[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]


 
                         [H.A.S.C. No. 111-20] 

                   TRACKING AND DISRUPTING TERRORIST 

                    FINANCIAL NETWORKS: A POTENTIAL 

                     MODEL FOR INTERAGENCY SUCCESS? 

                               __________

                                HEARING

                               BEFORE THE

    TERRORISM, UNCONVENTIONAL THREATS AND CAPABILITIES SUBCOMMITTEE

                                 OF THE

                      COMMITTEE ON ARMED SERVICES

                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD

                             MARCH 11, 2009

                                     
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    TERRORISM, UNCONVENTIONAL THREATS AND CAPABILITIES SUBCOMMITTEE

                    ADAM SMITH, Washington, Chairman
MIKE McINTYRE, North Carolina        JEFF MILLER, Florida
ROBERT ANDREWS, New Jersey           FRANK A. LoBIONDO, New Jersey
JAMES R. LANGEVIN, Rhode Island      JOHN KLINE, Minnesota
JIM COOPER, Tennessee                BILL SHUSTER, Pennsylvania
JIM MARSHALL, Georgia                K. MICHAEL CONAWAY, Texas
BRAD ELLSWORTH, Indiana              THOMAS J. ROONEY, Florida
PATRICK J. MURPHY, Pennsylvania      MAC THORNBERRY, Texas
BOBBY BRIGHT, Alabama
                 Bill Natter, Professional Staff Member
               Alex Kugajevsky, Professional Staff Member
                     Andrew Tabler, Staff Assistant

















                            C O N T E N T S

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                     CHRONOLOGICAL LIST OF HEARINGS
                                  2009

                                                                   Page

Hearing:

Wednesday, March 11, 2009, Tracking and Disrupting Terrorist 
  Financial Networks: A Potential Model for Interagency Success?.     1

Appendix:

Wednesday, March 11, 2009........................................    19
                              ----------                              

                       WEDNESDAY, MARCH 11, 2009
TRACKING AND DISRUPTING TERRORIST FINANCIAL NETWORKS: A POTENTIAL MODEL 
                        FOR INTERAGENCY SUCCESS?
              STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

Miller, Hon. Jeff, a Representative from Florida, Ranking Member, 
  Terrorism, Unconventional Threats and Capabilities Subcommittee     2
Smith, Hon. Adam, a Representative from Washington, Chairman, 
  Terrorism, Unconventional Threats and Capabilities Subcommittee     1

                               WITNESSES

Fridovich, Lt. Gen. David P., USA, Commander, Center for Special 
  Operations, United States Special Operations Command...........    13
Frothingham, Edward, III, Principal Director for Transnational 
  Threats, Office of the Deputy Assistant Secretary of Defense 
  for Counternarcotics, Counterproliferation, and Global Threats.    11
Levitt, Dr. Matthew, Director, Stein Program on Counterterrorism 
  and Intelligence, The Washington Institute for Near East Policy     2
.................................................................

                                APPENDIX

Prepared Statements:

    Fridovich, Lt. Gen. David P..................................    46
    Frothingham, Edward, III.....................................    38
    Levitt, Dr. Matthew..........................................    27
    Miller, Hon. Jeff............................................    24
    Smith, Hon. Adam.............................................    23

Documents Submitted for the Record:

    [There were no Documents submitted.]

Witness Responses to Questions Asked During the Hearing:

    [There were no Questions submitted during the hearing.]

Questions Submitted by Members Post Hearing:

    [There were no Questions submitted post hearing.]
TRACKING AND DISRUPTING TERRORIST FINANCIAL NETWORKS: A POTENTIAL MODEL 
                        FOR INTERAGENCY SUCCESS?

                              ----------                              

                  House of Representatives,
                       Committee on Armed Services,
        Terrorism, Unconventional Threats and Capabilities 
                                              Subcommittee,
                         Washington, DC, Wednesday, March 11, 2009.
    The subcommittee met, pursuant to call, at 3:45 p.m., in 
room 2118, Rayburn House Office Building, Hon. Adam Smith 
(chairman of the subcommittee) presiding.

  OPENING STATEMENT OF HON. ADAM SMITH, A REPRESENTATIVE FROM 
  WASHINGTON, CHAIRMAN, TERRORISM, UNCONVENTIONAL THREATS AND 
                   CAPABILITIES SUBCOMMITTEE

    Mr. Smith. We will call the committee to order. Apologize 
for the late start; we had votes. We have a reasonably 
complicated agenda in that we have two panels in here, and then 
we are----
    Voice. We can't hear you.
    Mr. Smith. Okay. I think it would be better off skipping 
the microphone and shouting. There is no way to turn the volume 
up on these things?
    Dr. Levitt will go first, and then we will have another 
panel. And then for Members' information, we have a hearing 
after this, it will be down in the Sensitive Compartmented 
Information Facility (SCIF), for any secret information that we 
cannot talk about in public, which will make for some 
interesting questioning to make sure we don't step across the 
line in this, and we will trust the Members and the witnesses 
to understand where that line is. So Dr. Matthew Levitt will be 
first.
    The purpose of our hearing today is to look at how we can 
disrupt terrorist financing. The subcommittee is keenly focused 
on counterterrorism, primarily because of our jurisdiction over 
the Special Operations Command, which is the lead command in 
fighting terrorism. But also we have a number of different 
pieces of it, and we want to be as comprehensive as possible in 
putting together what the best plan is to combat terrorism. And 
certainly disrupting their financing is a key piece of it.
    One of the things I am most interested about as we go 
through this hearing is the various different agencies and 
entities that have a piece of this. This is a significant 
problem here. Nobody is directly in charge of it, because there 
are so many different pieces. Obviously Treasury, Justice, the 
Drug Enforcement Administration (DEA), a lot of different 
organizations will have some expertise, some authority and some 
resources to bring to bear to this fight, the State Department 
as well, and obviously the DOD Special Operations Command 
(SOCOM). How do all those entities work together when they are 
not accustomed to doing that?
    Now, we have had some successes since 9/11, we have 
disrupted a lot of the financing, but we have not been as 
successful as we could be, at least according to the updated 
report from the 9/11 Commission from a couple years ago. So the 
purpose of the hearing is to learn more of what we have done 
right and what more we need to do particularly to make sure all 
the different agencies who have resources that can be brought 
to bear to this problem do so in the most cooperative, 
effective and efficient manner possible, and how we might go 
about making that happen.
    With that, I will turn it over to the Ranking Member Mr. 
Miller for any opening statement he might have, and to request 
that--I have a written opening statement. Without objection, I 
would request that that be submitted for the record.
    [The prepared statement of Mr. Smith can be found in the 
Appendix on page 23.]

 STATEMENT OF HON. JEFF MILLER, A REPRESENTATIVE FROM FLORIDA, 
     RANKING MEMBER, TERRORISM, UNCONVENTIONAL THREATS AND 
                   CAPABILITIES SUBCOMMITTEE

    Mr. Miller. Thank you very much.
    Mr. Chairman, likewise I have a written statement I would 
request be entered into the record. And in view of the fact 
that we are starting a little bit late, I will waive any 
opening statement, and let us proceed to the witness.
    Mr. Smith. Thank you very much, Mr. Miller.
    [The prepared statement of Mr. Miller can be found in the 
Appendix on page 24.]
    Mr. Smith. We will start with Dr. Matthew Levitt, who is 
the director of the Stein Program on Counterterrorism and 
Intelligence for the Washington Institute for Near East Policy. 
As you can imagine, he has a much longer biography than that, 
but to respect the time, I will simply turn it over to Dr. 
Levitt for his opening statement.

  STATEMENT OF DR. MATTHEW LEVITT, DIRECTOR, STEIN PROGRAM ON 
COUNTERTERRORISM AND INTELLIGENCE, THE WASHINGTON INSTITUTE FOR 
                        NEAR EAST POLICY

    Dr. Levitt. Thank you very much, Chairman Smith, Ranking 
Member Miller, committee members. Thank you for the opportunity 
to appear before you today to discuss the imperative of 
interagency synergy to successfully track and disrupt terrorist 
financial networks.
    I am honored to testify today along with senior leadership 
from the Office of Secretary of Defense and U.S. Special 
Operations Command, whose offices play a critical role in 
combating the financing of transnational threats.
    My comments today are drawn from ``The Money Trail: 
Finding, Following, and Freezing Terrorist Finances,'' a 
Washington Institute study I recently coauthored with my 
colleague Mike Jacobson, who is here today. The full study is 
available on the Washington Institute's Web site, and copies 
have been made available here. I will offer just a summary of 
what I have written in my written testimony and ask that the 
full testimony be entered into the record.
    U.S. and international efforts to combat terrorist 
financing are a little understood, and often unappreciated, 
aspect of the global counterterrorism efforts. For example, 
while unilateral or U.N. terrorist designations are public 
actions, they constitute only one of a broad set of tools 
available to governments, international bodies and their 
private- and public-sector partners around the world.
    Pundits and the press alike show insufficient appreciation 
for the extent to which public designations are related to 
other equally productive ways of countering terrorist 
financing, such as diplomatic engagement, law enforcement and 
intelligence collection.
    It is not uncommon for a potential designation target to 
remain unnamed due to diplomatic or intelligence equities, 
policy considerations, or ongoing investigations. Designation 
may not be the most appropriate tool for every case of terror 
financing. Indeed, overt actions like designations and 
prosecutions are not the sum total of international efforts to 
combat terror financing, they are only the most visible.
    In a nutshell, that explains why an integrated, 
coordinated, interagency approach to countering the financing 
of transnational threats is so critical. The Treasury 
Department, where I served as Deputy Assistant Secretary for 
Intelligence and Analysis, brings to the table a powerful set 
of tools to protect the U.S. financial system from abuse, deny 
illicit actors easy access to the U.S. and international 
financial systems, and to follow the money as a means of 
identifying terrorist financiers and operators up and down the 
financial pipeline. But these are only some of the tools 
available in the counter financing of terrorism (CFT) tool kit 
and cannot be fully leveraged without the full participation of 
interagency partners. A successful strategy to combat the 
financing and transnational threats must leverage all elements 
of national power, including designations, prosecutions, 
intelligence and law enforcement operations, diplomacy, 
technical assistance, capacity building, military power and 
more.
    Terrorist groups need money. Although mounting an 
individual terrorist attack is relatively inexpensive, the cost 
of maintaining the infrastructure to support terrorist 
activities is high. Terrorist networks need cash to train, 
equip, pay operatives, secure materials, bribe officials and 
promote their cause.
    To eliminate or reduce a cell's means of raising and 
transferring funds is to significantly degrade that cell's 
capabilities. Additionally, by forcing them to abandon formal 
financial channels in favor of informal transfer in smaller 
denominations, the use of targeted measures has the cumulative 
effect of making the funds-transfer process slower, more 
cumbersome and less reliable.
    As the terrorist threat has evolved, the means by which 
terrorist groups raise, store and move funds has changed as 
well, often in ways that have hindered government efforts to 
combat illicit financial activity. Keeping pace with the 
evolutionary nature of the transnational threats we face today 
and the means of financing these threats in particular, demands 
close interagency cooperation and timely and actionable 
intelligence. Consider just a few examples.
    Mirroring the broader shift toward the use of technology in 
global commerce, shifts have occurred in how funds are actually 
transferred using new technology. M-payments, where cell phones 
are utilized to transfer money electronically, are growing in 
importance. In 2006, a U.S. Government report assessed that 
``groups of all stripes will increasingly use the Internet to 
obtain logistical and financial support.'' Technology and 
globalization have also enabled small groups of alienated 
people not only to connect, but to raise resources for attacks 
without need for an established terrorist organization.
    Terrorist groups are increasingly resorting to acts of 
crime to finance their activities. In some cases acts of petty 
crime, such as welfare fraud and credit card bust-out schemes, 
raise limited amounts of money for small operations. In others, 
aspiring terrorists raise significant sums through brazen 
crimes. One cell in France netted about a million euro when a 
member whose job it was to restock ATMs enacted robberies on 
several machines.
    According to the DEA, 19 of the 43 designated foreign 
terrorist organizations are linked definitively to the global 
drug trade, and up to 60 percent of terrorist organizations are 
connected in some fashion with the illegal narcotics trade. 
According to the Financial Action Task Force, the misuse of the 
nonprofit organizations for the financing of terrorism is 
coming to be recognized as a crucial weak point in the global 
struggle to stop such funding at its source. British officials 
concur, by the way, according to a British report, the risk of 
exploitation of charities is a significant aspect of the 
terrorist finance threat.
    Trade-based money laundering is a particularly effective 
method of hiding illicit transactions under the cover of 
legitimate business. Instead of actually transferring funds, 
one simply purchases and transfers commodities such as food or 
other goods. Such goods can be sent internationally even to 
sanctioned countries under the guise of humanitarian support. 
Once they have entered the country, the goods can either be 
sold directly for cash or transported to a third country for 
sale.
    Illicit actors have not only taken advantage of technology 
to finance activities, they have also reverted to older, less 
sophisticated methods to avoid official banking systems. This 
includes the growing use of cash couriers, bulk cash smuggling, 
hawala brokers, along with alternative commodities.
    Reacting to counterterrorism efforts, terrorists have begun 
transferring funds through their members' personal accounts and 
those of their families, sometimes directly and sometimes 
through charities, in an effort to evade the scrutiny given to 
organizational accounts.
    It is important to recognize, however, that combating the 
financing of transnational threats will not in and of itself 
defeat these threats, nor is it intended to do so. But focusing 
on the financing of transnational threats has several concrete 
benefits. It has a deterrent effect. As difficult as it may be 
to deter a suicide bomber, terrorist designations can deter 
nondesignated parties who might otherwise be willing to finance 
terrorist activity. Major donors inclined to finance extremist 
causes who may be heavily involved in business activity 
throughout the world may think twice before putting their 
personal fortunes and their reputations at risk.
    It is a useful tool for preventive intelligence. Unlike 
information derived from human spies or satellite intercepts, 
which require vetting to determine their authenticity, a 
financial transfer is a matter of fact. Raising, storing and 
transferring money leaves a financial trail investigators can 
follow. Definitively linking people with numbered accounts or 
specific money changers is a powerful preemptive tool, often 
leading authorities to conduits between terrorist organizations 
and individual cells, and it is a very useful disruptive tool.
    According to terrorists themselves, while following the 
money will not stop all plots, it will likely frustrate some of 
these activities. Back in 1995, captured World Trade Center 
bomber Ramzi Yousef was flown over the Twin Towers on his way 
to a New York jail. When the FBI agent flying with him pointed 
out that the towers were at that time still standing, Yousef 
replied, ``They wouldn't be if I had enough money and 
explosives.''
    At a minimum, tracking terrorists' finances will make it 
harder for them to travel, procure materials, provide for their 
own families and radicalize others. Denying terrorists as well 
as insurgents and proliferators easy access to financial tools 
forces them to use more costly, less efficient, and often less 
reliable means of financing. Keeping them on the defensive and 
denying them the luxury of time and space puts them under 
stress, deters donors, restricts the flow of funds, and helps 
constrict their operating environment.
    Mr. Smith. I am sorry, Dr. Levitt. We actually have a 
fairly full schedule in terms of having other people testify 
and questions and all that. If you could sum up in the next 
minute, that would be great.
    Dr. Levitt. Sure. There are lots of reasons for the 
successes. One of them is interagency cooperation, and one 
example of that is the threat finance cells that have been 
useful in Iraq and now Afghanistan. The Iraq Threat Finance 
Cell (ITFC) in Baghdad is a good example of interagency efforts 
that make the success possible and is something that needs to 
be continued.
    As the Director of National Intelligence highlighted in 
testimony before this committee earlier this week, the 
international financial crisis is also having far-reaching 
consequences for a variety of key U.S. foreign policy and 
security concerns. While the financial crisis may dry up some 
resources of funds for terrorists, proliferators, and 
insurgents, it will also impact governments' ability to finance 
efforts to counter illicit finance. It is my sincere hope that 
the successful efforts like the Iraq and Afghan Threat Finance 
Cells continue to receive the necessary funding to fulfill 
their critical missions in those respective theaters.
    Thank you.
    Mr. Smith. Thank you very much. I appreciate your 
testimony.
    [The prepared statement of Dr. Levitt can be found in the 
Appendix on page 27.]
    Mr. Smith. We will now have a few questions. We will now go 
through questions; five-minute rule for everybody. I will yield 
until the end, so we will start with Mr. Miller.
    Mr. Miller. Mr. Chairman, allow me to yield as well.
    Mr. Smith. Mr. Marshall.
    Mr. Marshall. I am going to yield back to the Chairman so 
he can get the ball rolling.
    Mr. Smith. Ah, they are never happy about anything. 
Normally they are sitting back there going, how come the 
Chairman and the Ranking Member are always talking? You try to 
be polite, it doesn't work.
    I will be happy to ask the first question, therefore. I 
guess we talked a little bit about the interagency piece. The 
threat financial cell in Iraq and elsewhere in Afghanistan, I 
think they are working fairly well in terms of how that was 
pulled together. I guess the question is, stepping back to D.C. 
and looking at the entire terrorist financing network, because 
obviously it is in many, many places other than Iraq and 
Afghanistan, who should be taking the lead? How do you see the 
interagency piece working? How should they cooperate in a more 
comprehensive manner so that we can get--my read is we are 
fairly successful in Iraq and Afghanistan. When you get 
everybody into one place and you are working together, it is a 
very focused necessity being in a combat zone, but the broader 
problems can present greater bureaucratic challenge, and I am 
wondering what your take is on that.
    Dr. Levitt. Thank you, sir.
    I think the first thing is there have been bureaucratic 
problems in the theater as well, especially when these MTs were 
first set up. But, of course, you are right; under pressure you 
make it work. I think that has had an impact back in Washington 
where the interagencies stepped up and I think became much 
better integrated in its efforts to support our fighters in 
Iraq and Afghanistan.
    Mr. Smith. Can you walk us through the different pieces of 
that, who is taking the lead, how is it working, who is playing 
what role?
    Dr. Levitt. There are a variety of roles, and I think it is 
probably better for the people who are actually running it to 
answer those questions since I have been out of government now 
for two years, and my answers would be two years old anyway.
    But to me this is something that has to be better 
coordinated. I don't know that necessarily we are going to 
improve by giving one department or agency the lead. Perhaps 
the most important thing here is that there are lots of tools 
and lots of authorities. And like I said in my statement, as a 
former Treasury official, designations are a great tool. They 
are not always going to be the right authority, the best 
authority.
    What you need is to get people around the table in a 
subcounterterrorism security group, for example, and discuss, 
okay, we have a target, great. I don't care if we use my 
authority or someone else's authority, what are we going to do, 
as long as we do something. And my impression is that has 
gotten much better.
    There are always going to be turf wars, who has a lead on 
this, who has a lead on that. When I was back in government, we 
saw people were trying to figure out who took responsibility 
for this part of the National Intelligence Program (NIP) or 
that part of the NIP. But my impression is that this has gotten 
much better in part because it is an area where we have seen 
tremendous success. Unfortunately there is not a lot of open-
source examples that we can give to show that success, and so 
the declassified examples are what we are left with, and I give 
plenty in my written testimony. I think when you go into your 
closed session there will be plenty of things to talk about to 
highlight the successes that we have had.
    Mr. Smith. Thank you very much. I have a little bit of time 
left. Does Mr. Marshall wish to have the rest of his time here?
    Mr. Marshall. I will take the rest of my time. You caught 
me by surprise. We are all interested in having your opinion. 
Admittedly, it may be a little stale, but I suspect not, 
because you have been writing about this, you study this, and 
you talk to people about this. The ways in which we need to 
improve, things that the United States internally should do in 
order to improve, and then more broadly the free world, all of 
our allies, those who are interested in cutting off funding for 
these terrorists generally, how do we all improve?
    Dr. Levitt. There are lots of ways we can improve. Even 
though it is going well, we are never quite there. And in our 
study here, there is a whole section on policy recommendations. 
Some examples are: better empowering parts of the multilateral 
system to be as effective as they could be; the 
Counterterrorism Executive Director at the U.N. and 1267 
Committee; increasing the power of the nonpolitical monitoring 
team at the U.N. to nominate entities and individuals for 
addition to the lists and removal from the lists; leveraging 
the Financial Action Task Force and even Wolfsberg Group and 
others in this effort.
    There is a lot that we can do in our bilateral and 
multilateral diplomacy to get more countries on board not only 
publicly, but, I would argue, even more importantly in terms of 
the intelligence angle of this to get them involved as well.
    Mr. Marshall. This is partially informational for all of 
us, but in addition we are in the process of drafting this 
year's authorization bill for armed services. So do you have 
suggestions for us concerning things that need to be in our 
bill, or things that need to be changed in existing law, within 
our jurisdiction?
    Dr. Levitt. I would have to get back to you to things 
specific to the military because that hasn't been the focus of 
our study, although there are a few things in there.
    I would say that the military has played an important 
component of this, both here in Washington, the Office of the 
Secretary of Defense (OSD) and the combatant commands. When I 
was at Treasury, we saw firsthand the utility of sending some 
of our people Temporary Duty (TDY) to the combatant commands 
and taking people from the combatant commands TDY to us to 
create that synergy and interagency cooperation, and there was 
great success there. I would have to get back to you on 
specific recommendation for the military.
    Mr. Marshall. We, where drugs are concerned, often seize 
assets, and those assets wind up being used in order to fund 
police forces around the country. Is there anything similar to 
that that goes on with regard to these kinds of inquiries as we 
discover entities, individuals, who have been conduits or 
actually financing directly? Do we have any seizure process 
that we can go through to help us fund continued activities?
    Dr. Levitt. Well, there is an interagency process, and I 
don't know how that would work in terms of funding the 
military's--in terms of the military's cooperation with DEA in 
particular. But it is an important point to note that we do see 
an increase in terrorist use of crime of all kinds, and in 
particular of the drug trade. In part that is because the drug 
trade is just so productive an industry. According to the U.N., 
the international drug trade generates $322 billion a year in 
revenue, which everything else pales by comparison in the 
criminal world. But both in terms of the groups like the 
Revolutionary Armed Forces of Colombia (FARC) in Colombia, 
Lebanese Hezbollah and others, there is a tremendous amount of 
activity involving drugs. And I happen to think that there is 
opportunities there, especially if you consider that the 
European Union, for example, doesn't consider Hezbollah a 
terrorist group. They may not be as eager to work with us on 
Hezbollah issues as a terrorist target, but they are very 
concerned about the flow of drugs, and working with them on 
targets that are related to Hezbollah that are also involved 
with drugs is an opportunity.
    Mr. Marshall. Thank you.
    Mr. Smith. Mr. Kline.
    Mr. Kline. Thank you, Mr. Chairman, and I thank the witness 
for being here, for testifying, for the policy focus. And for 
his recommendation that it might be in our interest to move as 
quickly as we can to the classified portion, I will yield back.
    Mr. Smith. Thank you. Mr. Murphy.
    Mr. Murphy. Thank you, Mr. Chairman. Dr. Levitt, thanks for 
your service to our country and the Treasury and your continued 
service. We appreciate it.
    Your testimony about getting everyone to sit around the 
table, obviously there is concern after 9/11 of the failure of 
the Intelligence Community to really connect the dots. The 
Central Intelligence Agency (CIA) had pieces of information, 
the National Security Agency (NSA) had pieces of information, 
the FBI did, but they weren't working together to share 
information for the big picture.
    Is there a concern that the same situation is happening 
again in our efforts to combat the terrorist financial 
networks? Have analysts across the agencies been able to format 
the data in a common manner that allows them to identify 
patterns of unusual activity, kind of like allowing them to sit 
around table and share within the same systems? If not, is 
there a need to potentially create an interagency financial 
intelligence unit to manage the data sourcing fusion analysis 
and information?
    Dr. Levitt. Thank you. When I was Deputy Assistant 
Secretary at the Treasury, that was two hats; one was within 
the Department, and the second was as Deputy Chief of 
Treasury's Office of Intelligence and Analysis that made me 
Deputy Chief of one of the 16 U.S. intelligence agencies.
    It was my experience then, and, again, this is two years 
old already, so I imagine it is even better now, that a 
tremendous amount of progress had been made since the failures 
of 9/11. In particular I saw it on the terror finance front. I 
take great pride in the fact that Treasury Office of 
Intelligence and Analysis (OIA) plays a big role in that and 
was created by Congress to be the center of excellence on the 
analysis of illicit finance and has done a great job. I take 
even greater pride in the fact they have successfully become an 
integrated part of the Intelligence Community, and that 
Treasury's Terrorism and Financial Intelligence (TFI), more 
largely has become an integrated part of the interagency policy 
entity.
    I don't want to go any more detailed than that because I am 
not Treasury anymore, and I don't feel comfortable speaking for 
them, but I can say this: In other areas that are of critical 
importance for us today, for example counterradicalization, one 
area of extremely successful interagency cooperation has been 
not only large groups, but small groups that get together in a 
classified setting and go across the full spectrum of white, 
gray, black activity, completely open and completely 
classified. I would like to see--and I don't know that it isn't 
frankly, I am out--but it would be good if we had that type of 
small-group synergy in other critical areas, including terror 
finance. That may be happening, you guys can go into that in 
the closed session, but that, to me, is critical.
    Mr. Murphy. I got that. I guess the focus of my question, 
though, is I want to make sure that the CIA isn't basically 
generating data which are oranges, and, say, the FBI is getting 
information in the form of apples.
    Dr. Levitt. No.
    Mr. Murphy. So I want to make sure that they are speaking 
the same language in the format. Because you were there, say, 
two years ago, do you feel that that has been addressed or that 
still needs to be addressed?
    Dr. Levitt. I do, I do.
    Mr. Murphy. Thank you. I yield back to the Chairman.
    Mr. Smith. Mr. Conaway.
    Mr. Conaway. Thank you, Mr. Chairman. In your testimony you 
talk about the reverting back to older technologies or 
techniques. Clearly if they are using wires in the normal 
banking system, we have got access in certain ways there. But 
talk to us a little bit about how well or not well we are doing 
in interdicting hawala and other nontraditional ways of moving 
money around. Is there a role to play or improvements to be 
made in trying to go at those systems, or are they so 
inefficient or ineffective that it is really just at the edge?
    Dr. Levitt. Whenever we take an action, adversaries will 
take action to evade our actions. They will go more 
sophisticated and less sophisticated. When we rely on 
technology in particular, we have a handicap when our 
adversaries go to less sophisticated means of moving money. 
That doesn't mean that there is nothing we can do. We can use 
traditional human sources; there are regulatory efforts we can 
do.
    There has been a lot of success in dealing with the hawala 
issue in theaters like Iraq, for example, which you can talk 
about later. There has been a lot of effort to leverage the 
United Nations, for example, to do training for governments 
like the emirates on regulation of hawaladars. And so I think 
there are a lot of good things happening.
    This is an area where we constantly have to assess and 
reassess what are our vulnerabilities, and I have argued that 
we cannot simply say, well, is there evidence that the 
terrorists or adversaries are using this means yet? We have to 
see where the vulnerability is and try and close that gap 
before they use it. For example, the M-payments on cell phones 
are a great example of this at the higher end.
    Mr. Conaway. Thank you, Mr. Chairman. I yield back.
    Mr. Smith. Thank you. Do any other Members have further 
questions? Mr. Murphy.
    Mr. Murphy. I just want to follow up on a question that 
Representative Conaway kind of alluded to. In your earlier 
testimony you said EU doesn't see Hezbollah as a terrorist 
group. Obviously that is not helpful with our efforts. But how 
about cooperation from Arab and Muslim countries, particularly 
Saudi Arabia? I understand we are not in a classified setting, 
so could you describe to the extent possible Saudi Arabia's 
help? Granted you have been gone for two years from Treasury, 
but from your approach now, could you give us a feel for how 
cooperative Saudi Arabia has been?
    Dr. Levitt. My understanding, and this is really from the 
field research that Mike Jacobson and I did for the study, 
there have been a lot of improvements throughout the gulf, 
including Saudi Arabia, and there is still a lot more that has 
to be done. The Saudi Arabian Monetary Agency, SAMA, was 
described to us by a variety of officials in the gulf, in the 
United States and elsewhere as the best agency of its kind in 
the region, which is significant. But there is still a lot of 
evidence that abuse of charity and other problems persist.
    Some of the rules that the Saudis have passed to deal with 
charities apply to some charities and not others, because 
apparently, as it was explained to us by a Saudi official, the 
Muslim World League and some of the other large entities based 
in Saudi Arabia are considered by the Saudi Government to be 
multinational organizations and are therefore not subject to 
law.
    But there has been a lot of improvement, we understand, in 
terms of anti-money-laundering efforts not only in Saudi, but 
elsewhere in the gulf. And it is important to note that our 
concern is not only with the one country, Saudi Arabia, which 
constantly is raised, but with others as well, and one country 
that we found is in need of a good look right now in this 
regard is Kuwait.
    Mr. Murphy. Let me focus on the loophole of charities. With 
Saudi Arabia specifically, are there any other efforts beside 
closing up that loophole with charities in Saudi Arabia that 
you could share with us?
    Dr. Levitt. That, to me, I think, is the biggest issue 
right now. Maybe the other one has been the long-standing and 
simmering issue of whether or not there is an oversight 
committee for charities. But I don't want to harp on this, 
because it is my understanding that there has been a lot of 
improvement on intelligence sharing and cooperation. And some 
of the things that we can talk about in a negative light in an 
open session can't be countered by things that maybe you guys 
can discuss later. I think it is in the Saudis' interest, and I 
think they understand that, to deal with this problem. They are 
maybe not where we want them to be yet, but I think there is a 
lot of improvement.
    Mr. Murphy. How about as far as with Kuwait, you talk about 
a need to focus our efforts on Kuwait. Can you elaborate that a 
little bit?
    Dr. Levitt. Several people that we interviewed for our 
study told us that Kuwait today is like Saudi Arabia pre-2003, 
meaning before the bombings, and that is a pretty significant 
statement. One diplomat who is in the region explained to us, 
you know, be aware of what you wish for. The Kuwaiti Parliament 
is perhaps the most robust democratic Parliament in the region, 
but it is dominated by people who see things differently than 
we do. And there is a counterterror finance piece of 
legislation pending that I understand the government is wary of 
putting forward to the Parliament for fear that it will not 
only be instantly rejected, but used by as a two-by-four with 
which to hit the Amiri Diwan over the head.
    If you follow the news in Kuwait, there is a lot of 
political upheaval there right now. I think there are some 
people in Kuwait who are trying to do the right thing. We met 
with them in the context of our research. They are frustrated 
with some of the problems they have right now, but this is 
something that needs a good look.
    Mr. Smith. Thank you very much. I think we have two who are 
also going to testify here, and then we don't have the SCIF 
until 4:30, so we do have a little time here. So I will get 
General Fridovich and Mr. Frothingham up to the podium to 
testify. And we thank you very much, Dr. Levitt, and the 
committee will want to keep in touch with you as we move 
forward on this issue. We really appreciate your written 
statement. In particular it was very detailed and, I think, 
very helpful to us. I appreciate it.
    Dr. Levitt. I appreciate the opportunity, thank you.
    Mr. Smith. Thank you, gentlemen, for testifying for us 
today. We appreciate your help on this issue.
    We have General Fridovich, who is the Director of Center 
for Special Operations Command--sorry, Center for Special 
Operations, United States Special Operations Command; and Mr. 
Edward Frothingham, who is the Principal Director--your title 
is a mouthful, but I will say it all--Principal Director for 
Transnational Threats, Office of the Deputy Assistant Secretary 
of Defense for Counternarcotics, Counterproliferation, and 
Global Threats.
    General Fridovich, would you like to lead off or--it's up 
to you guys, really.
    Mr. Frothingham. If you will.
    Mr. Smith. Mr. Frothingham, you need to just pull it closer 
there.

 STATEMENT OF EDWARD FROTHINGHAM, III, PRINCIPAL DIRECTOR FOR 
TRANSNATIONAL THREATS, OFFICE OF THE DEPUTY ASSISTANT SECRETARY 
  OF DEFENSE FOR COUNTERNARCOTICS, COUNTERPROLIFERATION, AND 
                         GLOBAL THREATS

    Mr. Frothingham. Good afternoon, Chairman Smith, Ranking 
Member Miller and members of the committee. On behalf of 
General Fridovich and myself, I want to thank you for the 
invitation to appear and testify before you. We greatly 
appreciate the opportunity to discuss tracking and disrupting 
terrorist financial networks as a possible model for 
interagency cooperation. We think we have a pretty good story 
to tell.
    If you will, sir, I would like to offer my written 
testimony for the record and then perhaps make a few brief 
comments instead.
    Mr. Smith. Sure.
    Mr. Frothingham. Sir, it has taken an indirect route to get 
to where we are today. This process for the Department of 
Defense started in 1998 when the Congress passed the Drug King 
Pin Designation Act, which set up a scheme of having the 
interagency nominate king pins for designation, and the 
President then designating them, and then blocking property and 
interests in property subject to the jurisdiction in the United 
States.
    In the time that that law has been in effect, the President 
has designated 68 drug king pins and seven organizations. At 
the time it was considered to be a very important matter, and 
Congress acted appropriately, and we put together an 
interagency cooperative process which has served as a base for 
other things that we do in that field.
    As time goes on, we were attacked by terrorists in 2001, 
and the focus naturally turned to terrorism. In the process of 
that, it also naturally turned to terrorist financing as one of 
the things we needed to focus on. The government put together a 
strategy for combating terrorism, and then a subsequent 
strategy for dealing with terrorist finance, and also an action 
plan for dealing with that.
    And subsequently the Department of Defense, working through 
this process with the creation of our office, decided that we 
needed to add some coherence to the way we were doing threat 
finance, terrorist finance, drug finance, proliferation 
finance, and try and put it all into one hopper and deal with 
it as a policy. So in December of 2008, the Deputy Secretary of 
Defense created a policy that called for the Department to work 
with U.S. Government departments and agencies with partner 
nations to disrupt and degrade adversaries' ability to 
negatively affect U.S. interest.
    To carry out that direction, the Department focused on 
three goals. The first was to validate that counterterrorist 
finance or counterthreat finance was a DOD mission; two, to 
educate both DOD and interagency on how DOD can support broad 
U.S. Government efforts to attack illicit financial systems 
that negatively affect U.S. interests; and three, to identify 
and propagate new counterthreat finance methodologies for the 
interagency.
    With regard to the first, I think we have demonstrated to 
ourselves and to many others that there is a causal 
relationship between attacking or focusing on threat finance 
and dealing with terrorist threats and other illicit 
activities. With regard to the second goal, we learned that 
when military commanders hear the term ``counterthreat 
finance,'' many automatically assume a connection with Treasury 
and State Department administrative sanctions. While these are 
certainly the most public actions taken by the U.S. Government, 
they constitute only one broad set of tools. Publicly blocking 
bank accounts of individuals and organizations puts a spotlight 
on them and increases the risk to any company or government 
doing business with them, regardless of whether or not the 
assets were actually frozen.
    However, financial sanctions also legitimize additional 
actions which can include both financial, nonfinancial 
measures, and, in some limited cases, kinetic measures taken by 
DOD. This is where the financial warfare and military 
strategies converge. Most people think of financial warfare as 
a substitute for military action, as a nonkinetic way to cure 
bad behaviors. The better view is that financial warfare can be 
a complement rather than a substitute for kinetic military 
operations.
    Sometimes the act of designation itself can motivate 
financial institutions to conduct a thorough search of accounts 
to determine if newly designated individual entities do not or 
do have an asset that can be frozen. This may add to our 
knowledge of specific accounts and provide insights and 
information to which the U.S. Government and its partners would 
not otherwise have access.
    With regard to our third goal, given all the disparate 
elements in the world of unconventional threats, narcotics 
networks, transnational criminal organizations, terrorist 
groups, et cetera, there should be a greater focus on putting 
these pieces together in a more comprehensive picture that 
would give the U.S. Government much-needed insights into their 
vulnerabilities.
    DOD has an opportunity to play a significant role in this 
new strategic environment to work closely with other 
departments or agencies to collaborate on identifying and, when 
appropriate, disrupting illicit networks. In order to be 
successful, however, DOD needs to fully embrace the ``whole of 
government'' approach. Other departments and agencies possess 
expertise and, more importantly, authorities to conduct 
counterthreat finance activities. We need to be able to 
leverage those authorities. These departments and agencies have 
collaborated in the years subsequent to 2001 and have developed 
a robust community for collaboration and coordination. DOD 
should look for ways to plug into ongoing efforts to accomplish 
these goals and help shape the new developing methodologies to 
combat these threats.
    Thank you for your interest, and, when you deem it 
appropriate, I look forward to answering your questions.
    Mr. Smith. Thank you.
    [The prepared statement of Mr. Frothingham can be found in 
the Appendix on page 38.]
    Mr. Smith. General Fridovich.

   STATEMENT OF LT. GEN. DAVID P. FRIDOVICH, USA, COMMANDER, 
CENTER FOR SPECIAL OPERATIONS, UNITED STATES SPECIAL OPERATIONS 
                            COMMAND

    General Fridovich. Chairman Smith, Ranking Member Miller 
and distinguished members of the House Armed Services 
subcommittee, I have got a relatively lengthy document here I 
would like to submit for the record, and just highlight just a 
few things without using it, if that is all right with the 
Chair, so we can get on with what you all would really like to 
discuss. It is a very comprehensive piece. They worked hard on 
it. I know the guys behind me would love for me to read it to 
you all.
    Mr. Smith. We have it in our books, and we all promise to 
read it.
    General Fridovich. What I would like to highlight is 
USSOCOM clearly understands what authorities we have to do and 
what we are not to do. We lead this effort on behalf of DOD, 
and that authority is founded out of a plan called ``7500, The 
War on Terror.'' It clearly spells that the Secretary of 
Defense has asked SOCOM to synchronize the behavior. We have 
got no compelling means and no empowerment to have the 
interagency do anything at all with us; however, semiannually, 
in April and in October, we hold global synchronization 
conferences that bring together communities of interest a lot 
like what Dr. Levitt referred to, and these are subject matter 
experts; they are invited. If they come, they come.
    We have had a very, very good, close relationship with 
Treasury, with Justice, DEA. We have partners that work and 
live with us all the time down in Tampa, and they reach back 
into their organizations here and bring the right people to 
really populate these groups. And we get after cross-functional 
and now for the first time cross-functional deradicalization, 
countering safe havens, countering terror finance, with the 
right amount of people with the right brain power coming and 
talking directly about problems that they can say, I have got 
pieces of that that I can fix, with the notion that at the end 
we outbrief to a senior executive committee at the three-, 
four-star and director level, and that they hear there is 
action and movement in the Concept Plan (CONPLAN) 7500 not just 
from DOD, but from the interagency.
    It is very compelling that people sign up for things 
without ever being asked, just because it is within their 
purview, the right thing to do, and we are actually making 
headway in this area.
    I think the thing that has changed from when the last 
testimony was, July 2005, about this and what has grown is that 
this group, this community of interest that has been led by 
this Lieutenant Colonel Jim Bischoff, this big mass of a man 
behind me here, has really taken the leadership for this group, 
has brought it around. Very, very personality driven. 
Interagencies shouldn't be like that, but we all know it is. 
The more you hang around government, the more you understand 
that relationships and personalities have a lot to do with how 
successful you are. I would give a lot of the great credit to 
Colonel Bischoff and Ed Jelks behind me, who has also taken the 
counterdrug kind of narcoterrorism and brought those kind of 
assets into this and personalities into it as well.
    There are actually due-outs from the Department of Defense 
perspective as to what we owe DOD, and a lot of that has to do 
with being able to leverage technology, and being able to 
leverage and keep current tactics, techniques and procedures 
before what would be a global network to match a global 
network. That is what we are looking at.
    So as we expand, we are looking at a model and 
institutionalizing a model that I would say is relatively 
nascent. We have got people out. We are putting them out in 
geographic combatant commands. They are trained. They are 
specifically selected. We have great people populating our node 
of this down in Tampa. Again, the right people; we are 
selecting guys who got a very good law enforcement background, 
contracting with them for a while and seeing if it is a good 
fit, and looking for a longer-term bridging mechanism by which 
we have them in our institution, and then taking them and 
making sure we get them out to the field with, again, the right 
idea, the right concepts, cross-culture, and being able to go 
ahead and start leverage what their geographic combatant 
commander wants them to do, country by country, understanding 
that it is where we aren't. The global terror finance network, 
obviously path of least resistance, if you go after one place, 
as we say, it will morph, come up some other place. We have to 
have this network that can overmatch globally, and we are 
working towards that.
    I will stop right there and go ahead and look forward to 
your questions, gentlemen.
    Mr. Smith. Thank you.
    [The prepared statement of General Fridovich can be found 
in the Appendix on page 46.]
    Mr. Smith. Two broad areas. I will get as much as I can 
here. One, I am trying to get a greater grasp on the personnel 
brought to bear on this problem. There is the interagency piece 
as you understand it, and you also contract out some of the 
work that is done. So I guess, take an example, we have got a 
cell that we are worried about that we learned about somewhere 
in the world. I won't get specific about where. You are 
tracking their financing. Who at SOCOM, who at DOD, and then 
what agencies do you coordinate with? Who sends up the flag and 
says, these are the people who need to get involved in making 
this work? And if you could also specifically talk to us about 
what contracting is done in that, if there is private 
contractors that you bring into the loop on some of this work 
as well.
    General Fridovich. Do you want to start? Go ahead.
    Mr. Frothingham. The way we start setting these things up 
is we identify the requirement for a specific node to come 
together; for example, Afghanistan. We already deal with the 
people in the community, threat finance community, and we get a 
consensus from the interagency that this is where we want to 
go, and this is what we want to set up.
    Mr. Smith. But who starts that conversation? Is that DOD or 
someone at Treasury saying, hey, we see this problem here? Is 
the Department of Justice--or who starts that conversation you 
just described?
    Mr. Frothingham. I think we will get into the specific 
bodies, interagency threat finance organization, in the 
classified section, but suffice it to say it comes from the 
interagency that they identified a requirement to go to a new 
area and develop another node. And then we come together and 
determine how we are going to man that, and then we try and 
figure out how we are going to resource that. We can get into 
specifics in particular countries, and concrete examples might 
help you a little bit more, but it is a community agreement.
    Mr. Smith. General Fridovich.
    General Fridovich. Thank you.
    We have the ability through two different mechanisms down 
at USSOCOM. We have got an interagency task force that is 
manned and led by a Director, one-star Brigadier General, Air 
Force, Bob Holmes, and they have a mission to look at the gaps 
and seams of the world, because you all know that every 
geographic combatant commander looks up into just about where 
his boundary is and then no further, when, in fact, you have to 
have a mechanism that looks global.
    The unique aspect of USSOCOM is we have global 
responsibilities, but no land that we own. We have got no 
battle space, yet we are held somehow responsible and 
accountable to making sure that things on the gaps and seams--I 
think Pakistan and India is a great example, India in United 
States Pacific Command (PACOM), Pakistan in United States 
Central Command (CENTCOM). And where do things happen? There. 
And that is the opportunity that terrorist networks look for, 
and it is no different.
    We have been given this mission, kind of an implied task, 
to looks at the gaps and seams globally. So we do that. So it 
starts down from a tactical-operational-strategic perspective 
militarily. It starts down at USSOCOM through the interagency 
task force, and also in our J-3 Operational Division where this 
node, really a terror finance cell, works. And they work 
through their partners in Treasury and Justice and the FBI and 
DEA sharing information as best they can down there to see 
where we might leverage the critical--somebody else's 
authorities and opportunity, and then work the intel community 
to start feeding that beast on a couple of levels, both down 
there tactically and operationally, and then back up to the 
National Capital region as well looking for the hybrid.
    Mr. Smith. Thank you. I will yield back and go to Mr. 
Miller, and with the committee's permission, after Mr. Miller 
we will go down to the classified setting. Mr. Miller.
    Mr. Miller. Let us go ahead to the classified setting, Mr. 
Chairman.
    Mr. Smith. We have about two minutes to kill before we run 
Abercrombie out of the room.
    Mr. Miller. If I could follow up with the Chairman's 
comments in regards to contractors and the makeup, if you can. 
What is the makeup of the personnel percentagewise, if you 
will, of contractor and Reserve personnel and Active Duty? Can 
you comment on that in open?
    General Fridovich. I am going to defer to somebody who has 
a good right answer instead of--there are about 12 people that 
we have. It is a very, very good mix of intel. There are 
contractors. The contractors we look to get have a law 
enforcement--most case law enforcement skill set background so 
they will know what they are looking at. And they bring that 
culture to the military culture for us, which is very, very 
different.
    But I will stop right there and ask Colonel Bischoff to 
give a better answer.
    Mr. Smith. Colonel Bischoff, and identify yourself for the 
record.
    Colonel Bischoff. I work for the general. I am his Threat 
Finance Chief. We do have about 12 folks right now, 10 
contractors. One is retired DEA, one is retired CIA. We just 
hired a retired FBI agent. So the skill set we are looking for 
are the guys who have had a successful career in government, 
primarily in law enforcement, because that is where we are 
weak, in speaking back and forth and exchanging information 
with law enforcement. A spate of them are also career DOD intel 
types, but the guys we really look for, because that is our 
weak spot, is the former law enforcement.
    We have three full-time government employees we were able 
to bring on last year, GS-12, 13, 14--I guess those 
categorizations have changed to some pay band--and myself. And 
then we have had a couple other Reserve majors who have rotated 
through from time to time on six-month rotations.
    Mr. Smith. Are those multiyear contracts that you enter 
into with these retired folks?
    Colonel Bischoff. Sir, no.
    General Fridovich. No, sir, not for the first year. Again, 
this is a nascent program we are looking at one year to see if 
it is a good fit for everybody. And then after that we have the 
option to go ahead and grow and write the contract multiyear. 
But no, sir, not to start with. It didn't seem prudent to us 
whether the marriage was going to work.
    Mr. Smith. Right. And of course one of the questions that 
occurred to me is that we have FBI agents, and we have Justice 
Department people, and we are hiring retired ones, sending them 
down to SOCOM instead of working with the ones who we have on 
the job who presumably know what they are doing. I understand 
there is probably a reason for that. I am sorry, Mr. Miller, go 
ahead.
    Mr. Miller. I couldn't have said it better, Mr. Chairman. I 
think I have used my two minutes.
    Mr. Smith. We will go downstairs and reconvene in B-337--
sorry, 2337. Go upstairs, my apologies, up to 2337.
    [Whereupon at 4:33 p.m., the subcommittee proceeded in 
Closed Session.]

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                            A P P E N D I X

                             March 11, 2009

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              PREPARED STATEMENTS SUBMITTED FOR THE RECORD

                             March 11, 2009

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