source of considerable funding for
terrorist groups?
Mr. Aufhauser. Let me answer it in a somewhat roundabout
way because I think your opening statement alluded to the Joint
Terrorism Task Force, about which I was vainly proud at the
time I left the Treasury Department, as being a singular
success.
The ambition of that task force was to take our body of
knowledge of their domestic citizens, including prominent
merchants of Jetta or Riyadh and to ally it with, for the first
time that I am aware in our history of cooperation with
domestic law enforcement compulsory process powers of the Saudi
government so that they could take what I will call our package
of intelligence and remold it and morph it into a package of
evidence sustainable in a court of law and that would permit a
judicial action of a criminal nature.
Mind you, they did take the action of freezing assets so
they have done the regulatory administrative measures we asked
of them with regard to those three miscreants.
The disappointment about the Joint Terrorism Task Force is
that it apparently has not been used to date to complement the
intelligence that we have shared on those three gentlemen and
on others, but rather its resources appear to have been
redirected to the forensic demands of the bombings. So we have,
with some irony, new zeal in the pursuit of terror in Saudi
Arabia but at a substantial cost to less resources devoted to
the export of terror.
Chairman Collins. Thank you. Senator Lieberman.
Senator Lieberman. Thanks very much, Chairman Collins.
Let me focus on one interesting aspect of your report which
is about the failure to use a part of the Patriot Act, Section
311. It gives Treasury anti-money laundering special measures
to prosecute terrorist financing in countries with inadequate
banking regulations and, in fact, to restrict any bank charity
business or country that engages in money laundering from using
U.S. markets.
Your report today states that these special prosecutorial
powers have still not been used, or perhaps used recently, once
against a Syrian bank.
Why is that, and what can we do to get the folks in the
Administration and in the Treasury Department, to use these
powers more aggressively? Mr. Wolosky or Mr. Aufhauser,
whichever one of you would like to answer.
Mr. Wolosky. I do not know. I cannot speak to why they have
not been used more broadly. As you point out, our first report
in October 2002 urges the U.S. Government to use more
aggressively the special measures contained in Section 311 of
the Patriot Act to prohibit or restrict the access of certain
foreign jurisdictions or specific foreign financial
institutions from the U.S. financial system under the powers in
that act.
Certainly it has been the case that to the extent that you
use classified material to support those designations you have
to have concerns about challenges to your designations under
the Administrative Procedures Act in court in such a way that
you might have to reveal the classified information.
Fortunately, there have been changes to the law since the
enactment of Section 311 to protect classified information from
disclosure. So any historical concerns in that regard that
might have existed with respect to the use of this aspect of
the Patriot Act, I believe, are mitigated.
Senator Lieberman. What can you tell us about the recent
use of Section 311 of the Patriot Act against the Syrian bank?
Just briefly.
Mr. Wolosky. What I can tell you is that it is the first
instance of the use of that provision of the Patriot Act in
respect to terrorist financing.
Senator Lieberman. What were the circumstances? Is that
publicly available?
Mr. Wolosky. Is not publicly--the specific basis for the
designation, I do not believe, is in the public record.
Senator Lieberman. Mr. Aufhauser, I want to get you into
this discussion based on your previous experience, but I would
also begin by raising this question. I presume that Section 311
of the Patriot Act could be used to leverage or compel
cooperation from Saudi banks, for instance, by giving them a
very strong economic incentive to cooperate or run the risk of
losing U.S. business and being unable to do business in the
United States.
Mr. Aufhauser. Let me give you the benefit of my
perspective. First, Lee is right, not laying any responsibility
at the door of Congress. It took about 9 months for you all to
grant an evidentiary privilege that protected classified
information in any Section 311 action.
IEPA gave it to us automatically in freeze orders but not
under the Patriot Act. It was one of the first things I asked
for but it took a while to wind its way through the uncharted
course of Congress.
Second, it is not really fruitful to name and shame a bank
as a mere act of political theater. If it does not have
substantial correspondent banking relationships with the United
States, it is merely political theater. But that informed a lot
of judgments about what I will call bad banks, and the Treasury
Department does have an informal bad banks initiative going on
right now, focusing particularly on banks that are implicated
in the export of nuclear materials, the improper export of
nuclear materials.
Senator Lieberman. The financing of those exports?
Mr. Aufhauser. Trade financing and the like of those
exports.
Third, where we thought we had problems with banks, and
again this is an important distinction I made earlier with
Senator Collins, intelligence is called intelligence because it
is not fact. It is inference based on being a truffle hound and
digging something up which is suggestive.
We have gone abroad and sought the domestic assistance of
countries and regulators to reform suspect banks. It is a
better way then merely using the blunderbuss of a nuclear
Section 311 action against a bank that does not otherwise
maintain correspondent accounts.
Senator Lieberman. So, in other words, it is not worth
using because it will not really hurt them because they do not
have correspondent relationships with U.S. institutions?
Mr. Aufhauser. In many instances, you are talking about
rather minor banks that do not have correspondent
relationships.
Now the Syrian banks in question do have correspondent
relationships with several New York banks. They are modest in
scope but the gravimen of the Syrian banks was believed by the
Administration to be so grave, particularly--they were the
principal conduits for the UN Oil for Food Program frauds, for
the smuggling of unsanctioned oil out of Iraq and for using
some of those funds or placing them in the hands of Hezbollah.
So it was a very strong case and not withstanding the
modest ties with New York banks, it was decided that it should
be pursued.
Senator Lieberman. How about the Saudi banks? Do they tend
to have correspondent relations with U.S. banks that might
bring them within Section 311?
Mr. Aufhauser. Yes, and they also have, interestingly,
substantial correspondent relationships, even more substantial
correspondent relationships, with European banks.
There is an open legal question--I think, frankly, it falls
against us, I actually asked my staff to look at it at one
juncture--whether the Patriot Act Section 311 permits what I
call a secondary boycott. That is if we say a bank in Saudi
Arabia, following your hypothetical, is to be barred from
correspondent banking in the United States, can we say that any
bank that does banking with it abroad is similarly barred? I
think the way the act is written now, the answer to that is no.
Senator Lieberman. So, bottom line, you would say that in
some cases it does not make sense to use Section 311 of the
Patriot Act because the banks do not have correspondent
relations here. But, generally, would you counsel that it be
used more aggressively?
Mr. Aufhauser. I will do more than counsel. I will tell
you, in the next calendar year, because of the bad banks
initiative that I mentioned, there will be substantial actions
taken against miscreant banks under Section 311.
Senator Lieberman. Good. Thank you, my time is up.
Chairman Collins. Senator Coleman.
Senator Coleman. Thank you. Mr. Aufhauser, in your
testimony you noted that if Madrid has any lessons, local law
enforcement must be integrated more directly with the national
intelligence community to facilitate a two-way dialogue of
increasingly equal value. Do you have any specific
recommendations as to how we accomplish that?
Mr. Aufhauser. Perhaps, but let me build down. One of the
questions that you all said you were going to pose here is what
are the Treasury Department's equities at the table if you were
going to have terrorist financing, one general and one command
post and an aggregation of resources.
One of the problems I found at the Treasury Department in
pursuing terrorist financing is it was not a fully integrated
member the intelligence community. So is was not always made
aware of the full panoply of counterterrorism activity and
relationship that was going on with any country that I was
visiting.
So, as a consequence, you could find yourself across the
table from folks who thought they were trading different poker
chips and equities about cooperation when I was demanding
cooperation for terrorist financing.
As a consequence of that, I pushed, and Secretary Snow
pushed, for the creation of an Assistant Secretary for
Intelligence so that we could be more integrated into the
intelligence community, subject to oversight by the
Intelligence Committee here on the Hill.
That was passed by Congress, I think wisely passed, and
someone will soon be named to that post.
Obviously something less formal was in the offing for the
integration of local law enforcement but getting them to the
table with the information that they are developing about the
petty crimes that are perhaps tied to terror, and marrying that
information with what the Federal Bureau of Investigation and
what the CIA is developing, is absolute critical in my
judgment.
Madrid was financed with false passports, smuggled aliens,
and the sale of hashish, all of it known to the local police
and most of it not known to the national intelligence
officials. National intelligence officials were aware of
activity at the area. If the two had been married, maybe
something could have been prevented. It is not unlike the
quandary we find the 9/11 Commission facing.
Senator Coleman. The challenge we have, though, is how to
marry that. I come from a local prosecutor perspective,
Attorney General's Office in Minnesota. We have our Joint Task
Force now and we seem to be making headway. But both
structurally and practically there are barriers. I am looking
for practical suggestions on how to overcome those.
Mr. Aufhauser. Let me give you one possible vehicle. FinCEN
is responsible for the compilation of currency transaction
reports and suspicious activity reports. It is all put into a
computer and it is all made available by access to local cops,
cops in Toledo or cops in Minneapolis. If they have an inquiry
about Aufhauser, they can ping the FinCEN database.
That FinCEN database is in the process of also being
married, in a more secure sense, with what the agency is
developing from abroad. This is also being married, in a more
secure sense, with what has been developed by the FBI with
regard to intelligence issues, terrorism issues.
If local law enforcement could somehow have classified
online access to that kind of information it might materially
advance our defense of the Nation.
In addition, this is most important and I am talking to you
like a local prosecutor, you guys have to share towards
Washington, too. Because I am finding, from what I am reading
and what happened in Madrid, is that the better information was
known locally.
Senator Coleman. That is very helpful.
I am trying to somehow weigh Mr. Factor's testimony with
Mr. Wolosky's. Mr. Factor, you noted what I would say
structural changes in the relationship dealing with the Saudis,
that if we had a certification regime that would be helpful,
that you recommend the Saudi's fully implement new laws and
regulations.
The concern I have in terms of dealing with terrorist
financing, as does Mr. Wolosky, listening to your testimony,
there seems to be a fundamental lack of commitment on the part
of the Saudis to actually confront this evil.
Are looking for structural changes enough? Or are we simply
changing the shape of the box?
Mr. Wolosky. It is a good question. It is a difficult
question. Of course, we are reporting to you on the same
report, so the fact that our testimonies are somewhat
schizophrenic is a reflection of the fact that much has been
done, as I said, but much work remains.
As you point out, we do recommend a fundamental change in
the nature of the bilateral relationship. As Mallory described,
one which is more declaratory and one which focuses--or at
least does not put off of the table--issues that historically
have been considered purely domestic ones in Saudi Arabia. We
have come to the conclusion, as have many Americans and Members
of this Committee, that after the murder of 3,000 Americans
with respect to issues that implicated domestic Saudi problems
and concerns, that those issues can no longer be off of the
table.
But your question is a good one. Ultimately, in issues of
political will, as we have pointed out in our report and in our
testimonies, welcome the aggressive pursuit of al Qaeda cells.
We condemn the fact that financiers have not been arrested.
Those are different issues. They go to issues in my judgment,
and in our report's judgment, of political will.
It is relatively easier to go after people who are socially
marginalized, members of cells. It is much more difficult to go
after financiers who are members of the economic and political
establishment.
Mr. Factor. I would add on to that that it may seem
schizophrenic but it really is not, it is very consistent. We
are calling for a new framework for U.S.-Saudi Arabian
relations.
For decades U.S.-Saudi Arabia relations have been built
upon a consistent framework well understood by both sides.
Saudi Arabia would be a constructive actor with regard to the
world's oil and markets and regional security issues. And the
United States would help provide for the defense of Saudi
Arabia, work to address the Israeli-Palestinian conflict, and
not raise any significant questions about Saudi Arabian
domestic issues, either publicly or privately.
That has changed. We have to bring these things into the
open light of day. We are an open society, they are an opaque
society. If you want to change, you need political will to have
those changes, as Madam Chairman pointed out.
And we have to work with them to force that issue.
Senator Coleman. Thank you, Madam Chairman
Chairman Collins. Thank you. Senator Lautenberg.
Senator Lautenberg. Thank you, Madam Chairman.
Once again I want to express gratitude for the fact that
you are holding this hearing. We have a very good panel of
witnesses. Their statements are extremely interesting and I
think you have furthered the cause and the fight against
terrorism. I greatly respect and appreciate that.
I want to get a couple of things out in public view. Mr.
Aufhauser, I am sure you heard about the amendment that we
passed, and as I mentioned in my opening remarks, that would
shut down subsidiaries, either real or sham, that are then in
turn used to do business with rogue states.
Have you been aware in your previous government service or
since then that these things exist?
Mr. Aufhauser. Yes.
Senator Lautenberg. Is it important----
Mr. Aufhauser. In a broader context, if I can say.
Generally speaking, the economic sanctions laws and OFAC
regulations for which I was responsible have enormous loopholes
for subsidiary conduct abroad.
Senator Lautenberg. So let me extend your comment a little
bit and say I take an implication there that we ought to close
it down wherever we can do it?
Mr. Aufhauser. If you believe in the effectiveness of the
economic sanctions programs which are part of our law, yes.
Senator Lautenberg. It was disappointing that we lost that
amendment by a single vote but that is what happened.
Mr. Wolosky, are we doing enough--and Mr. Factor may have
just mentioned--to put public pressure on the Saudis? Do you
think that we can ratchet that up substantially for the benefit
of the elimination of this financing route that encourages
terrorism?
Mr. Wolosky. Certainly we can, in some instances, yes. The
report recognizes that some issues are best dealt with
privately. But it also strongly urges a more declaratory policy
when the U.S. Government finds significant and enduring
shortcomings in the response of Saudi Arabia to terrorist
financing issues.
Benchmarks need to be set out publicly if they are not
being met privately. Individuals, who the United States has
designated as terrorist financiers and has indicated in no
uncertain terms part of the al Qaeda financial network, and who
have not been incarcerated in Saudi Arabia, those are the very
issues that need to be brought to the fore of our public
statements and respect of these matters.
Senator Lautenberg. The private discussions do not have the
same effect. And I think we ought to declare once and for all
that if Saudi Arabia has to dial 911, as they did in 1990, do
not call us. The phone is going to be out of order. And that we
have to say that every dollar, let the word go out of this
Committee and across the media. Let the word go out that if you
contribute to anything that encourages terrorism that it is
pointing a gun at the head of our people. And we are going to
think of it that way and our punishment is going to be swift
and full.
It is bothersome as the devil to me that--and I was early
on the ground in the Gulf War, and I have been to Iraq since
then, and I know a lot of people associated with the Saudi
government and had some semi-friendly relationships with them.
But for them to pass off the blame, it is in print and the
news, when the Crown Prince Abdullah statement after the May 24
attack at Yanbu says ``Zionism is behind terrorist actions in
the kingdom. . . . I am (95%) sure of that.'' And the Foreign
Minister then affirms these comments, says the affirmation of
these comments is again absolutely correct, 95 percent. And
then Adel Jubeir declined to repudiate these statements at a
June 2, 2004 press conference. And the State Department has
been silent on them. And they have to speak out.
I think Mr. Aufhauser made a very important statement. He
talked about the fact that we have to recognize that this is
far beyond the normal activities that we see these oblique
apologies, etc. Because it is inherent in the culture. When you
teach little kids to hate other little kids, that is the
beginning of the end. It is the end of their lives and the end
of peaceful lives around the country. And we have to make sure
that they understand that in public terms, and denounce that
kind of educational thrust. It just is not going to work and it
is not helpful.
I would ask one last question here. I know that you have
seen the report that was issued in the New York Times, on June
12. It talks about some internal dispute within the task force.
And perhaps some redaction or reduction in terms of the
comments that the task force report was going to carry.
Mr. Factor, I would ask you, you are very much a part of
the activities that go on in our government and I say that
respectfully, and you are also a businessman that knows very
much about how things operate in terms of financing and
investor relationships and things of that nature.
So when you see a report issued and it is suggested that
you thought maybe this report was too critical, is that the
context of the article that was printed in the New York Times
that suggested there was dissension and some alteration made by
you to get this report in acceptable fashion for the
Administration, as well as for the mission?
Mr. Factor. I can only answer that this report is a
consensus report. We all had various beliefs and feelings and
we talked those out very thoroughly. Our project directors'
position was to try to reach a consensus and try to put
together the fairest, most accurate, bipartisan report
possible. We believe we have achieved that. And I believe all
of us unequivocally support the findings and recommendations in
this report and we are very proud of it.
There were many discussions on a host of topics. We
solicited information from a host of people--the
Administration, Saudi Arabia. We, at one point, planned a trip
over there which never came about. It is very common for all
task forces at the Council on Foreign Relations to solicit
input from the subjects of those task forces. So this is a
common thing.
Senator Lautenberg. Even after the report is complete, a
report is not complete?
Mr. Factor. A report is not complete until everybody signs
off on it.
Senator Lautenberg. Thank you.
Chairman Collins. Thank you, Senator.
Mr. Wolosky, before I turn to Senator Specter, I want to
give you an opportunity to discuss the issue that was just
raised, as well, since you were one of the two principal
authors of the report.
Mr. Wolosky. Thank you.
First, I would like to respond to another point that
Senator Lautenberg made concerning the anti-Semitic statements
made by the Crown Prince and consistently reaffirmed by other
Saudi officials, including just a few days at a press
conference in Washington. In my view, and in the view of our
task force, they call into question the commitment of Saudi
Arabia as a reliable partner in the war on terror. They cloud
its efforts in moral uncertainty. And they must be immediately
retracted.
The U.S. Government, the President of the United States, in
my view, should immediately condemn those statements and urge
the Saudis to condemn those statements.
I personally was very distressed to see a senior State
Department official stand by on June 2 in Washington and not
repudiate those comments in response to a question from a
reporter. In my view, that is a disservice to many people and
to the war on terror.
Now as to the New York Times report, as I have discussed
with your staff, I wish to clarify that the language that was
in the first draft of the report I distributed to the full task
force membership on May 2, 2004 was as follows: ``There is
insufficient evidence to conclude Saudi Arabia has fully
implemented its new laws and regulations and important
questions remain. As part of Saudi Arabia's offer of assistance
to the work of our task force, we sought to visit Riyadh to
discuss, among other things, the state of the implementation of
these new laws, regulations and oversight mechanisms.''
Senator Lautenberg. Madam Chairman, I appreciate the
clarification. Thank you.
Chairman Collins. I thought it might be helpful to you,
Senator.
Senator Lieberman. Madam Chairman, I join you. Tomorrow
morning, when we open our New York Times, I expect the
headlines to say ``Times Snookered.''
Chairman Collins. Senator Specter.
OPENING STATEMENT OF SENATOR SPECTER
Senator Specter. Thank you, Madam Chairman, and thank you
for scheduling these hearings.
I compliment the Council on Foreign Relations for
undertaking this kind of study. I am very interested in all of
your findings.
I focus for just a moment on the one that Saudi Arabia,
whose people and organizations contribute 60 percent of the
annual budget of Hamas, does not recognize Hamas as a terrorist
organization. Mr. Factor or Mr. Wolosky, do you know what their
factual basis is for that kind of a statement, when Hamas
admittedly target civilians?
Mr. Factor. I do not know what their basis is for that. I
can only speculate.
Senator Specter. Mr. Wolosky.
Mr. Wolosky. My own personal view is that one man's
terrorist is another man's freedom fighter.
Senator Specter. That is a fine generalization of another
era, but not when civilians are targeted.
Mr. Wolosky. It is not my view, Senator. It is my sense of
what the Saudi position on Hamas is. I firmly believe that
Hamas is a terrorist organization.
I also think that there is a misconception. David Aufhauser
has used the word sophistry in understanding what Hamas is. The
sophistry lies in the fact that it is true that Hamas provides
social services in Palestinian territories. However, it is also
a terrorist organization that kills innocent people. A vast
majority of its funds have come from Saudi Arabia in recent
years. Only relatively recently has that begun to change at the
official level, although private Saudi contributions to Hamas
must continue to be strictly monitored.
Our report recommends, in fact it goes very far on this
issue, and it recommends that as a mandatory matter of
international law, the United Nations Security Council pass a
resolution that specifically designates Hamas as a terrorist
organization and obligates all member states to close down
Hamas organizations and fronts.
Senator Specter. Mr. Aufhauser, let me ask you a different
question, and that is what more could the Administration do in
a very active way to motivate the Saudis or compel the Saudis
or sanction the Saudis into doing a better job on fighting
terrorism?
Mr. Aufhauser. Well, they have come a long way, as you know
from testimony I have given before committees that you have sat
on, as outlined by Lee and Mallory and the Council. Some
extraordinary systemic changes. But what is missing is a sense
of personal accountability and follow-through.
Also, on the broader scale, and I think far more important
to us, far more important to us than personal accountability of
one or two bad actors, is to stop the funding of the teaching
of hate. And I think there should be a concerted Administration
policy and campaign.
Senator Specter. Mr. Factor, thank you for the statement in
your opening statement about the Saudi Arabia Accountability
Act, which was cosponsored by the Chairman, and I am the
principal sponsor, to provide a good starting point for
focusing on terrorist financing certification regime.
Mr. Aufhauser, the Administration at first opposed the
Syrian Accountability Act and then moved from opposed to
neutral. And I think finally ended up perhaps inferentially
supportive, although the formal neutral position was never
changed.
What do you think the prospects are for the Administration
to move to neutral or to support the Saudi Arabia
Accountability Act? Or somewhere in between.
Mr. Aufhauser. I would just be guessing, Senator, but there
is an institutional prejudice, understandable and I think to be
lauded, at the Treasury Department to only have economic
sanctions programs that are really quite enforceable and with
real-world impact. And so they are studied about whether or not
what has been proposed can be pursued and whether it can be
effective.
Can I just say one thing about Hamas?
Senator Specter. Sure.
Mr. Aufhauser. It is reprehensible that they are not
treated as a terrorist organization by the Saudis, I agree, but
some historical perspective helps. For 6 years we have urged
our European counterparts to join us in naming Hamas as a
terrorist organization. And it was only September of last year
that they finally joined us as another school bus was blown up
in Jerusalem.
Even now, immediately after the designation of Hamas as a
terrorist group by the Europeans, we then went to our European
allies and said here are four organizations that are
transmitting money directly to Hamas. And we were turned down
in the freezing of those assets by all of them because they are
still not use to the idea. They still cling to what I said
before, the sophistry that the social welfare program of Hamas
somehow excuses money that goes to killing.
The recent raids by the Israelis on banks, four banks in
the West Bank, and the actual seizure physically of money
intended for rejectionist groups, was intended to send a signal
to a new funding source of Hamas, and that is Iran and Syria,
getting back to your Syrian issue.
And informed intelligence sources tell me that for whatever
reason, the money going to Hamas from Saudi Arabia has
substantially dried up. Nobody can divine the reason. But it
has been supplemented by money from Iran and Syria flowing
through even more dangerous rejectionist groups in the West
Bank.
Senator Specter. Thank you very much. My time has expired.
I thank you, Madam Chairwoman.
Chairman Collins. Thank you Senator. Senator Pryor.
OPENING STATEMENT OF SENATOR PRYOR
Senator Pryor. Thank you, Madam Chairman.
I would like to join all my colleagues on the Committee in
thanking you for your leadership on this issue.
If I may follow-up with some of Senator Specter's
questions, Mr. Aufhauser, something you said a few moments ago.
You said that they need to stop funding the teaching of hate.
That is a foreign concept, I think, to us here in America.
Could you elaborate on that a little bit and explain to the
Committee exactly what you mean by that?
Mr. Aufhauser. Sure. Wahabism, which is the strain of Islam
that they endorse and champion, is very austere, very severe,
very uncompromising and very intolerant of differences in
views, and can easily be morphed into religious sanction for
violence.
And it is taught by clerics who are sent out globally with
funding from the Ministry for Islamic Affairs, which in my
judgment is a much more important audience to talk to about our
future then the Ministry of Internal Security or Defense in
Saudi Arabia.
Indeed, on my last trip to Saudi Arabia, we met with the
Minister for Islamic Affairs and he affirmed that they need to
do some trimming of their clerical group to weed radical
extremists out of it. Unfortunately, their first focus has been
domestically and not those who have already been exported
abroad.
Senator, one last thing. I had a dinner with the prime
minister of one of the Southeast Asian countries who said he
will not let an Islamic cleric into his country anymore. The
reason is they teach a hate which becomes a bullet.
Senator Pryor. Let me follow-up on something you said, that
they have focused internally first, within Saudi Arabia. But
apparently, there is not much evidence to show that they are
trying to curb the export of terrorism and extremism. Is that
fair to say, for Saudi Arabia?
Mr. Aufhauser. I hope I am not sounding too legalistic--to
me, this is a very important thing. I chaired a group in the
situation room at the White House every Wednesday morning, and
it was a group of terrific men and women from every agency of
any relevancy, where we would review what we had learned in the
preceding 7 days about terrorist financing.
We had a mountain of evidence about the financing of the
teaching of hate, who was funding it, where it was going, what
they were teaching in the schools, who the converts were, what
social welfare they were pursuing, what the threat was in
pursuing something more militant.
And we had a modest pile over here on my right hand which
was evidence of the funding of an act of terror.
So there is a distinction between fundamental and extremism
and an act of terror that gives us the power to try to act
abroad in policing things.
The problem with the Saudi model today is it is a blizzard
of this funding for folks who teach people that I am their
enemy. There is even something more dramatic--it is not the
Saudis, but the Iranians that fund a radio station out of
Beirut called al-Manar, to the tune of about $110 million a
year. That funding helps al-Manar publish and broadcast every
day a screed that says Jews and Americans should be killed.
Now should we not stop that funding of that broadcast?
That is not an act of terror. But it is no different from
lighting a match in a parched forest.
Senator Pryor. I know that you would never speak for any of
these countries and you would never presume that, but I would
like to get your impressions, if we can focus on Saudi Arabia,
on why they have not cracked down internally? I am just
assuming there are domestic reasons, domestic political reasons
that they may fear a backlash within their own country for
doing this. I would like to get your impressions on that.
Mr. Aufhauser. The most immediate reason for no activity on
terrorist financing is they are singularly focused on the guys
who are trying to kill them within their confines. They are not
looking for financiers. They are looking for terrorists. If he
happens also to be a financier, he is a dead man.
So they are devoting virtually every police and
intelligence and military resource they have to ferreting out
terrorists within their own cells.
That has drawn away, as I said earlier, ironically the
focus that we wanted them to have. I cannot blame them. I will
tell you that. But for the moment it has drawn away literally
every resource from looking at people who export--I think it
was Senator Levin who said Saudi Arabia exports two things, a
counterfeit religion and oil. He is only two-thirds right. They
also export money.
And that money is the purchase for terror. And we would
like them to refocus on that.
Senator Pryor. Madam Chairman, since I have just a few
seconds left, I would like to ask the other two witnesses to
respond to that last question about Saudi Arabia. Why, in your
impressions--not to speak for them, but your impressions about
why they are reluctant to crack down internally or at least why
they have not done so to date?
Mr. Factor. I believe that they have a civil war on their
hands which is their first and foremost interest. They also
have not had enormous pressure put on them to open up their
society. And they fear for their own regime being toppled. So
putting all of those three things together, what is being
exported is a secondary issue.
I believe the conclusion they need to come to very rapidly
is that that civil war will never be solved as long as they are
exporting money that could be used for terrorism.
And last, the political will of the country has to
establish that no cause, however legitimate, justifies the use
of terror. Indeed, the use of terror delegitimizes even the
most worthy cause. They have to build political will on that,
which they are not doing doing.
Mr. Wolosky. I largely agree with these two comments.
First, I do think they are trying to crack down internally.
They are fighting a civil war because it threatens the
leadership of their country. It threatens their lives. And they
are dedicating resources to fight that civil war.
They are also cracking down internally, at least there are
suggestions that they are cracking down internally, on the
extremism that is propagated within Saudi Arabia. Our report
makes a distinction between the propagation of extremism within
Saudi Arabia and its export outside of Saudi Arabia.
Within Saudi Arabia we have seen the remarkable spectacle
in the past year, for instance, of clerics, extremist clerics,
going on television to renounce their old views. That is a
rather remarkable occurrence within the cultural and social
context in which it has occurred.
Externally, we find very little evidence of action being
taken in respect to this pile, the pile that evidences the flow
of billions of dollars in support of the propagation of
extremism internationally. And our report says that
constitutes, that export of extremism constitutes a strategic
threat to the United States.
I think we are the first group to go that far in
characterizing that financial flow in that manner.
Senator Pryor. Thank you, Madam Chairman.
Chairman Collins. Thank you.
We have had a vote just called. So I am going to do one
final quick round of a question each, and then we will adjourn
the hearing. I do thank you for your very valuable testimony.
Mr. Factor, as you know from our discussions, I am
particularly interested in the recommendation of the report
that we pass legislation creating a certification whereby the
President would certify the compliance of nations with an
effort to halt terrorism financing.
Some people have expressed concerns that would be too
narrow a test for nations to have to pass. They say that the
war against terrorism is a broad war being fought on many
fronts and that it would be a mistake to just look at this one
factor.
Could you comment on whether you think the separate
analysis of compliance with the effort to halt terrorism
financing is appropriate? Or should the certification be a
broader assessment?
Mr. Factor. It is our belief on the task force that the
certification should be for terrorist financing. I am not going
to suggest that other certifications might not be needed or
necessary, or for that matter might be unnecessary. But we
believe that if you follow the money, if you check out the
money, if you are sure where the money is going and how it is
going, you will have the opportunity to cut down on the
abilities of terrorists to operate throughout the world. We
believe a certification regime specifically on terrorist
financing is necessary and called for.
We also believe that we would give waivers to the President
obviously and the information can be classified. But we need to
name and shame and bring the open light of our society and the
discussion that our society allows forward. The only way we
will do it is not by getting it confused in a broader regime.
Chairman Collins. Thank you. Senator Lieberman.
Senator Lieberman. Thanks very much, Chairman Collins.
I am going to submit a few questions to the witnesses for
answers in writing, but I did want to ask this summary
question.
In your report in October 2002, this language has already
been quoted, you said, ``it is worth stating clearly and
unambiguously what official U.S. Government spokespersons have
not for years, individuals and charities based in Saudi Arabia
have been the most important source of funds for al Qaeda and
for years Saudi officials have turned a blind eye to this
problem.''
So, your report and testimony today certainly suggest that
maybe the Saudi officials, probably the Saudi officials, are no
longer turning a blind eye. But there are problems, as you have
documented on how fully they are following through.
So, my baseline question for this report, now June 2004.
Would the conclusion of October 2002 be essentially the same,
which is that individuals and charities based in Saudi Arabia
have been the most important source of funds for al Qaeda and
also the other terrorist groups? Or, has that changed?
Mr. Wolosky. Historically, of course, that has been true
and it has been affirmed.
Senator Lieberman. Is it true today?
Mr. Wolosky. It is a difficult analysis because of the more
diffuse nature of al Qaeda. Al Qaeda is no longer an
organization that has a highly centralized command and control
mechanism, and that includes its financial components both
input and output. It is a much more diffuse movement.
And also that relates to the issue of propagation of
extremism which we in this report--again, I think for the first
time, although it certainly was implicit in the response of the
U.S. Government that David described--are saying is a key part
of the terrorist financing problem.
Senator Lieberman. I think that is a very important point
today. It is not that we do not know about the export of
extremism, but you are saying that while they may have
curtailed the funding to some extent, or at least not turned a
blind eye to it, as long as they continue to export extremism
then there is trouble.
Mr. Factor or Mr. Aufhauser, do you want to add anything to
that?
Mr. Factor. I would like to add that we know very well
that, for example, the Muslim World League, IIRO, the
International Islamic Relief Organization, and the World
Assembly of Muslim Youth, known by the acronym WAMY, still
operates.
I believe funding to al Qaeda has been stopped to a
significant extent. But there is funding to numerous other
organizations and other organizations may be picking up what al
Qaeda was doing, in terms of operations.
Mr. Aufhauser. Can I add one thing? I want to put a
spotlight on a reservation put at the front of the Committee's
report, which is that you can become Saudi-centric when you
talk about terrorist financing and it is a grave danger. They
have done remarkable things and they should be given credit for
it. There remain substantial issues in Saudi Arabia.
But all that I learned before I left and what I have
learned since I left suggest that terrorist financing is alive
and well from Iran and Syria and increasingly local criminal
activity, and also substantial amounts flowing into the
occupied territories from Western Europe still.
I would suggest that the spotlight be shifted, if there is
only one spotlight, on what is the more immediate threat right
now to homeland security here and to security in the Middle
East, which I think is money from other sources.
Senator Lieberman. Thank you, very much. You have done a
great public service here and I thank you for it.
Chairman Collins. Thank you, Senator Lieberman, for your
leadership on this issue and your participation in the
Committee's ongoing work examining the sources of terrorism
financing.
I want to thank all three of our witnesses today. You have
done remarkable work. We appreciate your expertise and your
sharing your wisdom and knowledge with the Committee.
The hearing record will remain open for 15 days for the
submission of any additional questions. We would ask you to
return those as quickly as you can.
I also want to thank our staff for their work on this
important hearing. The hearing is now adjourned.
[Whereupon, at 12:29 p.m., the hearing was concluded.]
A P P E N D I X
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PREPARED STATEMENT OF SENATOR GEORGE V. VOINOVICH
Good morning. I would like to thank the Chairman, Senator Collins,
for convening this hearing today to examine an issue that is extremely
important to our national security--our progress in efforts to deny
terrorists the resources they seek to perform deadly attacks against
Americans and our allies at home and abroad.
The tragic events of September 11, 2001 brought home to all of us
the urgent need to cut off funding for terrorist organizations such as
al Qaeda. More than 2\1/2\ years later, it is imperative that we
continue to make this a top priority of the U.S. Government. Simply
stated, we cannot afford to be complacent in our efforts.
Last month, Attorney General John Ashcroft and Secretary of
Homeland Security Tom Ridge reminded the American people of al Qaeda's
unrelenting desire to again attack Americans on U.S. soil. The
potential impact is not limited to those living in our country's
largest cities. Just yesterday, Federal officials unsealed an
indictment against a Somali man living in Columbus, Ohio. The charges
against this man include conspiring with al Qaeda to blow up a shopping
mall in Ohio's capital city. This is a chilling reminder of what is
possible, and again underscores the need to redouble our efforts to
deny terrorists the financial resources that they desire.
Today, an Independent Task Force on Terrorist Financing sponsored
by the Council on Foreign Relations will release its second report on
our progress in this effort. We are glad to have two individuals who
serve on this task force, Lee Wolosky and Mallory Factor, with us this
morning. I look forward to hearing their thoughts on how we can step up
our efforts at home to disrupt and destroy the financial network of al
Qaeda and other terrorist organizations. I also look forward to their
views on how we can enhance cooperation with other countries to deny
terrorists the funding that they seek--particularly Saudi Arabia.
I would also like to welcome David Aufhauser, who served as former
General Counsel at the U.S. Department of Treasury. I look forward to
his candid views on how we are doing in this effort here at home, where
the men and women at the Treasury Department and other Federal, State
and local agencies serve on the front lines in the effort to disrupt
and destroy terrorists' financial networks.
As my colleagues are aware, since 1999, I have worked to express
the urgency of the Federal Government's human capital challenges and
their impact on critically important government functions, such as
national security. With strong bi-partisan support from this Committee,
I have championed a series of legislative reforms in Congress, which
should have a significant impact on the way the Federal Government
manages its people in the coming years.
In March 2001, the Subcommittee on Oversight of Government
Management held a hearing entitled, ``National Security Implications of
the Human Capital Crisis.'' Our panel of distinguished witnesses
included former Defense Secretary James Schlesinger, member of the U.S.
Commission on National Security in the 21st Century. Secretary
Schlesinger discussed a comprehensive evaluation on national security
strategy and structure that was undertaken by the Commission. Regarding
human capital, the Commission's final report concluded:
``As it enters the 21st Century, the United States finds itself on
the brink of an unprecedented crisis of competence in government. The
maintenance of American power in the world depends on the quality of
U.S. Government personnel, civil and military, at all levels. We must
take immediate action in the personnel area to ensure that the United
States can meet future challenges.''
Secretary Schlesinger added further: ``. . . it is the Commission's
view that fixing the personnel problem is a precondition for fixing
virtually everything else that needs repair in the institutional
edifice of U.S. national security policy.''
This remains true as our government looks to deny terrorists, whose
purpose is to inflict grave harm on the United States, the resources
that they seek. I again thank Chairman Collins for convening this
hearing, and I look forward to the testimony of our witnesses.
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