[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
STARVING TERRORISTS OF MONEY:
THE ROLE OF MIDDLE EASTERN
FINANCIAL INSTITUTIONS
=======================================================================
JOINT HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
AND THE
COMMITTEE ON INTERNATIONAL RELATIONS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
MAY 4, 2005
__________
Printed for the use of the Committee on Financial Services
and the Committee on International Relations
Committee on Financial Services
Serial No. 109-24
Committee on International Relations
Serial No. 109-120
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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
PETER T. KING, New York NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice Chair JULIA CARSON, Indiana
RON PAUL, Texas BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio GREGORY W. MEEKS, New York
JIM RYUN, Kansas BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio DENNIS MOORE, Kansas
DONALD A. MANZULLO, Illinois MICHAEL E. CAPUANO, Massachusetts
WALTER B. JONES, Jr., North HAROLD E. FORD, Jr., Tennessee
Carolina RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois JOSEPH CROWLEY, New York
CHRISTOPHER SHAYS, Connecticut WM. LACY CLAY, Missouri
VITO FOSSELLA, New York STEVE ISRAEL, New York
GARY G. MILLER, California CAROLYN McCARTHY, New York
PATRICK J. TIBERI, Ohio JOE BACA, California
MARK R. KENNEDY, Minnesota JIM MATHESON, Utah
TOM FEENEY, Florida STEPHEN F. LYNCH, Massachusetts
JEB HENSARLING, Texas BRAD MILLER, North Carolina
SCOTT GARRETT, New Jersey DAVID SCOTT, Georgia
GINNY BROWN-WAITE, Florida ARTUR DAVIS, Alabama
J. GRESHAM BARRETT, South Carolina AL GREEN, Texas
KATHERINE HARRIS, Florida EMANUEL CLEAVER, Missouri
RICK RENZI, Arizona MELISSA L. BEAN, Illinois
JIM GERLACH, Pennsylvania DEBBIE WASSERMAN SCHULTZ, Florida
STEVAN PEARCE, New Mexico GWEN MOORE, Wisconsin,
RANDY NEUGEBAUER, Texas
TOM PRICE, Georgia BERNARD SANDERS, Vermont
MICHAEL G. FITZPATRICK,
Pennsylvania
GEOFF DAVIS, Kentucky
PATRICK T. McHENRY, North Carolina
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
COMMITTEE ON INTERNATIONAL RELATIONS
HENRY J. HYDE, Illinois, Chairman
JAMES A. LEACH, Iowa TOM LANTOS, California
CHRISTOPHER H. SMITH, New Jersey, HOWARD L. BERMAN, California
Vice Chairman GARY L. ACKERMAN, New York
DAN BURTON, Indiana ENI F.H. FALEOMAVAEGA, American
ELTON GALLEGLY, California Samoa
ILEANA ROS-LEHTINEN, Florida DONALD M. PAYNE, New Jersey
DANA ROHRABACHER, California ROBERT MENENDEZ, New Jersey
EDWARD R. ROYCE, California SHERROD BROWN, Ohio
PETER T. KING, New York BRAD SHERMAN, California
STEVE CHABOT, Ohio ROBERT WEXLER, Florida
THOMAS G. TANCREDO, Colorado ELIOT L. ENGEL, New York
RON PAUL, Texas WILLIAM D. DELAHUNT, Massachusetts
DARRELL ISSA, California GREGORY W. MEEKS, New York
JEFF FLAKE, Arizona BARBARA LEE, California
JO ANN DAVIS, Virginia JOSEPH CROWLEY, New York
MARK GREEN, Wisconsin EARL BLUMENAUER, Oregon
JERRY WELLER, Illinois SHELLEY BERKLEY, Nevada
MIKE PENCE, Indiana GRACE F. NAPOLITANO, California
THADDEUS G. McCOTTER, Michigan ADAM B. SCHIFF, California
KATHERINE HARRIS, Florida DIANE E. WATSON, California
JOE WILSON, South Carolina ADAM SMITH, Washington
JOHN BOOZMAN, Arkansas BETTY McCOLLUM, Minnesota
J. GRESHAM BARRETT, South Carolina BEN CHANDLER, Kentucky
CONNIE MACK, Florida DENNIS A. CARDOZA, California
JEFF FORTENBERRY, Nebraska
MICHAEL McCAUL, Texas
TED POE, Texas
Thomas E. Mooney, Sr., Staff Director/General Counsel
Subcommittee on International Terrorism and Nonproliferation
EDWARD R. ROYCE, California, Chairman
PETER T. KING, New York BRAD SHERMAN, California
THOMAS G. TANCREDO, Colorado ROBERT MENENDEZ, New Jersey
DARRELL ISSA, California, Vice ROBERT WEXLER, Florida
Chairman JOSEPH CROWLEY, New York
MICHAEL McCAUL, Texas BETTY McCOLLUM, Minnesota
TED POE, Texas DENNIS A. CARDOZA, California
JERRY WELLER, Illinois DIANE E. WATSON, California
J. GRESHAM BARRETT, South Carolina
C O N T E N T S
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Page
Hearing held on:
May 4, 2005.................................................. 1
Appendix:
May 4, 2005.................................................. 37
WITNESSES
Wednesday, May 4, 2005
Bukhari, Zahid H., Director, American Muslim Studies Program
Fellow, Center for Muslim-Christian Understanding, School of
Foreign Service, Georgetown University......................... 29
Byrne, John, Director, Department of Compliance, American Banking
Association.................................................... 26
Levey, Hon. Stuart, Under Secretary for Enforcement, Department
of the Treasury................................................ 12
Simons, Hon. Paul, Principal Deputy Assistant Secretary, Bureau
for Economic and Business Affairs, Department of State......... 14
APPENDIX
Prepared statements:
Oxley, Hon. Michael G........................................ 38
Kelly, Hon. Sue W............................................ 42
Royce, Hon. Edward R......................................... 51
Bukhari, Zahid H............................................. 53
Byrne, John.................................................. 57
Levey, Hon. Stuart........................................... 70
Simons, Hon. Paul............................................ 77
Additional Material Submitted for the Record
Kelly, Hon. Sue W.:
Written letter to Prince Bandar bin Sultan bin Abdulaziz Al-
Saud, Ambassador of the Kingdom of Saudia Arabia to the
United States of America from members of Congress, February
14, 2005................................................... 85
Written letter from the Royal Embassy of Saudi Arabia in response
to questions from Hon. Sue W. Kelly and Hon. Edward R. Royce,
February 25, 2005.............................................. 88
STARVING TERRORISTS OF MONEY:
THE ROLE OF MIDDLE EASTERN
FINANCIAL INSTITUTIONS
----------
Wednesday, May 4, 2005
U.S. House of Representatives,
Subcommittee on Oversight and Investigations,
Committee on Financial Services,
joint with the
Subcommittee on International Terrorism
and Nonproliferation,
Committee on International Relations,
Washington, D.C.
The subcommittees met, pursuant to call, at 2:19 p.m., in
Room 2128, Rayburn House Office Building, Hon. Sue Kelly
[chairman of the Subcommittee on Oversight and Investigations]
presiding.
Present from Subcommittee on Oversight and Investigations:
Representatives Kelly, Royce, Kennedy, Garrett, Barrett, Davis
of Kentucky, Gutierrez, Lynch, Scott, and Wasserman Schultz.
Present from Subcommittee on International Terrorism and
Nonproliferation: Representatives McCaul, Poe, Weller, Sherman,
Schiff, and Berkley.
Chairman Kelly. [Presiding.] I call this hearing of the
Financial Services Committee on Oversight and Investigations
and the International Relations Subcommittee on International
Terrorism and Nonproliferation to order.
This hearing was called to examine and assist efforts to
reckon with the very difficult problem of charities being used
to support terrorism and the spread of extremism.
Since the vicious attacks on our country, we have placed
special focus on this issue and despite the important progress
we have made, this particular problem is not one that lends
itself to simple solutions.
As we continue our push for progress, our approach must
continue to reflect an understanding of the complexities
inherent in the task. We must consistently improve our
understanding of the context which makes an honorable
humanitarian impulse vulnerable to dangerous exploitation and
misdirection.
And while it is improper to think that the cure to this
particular problem can be found through a stronger relationship
with any one country, it is clear in this case that a key to
greater success will involve improvements in our partnership
with Saudi Arabia, which possesses a unique statue as a beacon
in the Muslim world and has historically been a leader in
Islamic charitable activities.
There is good reason for us to be troubled with this aspect
of U.S.-Saudi relationship in fighting terror finance. In that
regard, I would like to enter for the record an exchange of
letters that my colleague Congressman Royce and I had with
Saudi Ambassador Bandar this year.
So moved.
Recently, attention has rightly focused on the Saudi Relief
Committee for the Palestinians, one of the charitable
committees run directly by the Saudi Government. Though it has
provided legitimate relief aid, it also apparently provided a
structured financial reward system for the families of
Palestinian suicide bombers.
This abominable practice was advertised openly on a
government-run Web site that was only taken down about 2 weeks
ago. Unfortunately, we have seen reports that Arab Bank and
other institutions may have been involved in this payment
scheme.
Concerns related to this manner are emphasized by actions
taken by the Treasury Department in response to inadequate
money laundering controls at Arab Bank's branch at New York
City.
The OCC said, ``The inadequacy of the branch's controls
over its funds transfer business is especially serious in light
of the high-risk characteristics of many of the transfers.''
The Oversight and Investigations Subcommittee is committed
to learning more about these deeply troubling circumstances.
The public has a right to know what has happened and how our
Government has responded.
The committee's attention to this issue in the coming
months will remain focused on finding out what has happened.
And I will be holding another hearing on this matter.
The public will learn more about the Saudi charitable
committee, the role of institutions used as conduits for
supporting terrorism and the response of our Government to
these circumstances.
The public, and particularly the victims of these attacks
and their families, deserve nothing less. This must be pursued,
not only because of the critical importance of ensuring
accountability for those who support terrorism, but also
because of the disturbing precedent it ostensibly sets for
other Saudi-run charitable committees which direct relief to
other areas, such as Kosovo and Iraq.
While on a fact-finding trip to Saudi Arabia last month, I
learned about some of the positive effects from positive
efforts undertaken by the Saudi Government in dealing with
these charitable committees. There are significant efforts
under way that we must acknowledge, but there is still more to
learn about the controls for these government-run agencies.
Recent reports about the Saudi Arabian chief justice
encouraging the donation of funds to insurgents in Iraq should
intensify our interest in assessing the effectiveness of Saudi
charitable controls.
In addition to these charitable committees, we must focus
on international Islamic charities based in Saudi Arabia, such
as the World Assembly of Muslim Youth, WAMY, and the
International Islamic Relief Organization, IIRO, which are
unaffected by the new Saudi Government regulations.
These organizations are alleged to have supported Al Qaida
and are known to proselytize a form of Islam which has shown
itself prone to spawning extremist, militant movements, such as
the Taliban.
These Saudi-based charities still operate throughout the
world with minimal transparency or controls. To date, Saudi
officials have indicated that these charities operate largely
outside of their sphere of influence.
But it is difficult to accept this argument. There are deep
interconnections. WAMY and IIRO were, in fact, created by the
Saudi Government and are run currently by Saudi citizens.
I note that even earlier this year, the Saudi Embassy put
out a media release heralding a donation made by IIRO. This
suggests a deep and continuing relationship.
I very much agree with Undersecretary Levey's statement in
his written testimony which underscored the acceptance and
importance of placing these charities under the review of the
charitable commission of the Saudi Government and that the
Saudi Government is in the process of establishing for
monitoring charitable donations outside the kingdom.
These charities, however, are not included in the
commission's portfolio. And I am talking about WAMY and IIRO.
There must be open, continuing dialogue with the Saudis
about this issue.
Based on my meetings in Riyadh last month, I believe that
Saudi officials would be willing participants in a more
frequent discussion with Congress, as they, too, now bear the
scars and burdens of being an Al Qaida target.
Officials in Riyadh expressed to me repeatedly their
interest in working with our Government and the Congress in
fighting terrorism.
We must engage that interest.
In our discussions, we must also be prepared to refine our
own approach to this issue.
We have been mindful and we will be mindful that we are
directly addressing one of the five pillars of the Islamic
faith, that of Zakat, which guides Muslims to regularly donate
a portion of their wealth to charitable causes.
U.S. complaints regarding Muslim charities are often
mistakenly perceived as lacking in respect for this fundamental
obligation of the Islamic faith, thereby creating a serious
complication for our hopes of resolving our national security
concerns.
It is critical that we continue discussions, not just with
Saudi Arabia, but with all governments in the Middle East and
North Africa, on steps they can take to strengthen their
ability to detect and stop terrorist money flows without
impeding important, honorable, humanitarian efforts.
An important step forward in this effort has been the
establishment of the Middle East-North Africa Financial Action
Task Force. The MENA-FATF provides the ability for governments
in the region to develop best practices and to share
information on terrorists and their network within their
different countries.
I am pleased that the United States government and our U.S.
Treasury is an official observer, has a delegation to MENA-
FATF, and has provided technical assistance to the organization
and its members.
Most nations have laws on their books to fight money
laundering and terror financing, yet there is no way to measure
the effectiveness. Banks, charities and agencies of our own
government are left to use their own resources to find out
whether certain countries are trustworthy business partners.
While organizations like MENA-FATF can help, the U.S.
Government must take action to protect institutions that deal
with nations that are not enforcing their anti-terror finance
laws.
I have introduced H.R. 1952, along with Ms. Berkley and my
friend Mr. Royce and Mr. Feeney, to do just that.
A terror finance certification regime can eliminate
uncertainty in businesses and charities facing and working
overseas while spurring other countries to enforce their laws.
I look forward to working with the Treasury and my
colleagues to move this bill forward in the near future.
The U.S. and its allies continue to fight a ruthless enemy
that will use any weapon whatever at its disposal to try to
defeat us--whether it is defaming its own religion, misleading
banks and community leaders, or stealing aid meant for the poor
and the starving.
As we continue to take the necessary steps to defend
ourselves, we must ensure that those who are victimized because
of Al Qaida are not unduly hurt by those measures that we are
trying to provide and are provided the means for making
themselves as whole as possible.
I turn now to Mr. Royce, my chairman.
Mr. Royce. Thank you very much, Chairwoman Kelly.
And by way of explanation, Chairwoman Kelly and I serve on
the Anti-Terrorist Finance Task Force, the task force we put
together over a year ago in order to kind of collaborate and
work together to surface information. And her staff and my
staff worked together.
And so she has asked me, as the chairman of the
Subcommittee on International Terrorism and Nonproliferation,
if I could help her organize this joint hearing today. And I
know this is unusual for us to come together across committees
but, in fact, I think the paramount importance of this issue,
the challenges we are facing, dictate that we work together.
The 9/11 Commission, frankly, recommended for us a number
of changes in Congress. And one of those key aspects that they
focused on was tracking terrorist financing. They said that
that must remain front and center in U.S. counterterrorism
efforts.
Now, terrorist organizations such as Al Qaida have
allegedly used a variety of methods to finance their operations
that stretch across the globe, including the misuse of some
Islamic charities, including wealthy donors, including Hawalas
and financial institutions--as Chairwoman Kelly is
highlighting--drug trafficking and conflict diamonds.
These are the major methodologies used by terrorist
organizations.
Tracking terrorist financing has proven an effective way
not only to disrupt terrorist plots and organizations, but also
to glean intelligence on terrorist operatives. As a matter of
fact, it is one of the best ways.
And on top of that, it is one of the best ways to get
convictions, because once you have the paper trail, once you
have the hard evidence financially, you have got the ability to
indict and convict.
However, because of its complexity and variety of methods,
terrorist finance has been a hard target for the United States.
As we will hear today, there has been progress in the fight
against terrorist financing. For instance, the administration
reports that funds that flow to Hamas have seen a substantial
reduction. However, there is a long road ahead, and terrorists
are constantly changing their financing tactics.
The larger challenge is checking the ideology fueling
terrorism. Charities continue to provide a variety of important
functions in the Middle East and around the globe.
A major goal of these charities, however, for some of them,
is to spread a radical version of Wahhabist beliefs. And just
as there is Christianity and the Christian identity movement,
there is Wahhabism and there is radical Wahhabist ideology.
And, thus, some Gulf state charities have funded several
madrassas in Africa, in Southeast Asia, South Asia, Central
Asia and Europe that teach jihad.
And I have spoken with local leaders in a number of these
countries--Uzbekistan, Kyrgyzstan--and I will give you one
example, Chairwoman, in terms of Kyrgyzstan. There was a
madrassa set up; 13 young men went to that madrassa in order to
get an education. They found out they were learning jihad. When
they tried to leave, they were all decapitated.
And as the assembly member representing that district told
me, in Kyrgyzstan, he said, ``This is not a local Kyrgi custom.
This is a radical custom that is being imported and taught
here. And it is being done with petro dollars funding it from
the United States and the rest of the world, and you need to
cut off that flow of financing that is setting up and using
these jihadi schools.''
It came home a little bit to me when I was on the southern
border, by the way, a couple of weeks ago talking to a border
patrol agent who had intercepted someone from Kyrgyzstan who
had trained in jihad in Afghanistan and was coming over our
border.
So eventually this does come back to haunt us in terms of
national security.
Algeria, Chad, same situation--West Africa, East Africa,
most of the countries that I have visited there have raised
this as a key problem in those societies.
And it is these radical madrassas that are fueling the next
generation of jihadists and perpetuating what some African
leaders call a generational struggle between the vision of the
elders in the community and the youngsters.
So experts I have spoken with measure the amount of
spending to support the building of madrassas worldwide in the
hundreds of millions, if not billions annually, and a certain
portion of this goes to the teaching of radical Wahhabist
beliefs.
Much of this, as I said, is our own petro dollars, and this
has to be part of our dialogue with countries in the region at
every level. And this is just as much an issue of public
diplomacy as it is terror finance.
Of course, those who are working to spread this ideology of
terror are often depending on Muslims seeking to fulfill the
Zakat requirements of their faith.
We need to do everything we can to shine the light on those
who seek to prey on fellow Muslims who are simply seeking to
fulfill their religious obligations. Protecting the charitable
community from terrorist abuse is of paramount importance and
we need to work together with the Muslim community to do that.
Significant international cooperation through bilateral
relationships and multilateral institutions will be key to stem
the flow of money to terrorist groups and extremist causes.
Countries in the region have taken some first steps, yet
many still do not have terrorist financing laws or have
established financial intelligence units. And we have a lot of
leverage to force the establishment of financial intelligence
units and we should use it.
Some have put laws on the books but enforcement remains in
question. These issues will require our constant engagement.
While progress has been made, I think there is little
question that our enemies have a large lead.
Thank you very much, Chairwoman Kelly.
Chairman Kelly. Thank you, Chairman Royce.
Mr. Guttierez?
Mr. Gutierrez. Good afternoon.
Thank you, Chairwoman Kelly, for this hearing. I have
enjoyed working with you on many issues including those related
to terrorist financing and I trust we will continue to do so in
the future.
I believe we need greater communication between the
regulators and the industry regarding the filing of suspicious
activity reports or SARs.
While the quantity of SARs has grown exponentially to
defensive filing, the Treasury's Inspector-General recently
found that the quality of SARs is severely lacking: 62 percent
of the SARs examined revealed problems in data quality,
including incomplete, inappropriate and/or inconsistent
information.
The Inspector-General's report indicated that FinCEN needs
to prioritize this issue. And I look forward to hearing from
Undersecretary Levy about his ideas for improvement in this
area.
I also would like to hear from the witnesses whether it
makes sense to put the families of suicide bombers on OFAC
lists to prevent payments for martyrdom. Will this place too
high a penalty on families that may have been unaware of their
relatives' activity? Or is this justifiable in the fight
against terrorism?
I am pleased that guidance was finally issued on April 26th
for banks regarding money service businesses. While I would
prefer that banks provide these services directly to consumers
until enough banks and credit unions enter this market, and
hopefully follow the fine example of Bank of America and offer
no-cost remittances products, MSBs will be necessary to fill
the gaps in service for many communities.
This morning, the committee held a hearing about breaches
in data security in private sector companies.
While I am very concerned about that issue, I find it even
more disturbing that Treasury has had ongoing problems with its
own information security.
It is rare that I agree completely with any of my
colleagues, but specifically, Mr. Sensenbrenner. But on this
issue, he stated on April 20th, he called Treasury's failure to
securer taxpayer and bank security data as completely
unacceptable.
Mr. Sensenbrenner went on to say, ``It needs to be
corrected immediately.'' Mr. Sensenbrenner is absolutely right,
and I would like to know what is being done in that area.
I would be receptive to requests for more I.T. funding, but
I am not convinced that it would be spent sufficiently.
The Inspector-General recently found that getting
Treasury's HR Connect, high-tech personnel system up and
running cost $173 million, substantially more than similar
human resource computer systems at two other agencies.
For example, at the U.S. Coast Guard, it spent $24 million,
and the Agricultural Department, which spent $15 million,
according to the audit report prepared by the Treasury
inspector-general for tax administration.
Furthermore, they are paying about $22 million annually to
run HR Connect, far more than the $5 million to $6 million paid
by the Coast Guard and the Agricultural Department to operate
their system.
The I.G. calculated that the $41 million may have been
wasted in the development of the HR Connect. The contractor on
that project was paid $109 million, and I would like to know
who that contractor is, whether this contract was bid
competitively, why the costs were so high and where the funds
for the project came from.
Finally, I am troubled that the assistant secretary for the
Office of Intelligence and Analysis--and issue I have raised
before--a position created more than 2 years ago continues to
remain unfilled. I would hope that this office and its
functions are a priority for Treasury and that this vacancy
does not continue much longer.
This chronic understaffing appears to be rampant throughout
Treasury and may be the reason for some of the problems I
mentioned earlier.
I have been very supportive in the past for budgetary
increases for Treasury, particularly in the area of terrorist
financing. However, I would like to know how these funds are
being spent to fill these vacancies, both in the area and
overall. And I would like to know where and for what purpose
these funds are being used.
As of 2 months ago, press reports indicated that fully one-
third of the senior policy positions at Treasury were vacant.
While I am heartened that a few of these posts now have
nominees, I would like to see more progress in this area.
Thank you again, Ms. Kelly, for calling this hearing. And I
look forward to the testimony of the witnesses.
Chairman Kelly. Thank you, Mr. Gutierrez.
Mr. Sherman?
Mr. Sherman. Thank you, Chairwoman Kelly and Chairman Royce
and Mr. Gutierrez, for holding these important hearings.
I know that Chairwoman Kelly has been concerned with this
issue generally and with the particular case of the Arab Bank,
which she talked about.
The Arab Bank has been ordered by the OCC to cease most of
its banking activities and faces lawsuits by the relatives of
Americans killed by Palestinian terrorists in the intifada.
I commend her for holding these hearings, and look forward
to future hearings specifically focused on the Arab Bank.
It is an important case, that case of the Arab Bank,
because it points out two of the most difficult problems facing
us in the struggle against terrorism.
One is the flood of Saudi money finding its way into the
hands of terrorists and used to support certain madrassas and
other organizations, which while not terrorist organizations
themselves, teach a proterrorist line.
The second is the willingness of some people--even people
outside the Arab and Muslim world in some cases--to feel that
the word terrorism does not apply to those who try to kill
Israeli civilians.
Now, let us look at the Saudis. Whatever positive
developments the administration will tell us about today, Saudi
cooperation preventing terrorism seems to apply only to those
terrorists who have attacked Saudi Arabia's ruling elite.
It certainly does not apply--and in fact the opposite
applies--where you have Palestinian groups such as Hamas,
Islamic jihad and others who are widely recognized as terrorist
organizations by the civilized world, but who are supported by
the Saudi royal family and those it has enriched.
We should be very careful who we hold hands with. Saudi
Arabia is not concerned about America. The Saudi Government is
certainly not concerned about the Israeli civilians and the
Indian civilians killed by Islamic terrorists. They are
concerned solely with their own survival.
That means that the Saudi Government will work against
terrorism very narrowly, only against those groups that
threaten the Saudis. Their support is not terribly deep. When
it suits them, they will provide subsidies even to those groups
that are at war with them.
There is a tendency of the Saudi Government to buy off
terrorists and to try to pacify those who support terrorists by
showing those terrorist supporters that they are on their side,
by aiding those terrorist groups who kill Israeli civilians,
Indian civilians or just about anybody other than the Saudi
elite.
If you are in the business of fighting terrorism, first and
foremost, you have to know who a terrorist is. We need
definitions and lists.
Hamas is not considered a terrorist organization by the
Saudis. Thus, one of the most infamous terrorist organization
can be funded and is funded by Saudi civilians, by the Saudi
royal family. No amount of cooperation will be effective if we
do not even agree on what problem we are trying to fight
against.
Second, the Saudis are not alone in supporting Palestinian
terrorists. In fact, much of the world does not want to
confront the truth.
However you feel about the politics of their cause, the
preferred weapon of Palestinian extremists is the suicide
bomber who blows himself up in the midst of civilians.
The United Nations is not able to come up with a definition
of terrorism, because much of the world will not accept the
definition of terrorism that does not exclude all Palestinian
extremists from the definition, no matter what terrorist acts,
no matter what barbarous acts that they engage in.
Who expects any country to fight the funding of Palestinian
or other terrorists if they do not believe that these groups
are, in fact, terrorists?
But as we focus on what others are doing abroad, we must
also focus on what is going on in our own country. ``Jihad in
America'' first broke the story as a PBS documentary last
decade. It was produced by Steve Emerson, who now heads the
investigative project.
That show demonstrated what continues to be true today, and
that is millions of dollars being raised from residents and
citizens of the United States for the purpose of supporting
terrorism in the Middle East.
We have to be particularly vigilant of certain charitable
groups, whose donors are getting tax deductions, when those
groups operate substantially in the Middle East.
New organizations can be formed by filing a few papers by
the IRS. And the presumption is that they are entitled to tax
deductions until such time as the IRS proves they are not.
We may have to have a different rule for those groups who
operate primarily in the Middle East, and that is that the IRS
will have to investigate before tax exempt status and
deductibility status can be presumed by contributors.
Charities and NGOs operating in Palestinian territories
ought to be subject to this greater scrutiny simply because so
many of them, in the guise of providing charity, instead reward
suicide bombers and their families.
Helping widows and orphans sounds good. Earmarking funds
for the widows and orphans of suicide bombers is nothing more
than cash support for terrorism. And yet it is being done not
only with U.S. dollars--private U.S. dollars--but private U.S.
dollars subsidized through our tax system.
I look forward to focusing on this problem further. I,
myself, have to go to another hearing soon. And I will read
that portion of the testimony I am not here to see live.
I thank my colleagues again for holding this hearing.
Chairman Kelly. Thank you very much, Mr. Sherman.
Mr. Garrett, you have--Mr. Weller, do you have an opening
statement?
Who else do we have out there?
Mr. Barrett, do you have an opening statement?
Mr. Barrett. No.
Chairman Kelly. We are all clear over there?
Does anybody have an opening statement? Let me put it that
way.
Mr. Lynch?
Mr. Lynch. Thank you, Madam Chair.
Just briefly, I want to thank yourself and my friend Mr.
Royce and the ranking members here, Mr. Gutierrez and Mr.
Sherman, for holding this hearing.
And I want to thank Mr. Levey and Mr. Simons for coming
forward to help us with our work.
Several weeks ago I was in Ramallah with Abu Allah, the new
prime minister of the Palestinian Authority. And I see our
problem now in two lights: One, we have to deny resources to
terrorists and those organizations who would support terrorism;
but secondly, we need to find a way to make sure that the
resources that should be properly finding their way into the
hands of legitimate charities in the Middle East get to their
rightful destinations and are used for proper purposes.
Some of the estimates I got when I was in the West Bank
several weeks ago have the unemployment rate in Gaza and the
West Bank among Palestinians between the ages of 17 and 35 at
somewhere in the area of 40 percent.
And that also is a source of terrorism--or a source of
receptivity to extremism and possibly terrorism.
So we have got to address both these problems. One is to
deny those resources to known terrorist entities and people
that would support that, but also to try to reduce the number
of young Arab men that are unemployed--and young women who are
unemployed--and so to sort of mitigate the circumstances that
would give rise to extremism in that region.
So we are hoping that the gentlemen here today will be able
to help us with that problem. And I am looking forward to
hearing the testimony of the witnesses.
Thank you, Madam Chair.
Chairman Kelly. Thank you, Mr. Lynch.
Ms. Berkley?
Ms. Berkley. Thank you, Madam Chairman, and I also want to
thank Chairman Royce and Ranking Member Sherman and Ranking
Member Gutierrez for allowing me to participate in this
hearing. I am not a member of either of these subcommittees,
but I am a member of the Subcommittee on the Middle East, where
we have seen and investigated the dangers of terrorism and
extremism.
I want to give special thanks to Chairwoman Kelly, who has
authored a bill that takes a very strong stance against State
funding and State support for terrorism, and I am proud to be
an original co-sponsor of that legislation.
Tracking and ending terrorist financing must remain at the
forefront of any American counterterrorism effort.
We must make sure that terrorist organizations like Al
Qaida, Hamas and Hezbollah, organizations that seek nothing but
death and destruction for us and our allies, especially the
State of Israel, do not have the financial means to carry out
their missions of chaos and destruction.
We must stop the flow of money that might fund another 9/
11-style attack.
After a March 2003 terrorist attack in Netanya that wounded
35 people, a local Islamic charity paid the bomber's family
over $14,000. The bomber's father said that he believed the
money was paid by Islamic Jihad.
That money was funneled from terrorist fund-raisers into
accounts in the Middle East through a Jordan Arab bank. That
same bank is believed to be aiding and abetting terrorist
groups and is implicated in the transfer of more than $20
million to over 45 suspected terrorist groups.
It has also been accused of conspiring to commit terrorist
acts with organizations such as Hamas, Islamic Jihad and the
al-Aqsa Martyrs Brigade.
How many suicide bombings are funded? We do not know.
How many more of these terrorist funding streams exist but
remain undetected by law enforcement? We do not know.
I was pleased to learn of a recent action of the Office of
Comptroller of the Currency when it downgraded the Arab bank's
status in the United States, but I remain very concerned that
not enough is being done to stem the tide of terrorist money or
Islamic money being channeled into terrorist organizations.
When I think of the Saudis--and I blanch when they are
called our so-called allies in our war against terrorism--the
irony of this is that the Saudis, in my opinion, are the
biggest exporters of terrorism and the biggest financiers of
terrorists.
They have the worst record on the planet when it comes to
women's rights and human rights and religious rights. They are
the largest purveyors of anti-Semitism in the world. And this
is what we call our ally in our war against terrorism--the very
nation that is the perpetrator of our terrorist attacks,
especially on 9/11.
If one says that this is old and that there is a new
relationship with the Saudis, and now after being attacked
themselves they have, shall we say, found religion and are as
concerned about the terrorists as the United States, I would
like to draw your attention to something that happened just
last week in Saudi Arabia when the Saudi chief justice publicly
encouraged donations to the families of suicide bombers and
donations in support of terrorism. Apparently, the Saudis have
not yet gotten the word that they are our allies in our war
against terrorism.
One of the solutions to ending the financing of terrorism
worldwide lies in the approach taken in a bill that will soon
be before this committee, sponsored by Congresswoman Kelly.
By requiring that nations comply with the requirements of
the International Convention for the Suppression of the
Financing of Terrorism, the United States can hold the rest of
the world to a firm and identifiable standard. Nations must be
required to adopt measures and pass laws that will prevent
funds from being used in whole or in part in order to carry out
terrorist attacks.
It also makes clear that political, philosophical,
ideological, racial, ethnic or religious considerations are not
justifications for criminal acts.
By withholding 50 percent of bilateral aid and refusing to
support any multilateral aid, the United States will send a
strong message that financing of those who support violence is
not acceptable.
Our focus here must not only be domestic, but international
as well. Our European and Asian allies must take similar steps.
Are they requiring tighter regulations and controls on
banks and other financial institutions? Are they also willing
to withhold multilateral assistance and place pressure on
nations that do not cooperate in what has become another front
in the global war on terror?
These and other questions need to be answered.
Legislation like the one introduced by Chairman Kelly
offers a good solution.
Stiffer financial controls and exerting our influence on
other nations also is a solution. However, we must pressure our
allies to match our actions.
I want to thank you, Chairman Kelly, for calling this
hearing. And I am anxious to hear from our witnesses.
Chairman Kelly. Thank you, Ms. Berkley.
Mr. Schiff, have you an opening statement?
Mr. Schiff. Madam Chair, in the interest of time, again,
the witnesses, I will be happy to waive my opening statement.
Chairman Kelly. Thank you very much.
Without objection, all members' opening statements will be
made part of the record.
I would like to call our first panel: the Honorable Stuart
Levey, undersecretary for enforcement in the Department of the
Treasury, and the Honorable Paul Simons, the principal deputy
assistant secretary, the Bureau for Economic and Business
Affairs at the Department of State.
Gentlemen, we welcome you. And we are very happy that you
have been willing to share some time with us today.
I would like to begin with you, Undersecretary Levey. I
would like to hear your opening statement.
STATEMENT OF HON. STUART LEVEY, UNDER SECRETARY FOR
ENFORCEMENT, DEPARTMENT OF THE TREASURY
Mr. Levey. Thank you very much, Chairwoman Kelly and
Chairman Royce, distinguished members of the subcommittees.
Thank you for inviting me to testify here today about the
progress the U.S. Government has made in its fight against
terrorist financing in the Middle East.
Your personal leadership and that of these subcommittees
has been vital to our shared work to keep our nation safe, and
I am grateful for it.
In the Office of Terrorism and Financial Intelligence, the
office I head at the Treasury Department, we are working
tirelessly to track and disrupt the flow of funds to terror in
every area of the globe.
Today, however, I would like to focus on the work we are
doing in the Middle East and in particular with respect to
charity.
Terrorist groups have long exploited charities, using the
sentimental appeal of widows and orphans to finance the murder
and maiming of innocents. Charities are vulnerable for several
reasons, as I have explained in the written testimony I
submitted to the committee.
As the Chairwoman stated in her opening statement, there
are no simple solutions to this problem. That said, the U.S.
Government has confronted the problem head on.
Since 9/11, we have designated dozens of corrupt charities,
including the Holy Land Foundation, the Al-Haramain Islamic
Foundation, the Islamic African Relief Foundation, and many
others. We have truly worked as a team, coordinating criminal
actions with designations and diplomatic engagement to get the
maximum impact.
I am pleased to inform the committees of another
significant action that we are taking just today. This
afternoon, we designated the Elehssan Society, including all of
its branches, as a charitable front for the brutal terrorist
group, the Palestinian Islamic Jihad.
Elehssan masquerades as a charity while actually helping to
finance hideous acts of terror against the Israeli people and
other innocents.
As we have repeatedly demonstrated, we will not hesitate to
act against those who enable murderers, regardless of how they
disguise themselves.
The impact of U.S. sanctions, such as these designations,
carries tremendous weight in and of itself. In most cases, our
actions prevent foreign designated entities from carrying out
transactions in U.S. dollars, the international currency of
choice.
But recently we are also seeing that the ramifications of
these actions extend much further than we had previously known.
Some foreign private banks are now voluntarily using our
list of designated parties as a screen to protect them from
processing transactions from terrorists and criminals, even
when not required by their domestic law.
Such practices give a wide-ranging effect to our actions
and represent a real success.
Nor should the deterrent value of these actions be
overlooked. In contrast to terrorist operatives, who may be
willing to die for their hateful ideology, terrorist financiers
typically have something to lose, whether it is property,
occupation, family or social position.
Being publicly identified as a financier of terror
threatens an end to all of that.
Our reporting confirms that once-willing donors are now
thinking twice or balking altogether before sending money to
terrorist groups. This, too, is a success.
We recognize that the enforcement actions have sometimes
also cut off sources of relief to communities in need. Our goal
is not to deter charitable giving, but instead, as Chairman
Royce suggests, to protect the charitable sector such that
donors' generosity is not abused.
As you know, the assistant secretary has shown devoted
leadership on this issue.
This work has been especially important with the Arab and
Muslim communities in the United States where the corruption of
Islamic charities by terrorist groups has created a real
problem.
As Mr. Lynch suggested in his statement, this predicament
is especially acute in the Palestinian territories where Hamas
and other terrorist groups have intermingled ostensibly
legitimate activities with terrorism.
There is a particularly urgent need in this region to
create safe channels of assistance that will not be subverted
by terrorists.
It is important for the prospect of peace in the region
that a social safety net be provided in the territories by an
entity or entities that are not subverted by terrorist
organizations.
I have explored this idea with President Abbas and the
Palestinian territories and other Palestinian-Israeli
officials. I was gratified to receive support and agreement
from all involved. We are currently working with the
Palestinian Authority to develop options through which such aid
could be provided, and I am hopeful that we will be able to do
so.
A further promising development in the Middle East is the
emergence, as the Chairwoman indicated, of the Middle East-
North African Financial Action Task Force or the MENA-FATF.
Launched in November 2004, this FATF-style regional body of 14
member countries has taken on the charge of developing regional
solutions to terrorist financing and money laundering, based on
the global guidelines set out by FATF.
The expectation is that this will set standards and hold
countries to those standards. This is a tremendous step in the
right direction. But we are clearly only at the very beginning
of the process.
Many of these countries have not passed their own money
laundering and terrorist financing laws; others have not
established financial intelligence units; others have control
over their informal hawala sectors; and others have failed to
implement standards to stop the illicit flow of money through
cash couriers.
Our most important task in the Middle East to ensure that
these standards are not only adopted, but they are implemented
and enforced. We cannot measure our success by the number of
laws put on the books but by changes made on the ground.
Real progress will come in the form of border stops, cash
seizures, account blockings, arrests and the like.
It is my job in that process to be impatient for progress,
and I can assure you that I am.
We look forward to continuing our work with you on these
issues, and I look forward to answering your questions.
[The prepared statement of Hon. Stuart Levey can be found
on page 70 in the appendix.]
Chairman Kelly. Thank you very much, Mr. Levey.
Mr. Simons?
STATEMENT OF PAUL SIMONS, PRINCIPAL DEPUTY ASSISTANT SECRETARY,
BUREAU FOR ECONOMIC AND BUSINESS AFFAIRS, DEPARTMENT OF STATE
Mr. Simons. Thank you, Madam Chair.
Chairman Kelly, Chairman Royce, distinguished members of
the subcommittees, we very much appreciate the opportunity to
be with you here this afternoon to talk about Middle Eastern
terrorist financing issues.
As Undersecretary Levey has noted, we have a very strong
interagency process in place and, a rich toolbox of vehicles
with which to encourage improved performance with our allies
across the Middle East.
Improving and strengthening the political will in key
Middle East countries is a high priority for the State
Department.
My full statement contains details of what we are doing
with individual countries. I thought I would just very briefly
review a couple of the tools that we have available that we
have been able to build up since 9/11.
First, the international designation process: Mr. Levey
indicated we have a new designation today.
I think it is important to note that not only is the U.S.
utilizing the designation process through the United Nations,
through Resolutions 1267 and 1373, but we have encouraged our
partners in the Middle East themselves to propose and to join
us in designations. Iraq, Syria Jordan, Saudi Arabia, Algeria
and Kuwait, have all availed themselves of this technique, and
we intend to encourage it further.
Secondly, as you mentioned, Madam Chair and as
Undersecretary Levey mentioned, we have the multilateral
standard-setting process through the FATF--the Financial Action
Task Force--and the new MENA-FATF efforts.
And we are moving a long way to use this multilateral
vehicle, as well as the mutual evaluation process within that
vehicle, to get countries on board to upgrade their terrorist
finance regimes.
Third, we carry out bilateral capacity-building through
technical assistance programs that are run through Treasury and
the State Department. And we have come a long way there, too,
over the last 4 years.
For example, we provided training to the Central Bank and
the FIU in the United Arab Emirates in the areas of hawala and
alternative remittance systems. And they in turn have become
active in conducting their own follow-on training through a
regional training center located in the UAE.
Fourth, we have diplomatic engagements. Our ambassadors are
very heavily engaged in promoting our terrorist financing
agendas in the region.
The Homeland Security Adviser Fran Townsend has repeatedly
traveled to the region to indicate the high-level interest in
the White House with both the Saudis and the UAE.
And within every embassy we have designated a terrorist
financing coordinating officer who basically runs an
interagency process within our embassies to make sure there is
good coordination.
And finally we have law enforcement and intelligence
cooperation with our partners in the Middle East that has been
strengthened since 9/11.
So I think we have come quite a long way in terms of
building the toolbox. I believe that the effort that is
advanced by this committee is pointing out that we still have a
long way to go. And I think both Undersecretary Levey and I
would agree to that.
We have a lot of the tools available. We are moving in the
right direction. Certainly our partners in the Middle East
agree with us on objectives. And we are largely now in a debate
over the pace of reform and how quickly we can move ahead.
So in that regard we very much appreciate this hearing and
look forward to your questions.
[The prepared statement of Hon. Paul Simons can be found on
page 77 in the appendix.]
Chairman Kelly. Thank you very much, Mr. Simons.
I would like to start questions with Undersecretary Levey.
Sir, I am very concerned about the stories I have seen
about terrorism transactions going through Arab Bank to the
Middle East.
I know you are unable to comment on the transactions
leading up to the ongoing investigation of Arab Bank, and while
we respect those constraints and appreciate Treasury's focus on
worldwide compliance with money laundering laws, I remain very
interested in making sure the public learns more about this
case and about what our Government is doing in response to
these deeply disturbing reports.
I would like to know what you are doing in response to the
revelations to make sure that the international financial
sector is secured against the supporters of terrorism. I would
like to know if you are working with the Jordanian government
on this, and what you are asking of the Jordanian government
and what their response has been.
That is a lot of questions. I am glad to repeat them. Would
you like me to repeat them or you think that once is enough?
Mr. Levey. Why don't I give it a whirl, and if you think I
have not answered them, I am sure, knowing you, that you will
remind me.
Let me say at the outset, Madam Chairwoman, I share the
concerns that you have expressed. But as you also indicate, I
am unable to comment on the particular transactions and the
particulars of an ongoing review of Arab Bank's New York
branch.
FinCEN and the OCC are working together in that case. And I
have every confidence that they will take robust, fair and
effective action at the appropriate time.
For our part, as you indicate, the Treasury Department is
focused on worldwide anti-money laundering controls as part of
our responsibility to safeguard the international financial
system.
International financial institutions have a key role to
play in that process by implementing appropriate controls
within their operations. It appears that such controls were
indeed sorely lacking at Arab Bank across all of their global
operation.
I traveled to the Middle East in February, in part to
discuss the disturbing information we had received with respect
to Arab Bank's international operations, and also to stress to
the Jordanians that they needed to put in place systemic
controls--for example, passing an anti-money laundering law--to
safeguard their own financial system.
As it happened, on my way to Jordan, I stopped in Ramallah
first. And there I met with a group of Palestinian bankers to
hear their concerns about doing business in the West Bank,
including the manager of the Arab Bank in the Palestinian
territories.
And what I heard from him was also disturbing. He told me
that his banks had not filed a single suspicious activity
report in the past 2 years across all the Arab Bank branches in
the West Bank and in Gaza.
When I got to Jordan, I met with the prime minister, the
finance minister, other officials, the central bank governor
and others. I underscored the concerns that I had when I left,
as well as those that I discovered when I was in Ramallah, and
stressed that, looking forward, effective controls must
immediately be implemented to safeguard all Jordanian banks,
including Arab Bank, against money launderers and terrorist
financiers.
Everyone I met with assured me they were committed to
seeing those proper safeguards implemented in all of Arab
Bank's branches worldwide.
As the primary regulator of Arab Bank in Amman, the Central
Bank of Jordan is probably in the best positioned to oversee
the bank's procedures and reforms. And so, since I have
returned, I have continued to engage with the Central Bank of
Jordan as the regulator and have received on Arab Bank's
progress in instituting those reforms.
Frankly, I have not been entirely satisfied with what I
have heard. But I am encouraged by the responsiveness of the
Central Bank of Jordan, and we will continue to work with them
to ensure that effective safeguards are implemented across Arab
Banks' branches worldwide.
The risks are simply too great to tolerate anything else.
And I intend to keep the pressure on.
Chairman Kelly. Thank you. I appreciate your comments, Mr.
Levey.
I intend to keep working with you, with both the Department
of State and the Department of Treasury, because we need to
learn all we can about this matter, because I believe that it
will help us in moving forward, through strengthening our
financial defenses against terrorism.
To the extent that other members may be interested in
talking about this particular issue, the Arab Bank issue, I
want to let you know that I will be holding another hearing on
this matter, where we can continue to examine the issue and the
public will learn more about this issue as time goes on.
Now, I have a question for both of you. In both of your
submitted statements, the World Assembly for Muslim Youth,
WAMY, and the International Islamic Relief Organization, the
IIRO, are mentioned. I think it would be helpful if you could
both elaborate as to why these particular organizations should
be of great concern to us.
Whichever one--Mr. Simons, you want to start with that?
Mr. Simons. As you have mentioned, Madam Chair, and as
several of the other members have mentioned, we have been
working very closely with the Saudi Government over the last
several years to persuade them to get a better handle on their
charities situation.
And as the Saudis have laid it out, they see two types of
charities operating in Saudi Arabia: what they call domestic
Saudi charities, some of which have international branches, and
then what they look to as more multilateral organizations, such
as WAMY and IIRO.
We both publicly as well as privately, have indicated to
the Saudi authorities that we believe that the same
disciplines, in terms of oversight, ought to be applied to the
domestic charities as well as to international charities such
as WAMY and IIRO.
So we believe that these are entities that need to have
appropriate scrutiny by the Saudi authorities.
And in that regard, we appreciate your trip and the efforts
that you have made to interact with the Saudi Government on
that particular issue.
Chairman Kelly. Thank you.
Mr. Levey?
Mr. Levey. Well, as you indicate, Madam Chairwoman, on the
IIRO and WAMY, these have been organizations that we have long
been concerned about.
And Mr. Simons is right that the Saudis have articulated
this distinction that they say that certain organizations are
domestic charities, others are multilateral ones. I do not
think that we really believe that that is a valid distinction.
The important point, though, is that when we consider the
controls that they have put in the place or are in the process
of putting in place with charities, on the one hand, they have
said, ``We are setting up a charities commission,'' but it has
not actually been made operational yet.
When we raised that issue very vociferously, they said,
``Okay, well, in the meantime, we are not going to let any
charitable money leave Saudi Arabia.''
And as I said in my statement that I submitted to the
committee, if that is actually what happens, in the sense that
no charitable money leaves Saudi Arabia, well, that is a
satisfactory state of affairs for as long as it goes on.
Frankly, I think we have significant concerns that because
IIRO and WAMY and the Muslim World League are explicitly
exempted from their definition of charities, we have
significant concerns that that temporary fix is not being put
in place with respect to these organizations and that is
something which we intend to press on.
Chairman Kelly. Thank you very much. I am out of time. I
will turn now to Chairman Royce.
Mr. Royce. Secretary Levey, good to see you again.
And you mentioned that Saudi Arabia has worked with the
United States to some extent to address Saudi charities, and
you mentioned the concerns you have or measures which have not
yet been taken--in your words, ``measures that have not yet
been taken by the Saudi Government.''
And I appreciate your frank assessment. And that assessment
contrasted a bit with Secretary Simon's assessment that our
terrorism finance cooperation with Saudi Arabia is real-time,
ongoing and fully embedded into our day-to-day counterterrorism
operations.
Of course, what comes to mind is the question of why Saudi
Arabia has not established an effective Saudi FIU, and you
mentioned the failure to include three large multilateral
charities under its Charity Oversight Commission, which the
Saudis have failed to implement.
So I guess my question is: What is the commitment of the
Saudis moving forward on these points and what is the
commitment of the United States on pushing these issues?
We do have leverage. Saudi Arabia would like ascension into
the WTO and other points of leverage.
So how important is this issue to the United States in
terms of utilizing what pressure we do have in order to get
compliance on what I think a number of us feel is vital in
terms of long-term national security interests?
Mr. Levey. Let me respond to that, Chairman Royce.
I think that the interagency group that works on terrorist
financing, which Mr. Simons and I participate in actively, we
do take it incredibly seriously. I think it is fair to say that
there is no other country that has spent nearly as much time on
engagement.
And not only have we done it, the president's Homeland
Security Adviser, Frances Townsend, has engaged on the highest
levels with them repeatedly.
There has been undeniable progress, particularly since the
spring of 2003. It is a much different state of affairs. And I
think that is what Mr. Simons was referring to in his
statement--a much different state of affairs since that time
than before that time.
They have taken real-time action to capture and kill Al
Qaida facilitators and operatives in Saudi Arabia. That is
real.
They have, indeed, joined us in designating organizations
and individuals that facilitate terrorism.
In some respects, I think it is fair to say that Saudi
Arabia has come further than other countries in the region. And
we have to be careful that we do not become solely focused on
Saudi Arabia.
But that said, and I think, as you allude to, I think they
have come the furthest and they had the furthest to go. They
had significant problems in these areas and they still have a
long way to go.
Mr. Royce. The establishment of effective Saudi FIU would
seem to be pretty basic. And that is of grave concern to us.
Mr. Levey. And to me as well. And I know to Chairman Kelly
as well.
Mr. Royce. I was going to ask Assistant Secretary Simons:
There was a column the other week by Jim Hoagland that a
national security policy directive is being pulled together for
what some have started to call the global war on extremism, and
I wondered if you could shed any light on this.
And an essential part of this, I guess, would be an effort
to check the charities who are working to spread radical
Wahabist beliefs and have crossed the line over into teaching
jihad.
Mr. Simons. Thank you, Mr. Chairman.
We are, indeed, in an internal deliberative process, in
taking a look at our tools with respect to the global war on
terrorism. There is not too much I can say about it in an open
hearing. We might be able to talk more about it in a closed
session.
But I can assure you that the two issues that you
mentioned, terrorism finance as well as how to deal with what
is taught in the madrassas and kind of the content issue that I
think you have elaborated here--both of those are very
important elements in this policy review that is under way.
Mr. Royce. Undersecretary Levey, you mentioned the
deterrent impact that the threat of being publicly identified
as a financier of terrorism has had on those in the financial
community.
Would it not make sense to go a bit further and in essence
name and shame also the states that are not cooperating in
anti-terrorist financing efforts?
Such a process would then require an annual written
certification of Congress detailing the steps that foreign
nations have taken to cooperate in U.S. and in international
efforts to combat terrorist financing.
And this process, then, would be similar for what we have
in place for compliance of foreign nations on our anti-
narcotics effort. I think everybody would agree that terror
finance is just as important.
And I just close by saying--well, also you might want to
comment on what role Syria may be playing in financing of
terrorism, on that subject.
Thank you. And thank you very much for your good work,
Undersecretary Levey. I appreciate that.
Mr. Levey. Thank you. Thank you for that, Mr. Chairman.
You raise a very complicated subject, actually, because in
some ways we do call out countries that are not cooperative on
terrorism--terrorism generally.
Now, you have actually made it more particular on terrorist
financing, and I appreciate that, because as we have discussed
personally, or in your office, that is an issue that is
obviously at the center of what I do, and we do go around the
world trying to use whatever tools we can to persuade, cajole,
coerce, whatever we have in order to get people to do more and
better on this topic.
On the other hand, one does not necessarily want to
separate terrorist financing from terrorism. It is a part of
the bigger picture, and so I think we have to be careful not to
create a fault line that we do not really mean to create.
But I do think that this is an issue that I would be very
interested in exploring. And I know that there is a proposed
bill that you and the Chairman have already introduced, which
is something that is perhaps a topic of further dialogue
between us, so that we can see if there is something that makes
sense that we will be able to support.
Mr. Royce. Thank you, Stuart.
Chairman Kelly. Thank you.
Mr. Gutierrez?
Mr. Gutierrez. Undersecretary Levey, I am going to go back
to my opening statement and the several questions that I raised
as I read it.
The quantity of SARs has grown. Many feel they are
defensive filings.
Treasury's Inspector-General's recently found that the
quality of SARs is severely lacking. They stated that 62
percent of SARs examined reveal problems in data quality,
including incomplete, inappropriate or inconsistent
information.
The Inspector-General's report indicated that FinCEN needs
to prioritize this issue.
I would like to hear you comments for ideas and improvement
in this area.
Mr. Levey. Thank you for that question.
I am familiar with the inspector-general report that you
refer to, and obviously it has raised certain concerns.
One of the things that I think is also worth pointing out
is that the inspector-general, who has been very--the Office of
the Inspector General in the Treasury--has been very helpful.
They focused a lot of attention on the whole bank secrecy act
system, and I think has made excellent suggestions over the
years.
And we have responded to those recommendations, I think, in
a way that everyone involved thinks is very cooperative,
including with respect to this report.
We are committed to making the improvements that you refer
to. I should maybe take a step back and say that, with respect
to FinCEN's ability to get high data quality in SAR filings and
Bank Secrecy Act filings, I think that when we are fully on
board with the BSA-direct project that Director Fox is working
on, I would say, it is fair to say tirelessly, in order to get
that up and running by October of 2005, frankly with the great
support of this committee. That will be very helpful on that
side as well.
And also as we continue to increase electronic filing, one
of the advantages--electronic filing has another advantage,
which is that data quality is improved by the simple fact that
you have electronic filing.
Mr. Gutierrez. I guess maybe--because we are going to have
5 minutes--you might, if you could respond more elaborately in
terms of how you seen FinCEN prioritizing this issue and the
exact responses that are going to be taken.
I would like to go to another issue that I raised.
The committee held a hearing this morning on breaches in
data security in private sector companies. And, as I said, it
is very rare when I agree completely with Mr. Sensenbrenner,
but on this issue, he said, on April 20th, he called Treasury's
failure to secure taxpayer and the Bank Secrecy Act data,
``completely unacceptable.''
Mr. Sensenbrenner went on to say, ``It needs to be
corrected immediately.''
What is your response to Mr. Sensenbrenner's comments on
Treasury and your information-gathering and the secrecy around
it?
Mr. Levey. Well, all I can say on that issue is that I very
much agree that keeping the integrity of the Bank Secrecy Act
data that, as you know, initially comes into the IRS, is
extremely important. We take it very seriously.
And again, it is something that the BSA-direct system would
hopefully handle better from FinCEN's perspective. To the
extent this is a question that goes to----
Mr. Gutierrez. What measures are you taking to respond to
what Mr. Sensenbrenner called as ``completely unacceptable''?
Mr. Levey. I think it would be best to give you a completer
answer in writing, because this is something that I think the
IRS is the entity that should be responding.
Mr. Gutierrez. I will look forward to that.
I want to ask you about the inspector-general, again.
He found that getting Treasury's HR Connect, another high
tech personnel system, up and running costs $173 million. He
compared that to the $24 million that was spent at Agriculture,
$15 million that was spent at the Coast Guard.
He furthermore talked about $22 million annually to run HR
Connect--far more than the $5 million to $6 million. So he made
a comparison between what Treasury spent, both in terms of the
system--$173 million--versus $24 million and $15 million--and
in terms of $5 million to $6 million to run. This would be your
$22 million.
And the I.G. calculated that $41 million may have been
wasted in development of HR Connect.
So could you give us the name of the contractor on the
project that was paid $109 million? And I would like to know if
the contractor is and whether the project was bid competitively
and why the costs were so high, and just as importantly, where
the funds for this project came from.
Mr. Levey. I am sure that this will not be a satisfying
answer to you, but I know I am not the right person to answer
that question. And we will have to have the department respond.
Mr. Gutierrez. And I raise this as an issue because I know
that when there is not sufficient money and when large amounts
of money are spent like this, I guess my concern is money being
transferred from one area of Treasury to another area of
Treasury. I did not bring it up, the I.G. looked at it and
examined it. I am using their report and their data.
And then I know I raised some issues--and my time is up--so
if you could put in writing about the Office of Intelligence
and Analysis and the assistant secretary, who is going to fill
that job. I have raised this before. And other kinds of
positions which have remained vacant, if you could give us a
time line on how you see those positions being filled so that I
am sure you will be better equipped to fight this war on
terrorism.
Thank you very much for your comments, Mr. Levey.
Chairman Kelly. Thank you very much, Mr. Gutierrez.
Mr. Garrett?
Mr. Garrett. Thank you.
You had indicated earlier during your testimony with regard
to another organization, ostensibly a charitable organization
that has now been found to be in actuality a terrorist front,
if you will--I guess besides looking at those organizations
themselves, what action by either you or other agencies are
taken for here and abroad the wealthy individuals who are
contributing in supplying the funds to those organizations? If
you can just briefly touch on that--under the Patriot Act.
Mr. Levey. Well, the Patriot Act does a lot of things, but
this is something we had before the Patriot Act.
If we designate an entity under this executive order, under
IEEPA, which is a separate statute, it is a crime in United
States domestic law for U.S. persons to contribute money to
this organization.
Mr. Garrett. Is that a known standard? What is the mens rea
requirement for the individual who donates to that
organization?
Mr. Levey. For a criminal prosecution there is a mens rea.
You must have criminal intent. It is still an OFAC violation to
have any transaction with a person who is on any of the OFAC
designation lists, including this one.
Mr. Garrett. Is that any different under the Patriot Act,
for an individual to be contributing to organizations?
Mr. Levey. I do not believe that the Patriot Act affected
that.
Mr. Garrett. So it is still, as far as you know, it is
still----
Mr. Levey. There may be a change in penalties. I think it
is possible. I am trying to think back to my time at the
Justice Department where there were a number of penalty
enhancements in the Patriot Act, but the basic crime of
contributing money to a terrorist organization or designated
terrorist existed prior to the Patriot Act.
Mr. Garrett. And I assume the answer to this question is
no, but I will throw it to you. Is there any mechanism for a
charitable organization--let us say it is a legitimate
charitable organization--to go to anyone, yourself or
otherwise, to get themselves designated truly as a charitable
organization and not one that anyone has to worry about them
being a terrorist organization?
Mr. Levey. Well, there is an answer to your question, which
is not quite a one-word answer, which is, if we designate an
organization and they want to be delisted, and they can come
back. And we have had individuals, at least one individual I am
thinking of in particular, that we have delisted after
designating as a terrorist. We have resisted suggestions from
many people that we create a white list of charitable
organizations for a lot of reasons.
We do not think that is the right way to go. We think that
charities should be policing themselves instead of looking for
us to come up with a white list. But the answer to that is, no,
there is no list of charities that we endorse.
Mr. Garrett. You obviously understand the reason why people
come with that question, because they feel that they are now
the subject of being criminal prosecutions or otherwise by
giving to the charities. And if they are trying to do their
best to make sure that they are not, just because they are not
on the list, if they had given to that charity 2 months ago
before your designation, thinking that it was a charitable
organization, they now may be suspects for what they are doing.
The other question: You must have--and we have had a number
of people come before us on this area, money laundering, what
have you--and the amount of data that you must have to review
and collect is just--is probably mindboggling. And is that the
case?
Mr. Levey. Well, luckily it is not just me.
Mr. Garrett. But it goes to a question that was raised by
the other side of the aisle. Fortunately, we are moving in the
right direction. In the banking industry, there is a more
formalized customer I.D. program that is now in place.
Despite some of their testimony elsewhere, we see that the
SARs reports, that there is a more proactive and a more robust
program as far as the SARs reports, that that is going in the
right direction as well.
And there is also the 314a response, back and forth, that
are getting under those programs as well.
So in light of moving in the right directions on all of
those fronts, my question to you is, doesn't it seem that where
we are now with the CTRs, the cash transaction reports, that
they are basically redundant and may be provided you with more
data than is useful, that, A, it is redundant and more than you
are going to be able to deal with anyway, and that we do not
really need the CTRs at this point--more time on the SARs?
Mr. Levey. I am sorry. I think that our position on that is
that it is not an either/or situation. It is not either use
314a and cash transactions report--or use 314a and SARs or use
the cash transaction reports. We think it should be a both/and,
and we are best off by using both methods.
I do agree that the--first of all, are moving in the right
directions with respect to getting better SARs. There is, you
know, bumps on the road, but I think we are generally headed in
the right direction.
And 314a is a fabulous tool which, frankly, we intend to
and are trying to use more robustly than we have in the past.
Just in the last few weeks, FinCEN set up a secure Web site
that can be used to push information to the financial sector
under 314a, and now we have to take the next step and actually
do that.
But the CTR reports that you refer to still do, from what
we have been able to learn in the last few months, they still
do provide very valuable information. I have not been privy to
what all law enforcement agencies are doing with them, but I am
familiar with the FBI's experience and it still proves to be a
very valuable source of leads for the FBI.
Mr. Garrett. Perhaps I would assess then, if not here but
in the future, if you will be able to provide us in writing
some example to substantiate that.
Mr. Levey. I would be happy to.
Mr. Garrett. Thank you.
Chairman Kelly. Thank you.
We have just been called for a vote, but I would like to
turn to you, Mr. Lynch, if we can keep it for 5 minutes, we can
still, at least, get your questions in.
Mr. Lynch. All right. Thank you, Madam Chair.
Gentlemen, I do not want you to take this criticism the
wrong way. I appreciate all the work that you are doing, no
question about it. And I know that you are doing everything
possible and that we are still trying to devise tools to be
more effective.
But this September will be the fourth anniversary of the
attacks on September 11th, and this process is taking too long.
That we do not have a financial intelligence unit in Amman yet,
we do not have one yet in Riyadh. I do not believe we have one
in Beirut, Cairo.
It is tough when we hear--and I appreciate your work at
this. This is not criticism of you. It is of others who need to
cooperate.
But when we find out that we do not have one SAR from any
bank in Ramallah--that is your testimony--that is troubling.
And I just question, even with the establishment of this Middle
East and North African Financial Task Force, are the tools in
place for us to--even though we have got at least signals of
willingness now--and I am not sure how genuine those are--do we
have auditors in place who are actually going to be able to
tell us whether or not we are getting compliance?
You know, is this the real--in terms of what we are
expecting from these other nations? I know it is a tough thing
for you to judge. You are a couple of good guys, and you are
trying to do the right thing. And I am not critical at all of
your performance. I am just recognizing the difficulty at hand.
And my question would be: What can we do here? What can
Madam Chair do and Democrats and Republicans?
This is, fortunately, one of the issues we actually are all
together on. So it is not partisanship in this case that gets
in the way. It is really how best to help you. Are there tools
that we could give you or provide to you that would allow you
to be more effective and remove some of the obstacles that you
have?
We have a strong relationship with Jordan. I was in Amman
last month. And I know that we have given the blessing to a lot
of NGOs to locate their Iraq-related activity in Amman. We have
got the Iraqi policy academies in Amman, Jordan. We have got
all this cooperation with them.
And they have a lot to lose, quite frankly, by not
cooperating--similar to the Saudis.
Are there things that we are not using that could be
helpful to you in your task?
Mr. Levey. I think maybe we should both answer this one,
since it certainly applies to both of our departments.
Let me say, I appreciate the spirit of the question. I
always get a little nervous when someone starts, ``Do not take
this as personal criticism.''
But I do appreciate--and both of these subcommittees have
been very helpful to us and it has not been a partisan issue at
all. I do think that, with respect to some of these countries--
I should first say: I am as impatient as you are.
I always say to the people I work with that I can only
bring two things to this job: I am very impatient and I worry a
lot. And those are the two things that I think are the most
important characteristics that I need.
Mr. Lynch. And you are young. That might help as well at
the rate we are going.
Mr. Levey. Well, I do not know.
But first of all, some of these countries are setting up
FIUs. We have good FIUs in Lebanon and in Egypt that are doing
good work. I believe we are going to get an FIU quite soon in
Jordan. Certainly the atmosphere with Jordan is, as you say,
very, very cooperative.
So I think that there is a real--certainly a large number
of people in these countries ``get it.'' And I am told that the
discussion at the MENA-FATF, which one of my deputy assistant
secretaries, Danny Glazer, went to, was very, very forward
leaning and strong.
But as I said in my testimony, it is not standard setting
that we need. We need standard setting plus implementation and
enforcement. Though I have to say, we are not going to get
implementation and enforcement until we get the standards set
and the laws passed, because it is hard to pressure a
government to take action if they do not have the legal
infrastructure in place to do it.
In terms of tools that we need--and we had the exchange
that I had with Mr. Royce--I certainly appreciate the attempt
being made to try to fashion a tool that would give us more
leverage. The tool given to us in the Patriot Act, Section 311
of the Patriot Act, has proved to be fantastic, really a
powerful tool.
As I put in my written testimony, the impact of a proposed
rule on the Government of Syria, when we did a proposed rule
designating the Commercial Bank of Syria as a primary money
laundering concern, has been--I have to say, I, frankly, was
surprised at how powerful the response was. But I am now coming
to understand just how powerful that tool is.
Whether there are additional ones, I think is the kind of
dialogue that we should continue with respect to the attempt
being made by Mrs. Kelly and Mr. Royce on their bill.
Mr. Lynch. Thank you.
Chairman Kelly. Thank you, Mr. Lynch.
We have been called for a vote. There are some members who
have additional questions for this panel. They may wish to
submit them in writing.
I also have additional questions for this panel which I
will submit for writing.
So without objection, the hearing record for this panel
will remain open for members to submit written questions to
these witnesses and place their responses in the record.
We thank you both very much for your appearance today.
Since we have been called for a vote, we will be adjourning
for--we will go into recess for approximately 20 minutes, and
then we will resume for the second panel.
Thank you both, gentlemen, for your patience and for
appearing here today.
Mr. Levey. Thank you very much.
[Recess.]
Chairman Kelly. Thank you very much for your forbearance in
our taking the time to vote. I appreciate the fact that the two
of you are here and welcome you.
Just to let you know, the other members may have a little
difficult time getting back. One of the elevators transporting
members to and from the floor in the Capitol is broken and one
of the trolleys seems to be down. So it is a little more
difficult for us to get moving around right now.
But we welcome you.
We have panel two, the second panel, Mr. John Byrne, the
director of the Department of Compliance from the American
Banking Association, and Mr. Zahid Bukhari. He is the director
of the American Muslim Studies program and a fellow at the
Center for Muslim-Christian Understanding in the School of
Foreign Service at Georgetown University.
We welcome both of you and look forward to your testimony.
Let us begin with you, Mr. Byrne.
STATEMENT OF JOHN BYRNE, DIRECTOR, DEPARTMENT OF COMPLIANCE,
AMERICAN BANKING ASSOCIATION
Mr. Byrne. Thank you, Madam Chairwoman. ABA appreciates
this opportunity to discuss how the financial industry is
addressing compliance with the USA Patriot Act and all the laws
covering financial institutions' anti-money-laundering
obligations.
To update members on the various industry AML challenges,
we offer the following three observations and recommendations:
Number one, the detection of terrorist financing by banks or
other financial institutions, whether through charities or any
other entity, will not be successful without effective
government intelligence and continued private sector
involvement in organizations such as the Financial Action Task
Force.
Two, whether in terms of BSA compliance or how banks work
with MSBs, effective compliance with evolving AML requirements
necessitates accompanying guidance. For example, it is
counterproductive to label an entity or a country ``high risk''
without also issuing guidance on how to mitigate that risk.
And three, until the financial sector receives improved
guidance and a more balanced approach to examiner oversight,
the volume of suspicious activity reports that banks submit to
regulators will continue to skyrocket, frustrating government
efforts to accurately detect genuine threatening activity.
We have previously emphasized to Congress and this
subcommittee that the banking agencies need to reach agreement
on how the financial services industry will be examined for
compliance under the Patriot Act. We are pleased to note that
there is formal movement on coordination of exam procedures and
these final procedures are now due out June 30th.
ABA is also pleased that the agencies are exhibiting a
commitment to greater consistency in 2005. For example, not
only has FinCEN Director William Fox expressed public support
for uniform assessments, but he has also directed the Bank
Secrecy Act Advisory Group to form a subcommittee on exam
issues.
This subcommittee, co-chaired by ABA and the Federal
Reserve Board, has met several times--as recently as April
29th--to discuss the pending interagency exam procedures.
Uniform exam procedures will assist with industry concerns
about exam inconsistency and the continued threat of zero
tolerance by these same errant examiners.
Terrorist financing: As Congress reviews how to best to
detect terrorist financing conducted through charities, it must
be restated that the financial profile for this crime gives no
direction to the financial sector on what could be done to
prevent this activity in the absence of additional government
information.
This crime is difficult, if not impossible, to discern, as
it often appears as a normal transaction. We have learned from
many government experts that the financing of terrorist
activities often can occur in fairly low dollar amounts and
with basic financial products. Guidance in this area is
essential if there is to be effective and accurate industry
reporting.
The bottom line is that terrorist financing can only be
deterred with government intelligence. A renewed commitment by
law enforcement to real information sharing must become a
priority, not a second thought.
The financial industry continues to struggle over how to
assess what types of risks are relevant to spotting terrorist
financing. To date, the only public examples are the typologies
listed by FATF for charities or non-government organizations,
NGOs. The FATF warning indicators in this area do not, in our
opinion, offer any real insight as to what types of activities
are inherent to risky charities as opposed to risks in any
other entity.
We believe that government organizations, such as FATF,
could benefit from developing typologies after active
consultation with the private sector, a goal that the ABA is
pursuing through an organization that we are part of, the
International Banking Federation.
There appears to be progress in this area, but we urge
Congress to recommend to FATF that there be formal opportunity
for the financial sector to be part of the FATF efforts in the
areas of money laundering and terrorist financing.
Finally, in deference to Undersecretary Levey, I must
disagree with his answer to one of the questions regarding
currency transaction reporting.
As ABA has previously testified, again before this
subcommittee, the 35-year-old law that relates to cash
transaction reporting has become redundant and lost its
usefulness. We believe that the time has come to dramatically
address this reporting excess by eliminating CTR filings for
transactions conducted by seasoned customers through their bank
accounts.
We would note that the purpose of Title 31 in establishing
the Bank Secrecy Act regulatory regime is to require certain
reports or records when they have ``a high degree of usefulness
for the prosecution and investigation of criminal activity,
money laundering, counterintelligence and international
terrorism.''
ABA and its members strongly believe that the current CTR
reporting standards have long departed from this goal of
achieving a high degree of usefulness. We believe that CTR
filing has been rendered virtually obsolete by several
developments. We now have formalized customer I.D. programs
under section 326 of the Patriot Act. We also have more robust
suspicious activity reporting, and when we finally do address
the problem of defensive filing, those forms will be more
carefully crafted and certainly, the guidance will be improved.
And the Government use of the 314a inquiry process, we
think is a valuable addition from the Patriot Act that does
help banks detect and look for terrorist activity through
individual entities when those entities are named.
We believe that combined improved monitoring conducted by
institutions as part of their SAR processes with better minding
of SAR data by law enforcement as well as judicious use of the
314a process yields a much more effective approach to law
enforcement investigation of patterns of fraud, money
laundering and terrorist funding.
Consequently, we believe the time has come to recognize the
redundancy of CTR filings for seasoned customers and to
eliminate this inefficient use of resources by bankers and,
more appropriately, by law enforcement.
Changing the thinking about mandating the collection of
routine cash data would have the following benefits: The vast
majority of the over 13 million CTRs would stop; wasteful SARs
would cease; bank systems and resources could be redirected;
regulatory criticism for technical mistakes with CTR filings
would end; and finally, law enforcement could redirect its
resources to better evaluate SARs.
In conclusion, we have been in the forefront of industry
efforts to develop a strong public-private partnership in the
areas of money laundering and now terrorist financing.
This partnership has achieved much success, but we know
that more can be accomplished. We commend the Treasury
Department, the banking agencies, and FinCEN for their recent
efforts to ensure a workable and efficient process.
We obviously will continue our support for these efforts.
Thank you, and I would be happy to answer any questions.
[The prepared statement of John Byrne can be found on page
57 in the appendix.]
Chairman Kelly. I thank you, Mr. Byrne. I think what you
have just said is very, very important. I would hope that
someone from Treasury is sitting here taking notes.
We turn now to you, Mr. Bukhari.
STATEMENT OF ZAHID BUKHARI, DIRECTOR, AMERICAN MUSLIM STUDIES
PROGRAM FELLOW, CENTER FOR MUSLIM-CHRISTIAN UNDERSTANDING,
SCHOOL OF FOREIGN SERVICE, GEORGETOWN UNIVERSITY
Mr. Bukhari. Thank you, Chairman Kelly.
Thank you for giving me this opportunity to state the
significance of Zakat in everyday Muslim life, and also to
express the concerns of the American Muslim community on the
efforts of starving terrorists of money.
I was asked to address three specific questions, and I will
do it one by one. But bear with me. I will sing a little
different song, so please bear with me.
The first question was raised said: What role does the
Islamic charitable obligation, or Zakat, play in everyday
Muslim life?
Charity is an integral part of all religions. It is also a
fundamental obligation of all Muslims to share their wealth
with the poor and needy members of the society.
Zakat, calculated at 2.5 percent of total savings, assets
per year in the Sunni tradition, is one of the five pillars
prescribed in Islam.
The emphasis in Islam is not only on faith, but also on
practice. Belief in God is not acceptable if one does not give
charity to the poor or hungry people.
It is strongly recommended that Muslims should give as
charity more than the obligative Zakat. It is called Sadaqa.
And there is a Jewish term almost sounding like that, meaning
like that. Sadaqa is another act of charity.
The difference between Zakat and Sadaqa is the nature of
the giving. Zakat is compulsory and Sadaqa is voluntarily, and
it can consist of anything from monetary gifts to acts of
kindness, even a smile.
The Islamic traditions discourage publicizing the acts of
generosity. For that reason, Muslims give Zakat and other
Sadaqa without any fanfare and only for their own salvation on
the day of judgment.
Another difference, I think, with Islam and the other
religions about this issue of Zakat is, as a spiritual and
philosophical matter, the ownership does not exist in Islam.
All wealth and properties belong to God. A person is a trustee
of his and her wealth and property and has the responsibility
to spend and manage its wealth.
In that sense, the poor have a right to part of it. On the
day of judgment, each person will be asked about his or her
acts of charity, including visits to the sick and
responsibility to one's neighbors.
Among the Muslim communities all over the world, the Zakat
has always been an effective tool for alleviating poverty,
redistributing the wealth and resources among all sectors of
the society, and establishing the system of social justice.
But Islamic law has described a detailed set of rules and
regulations for the collection and management of the Zakat
money. According to the Koran, there is Chapter 9 and 60, there
are eight specific categories where the Zakat money could be
spent, and very briefly: for the poor, for the needy, for
employees involved in the collection and administration of
Zakat, for freeing captives, for relieving those in debt, for
those who are traveling, for the sake of God, for Allah.
This is where the public goods including education, health
and infrastructure fall.
And very interestingly, the last category is for winning
the hearts and minds of others. That is also a part of Zakat,
is another item.
In America, the potential of the Zakat collection by the
Muslim community is estimated by one economist around $1
billion per year. And every kind of the Zakat, Zakat-al-Fitr,
that is the charity for the Ramadan feast at the end of
Ramadan, the month and the festival of Eid al-Fitr is also
estimated within $35 million to $40 million each year. And that
was distributed for the poor of the society and the community.
The other Sadaqa, the other charity, is more than that,
annual Zakat and annual Zakat-al-Fitr.
At this point, let me also briefly talk about the American
Muslim community. It is the most diverse and influential
community in the world. Here we have, in America, Muslims from
80 different countries. And no other country on the planet has
this type of diversity.
Only compared in the parallel is the annual Hajj in Saudi
Arabia, where we have 2 million Muslims coming from more than
100 countries. But next to that, only we have in America this
type of diverse Muslim community.
A small replica of the Muslim world is living in the U.S.
today. We have representation of all the religious schools of
thought and intellectual trans-political ideologies. There are
a large number of highly qualified professionals, fellows and
experts in all fields in the American Muslim community.
And I was also involved, before this American Muslim
Studies Program, in a project map, Muslims in the American
Public Square. It was funded by the Pew Charitable Trust. So we
compiled a ``who's who'' among American Muslims, and that will
be published this year. We publish this volume, ``Muslims'
Place in the American Public Square.'' And we are publishing
another volume about Muslims engaging the quality and the
society here in America.
Comparing with the national average, the community is much
younger, more educated, and have higher income level.
The American Muslim community is also becoming politically
mature. In a national survey conducted in 2004 by the Project
MAPS and Zogby International, 58 percent of the Muslim
respondents said that they were profiled or discriminated after
the September 11th, 2001.
However, an overwhelming majority, more than 90 percent,
also favored their participation in the American political
process, interfaith activities and giving money to non-Muslim
charitable organizations.
So there is the first question about the Zakat.
The second question was raised: How have terrorists used
this obligation in American-based charities to fund illegal and
dangerous activities aimed at the United States?
Chairman Kelly. Mr. Bukhari, we will enter your entire
written statement as a part of the record, but we would like
you to sum up now please. Each of you were invited to testify
for 5 minutes, and you have been talking for 5 minutes. If you
could sum up, I would appreciate that. Thank you.
Mr. Bukhari. I gave the written statement, but very briefly
I will say that right now, unfortunately, at this time Muslims
are facing this dilemma. There is a shadow of suspicion on the
Muslim charity that every act of Muslim charities is the act of
terrorism.
And that shadow of suspicion should be removed. The Muslim
community and the Muslim charitable organizations, they are
doing their best. They have established a national council of
Muslim for nonprofit recently. They are doing their work in
international arena, in the domestic.
So I think the main concern is that that shadow of
suspicion should be definitely removed.
And we are ready; we can facilitate. Any agency of the
Government should work with the Islamic organizations,
charitable organizations and the needy people all over the
world.
For example, there are a lot of questions raised by
Palestine today. But then one statement was made that millions
of dollars by American Muslim community have been raised for
terrorists. I simply very respectfully say that this is not
true--absolutely not true.
So we would like to facilitate--that any agency of the
Government work with the American Muslim charitable
organizations, work in the Palestinian or anywhere in the world
to make that the money should be spent where the money should
be spent, for the needy and the people--those who are very
hopeless over there.
So that is right now the crisis at this time, that this
shadow of suspicion should be removed and the proper working
mechanism should be developed for the partnership of the
American Muslim community.
[The prepared statement of Zahid H. Bukhari can be found on
page 53 in the appendix.]
Chairman Kelly. I thank you both very much for your
testimony.
Mr. Byrne, you mentioned you think CTRs are redundant and
not useful. You also suggest that banks are having to file many
too many SARs reports.
If you were sitting in the position that Chairman Royce and
I are sitting, what would you to do help clarify both of those
things in terms of helping Treasury give banks more clarity and
more certainty about both of those reports and the way that
they file them?
Mr. Byrne. Madam Chairwoman, the issue of suspicious
reporting is an interesting one because we actually are very
active with the Treasury's Bank Secretary Advisory group, and
through the efforts of Bill Fox at FinCEN they have really made
the system much more transparent.
We are starting to get better example of trends through the
SAR activity review, which, as you know from my testimony, I am
part of that. But, more importantly, topologies and examples
typically come back now through FinCEN and Treasury with some
assistance from the private sector.
So the SAR guidance is getting better. I think the real
answer there is for you to perform oversight on how the
examination of banks is going to occur, kind of post these new
exam procedures through 2005 and 2006, and see if the banking
industry has, in their view, felt that they have been treated
fairly in terms of their SAR programs and procedures--more of
an oversight on how our programs work.
In the CTR area, this has been an issue for me for quite a
while. In fact, I wrote a law review article back in 1990 that
we thought then that CTRs really needed to change their focus.
But now, in 2005, law enforcement will sit in front of you
and say, ``All data is valuable.'' Well, it is just not the
case.
I think you need a very comprehensive review of where
currency reports have been going--13 million a year--70 percent
of them are on Wal-Marts and J.C. Penneys and retail stores
that serve no value.
The minimal amount that might be on something that they are
investigating--law enforcement--really kind of supplements
their ongoing investigation.
So it is another area where I think you should demand a
very careful review of where that process is.
But do not look at CTRs in a vacuum. Look at what we are
doing today with suspicious reporting, with wire transfer
record keeping, with customer ID, and look at it in that
context. Where does CTRs fit in with all the other information
that banks are providing?
If you do it that way, they are going to have to be frank
about CTRs--where they fit in.
And again, my educated guess is they will respond and say,
``All information is valuable.'' We just do not believe that is
the case.
Chairman Kelly. Mr. Byrne, I wonder if you would be willing
to send this committee a copy of that article that you wrote?
Mr. Byrne. I will be happy to. It was before the days of
electronic--so we will copy it and send it through.
Chairman Kelly. Good. Okay.
Chairman Royce and I both introduced H.R. 1952 that would
create a terror finance certification regime to try to enable
the private institutions to know which countries are the
countries of concern.
And I did not get the time to ask Secretary Simons about
what they are doing on this front. But I would be very
interested in whether you think that H.R. 1952 might be a
useful tool for you.
Mr. Byrne. Having not read the bill, but I heard your
description of it, it is basically setting up something similar
to the noncooperative country designations of FATF, but only on
terrorist financing.
Obviously, in the abstract, designating a country as
higher-risk is useful. The only caveat I would offer is that we
have seen, specifically in the area of the MSBs--and, as you
know, banks were told that MSBs were inherently risky and they
gave us no real way to mitigate that risk--if you designate a
country as noncooperative in the terrorist financing area, are
you telling the banks to completely stay away from the
relationship, are you telling us to just simply enhance our due
diligence to work with Treasury or whomever to make better
decisions?
I would only suggest that we have seen some examples--for
example, in the country of Latvia. Latvia is seen as a country
that has a lot of problems.
The problem with that designation is that many U.S. banks
have simply distanced themselves from relationships there. And
perhaps that was too broad a response on our part, because we
really have no way to mitigate the risk.
So I would just urge that, however you proceed with the
legislation, understand that if you designate something risky,
we will react, but we will react broadly and probably distance
ourselves completely without some more direction.
Chairman Kelly. I understand that one of the problems that
the Treasury has and all the regulators in the financial area
have is to maintain a certain oversight in such a way that they
are not closing down channels that they need to be looking at.
I am interested even with the MOU that just came out on
SARs. Don't you think maybe there could be a place for safe
harbor for financial institutions that really made an honest
mistake? I do not see in the way that the SAR reports are being
used right now that we have got any place, any safe harbor, any
placeholder for a bank that made an honest mistake, can come in
and correct it and get on beyond it. What do you think about
that?
Mr. Byrne. Well, there are a couple of issues here.
First, we are filing today a comment letter to the FDIC and
the other agencies on the overall regulatory burden relief
project--the acronym is EGRPRA. And one of the many
recommendations we are making besides the CTR recommendation
that we are talking about today has to do with the multiple
filing of suspicious activity reports.
What happens today, what has added to the multiplicity of
filings--if I file a suspicious report tomorrow on a particular
entity, we have been directed every 90 days, if that account is
still active, to continue to file on the same activity even if
there has been no additional information. We do not think that
is very useful. And we think that is adding to the problem.
The safe harbor, in the early 1990s--again, unfortunately,
I have been here way to long--but in the early 1990s, we
supported a provision crafted by this committee that gives a
safe harbor from litigation if an individual wanted to pursue
an action against the institution.
So this is not a safe harbor from the Government, this is,
if we file on an entity and the entity decides to litigate, we
are protected because we have made a decision, right or wrong,
to file a suspicious report. So there is a safe harbor from
that.
But in terms of the Government, we do think they need to
give us better deference on our SAR filings. And one area that
it could help--and maybe it is not a safe harbor per se--but if
a bank has made a decision not to file a suspicious activity
report, I have heard too many times from our members that we
get criticized for failure to file even though we looked up the
activity, documented why we did not file and actually working
hard to not file something defensively. Examiners have been
critical of that.
We need deference paid to the bank that had a program that
looked at the activity and at the end of the day made a
decision not to file. You can call it a safe harbor, you can
call it due deference, in that area, I think it will be very
helpful.
Chairman Kelly. Thanks, Mr. Byrne. I am hearing that from
my bankers that I represent as well.
I am out of time. I would like to turn now to Chairman
Royce.
Mr. Royce. Thank you, Chairwoman Kelly.
Let me just begin by asking the doctor: Do you have a view
about Treasury's outreach?
You know, the Treasury Department is attempting to resolve
some of the issues that you brought up in your testimony,
trying to sit down with the community and work out a resolution
of some of these sensitive areas. And I just wondered if you
had a feeling of how that was going with the Treasury
Department.
Mr. Bukhari. I think that outreach effort is commendable.
And that their encouragement and also the leadership of, too,
our national Muslim organizations, AMPAC and ISNA.
Recently the Muslim community formed the National Council
of American Muslims, nonprofit. It is a good development.
But I would like to go beyond that. And that is an issue,
for example, of when the other relief organizations, three or
four relief organizations, they were banned. And the assets and
the bank accounts are frozen--millions of dollars. Among those
there was Zakat money. That is a very much religious
obligation.
We also got on some of these that want to make a pool of
Muslim organizations and leave their Zakat money to be spent on
their intended objectives.
But that was not approved. And that Zakat money was dried
up. And their Zakat money was paid for the expenses of
litigation and lawyers and all sort of these.
Other point is that here the American Muslim community, we
are not only losing public diplomacy all over the world, but
here, too. This Muslim community could become a partner.
Mr. Royce. And that is why we hope that the Treasury
Department succeeds in resolving some of these issues.
At the same time, one of the questions I think is, as the
United States government makes this assertion that some Islamic
charities have been manipulated by individuals who have
provided some form of support for organizations that are
involved in jihadist activity. The question becomes a little
more complicated.
And I think we understand one of the reasons why is because
not everyone has the view, not all scholars have the same view,
with respect to the definition of the obligation. And that is
one of the things that is debated.
It is a minority view. But nevertheless, there are some
scholars, and one in particular, Yusef Kardawi in Egypt, and he
says that Zakat payments must be for the benefit of members of
one of eight specific categories of recipients defined in the
Koran. And you have defined that list.
And that is admirable, that the goal is to assist people in
need.
But when he comes to the injunction to support those who
are working in the cause of God, there is a little different
interpretation, but it makes a big difference in terms of
application by that standard.
And that is one of the things we are wrestling with,
because if that is extended to, say, financial or material
support should be given to groups that claim to fight on behalf
of Muslims in, let us say, Chechnya or Iraq or the Palestinian
territories or other conflict zones, then we are into a
different category, a whole different area.
And you have a few of these Islamic scholars, such as the
Egyptian cleric Yusef Kardawi that I mentioned, that have made
these arguments. You have many scholars who have condemned the
direct solicitation and the use of charitable funds for any
violent purposes.
But those Muslims seeking to fulfill these requirements
make donations to Islamic charitable organizations and relief
agencies, and they fund religious education programs and yet
you do have the consequence, as Yusef Kardawi says, that some
interpret this as fighting for such purposes in those occupied
territories is in the way of Allah for which Zakat must be
spent.
And so I think that is what gives rise to the difficulty.
And part of the dialogue is to figure out how the Treasury
Department can work with the community in order to make this
work, but with the reality that some, a minority, of scholars
have reached a different conclusion. And that is what gives
pause. That is what leads to concerns.
How have those who have a commitment to the original
interpretation, that charitable purposes means charitable
purposes, how do they work to counter these radical beliefs?
I know a number of people are countering those beliefs, and
I thought I would give you an opportunity, Doctor, to expound
on that.
Mr. Bukhari. Thank you, Chairman Royce.
We can go a little bit back. For example, when--I am from
Pakistan, also, originally from Pakistan, now American citizen.
In the 1980s, when the Muslims were fighting jihad against
Soviet Union, at that time everything was encouraged--means the
funding was encouraged.
So probably that song is still singing. But I think, very
respectfully I will say that a mechanism could be definitely
defined and made here in America, because I think American
Muslim community has a very unique position. As I said, this is
a very highly professional, scholars and religious leaders are
here, and we can work out. The unfortunate thing is that they
are not the partner of the American policy-makers to convey the
message.
So if some mechanism with any government agency, even
Congress or any other government agency, with the Islamic
charitable organizations, things could be worked out very
easily. On the recipient end, any recognized institution will
receive that funding. Nobody else will receive that funding,
and that funding will go only for charitable purpose.
I think any mechanism in the Muslim community, the American
Muslim community will welcome this type of intervention and we
would like to facilitate this type of intervention.
Nobody wants that his money--absolutely no Muslim will like
to have that his money will be spent in any type of terrorist
activity.
So I think whatever the obligation other or whatever other
leaders are saying, that the Muslim community is self-
sufficient here, they can make a decision on that.
To some extent we have done our homework. But right now we
need help from the Congress and from the Government agency to
work out any mechanism.
Mr. Royce. As I said earlier--well, it is certainly the
case that in the American Muslim community you have some of the
highest percentages of advanced degrees of any communities, and
there is an enormous gulf, as I said earlier, between
Christianity and the Christian identity movement. To quote Mark
Twain, ``It is the difference between lightning and the
lightning bug.'' And likewise, there is an enormous gulf
between those who are assisting charities--charitable giving,
good works--and those few individuals who have an alternative
vision with respect to jihad.
I think it is important that the community work with
Treasury to try to resolve and define these issues.
And I think for those who are speaking out in order to
counter the radical voices that have this view that is not the
traditional view, that is important work as well.
And so my hope is that Treasury can move forward with
methodology and means that can help resolve this and find some
solutions.
And I thank you for appearing as a witness today.
Chairman Kelly. I thank both of you.
Dr. Bukhari, I am very pleased that you are here, that you
have shared some time with us. And I share my colleagues'
concerns.
Mr. Byrne, I look forward to working with you on some of
the issues you have raised. We thank you very much for
appearing here today.
The Chair notes that some members who were not able to get
back may have additional questions for this panel which they
may wish to submit in writing.
So without objection, the hearing record will remain open
for 30 days for members to submit written questions to these
witnesses and to place their responses in the record.
Thank you very much.
This hearing is adjourned.
[Whereupon, at 4:51 p.m., the subcommittee was adjourned.]
A P P E N D I X
May 4, 2005
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