    [House Hearing, 109 Congress]
    [From the U.S. Government Publishing Office]

                          WEAPONS OF MASS DESTRUCTION:
                      STOPPING THE FUNDING--THE OFAC ROLE

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

                                    HEARING

                                   BEFORE THE

                                SUBCOMMITTEE ON
                          OVERSIGHT AND INVESTIGATIONS

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                           ONE HUNDRED NINTH CONGRESS

                                 SECOND SESSION

                                   __________

                               FEBRUARY 16, 2006

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 109-73

                        U.S. GOVERNMENT PRINTING OFFICE
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                     HOUSE COMMITTEE ON FINANCIAL SERVICES

                        MICHAEL G. OXLEY, Ohio, Chairman

    JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
    RICHARD H. BAKER, Louisiana          PAUL E. KANJORSKI, Pennsylvania
    DEBORAH PRYCE, Ohio                  MAXINE WATERS, California
    SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
    MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
    EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
    FRANK D. LUCAS, Oklahoma             MELVIN L. WATT, North Carolina
    ROBERT W. NEY, Ohio                  GARY L. ACKERMAN, New York
    SUE W. KELLY, New York, Vice Chair   DARLENE HOOLEY, Oregon
    RON PAUL, Texas                      JULIA CARSON, Indiana
    PAUL E. GILLMOR, Ohio                BRAD SHERMAN, California
    JIM RYUN, Kansas                     GREGORY W. MEEKS, New York
    STEVEN C. LaTOURETTE, Ohio           BARBARA LEE, California
    DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
    WALTER B. JONES, Jr., North          MICHAEL E. CAPUANO, Massachusetts
        Carolina                         HAROLD E. FORD, Jr., Tennessee
    JUDY BIGGERT, Illinois               RUBEN HINOJOSA, Texas
    CHRISTOPHER SHAYS, Connecticut       JOSEPH CROWLEY, New York
    VITO FOSSELLA, New York              WM. LACY CLAY, Missouri
    GARY G. MILLER, California           STEVE ISRAEL, New York
    PATRICK J. TIBERI, Ohio              CAROLYN McCARTHY, New York
    MARK R. KENNEDY, Minnesota           JOE BACA, California
    TOM FEENEY, Florida                  JIM MATHESON, Utah
    JEB HENSARLING, Texas                STEPHEN F. LYNCH, Massachusetts
    SCOTT GARRETT, New Jersey            BRAD MILLER, North Carolina
    GINNY BROWN-WAITE, Florida           DAVID SCOTT, Georgia
    J. GRESHAM BARRETT, South Carolina   ARTUR DAVIS, Alabama
    KATHERINE HARRIS, Florida            AL GREEN, Texas
    RICK RENZI, Arizona                  EMANUEL CLEAVER, Missouri
    JIM GERLACH, Pennsylvania            MELISSA L. BEAN, Illinois
    STEVAN PEARCE, New Mexico            DEBBIE WASSERMAN SCHULTZ, Florida
    RANDY NEUGEBAUER, Texas              GWEN MOORE, Wisconsin,
    TOM PRICE, Georgia
    MICHAEL G. FITZPATRICK,              BERNARD SANDERS, Vermont
        Pennsylvania
    GEOFF DAVIS, Kentucky
    PATRICK T. McHENRY, North Carolina
    CAMPBELL, JOHN, California

                     Robert U. Foster, III, Staff Director
                  Subcommittee on Oversight and Investigations

                         SUE W. KELLY, New York, Chair

    RON PAUL, Texas, Vice Chairman       LUIS V. GUTIERREZ, Illinois
    EDWARD R. ROYCE, California          DENNIS MOORE, Kansas
    STEVEN C. LaTOURETTE, Ohio           CAROLYN B. MALONEY, New York
    MARK R. KENNEDY, Minnesota           STEPHEN F. LYNCH, Massachusetts
    SCOTT GARRETT, New Jersey            ARTUR DAVIS, Alabama
    J. GRESHAM BARRETT, South Carolina   EMANUEL CLEAVER, Missouri
    TOM PRICE, Georgia                   DAVID SCOTT, Georgia
    MICHAEL G. FITZPATRICK,              DEBBIE WASSERMAN SCHULTZ, Florida
        Pennsylvania                     GWEN MOORE, Wisconsin
    GEOFF DAVIS, Kentucky                BARNEY FRANK, Massachusetts
    PATRICK T. McHENRY, North Carolina
    MICHAEL G. OXLEY, Ohio

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        February 16, 2006............................................     1
    Appendix:
        February 16, 2006............................................    23

                                   WITNESSES
                          Thursday, February 16, 2006

    Werner, Robert W., Director, Office of Foreign Assets Control,
      U.S. Department of the Treasury................................     6

                                    APPENDIX

    Prepared statements:
        Oxley, Hon. Michael G........................................    24
        Kelly, Hon. Sue..............................................    27
        Werner, Robert W.............................................    28

                  Additional Material Submitted for the Record

    Lee, Hon. Barbara:
        Written responses to questions submitted to Robert Werner....    42

                          WEAPONS OF MASS DESTRUCTION:
                      STOPPING THE FUNDING--THE OFAC ROLE

                                  ----------

                          Thursday, February 16, 2006

                 U.S. House of Representatives,
                              Subcommittee on Oversight
                                    and Investigations,
                               Committee on Financial Services,
                                                       Washington, D.C.
        The committee met, pursuant to notice, at 10:06 a.m., in
    room 2128, Rayburn House Office Building, Hon. Sue W. Kelly
    [chairwoman of the subcommittee] presiding.
        Present: Representatives Frank, Kelly, Kennedy, Price,
    Davis, Gutierrez, Cleaver, and Scott
        Chairwoman Kelly. This meeting of the Oversight and
    Investigations Subcommittee will come to order. Today's hearing
    is on the role of the Treasury Department's Office of Foreign
    Assets Control (OFAC) in fighting the proliferation of weapons
    of mass destruction.
        The spread of WMD, particularly nuclear weapons, poses the
    greatest threat to the security of the United States and the
    peace of the world. We know, then, that countries such as Iran
    must be dealt with. We have all heard the hateful and ominous
    rhetoric from the president of Iran, and we should all
    recognize the grave threat posed by their possession of weapons
    of mass destruction.
        If Iran is successful, other nations will likely follow its
    example, and Iran itself could become a base for proliferations
    of WMD to enemies of the United States, including terrorist
    groups such as Hezbollah and Hamas. Acquisition of WMD,
    particularly nuclear weapons, is an activity that states cannot
    easily undertake without assistance from nations that already
    possess this technology. Even the United States' own Manhattan
    Project, the first successful nuclear project weapons program,
    required the technical skills not only of our own country, but
    of industry from the British empire, and the best minds of
    Germany, who were forced to flee because of Nazi persecution.
        Recognizing the key role foreign industry plays in WMD
    proliferation, President Bush signed Executive Order 13382,
    blocking property of weapons of mass destruction proliferators
    and their supporters. Under this order, 18 companies have been
    designated as supporters of proliferation, including 6
    companies in Iran, 11 in North Korea and 1 in Syria. This order
    strikes at proliferation by stopping these companies from
    having any access to the U.S. financial system.
        This Executive Order is a powerful weapon to be used
    against WMD proliferators. It can only work to the extent that
    financial institutions and other government agencies cooperate
    with it. Unfortunately, there have been reports that one of the
    largest financial institutions in the world, ABN AMRO, had a
    deliberate policy of not reporting transactions with Iran to
    OFAC. There is a possibility that these transactions going back
    to 1997 may have allowed Iranian companies now listed under
    E.O. 13382 to access the U.S. economy.
        Evasion of sanctions regimes by financial institutions
    endangers the United States and our allies and must be treated
    in a way that reflects the severity of the crimes that are
    facilitated. A recent article in The Wall Street Journal
    reported that more than seven major financial institutions were
    withdrawing from trade with Iran because of increased
    regulatory monitoring. Several of them are under investigation,
    according to filings with the SEC, for possible violations of
    OFAC regulations while they did business with Iran.
        This country should never tolerate businesses making money
    from hostile regimes that are working to develop weapons of
    mass destruction. We must make sure the system that we have in
    place for addressing that is not easily circumvented. OFAC has
    an important responsibility in protecting our national
    security, and I look forward to receiving the testimony of
    Director Werner and working with him to strengthen his agency.
        I turn now to Mr. Gutierrez.
        Mr. Gutierrez. Thank you, Chairwoman Kelly, for calling
    this hearing, the first oversight hearing of 2006. We've worked
    together on many issues and presided over many hearings,
    particularly on today's subject; combatting the financing of
    terrorist activities.
        I want to welcome Director Werner here this morning. The
    last time I recall receiving testimony from OFAC was in June of
    2004. At that time, Mr. Werner's predecessor indicated just how
    much OFAC had grown--from 10 employees to 144--administering 27
    economic sanctions programs.
        I see from the first page of your testimony that you
    currently have 125 employees handling 30 programs. I know that
    not everything can be evaluated in terms of numbers, but at the
    appropriate time I will ask you, Director, if that means that
    you have 20 vacancies currently at OFAC since the last time,
    which was June of 2004, you had 134 employees, and if you're
    working to fill those positions, and whether that work that the
    people were doing was vital.
        Recently, the front page of USA Today had a story called,
    ``Fewer Terror Assets Frozen. Lack of Urgency Feared in the
    Front.'' I would ask unanimous consent to place this article in
    the hearing record.
        Chairwoman Kelly. So moved.
        Mr. Gutierrez. Again, while I don't believe that the
    numbers tell the complete story, and certainly immediately
    after 9/11, there was a lot of low-hanging fruit which
    artificially inflated the number of assets frozen at the time,
    I'm concerned about some issues raised in that article as well
    as in the report by the GAO last October.
        The GAO report indicated a number of problems in the
    overall efforts to combat terrorist financing, many of which
    were directly linked to turf battles between Treasury and
    State. While some of those issues are beyond the scope of
    OFAC's activities, and are better addressed by others at
    Treasury, many of your activities require OFAC, as in your
    opening statement again, to work very closely with the State
    Department.
        Therefore, I'm interested in learning what steps OFAC has
    taken in the face of that report to improve its working
    relationship with State and how the roles, responsibilities,
    and procedures are defined when agencies working together on
    designations and blocking.
        Finally, there is a point mentioned both in the USA Today
    article and the GAO report which falls squarely within your
    purview. The GAO recommended that Treasury provide more
    complete information on the nature and extent of asset blocking
    in its annual terrorist assets report to Congress. That's us.
        I was shocked to see that Treasury's reply to the
    recommendation was that the agency objected and instead wanted
    the GAO to recommend discontinuing these reports. When I read
    the GAO report, it said this is what we recommended, this is
    what they responded, and I guess they wrote everything in the
    report. That's what I read. As a Member of Congress,
    particularly a member of the Oversight Subcommittee, I want the
    reports. I understand we should receive the next one in April.
        As I said earlier, I'm not hung up on numbers, but I think
    we need a way to measure effectiveness. If these snapshots do
    not provide us with that ability, please help us figure out how
    to assess your performance and include additional information
    to place the numbers in context. I think that's what the GAO
    report--we said we needed more numbers to place it in context.
        Thank you very much, and I look forward to the Director's
    testimony.
        Chairwoman Kelly. Mr. Price, have you an opening statement?
        Mr. Price. Thank you, Madam Chairwoman. I also want to join
    my colleague in thanking you for calling this hearing and
    welcoming the Director. I look forward to your testimony. I
    would also be interested in your assessment of whether or not
    Congress is getting the kind of information that it needs.
    There's some indication, as Mr. Gutierrez said, that we're not,
    and I would appreciate your comments about that.
        I also am interested in whether or not you are able to
    interact with any other nations who have similar concerns in
    terms of WMD and assisting in limiting the amount of resources
    that are going to folks who are interested in developing that,
    and I haven't seen that in your report. I look forward to your
    testimony and welcome you.
        Chairwoman Kelly. Thank you. And we're joined by the
    ranking member of the Full Committee, Barney Frank.
        Mr. Frank. Thank you, Madam Chairwoman, for this. And I
    appreciate the way you and the ranking member have worked
    together to make the Oversight Subcommittee an effective part
    of our work.
        Mr. Werner, I'm troubled by something that is not your
    responsibility personally. You may be a victim of it, but
    you're here as a representative of the Treasury Department. And
    I read the GAO report. I should say that I don't usually get to
    come to this subcommittee's hearings. I think the chairman and
    ranking member work very well together. They do an excellent
    job on oversight. And with the responsibilities of ranking
    member of the Full Committee, with all of the subcommittees,
    it's hard to get to them all.
        But I was so appalled when I read the GAO report on
    terrorist financing that came out in October, that I had to
    come here. What the GAO says is that there is a major turf
    battle going on between Treasury and State. Shame on us. This
    is an extraordinarily important issue, terrorist financing, and
    we have a State-Treasury dispute, according to the GAO. State
    says it's the lead agency. Treasury says, no you're not.
    Justice says they don't agree with either. And the fact that a
    dispute of this sort goes on and isn't resolved is appalling to
    me.
        So one question I have is, why hasn't this been brought to
    the National Security Council, which I assume would be the
    appropriate place to mediate a serious interdepartmental
    dispute, and have it resolved? The report, from pages 16 to the
    end, talks about serious disagreements and says that this hurts
    our efforts.
        Let me read in the report just the headings. ``State and
    Treasury officials also disagree on procedures and practices
    for the delivery of counterterrorism financing, training and
    technical assistance.'' ``State and Treasury officials disagree
    on the use of OTA funding and contractors.'' ``State, Justice
    and Treasury officials disagree on whether it is appropriate
    for U.S. contractors to provide assistance in the legislative
    drafting efforts.'' ``Treasury and State officials disagree on
    the use of confidentiality agreements between contractors and
    the foreign officials they advise.'' ``State and Treasury
    officials disagree with the procedures for conducting
    assessments of countries' needs for training and technical
    assistance.''
        This is appalling. And I really would hope you will tell
    us, do these disagreements persist? This is a report issued in
    October. Do these disagreements persist? What efforts have been
    made? You know, have any of these six or seven disagreements
    now, have we come to agreement? Maybe you can bring the U.S.
    Trade Representative in and he can negotiate a treaty here. He
    doesn't seem to be doing too well in Dubai. He may have some
    extra time.
        Have these been resolved? If not, what's going on to
    resolve them? Has this gone to the White House? Has it gone to
    the National Security Council? I would think this is what you
    have a National Security Council for. And apparently, you know,
    I should say there may be some Congressional problem here. This
    reports cites some statutes that aren't explicit about some of
    these things. But that's what you have a White House
    coordination body for. And this kind of three-way disagreement
    is a serious problem.
        Now, I also think it does not do, frankly, to ignore
    problems. You make one reference here to the State Department
    and how you work with the State Department in your statement,
    and that's a good thing, but frankly, when you read this GAO
    report, you have to question the kind of bland notion of things
    about how you work together. And as I say, these are not simply
    jurisdictional issues with no substance. These are substantive
    issues.
        And so I will be asking you, do these disagreements listed
    in the GAO report persist? If so, what efforts are being made
    to resolve them? Is there some interagency procedure that is
    set up to deal with them? The persistence of disputes. I mean,
    I've got to say, this is so dysfunctional. I listened to what
    GAO reports, and what Treasury and State think, and I think I'm
    seeing one of these kinds of major disagreements like between,
    you know, I don't know, between the head of FEMA and the head
    of Homeland Security. I mean, we're talking about apparently a
    serious disagreement about how to function, and on something
    that is so important, terrorist financing.
        For the Treasury and State Departments to be in prolonged
    disagreement and for the White House not to have resolved it is
    a serious problem. Some problems you can't fix in the world.
    But I would think these kinds of disagreements over who's in
    charge and what procedures to follow between two American
    governmental departments ought to be solvable if the
    Administration simply had its attention called to it.
        Thank you, Madam Chairwoman.
        Chairwoman Kelly. I thank you. And, Mr. Frank, I would be
    delighted if you are still here that you ask questions, but if
    you are not here, if you want to submit those in writing, we
    will accept them and put them in the record.
        Mr. Frank. Thank you, Madam Chairwoman. I'm going to try
    and stay.
        Chairwoman Kelly. Thank you. I also would like unanimous
    consent to put a statement from Chairman Oxley in the record.
    So moved.
        And we'll turn now to Mr. Davis.
        Mr. Davis. Thank you, Madam Chairwoman. I think in the age
    of the global economy where countries, economies, corporations,
    people, and groups around the world become increasingly
    interconnected, many of our traditional governmental mechanisms
    that we've used for regulation and oversight are not as
    effective as they once were.
        And as we look at this problem, the seriousness of it, I
    see tremendous opportunities for the Treasury and State
    Departments to come into a new type of hybrid relationship
    dealing with these issues at the root.
        And particularly as somebody who's watched the emergence of
    Iranian nuclear capability very, very closely, one of the
    ironies that I have found in that and other purveyors of
    weapons of mass destruction, that some of the very countries
    that are trying to prevent or deter Iran's emergency in the
    nuclear world actually had corporations and businesses who had
    a tremendous vested interest in selling components or
    supporting elements, technologies, providing services,
    infrastructure and construction, that contributed to this
    problem in the long run. So in a sense, it facilitated creation
    of it and now we're trying to solve that problem.
        And I think one of the things that we would hope to hear
    about, and to help you with in any way from our perspective, is
    bringing to account these entities in countries with whom we do
    a tremendous amount of business, have a tremendous amount of
    trade, to prevent and deter them at the root from continuing
    these relationships in the long run.
        And with that, I yield back.
        Chairwoman Kelly. Thank you, Mr. Davis. Our witness today
    is Robert Werner, Director of the Office of Foreign Assets
    Control, U.S. Department of the Treasury. Director Werner has
    led OFAC since October of 2004. Prior to then, he served as
    chief of staff of FINCEN. He has also served in the U.S.
    Attorney's Office, the Connecticut Attorney General's Office,
    and has clerked for two U.S. Supreme Court justices. He is a
    graduate of New York University School of Law, Columbia
    University, and Amherst College.
        We welcome you here this morning and look forward to your
    testimony. You may proceed, Mr. Werner. I assume that you
    understand our light system for the timing. I will extend to
    you as much courtesy as I can, depending on how long you go.
    But because this is a busy place, I tend to try to keep people
    within the 5-minute rules. The green light means there's 5
    minutes. The yellow light means there's 1 minute, and please
    sum up, and the red light obviously means that we're out of
    time.
        Please--we're very interested in this topic, so please
    proceed. Thank you.

      STATEMENT OF ROBERT W. WERNER, DIRECTOR, OFFICE OF FOREIGN
            ASSETS CONTROL, U.S. DEPARTMENT OF THE TREASURY

        Mr. Werner. Thank you very much. Chairwoman Kelly, Ranking
    Member Gutierrez, and distinguished members of the
    subcommittee. Thank you for this opportunity to discuss the
    Administration's efforts to combat the financial underpinnings
    of the proliferation of weapons of mass destruction.
        I also thank you for your long-standing leadership and
    support in fostering an ongoing dialogue on this and other
    issues concerning national security that affect all Americans.
        OFAC is dedicated to carrying out the complex mission of
    administering and enforcing U.S. economic and trade sanctions
    based on U.S. foreign policy and national security goals. We
    currently have approximately 30 such programs, including
    residual enforcement actions related to programs that have been
    lifted. These programs target rogue nations as well as
    particular groups, entities, and individuals.
        I also note, Madam Chairwoman, that all of the programs we
    administer require that we work closely with a broad range of
    government agencies and private sector industries. We are
    presently making efforts to expand and improve our
    communication with our diverse constituencies, ranging from the
    financial and service sectors to manufacturing and agricultural
    industries. In turn, the cooperation we receive from U.S.
    businesses in complying with sanctions is generally
    exceptional.
        I would now like to turn to the primary reason we are
    gathered here today. In the aftermath of the September 11,
    2001, attacks, the horrifying prospect of WMD falling into the
    hands of terrorist or rogue regimes has become all the more
    real to us. Recent events involving the nuclear programs of
    North Korea and Iran demonstrate the challenge we face.
        Prior to the President issuing the new WMD order, the U.S.
    Government had imposed a variety of other sanctions with
    respect to proliferation of WMD. For example, Executive Order
    12938 authorizes the Secretary of State to impose procurement
    assistance and import bans against foreign entities and
    individuals determined to have contributed materially to the
    proliferation efforts.
        In examining the existing arsenal of financial sanctions
    tools to combat proliferation, however, the President and
    others, such as the members of the Silverman-Robb WMD
    Commission, believe that more could be done. On June 29, 2005,
    as you noted, the President took an additional step by issuing
    Executive Order 13382. This order adds powerful tools, a
    transaction prohibition and an asset freeze, to the array of
    options available to combat WMD trafficking. The strong new
    blocking provisions imposed by the President apply to property
    and interests in property of entities and individuals
    designated under the order.
        By prohibiting U.S. persons from engaging in transactions
    with entities and individuals targeted by the order, we can
    effectively deny proliferators and their supporters access to
    the U.S. financial and commercial systems, cutting them off
    from the benefits of our economy.
        At the same time the President issued Executive Order
    13382, he also designated eight entities in North Korea, Iran,
    and Syria. The entities designated by the President based on
    evidentiary packages developed by OFAC investigators in close
    cooperation with colleagues in various agencies reflect some of
    our government's primary proliferation concerns.
        The risks of WMD proliferation associated with North Korea,
    Iran and Syria are of tremendous concern to all of us. By
    publicly designating entities and individuals that engage in
    proliferation activities and those that support them, we aim to
    first expose their illicit activities. Through public
    designation, we intend to inform third parties who may be
    unwittingly facilitating proliferation through what they
    believe to be legitimate business activity of their association
    with WMD proliferators. We also mean to isolate these
    proliferators financially and commercially by denying them
    access to our system, and to disrupt and impede the operations
    of the WMD proliferators and their supporters.
        While the public designation of these entities by the
    President which exposes their illegitimate activities to the
    light of public scrutiny is very important, OFAC's continuing
    role as part of administering the sanctions program is to look
    behind these entities. For our investigators, the entities
    named by the President represent a starting point as we seek to
    unravel the support networks that enable these entities to
    function.
        In addition, the subsequent designation of any entity or
    individual serves as an additional basis for aggressive
    investigation by OFAC in pursuit of designating additional
    parties. We refer to these as derivative designations, and it
    is this approach, targeting the broader support networks, that
    has over time proved to be a determining factor behind
    successful designations. With decades of experience in
    administering and enforcing dozens of economic sanctions
    programs, one lesson is clear to OFAC: True success is based
    not on isolated designation actions, that is, actions
    undertaken only once with no follow-up. Quite to the contrary,
    our greatest areas of success have been based on sustained
    aggressive action over time that evolves and adapts to match
    the ever-changing methods of our adversaries.
        As we apply the designation criteria of the order to strike
    our adversaries again and again, we disrupt their attempts to
    disguise their illicit activities in the stream of illicit
    commerce. In the context of the new order, this means we target
    not only the missile or bomb maker, but also the procurement
    funds, the brokers and middlemen, the logistical apparatus used
    to move dangerous weapons to market, and the financiers that
    provide the financial mechanisms that facilitate proliferation
    activities. And we've tried to visually display that on the
    slide above, because that's very, very important and key to how
    we approach our designations.
        I should also emphasize that interagency coordination is
    clearly a critical part of the designation process, because we
    have to ensure that our public designation of entities and
    individuals comprising a network do not jeopardize the ongoing
    operations of our colleagues in law enforcement, with the
    intelligence community, and are consistent with our
    government's foreign policy and national security objectives
    and interests.
        Finally, I also think it is important to highlight that
    this new sanctions program underscores the President's
    commitment to work with our international partners to foster
    cooperative efforts against WMD proliferation, including those
    undertaken through the Proliferation Security Initiative.
        In addition, we hope that this program can provide a model
    for other nations to draw upon as they develop their own laws
    to stem the flow of financial and other support for
    proliferation activities as called for in the United Nations
    Security Council Resolution 1540 and the Gleneagles statement
    of the G-8. In that regard, a number of agencies, including
    Treasury and State, have been engaging in active outreach
    across the world.
        Once again, I thank you for the opportunity to discuss
    OFAC's role in this important program, and I would be pleased
    to answer any questions you have.
        [The prepared statement of Mr. Werner can be found on page
    28 of the appendix.]
        Chairwoman Kelly. Thank you so much, Director Werner.
    You're doing very important work. And also thank you so much
    for the slides that you have shown us.
        I've got a couple of questions. First is a question about
    whether or not the United States is concerned that ABN AMRO was
    laundering WMD money for Iran through Dubai. Are you concerned?
        Mr. Werner. I'm very concerned by the kind of activity that
    the ABN AMRO case demonstrated may have been going on. We know
    what was going on with ABN AMRO, and that activity is a real
    threat to OFAC programs, which is why we were so pleased to be
    able to join with the Federal Reserve in taking very, very
    significant action against that bank for what, as you said,
    Madam Chairwoman, was really a very intentional, systemic
    program to strip information out of transactions and thereby
    deny U.S. persons the ability to understand what sort of
    transactions were flowing through the United States.
        Interestingly enough, what we saw in that case was some of
    the transactions that they're shipping information out of the
    United States were, with respect to the underlying
    transactions, not illegal. They were U-turn transactions, which
    are permitted by the Iran program. But other transactions we do
    see landed in the United States. They were not U-turned and
    clearly violative of our programs. And more importantly, the
    practice of stripping that information, while U-turns may be
    okay in Iran, they're not okay in other programs. And that very
    practice was really, really troubling to us.
        We were pleased to be able to make a very strong statement
    with the ABN AMRO action, and we intend to continue to look at
    other situations that may involve other international banks
    involved in that kind of conduct, because as you know, it's
    WMD, it's terrorism, it's narcotics trafficking. It's
    everything that our programs are aimed at that can really be
    circumvented by that kind of systemic program.
        Chairwoman Kelly. Americans now know that Dubai was a
    financial center for Al Qaeda prior to the attacks of 9/11.
    Would Americans be wrong to think that now Iran may be running
    some of its WMD acquisition program through the banks in Dubai?
        Mr. Werner. Dubai is an area, because it is such a growing
    transit point for trade, that is of tremendous concern to us,
    and it's an area that we will continue to try and work on with
    the UAE and with other industries that we regulate, to make
    sure that we can understand what sort of activities are going
    through the ports there and what are the vulnerabilities that
    we face.
        Chairwoman Kelly. Has Treasury ever raised the concerns
    about WMD proliferation and the massive Iran sanctions busting
    with Dubai?
        Mr. Werner. We have; in fact, my Deputy Director just got
    back from a trip to the UAE with an interagency team where the
    issue of proliferation and developing joint ways of addressing
    that was raised.
        Chairwoman Kelly. Were these issues raised when Treasury as
    the head of the Committee on Foreign Investments in the United
    States reviewed and recently approved a Dubai company, Dubai
    Ports World, taking control of six major U.S. ports, including
    the ports of New York and New Jersey?
        Mr. Werner. Madam Chairwoman, I know that's an issue of
    concern to you. It's both outside of my responsibilities at
    OFAC and outside of my knowledge base. I'm unable to address
    that.
        Chairwoman Kelly. Mr. Werner, would you be able to get me
    an answer for that, please?
        Mr. Werner. I will take your question back to Treasury.
        Chairwoman Kelly. What would you say to suggestions that
    Dubai should be a candidate for designation as a jurisdiction
    of primary money laundering concern?
        Mr. Werner. Again, that's outside of the specific OFAC
    role. It's a significant policy issue. I think that while
    there's no question that we have to pay a lot of attention to
    the kinds of activity that may be flowing through the ports in
    Dubai, and my experience has been that our outreach to the UAE
    is well received by them, and that they're anxious to engage in
    a dialogue with us.
        And so again, others would decide whether to designate them
    as a primary money laundering concern. But what I can say is I
    agree with you that it's an area that we have to pay attention
    to. On the other hand, my own feeling is that they're striving
    to work with OFAC on our issues.
        Chairwoman Kelly. Of course they're going to appear to
    strive, simply because they want to buy six major ports. But I
    would hope that you can come back to me with an answer on that
    question I asked about the ports. But I also understand that
    perhaps a bit of cynicism on our part from Treasury in dealing
    with these people might be beneficial.
        I am very concerned about Dubai and their role in what we
    know was funding and passing the money through from Al Qaida
    prior to 9/11.
        I want to ask you another question. Last year, a man was
    indicted in Connecticut for allegedly selling prohibited
    equipment to a branch of the Iranian government which is
    involved in producing ballistic cruise missiles. The indictment
    alleged that he hid the deal using an Iranian bank with a
    branch in the UAE.
        The indictment quoted a fax this individual sent to this
    Iranian weapons agency, and I'm going to read a quote from that
    fax. The quote is, ``All transactions between our firms can be
    handled through Bank Saderat, Dubai, main branch, by directly
    depositing the funds to our account to avoid tracing of foreign
    agencies.''
        Is the Bank Sadarat an entity of specific concern? And if
    not, why not?
        Mr. Werner. Well, Bank Sadarat, which is an Iranian-
    controlled bank, is actually under our current Iranian
    sanctions program. No U.S. person is permitted to deal directly
    with that bank. So, yes, Bank Sadarat is an entity of concern
    under our existing sanctions programs.
        Again, Madam Chairwoman, you're raising an excellent point.
    The whole issue, though, of front companies and the possible
    use of UAE incorporated companies by Iranian entities or
    citizens is an issue of concern for us. It's a challenge in all
    of our programs, from the narcotics trafficking program to the
    terrorist program to WMD, which is that as people strive to use
    the formal financial commercial system, they've developed very
    creative ways of creating entities that appear innocent but
    aren't. And that is one of the areas in which we've attempted
    to target our resources. It's very labor intensive. The more
    transparency we can get in our system--as well as in the
    systems of other countries--the more that will facilitate our
    ability to trace people as they create these front companies.
        Chairwoman Kelly. Well, clearly, this gentleman felt that
    all he had to do was be at Bank Sadarat in a Dubai branch,
    which raises the concern of how carefully OFAC is looking at
    branches, international branches of banks.
        I'm interested in knowing whether or not Bank Sadarat used
    money for other groups like Hezbollah and Hamas. Should the
    British be concerned about the fact that Bank Sadarat has a
    very large office in London?
        Mr. Werner. I think as the Director of an entity that
    spends a lot of time administering the Iran sanctions program,
    I'm concerned about any Iranian bank and the branch of any
    Iranian bank. I would suggest that other countries should be as
    well.
        We know that one of the things we need to do is engage in
    very robust international outreach, and OFAC does some of this,
    but other parts of Treasury and State are also engaged in this,
    because we're only as good as our weakest link. And the fact of
    the matter is, without really gaining international consensus
    on these issues, it's very, very difficult to completely
    disrupt the flow of finances. And so, these are issues of
    concern.
        Chairwoman Kelly. I would hope that they would be
    addressed. The Wall Street Journal reported last year that the
    United States suspects the Bank of China of laundering North
    Korean money. I'd like to know whether you feel this is true;
    has that issue ever been raised with the Chinese; and has the
    bank become another candidate for Treasury Department
    designation like Banco Delta Asia was?
        Mr. Werner. Madam Chairwoman, I apologize. I can't comment
    on any specific examples that may or may not be under
    investigation, but what I can tell you is that we are
    constantly as a general matter looking at major financial
    centers and major banks to see if there's facilitation in any
    of the areas that we administer our programs, whether it's WMD,
    terrorism, narcotics trafficking, or even our country programs.
        And I think in that respect, the ABN AMRO action is a good
    example of that, where the result of that action is a major
    bank that is completely reforming the way that it operates
    internationally, including beginning to use the OFAC list to
    screen all currency transactions, not just U.S. dollar
    transactions. Therefore, I'm in complete agreement with you
    that OFAC, with the resources it has, needs to stay vigilant
    and keep track of all these institutions and take aggressive
    action wherever we find systemic violations.
        Chairwoman Kelly. Since you brought up ABN AMRO, I have one
    last question about that. A Wall Street Journal article
    indicated that the chairman of ABN AMRO, Chairman Grunick,
    ordered the destruction of an internal review of the bank's
    dealings with Iran and Libya. He apparently rescinded this
    order, but he had ordered it. Has OFAC seen the document? And
    if so, can you characterize it for us?
        Mr. Werner. I have not seen that document.
        Chairwoman Kelly. Is that something--you are aware of the
    document?
        Mr. Werner. I would need to go back and review what parts
    of the record that OFAC has that are open source versus not
    open source.
        Chairwoman Kelly. Perhaps, Mr. Werner, you could get an
    answer for me on that one also?
        Mr. Werner. I will be happy to do that.
        Mr. Werner. Thank you very much. I turn now to Mr.
    Gutierrez.
        Mr. Gutierrez. Hi. I'd ask unanimous consent, Madam
    Chairwoman, to yield my time and turn to the ranking member of
    the Full Committee, Congressman Barney Frank. Thank you.
        Mr. Frank. I thank the ranking member. I appreciate it. Let
    me say, Mr. Werner, none of this may be your fault, and some of
    it may not be your responsibility, but it is so important, I'm
    going to ask you to comment, and if you can't give me the
    answer, then you can go back and get it.
        You do mention in here that you work with State, although I
    must say a little more optimistically than I would have thought
    after reading this. First point of disagreement. There were six
    separate disagreements. I'm going to ask you about each one,
    the status of it.
        In the report that came out in October--maybe things got
    cleared up:
        Treasury does not accept State's position that State needs
    all U.S. counterterrorism financing, training, and technical
    assistance. Disagreements continue between some Treasury and
    State officials concerning the Terrorist Financing Working
    Group. According to State, State leads the U.S. effort to
    provide counterterrorism financing, training, and technical
    assistance to all countries the U.S. Government deems
    vulnerable. According to Treasury, State's role is limited to
    coordinating other U.S. agencies' provisions of
    counterterrorism financing, and there are numerous other
    efforts outside of State's program.
        Does that disagreement persist?
        Mr. Werner. Congressmen, none of the issues on technical
    assistance do fall within OFAC's purview. Those involve other
    components of Treasury. What I can tell you is, because I'm
    very proud of it, is that our cooperation with not just the
    State Department but the Commerce Department and other agencies
    that we have to deal very closely with on our programs, is
    excellent.
        We work closely with the State Department not only in
    designations that our investigators are working on, but also in
    very significant--
        Mr. Frank. Does that mean, then, that the Secretary of the
    Treasury or whomever is in charge of this overall, could learn
    from you how to play well with the others and maybe give that
    instruction to your colleagues?
        Mr. Werner. I don't believe that Treasury agreed--or State
    agreed that the disconnect that was in the GAO report
    accurately reflects the state of play between Treasury and
    State.
        Mr. Frank. Well, you think these disagreements are wrong.
    Is there a disagreement between--does Treasury accept the fact
    that State is the leader of all counterterrorism financing,
    training, and technical assistance or does State no longer
    believe that?
        Mr. Werner. Congressman, I think I'd have to bring your
    questions back to the people at Treasury.
        Mr. Frank. All right. Well, then, I agree with that, but if
    you don't want to answer, or if you're not able to answer,
    that's okay. But then you shouldn't answer. I mean, if you
    can't answer, okay. But then don't--I'm troubled if you tell me
    you can't answer but then there's no real problem, because
    that's an answer. And then I will have to try and probe that.
        Now, let me ask you this. Yes, this talks about OTA that
    it's not true, but it says State, Justice, and Treasury
    disagree on whether it is appropriate for U.S. contractors to
    provide assistance in the legislative drafting efforts on anti-
    money laundering and counterterrorism financing.
        Does that involve you at all, drafting of anti-money
    laundering and other legislative proposals?
        Mr. Werner. Congressman, I'm going to take your advice and
    tell you that I can't answer.
        Mr. Frank. Are you not involved in the legislative drafting
    of money laundering?
        Mr. Werner. I am not involved in that, and OFAC does not
    provide that sort of technical assistance.
        Mr. Frank. Okay. Well, I would then ask, Madam Chairwoman,
    perhaps we could write to the Secretary, and to the Secretary
    of State. There are from pages 14 through 18, 6 separate
    disagreements listed, and I would ask that we ask both State
    and Treasury about that and maybe ask people to come and have a
    hearing, and maybe we could even approach, because we ought to
    set a good example about turf, our colleagues, our counterparts
    at the International Relations Committee, and maybe we could
    have a joint hearing with both State and Treasury, and it might
    be I think a useful thing for us to be able to help resolve
    this.
        Chairwoman Kelly. I think that sounds like a good idea.
    Actually, this committee's staff has been working with OFAC
    staff to see if we could have a hearing on the broader aspects
    of this, possibly in March.
        Mr. Frank. I appreciate that, and I yield back.
        Chairwoman Kelly. Thank you. Mr. Price.
        Mr. Price. Thank you, Madam Chairwoman, very much. Mr.
    Werner, I won't give you any instructions about how to answer,
    for fear that you might not answer.
        I appreciate your testimony. I am struggling a bit, though,
    because I think there's a disconnect between your report and
    certainly the GAO report, and I'm struggling as to whether or
    not to probe the process that you're going through or whether
    or not to ask questions about specific incidents.
        But I do want to point to the GAO report for a couple of
    the conclusions that they reach. One is that OFAC reports on
    the nature and extent of terrorists' U.S. assets don't provide
    Congress with the ability to assess your achievements. Do you
    agree or disagree with that statement?
        Mr. Werner. That is an OFAC issue, and I would agree with
    that statement, and we were working on new metrics during the
    time that the report was being formulated.
        In addition, the TAR Report, which was historically never
    intended to be a performance-based report, was looked at as
    well and we saw that the way it was formatted was not as
    informative as it could be. So that's why the submission of
    that report is delayed, because we are working on reformatting
    that information so that it also will be more useful.
        Mr. Price. Your testimony to us would lead me to believe or
    would lead one to believe that we're doing very well, that
    we're tracking what we need to track, and that we're having a
    positive effect. But I'm not certain that I can sit here with
    all confidence and say that, yes, in fact that's what's
    occurring. Are you able to give me any greater confidence or
    give us greater information which would give us that
    confidence?
        Mr. Werner. I would note that the 9/11 Commission gave
    terrorist financing an A-minus, so hopefully that was some
    indication that we were on the right track. But beyond that,
    it's easier to measure things with numbers, and so people tried
    to grab things that had quantitative aspects, and freezing
    assets was one of them. And again, right after 9/11, there was
    a lot of low-hanging fruit, and there were a lot of assets that
    were frozen.
        But, frankly, that's just not a good measure of the overall
    success of a program, because the assets we freeze are only one
    component of what we do. What we're really trying to do is
    disrupt the network. And, frankly, whether they have assets
    within the United States or not, a designation that disrupts
    their ability to transact business in the international economy
    is disruptive and effective. And we have indications that is
    the case. We see other countries beginning to work with us on
    our various programs and joining us in freezing assets.
        We see them excluding business from their jurisdictions. We
    also begin to see banks voluntarily pulling their business out
    of Iran or other jurisdictions. Even when they're outside of
    our jurisdiction now, they're telling us they're going to use
    the OFAC list to screen transactions, even transactions that
    are not in U.S. dollars.
        Those are all indications to me that our programs are being
    effective, not only in terms of asset freezing and not only in
    terms of disruption and exclusion from the U.S. economy, but in
    creating awareness and exposing and isolating terrorists and
    drug traffickers and proliferators internationally.
        And so, while some of these things are anecdotal, and we
    have to collect information over time, I do believe that we're
    seeing positive results. We can always do better. We can always
    do more. We're allocating the limited resources we have as best
    we can. But I would say that I can assure you that our programs
    have a positive effect, and they're meeting objectives that we
    set in terms of disruption and isolation and exposure.
        Mr. Price. Thank you. I appreciate that. The subcommittee
    here has found the task of tracing the assets of foreign
    leaders, and has been somewhat stymied with bank secrecy laws.
    And so the relative lack of transparency that exists in many
    other nations, how can you ever know whether front companies
    anywhere are working with terrorist financing?
        Mr. Werner. Congressman, you've hit on an excellent issue,
    a very difficult issue. In some countries, for example, in
    Colombia, our narcotics trafficking program is very effective
    because we've been able to work with the Colombian government
    on their corporate laws and their transparency. And as they've
    become more transparent, working together, our two countries
    have become much more effective in tracking front companies and
    networks.
        In other places where there isn't that kind of
    transparency, it's very difficult. And I would add, in the WMD
    program, it's particularly difficult because we're dealing not
    just with private entities. In many cases, we're dealing with
    governmental entities, and their ability to impact the official
    records that would lead you to be able to trace corporate
    entities makes it even more challenging. So this is a very,
    very significant challenge for us.
        As we administer these programs, we're going to hopefully
    learn how to get around that or work within it, but it's going
    to require a lot of international outreach. It's why we do need
    to work closely with the State Department. It's why OFAC needs
    to rely very heavily on other elements of TFI as they do
    outreach through FATF and through the G-8 and other
    international bodies; it's critical in order for us to be
    effective in the way we administer these programs.
        Mr. Price. My time has expired, but I do want to commend
    you for what you're doing. And I know that you know that your
    work is incredibly vital to each and every American citizen,
    and I appreciate what you're doing and ask you to view us
    please as partners and allow us to assist you if there's
    anything that we can do to help you accomplish your efforts.
        Mr. Werner. I appreciate that. Thank you, sir.
        Chairwoman Kelly. Mr. Gutierrez.
        Mr. Gutierrez. Let me ask you a question about the GAO
    report. Maybe you can answer this question. I hope you can. Why
    did Treasury ask the GAO to recommend the discontinuation of
    your annual terrorist assets report to Congress? Do you feel it
    should be discontinued? And why or why not? I understand the
    next one will be ready in April.
        Mr. Werner. I'm a little bit confused by that question,
    because I was not aware that we had asked for the elimination
    of that report. I know that there's another report that
    Treasury was responsible for being involved in that I think
    Treasury did maybe seek to have eliminated.
        Mr. Gutierrez. Okay. And given the lack of time and the
    confusion between what I understood the GAO report to say and
    what you're testifying the GAO report might have said, could
    you report back to us on just what it was Treasury asked the
    GAO you should discontinue? There's no disagreement that there
    was a discontinuation of something.
        Mr. Werner. I'll have to get back to you on that. I don't
    want to misstate something. And I'm not really sure.
        Mr. Gutierrez. Just get back to us and tell us what annual
    report it was that the GAO report actually was correct or
    incorrect about when Treasury asked that it be discontinued.
        Mr. Werner. Sure.
        Mr. Gutierrez. Okay. The decline in OFAC's staff from 144
    in June to 125 today. I see your testimony provides for 10
    additional employees to implement Executive Order 13382, and 15
    additional positions.
        Will this simply bring up your numbers to 2004 numbers? Or
    are there vacancies present? And how are you doing more work
    with fewer employees? Is that okay? Or you just need to hire
    people? What's going on?
        Mr. Werner. What happened there is that a component of
    OFAC, the Foreign Terrorist Division, was transferred into the
    new Office of Intelligence and Analysis that was established in
    2004, and there was a transfer of about 23 analysts.
        The reason that was done is that they were all working on
    the terrorist targeting programs, which were very, very heavy
    intel-related programs. And it was believed, and I think it's
    proven to be true over the last year, that moving those
    analysts into the Office of Intelligence and Analysis headed by
    an Assistant Secretary that was an intel professional, would
    enhance their ability to do their work. And I think we've seen
    that.
        I remain a customer, because the designations are still
    done under my authority, and we still administer and enforce
    the programs. But that was why OFAC went from the 144, went
    down. This year actually we've got an additional 10 FTE's that
    have been allocated. Next year, under the President's budget,
    we're requesting an additional 25 positions or 15 FTE's. But
    those are really--
        Mr. Gutierrez. So you sent people over to another division,
    and you still get the information, but they're working under
    another system?
        Mr. Werner. That's correct.
        Mr. Gutierrez. That clears up the mystery. I just wanted to
    make sure if you needed any help or what was going on, maybe if
    people weren't getting hired.
        I want to ask you a question. Do you agree with former
    Under Secretary Guru's comments in USA Today? Specifically, he
    said, a lack of urgency is hurting efforts to block terrorist
    financing. Is OFAC a priority within Treasury? Is your work a
    priority for this Administration? What about the former Under
    Secretary's comments, that a lack of urgency is hurting the
    blocking of terrorist funding?
        Mr. Werner. I don't agree with those comments. I don't
    understand what they're based on.
        Mr. Gutierrez. Did you read the article?
        Mr. Werner. I did.
        Mr. Gutierrez. Okay.
        Mr. Werner. I know when I see our investigators working all
    hours of the day and night, the motivation and enthusiasm in
    which not only Treasury approaches the work we do, but in the
    interagency, I see no lack of urgency. This is complicated
    work. Terrorist financing in particular is very, very
    difficult, because as you all know, you're taking good money
    and turning it into bad. The amount of money you need to
    involve yourself in terrorism is small compared to other areas.
    For example, in WMD, you're usually dealing in large volumes of
    money. It is very difficult to detect and track. There are a
    lot of other sensitivities, operational, law enforcement, and
    others, that impact the way designations go forward.
        And I see no lack of urgency at all. In fact, to me it's
    impressive that people day after day, month after month, year
    after year, have been able to sustain the sort of effort that
    they're currently engaging in.
        Mr. Gutierrez. Let me ask you one last question then,
    Director. The GAO noted that turf battles with State have hurt
    your ability to coordinate efforts within our own government.
    Do you agree or disagree with that statement?
        Mr. Werner. I can only speak to my experience as the
    Director of OFAC.
        Mr. Gutierrez. Speak to your experience as best you can.
        Mr. Werner. My experience is that interagency cooperation
    on the programs we administer is excellent. I meet monthly with
    my counterpart from EB. Our staffs are interacting constantly.
    State is involved in foreign policy guidance on the licenses we
    issue. We participate in numerous interagency working groups
    involving the State Department. I have daily contact with
    someone from the State Department on at least one of our
    programs. And I actually am very impressed that it's as good as
    it is, because bureaucracies often don't interact well. We seem
    to have a system where we understand each other's roles and
    responsibilities, and we coordinate very well.
        Mr. Gutierrez. Thank you, Mr. Director.
        Chairwoman Kelly. Thank you very much. Mr. Cleaver.
        Mr. Cleaver. Thank you, Madam Chairwoman. Mr. Werner, thank
    you for being here. On a scale of one to ten, ten being the
    highest, where are we in terms of detecting and interrupting
    the flow of funds to terrorist organizations?
        Mr. Werner. It's a hard question to answer, because even
    though you've given me a one to ten scale, it's not clear what
    it's relative to.
        Mr. Cleaver. One to five.
        Mr. Werner. Rather than give you a number, I'd rather give
    you a narrative, because I think we're still learning. It's a
    very, very complicated, difficult area. What I can tell you is
    I believe that we continue to improve. The effort is high.
        We're seeing success in areas--what we're beginning to see
    is that there are overlaps in some of our programs. WMD and
    terrorism are a good example of two programs that can
    complement each other. And my sense is as we gain increasing
    international cooperation and sophistication so that other
    countries pass laws that support our efforts and they gain
    expertise in how to implement programs like ours, that we're
    having increasing success.
        At the end of the day, we're only as strong as the weakest
    link. I know you've all heard that many times, but it's true.
    So that to really be successful from an economic terrorist
    financing perspective, we do need international consensus
    cooperation and implementation.
        Mr. Cleaver. Let me ask the question another way, and you
    may have hit on it at the end of your comments. Are there any
    gaps in OFAC that Congress can close? If you were sitting here,
    are there things that you would want to do to strengthen your
    job, and to further reduce the opportunities for terrorists to
    have their operations funded?
        Mr. Werner. Well, one of the things--yes. The answer is
    yes. And I think what I would do is point to the President's
    2007 budget request where he seeks 25 additional positions for
    OFAC, which considering we're an organization of approximately
    125 people, is a very significant request. And a large piece of
    that is intended to permit us to have additional resources
    necessary to do the kind of follow-up on primary designations
    that is so essential.
        As I testified, what's critical to the effective
    implementation of any economic sanctions program, is that you
    don't just designate the bomb builder or the bomb thrower or
    the drug manufacturer, but also the network that it supports.
    And as the terrorist organization morphs and changes its name
    or shifts its funding to a sister entity, we need to be able to
    have the resources to track that, stay on top of it, and
    redesignate or add supplemental designations. And to do that,
    we really need additional resources.
        Mr. Cleaver. So the answer is yes, and--do you have--one
    final question, Madam Chairwoman. The cost of the new personnel
    or additional personnel, do you remember offhand what that was?
        Mr. Werner. It comes out to 15 FTE's. Well, our total
    request for WMD and terrorism was, I think, about 13 FTE's in
    actual funding, because it will take us a while to hire and
    bring on board. I don't recall the exact dollar amount that it
    comes to, but we can get that to you.
        Mr. Cleaver. Is it detectable in the budget?
        Mr. Werner. Yes. Yes. It's broken out in the budget.
        Mr. Cleaver. Okay. Thank you.
        Chairwoman Kelly. Thank you, Mr. Cleaver. Mr. Werner, the
    President of the United States has drawn attention to the super
    bills used by North Korea to fund its illegal activities. This
    is not well understood, and I wonder if you could explain to
    the committee how counterfeiting, especially in North Korea,
    facilitates the acquisition of WMD technology.
        Mr. Werner. Again, you're stepping beyond my personal
    expertise, and we can follow up with experts to get you a more
    complete briefing in response. But the obvious answer is that
    as they counterfeit U.S. dollars, because they're very
    sophisticated at it, it gives them capital to make
    acquisitions.
        Chairwoman Kelly. Thank you. If you would follow up, I
    think that would be helpful, because then it will give all the
    committee members an idea of how this works. And I'm not sure
    there's a great deal of knowledge on that.
        I also want to point out that when you showed your first
    slide, you actually have two others.
        Mr. Werner. Yes.
        Chairwoman Kelly. I'd like to know if you would like to
    show those two slides and discuss them with the committee.
        Mr. Werner. I'd be delighted to, if that's okay.
        Chairwoman Kelly. Of course.
        Mr. Werner. This slide was intended to just demonstrate the
    designation process. At times I think people don't really
    understand how incredibly comprehensive it is and how much it
    does involve an interagency process.
        And so what this slide depicts is that we begin with
    identifying a target. And the identity of a target can flow
    from a lot of different sources. It can flow from open source,
    from a newspaper article. It can come from law enforcement
    sensitive information. It can flow from intelligence. But based
    on an all-source review, our analysts are constantly generating
    targets.
        Once a target is identified, that begins the evidentiary
    process in which additional information and evidence are
    collected. An actual evidentiary is drafted. It's important to
    remember, though, during this entire process, we're constantly
    coordinating with other agencies and deconflicting, because you
    can have law enforcement equities, you can have diplomatic
    concerns. There are other operational issues that we need to
    carefully vet with other agencies so we don't disrupt their
    processes as well.
        But as it moves through the process, we reach a point where
    we draft an evidentiary, which is essentially an administrative
    record for the designation, which then undergoes a legal review
    both by lawyers at the Treasury Department as well as at the
    Justice Department. We then have a formal interagency
    coordination. The Executive Orders generally require, and the
    WMD one does, concurrent consultation with other agencies. The
    WMD Executive Order specifies the State Department and the
    Justice Department but also refers to other appropriate
    agencies.
        And finally, if the deconfliction is resolved and the
    evidentiary is legally sufficient, we'll actually send it in
    for a final agency review. And that then results in a public
    announcement, and everybody knows about the OFAC list. And we
    do publish the identifying information of the entity on our
    list.
        We also, at the same time we designate, blast out notices
    to thousands of financial institutions and to State and local
    law enforcement components, as appropriate, and to Federal
    components. And we make sure our lists are incorporated into
    appropriate databases, such as the Visa databases. That's
    essentially a very abbreviated version of our designation
    process.
        And then I think the next slide goes to just trying to
    depict how incredibly broad our authorities are. When we
    actually designate, that results in a block of any interest of
    a targeted person or entity that comes within the jurisdiction
    of the United States or a U.S. person. And that doesn't just
    refer to bank accounts and money. It also includes houses and
    cars and, frankly, future interests, such as inheritances--all
    are blocked by our action.
        And as our list-based programs grow, we, in fact, are
    beginning to collect blocked houses and cars and other things,
    which is interesting, because unlike in a seizure where the
    Federal agency will take title to the property, OFAC does not.
    We are not the custodian. The assets are merely blocked. And so
    that can often create some interesting and complicated
    licensing and maintenance issues for us.
        Chairwoman Kelly. Thank you. That's very interesting. And
    we've been joined now by Mr. Scott. Mr. Scott, do you have any
    questions?
        Mr. Scott. Certainly. Thank you very much, Chairwoman
    Kelly, for your leadership on this important issue. And may I
    add that I feel our committee is making significant progress.
    Terrorist organizations certainly need money to function. And
    according to the 9/11 Commission, our efforts to freeze
    terrorist assets is in many ways the crown jewel of the Federal
    anti-terrorism campaign, and we're very proud of that. It's an
    area in which we are succeeding the most, but we certainly can
    do better.
        And with that in mind, let me ask you this. Recent media
    reports describing a significant decline in the amount of
    terrorist assets frozen since September 11th have cited a lack
    of cooperation and commitment among different Federal agencies,
    and other countries. I think that this really is sort of the
    stone in our shoe in terms of even making further progress.
    Cooperation between the Federal agencies involved in this, and
    cooperation with other countries.
        Can you describe for me the plans that you have and the
    plans that you have implemented or that you're working on which
    would reverse this trend of a failure of communications and
    cooperations between agencies and countries?
        Mr. Werner. Certainly. To address the asset freezing issue
    first, I think in many ways a decline in assets frozen under
    any particular program can actually be evidence of the success
    of that program, because as you drive people out of the use of
    the former financial system, you're naturally going to exclude
    them from our trade and transactions with the United States,
    and there will be less assets available to freeze.
        But also I think it represents the fact that many of the
    designations we're doing now are involving networks in
    concentric circles around from the obvious targets that were
    designated right after 9/11. And so I don't look to the amount
    of assets frozen as really determinative of performance. I
    think we really concentrate on whether we have evidence that
    we're disrupting networks and disrupting the ability of the
    networks to do business.
        With respect to cooperation, I think the GAO report was
    targeted at an area that is outside of OFAC's scope of
    responsibility, which is the technical assistance provided
    internationally. And I'll let others in the Treasury and State
    Department address that particular issue.
        But with respect to cooperation within my programs, the
    cooperation is really excellent. We work hand-in-glove with the
    State Department not just on the designation components of our
    programs, but also with respect to very difficult licensing
    decisions and enforcement decisions that we make. And we have
    interagency groups that we participate in, in all of our major
    programs, where we do joint targeting with multiple agencies
    and we rely, for example, in the weapons of mass destruction
    program, our investigators--this is a new program for us. We're
    learning the technical aspects of that program.
        And we rely very heavily on expertise from other
    department, the Department of State, Department of Commerce,
    Department of Energy, where there are folks who have years and
    years of knowledge and experience dealing with WMD-related
    issues. So that from that perspective, we couldn't get our work
    done without that cooperation, and we emphasize it, and it's a
    culture that is important for me to instill within my
    organization.
        Mr. Scott. Do you know of any countries that you could sort
    of point to that might not be cooperating with us as much as
    we'd like? Countries that offer more of a challenge than
    others.
        Mr. Werner. I think with respect to cooperation, I would
    defer to my colleagues at the State Department and others
    within Treasury who deal more directly with international
    liaison. That's not to say that OFAC isn't involved in
    international outreach. We are. We do a lot of very technical
    compliance with international banks and with other governments
    on OFAC-related programs.
        There are areas of concern. Obviously, the Gulf is a region
    where there's a lot trade and financing going on there that we
    know we need to pay attention to. And there are other areas--
    for example, we're very focused on Iran and North Korea and
    Syria at this time. Those countries not only are a risk when it
    comes to weapons of mass destruction, but they are state
    sponsors of terrorism. And those are some of the areas that we
    have a lot of concerns about and direct a lot of our resources
    to.
        Mr. Scott. Okay.
        Chairwoman Kelly. Thank you very much, Mr. Scott. We've
    been called for a vote. There are no more questions. Without
    objection, your written statement, your full written statement,
    Mr. Werner, will be made part of the record. And the Chair
    notes that some members may have additional questions, and
    certainly there are some you are going to come back with
    answers for, for this panel. There may be some questions
    submitted in writing. So, without objection, the hearing record
    will remain open for 30 days for members to submit written
    questions to this witness and to place their responses in the
    record.
        With that, this hearing is adjourned with great thanks to
    you, Mr. Werner.
        Mr. Werner. Thank you very much.
        [Whereupon, at 11:12 a.m., the subcommittee was adjourned.]

                                A P P E N D I X

                               February 16, 2006

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