[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
A REVIEW OF CURRENT AND EVOLVING
TRENDS IN TERRORISM FINANCING
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
OVERSIGHT AND INVESTIGATIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 28, 2010
__________
Printed for the use of the Committee on Financial Services
Serial No. 111-161
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62-686 PDF WASHINGTON : 2010
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HOUSE COMMITTEE ON FINANCIAL SERVICES
BARNEY FRANK, Massachusetts, Chairman
PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS, Alabama
MAXINE WATERS, California MICHAEL N. CASTLE, Delaware
CAROLYN B. MALONEY, New York PETER T. KING, New York
LUIS V. GUTIERREZ, Illinois EDWARD R. ROYCE, California
NYDIA M. VELAZQUEZ, New York FRANK D. LUCAS, Oklahoma
MELVIN L. WATT, North Carolina RON PAUL, Texas
GARY L. ACKERMAN, New York DONALD A. MANZULLO, Illinois
BRAD SHERMAN, California WALTER B. JONES, Jr., North
GREGORY W. MEEKS, New York Carolina
DENNIS MOORE, Kansas JUDY BIGGERT, Illinois
MICHAEL E. CAPUANO, Massachusetts GARY G. MILLER, California
RUBEN HINOJOSA, Texas SHELLEY MOORE CAPITO, West
WM. LACY CLAY, Missouri Virginia
CAROLYN McCARTHY, New York JEB HENSARLING, Texas
JOE BACA, California SCOTT GARRETT, New Jersey
STEPHEN F. LYNCH, Massachusetts J. GRESHAM BARRETT, South Carolina
BRAD MILLER, North Carolina JIM GERLACH, Pennsylvania
DAVID SCOTT, Georgia RANDY NEUGEBAUER, Texas
AL GREEN, Texas TOM PRICE, Georgia
EMANUEL CLEAVER, Missouri PATRICK T. McHENRY, North Carolina
MELISSA L. BEAN, Illinois JOHN CAMPBELL, California
GWEN MOORE, Wisconsin ADAM PUTNAM, Florida
PAUL W. HODES, New Hampshire MICHELE BACHMANN, Minnesota
KEITH ELLISON, Minnesota KENNY MARCHANT, Texas
RON KLEIN, Florida THADDEUS G. McCOTTER, Michigan
CHARLES WILSON, Ohio KEVIN McCARTHY, California
ED PERLMUTTER, Colorado BILL POSEY, Florida
JOE DONNELLY, Indiana LYNN JENKINS, Kansas
BILL FOSTER, Illinois CHRISTOPHER LEE, New York
ANDRE CARSON, Indiana ERIK PAULSEN, Minnesota
JACKIE SPEIER, California LEONARD LANCE, New Jersey
TRAVIS CHILDERS, Mississippi
WALT MINNICK, Idaho
JOHN ADLER, New Jersey
MARY JO KILROY, Ohio
STEVE DRIEHAUS, Ohio
SUZANNE KOSMAS, Florida
ALAN GRAYSON, Florida
JIM HIMES, Connecticut
GARY PETERS, Michigan
DAN MAFFEI, New York
Jeanne M. Roslanowick, Staff Director and Chief Counsel
Subcommittee on Oversight and Investigations
DENNIS MOORE, Kansas, Chairman
STEPHEN F. LYNCH, Massachusetts JUDY BIGGERT, Illinois
RON KLEIN, Florida PATRICK T. McHENRY, North Carolina
JACKIE SPEIER, California RON PAUL, Texas
GWEN MOORE, Wisconsin MICHELE BACHMANN, Minnesota
JOHN ADLER, New Jersey CHRISTOPHER LEE, New York
MARY JO KILROY, Ohio ERIK PAULSEN, Minnesota
STEVE DRIEHAUS, Ohio
ALAN GRAYSON, Florida
C O N T E N T S
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Page
Hearing held on:
September 28, 2010........................................... 1
Appendix:
September 28, 2010........................................... 23
WITNESSES
Tuesday, September 28, 2010
Caruso, David B., Chief Executive Officer, Dominion Advisory
Group.......................................................... 11
Comras, Victor D., Special Counsel, The Eren Law Firm............ 5
Landman, Stephen I., Director, National Security Law and Policy,
The Investigative Project on Terrorism......................... 7
Lewis, Eric L., Partner, Baach Robinson Lewis.................... 9
APPENDIX
Prepared statements:
Minnick, Hon. Walt........................................... 24
Caruso, David................................................ 28
Comras, Victor D............................................. 32
Landman, Stephen I........................................... 52
Lewis, Eric L................................................ 69
Additional Material Submitted for the Record
Moore, Hon. Dennis:
Written statement of Simon A. Charlton....................... 78
A REVIEW OF CURRENT AND EVOLVING
TRENDS IN TERRORISM FINANCING
----------
Tuesday, September 28, 2010
U.S. House of Representatives,
Subcommittee on Oversight
and Investigations,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 4 p.m., in
room 2128, Rayburn House Office Building, Hon. Dennis Moore
[chairman of the subcommittee] presiding.
Members present: Representatives Moore of Kansas, Lynch;
Biggert, and Paulsen.
Also present: Representative Minnick.
Chairman Moore of Kansas. This hearing of the Subcommittee
on Oversight and Investigations of the House Financial Services
Committee will come to order.
Our hearing today is entitled, ``A Review of Current and
Evolving Trends in Terrorism Financing.'' This is our 18th O&I
hearing in the 111th Congress.
We will begin this hearing with members' opening
statements, up to 10 minutes per side, and then we will hear
testimony from our witnesses.
For our witness panel, members will each have up to 5
minutes to question our witnesses.
The Chair advises our witnesses to please keep your opening
statements to 5 minutes so we can get to members' questions.
Also, any unanswered question can always be followed up in
writing for the record.
Without objection, all members' opening statements will be
made a part of the record. And I now recognize myself for up to
3 minutes for an opening statement.
Today's hearing is the third in a series of hearings
focused on the very important issue of combating terrorism
financing and money laundering. Earlier this year, the
subcommittee held a hearing reviewing several oversight reports
by GAO and the Treasury Department's Inspector General that
examined FinCEN's efforts with respect to suspicious activity
reports, Bank Secrecy Act compliance, and anti-money
laundering, among other issues.
This subcommittee held another hearing reviewing the
Treasury Department's efforts to combat the financing of
terrorism while also reviewing various controls, disclosure,
and decision-making processes to ensure law-abiding individuals
and charities receive adequate due process.
With today's hearing, we are taking a step back and looking
at the broader issue of global terrorism financing in general.
For example, how is terrorism being financed today, and how are
terrorist organizations altering their financing techniques to
avoid current efforts by the U.S. Government to stem the flow
of money to terrorists? What are the latest trends our
government needs to pay attention to so that we are making
every effort to eliminate the financing of terrorism?
I look forward to hearing from our panel of nongovernment
witnesses who come to the table with a variety of perspectives
to help provide a fresh look at these difficult questions.
The May 1st Time Square bomb attempt earlier this year is a
vivid remainder that despite a long period of time passing,
over 9 years now since the tragic September 11, 2001, terrorist
attacks, there remain those who wish to do us harm. And our
government should remain vigilant in shutting those terrorist
groups down, including stopping the financing that supports
them.
This week, the Obama Administration announced plans to
require U.S. banks to report all electronic money transfers
into and out of the country to the authorities with the aim of
helping the government better track the kind of money transfers
that helped finance the al Qaeda hijackers on 9/11. We must
keep in mind that the government has limited resources, and we
will want to review that plan to ensure it is properly analyzed
in the days and weeks ahead.
Should the government take other steps to better combat the
financing of terrorism? I look forward to hearing from our
witnesses to explore this issue further.
I now recognize for 4 minutes the ranking member of this
subcommittee, my colleague and friend from Illinois, Ranking
Member Judy Biggert.
Mrs. Biggert. Thank you, Mr. Chairman, and thank you for
scheduling today's important hearing. It is clear that
terrorists will stop at nothing to raise funds and funnel money
to harm our citizens and our way of life. They will use any
means possible--credit card fraud, travelers checks, and
Internet payment systems--to carry out their attacks. I am very
concerned that terrorists continue to exploit formal and
informal financial systems to move amounts of money ranging
from thousands to upwards of billions of dollars. Terrorists
are nimble at adapting to an ever-changing marketplace, trying
to keep one step ahead of financial institutions, regulators,
and law enforcement.
Are the efforts of financial institutions, the regulators
and law enforcement sufficiently vigilant and agile to track
and dismantle terrorist financing and ultimately shut down
terrorist operations? Should certain efforts be reformed,
better targeted, and streamlined?
According to today's witnesses, I think we will learn that
there certainly is room for improvement. Improvement is not
solely the responsibility of one regulator, one financial
institution or one law enforcement entity. It is everyone's
responsibility to stop the financing of terrorism. National
security should be at the top of everyone's agenda, and failure
to do so is unacceptable.
Finally, the United States cannot do this alone. We must
strengthen partnerships and commitments from the international
community to bolster antiterrorist financing operations. So I
look forward to hearing from today's witnesses, and I yield
back.
Chairman Moore of Kansas. Thank you.
Next, the Chair recognizes Mr. Lynch from Massachusetts for
2\1/2\ minutes.
Mr. Lynch. Thank you, Mr. Chairman, and Ranking Member
Biggert, for holding this hearing.
I would like to welcome the witnesses and thank them for
their willingness to help the committee with its work. As the
cochairperson of the Task Force on Terrorist Financing and
Anti-Proliferation, I sent along with my colleague Mr. Castle
of Delaware a letter to the chairman back in May expressing an
interest in holding a hearing that would focus on the
development and growth of the informal banking system. We have
seen one recent example of this system in the case of the Times
Square bombing.
Since the bombing attempt occurred over the summer, we have
learned that Faisal Shahzad attained transfers of $5,000 and
$7,000 which were provided by an informal money system known as
a hawala. Hawalas or hundis, as they are sometimes known,
operate apart from the regulatory grid. Terrorist organizations
have exploited the informal nature of the hawala structure to
move cash across borders and to fund their illicit activities.
Despite the certain success of our enforcement agencies in
preventing the use of the formal banking system by terrorist
groups, we need to know more about informal transfer systems
like these hawalas that allow operations to continue.
I had an opportunity to read over the testimony of each of
our witnesses last night. And I look forward to and welcome
their thoughts and suggestions in terms of how we might have
greater success against these informal money transfer systems.
Again, I thank you for your willingness to help the committee
with its work, and I yield back the balance of my time.
Chairman Moore of Kansas. Thank you, sir.
The Chair next recognizes Mr. Paulsen from Minnesota for 4
minutes.
Mr. Paulsen. Thank you, Mr. Chairman, and Ranking Member
Biggert, for holding this important hearing as well today.
We know that financial institutions often serve as the
first line of defense in detecting financial crimes and
providing critical information to law enforcement. The ability
to follow the money trail provides our intelligence and our law
enforcement community with information that leads to a broader
understanding of terrorist organizations and drug dealers. And
certainly, the laws that passed in Congress since 9/11 have
been crucial in helping to obtain that information. It is
essential to catching criminals and defeating terrorists.
But we must be vigilant and make sure that we can to
continue to provide the necessary tools.
In light of the President's proposal earlier this week to
monitor all electronic money transferrings that are coming in
and out of this country, I am interested in hearing more about
how we can make improvements in tracking terrorist financing
from the panel today .
And I want to thank the witnesses. I look forward to the
testimony and making proposals that we achieve some additional
success.
Mr. Chairman, I yield back.
Chairman Moore of Kansas. Thank you, sir.
The Chair now asks unanimous consent for Representative
Walt Minnick to participate in today's hearing and give a brief
opening statement. Without objection, Mr. Minnick, you are
recognized for up to 3\1/2\ minutes, sir.
Mr. Minnick. I thank you, Chairman Moore and Ranking Member
Biggert. I commend you for holding this important hearing today
and I thank you for the opportunity to participate.
As 9/11 illustrated with jarring clarity, disrupting the
financing of global terrorism is critically important to the
survival of civilized society. On this, the 9th anniversary of
this tragedy, we need to examine the progress that has been
made and the shortfalls in the international financial
surveillance system that are yet to be addressed.
Just how vulnerable is our banking system today to being
the conduit through which sophisticated global terrorist groups
finance their infrastructure and procure their weapons of death
and destruction? How are we doing in identifying and using
financial information to disrupt related endeavors such as drug
trafficking, weapon sales, sanction breaking, and the money
laundering incident to other large-scale criminal activity?
We hope and expect that our witnesses today will give us
some of the answers.
The committee has previously discussed the lack of
oversight of massive fund flows originating in the Middle East.
It has studied the interconnectiveness of global financial
centers. It has explored the threats posed by banking secrecy
rules in Switzerland, the Caribbean, and emerging financial
centers of the Far East. It has argued the trade-offs between
maintaining privacy and disclosing threats to international
security.
We are here today to learn whether the U.S. financial
authorities have the tools, staffing, and the will to
successfully perform our Nation's portion of this task: to
discover whether foreign governments and international
financial institutions are similarly focused and effective; and
to understand whether this information is being shared and
effectively used to arrest and imprison drug kingpins, foil al
Qaeda and other international terrorist groups, enforce trade
sanctions, and identify global criminal activity.
Do we understand our vulnerabilities, and are we working
effectively to overcome them? These are all questions that must
be answered to assure our citizens that our government is
protecting both their assets and our Nation's security in an
increasingly dangerous and interconnected world.
Thank you, Mr. Chairman. I yield back.
Chairman Moore of Kansas. Thank you, Mr. Minnick.
I yield myself an additional minute.
Before our witnesses testify, I want to put today's
testimony in the proper context. I am--and I hope all of us
are--most interested in learning about the latest trends in
terrorist financing and/or money laundering, so that we can
make sure our government is adapting and is fully prepared to
keep up with them.
There are some allegations in the written testimony where
parties not present are named and accused. We are not a court
of law, and we cannot engage in factfinding in this setting. We
do not have all the facts or the response--if we don't have the
response of those named. Opinions expressed and allegations
made must be viewed within that context, and we will leave the
record of the hearing open to afford any party named an
opportunity to present their own response and their side of the
story.
I am pleased now to introduce our panel of witnesses this
afternoon. First, Mr. Victor Comras, special counsel of the
Eren Law Firm. Mr. Comras is a retired career U.S. diplomat,
having served 35 years at the State Department before being
appointed by then-United Nations Secretary General Kofi Annan
to serve as one of five international monitors to oversee the
implementation of Security Council measures against al Qaeda
and tourism financing.
Second, Mr. Stephen Landman, director of national security
law and policy at the Investigative Project on Terrorism. Mr.
Landman has researched and written extensively on issues
related to terrorist support structures with a focus on
financing and the use of developing technologies by terrorist
groups.
Third, Mr. Eric Lewis, partner at Baach Robinson Lewis,
where he has represented clients in a variety of complex legal
cases, many involving financial fraud. Mr. Lewis previously
served for many years as an adjunct professor of law at
Georgetown University.
And finally, Mr. David Caruso, chief executive officer,
Dominion Advisory Group. Mr. Caruso began his career as a
Special Agent with the U.S. Secret Service before being hired
to manage the Anti-Money Laundering and Enhanced Due Diligence
Group at JPMorgan. He subsequently served as a director at two
Big Four accounting firms, where he led anti-money laundering
compliance and fraud investigations and has more than 15 years
of experience creating and implementing comprehensive anti-
money laundering or AML programs.
Without objection, your written statements will be made a
part of the record.
Mr. Comras, sir, you are recognized for 5 minutes.
STATEMENT OF VICTOR D. COMRAS, SPECIAL COUNSEL, THE EREN LAW
FIRM
Mr. Comras. I am here today to express my views and
concerns with regard to U.S. and international efforts to stem
the flow of financial support to terrorist organizations.
As mentioned, we have just passed the 9th anniversary of
that terrible 9/11 attack that confirmed for us and for most of
the international community that international terrorism poses
one of the gravest threats to international peace and security.
Since then, governments have spent well into the hundreds
of billions of dollars to prevent, defend against, and fight
terrorism, and to provide security for their interests at home
and abroad. And the world's financial community has invested
billions more on regulatory compliance measures to police
accounts and transactions in order to steer clear of
counterterrorism and money-laundering issues.
Yet, terrorism continues to poses a worldwide threat.
Empirical evidence demonstrates that al Qaeda, the Taliban,
Hamas, Hezbollah, and other terrorist groups continue to have
access to the funds they need to maintain their organizations
and their terrorist operations. And if anything, Taliban
funding is expanding, not diminishing.
The Taliban's cash flow from Afghanistan's poppy fields
comes as no surprise, but the $106 million they reportedly
received last year from overseas donors is a real eye-opener.
Hamas and Hezbollah have also developed their own worldwide
financial network, drawing closely on their links with the
Muslim Brotherhood. These terrorist groups have also tapped
into criminal networks operating in the tri-border area of
Latin America, and in West Africa and Southeast Asia. And this
transfer of money from criminal activities to terrorism relies
heavily on money-laundering techniques here and abroad.
I know, Mr. Chairman, that our U.S. financial institutions
take the threat of international terrorism very seriously. They
have come a long way since 9/11 in putting in place effective
procedures to identify reporting to block suspicious
transactions, and the U.S. Government regulatory agencies are
now both intensive and vigilant in their oversight.
But while great strides have been made in cutting down the
flow of terrorism funds from the United States, our banks
remain awkwardly vulnerable to getting caught up in terrorist
group-related transactions that originate and terminate
overseas. Our banks have little choice but to rely on the
veracity and accuracy of the transactional information provided
to them by their overseas clients and associates. And in the
fast and very competitive world of international financial
transactions, these assurances are often shortchanged.
The problem is further complicated by the emergence
overseas of numerous underfunded and underregulated homegrown
banks and informal transfer facilities that lack the
wherewithal to mount and maintain an effective compliance
system. And many of these financial institutions are located in
areas quite susceptible to the recruitment of terrorists.
It is essential, therefore, that there be greater
cooperation between the U.S. Government in sharing cautionary
information that they acquire through their own channels and
alerting their banks, our banks, to such suspicious
transactions; not just to rely on the one-way flow of
information from the banks to the government that seems to
exist today.
When I say that the locus of terrorism financing problem is
largely overseas, I do so with a caveat. As you know, there
have been several actions recently to penalize financial
institutions, foreign financial institutions with branches in
the United States, for their involvement in dollarizing
terrorist-related transactions. There have been other egregious
cases where foreign bank branches in the United States have
sought to circumvent our sanctions laws and regulations.
And when we take these stringent actions against them, we
send a strong message that the United States will not
countenance such activities in the United States.
And Mr. Chairman, an even stronger message is now being
sent by victims of terrorism as they move in U.S. courts to
hold these and other financial institutions accountable for
facilitating the flow of funds to terrorist organizations.
We must face up to the fact, Mr. Chairman, that while we
take seriously the illegality of all transactions that support
terrorism in their activities, many other countries do not.
Many of the transactions that these banks have engaged in are
not considered illegal in many of the other countries in which
they operate.
I can tell you that shortly after 9/11, you may recall the
Security Council adopted resolution 1373, which was meant in
part to obligate all countries to prevent the transfer of funds
to terrorist organizations for any terrorist purposes. But that
resolution has a serious loophole; it fails to define
terrorism. Rather, it leaves to each country to decide for
itself which groups they consider terrorists and which they
hail as freedom fighters.
The fact is that there is only really a very small fragile
and narrow international consensus as to who the terrorists
are. For the most part, it is represented in a small list of
designated al Qaeda and Taliban entities and individuals that
has been published by the United Nations. I want to make it
clear; beyond that point, beyond that list of designated
individuals and entities, there is no international consensus
and, therefore, no clear and enforceable international
obligation which inhibits countries from allowing their
financial institutions to engage in financial transactions with
such undesignated individuals and entities. Given U.S. bank
interaction with this larger international--
Chairman Moore of Kansas. The gentlemen's time has expired.
Will you please wind up?
Mr. Comras. --banking community, the vulnerabilities become
stark. And we must be extra vigilant when it comes to ensuring
the information regarding the originator and ultimate recipient
of each transaction is complete and accurate.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Comras can be found on page
32 of the appendix.]
Chairman Moore of Kansas. Thank you, sir.
Mr. Landman, you are recognized for up to 5 minutes, sir.
STATEMENT OF STEPHEN I. LANDMAN, DIRECTOR, NATIONAL SECURITY
LAW AND POLICY, THE INVESTIGATIVE PROJECT ON TERRORISM
Mr. Landman. Thank you, Chairman Moore, Ranking Member
Biggert, and distinguished members of the subcommittee. Thank
you very much for holding today's hearing on the evolving
threat of terrorist financing.
In the past decade, the speed with which the United States
has developed, implemented, and fine-tuned its counterterrorist
financing strategy has been nothing if not impressive.
Despite these successes, however, terrorist groups continue
to raise and move money for recruitment, indoctrination,
logistical support, training, and to finance their murderous
actions. As we are learning, however, like the terrorist
groups, their financing crosses both geographical borders and
technological boundaries. Indeed, like water on concrete, this
money is finding all of the holes.
Through a combination of criminal prosecution, regulatory
enforcement, and civil litigation, the United States has
effectively closed off the formal financial sector to terrorist
groups. At the forefront of the regulatory reforms are
amendments to the BSA that accompany the PATRIOT Act. These
updated recordkeeping and reporting requirements have expanded
both the depth and breadth of financial intelligence available
to law enforcement officials.
And while the result has been a more secure financial
system, it could benefit still from greater cooperation between
law enforcement and the private sector. And although the idea
has been proposed before, I would again urge the committee to
consider working to increase information sharing between banks
and law enforcement officials by granting bankers access to
limited classified information.
But no amount of regulations will matter for those banks
that are intent on supporting terrorism. And that is why
Congress must act to clarify the scope of financial services
under the material support law. American victims of terrorism
have been working to hold institutions like Arab Bank liable
for providing what amounts to death insurance plans by Hamas to
Hamas militants. And in each of the cases, the institutions
have responded that they were simply providing routine banking
services, conduct that they argued was not prohibited. Congress
can reaffirm that there is nothing routine about terrorism and
by amending the term Financial Services to encompass ``routine
banking services.''
While these steps will ensure that terrorists remain
persona non grata in the banking industry, FTOs continue to
raise and move money through the abuse of charitable
institutions and underground banking. The shuttering of the
Holy Land Foundation, an Islamic charity proven to have
provided over $12 million to Hamas, demonstrates that terrorist
groups are able to raise money for acts of violence and that
they are willing to do so under the guise of humanitarian
relief efforts.
Today, Viva Palestina, a British-based charity with an
American branch, has picked up where HLF left off, flouting
U.S. terror finance laws and raising over $200,000 in the
United States and providing that money to Hamas in support of
humanitarian efforts.
In order to ensure the sanctity of the charitable sector,
Congress should resist any efforts that would create a
humanitarian aid exception to the material support law. And you
can also urge expanded review and verification of charitable
filings for inconsistencies.
Another tried-and-true method for moving terrorist finances
has been the underground banking system, specifically hawalas.
And despite expanded applicability of the BSA to cover hawalas,
the statute must be more aggressively enforced.
The recent arrest of Mohammed Younis, who allegedly helped
finance the failed Time Square bombing by serving as a
hawaladar is a reminder of the importance of financial
investigations as part of a broader counterterrorism policy.
Every terrorism investigation should have a parallel terror
finance component.
Finally, moving forward, we must recognize that rather than
simply rest on their laurels, terrorist groups have shown an
incredible ability to adapt changing technologies to their
needs. The creation of stored value cards and the expansion of
the Internet are just two of the problems that those tasked
with countering terrorist financing will face over the next
decade.
If you are a terrorist, technology has made bulk cash
smuggling easier than ever in the form of stored value cards.
And although they bear all of the requisite qualities, they are
not currently considered monetary instruments subject to
regulation. The exclusion of them as reportable instruments is
the result of technology outpacing regulations. And while
reports suggest that Treasury is currently considering adding
those to the list of monetary instruments, they must act
quickly to plug this gap before terrorist financiers take
advantage of it.
More worrisome, however, is the Internet, which has already
revolutionized FTO operations, from the spread of propaganda to
the planning and preparation of attacks. And a particular
concern should be virtual worlds, which have the capacity to
serve as the hawalas of the 21st Century. They provide many of
the same characteristics as the existing hawala networks; they
are fast, inexpensive, reliable, convenient, and, most notably,
discreet. The existing regulations should be updated to curb
the potential for the abuse, bring virtual worlds under the
umbrella of covered institutions under the BSA.
Members of the committee, American efforts to disrupt
terrorist financing schemes have put organizations such as al
Qaeda in dire financial straits. These successes however have
been tempered by continuing blind spots in the enforcement of
existing regulations and an inability to update current laws on
pace with technological advancements.
Chairman Moore, thank you very much for allowing me to come
and speak with you today. I look forward to your questions on
this critical issue, and I yield back the balance of my time.
[The prepared statement of Mr. Landman can be found on page
52 of the appendix.]
Chairman Moore of Kansas. Thank you, sir.
The Chair next recognizes Mr. Lewis for up to 5 minutes.
STATEMENT OF ERIC L. LEWIS, PARTNER, BAACH ROBINSON LEWIS
Mr. Lewis. Thank you, Chairman Moore, Ranking Member
Biggert, and the distinguished members of the subcommittee for
the opportunity to testify today regarding one of the largest
abuses ever of the United States banking system. The fraud and
money-laundering scheme that I would like to discuss involves
the transfer of approximately $1 trillion through the United
States financial system, all directed by a single Saudi
national named Maan Al-Sanea, using a Saudi Arabian remittance
company or hawala called the Money Exchange, as well as two
banks he controlled in Bahrain and other companies in the
Cayman Islands and Switzerland.
The fraud appears to have deprived its victims of more than
$20 billion, making it larger than the Madoff fraud in actual
out-of-pocket loss, yet there were no questions asked, not by
banks, regulators, or prosecutors, until the whole scheme
collapsed.
The Money Exchange's main U.S. dollar account was with an
American bank in New York. The Money Exchange was a small
company with a transactional volume for its remittence
customers of around $60 million per year in total.
Nevertheless, it approached a major U.S. bank that visited it
in the Middle East and said it would like to open a
corresponding account in New York in order to transfer
approximately $15 billion in payments annually.
At least four huge red flags present themselves right at
the outset, which is the key point at which banks can make
determinations about the bona fides of their customers: first,
you have a high-risk region and country, the Middle East, Saudi
Arabia; second, a business that accepts money transfers for
walk-in customers, with whom it has no account relationship and
does none of the necessary due diligence; third, you have a
massive transactional volume, $15 billion a year; and fourth,
you have a volume of transactions which is entirely
disproportionate to the customer's ostensible business.
One would expect a searching interrogation of this
customer; that is what the ``know your customer'' rules
require. There should be a careful evaluation of the intended
use of the account, the source, destination, and business
purpose of the funds flowing through. And because the
prospective customer is itself a financial institution, there
must be a thorough investigation of that institution's anti-
money laundering and ``know your customer'' policies, yet our
investigation has revealed no evidence of any significant due
diligence or anti-money laundering investigation of the Money
Exchange in Saudi Arabia.
The two Bahraini banks, Awal Bank and the International
Banking Corporation, had no legitimate customers. They were
created and used by Mr. Al-Sanea to borrow money and then
funnel it through the U.S. financial system to dummy customers
and then to his own companies. So if the core is to know your
customer's customers, here you had two large banks that had no
customers.
U.S. anti-money laundering and anti-terror finance policy
is a two-part defense. There must be pre-event diligence by the
banks, backed by regulatory oversight, and post-event law
enforcement, where the initial diligence has failed to prevent
or detect money laundering.
Banks are the critical first lines of defense, supported by
clear regulation. But banks often have incentives to look the
other way, and fines for noncompliance are still viewed as
relatively unlikely to occur as the cost of doing business if
they do. This must change if the system is to work effectively.
Our regulatory regime also needs to make it clear that if
banks agree to open dollar accounts for customers, it doesn't
matter if the relationship is based elsewhere. That customer
must be subject to all of the scrutiny and rigor applied to
someone who walks off the street in midtown Manhattan to open a
bank account. We are not aware of any investigations ongoing by
the relevant regulator into this massive systemic failure. We
understand that Congressman Peter King has written to the
attorney general to request an investigation, but we have
received no information or requests for information to date
from the Justice Department.
The United States alone possesses the resources and the
tools to protect the global financial system from international
financial crime, money laundering, and terror financing. And
the United States has an overwhelming national security
interest in taking the lead. We cannot delegate this critical
responsibility to others. This fraud involved more than a dozen
countries. Each of them had only a piece of it. Each can claim
that it can only investigate and see a slice. Each can claim
some other country has a greater responsibility. But in an age
when international fraudsters and money launderers can cross
borders with a click of a mouse, the response cannot be, ``It
is not our responsibility.'' That is a recipe for disaster.
Banks must diligently inquire into their customers and
their customers' customers. Wrongdoers must be investigated,
charged, extradited, and prosecuted. The United States must
lead, but cooperation must be sought. Saudi Arabia, for
example, is a committed ally in the fight against terror
financing, and I have no doubt if the United States underlined
the importance of getting to the bottom of this or other
massive money-laundering schemes that originate there, the
Saudis would cooperate.
Extensive legislation is not needed; the need is for strong
oversight and firm priorities, together with clearly defined
responsibilities and accountability.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Lewis can be found on page
69 of the appendix.]
Chairman Moore of Kansas. Thank you, sir, for your
testimony.
Mr. Caruso, you are recognized for up to 5 minutes, sir.
STATEMENT OF DAVID B. CARUSO, CHIEF EXECUTIVE OFFICER, DOMINION
ADVISORY GROUP
Mr. Caruso. Good afternoon, Chairman Moore, Ranking Member
Biggert, and members of the subcommittee.
Thank you for the opportunity to appear before you today to
discuss the vulnerabilities of our financial system to
terrorists and money launderers. Financial institutions,
particularly depository institutions, play a crucial role in
identifying and reporting terrorist financing and money
laundering.
Over the last 10 years, banks have spent considerable
amounts of money to hire staff and implement software systems
to detect suspicious activity. As a result, most financial
institutions comply with the Bank Secrecy Act, or BSA. However,
compliance with regulations and identifying potential terrorist
financing and money laundering are not necessarily synonymous.
Suspicious Activity Reports, or SARs, reporting activity
related to BSA violations account for nearly half of all SAR
filings. The majority of these SARs are made up of those
reporting attempts to evade the Currency Transaction Reporting
threshold, a practice known as structuring. The burden of
detecting, investigating, and reporting cash structuring using
today's version of the SAR hampers a financial institution's
ability to identify transactions associated with more serious
crimes and makes our financial system more vulnerable to
terrorist financing and money laundering.
Consideration should be given to creating a new SAR,
designed to report only cash structuring. Such a SAR would
still provide the government with required information and
would reduce the time and effort needed by institutions to
complete the form, thus enabling more energy to be directed at
uncovering terrorist financing and significant money
laundering.
When institutions detect structuring, they must adhere to
the requirements of the Federal Financial Institutions
Examination Council and FinCEN which mandate that SARs include
a thorough and complete narrative or written depiction of the
events that led to the conclusion a SAR must be filed. In
addition, institutions are expected to compile supporting case
information into a comprehensive file. This information is used
by auditors and examiners as a way to test a bank's compliance
with BSA.
Over the past 5 years, the expectations of regulators and
industry practice has expanded. Writing the SAR narrative is as
time-consuming as ever. A modified SAR to report structuring
will convey the relevant facts of an investigation--who, what,
where, when, and how much--but can be compiled into a more
concise format, such as a table or spreadsheet, that will still
inform law enforcement of what it needs to know, provide
regulators with evidence of an institutions's compliance with
the BSA, and then free up resources of a bank to focus on
detecting terror financing and sophisticated money-laundering
schemes.
Financial institutions struggle with how to effectively
detect terrorist financing. Retrospective analysis of terrorist
funding does not provide clear enough direction to bank
investigators on what specific transactions may indicate funds
are being sent to support terrorists. Depository institutions
and other financial institutions, including money services
businesses, have implemented automated software systems
designed to more effectively and quickly identify suspicious
activity. However, these software systems produce large numbers
of alerts mostly related to structuring because structuring is
the easiest type of activity for these systems to identify.
Satisfying the regulatory requirements around investigating,
documenting, and reporting structuring takes a typical bank
investigator between 3 to 8 hours.
Our experience working with small, mid-sized, and large
banks shows us that structuring accounts for between 60 and 70
percent of all BSA-related SARs. We also see that over half of
the customers who structure have neither structured before nor
subsequently to the incident in question. These one-time
structurers, however, eat away at the time a bank staff can
then spend uncovering and investigating activity whose impact
on the financial system and national security could be much
more serious.
Structuring SARs provide the government with important
information, including information that may lead to the
discovery of serious criminal activity. The importance of this
information should not be minimized. What should be minimized,
however, is the time and effort needed to report the activity.
By creating a SAR tailored to report only structuring, the
government would relieve financial institutions of their
largest BSA, AML compliance burden and then enable institutions
to use that available time and those available resources to
identify and report more serious crime. Thank you, again, for
the opportunity to testify here today.
[The prepared statement of Mr. Caruso can be found on page
28 of the appendix.]
Chairman Moore of Kansas. Thank you, sir.
I appreciate the testimony of the witnesses.
I am going to start the questions.
The first question, Mr. Caruso, is directed to you. I agree
with and appreciate your testimony where you commend U.S.
financial institutions for working with the government to
combat terrorism financing as well as the government's vigilant
efforts to stem the flow of money to terrorist organizations.
I don't know if you saw the announcement yesterday, but do
you have a general reaction to the Administration's plan to
expand tracking of electronic money transfers? Is this a wise
approach, or does it raise concerns?
Mr. Caruso. It does raise concerns, from my perspective,
knowing how difficult it is for institutions to comply with
existing rules and regulations, as mightily as they do try. And
our experience is that nearly all do try as best they can.
But in order for a bank to capture that information, and
report it to the government on a regular basis, although I
understand the government's view that there are only 300 or 400
banks that it will impact, will be a significant burden on
those banks. And then it raises for me the question that my
testimony raises, is that the best use of a bank's time to
report that information?
Chairman Moore of Kansas. All right, thank you.
Mr. Landman, do you have any thoughts about this question?
Mr. Landman. I saw it yesterday, and I have been thinking
about it since.
My immediate thought was that it seemed like a good idea.
That being said, I think there are significant concerns with
the volume of data that it is going to result in. Banks are
going to be giving way more information to the government. And
the same way that Mr. Caruso suggests it may overwhelm banks, I
think it may have the effect of overwhelming the government.
But if the government can figure out a way to work with banks
and filter that properly, it would be very good.
Chairman Moore of Kansas. Any thoughts, Mr. Comras?
Mr. Comras. I think the filtering is the critical element.
Chairman Moore of Kansas. Turn your microphone on, please,
sir.
Mr. Comras. Sorry.
I think that filtering is the critical element. The mass of
information is sometimes the easiest way of hiding the real
gems in the information. And until we know exactly what we want
to target and have a better profile and direct our efforts
towards that profile, a lot of our efforts are going to be
wasted.
Chairman Moore of Kansas. Thank you, sir.
Mr. Caruso, I am intrigued by a concern Mr. Lewis raised on
page 6 of his testimony, that compliance officials are viewed
as ``anti-business.'' Have you found this to be the case? And
what steps could the government take to encourage self-policing
by financial firms, going beyond the minimal requirements and
encouraging a culture within firms to remain vigilant against
new terrorism financing techniques?
Mr. Landman?
Excuse me, Mr. Caruso, first.
Mr. Caruso. I think that it is a fair assessment that
compliance departments are viewed by the lines of business as
often impediments. However, I don't necessarily view that as a
bad thing. I think a natural tension between a business group
and compliance group is actually important because it makes the
compliance staff perform their job better, to argue their case
about how a customer should be treated or a transaction should
be reported. And that process, in all of my experience,
actually helps educate the business people better than if the
compliance people were to have some sort of carte blanche and
just be able to dictate what can happen.
Chairman Moore of Kansas. Any thoughts, Mr. Landman?
Mr. Landman. There is an easy response which is just that I
understand that this is burdensome, but there are legitimate
civil penalties that would be enforced if we don't do this
work. And from the perspective of the compliance department,
they are just saving the bank money long term in litigation.
Look at the case of Arab Bank, this case, which may litigate
for 10 more years could wind up costing our bank hundreds of
millions of dollars; that is something worth protecting.
Chairman Moore of Kansas. Thank you, sir.
Mr. Comras, you make some strong points in your testimony
that beyond international consensus to combat the financing of
al Qaeda and the Taliban, the international community has not
reached consensus to stem the flow of money to other terrorist
groups. What actions should the United States Government take
in response to this concern?
Mr. Comras. Mr. Chairman, I think our response has to take
two directions. One, we have to use the leverage that we have
through our banking community and the major role that we play
to alert other banks to the risks that are involved.
At the same time, we have a very major leverage with the
Antiterrorism Act of 1996, which allows victims of terrorism to
use our courts to hold banks, even those that are outside the
United States, accountable when they are involved in the
financing of terrorists that caused such victims to suffer from
terrorism.
The second route we must take is to work through the
international organizations, through FATF and through other
forums, to convince our friends and allies to take this risk
seriously. I had an opportunity to look very closely at this
issue over the last couple of years and I wrote a book on that
trying to devote greater attention to using the international
institutions to deal with a developing consensus, including a
definition of terrorism that is more universal and has
applicability to all of these banks.
Chairman Moore of Kansas. Thank you, sir.
The Chair's time has expired. The Chair next recognizes
Ranking Member Biggert for up to 5 minutes.
Mrs. Biggert. Thank you, Mr. Chairman.
It seems that nearly every time a bank is fined for having
a bad anti-money laundering program, we find it has received
passing evaluations of its money-laundering program during the
period that was in question. How is it that banks are able,
unintentionally or otherwise, to facilitate the flow of large
sums of money to or for customers when they really don't know
anything about the customer without regulators picking that up?
Are regulators and bank examiners properly trained or just not
doing their jobs?
Maybe, Mr. Comras, could you start with that?
Mr. Comras. Banks, of course, are very reliant on the
information that is provided to them by their clients overseas,
and they, I think, have taken for granted that some of these
clients are not providing all of the information that is
required. We now require a whole set of information with
respect to transactions that includes identification
information of the originator and the recipient of
transactions. Other banks have not had that practice, and only
a few banking jurisdictions, and I include Europe, require such
information to accompany transfers.
We have to develop a better system to assure ourselves that
the transactional information that is provided by the overseas
banks is accurate. And in cases where it is not, take very firm
action to deal with that situation.
Mrs. Biggert. Do you think that the banking regulators
share in the responsibilities for gaps in our financial
institutions?
Mr. Comras. I think that the banking regulators look very
closely at the information that is provided, and they take that
information, use it, run it through their filters, run it
through the software, run it through their name checks. But
they also are prisoners of a system that relies so heavily on
the information that is provided. And until you have some alarm
that is set off, some incident where you know that you have
gotten false information, there is not much that you can do to
check that information.
That is why I think it is important that there be a better
sense of cooperation between government entities or
information-gathering entities and banks to assure that there
is a greater flow to the banks of information that can give
them the caution that they need to take a closer look when they
are getting information from overseas banks.
Mrs. Biggert. Thank you.
Mr. Landman, would you agree with that, that the regulators
are--
Mr. Landman. Absolutely, Ranking Member Biggert. I think
through the FATF, we can ensure that foreign financial
institutions are implementing the same type of ``know your
customer'' requirements that are used here. And I think that
through something I mentioned in my testimony, the increased
cooperation with law enforcement perhaps by providing
classified briefings to banks, they would be able to get that
kind of detail that Mr. Comras suggested is going to be
necessary.
Mrs. Biggert. There was so much concern with the PATRIOT
Act that the different groups couldn't talk to each other. Do
you find that really has changed now, so law enforcement has
been able to talk the regulators and the banks?
Mr. Landman. I think that right now, it seems like it may
be information going one way from banks going towards the
government. At least, that is the view that I have seen of it.
I think that the banks could probably benefit from this
additional information from the government. And I think the
government would benefit as well. There would be more precise
reporting in the future as a result of that.
Mrs. Biggert. All right. Do you think that the system in
place to identify and stop the terrorist financing is flexible
enough to evolve as the threats change, or does the apparatus
become static--
Mr. Landman. I hope so. I hope it is flexible enough. I
think that everything that I have spoken about today are minor
tweaks. We are not talking about major changes to the Bank
Secrecy Act. We are not talking about major changes to any of
the FinCEN regulations. And I think that through minor tweaks,
you can continue to use the same regulations moving forward.
Mrs. Biggert. Mr. Caruso, how effective has FinCEN or OFAC
or the Treasury Department been in providing the financial
institutions with the information necessary to combat
terrorism?
Mr. Caruso. I think that it has been modest, the success
has been modest, that the information that the government is
able to provide institutions. Institutions struggle amongst
themselves on how to identify the types of activities that the
witnesses have spoken about here today and that the members are
so interested in.
I think regulators are very process-oriented. They look at
a bank to make sure they have all the mechanics and logistics
of an anti-money laundering program in place, but without
specificity on what exactly to look for--Mr. Landman, I
thought, made an excellent suggestion--that if law enforcement
were able to inform regulators very specifically about the
types of criminal investigations and intelligence
investigations that they have ongoing, the regulators would
have a much, much better understanding of what it is that the
banks--what they should be looking for at banks, and then,
subsequently, banks will begin to look for those things.
Mrs. Biggert. Thank you, I yield back.
Chairman Moore of Kansas. Thank you to the gentlelady.
The Chair recognizes Mr. Lynch for up to 5 minutes.
Mr. Lynch. Thank you, Mr. Chairman.
Mr. Caruso, you raised the issue about the cumbersome and
time-consuming nature of the SARs reporting. Right now, I think
banks file about 1.4 million SARs per year, so we have to go
through those to try to get information. They also file, I
think, 14 million CTRs, which are for transactions over
$10,000. And now, this morning, I read in the New York Times
and the Washington Post that the Obama Administration intends
to expand its counterterrorist financing efforts by requiring
U.S. banks to report all international money transfers. From
your end, workability, what do you think that expansion is
going to do to your ability to report in a timely fashion and
to handle the volume of reports that will be necessary?
Mr. Caruso. Banks are going to have to hire more people.
They are going to have to develop additional systems to capture
the information that their other technology systems capture.
They will have to develop a lot of processes and procedures to
report that information.
And I would imagine that the government would hold the view
that if the bank is capturing this information and reporting it
to the government in a way that they have not yet done before,
there would be an expectation that the bank will look at the
information.
Mr. Lynch. Just thinking about the huge volume of
information that is going to be coming into the government, and
then we are going to have to review that to find out--to
actually use the information rather than just collecting it. I
am just concerned about whether or not this is the best use of
our time and the most efficient use of the information that we
are getting.
Is there a way--you talk about the fact that 60 to 70
percent of the SARs right now are these structuring
noncompliance situations, is there a way to speed that up where
it is--there is a lot of similar information, so that you can
spend more time on the more serious offenses? Is there some way
we might streamline that?
I know Mr. Shaul from Mr. Frank's committee has indicated
there might even be a way to bar code some of these reports or
some portion of the information, just so that bank employees
aren't spending all their time doing this.
Mr. Caruso. Yes. The way the industry understands the
problem is that the government's computers are unable to accept
what most would consider a very simplistic and modern form of
communication, the spreadsheet, and we have all seen them, in
which valuable information can be captured almost
instantaneously, compiled and reported within minutes.
Unfortunately, the requirements now dictate that a bank's
employees create a narrative and, in essence, tell a story
around this very simplistic event.
Mr. Lynch. All right. I only have a minute and a half.
Mr. Comras, we are sort of--there is a double-edged sword
here. Initially, I worked a lot with FinCEN in Afghanistan, in
Jordan, in Tunisia, and in Morocco, setting up Financial
Intelligence Units. Some countries it appears--this is my
opinion--set up these FIUs in order to get off the bad list. In
other words, they wanted to be compliant with--after September
11th, they wanted to show that they were doing something to
stop this. But the number of SARs and reports that we are
getting are very limited from a lot of these countries. They
are not really living up to the spirit of law, and now, to make
it even worse, we have to share--we have an obligation if they
comply with the basic rubric of anti-money laundering and
terrorist financing, combatting that, that we have an
obligation to share information with them.
And I am wondering, is there a better way to use the name-
and-shame, the Wolfsberg principles, against some of these
countries that are just--I think they have been less than
diligent in their effort to combat terror financing?
Mr. Comras. I agree with you completely. I think that much,
much more has to be done to hold accountable international
financial institutions, and one of the best tools to do that is
naming and shaming. Between 2003 and 2008, FATF put a
moratorium on naming and shaming, but thankfully, in 2008, they
began that process again of indicating which countries lacked
the political will or the wherewithal to apply their financial
rules in any meaningful way. I think that FATF has to continue
to do that kind of an action.
I think that we have to look at groups. We have a committee
of the United Nations, a group that works under this resolution
1373, called CTED, and another group that provides assistance
to the Security Council with respect to al Qaeda and the
Taliban. They are well placed to begin to monitor and report on
what is actually occurring in this area. And I think they need
to be encouraged to take that kind of action.
Mr. Lynch. Thank you, Mr. Chairman.
I yield back.
Chairman Moore of Kansas. I thank the gentleman.
The Chair next recognizes Mr. Paulsen for 5 minutes.
Mr. Paulsen. Thank you, Mr. Chairman.
I just want to follow up with Mr. Caruso on the questioning
that was just taking place regarding the SAR narratives. In
your testimony, you had mentioned that writing the SAR
narrative is as time-consuming as ever, and putting aside
whether structuring infractions should be subject to such a
requirement, how useful is the narrative portion itself for law
enforcement? How useful is the narrative?
Mr. Caruso. It is very useful when it is describing matters
that are of interest to law enforcement. For a case involving
significant fraud or money laundering, narcotics trafficking,
perhaps terror financing, a well-written narrative will grab
the attention of a law enforcement agent, and that makes the
difference between a law enforcement agent starting an
investigation or not.
So a SAR narrative is very important when applied to
matters that require the telling of a story. Structuring rarely
requires the telling of a story.
Mr. Paulsen. Regarding the structuring SAR that you
describe, is it your view that these would be composed only of
objective information, and this could almost entirely be
compiled by advanced software systems and filed
instantaneously?
Mr. Caruso. Largely. Obviously, there would be the
opportunity for the bank to add some narrative description if
they would choose to do so. But most structuring is objective.
It is detailing the amounts of the transactions, the day on
which they occurred and who conducted the transactions.
Mr. Paulsen. Would there be value for law enforcement of
having the capability of filing such reports in realtime?
Mr. Caruso. Absolutely, and that is an important point.
Most of the structuring SARs are filed anywhere from 30 to 60
days after the event has taken place. One of the reasons is the
software systems, and also the other reason is the regulatory
requirements to compile a lengthy narrative.
Mr. Paulsen. Any other suggestions you might have about
changing the SAR form?
Mr. Caruso. No. I think my view is that the structuring
work is what takes up the most amount of time, so let's look at
the things that we can get the most return on in proving, and
that to me would be the most important. And then I am sure
there would be others after that, but that one would be first.
Mr. Paulsen. Thank you, Mr. Chairman.
I yield back.
Chairman Moore of Kansas. I thank the gentleman.
The Chair next recognizes Mr. Minnick for 5 minutes.
Mr. Minnick. Mr. Lewis, as I think you are aware from our
prior conversations, I was involved a long number of years ago
in helping set up the Federal Government's response to the
international drug trafficking issue. And there we found that
the key to really getting at the kingpins and people who were
behind drug trafficking was not opening suitcases at the
Mexican border; it was following the money.
It is clear to me that things haven't changed with respect
to terrorism or drug trafficking for that matter. We found that
you needed a central repository that had both access and clout
and interface with law enforcement, Federal, local, and
international, to really make good use of information. The
problem was not a shortage of information; it was analytic
capability and analytic focus.
In the terrorism area, in 2005, we set up FinCEN, as Mr.
Lynch was commenting earlier, to do precisely this with respect
to following the money involving terrorism. Listening to the
testimony of all of our witnesses, it is pretty clear to me
that FinCEN has not accomplished the task. And I would like to
ask you, having studied the issue, where is the deficiency at
FinCEN? Is it access to information? Is it analytic capability
and focus? Is it the interface with law enforcement or foreign
cooperation? Where is the shortfall, and what needs to be done
to fix FinCEN, so it can perform this critically important
international role?
Mr. Lewis. Thank you, Congressman Minnick.
FinCEN has probably been underresourced, and I think there
is a real confusion as to whose job is what. I think there is
slippage at every stage of the matter. For example, when banks
do their due diligence, there is an element of ``out of sight,
out of mind.'' And when a Middle Eastern business wants to open
an account in a New York bank, they are not going to have the
level of communication and information that they would get if
it were a New York business. That has to stop.
So there needs to be an interface between the compliance
people and the business people at the bank to begin with, so
that good information is coming into the United States whenever
a Middle Easterner, or someone from any politically risky area
of the world, wants to open an account. And they need to get
that qualitative information.
They also need to have better filters so that when a
business comes in, as in our case, and says, ``We are going to
do $15 billion of transactions,'' somebody there finds out why,
and that is documented. And if the story doesn't add up, then
that information goes to the regulators. And when that $15
billion in transactions grows to $30 billion and $35 billion,
there also needs to be a red flag that goes up within the bank
within the regulator.
So there is a problem of being inundated with money, but--
with information--there needs to be a kind of qualitative
regulation so that there is a dialogue between the regulators,
the banks, and FinCEN, so everyone knows what they are looking
for. I think Mr. Caruso's idea of avoiding that sea of
information that is likely to yield very little should be
reconstituted so there is better qualitative dialogue between
the bank regulators, who are looking to the financial safety
and soundness, and FinCEN, which is really looking to the
national security interests. I think everyone is stovepiped at
the moment, and you don't have FinCEN having the ability to
take the lead and access--
Mr. Minnick. Does FinCEN have the access to the artificial
intelligence capability to go through and sift this information
and find the relevant information? There is a lot of that kind
of software currently available.
Mr. Lewis. I don't really know how their technological
systems work. They certainly should.
Mr. Minnick. They report to an Under Secretary. Is he
taking his job seriously enough to provide this interface and
outreach that is necessary to use the information
intelligently?
Mr. Lewis. I think the Administration does take it
seriously, but there has been a failure to specify what the
qualitative areas are where they really should be looking, as
opposed to simply generating reams of information according to
abstract categories that have no real meaning in the real fight
against terrorism.
Mr. Minnick. Thank you.
And finally, where did that trillion dollars go?
Mr. Lewis. We don't know, and that is the big problem,
because even if we could account for 99 percent of it, there is
so much money unaccounted for, and it poses a real danger to
our system and to the national security interests of this
country.
Mr. Minnick. Thank you.
I yield back.
Chairman Moore of Kansas. Mr. Lynch, you have 1 minute to
respond if you would like to respond to that.
Mr. Lynch. I can't sit and let that go. The remarks
regarding FinCEN, the Financial Crimes Enforcement Network, I
have worked with them very, very closely on half a dozen
countries where they have done unbelievable work. The Financial
Crimes Enforcement Network, FinCEN, Jim Freis over there is
doing incredible work with very limited resources.
We have expanded their responsibility. Not only do they
respond to every single government agency in terms of
information, every foreign government, now they have been
expanded. Their responsibility has been expanded to respond to
State police agencies, local police departments, and they are
still doing so with the same resources they had before.
I have sponsored amendments to try to increase their
funding, so they can do a better job. But those people are
courageous men and women over there doing a fantastic job. And
I just think members need to get over there, like I have, sit
down with FinCEN and get to know what they are doing and the
scope of their work, and you would be very pleased with the
work they are doing. They are doing unbelievable work over at
FinCEN.
God bless them over there. They need more money.
The gentleman is right. They are underresourced. Mr. Lewis
is absolutely correct. And we are asking them to do much, much,
much more. And while we are pushing money out to these
departments that FinCEN responds to, we have not given any
resources, any increased resources, to FinCEN to do their job.
So, thank you, Mr. Chairman.
Chairman Moore of Kansas. Thank you, sir.
And again, thanks to our witnesses for your testimony here
today. Today's hearing gave us an opportunity to review the
latest trends in terrorism financing and equip our committee
with new insights that we will take back to the relevant
Federal agencies who are staffed with top notch men and women
who rarely are recognized for their efforts but play a key role
in keeping our country safe. We will discuss these issues with
them.
This is not and should not be a partisan issue. We all want
to make sure our government has the tools and resources it
needs to best combat terrorism financing.
The Chair notes that some members may have additional
questions for our witnesses which they may submit in writing.
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.
The hearing record will also remain open so that anyone
named in a witness statement will have an opportunity to
respond to those witnesses' comments or allegations.
Again thanks to all. And our hearing is adjourned.
[Whereupon, at 5:05 p.m., the hearing was adjourned.]
A P P E N D I X
September 28, 2010