[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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                 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

                              ----------                              
                                                                   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



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